MERRILL LYNCH
NEW YORK
MUNICIPAL
BOND FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
September 30, 1998
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended September 30, 1998, long-term bond yields declined
significantly. The near absence of any inflationary pressures in the United
States continued to support historic low interest rates. Additionally, foreign
economic factors have continued to outweigh US domestic fundamentals, as they
have for much of 1998. The economic crisis that began in Asia over a year ago
has spread both to Russia and South America. However, economic factors in these
countries have begun to negatively impact US growth. For example, employment in
the US manufacturing sector declined in recent months as a result of reduced
demand for export goods. Concern that the modest decline in US economic growth
seen thus far would spread and intensify led the Federal Reserve Board to lower
short-term interest rates in late September and again in October. This action
was taken mainly to offset the drag of foreign economies on future US economic
growth.
Long-term uninsured municipal revenue bond yields, as measured by the Bond Buyer
Revenue Bond Index, declined by more than 30 basis points (0.30%) to close the
six-month period ended September 30, 1998 at 5.09%, their lowest level since the
early 1970s. US Treasury bond yields benefited from a "flight to quality" as
foreign investors were drawn to the relative safe haven of US Government
securities. Additionally, the sharp US equity market correction, which began at
the end of August, triggered an additional flight into US Treasury securities.
Long-term US Treasury bond yields fell 100 basis points to finish the six-month
period ended September 30, 1998 at 4.97%. This is the lowest level since the US
Treasury reintroduced 30-year maturity bond auctions in 1977.
During the past 12 months, the tax-exempt bond market has had to contend with
significant new-issue supply pressures. Over the past year, approximately $280
billion in new long-term municipal bonds were underwritten, an increase of
almost 33% compared to the same period a year ago. During the most recent
six-month period, nearly $140 billion in new securities were issued,
representing an increase of nearly 25% over the same six-month period last year.
For the quarter ended September 30, 1998, approximately $65 billion in long-term
municipal bonds were underwritten, an increase of more than 10% compared to the
quarter ended September 30, 1997.
The continued increase in bond issuance has required lower and lower tax-exempt
bond yields to generate the economic savings necessary for additional municipal
bond financings. Consequently, the pace of new bond issuance has slowed in
recent months. In fact, the trend may be reversing. During the month of
September, only $17.3 billion in new long-term municipal bonds were issued, a
decrease of almost 25% from the more than $22 billion issued in September 1997.
In the coming months, we will monitor this trend closely to determine if supply
pressures exerted thus far in 1998 are abating and fostering a more balanced
supply/demand environment.
The current weaknesses in the global financial system suggest that over the near
term, bond yields, including municipal bond yields, are unlikely to rise by any
appreciable amount. With recent supply pressures, and since municipal securities
do not have the same safe-haven status enjoyed by US Treasury securities,
municipal bond yield spreads widened relative to US Treasury bond yields. At
September 30, 1998, long-term tax-exempt bond yield spreads were attractive
relative to US Treasury securities of comparable maturities (over 100%), well in
excess of their historic range of 85%-88%. Tax-exempt bond yield ratios have
rarely exceeded 90% in the 1980s and 1990s. Historically, yield spreads have
been wider than these levels only when there have been potential changes in
Federal tax codes that would have adversely affected the tax-favored status of
municipal bonds.
Currently, municipal bond investors find themselves in a unique investment
environment. At present, almost the entire municipal bond universe, across
nearly all maturity and credit sectors, can be purchased at yields greater than
their taxable counterparts. However, the current opportunity could quickly
disappear if tax-exempt bond supply pressures diminish or if US Treasury
securities become less desirable as safe-haven investments. Under these
conditions, municipal bond ratios should quickly revert to more normal historic
percentages, certainly well below their presently attractive levels.
1
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
Fiscal Year in Review
For the fiscal year ended September 30, 1998, our optimistic view on interest
rates and our relatively long average duration enabled Merrill Lynch New York
Municipal Bond Fund to significantly outperform its peers, as measured by Lipper
Analytical Services. For the 12-month period ended September 30, 1998, the
Fund's Class A, Class B, Class C and Class D Shares had total returns of +9.94%,
+9.38%, +9.27% and +9.83%, respectively, as compared to an industry average of
+8.39% for similar New York tax-exempt bond funds, as measured by Lipper
Analytical Services.
In the first six months of the Fund's fiscal year, we used market volatility to
position the Fund more aggressively in response to our optimistic view that
interest rates would decline. For the six months ended September 30, 1998, we
managed the Fund with the intention of sustaining an attractive level of
tax-exempt income while seeking to achieve an above-average total return. This
strategy proved correct as interest rates fell to historic lows. However, this
historic drop in interest rates created a unique opportunity in the tax-exempt
market, since municipal bonds underperformed relative to Treasury securities.
