MERRILL LYNCH
MARYLAND
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1998
Officers and Trustees
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Hugh T. Hurley III, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Robert E. Putney, III, Secretary
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
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 Maryland
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1998, long-term tax-exempt
revenue bond yields were little changed. Throughout the period, the
near absence of inflationary pressures continued to support low
interest rates. However, consistently strong domestic economic
growth has caused some investors to fear that the Federal Reserve
Board will be forced eventually to raise short-term interest rates.
Such action would be taken to ensure that the US economy's present
rate of growth would decelerate before any inflationary pressures
could develop. These concerns pushed bond yields modestly higher by
late April.
However, the weakening financial conditions in many Asian countries
subsequently calmed investor fears of Federal Reserve Board
intervention, and fixed-income prices again moved higher. Long-term
uninsured municipal bond yields, as measured by the Bond Buyer
Revenue Bond Index, rose less than 5 basis points (0.05%) to end the
July quarter at 5.36%. As in late 1997 and early 1998, US Treasury
bond yields benefited from a "flight to quality" as foreign
investors were drawn to the relative safe haven of US Government
securities. Long-term US Treasury bond yields declined approximately
10 basis points to end the July quarter at 5.71%.
Thus far in 1998, the municipal bond market has experienced
unexpectedly strong supply pressures. These supply pressures have
prevented tax-exempt bond yields from declining as much as US
Treasury bond yields. During the first six months of 1998, more than
$153 billion in new tax-exempt bonds were underwritten, an increase
of almost 50% compared to the same period a year ago. During the
quarter ended July 31, 1998, municipalities issued over $75 billion
in new securities, an increase of more than 35% compared to the same
three-month period in 1997. Additionally, corporate issuers have
also viewed current interest rate levels as an opportunity to issue
significant amounts of taxable securities. Thus far in 1998, over
$500 billion in investment-grade corporate bonds have been
underwritten, an increase of more than 70% compared to the same
period a year ago. This sizeable corporate bond issuance has tended
to both support generally higher fixed-income yields and reduce the
demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely
to be maintained. Continued increases in bond issuance will require
lower and lower tax-exempt bond yields to generate the economic
savings necessary for additional municipal bond refinancings.
Preliminary estimates for 1998 total municipal bond issuance are in
the $200 billion--$225 billion range. These estimates suggest that
recent supply pressures are likely to abate later in the year.
Earlier this year, municipal bond investors received approximately
$30 billion in coupon payments, bond maturities and proceeds from
early redemptions. The demand generated by these assets has helped
to offset the increase in supply seen thus far in 1998.
The continued impact of the Asian financial crisis on the US
domestic economy's future growth remains unclear. Current Asian
economic conditions continue to reflect ongoing weakness. Recent
trade data indicated that reduced US exports to these countries may
have lowered US economic growth by as much as 2% in the first
quarter of 1998. Since further trade deterioration is possible in
the coming months, we do not believe that the Federal Reserve Board
will be willing to raise interest rates, barring a dramatic and
unexpected resurgence of domestic inflation.
These factors suggest that over the near term, interest rates are
unlikely to rise by any appreciable amount. Recent supply pressures
have caused municipal bond yield ratios to rise relative to US
Treasury bond yields. At July 31, 1998, long-term tax-exempt bond
yields were at attractive yield ratios relative to US Treasury
securities of comparable maturities (over 90%), well in excess of
their expected range of 85%--88%. Tax-exempt bond yield ratios
rarely exceeded 90% in the 1980s and 1990s. Previous instances have
usually been associated with potential changes in the Federal tax
code that would have adversely affected the tax-favored status of
municipal bonds. The present situation has developed largely because
of a temporary supply imbalance. These imbalances should soon be
corrected as tax-exempt bond issuance slows from its current rapid
pace later this year. Any further pressure on the municipal market
may well represent a very attractive investment opportunity.
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
Portfolio Strategy
During the six-month period ended July 31, 1998, our investment
outlook for Merrill Lynch Maryland Municipal Bond Fund was basically
constructive. The deterioration in the Asian economies helped keep
interest rates low, even in the face of strong domestic economic
growth. This combination of strong growth and low inflation kept
bond yields within a rather narrow trading range over the past six
months.
