MERRILL LYNCH
NORTH CAROLINA
MUNICIPAL
BOND FUND
FUND LOGO
Semi-Annual Report
January 31, 2000
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch North Carolina
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended January 31, 2000, continued strong
domestic growth, gradual improvement in foreign economies and
investor concerns regarding future inflationary pressures pushed
long-term fixed-income bond yields higher. The Federal Reserve Board
continued to raise short-term interest rates in August and November
1999 as well as just after the period's close, seeking to moderate
US economic growth and maintain the existing benign inflationary
environment. US economic growth, in part intensified by Year 2000
preparations, grew 5.8% during the last fiscal quarter of 1999 and
had an annual rate of 4.1% for 1999. A number of inflationary
indicators have also begun to signal some increase in price
pressures.
However, most investors believe that the Federal Reserve Board will
be extremely vigilant in preventing such pressures from any material
escalation. US Treasury bond yields responded by rising
approximately 60 basis points (0.60%) by mid-January 2000. A strong
rally, largely based upon an expected significant reduction in the
future supply of US Treasury 30-year maturity bonds, pushed yields
lower to 6.50% at January 31, 2000. Over the last six months, yields
on 30-year US Treasury bonds rose approximately 40 basis points.
The tax-exempt bond market was also under pressure throughout the
entire period. Despite receiving more than $30 billion in coupon
payments, bond maturities and proceeds from early redemptions in
December and January, overall investor demand has diminished. It is
likely that the returns generated by the US equity market have
continued to attract investor attention and have left little demand
for competing investment alternatives. At January 31, 2000, the long-
term tax-exempt revenue bond yield, as measured by the Bond Buyer
Revenue Index, was 6.34%, an increase of nearly 70 basis points over
the last six months.
Issuance by municipalities has significantly declined in recent
months. Over the last six months, less than $100 billion in long-
term tax-exempt bonds were issued, representing a decline of over
20% compared to the same period a year ago. During the last three
months, less than $45 billion in long-term bonds were issued by
various municipalities. This most recent quarterly issuance is 30%
below the level of the January 31, 1999 quarter. Additionally,
during January 2000, less than $8 billion in municipal debt was
underwritten, down more than 50% from January 1999 levels. This
represents the lowest monthly issuance in over five years. Toward
the end of 1999, consensus estimates for 2000 annual issuance were
in the $210 billion--$215 billion range. January's underwritings,
as well as those expected to be issued in the near future, have led
some analysts to revise their forecasts to the $190 billion range.
We believe an overall reduction in bond supply in the coming year
should help support the municipal bond market's overall technical
position. While tax-exempt bond yields, which are at their highest
level in over three years, have attracted significant retail
investor interest, institutional demand declined sharply. Long-term
municipal mutual funds have seen consistent outflows in recent
months as the yields of individual securities rose faster than those
of larger, more diverse mutual funds. During the six months ended
January 31, 2000, tax-exempt mutual funds have had net redemptions
of approximately $9 billion. Also, the demand from property and
casualty insurance companies has weakened as a result of the losses
and anticipated losses incurred from a series of damaging storms
across much of the eastern United States. Additionally, many
institutional investors who have in recent years been attracted to
the municipal bond market by historically attractive tax-exempt bond
yield ratios of over 90%, found other asset classes even more
attractive. Even with a reduced supply position, tax-exempt issuers
have been forced to repeatedly raise municipal bond yields in an
attempt to attract adequate demand. We believe a reduced bond supply
going forward is likely to promote a more closely balanced
supply/demand structure and foster a more stable tax-exempt interest
rate environment.
Looking ahead, it appears to us that long-term tax-exempt bond
yields will remain under pressure, trading in a broad range centered
around current levels. Investors are also likely to remain concerned
regarding future action by the Federal Reserve Board in early 2000.
Any improvement in bond prices may be contingent upon weakening in
both US employment growth and consumer spending. The 100 basis
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
point rise in US Treasury bond yields seen thus far could negatively
affect US economic growth. The US housing market is likely to be
among the first sectors to be affected, as some declines have
already been evidenced because of higher mortgage rates. We believe
it is also unrealistic to expect double-digit returns in US equity
markets to continue indefinitely. Much of the US consumer's wealth
is tied to recent stock market appreciation. Any slowing in these
incredible growth rates may reduce consumer spending. We believe
that these factors suggest that the worst of the recent increase in
bond yields has passed and stable, if not slightly improving, bond
prices may be expected.