With increased stock market volatility, financial crises around the world and a
severe recession in Japan, investors preferred issues of the highest credit
quality. As a result, municipal bonds became historically inexpensive relative
to their taxable counterparts. This situation created a cushion in the municipal
market in the event that Treasury yields were to unexpectedly rise. We expect to
concentrate on maintaining an aggressive strategy while constantly upgrading the
structure of the portfolio in market pullbacks.
Looking ahead, we believe that because of the volatility witnessed in the world
economies and the fact that inflation is virtually non-existent in the US
economy, interest rates are likely to remain at historic lows and may eventually
trend lower as the US economy moderates.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch New York Municipal Bond
Fund, and we look forward to assisting you with your financial needs in the
months and years to come.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Roberto Roffo
Roberto Roffo
Vice President and Portfolio Manager
November 6, 1998
2
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 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:
o 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.
o 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.)
o 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.
o 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.
Recent Performance Results*
<TABLE>
<CAPTION>
Ten Years/ Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 9/30/98
=======================================================================================================================
<S> <C> <C> <C> <C>
ML New York Municipal Bond Fund Class A Shares +9.94% +3.94% +106.19% 4.00%
- -----------------------------------------------------------------------------------------------------------------------
ML New York Municipal Bond Fund Class B Shares +9.38 +3.72 +100.51 3.66
- -----------------------------------------------------------------------------------------------------------------------
ML New York Municipal Bond Fund Class C Shares +9.27 +3.78 + 34.16 3.56
- -----------------------------------------------------------------------------------------------------------------------
ML New York Municipal Bond Fund Class D Shares +9.83 +3.91 + 36.76 3.90
=======================================================================================================================
</TABLE>
* 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 ten-year/inception periods are:
Class A Shares, from 10/25/88 to 9/30/98; Class B Shares, for the ten
years ended 9/30/98; and Class C & Class D Shares, from 10/21/94 to
9/30/98.
3
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Class A Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
compared to growth of an investment in the Lehman Brothers Municipal Bond Index.
Beginning and ending values are:
10/25/88** 9/98
ML New York Municipal Bond Fund+--
Class A Shares* $ 9,600 $19,793
Lehman Brothers Municipal Bond
Index++ $10,000 $21,915
Total Return Based on a $10,000 Investment--Class B Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
compared to growth of an investment in the Lehman Brothers Municipal Bond Index.
Beginning and ending values are:
9/88 9/98
ML New York Municipal Bond Fund+--
Class B Shares* $10,000 $20,048
Lehman Brothers Municipal Bond
Index++ $10,000 $22,302
Total Return Based on a $10,000 Investment--Class C Shares 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** 9/98
ML New York Municipal Bond Fund+--
Class C Shares* $10,000 $13,416
ML New York Municipal Bond Fund+--
Class D Shares* $ 9,600 $13,128
Lehman Brothers Municipal Bond
Index++ $10,000 $14,225
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML New York Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the state of New
York, 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 Shares graph is from 10/31/88 and in the Class C
& Class D Shares graph is from 10/31/94.
Past performance is not predictive of future performance.
4
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 9/30/98 +9.94% +5.54%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/98 +5.26 +4.40
- --------------------------------------------------------------------------------
Inception (10/25/88)
through 9/30/98 +7.56 +7.12
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 9/30/98 +9.38% +5.38%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/98 +4.72 +4.72
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/98 +7.20 +7.20
- --------------------------------------------------------------------------------
* 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 9/30/98 +9.27% +8.27%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 9/30/98 +7.74 +7.74
- --------------------------------------------------------------------------------
* 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 9/30/98 +9.83% +5.44%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 9/30/98 +8.26 +7.15
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
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
Kenneth A. Jacob, Vice President
Roberto Roffo, Vice President
Gerald M. Richard, Treasurer
Robert E. Putney, III, Secretary
Custodian
State Street Bank & 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
5
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York--99.8%
- -----------------------------------------------------------------------------------------------------------------------
AAA Aaa $ 4,205 Albany County, New York, Airport Authority, Airport Revenue Bonds, RITR, AMT,
Series RI-97-7, 7.37% due 12/15/2023 (g)(h) $ 5,136