Issuance of new Maryland tax-exempt municipal bonds was just over
$2.2 million during the six-month period ended July 31, 1998. This
represents an increase of more than 40% compared to the same six-
month period a year ago. Additionally, the majority of new issuance
in Maryland was dominated by current coupons and lesser call
protection. We do not view such securities as attractive additions
to the Fund's portfolio.
Looking ahead, we expect to continue to maintain our fully invested
position and our constructive portfolio strategy to seek to benefit
from a lower interest rate environment. However, anticipated lack of
new issuance in Maryland may curtail our ability to execute this
strategy.
Fiscal Year in Review
During the fiscal year ended July 31, 1998, total municipal issuance
increased by more than 40% compared to the same period last year,
while Maryland municipal issuance increased by more than 30% over
the same period. Both the tax-exempt and US Treasury markets
experienced a decline in yields, although the greater increase in
tax-exempt issuance resulted in municipal performance lagging that
of US Treasury securities.
Given the narrow trading range of the municipal bond market, we
maintained a slightly defensive strategy going into the second half
of 1997. We believed that economic growth would resurge and the
Federal Reserve Board would raise interest rates in order to keep
inflation under control. However, in late October 1997, the Asian
equity market turmoil created an increased demand for US Treasury
securities, causing a rally in the bond market. In response to the
Asian economic crisis and the continued domestic low inflation
environment, we shifted the Fund to a more aggressive position by
early November 1997. We remained constructive through July 31, 1998,
participating in the continued bond market rally, which brought
interest rates to their recent historic lows.
Throughout the fiscal year ended July 31, 1998, we maintained the
Fund's fully invested position. These strategies produced total
returns of +6.46%, +5.92%, +5.70% and +6.35% for the Fund's Class A,
Class B, Class C and Class D Shares, respectively, for the year
ended July 31, 1998. This compares to the Lipper Analytical
Services, Inc. average total return of +5.18% for similar Maryland
tax-exempt funds during the same 12-month period.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Maryland
Municipal Bond Fund, and we look forward to serving your investment
needs in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
September 3, 1998
We are pleased to announce that Hugh T. Hurley III is responsible
for the day-to-day management of Merrill Lynch Maryland Municipal
Bond Fund. Mr. Hurley has been employed by Merrill Lynch Asset
Management, L.P. (an affiliate of the Fund's investment adviser)
since 1996 as Vice President and since 1993 as Assistant Vice
President.
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
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.
<TABLE>
Recent Performance Results*
<CAPTION>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 7/31/98
<S> <C> <C> <C> <C>
ML Maryland Municipal Bond Fund Class A Shares +6.46% +2.56% +25.39% 3.84%
ML Maryland Municipal Bond Fund Class B Shares +5.92 +2.42 +22.38 3.50
ML Maryland Municipal Bond Fund Class C Shares +5.70 +2.29 +32.30 3.39
ML Maryland Municipal Bond Fund Class D Shares +6.35 +2.53 +34.91 3.75
<FN>
*Investment results shown do not reflect sales charges; results
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
inception dates are: Class A and Class B Shares, 10/29/93; and Class C
and Class D Shares, 10/21/94.
</TABLE>
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment--Class A and Class B
Shares
A line graph depicting the growth of an investment in the Fund's
Class A Shares and Class B Shares compared to growth of an
investment in the Lehman Brothers Municipal Bond Index. Beginning
and ending values are:
2/28/92** 7/98
ML Maryland Municipal Bond Fund++--
Class A Shares* $ 9,600 $12,038
ML Maryland Municipal Bond Fund++--
Class B Shares* $10,000 $12,238
Lehman Brothers Municipal Bond
Index++ $10,000 $13,234
Total Return Based on a $10,000 Investment--Class C and Class D
Shares
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an
investment in the Lehman Brothers Municipal Bond Index. Beginning
and ending values are:
10/21/94** 7/98
ML Maryland Municipal Bond Fund++--
Class C Shares* $10,000 $13,230
ML Maryland Municipal Bond Fund++--
Class D Shares* $ 9,600 $12,952
Lehman Brothers Municipal Bond
Index++ $10,000 $13,837
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++ML Maryland Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the state of
Maryland, its political subdivisions, agencies and instrumentalities
and obligations of other qualifying issuers.
