MERRILL LYNCH
NEW MEXICO
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1995
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
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
<PAGE>
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch New Mexico
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
TO OUR SHAREHOLDERS
In the July quarter, economic data generally showed evidence of
slowing activity. Gross domestic product growth for the first three
months of 1995 was reported at 2.7%, the weakest showing in the past
18 months. Other signs of a sluggish economy included lackluster
durable goods orders, slowing growth in the manufacturing sector,
and three consecutive months of declines in the Index of Leading
Economic Indicators, an occurrence which has often (but not always)
forecast recessions. As a result, concerns arose that the economic
"soft landing" could turn into an actual recession. However, at the
same time there were also expectations that a few months of very
slow or zero growth would be followed by a pickup in economic
activity later in the year. This view was supported by the stronger-
than-expected employment data for June and an upward revision in
May's employment figures, as well as improving housing activity
measures and consumer confidence surveys.
<PAGE>
Thus far in 1995, economic developments have been very positive for
the US stock and bond markets, and most US stock market averages
recently have attained record levels. In contrast, the US dollar has
been persistently weak, especially relative to the yen. Following
the Federal Reserve Board's cut in short-term interest rates in
early July, continued signs of a moderating expansion and well-
contained inflationary pressures could provide further assurance
that the peak in US interest rates is behind us, creating a stronger
foundation for higher stock and bond prices. On the other hand,
indications of reaccelerating growth and increasing inflationary
pressures would likely suggest that higher interest rates are on the
horizon, a negative development for the US financial markets. The
outcome of the current deliberations on reducing the Federal budget
deficit will also play a role in the investment outlook for the US
capital markets.
The Municipal Market
Tax-exempt bond yields exhibited considerable volatility during the
three months ended July 31, 1995. Municipal bond yields initially
fell throughout May into early June as evidence of a slowing
domestic economy and moderate inflationary pressures accumulated. As
measured by the Bond Buyer Revenue Bond Index, yields of A-rated,
uninsured tax-exempt revenue bonds declined 35 basis points (0.35%)
to 5.94%. By late June, however, amid signs of a potentially
resurgent economy, particularly in the rebounding housing sector,
bond yields returned to their April quarter's levels of
approximately 6.30%. The lowering of short-term interest rates by
the Federal Reserve Board in early July temporarily restored
investor confidence and tax-exempt bond yields fell to 6.05%. As
additional economic indicators were released during July, investors
again saw signs that the economy was regaining momentum and that the
Federal Reserve Board action had been premature. Fears that an
expanding economy would have negative inflationary consequences
pushed municipal bond yields higher, ending the July 31, 1995
quarter essentially unchanged at 6.27%. US Treasury bond yields
exhibited a similar pattern of volatility during the July quarter.
However, US Treasury bond yields continued to decline, falling
approximately 50 basis points to 6.85%.
Municipal bonds have underperformed US Treasury securities for a
number of reasons. The record highs of the US equity market have
continued to attract retail investors seeking further capital gains.
Investor demand has also been diminished in recent months by the
"sticker shock" effect that periodically affects the municipal bond
market. Investors who had become accustomed to purchasing tax-exempt
securities in the 6.50%--7.00% range six to seven months ago have
demonstrated understandable reluctance to purchase similar
securities at current levels. The strong fundamental structure of
the municipal bond market, however, suggests that such hesitancy may
prove costly.
<PAGE>
However, the major reason by far for the tax-exempt market's recent
underperformance has been concerns regarding the implication for
municipal bonds' tax advantage resulting from various proposed tax
law changes (for example, flat tax, value-added tax or national
sales tax) that have reduced investor demand for tax-exempt
products. Such concerns are likely to quickly recede as investors
realize that such, if any, changes are unlikely to be enacted before
late 1996 at the earliest. Long-term investors will also recall 1986
when similar tax proposals were made, municipal bond yields
initially rose, in some instances, to over 100% of taxable yields.
Tax-exempt bond yields quickly declined as investors' fears proved
to be unfounded. The municipal bond market's strong technical
position has diminished somewhat in recent months. New-issue supply
over the last six months has totaled approximately $71 billion, or a
decline of over 20% compared to the corresponding period in 1994. In
recent months, however, municipalities issued approximately $41
billion in new securities, which represents only a 6% decline versus
the same period a year earlier. Investor demand has remained muted
in recent months despite significant funds available to investors.