- -----------------------------------------------------------------------------------------------------------------------
A A2 10,000 Battery Park City Authority, New York, Revenue Refunding Bonds, Junior Series A,
5.80% due 11/01/2022 10,725
- -----------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,300 Buffalo, New York, Sewer Authority Revenue Bonds, Series F, 6% due 7/01/2013 (b) 1,513
- -----------------------------------------------------------------------------------------------------------------------
A+ NR* 2,000 Cattaraugus County, New York, IDA, Civic Facilities Revenue Bonds (Olean General
Hospital Project), Series A, 5.25% due 8/01/2023 2,042
- -----------------------------------------------------------------------------------------------------------------------
AA+ Aaa 5,700 Hornell, New York, IDA, IDR (Crowley Foods, Inc.), 7.75% due 12/01/2016 6,102
- -----------------------------------------------------------------------------------------------------------------------
Long Island Power Authority, New York, Electric System Revenue Bonds:
AAA Aaa 20,800 Series A, 5.50% due 12/01/2029 (c) 21,799
A1+ VMIG1+ 5,300 VRDN, Sub-Series 5, 4% due 5/01/2033 (a) 5,300
- -----------------------------------------------------------------------------------------------------------------------
Metropolitan Transportation Authority, New York, Commuter Facilities Revenue
Bonds (d):
AAA Aaa 6,000 Refunding, Series B, 6.25% due 7/01/2002 (c) 6,645
AAA Aaa 10,470 Series A, 6.10% due 7/01/2006 (b) 12,138
- -----------------------------------------------------------------------------------------------------------------------
Metropolitan Transportation Authority, New York, Transportation Facilities
Revenue Bonds:
AAA Aaa 1,000 Refunding, Series A, 4.75% due 7/01/2021 (c) 982
AAA Aaa 7,500 Refunding, Series A, 4.75% due 7/01/2024 (c) 7,357
AAA Aaa 1,900 Series A, 6.10% due 7/01/2006 (d)(g) 2,203
AAA Aaa 15,340 Series B, 4.75% due 7/01/2026 (b) 15,038
- -----------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,950 Monroe County, New York, Airport Authority Revenue Bonds (Greater Rochester
International Airport), AMT, 7.25% due 1/01/2009 (c) 3,122
- -----------------------------------------------------------------------------------------------------------------------
BBB+ Baa2 8,825 Monroe County, New York, COP, 8.05% due 1/01/2011 9,270
- -----------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Nassau County, New York, IDA, Civic Facilities Revenue Refunding Bonds
(Hofstra University Project), 4.75% due 7/01/2028 (c) 3,912
- -----------------------------------------------------------------------------------------------------------------------
A1+ NR* 100 New York City, New York, City Housing Development Corporation, Residential
Mortgage Revenue Bonds (East 17th Street), VRDN, Series A, 4.10% due 1/01/2023 (a) 100
- -----------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 300 New York City, New York, GO, VRDN, Sub-Series A-10, 4.15% due 8/01/2016 (a) 300
- -----------------------------------------------------------------------------------------------------------------------
New York City, New York, IDA, Civic Facilities Revenue Bonds:
BBB NR* 1,000 (College of Aeronautics Project), 5.45% due 5/01/2018 1,038
BBB NR* 3,200 (College of Aeronautics Project), 5.50% due 5/01/2028 3,322
NR* NR* 2,000 (New York Blood Center Inc. Project), 7.20% due 5/01/2004 (d) 2,319
NR* NR* 6,895 (New York Blood Center Inc. Project), 7.25% due 5/01/2004 (d) 8,010
AAA Aaa 4,690 (USTA National Tennis Center Project), 6.60% due 11/15/2011 (g) 5,398
- -----------------------------------------------------------------------------------------------------------------------
New York City, New York, IDA, Special Facilities Revenue Bonds, AMT:
BBB- Baa2 2,030 (1990 AMR/American Airlines Inc. Project), 7.75% due 7/01/2019 2,090
A A 5,000 RITR, Series RI-5, 7.395% due 1/01/2024 (h) 5,772
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch New York 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 below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
6
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York (continued)
- -----------------------------------------------------------------------------------------------------------------------
New York City, New York, Municipal Water Finance
Authority, Water and Sewer System Revenue Bonds:
A- A2 $ 6,960 RITR, Series 21, 6.82% due 6/15/2029 (h) $ 8,116
AAA Aaa 19,490 Series A, 6% due 6/15/2005 (d) 22,071
A- A2 7,500 Series D, 4.75% due 6/15/2025 7,243
A1+ VMIG1+ 1,100 VRDN, Series 93-C, 4.10% due 6/15/2022 (a)(b) 1,100
A1+ VMIG1+ 4,000 VRDN, Series A, 4.15% due 6/15/2025 (a)(b) 4,000
- -----------------------------------------------------------------------------------------------------------------------
New York City, New York, Transitional Finance Authority, Future Tax Revenue Bonds:
AA Aa3 18,000 Second Series B, 4.75% due 11/15/2023 17,611
AA Aa3 19,000 Second Series B, 4.50% due 11/15/2027 17,968
AA Aa3 5,500 Second Series C, 4.75% due 5/01/2023 5,383
- -----------------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 6,500 (Consolidated City University System), Series A, 5.625% due 7/01/2016 (g) 7,260
AAA Aaa 5,000 (Mental Health Services Facilities), Series B, 5.375% due 2/15/2026 (g) 5,180
AAA Aaa 3,000 (New York and Presbyterian Hospital), 5.50% due 2/01/2011 (e)(f) 3,299
A- A3 2,500 Refunding (State University Educational Facilities), 5% due 5/15/2017 2,522
NR* Aaa 15,000 Residual Certificates, Series 1, 7.025% due 7/01/2027 (c)(h) 19,779
AA NR* 2,565 (Saint James Mercy Hospital), 5.40% due 2/01/2038 (f) 2,666
AAA Aaa 7,000 (Sloan Kettering Memorial Cancer Center), 5.50% due 7/01/2023 (c) 7,770