Portfolio Strategy
During the six months ended January 31, 2000, we initially retained
a defensive position toward the municipal bond market, then
gradually shifted to a neutral stance. We accomplished this goal by
investing a substantial portion of the Fund's cash reserves. Since
the spring of 1997, our strategy has been to seek to enhance income
and to take advantage of the highest absolute municipal yields.
During the period, we also sought to capitalize on market
discrepancies, caused in part by Year 2000 concerns, by purchasing
bonds we believed to be undervalued combined with selling bonds we
believed to be overvalued.
North Carolina bond issuance was comparatively light during the six-
month period ended January 31, 2000. North Carolina bond prices
remained relatively firm compared to the national level because of
the light issuance. However, the light issuance presented us with
fewer opportunities within the municipal bond market.
Looking ahead, we intend to remain fully invested in the municipal
market in an effort to enhance shareholder income. We do not expect
to significantly alter our present posture toward the market given
the current economic backdrop. We will continue to take advantage of
any opportunities in the municipal marketplace that we believe is
appropriate.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch North Carolina
Municipal Bond Fund, and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Michael Kalinoski)
Michael Kalinoski
Vice President and Portfolio Manager
March 3, 2000
We are pleased to announce that Michael A. Kalinoski is responsible
for the day-to-day management of Merrill Lynch North Carolina
Municipal Bond Fund. Mr. Kalinoski has been employed by Merrill
Lynch Asset Management, L.P. since 1999 as Vice President and
Portfolio Manager. Mr. Kalinoski was previously employed from 1993
to 1999 as a municipal trader with Strong Capital Management.
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.25% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 10 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.35% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the payable date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders. The Fund's Investment Adviser voluntarily waived a
portion of its management fee. Without such waiver, the Fund's
performance would have been lower.
<TABLE>
Recent Performance Results*
<CAPTION>
6 Month 12 Month Since Inception Standardized
As of January 31, 2000 Total Return Total Return Total Return 30-Day Yield
<S> <C> <C> <C> <C>
ML North Carolina Municipal Bond Fund Class A Shares -3.91% -6.17% +44.08% 4.78%
ML North Carolina Municipal Bond Fund Class B Shares -4.16 -6.73 +38.82 4.46
ML North Carolina Municipal Bond Fund Class C Shares -4.20 -6.74 +27.09 4.36
ML North Carolina Municipal Bond Fund Class D Shares -4.05 -6.35 +30.53 4.68
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. The
Fund's since inception dates are from 9/25/92 for Class A & Class B
Shares and from 10/21/94 for Class C & Class D Shares.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/99 -4.64% -8.46%
Five Years Ended 12/31/99 +5.85 +4.99
Inception (9/25/92)
through 12/31/99 +5.25 +4.66
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/99 -5.21% -8.85%
Five Years Ended 12/31/99 +5.32 +5.32
Inception (9/25/92)
through 12/31/99 +4.71 +4.71
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/99 -5.22% -6.13%
Five Years Ended 12/31/99 +5.21 +5.21
Inception (10/21/94)
through 12/31/99 +4.86 +4.86
*Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/99 -4.73% -8.54%
Five Years Ended 12/31/99 +5.77 +4.91
Inception (10/21/94)
through 12/31/99 +5.41 +4.59
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face
Ratings Ratings Amount Issue Value
North Carolina--92.0%
<S> <S> <C> <S> <C>
AA+ Aa2 $2,000 Charlotte, North Carolina, Water and Sewer System Revenue Bonds,
5.25% due 6/01/2024 $ 1,760
AA Aa3 1,500 Charlotte-Mecklenberg, North Carolina, Hospital Authority, Health
Care System Revenue Bonds, Series A, 5.875% due 1/15/2026 1,401
A A2 500 Chatham County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority Revenue Bonds (Carolina Power and Light