++++This unmanaged Index consists of long-term revenue bonds,
prerefunded bonds, general obligation bonds and insured bonds. The
starting date for the Index in the Class A & Class B Shares graph is
10/31/93 and in the Class C & Class D Shares graph is 10/31/94.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/98 +9.41% +5.03%
Inception (10/29/93)
through 6/30/98 +4.92 +4.01
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/98 +8.86% +4.86%
Inception (10/29/93)
through 6/30/98 +4.39 +4.39
[FN]
*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 6/30/98 +8.74% +7.74%
Inception (10/21/94)
through 6/30/98 +7.84 +7.84
[FN]
*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 6/30/98 +9.31% +4.93%
Inception (10/21/94)
through 6/30/98 +8.36 +7.17
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Maryland 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)
PCR Pollution Control Revenue Bonds
S/F Single-Family
STRIPES Short-Term Rate Inverse Payment Exempt Securities
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Maryland--92.7%
<S> <S> <C> <S> <C>
AAA Aaa $1,000 Baltimore, Maryland, City Parking System Facilities, Revenue Refunding
Bonds, Series A, 5.25% due 7/01/2021 (a) $ 1,030
AA- Aa3 1,000 Baltimore, Maryland, Port Facilities Revenue Bonds (Consolidated Coal
Sales Co.), 6.50% due 12/01/2010 1,097
AAA Aaa 1,000 Baltimore, Maryland, Project Revenue Refunding Bonds (Wastewater Projects),
Series B, 5% due 7/01/2028 (a) 976
AA Aa3 600 Carroll County, Maryland (County Commissioners-Consolidated Public
Improvement), UT, 6.50% due 10/01/2024 672
AAA Aaa 1,250 Howard County, Maryland, Refunding (Metropolitan District Project), UT,
Series A, 4.75% due 2/15/2027 1,186
NR* Aa2 1,250 Maryland Community Development Administration, Department of Housing and
Community Development Refunding Bonds (Residential), Series A, 5.60%
due 3/01/2017 1,286
Maryland Community Development Administration, S/F Program Revenue Bonds
(Department of Housing and Community Development):
NR* Aa 500 4th Series, 6.45% due 4/01/2014 534
NR* Aa2 250 6th Series, 7.05% due 4/01/2017 269
NR* Aa2 490 7th Series, AMT, 7.30% due 4/01/2025 525
Maryland Health and Higher Educational Facilities Authority Revenue Bonds:
AAA Aaa 1,000 (Anne Arundel Medical Center), 5.125% due 7/01/2033 (c) 983
NR* A2 1,000 (Calvert Memorial Hospital), 5% due 7/01/2028 958
AAA Aaa 1,000 (Johns Hopkins Medicine-Howard County General Hospital), 5% due
7/01/2029 (b) 974
NR* VMIG1++ 700 (Pooled Loan Program), VRDN, Series A, 3.50% due 4/01/2035 (i) 700
AAA Aaa 1,470 Refunding (Maryland General Hospital), 6.125% due 7/01/2019 (b) 1,604
AA+ A 1,200 Refunding (Memorial Hospital of Cumberland), 6.50% due 7/01/2004 (h) 1,340
AAA Aaa 625 (University of Maryland Medical Systems), Series B, 7% due 7/01/2022 (a) 787
A- NR* 1,000 Maryland State Energy Financing Administration, Solid Waste Disposal