NR* Aaa 2,810 (State University Athletic Facilities), 5.25% due 7/01/2018 (c) 2,938
AAA Aaa 3,500 (State University Educational Facilities), Series A, 5.50% due 5/15/2019 (g) 3,872
AAA Aaa 2,500 (State University Educational Facilities), Series A, 4.75% due 5/15/2025 (c) 2,452
- -----------------------------------------------------------------------------------------------------------------------
New York State Energy Research and Development Authority, Facilities Revenue Bonds:
AAA Aaa 7,820 (Consolidated Edison Company Inc.), AMT, Series A, 6.75% due 1/15/2027 (c) 8,325
AAA Aaa 3,200 RITR, Series 19, 7.67% due 8/15/2020 (h) 3,869
- -----------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,455 New York State Energy Research and Development Authority, Gas Facilities Revenue
Bonds, RITR, Series 9, 6.47% due 1/01/2021 (c)(h) 4,977
- -----------------------------------------------------------------------------------------------------------------------
New York State Energy Research and Development Authority, PCR:
AAA Aaa 3,000 (New York State Electric and Gas Corporation Project), AMT, Series A,
6.15% due 7/01/2026 (c) 3,317
A1+ NR* 4,000 (Niagara Mohawk Power Corporation Project), VRDN, AMT, Series A,
4.15% due 12/01/2023 (a) 4,000
NR* P1 800 (Niagara Mohawk Power Corporation Project), VRDN, Series A, 4.10% due
3/01/2027 (a) 800
A1+ NR* 4,500 Refunding (New York State Electric & Gas), VRDN, Series B, 4.10% due
2/01/2029 (a) 4,500
- -----------------------------------------------------------------------------------------------------------------------
New York State Environmental Facilities Corporation, PCR (State Water Revolving
Fund), Series E:
A+ Aa2 2,545 6.875% due 6/15/2004 (d) 2,963
A+ Aa2 1,705 6.875% due 6/15/2014 1,953
- -----------------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 New York State Local Government Assistance Corporation, Refunding, Series E,
5% due 4/01/2021 (c) 10,386
- -----------------------------------------------------------------------------------------------------------------------
New York State Medical Care Facilities Finance Agency Revenue Bonds:
A- A3 365 (Mental Health Services Facilities), Series B, 7.625% due 8/15/2017 407
A- A3 375 (Mental Health Services Facilities), Series C, 7.30% due 2/15/2021 415
A- A3 1,405 (Mental Health Services Facilities), Series D, 7.40% due 2/15/2018 1,575
AAA NR* 2,000 Refunding (Hospital and Nursing Mortgage), Series B, 6.25% due 2/15/2025 (f) 2,218
- -----------------------------------------------------------------------------------------------------------------------
NR* Aaa 3,000 New York State Mortgage Agency Revenue Bonds, RITR, AMT, Series 24,
6.92% due 10/01/2028 (h) 3,307
- -----------------------------------------------------------------------------------------------------------------------
AA- Aa2 3,000 New York State Power Authority, Revenue and Refunding General Purpose Bonds,
Series CC, 5.25% due 1/01/2003 (d) 3,219
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York (concluded)
- -----------------------------------------------------------------------------------------------------------------------
AAA VMIG1+ $ 1,700 New York State Thruway Authority, General Revenue Bonds, VRDN,
4.10% due 1/01/2024 (a)(b) $ 1,700
- -----------------------------------------------------------------------------------------------------------------------
New York State Thruway Authority, Service Contract
Revenue Bonds (Local Highway and Bridges) (c):
AAA Aaa 6,485 Series A-2, 5.375% due 4/01/2016 6,905
AAA Aaa 7,500 Series B, 5.375% due 4/01/2014 7,986
- -----------------------------------------------------------------------------------------------------------------------
New York State Urban Development Corporation, Revenue Refunding Bonds:
BBB+ Baa1 1,685 (Clarkson Center Advance Materials), 5.50% due 1/01/2020 1,817
AAA Aaa 8,470 (Correctional Facilities), Series A, 5.50% due 1/01/2014 (e) 9,328
BBB+ Baa1 9,475 (State Facilities), 5.70% due 4/01/2020 10,489
BBB+ Baa1 3,500 (University Facility Grant), 5.50% due 1/01/2019 3,777
- -----------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 North Country, New York, Development Authority, Solid Waste Management System,
Revenue Refunding Bonds, 6% due 5/15/2015 (g) 1,159
- -----------------------------------------------------------------------------------------------------------------------
AA- A1 7,995 Port Authority of New York and New Jersey, Consolidated Revenue Bonds, AMT,
76th Series, 6.50% due 11/01/2026 8,607
- -----------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Port Authority of New York and New Jersey, RITR, AMT, Series FR-108,
7.085% due 1/15/2017 (g)(h) 4,721
- -----------------------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, Special Obligation Revenue Bonds:
AAA Aaa 6,190 (JFK International Air Terminal Project), AMT, Series 6, 4th Installment,
5.75% due 12/01/2025 (c) 6,650
A1+ VMIG1+ 700 (Versatile Structure Obligation), VRDN, Series 2, 4.10% due 5/01/2019 (a) 700
- -----------------------------------------------------------------------------------------------------------------------
Suffolk County, New York, Public Improvement, Refunding, UT, Series D (b):
AAA Aaa 1,055 4.75% due 11/01/2019 1,041
AAA Aaa 915 4.75% due 11/01/2020 900
- -----------------------------------------------------------------------------------------------------------------------
Triborough Bridge and Tunnel Authority, New York,
General Purpose Revenue Refunding Bonds, Series Y:
A+ Aa3 4,000 6.125% due 1/01/2021 4,769
AAA Aaa 6,000 6.125% due 1/01/2021 (i) 7,153
- -----------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,100 Triborough Bridge and Tunnel Authority, New York, Special Obligation Refunding
Bonds, Series A, 5.25% due 1/01/2014 (b) 2,217