Company), 6.30% due 6/15/2014 512
AAA Aaa 1,000 Cumberland County, North Carolina, COP (Civic Center Project),
Series A, 6.40% due 12/01/2004 (a)(f) 1,078
A- A3 500 Cumberland County, North Carolina, Hospital Facilities Revenue
Refunding Bonds (Cumberland County Hospital System Inc.), 4.70% due 10/01/2009 442
AAA Aaa 1,000 Gastonia, North Carolina, Combined Utilities System, Revenue Refunding
Bonds, 4.75% due 5/01/2015 (e) 856
AAA Aa1 1,225 Greensboro, North Carolina, GO, Public Improvement, 4.75% due 4/01/2018 1,041
NR* Baa1 1,500 Haywood County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority Revenue Bonds (Champion International Corporation
Project), AMT, 6.25% due 9/01/2025 1,381
A A2 3,500 Martin County, North Carolina, Industrial Facilities and Pollution Control
Financing Authority Revenue Bonds (Solid Waste Disposal--Weyerhaeuser
Company), AMT, 6.80% due 5/01/2024 3,545
AAA Aaa 2,000 North Carolina Eastern Municipal Power Agency, Power System Revenue
Bonds, Series B, 5.875% due 1/01/2021 (e) 1,920
AA+ Aa1 2,000 North Carolina Educational Facilities Finance Agency Revenue Bonds
(Duke University Project), Series C, 6.75% due 10/01/2021 2,088
AAA NR* 900 North Carolina Educational Facilities Finance Agency, Revenue Refunding
Bonds (Elon College Project), 6.375% due 1/01/2007 (b) 942
North Carolina HFA, S/F Revenue Bonds:
AA Aa2 2,420 AMT, Series V, 6.80% due 9/01/2025 (c) 2,461
AA Aa2 1,530 AMT, Series X, 6.70% due 9/01/2026 1,552
AA Aa2 1,725 Series W, 6.50% due 3/01/2018 1,753
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch North Carolina Municipal
Bond Fund's portfolio holdings in the Schedule of Investments, we
have abbreviated the names of many of the securities according to
the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
S/F Single-Family
VRDN Variable Rate Demand Notes
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face
Ratings Ratings Amount Issue Value
North Carolina (concluded)
<S> <S> <C> <S> <C>
North Carolina Medical Care Commission, Health Care Facilities Revenue Bonds:
AA Aa3 $2,000 (Duke University Health System), Series B, 4.75% due 6/01/2021 $ 1,583
A NR* 1,000 (Stanly Memorial Hosptial Project), 6.375% due 10/01/2029 948
AA Aa3 2,500 North Carolina Medical Care Commission, Health Care Facilities Revenue
Refunding Bonds (Duke University Health System), Series A, 4.75% due 6/01/2028 1,894
AAA Aaa 500 North Carolina Medical Care Commission, Hospital Revenue Bonds
(Wake County Hospital System), 5.375% due 10/01/2026 (e) 437
North Carolina Medical Care Commission, Hospital Revenue Refunding Bonds:
NR* VMIG1++ 600 (Lexington Memorial Hospital Project), VRDN, 3.70% due 4/01/2010 (g) 600
AAA Aaa 500 (Pitt County Memorial Hospital), Series A, 4.75% due 12/01/2028 (e) 384
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue
Refunding Bonds, Series B:
A NR* 1,080 6.375% due 1/01/2013 1,094
BBB+ Baa1 750 6.375% due 1/01/2013 737
NR* A 1,875 North Carolina State Educational Assistance Authority Revenue Bonds
(Guaranteed Student Loan), AMT, Sub-Lien, Series C, 6.35% due 7/01/2016 1,864
AAA Aaa 1,000 North Carolina State, GO, Series A, 4.75% due 4/01/2015 875
AAA Aaa 1,000 Piedmont Triad Airport Authority, North Carolina, Airport Revenue
Refunding Bonds, Series A, 6% due 7/01/2024 (d) 987
A1+ NR* 400 Raleigh Durham, North Carolina, Airport Authority, Special Facility
Revenue Refunding Bonds (American Airlines Inc.), VRDN, Series B, 3.65%
due 11/01/2005 (g) 400
AA Aa3 800 University of North Carolina, Chapel Hill, Hospital Revenue Bonds,
6.375% due 2/15/2002 (f) 840
AAA Aaa 1,575 University of North Carolina, System Pool Revenue Bonds, Series B, 4.50%
due 10/01/2023 (e) 1,198
Puerto Rico--6.6%
A1+ VMIGI++ 800 Puerto Rico Commonwealth, Government Development Bank Revenue Refunding Bonds,
VRDN, 2.50% due 12/01/2015 (e)(g) 800
AAA Aaa 2,250 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds,
Series EE, 4.75% due 7/01/2024 (d) 1,833
Total Investments (Cost--$40,943)--98.6% 39,206
Other Assets Less Liabilities--1.4% 565
--------
Net Assets--100.0% $ 39,771
========
(a)AMBAC Insured.
(b)Connie Lee Insured.
(c)FNMA/GNMA Collateralized.