By the end of July investors, both individual and institutional, are
expected to have received as much as $80 billion from tax-exempt
bond maturities, coupon payments and the proceeds of early bond
redemptions. Little new money has entered the municipal market in
recent months, largely in response to the factors mentioned above.
Consequently, much of the technical support the municipal market
enjoyed earlier this year has evaporated, causing municipal bond
yields to decline at a slower rate than their taxable counterparts.
However, the recent relative underperformance of municipal bonds has
made them particularly attractive to long-term investors. Tax-exempt
bonds currently yield well over 90% of US Treasury securities. In
some instances, A-rated, long-term revenue bonds have yielded almost
95% of US Treasury bonds. Analysts usually consider municipal bonds
yielding over 82% of US Treasury securities to be historically
attractive. With inflation-adjusted, "real" after-tax equivalent tax-
exempt yields of over 6.50%, municipal securities appear to
represent considerable value.
Current tax-exempt yield levels appear to be overcompensating for
any proposed changes in tax law that can reasonably be expected to
be enacted. As Congressional hearings on this matter would continue
into 1996, and the revenue losses resultant from such changes become
more apparent, the likelihood of any significant changes to tax
codes and the resultant decline of municipal bonds' inherent tax
advantage should decline. Under such a scenario, tax-exempt bond
yields would quickly decline and currently available municipal bond
yields would return to their normal historic relationship.
<PAGE>
Fiscal Year in Review
Since the Fund's inception on May 6, 1994 and for the 12 months
ended July 31, 1995, our portfolio strategy has concentrated on
sustaining an attractive level of tax-exempt income by emphasizing
the acquisition of high-quality, current-coupon income-oriented
issues. During the 12 months ended July 31, 1995, there were two
entirely different market environments. The Bond Buyer Revenue Bond
Index was at 6.50% in July 1994, rose to a high of 7.27% by December
1994 and fell to a low 6.21% in July 1995. During the first six
months of 1995, we had a cautious approach to the market.
Nevertheless, market turbulence created a number of buying
opportunities, and our approach involved selective buying during
pronounced weakness. We also had the need to respond to an
astonishing decrease in new-issue supply of over 55% of New Mexico
municipal securities. During the last six months of the fiscal year,
our investment strategy reflected our decidedly more optimistic view
toward the municipal bond market. As a consequence, we kept the Fund
fully invested and kept cash reserves at a minimum. This investment
approach allowed the Fund to benefit from the municipal bond
market's rebound that occurred during the last half of the year. The
result of these strategies has been a positive total return and a
competitive current yield for our shareholders.
Looking ahead, we expect the investment strategy of the Fund to
continue to involve investing new assets in high-quality, current-
coupon securities similar to those that are presently reflected in
the 98% of the portfolio rated A or better by at least one of the
major rating agencies.
In Conclusion
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.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
August 31, 1995
<PAGE>
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been able to purchase shares
of the Fund through the Merrill Lynch Select Pricing SM System,
which offers four pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.25% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 10 years.
* Class C Shares are subject to a distribution fee of 0.35% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.10% (but no distribution fee).
Performance data for all of the Fund's shares are presented in the
"Total Return Based on a $10,000 Investment" graphs on page 4 and
the "Recent Performance Results" table below. Data for the Fund's
Class A and Class B Shares are presented in the "Average Annual
Total Return" tables on page 4. Data for Class C and Class D Shares
are also presented in the "Aggregate Total Return" tables on page 4.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for Class A and Class B
Shares for the 12-month and 3-month periods ended July 31, 1995 and
for Class C and Class D Shares for the since inception and 3-month
periods ended July 31, 1995. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
None of the past results shown should 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. 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.