and Limited Obligation Revenue Bonds (Wheelabrator Water Projects),
AMT, 6.45% due 12/01/2016 1,103
AAA Aaa 500 Maryland Transportation Authority, Special Obligation Revenue Bonds
(Baltimore/Washington International Airport Project), AMT, Series A,
6.25% due 7/01/2014 (a) 542
Maryland Water Quality Financing Administration, Revolving Loan Fund
Revenue Bonds, Series A:
AA Aa2 300 6.375% due 9/01/2010 331
AA Aa2 500 6.55% due 9/01/2014 547
NR* Aa2 500 Montgomery County, Maryland, Housing Opportunities Commission, S/F Mortgage
Revenue Bonds, Series A, 5.75% due 7/01/2013 527
</TABLE>
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Maryland (concluded)
<S> <S> <C> <S> <C>
AAA Aaa $ 500 Montgomery County, Maryland, Parking Revenue Refunding Bonds (Silver Spring
Parking Lot), Series A, 6.25% due 6/01/2009 (a) $ 544
NR* Baa3 1,000 Montgomery County, Maryland, Revenue Authority, Golf Course System
Revenue Bonds, Series A, 6.125% due 10/01/2022 1,065
NR* A2 1,000 Northeast Maryland, Waste Disposal Authority, Solid Waste Revenue Bonds
(Montgomery County Resource Recovery Project), AMT, Series A, 6.30% due
7/01/2016 1,069
AAA NR* 500 Prince Georges County, Maryland, Housing Authority, Mortgage Revenue
Refunding Bonds (Parker Apartments Project), Series A, 7.25% due 11/20/2016 (f) 532
AAA NR* 935 Prince Georges County, Maryland, Housing Authority, S/F Mortgage
Revenue Bonds, AMT, Series A, 6.60% due 12/01/2025 (g) 997
Prince Georges County, Maryland, PCR, Refunding (Potomac Electric Project):
A A1 2,250 5.75% due 3/15/2010 2,477
A A1 250 6.375% due 1/15/2023 269
University of Maryland, University Revenue Bonds, VRDN (e)(i):
A1+ VMIG1++ 200 (Equipment Loan Program), Series A, 3.55% due 7/01/2015 200
A1+ VMIG1++ 100 (Revolving Equipment Loan Program), Series B, 3.55% due 7/01/2015 100
AAA Aaa 1,000 Washington, D.C., Metropolitan Area Transportation Authority, Gross
Revenue Refunding Bonds, 6% due 7/01/2010 (a) 1,123
AA Aaa 500 Washington Suburban Sanitation District, Maryland, Registered, General
Construction Bonds, UT, 6.625% due 6/01/2004 (h) 561
Puerto Rico--8.8%
A1+ VMIG1++ 400 Puerto Rico Commonwealth, Government Development Bank, Refunding, VRDN,
3.20% due 12/01/2015 (b)(i) 400
AAA Aaa 510 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway
Revenue Bonds, Series T, 6.625% due 7/01/2002 (h) 564
Puerto Rico Electric Power Authority, Power Revenue Bonds:
BBB+ Aaa 1,000 Series P, 7% due 7/01/2001 (h) 1,101
AAA Aaa 400 STRIPES, Series T, 7.863% due 7/01/2005 (c)(d) 472
Total Investments (Cost--$27,678)--101.5% 29,445
Liabilities in Excess of Other Assets--(1.5%) (422)
-------
Net Assets--100.0% $29,023
=======
<FN>
(a)FGIC Insured.
(b)MBIA Insured.
(c)FSA Insured.
(d)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at July 31, 1998.
(e)SLMA Insured.
(f)GNMA Collateralized.
(g)FNMA/GNMA Collateralized.
(h)Prerefunded.