(d)FSA Insured.
(e)MBIA Insured.
(f)Prerefunded.
(g)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at January 31, 2000.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of January 31, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$40,942,782) $ 39,206,242
Cash 127,817
Receivables:
Interest $ 593,767
Beneficial interest sold 5,363 599,130
------------
Prepaid expenses and other assets 944
------------
Total assets 39,934,133
------------
Liabilities: Payables:
Dividends to shareholders 35,289
Investment adviser 17,475
Distributor 12,229
Beneficial interest redeemed 10,369 75,362
------------
Accrued expenses and other liabilities 87,770
------------
Total liabilities 163,132
------------
Net Assets: Net assets $ 39,771,001
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 78,000
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 282,178
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 21,351
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 27,993
Paid-in capital in excess of par 42,204,042
Accumulated realized capital loss on investments--net (655,608)
Accumulated distributions in excess of realized capital gains on
investments--net (450,415)
Unrealized depreciation on investments--net (1,736,540)
------------
Net assets $ 39,771,001
============
Net Asset Value: Class A--Based on net assets of $7,573,950 and 779,997 shares
of beneficial interest outstanding $ 9.71
============
Class B--Based on net assets of $27,404,604 and 2,821,781 shares
of beneficial interest outstanding $ 9.71
============
Class C--Based on net assets of $2,073,257 and 213,510 shares
of beneficial interest outstanding $ 9.71
============
Class D--Based on net assets of $2,719,190 and 279,933 shares
of beneficial interest outstanding $ 9.71
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
January 31, 2000
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 1,268,023
Income:
Expenses: Investment advisory fees $ 120,801
Account maintenance and distribution fees--Class B 76,356
Professional fees 34,196
Printing and shareholder reports 21,472
Accounting services 21,071
Transfer agent fees--Class B 8,964
Registration fees 7,105
Account maintenance and distribution fees--Class C 6,794
Pricing fees 2,716
Custodian fees 2,587
Transfer agent fees--Class A 2,063
Trustees' fees and expenses 1,611
Account maintenance fees--Class D 1,369
Transfer agent fees--Class D 676
Transfer agent fees--Class C 660
Other 1,245
------------
Total expenses 309,686
------------
Investment income--net 958,337
------------
Realized & Realized loss on investments--net (655,608)
Unrealized Change in unrealized appreciation/depreciation on investments--net (2,171,778)
Loss on ------------
Investments--Net: Net Decrease in Net Assets Resulting from Operations $ (1,869,049)
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Jan. 31, 2000 July 31, 1999
<S> <S> <C> <C>
Operations: Investment income--net $ 958,337 $ 2,027,489
Realized gain (loss)on investments--net (655,608) 361,280
Change in unrealized appreciation/depreciation on
investments--net (2,171,778) (2,028,358)
------------ ------------
Net increase (decrease)in net assets resulting from
operations (1,869,049) 360,411
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (199,283) (398,414)
Shareholders: Class B (648,430) (1,401,883)
Class C (46,981) (90,249)
Class D (63,643) (136,943)
Realized gain on investments--net:
Class A -- (165,829)
Class B -- (701,906)
Class C -- (44,088)
Class D -- (59,528)
In excess of realized gain on investments--net:
Class A -- (76,895)
Class B -- (325,473)
Class C -- (20,444)
Class D -- (27,603)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (958,337) (3,449,255)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial interest
Interest transactions (4,842,624) (488,357)
Transactions: ------------ ------------
Net Assets: Total decrease in net assets (7,670,010) (3,577,201)
Beginning of period 47,441,011 51,018,212
------------ ------------
End of period $ 39,771,001 $ 47,441,011
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
January 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.35 $ 11.00 $ 10.87 $ 10.36 $ 10.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .24 .47 .50 .51 .51
Realized and unrealized gain (loss) on
investments--net (.64) (.35) .13 .51 .07
-------- -------- -------- -------- --------
Total from investment operations (.40) .12 .63 1.02 .58
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.24) (.47) (.50) (.51) (.51)
Realized gain on investments--net -- (.20) --++ -- --
In excess of realized gain on
investments--net -- (.10) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.24) (.77) (.50) (.51) (.51)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.71 $ 10.35 $ 11.00 $ 10.87 $ 10.36
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (3.91%)+++ 1.02% 5.99% 10.17% 5.76%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.02%* 1.03% .90% .80% .75%
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.02%* 1.03% .90% .88% .90%
======== ======== ======== ======== ========
Investment income--net 4.74%* 4.39% 4.59% 4.89% 4.92%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 7,574 $ 9,094 $ 8,753 $ 8,542 $ 8,043
Data: ======== ======== ======== ======== ========
Portfolio turnover 25.13% 47.52% 125.23% 94.59% 90.22%