<PAGE>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
7/31/95 4/30/95 7/31/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.29 $10.18 $10.24 +0.49% +1.08%
Class B Shares* 10.29 10.18 10.24 +0.49 +1.08
Class C Shares* 10.30 10.19 9.89 +4.15 +1.08
Class D Shares* 10.29 10.18 9.89 +4.04 +1.08
Class A Shares--Total Return* +6.65(1) +2.54(2)
Class B Shares--Total Return* +6.11(3) +2.41(4)
Class C Shares--Total Return* +8.44(5) +2.38(6)
Class D Shares--Total Return* +8.91(7) +2.52(8)
Class A Shares--Standardized 30-day Yield 5.56%
Class B Shares--Standardized 30-day Yield 5.28%
Class C Shares--Standardized 30-day Yield 5.17%
Class D Shares--Standardized 30-day Yield 5.47%
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
++Investment results shown for Class C and Class D Shares are since
inception (10/21/94).
(1)Percent change includes reinvestment of $0.599 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.149 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.548 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.136 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.398 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.133 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.451 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.147 per share ordinary
income dividends.
</TABLE>
<PAGE>
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment--Class A Shares and Class B Shares
A line graph depicting the growth of an investment in the Fund's
Class A Shares and Class B Shares compared to growth of an
investment in the Lehaman Brothers Municipal Bond Index. Beginning
and ending values are:
5/06/94** 7/31/95
ML New Mexico Municipal
Bond Fund++--Class A Shares* $ 9,600 $10,624
ML New Mexico Municipal
Bond Fund++--Class B Shares $10,000 $10,698
Lehman Brothers Municipal
Bond Index++ $10,000 $11,012
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML New Mexico Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on the behalf of the State
of New Mexico, 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.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/95 +7.99% +3.67%
Inception (5/6/94)
through 6/30/95 +8.88 +5.08
<PAGE>
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/95 +7.54% +3.54%
Inception (5/6/94) through 6/30/95 +8.33 +5.75
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
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** 7/31/95
ML New Mexico Municipal
Bond Fund++--Class C Shares $10,000 $10,744
ML New Mexico Municipal
Bond Fund++--Class D Shares $ 9,600 $10,456
Lehman Brothers Municipal
Bond Index++++ $10,000 $11,107
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML New Mexico Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the State of
New Mexico, 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.
Past performance is not predictive of future performance.
<PAGE>
Aggregate Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94)
through 6/30/95 +8.11% +7.11%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (10/21/94) through 6/30/95 +8.55% +4.20%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
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 many
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--84.7%
<S> <S> <C> <S> <C>
AAA Aaa $ 1,000 Albuquerque, New Mexico, Airport Revenue Bonds, AMT, Series A, 6.60%
due 7/01/2016 (d) $ 1,051
NR* A 500 Carlsbad, New Mexico, Sales Tax Revenue Bonds, 6.30% due 10/01/2010 507
A1+ NR* 200 Eddy County, New Mexico, PCR, Refunding (IMC Fertilizer Inc. Project), VRDN,
3.80% due 2/01/2003 (a) 200
Farmington, New Mexico, PCR, Refunding, Series A:
AAA Aaa 500 (Public Service Company of New Mexico), 6.375% due 12/15/2022 (d) 512
A+ Aa3 1,000 (Southern California Edison Company), 7.20% due 4/01/2021 1,085
AAA Aaa 500 Farmington, New Mexico, Utility System Revenue Refunding Bonds, 5.75% due
5/15/2013 (c) 492
AAA Aaa 1,780 Gallup, New Mexico, PCR, Refunding (Plains Electric Generation), 6.65%
due 8/15/2017 (b) 1,893
AAA Aaa 1,000 Las Cruces, New Mexico, Health Facilities Revenue Refunding Bonds (Evangelical
Lutheran Project), Capital Guaranty, 6.45% due 12/01/2017 1,030
A A2 1,450 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge Corporation Project),
6.50% due 4/01/2013 1,485
AAA Aaa 500 Los Alamos County, New Mexico, Utility System Revenue Refunding Bonds,
Series A, 6% due 7/01/2015 (e) 502
AAA Aaa 500 New Mexico Financing Authority Revenue Bonds (Public Project--Revolving
