MERRILL
LYNCH
NEW MEXICO
MUNICIPAL
BOND FUND
Annual Report July 31, 1994
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.
Merrill Lynch New Mexico
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, New Jersey
08543-9011
TO OUR SHAREHOLDERS
<PAGE>
We are pleased to provide you with this first annual report for
Merrill Lynch New Mexico Municipal Bond Fund. In this and future
reports to shareholders we will detail the Fund's performance, as
well as describe the investment environment and portfolio
strategies undertaken during the period under review.
The Environment
The expectation of increasing inflationary pressures and higher
interest rates initially heightened investor concerns and increased
financial market volatility during the July quarter. However, as the
quarter progressed, it was the weakness of the US dollar in foreign
exchange markets that dominated the financial news and prolonged
stock and bond market declines. Although the US dollar had
strengthened slightly by July quarter-end, which may have improved
investor confidence in the stock and bond markets, the possibility
of continued tightening by the Federal Reserve Board resurfaced
following Chairman Alan Greenspan's recent congressional testimony.
Nevertheless, as the quarter drew to a close, a lower-than-expected
rate of growth reported for the US economy during the second
calendar quarter allayed investor concerns and led to stock and bond
market rallies.
During the July quarter, the US dollar's weakness relative to other
major currencies reflected the deteriorating US trade deficit and
widening net long-term capital outflows. In 1993, an expanding US
economy and recession in other industrial countries led to a higher
level of imports and weaker export growth, widening the US trade
deficit further. In addition, global investors favored non-US dollar
denominated assets throughout 1993, which has further depressed the
dollar's value. This trend is not improving significantly thus far
in 1994 since foreign inflows into US capital markets continue to
decline, although US investors are investing outside of the United
States to a lesser degree.
<PAGE>
Over the longer term, if the economies of the United States' major
trading partners expand (improving the prospects for US export
growth), the outlook for the US dollar is likely to improve. In the
near term, central banks have attempted to reverse the dollar's
decline through currency market intervention. These efforts have met
with limited success thus far, giving rise to the concern that the
Federal Reserve Board will be forced to continue to raise short-term
interest rates to attract investment capital back to the United
States and bolster the dollar's value. However, further interest
rate increases may jeopardize the US economic expansion. Despite
evidence of a moderating trend in the US economy, Federal Reserve
Board Chairman Alan Greenspan indicated in his July Humphrey-Hawkins
testimony that the central bank would prefer to err on the side of
too much monetary tightening rather than too little. In the weeks
ahead, investors will continue to assess economic data and
inflationary trends as they focus on the US dollar in order to gauge
whether further increases in short-term interest rates are imminent.
Continued indications of moderate and sustainable levels of
economic growth would be positive for the US capital markets.
The Municipal Market
Long-term tax-exempt bond yields ended the July quarter essentially
unchanged. The Bond Buyer Revenue Bond Index rose five basis points
(0.05%) to 6.47%. The Index, however, failed to capture the dramatic
bond rally on July 29, 1994, when municipal bond yields had their
largest one-day decline thus far this year. Responding to reports of
a continued mild inflationary outlook and a potentially weakening
economy, municipal bond yields declined by approximately 10 basis
points. US Treasury bonds displayed a similar pattern over the last
three months, ending with an equally dramatic rally on July 29,
1994. Long-term US Treasury bonds ended the quarter yielding
approximately 7.40%.
The tax-exempt bond market has continued to be very volatile with
yields fluctuating by as much as 15 basis points from week to week.
This continued volatility is largely a reflection of the same lack
of conviction regarding the near-term direction of interest rates
that has prevailed for much of 1994. Throughout this past quarter,
the municipal bond market had been unable to maintain a consensus
regarding either the potential strength of the current economic
recovery or the resultant response by the Federal Reserve Board.
However, a number of economic indicators released in late July began
to suggest that the robust pace of recent economic growth was
slowing. This promoted a more positive market environment,
culminating in the market rally on July 29.
<PAGE>
The municipal bond market's technical position has remained
supportive. Approximately $40 billion in long-term securities were
issued during the three months ended July 31, 1994. This represents
a decline of over 50% versus the July quarter from the previous
year. As discussed in earlier reports, this reduction in new-issue
supply has minimized the selling pressure by larger institutional
investors who fear being unable to purchase sizable amounts of
securities in the future. Such a significant decline in issuance
would normally be expected to trigger a decline in yields as
investors chase a commodity in scarce supply. Investor demand,
however, has also diminished somewhat in recent months as net flows
into long-term municipal bond funds have dramatically slowed or, in
some instances, reversed. Con- sequently, the supply/demand
relationship within the municipal bond market has remained in
balance, promoting the overall stability in yield levels seen in the
past months.