- -----------------------------------------------------------------------------------------------------------------------
NR* NR* 2,000 Utica, New York, IDA, Civic Facilities Revenue Bonds (Utica College Project),
Series A, 5.75% due 8/01/2028 2,036
- -----------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$394,749)--99.8% 421,049
Other Assets Less Liabilities--0.2% 750
--------
Net Assets--100.0% $421,799
========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at September
30, 1998.
(b) FGIC Insured.
(c) MBIA Insured.
(d) Prerefunded.
(e) AMBAC Insured.
(f) FHA Insured.
(g) FSA Insured.
(h) 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 September 30, 1998.
(i) CAPMAC Insured.
* 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.
8
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of September 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$394,748,533) (Note 1a)........... $421,049,014
Cash...................................................................... 19,105
Receivables:
Securities sold......................................................... $ 7,873,331
Interest................................................................ 7,273,335
Beneficial interest sold................................................ 863,423 16,010,089
-----------
Prepaid registration fees and other assets (Note 1e)...................... 94,304
------------
Total assets.............................................................. 437,172,512
------------
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased.................................................... 12,368,338
Beneficial interest redeemed............................................ 2,122,990
Dividends to shareholders (Note 1f)..................................... 419,458
Investment adviser (Note 2)............................................. 189,031
Distributor (Note 2).................................................... 115,378 15,215,195
-----------
Accrued expenses and other liabilities.................................... 158,577
------------
Total liabilities......................................................... 15,373,772
------------
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets................................................................ $421,798,740
============
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized......................................................... $ 147,695
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized......................................................... 2,022,614
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized......................................................... 68,523
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized......................................................... 1,275,565
Paid-in capital in excess of par.......................................... 385,034,183
Undistributed realized capital gains on investments--net.................. 6,949,679
Unrealized appreciation on investments--net............................... 26,300,481
------------
Net assets................................................................ $421,798,740
============
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $17,727,192 and 1,476,951 shares
of beneficial interest outstanding........................................ $ 12.00
============
Class B--Based on net assets of $242,811,026 and 20,226,135 shares
of beneficial interest outstanding........................................ $ 12.00
============
Class C--Based on net assets of $8,228,392 and 685,234 shares
of beneficial interest outstanding........................................ $ 12.01
============
Class D--Based on net assets of $153,032,130 and 12,755,652 shares
of beneficial interest outstanding........................................ $ 12.00
============
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
September 30, 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned........ $ 23,861,213
(Note 1d):
- -------------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2)............................... $ 2,355,979
Account maintenance and distribution fees--Class B(Note 2)...... 1,282,033
Account maintenance fees--Class D(Note 2)....................... 146,245
Transfer agent fees--Class B(Note 2)............................ 125,825
Accounting services (Note 2).................................... 88,092
Professional fees............................................... 67,403
Registration fees (Note 1e)..................................... 60,909
Transfer agent fees--Class D(Note 2)............................ 58,931
Printing and shareholder reports................................ 55,877
Account maintenance and distribution fees--Class C(Note 2)...... 35,133
Trustees' fees and expenses..................................... 24,764
Custodian fees.................................................. 24,733
Pricing fees.................................................... 10,520
Transfer agent fees--Class A(Note 2)............................ 8,008
Transfer agent fees--Class C(Note 2)............................ 2,931
Other........................................................... 7,665
------------
Total expenses.................................................. 4,355,048
------------
Investment income--net.......................................... 19,506,165
------------
- -------------------------------------------------------------------------------------------------------------------------------
Realized & Unreal- Realized gain on investments--net............................... 18,921,395
ized Gain on Change in unrealized appreciation on investments--net........... 946,799