(i)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rates shown are those in
effect at July 31, 1998.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$27,678,233) (Note 1a) $ 29,445,337
Cash 265,628
Receivables:
Interest $ 331,346
Beneficial interest sold 60,005 391,351
------------
Deferred organization expenses (Note 1e) 3,861
Prepaid registration fees and other assets (Note 1e) 3,327
------------
Total assets 30,109,504
------------
Liabilities: Payables:
Securities purchased 983,020
Beneficial interest redeemed 47,099
Dividends to shareholders (Note 1f) 19,312
Distributor (Note 2) 11,777
Investment adviser (Note 2) 5,197 1,066,405
------------
Accrued expenses and other liabilities 19,828
------------
Total liabilities 1,086,233
------------
Net Assets: Net assets $ 29,023,271
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 23,506
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 237,797
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 23,526
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 11,302
Paid-in capital in excess of par 28,278,517
Accumulated realized capital losses on investments--net (Note 5) (1,318,481)
Unrealized appreciation on investments--net 1,767,104
------------
Net assets $ 29,023,271
============
Net Asset Value: Class A--Based on net assets of $2,303,381 and 235,059
shares of beneficial interest outstanding $ 9.80
============
Class B--Based on net assets of $23,306,350 and 2,377,971
shares of beneficial interest outstanding $ 9.80
============
Class C--Based on net assets of $2,306,397 and 235,257
shares of beneficial interest outstanding $ 9.80
============
Class D--Based on net assets of $1,107,143 and 113,019
shares of beneficial interest outstanding $ 9.80
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1998
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 1,486,530
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 147,950
Account maintenance and distribution fees--Class B (Note 2) 109,411
Professional fees 54,389
Printing and shareholder reports 46,154
Accounting services (Note 2) 31,159
Amortization of organization expenses (Note 1e) 16,015
Transfer agent fees--Class B (Note 2) 12,435
Account maintenance and distribution fees--Class C (Note 2) 11,544
Registration fees (Note 1e) 6,733
Pricing fees 3,787
Custodian fees 2,147
Trustees' fees and expenses 1,397
Transfer agent fees--Class C (Note 2) 1,150
Transfer agent fees--Class A (Note 2) 981
Account maintenance fees--Class D (Note 2) 963
Transfer agent fees--Class D (Note 2) 443
Other 2,322
------------
Total expenses before reimbursement 448,980
Reimbursement of expenses (Note 2) (129,785)
------------
Total expenses after reimbursement 319,195
------------
Investment income--net 1,167,335
------------
Realized & Realized gain on investments--net 300,420
Unrealized Gain Change in unrealized appreciation on investments--net 49,884
on Investments-- ------------
Net (Notes 1b, Net Increase in Net Assets Resulting from Operations $ 1,517,639
1d & 3): ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 1,167,335 $ 1,207,658
Realized gain on investments--net 300,420 359,102
Change in unrealized appreciation on investments--net 49,884 878,768
------------ ------------
Net increase in net assets resulting from operations 1,517,639 2,445,528
------------ ------------
Dividends to Investment income--net:
Shareholders Class A (102,297) (75,091)
(Note 1f): Class B (939,203) (998,749)
Class C (80,611) (97,508)
Class D (45,224) (36,310)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (1,167,335) (1,207,658)
------------ ------------
Beneficial Net increase (decrease) in net assets derived from
Interest beneficial interest transactions 1,972,509 (718,693)
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase in net assets 2,322,813 519,177
Beginning of year 26,700,458 26,181,281
------------ ------------
End of year $ 29,023,271 $ 26,700,458
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Oct. 29, 1993++
For the Year Ended July 31, to July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.66 $ 9.21 $ 9.15 $ 9.20 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .47 .48 .47 .52 .37
Realized and unrealized gain (loss) on
investments--net .14 .45 .06 (.05) (.80)
-------- -------- -------- -------- --------
Total from investment operations .61 .93 .53 .47 (.43)
-------- -------- -------- -------- --------
Less dividends from investment income--net (.47) (.48) (.47) (.52) (.37)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.80 $ 9.66 $ 9.21 $ 9.15 $ 9.20
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 6.46% 10.35% 5.85% 5.39% (4.32%)+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .73% .47% .37% .13% .03%*
Net Assets: ======== ======== ======== ======== ========
Expenses 1.21% 1.32% 1.26% 1.57% 1.76%*
======== ======== ======== ======== ========