With after-tax equivalents in excess of 10%, long-term tax-exempt
bonds continue to represent considerable value relative to other
investment alternatives. We continue to anticipate that municipal
bond yields will decline further in late 1994 and into 1995. The
economic impact of the significant interest rate increases
experienced since early February have yet to be totally realized.
The resultant drag on the economy should provide the foundation for
further interest rate declines. Under such a scenario, current tax-
exempt bond yields may prove to represent considerable value.
Portfolio Strategy
Merrill Lynch New Mexico Municipal Bond Fund commenced operations on
May 6, 1994. Our initial strategy was to invest the portfolio in
long-term municipal bonds as quickly as possible. The recent
positive trend in the municipal bond market has borne that strategy
out. Demand for New Mexico municipal bonds is strong as supply
remains low. The supply picture has allowed the New Mexico sector of
the tax-exempt market to continue to outperform the general market.
We have chosen to emphasize quality securities with 73% of the
portfolio rated A or better. As we embark on a new fiscal year, we
will continue to seek investment opportunities that may afford
shareholders with a competitive level of tax-exempt income.
We appreciate your ongoing interest in Merrill Lynch New Mexico
Municipal Bond Fund, and we look forward to assisting you with your
financial needs in the months and years ahead.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
August 17, 1994
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by
Merrill Lynch New Mexico Municipal Bond Fund during its taxable
period ended July 31, 1994 qualify as tax-exempt interest dividends
for Federal income tax purposes.
Additionally, there were no capital gains distributed by the Fund
during the period.
Please retain this information for your records.
PERFORMANCE DATA
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
Class A and Class B Shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
<PAGE>
<TABLE>
Recent Performance Results*
<CAPTION>
Since Inception
7/31/94 5/6/94** % Change
<S> <C> <C> <C>
Class A Shares $10.24 $10.00 +2.40%
Class B Shares 10.24 10.00 +2.40
Class A Shares--Total Return +3.76(1)
Class B Shares--Total Return +3.64(2)
Class A Shares--Standardized 30-day Yield 5.14%
Class B Shares--Standardized 30-day Yield 4.86%
<FN>
*Investment results shown for the since inception period are before
the deduction of any sales charges.
**Commencement of Operations.
(1)Percent change includes reinvestment of $0.125 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.113 per share ordinary
income dividends.
</TABLE>
Aggregate Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Inception (5/6/94)
through 6/30/94 +2.12% -1.97%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Inception (5/6/94)
through 6/30/94 +1.95% -2.05%
[FN]
*Maximum contingent sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Kenneth S. Axelson, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
National Westminster Bank NJ
Exchange Place Centre
10 Exchange Place
Jersey City, New Jersey 07302
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch New Mexico Municipal Bond
Fund's portfolio holdings in the Schedule of Investments, we have
abbreviated the names of some of the securities according to the
list at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
New Mexico--91.6%
<S> <S> <C> <S> <C>