======== ======== ======== ======== ========
<CAPTION>
Class B
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
January 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.35 $ 11.01 $ 10.88 $ 10.36 $ 10.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .21 .42 .45 .46 .46
Realized and unrealized gain (loss) on
investments--net (.64) (.36) .13 .52 .07
-------- -------- -------- -------- --------
Total from investment operations (.43) .06 .58 .98 .53
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.21) (.42) (.45) (.46) (.46)
Realized gain on investments--net -- (.20) --++ -- --
In excess of realized gain on
investments--net -- (.10) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.21) (.72) (.45) (.46) (.46)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.71 $ 10.35 $ 11.01 $ 10.88 $ 10.36
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (4.16%)+++ .41% 5.45% 9.71% 5.21%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.52%* 1.54% 1.41% 1.31% 1.26%
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.52%* 1.54% 1.41% 1.39% 1.41%
======== ======== ======== ======== ========
Investment income--net 4.23%* 3.88% 4.08% 4.39% 4.41%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 27,405 $ 32,886 $ 37,204 $ 41,137 $ 47,236
Data: ======== ======== ======== ======== ========
Portfolio turnover 25.13% 47.52% 125.23% 94.59% 90.22%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
January 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.35 $ 11.00 $ 10.87 $ 10.36 $ 10.28
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .21 .41 .44 .45 .45
Realized and unrealized gain (loss) on
investments--net (.64) (.35) .13 .51 .08
-------- -------- -------- -------- --------
Total from investment operations (.43) .06 .57 .96 .53
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.21) (.41) (.44) (.45) (.45)
Realized gain on investments--net -- (.20) --++ -- --
In excess of realized gain on
investments--net -- (.10) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.21) (.71) (.44) (.45) (.45)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.71 $ 10.35 $ 11.00 $ 10.87 $ 10.36
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (4.20%)+++ .41% 5.35% 9.50% 5.20%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.62%* 1.64% 1.51% 1.41% 1.37%
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.62%* 1.64% 1.51% 1.49% 1.51%
======== ======== ======== ======== ========
Investment income--net 4.14%* 3.78% 3.98% 4.28% 4.29%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 2,073 $ 2,404 $ 2,527 $ 2,052 $ 1,772
Data: ======== ======== ======== ======== ========
Portfolio turnover 25.13% 47.52% 125.23% 94.59% 90.22%
======== ======== ======== ======== ========
<CAPTION>
Class D
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
January 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.36 $ 11.01 $ 10.88 $ 10.37 $ 10.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .23 .46 .49 .50 .50
Realized and unrealized gain (loss) on
investments--net (.65) (.35) .13 .51 .08
-------- -------- -------- -------- --------
Total from investment operations (.42) .11 .62 1.01 .58
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.23) (.46) (.49) (.50) (.50)
Realized gain on investments--net -- (.20) --++ -- --
In excess of realized gain on
investments--net -- (.10) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.23) (.76) (.49) (.50) (.50)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.71 $ 10.36 $ 11.01 $ 10.88 $ 10.37
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (4.05%)+++ .92% 5.88% 10.05% 5.75%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.12%* 1.14% 1.00% .90% .85%
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.12%* 1.14% 1.00% .98% 1.00%
======== ======== ======== ======== ========
Investment income--net 4.63%* 4.28% 4.49% 4.79% 4.81%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 2,719 $ 3,057 $ 2,534 $ 2,132 $ 1,880
Data: ======== ======== ======== ======== ========
Portfolio turnover 25.13% 47.52% 125.23% 94.59% 90.22%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch North Carolina Municipal Bond Fund (the "Fund") is
part of Merrill Lynch Multi-State Municipal Series Trust (the
"Trust"). The Fund is registered under the Investment Company Act of
1940 as a non-diversified, open-end management investment company.
The Fund's financial statements are prepared in accordance with
generally accepted accounting principles, which may require the use
of management accruals and estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of
management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal
recurring nature. The Fund offers four classes of shares under the
Merrill Lynch Select Pricing SM System. Shares of Class A and Class
D are sold with a front-end sales charge. Shares of Class B and
Class C may be subject to a contingent deferred sales charge. All
classes of shares have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except that Class B,
Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares
also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to
matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Trust, including
valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Trust under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions post-October losses.