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations............ $ 39,374,359
============
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended
September 30, 1998
---------------------------
Increase (Decrease) in Net Assets: 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net.................................................... $ 19,506,165 $ 24,134,085
Realized gain on investments--net......................................... 18,921,395 10,472,445
Change in unrealized appreciation on investments--net..................... 946,799 4,297,287
------------ ------------
Net increase in net assets resulting from operations...................... 39,374,359 38,903,817
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Class A................................................................. (976,856) (1,209,169)
Shareholders Class B................................................................. (11,274,157) (16,235,504)
(Note 1f): Class C................................................................. (249,953) (207,495)
Class D................................................................. (7,005,199) (6,481,917)
Realized gain on investments--net:
Class A................................................................. -- (8,764)
Class B................................................................. -- (155,517)
Class C................................................................. -- (1,632)
Class D................................................................. -- (46,847)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders........................................................... (19,506,165) (24,346,845)
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Net decrease in net assets derived from beneficial interest transactions . (44,668,971) (91,594,619)
Transactions ------------ ------------
(Note 4):
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets: Total decrease in net assets.............................................. (24,800,777) (77,037,647)
Beginning of year......................................................... 446,599,517 523,637,164
------------ ------------
End of year............................................................... $421,798,740 $446,599,517
============ ============
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements. ---------------------------------------------------
For the Year Ended September 30,
---------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year....... $ 11.46 $ 11.12 $ 11.04 $ 10.88 $ 12.46
Operating -------- -------- -------- -------- --------
Performance: Investment income--net.................... .57 .60 .59 .61 .64
Realized and unrealized gain (loss) on
investments--net.......................... .54 .34 .08 .16 (1.25)
-------- -------- -------- -------- --------
Total from investment operations......... 1.11 .94 .67 .77 (.61)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net.................. (.57) (.60) (.59) (.61) (.64)
Realized gain on investments--net....... -- --+ -- -- (.11)
In excess of realized gain on
investments--net........................ -- -- -- -- (.22)
-------- -------- -------- -------- --------
Total dividends and distributions........ (.57) (.60) (.59) (.61) (.97)
-------- -------- -------- -------- --------
Net asset value, end of year............. $ 12.00 $ 11.46 $ 11.12 $ 11.04 $ 10.88
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share....... 9.94% 8.69% 6.19% 7.37% (5.17%)
Return:* ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses................................. .67% .65% .66% .67% .63%
Average ======== ======== ======== ======== ========
Net Assets: Investment income--net..................... 4.92% 5.30% 5.31% 5.67% 5.52%
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands)... $ 17,727 $ 22,301 $ 21,762 $ 23,304 $ 28,301
Data: ======== ======== ======== ======== ========
Portfolio turnover....................... 163.12% 97.22% 114.78% 181.21% 107.96%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales
loads.
+ Amount is less than $.01 per share.
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements. --------------------------------------------------------
For the Year Ended September 30,
--------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ...... $ 11.46 $ 11.12 $ 11.04 $ 10.88 $ 12.46
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .................. .51 .54 .54 .56 .58
Realized and unrealized gain (loss) on
investments--net ........................ .54 .34 .08 .16 (1.25)
-------- -------- -------- -------- --------
Total from investment operations ........ 1.05 .88 .62 .72 (.67)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ................ (.51) (.54) (.54) (.56) (.58)
Realized gain on investments--net ..... -- --+ -- -- (.11)
In excess of realized gain on
investments--net ...................... -- -- -- -- (.22)
-------- -------- -------- -------- --------
Total dividends and distributions ....... (.51) (.54) (.54) (.56) (.91)
-------- -------- -------- -------- --------
Net asset value, end of year ............ $ 12.00 $ 11.46 $ 11.12 $ 11.04 $ 10.88
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ...... 9.38% 8.14% 5.66% 6.82% (5.66%)
Return:* ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses ................................ 1.18% 1.16% 1.16% 1.18% 1.14%
Average ======== ======== ======== ======== ========
Net Assets: Investment income--net .................. 4.40% 4.79% 4.80% 5.16% 5.02%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) .. $242,811 $279,754 $403,403 $564,963 $645,341
Data: ======== ======== ======== ======== ========
Portfolio turnover ...................... 163.12% 97.22% 114.78% 181.21% 107.96%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales
loads.