Fund), Series A, 6% due 6/01/2023 (d) 504
New Mexico Mortgage Finance Authority, Mortgage-Backed Securities (f)(g):
NR* Aaa 750 Series A, 6.875% due 1/01/2025 808
AAA NR* 500 Series F, 7% due 1/01/2026 541
New Mexico Mortgage Finance Authority, S/F Mortgage Program, AMT (f):
AAA NR* 900 Series A (Class D), 6.65% due 7/01/2026 910
AAA NR* 1,000 Series H, 6.60% due 7/01/2015 1,025
AA A1 750 New Mexico State University, Revenue Refunding and Improvement Bonds,
5.75% due 4/01/2016 718
NR* Aa 600 New Mexico System Revenue Bonds (Military Institution at Rosewell), 6%
due 6/01/2013 604
AAA Aaa 575 Rio Rancho, New Mexico, Water and Wastewater System Revenue Bonds, Series A,
6% due 5/15/2022 (e) 567
NR* A 750 San Juan County, New Mexico, Gross Receipts, Gas Tax Revenue Bonds,
Series B, 7% due 9/15/2009 799
</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>
Santa Fe, New Mexico, Revenue Bonds, Series A (d):
AAA Aaa $ 750 6.25% due 6/01/2015 $ 764
AAA Aaa 1,260 6.30% due 6/01/2024 1,283
University of New Mexico, University Revenue Bonds:
AA A1 500 Refunding, Series A, 6% due 6/01/2021 503
AA A1 500 Series B, 5.75% due 6/01/2022 480
Puerto Rico--13.0%
A Baa1 500 Puerto Rico Commonwealth, Aqueduct and Sewer Authority Revenue Bonds,
Series A, 7% due 7/01/2019 537
A Baa1 300 Puerto Rico Commonwealth, GO, UT, 6.45% due 7/01/2017 308
AAA Aaa 1,600 Puerto Rico Housing, Banking and Finance Agency, S/F Mortgage Revenue Bonds
(Affordable Housing Mortgage--Portfolio I), AMT, 6.25% due 4/01/2029 1,598
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 356
Total Investments (Cost--$20,459 )--97.7% 21,062
Other Assets Less Liabilities--2.3% 490
-------
Net Assets--100.0% $21,552
=======
<FN>
*Not Rated.
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at July 31, 1995.
(b)MBIA Insured.
(c)FGIC Insured.
(d)AMBAC Insured.
(e)FSA Insured.
(f)GNMA/FNMA Insured.
(g)FHA Insured.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$20,458,945) (Note 1a) $ 21,061,751
Cash 10,345
Receivables:
Interest $ 300,589
Beneficial interest sold 116,503
Investment adviser (Note 2) 62,534 479,626
------------
Deferred organization expenses (Note 1e) 35,664
Prepaid registration fees and other assets (Note 1e) 40,316
------------
Total assets 21,627,702
------------
Liabilities: Payables:
Beneficial interest redeemed 32,749
Dividends to shareholders (Note 1f) 22,715
Distributor (Note 2) 4,974 60,438
------------
Accrued expenses and other liabilities 14,908
------------
Total liabilities 75,346
------------
Net Assets: Net assets $ 21,552,356
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 74,948
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 117,574
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 1,594
Class D Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 15,244
Paid-in capital in excess of par 20,847,555
Accumulated realized capital losses on investments--net (95,789)
Accumulated distributions in excess of realized capital gains--net (11,576)
Unrealized appreciation on investments--net 602,806
------------
Net assets $ 21,552,356
============
Net Asset Value: Class A--Based on net assets of $7,715,497 and 749,483 shares
of beneficial interest outstanding $ 10.29
============
Class B--Based on net assets of $12,103,562 and 1,175,738 shares
of beneficial interest outstanding $ 10.29
============
Class C--Based on net assets of $164,203 and 15,939 shares
of beneficial interest outstanding $ 10.30
============
Class D--Based on net assets of $1,569,094 and 152,440 shares
of beneficial interest outstanding $ 10.29
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1995
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 1,124,053
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 103,271
Printing and shareholder reports 76,845
Professional fees 56,765
Account maintenance & distribution fees--Class B (Note 2) 49,636
Accounting services (Note 2) 24,542
Registration fees (Note 1e) 16,231
Amortization of organization expenses (Note 1e) 11,573
Transfer agent fees--Class B (Note 2) 5,994
Transfer agent fees--Class A (Note 2) 4,070
Pricing fees 3,859
Custodian fees 3,032
Trustees' fees and expenses 908
Account maintenance fees--Class D (Note 2) 752
Transfer agent fees--Class D (Note 2) 377
Account maintenance & distribution fees--Class C (Note 2) 316
Transfer agent fees--Class C (Note 2) 38
Other 2,997
------------
Total expenses before reimbursement 361,206
Reimbursement of expenses (Note 2) (295,622)
------------