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or the "Distributor"), a division of Princeton
Funds Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary
of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: .55%
of the Fund's average daily net assets not exceeding $500 million;
.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and .50% of average daily net assets in excess
of $1 billion.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B .25% .25%
Class C .25% .35%
Class D .10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML &
Co., also provides account maintenance and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the six months ended January 31, 2000, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $21 $ 308
Class D $99 $1,324
For the six months ended January 31, 2000, MLPF&S received
contingent deferred sales charges of $9,709 relating to transactions
in Class B Shares.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended January 31, 2000 were $10,173,203 and
$12,484,954, respectively.
Net realized losses for the six months ended January 31, 2000 and
unrealized losses as of January 31, 2000 were as follows:
Realized Unrealized
Losses Losses
Long-term investments $ (608,083) $(1,736,540)
Financial futures contracts (47,525) --
---------- -----------
Total $ (655,608) $(1,736,540)
---------- -----------
As of January 31, 2000, net unrealized depreciation for Federal
income tax purposes aggregated $1,736,540, of which $456,870 was
related to appreciated securities and $2,193,410 was related to
depreciated securities. The aggregate cost of investments at January
31, 2000 for Federal income tax purposes was $40,942,782.
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $4,842,624 and $488,357 for the six months ended
January 31, 2000 and for the year ended July 31, 1999, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Months Dollar
January 31, 2000 Shares Amount
Shares sold 33,548 $ 331,617
Shares issued to share-
holders in reinvestment of
dividends 11,484 114,213
---------- ----------
Total issued 45,032 445,830
Shares redeemed (143,442) (1,426,645)
---------- ----------
Net decrease (98,410) $ (980,815)
========== ==========
Class A Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 180,178 $ 1,962,704
Shares issued to share-
holders in reinvestment of
dividends and distributions 37,084 399,625
---------- -----------
Total issued 217,262 2,362,329
Shares redeemed (134,277) (1,461,265)
---------- -----------
Net increase 82,985 $ 901,064
---------- -----------
Class B Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
Shares sold 143,365 $ 1,440,800
Shares issued to share-
holders in reinvestment of
dividends 32,583 324,078
---------- -----------
Total issued 175,948 1,764,878
Automatic conversion of
shares (4,967) (50,671)
Shares redeemed (525,391) (5,231,051)
---------- -----------
Net decrease (354,410) $(3,516,844)
========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 413,519 $ 4,501,793
Shares issued to share-
holders in reinvestment of
dividends and distributions 121,842 1,314,826
---------- -----------
Total issued 535,361 5,816,619
Automatic conversion of
shares (11,637) (124,422)
Shares redeemed (727,695) (7,840,365)
---------- -----------
Net decrease (203,971) $(2,148,168)
========== ===========
Class C Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
Shares sold 21,551 $ 219,051
Shares issued to share-
holders in reinvestment of
dividends 2,720 27,048
---------- -----------
Total issued 24,271 246,099
Shares redeemed (42,987) (430,396)
---------- -----------
Net decrease (18,716) $ (184,297)
========== ===========
Class C Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 48,122 $ 523,208
Shares issued to share-
holders in reinvestment of
dividends and distributions 7,428 79,965
---------- -----------
Total issued 55,550 603,173
Shares redeemed (52,919) (576,849)
---------- -----------
Net increase 2,631 $ 26,324
========== ===========
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
Class D Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
Shares sold 49,362 $ 482,509
Automatic conversion of
shares 4,967 50,671
Shares issued to share-
holders in reinvestment of
dividends 3,272 32,558
---------- -----------
Total issued 57,601 565,738
Shares redeemed (72,812) (726,406)
---------- -----------
Net decrease (15,211) $ (160,668)
========== ===========
Class D Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 121,293 $ 1,328,441
Automatic conversion of
shares 11,637 124,422
Shares issued to share-
holders in reinvestment of
dividends and distributions 11,597 124,949
---------- -----------
Total issued 144,527 1,577,812
Shares redeemed (79,545) (845,389)
---------- -----------
Net increase 64,982 $ 732,423
========== ===========
Merrill Lynch North Carolina Municipal Bond Fund
January 31, 2000
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Michael A. Kalinoski, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
Robert R. Martin, Trustee of Merrill Lynch North
Carolina Municipal Bond Fund has recently retired.
The Fund's Board of Trustees wishes Mr. Martin well
in his retirement.
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
