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MERRILL LYNCH NEW YORK MUNICIPAL BOND FUND
OF MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
SUPPLEMENT DATED JULY 24, 1996 TO
STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 25, 1996
Effective August 19, 1996, Merrill Lynch New York Municipal Bond Fund
(the "Fund") may invest up to 20% of its total assets in municipal bonds
which are rated below Baa by Moody's Investors Service, Inc. ("Moody's") or
below BBB by Standard & Poor's Ratings Group ("Standard & Poor's") or Fitch
Investors Service, Inc. ("Fitch") or which, in the judgment of Fund Asset
Management, L.P. (the "Manager"), possess similar credit characteristics
("high yield securities"). See Appendix II-- "Ratings of Municipal Bonds"--
for additional information regarding ratings of debt securities. The Manager
considers the ratings assigned by Standard & Poor's, Moody's or Fitch as one
of several factors in its independent credit analysis of issuers.
High yield securities are considered by Standard & Poor's, Moody's and
Fitch to have varying degrees of speculative characteristics. Consequently,
although high yield securities can be expected to provide higher yields, such
securities may be subject to greater market price fluctuations and risk of
loss of principal than lower yielding, higher rated debt securities.
Investments in high yield securities will be made only when, in the judgment
of the Manager, such securities provide attractive total return potential
relative to the risk of such securities, as compared to higher quality debt
securities. The Fund will not invest in debt securities in the lowest rating
categories (those rated CC or lower by Standard & Poor's or Fitch or Ca or
lower by Moody's) unless the Manager believes that the financial condition
of the issuer or the protection afforded the particular securities is
stronger than would otherwise be indicated by such low ratings. The Fund
does not intend to purchase debt securities that are in default or which the
Manager believes will be in default.
Issuers or obligors of high yield securities may be highly leveraged and
may not have available to them more traditional methods of financing.
Therefore, the risks associated with acquiring the securities of such issuers
or obligors generally are greater than is the case with higher rated
securities. For example, during an economic downturn or a sustained period
of rising interest rates, issuers of high yield securities may be more likely
to experience financial stress, especially if such issuers are highly
leveraged. During periods of economic recession, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations also may be adversely affected by
specific issuer developments, or the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing.
The risk of loss due to default by the issuer is significantly greater for
the holders of high yield securities because such securities may be unsecured
and may be subordinated to other creditors of the issuer.
High yield securities frequently have call or redemption features that
would permit an issuer to repurchase the security from the Fund. If a call
were exercised by the issuer during a period of declining interest rates, the
Fund likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Fund and dividends
to shareholders.
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The Fund may have difficulty disposing of certain high yield securities
because there may be a thin trading market for such securities. Because not
all dealers maintain markets in all high yield securities, there is no
established secondary market for many of these securities, and the Fund
anticipates that such securities could be sold only to a limited number of
dealers or institutional investors. To the extent that a secondary trading
market for high yield securities does exist, it generally is not as liquid
as the secondary market for higher rated securities. Reduced secondary
market liquidity may have an adverse impact on market price and the Fund's
ability to dispose of particular issues when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. Reduced secondary
market liquidity for certain securities also may make it more difficult for
the Fund to obtain accurate market quotations for purposes of valuing the
Fund's portfolio. Market quotations generally are available on many high
yield securities only from a limited number of dealers and may not
necessarily represent firm bids of such dealers or prices for actual sales.
It is expected that a significant portion of the high yield securities
acquired by the Fund will be purchased upon issuance, which may involve
special risks because the securities so acquired are new issues. In such
instances the Fund may be a substantial purchaser of the issue and therefore
have the opportunity to participate in structuring the terms of the offering.
Although this may enable the Fund to seek to protect itself against certain
of such risks, the considerations discussed herein would nevertheless remain
applicable.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
securities, particularly in a thinly traded market. Factors adversely
affecting the market value of high yield securities are likely to adversely
affect the Fund's net asset value. In addition, the Fund may incur
additional expenses to the extent that it is required to seek recovery upon
a default on a portfolio holding or participate in the restructuring of the
obligation.
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