AA Aa $ 500 Albuquerque, New Mexico, General Purpose Bonds, UT, Series A, 5.80% due 7/01/2000 $ 522
A1+ VMIG1 600 Albuquerque, New Mexico, Hospital Revenue Bonds (Sisters of Charity of Saint
Joseph's Church), VRDN, 2.90% due 5/15/2022 (a) 600
AA A1 400 Albuquerque, New Mexico, Joint Water and Sewer System, Revenue Refunding Bonds,
Series A, 4.60% due 7/01/2005 362
A1+ NR 700 Eddy County, New Mexico, PCR, Refunding (IMC Fertilizer Inc. Project), VRDN,
2.80% due 2/01/2003 (a) 700
Farmington, New Mexico, PCR, Refunding, Series A:
A1+ P1 600 (Arizona Public Service Company), VRDN, 2.75% due 5/01/2024 (a) 600
AAA Aaa 500 (Public Service Company of New Mexico), 6.375% due 12/15/2022 (d) 508
A+ Aa3 1,000 (Southern California Edison Company), 7.20% due 4/01/2021 1,066
AAA Aaa 500 Farmington, New Mexico, Utility System Revenue Refunding Bonds, 5.75% due
5/15/2013 (c) 483
AAA Aaa 1,500 Gallup, New Mexico, PCR, Refunding (Plains Electric Generation), 6.65% due
8/15/2017 (b) 1,573
AAA Aaa 1,000 Las Cruces, New Mexico, Health Facilities Revenue Refunding Bonds (Evangelical
Lutheran Project), Capital Guaranty, 6.45% due 12/01/2017 1,026
A A3 750 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge Corporation Project), 6.50%
due 4/01/2013 764
AAA Aaa 500 Los Alamos County, New Mexico, Utility System Revenue Refunding Bonds, Series A, 6%
due 7/01/2015 (e) 500
AAA Aaa 425 Los Lunas, New Mexico, Gross Receipt Tax Revenue Refunding Bonds, 5.50% due
7/01/2009 (b) 413
AAA Aaa 1,000 New Mexico Educational Assistance Foundation, Student Loan Revenue Bonds, AMT,
Series A, 6.85% due 4/01/2005 (d) 1,090
A1+ NR 700 New Mexico Mortgage Finance Authority, S/F Mortgage Revenue Bonds, Series A,
VRDN, 2.85% due 7/01/2017 (a) 700
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
New Mexico (concluded)
<S> <S> <C> <S> <C>
A1 VMIG1 $ 800 New Mexico State Hospital Equipment Loan Council, Hospital Equipment and
Improvement Revenue Bonds (Health Facilities), VRDN, 3% due 5/01/2009 (a)(b) $ 800
AA A1 750 New Mexico State University, Revenue Refunding and Improvement Bonds, 5.75% due
4/01/2016 714
NR Aa 600 New Mexico System Revenue Bonds (Military Institution at Rosewell), 6% due
6/01/2013 602
Santa Fe, New Mexico, Revenue Bonds, Series A (d):
AAA Aaa 750 6.25% due 6/01/2015 761
AAA Aaa 1,000 6.30% due 6/01/2024 1,008
AA A1 500 University of New Mexico, University Revenue Bonds, Series B, 5.75% due 6/01/2022 472
Puerto Rico--16.4%
BB Baa 500 Puerto Rico Commonwealth, Aqueduct and Sewer Authority Revenue Bonds, Series A,
7% due 7/01/2019 521
A Baa1 300 Puerto Rico Commonwealth, GO, UT, 6.45% due 7/01/2017 308
A-1 VMIG1 500 Puerto Rico Commonwealth, Government Development Bank Refunding Bonds, VRDN,
2.55% due 12/01/2015 (a) 500
A- Baa1 500 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds, Series
S, 7% due 7/01/2007 559
BBB- NR 400 Puerto Rico, Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority, Higher Education Revenue Bonds
(PolyTechnic University of Puerto Rico Project), Series A, 5.50% due 8/01/2024 351
A+ A 500 Puerto Rico Telephone Authority, Revenue Refunding Bonds, Series L, 6.125%
due 1/01/2022 503
Total Investments (Cost--$17,675)--108.0% 18,006
Liabilities in Excess of Other Assets--(8.0%) (1,334)
-------
Net Assets--100.0% $16,672
=======
<FN>
(a)The interest rate is subject to change periodically based upon
the prevailing market rate. The interest rates shown are the
rates in effect at July 31, 1994.
(b)MBIA Insured.
(c)FGIC Insured.
(d)AMBAC Insured.
(e)FSA Insured.
NR--Not Rated.