Investment income--net 4.80% 5.11% 5.04% 5.80% 5.30%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 2,303 $ 1,928 $ 1,252 $ 1,362 $ 1,589
Data: ======== ======== ======== ======== ========
Portfolio turnover 88.89% 94.90% 81.87% 73.99% 29.40%
======== ======== ======== ======== ========
<CAPTION>
Class B
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Oct. 29, 1993++
For the Year Ended July 31, to July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.66 $ 9.21 $ 9.16 $ 9.20 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .42 .43 .42 .47 .33
Realized and unrealized gain (loss) on
investments--net .14 .45 .05 (.04) (.80)
-------- -------- -------- -------- --------
Total from investment operations .56 .88 .47 .43 (.47)
-------- -------- -------- -------- --------
Less dividends from investment income--net (.42) (.43) (.42) (.47) (.33)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.80 $ 9.66 $ 9.21 $ 9.16 $ 9.20
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.92% 9.79% 5.19% 4.96% (4.68%)+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.23% .97% .88% .65% .53%*
Net Assets: ======== ======== ======== ======== ========
Expenses 1.72% 1.82% 1.77% 2.08% 2.27%*
======== ======== ======== ======== ========
Investment income--net 4.29% 4.59% 4.52% 5.29% 4.74%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 23,306 $ 21,851 $ 22,053 $ 18,371 $ 14,484
Data: ======== ======== ======== ======== ========
Portfolio turnover 88.89% 94.90% 81.87% 73.99% 29.40%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Oct. 21, 1994++
For the Year Ended July 31, to July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.67 $ 9.22 $ 9.16 $ 8.79
Operating -------- -------- -------- --------
Performance: Investment income--net .41 .42 .41 .36
Realized and unrealized gain on investments--net .13 .45 .06 .37
-------- -------- -------- --------
Total from investment operations .54 .87 .47 .73
-------- -------- -------- --------
Less dividends from investment income--net (.41) (.42) (.41) (.36)
-------- -------- -------- --------
Net asset value, end of period $ 9.80 $ 9.67 $ 9.22 $ 9.16
======== ======== ======== ========
Total Investment Based on net asset value per share 5.70% 9.67% 5.18% 8.51%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.34% 1.07% 1.00% .82%*
Net Assets: ======== ======== ======== ========
Expenses 1.82% 1.92% 1.88% 2.08%*
======== ======== ======== ========
Investment income--net 4.19% 4.47% 4.39% 5.08%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 2,307 $ 2,038 $ 2,229 $ 1,013
Data: ======== ======== ======== ========
Portfolio turnover 88.89% 94.90% 81.87% 73.99%
======== ======== ======== ========
<CAPTION>
Class D
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Oct. 21, 1994++
For the Year Ended July 31, to July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.66 $ 9.21 $ 9.16 $ 8.79
Operating -------- -------- -------- --------
Performance: Investment income--net .46 .47 .46 .40
Realized and unrealized gain on investments--net .14 .45 .05 .37
-------- -------- -------- --------
Total from investment operations .60 .92 .51 .77
-------- -------- -------- --------
Less dividends from investment income--net (.46) (.47) (.46) (.40)
-------- -------- -------- --------
Net asset value, end of period $ 9.80 $ 9.66 $ 9.21 $ 9.16
======== ======== ======== ========
Total Investment Based on net asset value per share 6.35% 10.24% 5.63% 8.94%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .83% .56% .47% .31%*
Net Assets: ======== ======== ======== ========
Expenses 1.31% 1.41% 1.36% 1.55%*
======== ======== ======== ========
Investment income--net 4.70% 5.00% 4.91% 5.57%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 1,107 $ 883 $ 647 $ 517
Data: ======== ======== ======== ========
Portfolio turnover 88.89% 94.90% 81.87% 73.99%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Maryland 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 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) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a period not exceeding five years. 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.
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
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 "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: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion.
For the year ended July 31, 1998, FAM earned fees of $147,950, of
which $120,685 was voluntarily waived. FAM also reimbursed the Fund
additional expenses of $9,100.
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 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("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 year ended July 31, 1998, 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 $193 $2,655
Class D $919 $7,376
For the year ended July 31, 1998, MLPF&S received contingent
deferred sales charges of $41,916 and $150 relating to transactions
in Class B and Class C Shares, respectively.