+ Amount is less than $.01 per share.
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C
-------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended September 30, 1994+ to
------------------------------- Sept. 30,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period .............. $ 11.47 $ 11.12 $ 11.04 $ 10.76
Operating ------- ------- ------- -------
Performance: Investment income--net ............................ .50 .53 .52 .51
Realized and unrealized gain on investments--net .. .54 .35 .08 .28
------- ------- ------- -------
Total from investment operations .................. 1.04 .88 .60 .79
------- ------- ------- -------
Less dividends and distributions:
Investment income--net .......................... (.50) (.53) (.52) (.51)
Realized gain on investments--net ............... -- --++ -- --
------- ------- ------- -------
Total dividends and distributions ................. (.50) (.53) (.52) (.51)
------- ------- ------- -------
Net asset value, end of period .................... $ 12.01 $ 11.47 $ 11.12 $ 11.04
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ................ 9.27% 8.13% 5.55% 7.57%++
Return:** ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
Ratios to Expenses .......................................... 1.28% 1.26% 1.27% 1.27%*
Average ======= ======= ======= =======
Net Assets: Investment income--net ............................ 4.27% 4.69% 4.70% 4.91%*
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) .......... $ 8,229 $ 5,034 $ 4,175 $ 3,556
Data: ======= ======= ======= =======
Portfolio turnover ................................ 163.12% 97.22% 114.78% 181.21%
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Amount is less than $.01 per share.
++ Aggregate total investment return.
See Notes to Financial Statements.
14
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class D
-------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended September 30, 1994+ to
------------------------------- Sept. 30,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period .............. $ 11.46 $ 11.11 $ 11.03 $ 10.76
Operating -------- -------- ------- -------
Performance: Investment income--net ............................ .56 .58 .58 .56
Realized and unrealized gain on investments--net .. .54 .35 .08 .27
-------- -------- ------- -------
Total from investment operations .................. 1.10 .93 .66 .83
-------- -------- ------- -------
Less dividends and distributions:
Investment income--net .......................... (.56) (.58) (.58) (.56)
Realized gain on investments--net ............... -- --++ -- --
-------- -------- ------- -------
Total dividends and distributions ................. (.56) (.58) (.58) (.56)
-------- -------- ------- -------
Net asset value, end of period .................... $ 12.00 $ 11.46 $ 11.11 $ 11.03
======== ======== ======= =======
- --------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ................ 9.83% 8.68% 6.09% 7.99%++
Return:** ======== ======== ======== =======
- --------------------------------------------------------------------------------------------------------------------
Ratios to Expenses .......................................... .77% .75% .76% .76%*
Average ======== ======== ======== =======
Net Assets: Investment income--net ............................ 4.79% 5.20% 5.21% 5.46%*
======== ======== ======== =======
- --------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) .......... $153,032 $139,511 $94,297 $ 2,572
Data: ======== ======== ======== =======
Portfolio turnover ................................ 163.12% 97.22% 114.78% 181.21%
======== ======== ======== =======
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Amount is less than $.01 per share.
++ Aggregate total investment return.
See Notes to Financial Statements.
15
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch New York Municipal Bond Fund (the "Fund") is part of the Merrill
Lynch Multi-State Municipal Series Trust (the "Trust"). The Fund is registered
under the Investment Company Act of 1940 as a diversified, open-end management
investment company. The Fund offers four classes of shares under the Merrill
Lynch Select Pricing(SM) System. Class A and Class D Shares are sold with a
front-end sales charge. Class B and Class C Shares 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 are
traded primarily in the over-the-counter municipal bond and money markets and
are valued at the last available bid price or 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 a remaining maturity 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.
o 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
secu-rity 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.
16
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 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 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.