Total expenses after reimbursement 65,584
------------
Investment income--net 1,058,469
------------
Realized & Realized loss on investments--net (88,319)
Unrealized Gain Change in unrealized appreciation on investments--net 271,370
(Loss) on ------------
Investments Net Increase in Net Assets Resulting from Operations $ 1,241,520
--Net (Notes ============
1b, 1d & 3):
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the For the Period
Year Ended May 6, 1994++
July 31, to July 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 1,058,469 $ 173,345
Realized loss on investments--net (88,319) (7,470)
Change in unrealized appreciation on investments--net 271,370 331,436
------------ ------------
Net increase in net assets resulting from operations 1,241,520 497,311
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (475,870) (88,620)
Shareholders Class B (536,222) (84,725)
(Note 1f): Class C (2,737) --
Class D (43,640) --
In excess of realized gain on investments--net:
Class A (5,153) --
Class B (6,007) --
Class C (1) --
Class D (415) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (1,070,045) (173,345)
------------ ------------
Beneficial Net increase in net assets derived from beneficial interest
Interest transactions 4,709,316 16,247,599
Transactions ------------ ------------
(Note 4):
<PAGE>
Net Assets: Total increase in net assets 4,880,791 16,571,565
Beginning of period 16,671,565 100,000
------------ ------------
End of period $ 21,552,356 $ 16,671,565
============ ============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A Class B
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year May 6, Year May 6,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.24 $ 10.00 $ 10.24 $ 10.00
Operating -------- -------- -------- --------
Performance: Investment income--net .60 .13 .54 .12
Realized and unrealized gain on investments--net .06 .24 .06 .24
-------- -------- -------- --------
Total from investment operations .66 .37 .60 .36
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.60) (.13) (.54) (.12)
In excess of realized gain on investments--net (.01) -- (.01) --
-------- -------- -------- --------
Total dividends and distributions (.61) (.13) (.55) (.12)
-------- -------- -------- --------
Net asset value, end of period $ 10.29 $ 10.24 $ 10.29 $ 10.24
======== ======== ======== ========
Total Investment Based on net asset value per share 6.65% 3.76%+++ 6.11% 3.64%+++
Return:** ======== ======== ======== ========
<PAGE>
Ratios to Expenses, excluding account maintenance and
Average distribution fees and net of reimbursement .07% .00% .09% .00%
Net Assets: ======== ======== ======== ========
Expenses, net of reimbursement .07% .00% .59% .50%*
======== ======== ======== ========
Expenses 1.65% 2.47%* 2.16% 2.97%*
======== ======== ======== ========
Investment income--net 5.92% 5.49%* 5.40% 4.98%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 7,715 $ 8,166 $ 12,104 $ 8,505
Data: ======== ======== ======== ========
Portfolio turnover 28.16% 16.06% 28.16% 16.06%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++ to
July 31, 1995
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 9.89 $ 9.89
Operating -------- --------
Performance: Investment income--net .40 .46
Realized and unrealized gain on investments--net .42 .41
-------- --------
Total from investment operations .82 .87
-------- --------
Less dividends and distributions:
Investment income--net (.40) (.46)
In excess of realized gain on investments--net (.01) (.01)
-------- --------
Total dividends and distributions (.41) (.47)
-------- --------
Net asset value, end of period $ 10.30 $ 10.29
======== ========
Total Investment Based on net asset value per share 8.44%+++ 8.91%+++
Return:** ======== ========
<PAGE>
Ratios to Expenses, excluding account maintenance and distribution
Average fees and net of reimbursement .20%* .13%*
Net Assets: ======== ========
Expenses, net of reimbursement .80%* .23%*
======== ========
Expenses 2.27%* 1.74%*
======== ========
Investment income--net 5.20%* 5.80%*
======== ========
Supplemental Net assets, end of period (in thousands) $ 164 $ 1,569
Data: ======== ========
Portfolio turnover 28.16% 28.16%
======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch New Mexico Municipal Bond Fund (the "Fund") is a
series of Merrill Lynch Multi-State Municipal Series Trust (the
"Trust"). The Fund is registered under the Investment Company Act of
1940 as a non-diversified, open-end management investment company.