Ratings shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$17,674,951) (Note 1a) $ 18,006,387
Cash 75,769
Receivables:
Interest $ 228,460
Beneficial interest sold 123,685
Investment adviser (Note 2) 63,464
Securities sold 2,650 418,259
------------
Deferred organization expenses (Note 1e) 47,237
Prepaid registration fees and other assets (Note 1e) 14,006
------------
Total assets 18,561,658
------------
<PAGE>
Liabilities: Payables:
Securities purchased 1,762,666
Dividends to shareholders (Note 1f) 13,286
Distributor (Note 2) 3,326 1,779,278
------------
Accrued expenses and other liabilities 110,815
------------
Total liabilities 1,890,093
------------
Net Assets: Net assets $ 16,671,565
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $ 79,725
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 83,034
Paid-in capital in excess of par 16,184,840
Accumulated realized capital losses--net (7,470)
Unrealized appreciation on investments--net 331,436
------------
Net assets $ 16,671,565
============
Net Asset Class A--Based on net assets of $8,166,242 and 797,248 shares of
Value: beneficial interest outstanding $ 10.24
============
Class B--Based on net assets of $8,505,323 and 830,341 shares of
beneficial interest outstanding $ 10.24
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Statement of Operations
<CAPTION>
For the Period May 6, 1994++
to July 31, 1994
<S> <S> <C>
Investment Interest and amortization of premium and discount earned $ 181,850
Income
(Note 1d):
Expenses: Printing and shareholder reports 30,000
Investment advisory fees (Note 2) 18,228
Registration fees (Note 1e) 17,949
Distribution fees--Class B (Note 2) 8,505
Accounting services (Note 2) 7,450
Amortization of organization expenses (Note 1e) 2,363
Custodian fees 1,330
Transfer agent fees--Class B (Note 2) 1,222
Transfer agent fees--Class A (Note 2) 1,078
Professional fees 800
Pricing fees 655
Trustees' fees and expenses 48
Other 569
------------
Total expenses before reimbursement 90,197
Reimbursement of expenses (Note 2) (81,692)
------------
Total expenses after reimbursement 8,505
------------
Investment income--net 173,345
------------
Realized & Realized loss on investments--net (7,470)
Unrealized Unrealized appreciation on investments--net 331,436
Gain ------------
(Loss) on Net Increase in Net Assets Resulting from Operations $ 497,311
Investments ============
- --Net (Notes
1d & 3):
</TABLE>
<PAGE>
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
For the Period May 6, 1994++
Increase (Decrease) in Net Assets: to July 31, 1994
<S> <S> <C>
Operations: Investment income--net $ 173,345
Realized loss on investments--net (7,470)
Unrealized appreciation on investments--net 331,436
------------
Net increase in net assets resulting from operations 497,311
------------
Dividends to Investment income--net:
Shareholders Class A (88,620)
(Note 1f): Class B (84,725)
------------
Net decrease in net assets resulting from dividends to shareholders (173,345)
------------
Beneficial Net increase in net assets derived from beneficial interest
Interest transactions 16,247,599
Transactions ------------
(Note 4):
Net Assets: Total increase in net assets 16,571,565
Beginning of period 100,000
------------
End of period $ 16,671,565
============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period May 6, 1994++
to July 31, 1994
Increase (Decrease) in Net Asset Value: Class A Class B
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00
Operating ------------ ------------
Performance: Investment income--net .13 .12
Realized and unrealized gain on investments--net .24 .24
------------ ------------
Total from investment operations .37 .36
------------ ------------
Less dividends:
Investment income--net (.13) (.12)
------------ ------------
Net asset value, end of period $ 10.24 $ 10.24
============ ============
Total Based on net asset value per share 3.76%+++ 3.64%+++
Investment ============ ============
Return:**
Ratios to Expenses, including distribution fees and net of reimbursement --%* --%*
Average ============ ============
Net Assets: Expenses, net of reimbursement --%* .50%*
============ ============
Expenses 2.47%* 2.97%*
============ ============
Investment income--net 5.49%* 4.98%*
============ ============
Supplemental Net assets, end of period (in thousands) $ 8,166 $ 8,505
Data: ============ ============
Portfolio turnover 16.06% 16.06%
============ ============
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch New Mexico 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. Prior to
commencement of operations on May 6, 1994, the Fund had no
operations other than those relating to organizational matters and
the issuance of 5,000 Class A Shares of beneficial interest and
5,000 Class B Shares of beneficial interest of the Fund to Fund
Asset Management, L.P. ("FAM") for $100,000. The Fund offers both
Class A and Class B Shares. Class A Shares are sold with a front-end
sales charge. Class B Shares may be subject to a contingent deferred
sales charge. Both classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and
conditions, except that Class B Shares bear certain expenses related
to the distribution of such shares and have exclusive voting rights
with respect to matters relating to such 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 a remaining maturity of sixty days or less are
valued on an amortized cost basis, which approximates market value.
Options, which are traded on exchanges, are valued at their last
sale price as of the close of such exchanges or, lacking any sales,
at the last available bid price. 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.
<PAGE>
(b)Financial futures contracts--The Fund may purchase or sell
interest rate 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 five-year period beginning with commencement of
operations. 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.
NOTES TO FINANCIAL STATEMENTS (concluded)
<PAGE>
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM.