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 an
ongoing account maintenance fee and a distribution fee. These fees are accrued
daily and paid monthly, at the 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 September 30, 1998, MLFD earned underwriting discounts and
direct commissions and MLPF&S earned dealer concessions on the sales of the
Fund's Class A and Class D Shares as follows:
- --------------------------------------------------------------------------------
MLFD MLPF&S
- --------------------------------------------------------------------------------
Class A.................................................... $ 334 $ 2,678
Class D.................................................... $1,427 $14,022
- --------------------------------------------------------------------------------
For the year ended September 30, 1998, MLPF&S received contingent deferred sales
charges of $259,810 and $902 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 September 30, 1998 were $666,852,676 and $712,991,064, respectively.
Net realized gains (losses) for the year ended September 30, 1998 and net
unrealized gains as of September 30, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments........................... $19,747,325 $26,300,481
Financial futures contracts..................... (825,930) --
----------- -----------
Total........................................... $18,921,395 $26,300,481
=========== ===========
- --------------------------------------------------------------------------------
As of September 30, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $26,300,481, all of which related to appreciated securities.
The aggregate cost of investments at September 30, 1998 for Federal income tax
purposes was $394,748,533.
17
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$44,668,971 and $91,594,619 for the years ended September 30, 1998 and September
30, 1997, respectively.
Transactions in shares of beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended September 30, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ........................................ 251,370 $ 2,928,526
Shares issued to shareholders
in reinvestment of dividends ....................... 53,497 624,368
----------- -----------
Total issued ....................................... 304,867 3,552,894
Shares redeemed .................................... (773,614) (9,022,698)
----------- -----------
Net decrease ....................................... (468,747) $(5,469,804)
=========== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................................... 723,895 $ 8,125,178
Shares issued to shareholders
in reinvestment of dividends
and distributions ................................ 69,712 784,169
----------- -----------
Total issued ..................................... 793,607 8,909,347
Shares redeemed .................................. (805,206) (9,082,759)
----------- -----------
Net decrease ..................................... (11,599) $ (173,412)
=========== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended September 30, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................................... 2,086,550 $ 24,426,414
Shares issued to shareholders
in reinvestment of dividends ................... 506,565 5,919,940
------------ ------------
Total issued ................................... 2,593,115 30,346,354
Automatic conversion
of shares ...................................... (1,517,785) (17,683,070)
Shares redeemed ................................ (5,254,351) (61,333,845)
------------ ------------
Net decrease ................................... (4,179,021) $(48,670,561)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................................. 2,299,603 $ 25,854,529
Shares issued to shareholders
in reinvestment of dividends
and distributions ............................ 716,880 8,060,157
------------- -------------
Total issued ................................. 3,016,483 33,914,686
Automatic conversion
of shares .................................... (5,665,372) (63,552,853)
Shares redeemed .............................. (9,222,928) (103,822,066)
------------- -------------
Net decrease ................................. (11,871,817) $(133,460,233)
============= =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended September 30, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................................... 371,611 $ 4,358,246
Shares issued to shareholders
in reinvestment of dividends ..................... 18,797 220,005
----------- -----------
Total issued ..................................... 390,408 4,578,251
Shares redeemed .................................. (144,268) (1,680,882)
----------- -----------
Net increase ..................................... 246,140 $ 2,897,369
=========== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................................... 273,731 $ 3,075,432
Shares issued to shareholders
in reinvestment of dividends
and distributions ................................ 15,508 174,536
----------- -----------
Total issued ..................................... 289,239 3,249,968
Shares redeemed .................................. (225,581) (2,531,885)
----------- -----------
Net increase ..................................... 63,658 $ 718,083
=========== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended September 30, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................................... 6,327,245 $ 73,822,777
Automatic conversion
of shares ...................................... 1,518,544 17,683,070
Shares issued to shareholders
in reinvestment of dividends ................... 254,369 2,969,158
------------ ------------
Total issued ................................... 8,100,158 94,475,005
Shares redeemed ................................ (7,522,615) (87,900,980)
------------ ------------
Net increase ................................... 577,543 $ 6,574,025
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................................... 156,140 $ 1,754,784
Automatic conversion
of shares ...................................... 5,668,755 63,552,853
Shares issued to shareholders
in reinvestment of dividends
and distributions .............................. 235,665 2,650,220
------------ ------------
Total issued ................................... 6,060,560 67,957,857
Shares redeemed ................................ (2,367,253) (26,636,914)
------------ ------------
Net increase ................................... 3,693,307 $ 41,320,943
============ ============
- --------------------------------------------------------------------------------
18
<PAGE>
Merrill Lynch New York Municipal Bond Fund September 30, 1998
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders, Merrill Lynch New York 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 New York Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust as of September 30, 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 five-year period then ended.
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
September 30, 1998 by correspondence with the custodian and brokers. 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 New
York Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series Trust as
of September 30, 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
November 9, 1998
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by Merrill Lynch New
York Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series Trust
during its taxable year ended September 30, 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.
19
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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 New York
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #10344--9/98
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