The Fund offers four classes of shares under the Merrill Lynch
Select Pricing SM System. Shares of Class A and Class D are sold with
a front-end sales charge. Shares of Class B and Class C may be
subject to a contingent deferred sales charge. All classes of shares
have identical voting, dividend, liquidation and other rights and
the same terms and conditions, except that Class B, Class C and
Class D Shares bear certain expenses related to the account
maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The
following is a summary of significant accounting policies followed
by the Fund.
<PAGE>
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Trust, including
valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Trust under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell 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.
<PAGE>
(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. Prepaid registration fees are
charged to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions and post-October losses.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), 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. 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
payment. For the year ended July 31, 1995, FAM earned fees of
$103,271, all of which was voluntarily waived. FAM also reimbursed
the Fund additional expenses of $192,351.
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
<PAGE>
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1995, MLFD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
MLFD MLPF&S
Class A $2,298 $17,643
Class D $3,264 $17,870
For the year ended July 31, 1995, MLPF&S received contingent
deferred sales charges of $15,982 relating to transactions in Class
B Shares.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1995 were $11,336,540 and $4,874,662,
respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
Net realized and unrealized gains (losses) as of July 31, 1995 were
as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ 33,056 $ 602,806
Financial futures contracts (121,375) --
------------ ------------
Total $ (88,319) $ 602,806
============ ============
As of July 31, 1995, net unrealized appreciation for Federal income
tax purposes aggregated $602,806, of which $606,578 related to
appreciated securities and $3,772 related to depreciated securities.
The aggregate cost of investments at July 31, 1995 for Federal
income tax purposes was $20,458,945.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $4,709,316 and $16,247,599 for the year ended July
31, 1995 and the period ended July 31, 1994, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 149,880 $ 1,513,497
Shares issued to share-
holders in reinvestment of
dividends & distributions 7,205 72,400
----------- ------------
Total issued 157,085 1,585,897
Shares redeemed (204,850) (2,052,561)
----------- ------------
Net decrease (47,765) $ (466,664)
=========== ============
<PAGE>
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 share-
holders 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.
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 486,365 $ 4,913,636
Shares issued to share-
holders in reinvestment
of dividends & distributions 12,721 128,330
----------- ------------
Total issued 499,086 5,041,966
Shares redeemed (153,689) (1,543,514)
----------- ------------
Net increase 345,397 $ 3,498,452
=========== ============
Class B Shares for the
Period May 6, 1994++ to Dollar
July 31, 1994 Shares Amount
Shares sold 835,841 $ 8,396,609
Shares issued to share-
holders 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>
Class C Shares for the
Period October 21, 1994++ to Dollar
July 31, 1995 Shares Amount
Shares sold 16,143 $ 165,258
Shares issued to share-
holders in reinvestment
of dividends & distributions 171 1,769
----------- ------------
Total issued 16,314 167,027
Shares redeemed (375) (3,827)
----------- ------------
Net increase 15,939 $ 163,200
=========== ============
[FN]
++Commencement of Operations.
Class D Shares for the
Period October 21, 1994++ to Dollar
July 31, 1995 Shares Amount
Shares sold 175,397 $ 1,739,218
Shares issued to share-
holders in reinvestment
of dividends & distributions 2,514 25,634
----------- ------------
Total issued 177,911 1,764,852
Shares redeemed (25,471) (250,524)
----------- ------------
Net increase 152,440 $ 1,514,328
=========== ============
[FN]
++Commencement of Operations.
<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, 1995, the related state-ments
of operations for the year then ended and changes in net assets for
the year then ended and for the period May 6, 1994 (commencement of
operations) to July 31, 1994, and the financial highlights for the
year then ended and 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
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 proce-dures included confirmation of securities owned at July
31, 1995 by correspondence with the custodian. 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 Mexico Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1995, 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
August 31, 1995
</AUDIT-REPORT>
<PAGE>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
Merrill Lynch New Mexico Municipal Bond Fund during its taxable year
ended July 31, 1995 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, the Fund distributed short-term capital gains of
$.006485 per share to shareholders of record as of December 21,
1994. There were no long-term capital gains distributions.
Please retain this information for your records.