Effective January 1, 1994, the investment advisory business of FAM
was reorganized from a corporation to a limited partnership. Both
prior to and after the reorganization, ultimate control of FAM was
vested with Merrill Lynch & Co., Inc. ("ML & Co."). The general
partner of FAM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of ML & Co. The limited partners are ML &
Co. and Fund Asset Management, Inc. ("FAMI"), which is also an
indirect wholly-owned subsidiary of ML & Co. The Fund has also
entered into Distribution Agreements and a Distribution Plan with
Merrill Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a
wholly-owned subsidiary of Merrill Lynch Investment Management, Inc.
("MLIM"), which is also an indirect wholly-owned subsidiary of ML &
Co.
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. The Investment Advisory Agreement obligates
FAM to reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets, and 1.5% of the average daily
net assets in excess thereof. FAM's obligation to reimburse the Fund
is limited to the amount of the management fee. No fee payment will
be made to the Investment Adviser during any fiscal year which will
cause such expenses to exceed expense limitations at the time of
such payment. For the period ended July 31, 1994, FAM earned fees of
$18,228, all of which was voluntarily waived. FAM also voluntarily
reimbursed the Fund $63,464 in additional expenses.
<PAGE>
The Fund has adopted a Plan of Distribution ("the Plan") in
accordance with Rule 12b-1 under the Investment Company Act of 1940,
pursuant to which the Fund pays the Distributor an ongoing account
maintenance fee and distribution fee relating to Class B Shares,
which are accrued daily and paid monthly at the annual rates of
0.25% and 0.25%, respectively, of the average daily net assets of
the Class B Shares of the Fund. Pursuant to a sub-agreement with the
Distributor, Merrill Lynch, Pierce, Fenner & Smith, Inc.
("MLPF&S"), an affiliate of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing
account maintenance fee compensates the Distributor and Merrill
Lynch for providing distribution and account maintenance services to
Class B shareholders. As authorized by the Plan, the Distributor
has entered into an agreement with MLPF&S which provides for the
compensation of MLPF&S for providing distribution-related services
to the Fund.
For the period ended July 31, 1994, MLFD earned underwriting
discounts of $3,507, and MLPF&S earned dealer concessions of
$171,666 on sales of the Fund's Class A Shares.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, FAMI, PSI, MLIM, MLFD, FDS, MLPF&S, and/or ML &
Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period ended July 31, 1994 were $15,585,457 and $1,819,342,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1994 were
as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ 11,580 $ 331,436
Financial futures contracts (19,050) --
----------- ------------
Total $ (7,470) $ 331,436
=========== ============
<PAGE>
As of July 31, 1994, net unrealized appreciation for Federal income
tax purposes aggregated $331,436, of which $338,101 related to
appreciated securities and $6,665 related to depreciated securities.
The aggregate cost of investments at July 31, 1994 for Federal
income tax purposes was $17,674,951.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $16,247,599 for the period ended July 31, 1994.
Transactions in shares of beneficial interest for Class A and Class
B Shares were as follows:
Class A Shares for the Period Dollar
May 6, 1994++ to July 31, 1994 Shares Amount
Shares sold 811,846 $ 8,154,057
Shares issued to shareholders
in reinvestment of dividends 461 4,692
----------- ------------
Total issued 812,307 8,158,749
Shares redeemed (20,059) (201,258)
----------- ------------
Net increase 792,248 $ 7,957,491
=========== ============
[FN]
++Prior to May 6, 1994 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
<PAGE>
Class B Shares for the Period Dollar
May 6, 1994++ to July 31, 1994 Shares Amount
Shares sold 835,841 $ 8,396,609
Shares issued to shareholders
in reinvestment of dividends 818 8,343
----------- ------------
Total issued 836,659 8,404,952
Shares redeemed (11,318) (114,844)
----------- ------------
Net increase 825,341 $ 8,290,108
=========== ============
[FN]
++Prior to May 6, 1994 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch New Mexico 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 Mexico Municipal Bond Fund of Merrill Lynch Multi-State
Municipal Series Trust as of July 31, 1994, the related statements
of operations and changes in net assets, and the financial
highlights for the period May 6, 1994 (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 audit.
We conducted our audit 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,
1994 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 audit provides
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 Mexico Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1994, the results of its
operations, the changes in its net assets, and the financial
highlights for the period May 6, 1994 to July 31, 1994 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 29, 1994
</AUDIT-REPORT>