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 year ended July 31, 1998 were $26,553,222 and $22,995,265,
respectively.
Net realized gains for the year ended July 31, 1998 and net
unrealized gains as of July 31, 1998 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $300,420 $1,767,104
-------- ----------
Total $300,420 $1,767,104
======== ==========
As of July 31, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $1,767,104, of which $1,773,400 was related
to appreciated securities and $6,296 was related to depreciated
securities. The aggregate cost of investments at July 31, 1998 for
Federal income tax purposes was $27,678,233.
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial
interest transactions was $1,972,509 and $(718,693) for the years
ended July 31, 1998 and July 31, 1997, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 86,747 $ 841,841
Shares issued to shareholders
in reinvestment of dividends 7,424 72,228
----------- -----------
Total issued 94,171 914,069
Shares redeemed (58,645) (568,023)
----------- -----------
Net increase 35,526 $ 346,046
=========== ===========
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 120,518 $ 1,126,625
Shares issued to shareholders
in reinvestment of dividends 5,205 48,633
----------- -----------
Total issued 125,723 1,175,258
Shares redeemed (62,133) (579,345)
----------- -----------
Net increase 63,590 $ 595,913
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 485,875 $ 4,742,543
Shares issued to shareholders
in reinvestment of dividends 48,688 473,559
----------- -----------
Total issued 534,563 5,216,102
Automatic conversion of shares (324) (3,128)
Shares redeemed (417,311) (4,045,533)
----------- -----------
Net increase 116,928 $ 1,167,441
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 421,213 $ 3,938,104
Shares issued to shareholders
in reinvestment of dividends 54,885 512,408
----------- -----------
Total issued 476,098 4,450,512
Automatic conversion of shares (4,674) (43,514)
Shares redeemed (604,268) (5,645,241)
----------- -----------
Net decrease (132,844) $(1,238,243)
=========== ===========
Class C Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 87,052 $ 850,640
Shares issued to shareholders
in reinvestment of dividends 6,538 63,584
----------- -----------
Total issued 93,590 914,224
Shares redeemed (69,148) (666,153)
----------- -----------
Net increase 24,442 $ 248,071
=========== ===========
Class C Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 118,650 $ 1,117,582
Shares issued to shareholders
in reinvestment of dividends 7,916 73,884
----------- -----------
Total issued 126,566 1,191,466
Shares redeemed (157,665) (1,466,129)
----------- -----------
Net decrease (31,099) $ (274,663)
=========== ===========
Class D Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 53,290 $ 520,726
Automatic conversion of shares 324 3,128
Shares issued to shareholders
in reinvestment of dividends 2,627 25,556
----------- -----------
Total issued 56,241 549,410
Shares redeemed (34,670) (338,459)
----------- -----------
Net increase 21,571 $ 210,951
=========== ===========
Class D Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 52,917 $ 493,288
Automatic conversion of shares 4,675 43,514
Shares issued to shareholders
in reinvestment of dividends 2,245 20,953
----------- -----------
Total issued 59,837 557,755
Shares redeemed (38,605) (359,455)
----------- -----------
Net increase 21,232 $ 198,300
=========== ===========
5. Capital Loss Carryforward:
At July 31, 1998, the Fund had a net capital loss carryforward of
approximately $1,234,000, of which $456,000 expires in 2003 and
$778,000 expires in 2004. This amount will be available to offset
like amounts of any future taxable gains.
Merrill Lynch Maryland Municipal Bond Fund
July 31, 1998
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Maryland Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Maryland Municipal Bond Fund of Merrill Lynch Multi-State Municipal
Series Trust as of July 31, 1998, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the four-year period
then ended and for the period October 29, 1993 (commencement of
operations) to July 31, 1994. These financial statements and the
financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at July 31,
1998 by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Maryland Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1998, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 4, 1998
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
Merrill Lynch Maryland Municipal Bond Fund during its taxable year
ended July 31, 1998 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, there were no capital gains distributed by the Fund
during the year.
Please retain this information for your records.
