MERRILL LYNCH
NEW MEXICO
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1996
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
William R. Bock, Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
<PAGE>
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
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.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch New Mexico
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
TO OUR SHAREHOLDERS
The Municipal Market Environment
Municipal bond yields rose dramatically during the six-month period
ended July 31, 1996. Investors became increasingly alarmed that
earlier forecasts of continued moderate growth were overly
optimistic. As indications of stronger growth were released,
particularly the strong employment reports released beginning in
March, fears of associated inflationary pressures mounted and yields
rose in response. By May and June, long-term municipal bond yields
rose into the 6.25%--6.30% range.
<PAGE>
However, in early July the combination of the Federal Reserve Board
suggesting that growth was expected to slow later in 1996 and a
temporary stock market correction allowed municipal bond yields to
fall as investors scrambled to purchase relatively scarce
securities. As measured by the Bond Buyer Revenue Bond Index, long-
term, A-rated uninsured tax-exempt bonds yielded 6.02% at July 31,
1996, an increase of over 30 basis points (0.30%) in the last six
months. Long-term US Treasury bond yields rose significantly over
the same period. By July 31, 1996, yields on US Treasury bonds
increased almost 100 basis points to end the six-month period at
6.97%.
The municipal bond market's recent outperformance as compared to
its taxable counterpart was largely the result of two principal
factors. First, much of the concern in the tax-exempt market
regarding the potential loss of the inherent tax-advantage of the
municipal bonds dissipated. For much of 1995, various tax proposals,
such as the flat tax or national sales tax, were put forward either
to reduce the national debt or reform the current tax system. Most
of these proposals would have severely limited the tax advantages
enjoyed by the municipal bond market. However, in February 1996, the
Kemp Commission released its findings regarding various tax reform
proposals. While noting that numerous changes should be made, no
mention of curtailing or stopping municipal bonds' current favored
tax status was made.
The second major factor leading to the municipal bond market's
recent outperformance was the return of a more favorable technical
environment. The rate of increase in new bond issuance recently
slowed. Over the last 12 months, approximately $175 billion in long-
term municipal securities were issued, an increase of over 27% as
compared to the same period a year earlier. Much of this increase
was the result of issuers seeking to refinance their existing higher-
couponed debt as interest rates declined in 1995 and early 1996. As
interest rates rose, these financings became increasingly
economically impractical and issuance declined. Over the last six
months, less than $70 billion in long-term tax-exempt securities
were underwritten, an increase of 20% versus the comparable period a
year earlier. Only $43 billion in tax-exempt securities were issued
in the last three months, a total essentially unchanged from the
comparable quarter in 1995. In July 1996, less than $10 billion in
long-term municipal bonds were issued, representing the lowest
issuance for the month of July since 1990.
At the same time investor demand remained consistently strong. With
nominal new-issue yields above 6%, retail investor interest was
steady. Additionally, investors received over $50 billion this June
and July in assets derived from coupon income, bond maturities and
proceeds from early redemptions. Annual new bond issuance has
declined in recent years and is expected to remain below levels seen
in the early 1990s. Consequently, as the higher-couponed bonds
issued in the early-to-mid 1980s were redeemed at their first
optional call dates, the total number of outstanding tax-exempt
bonds has declined. This combination of a declining net supply and
significant amounts of assets helped maintain investor demand in
recent months.
<PAGE>
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance led to the yield
ratio between long-term taxable and tax-exempt securi-ties falling
from in excess of 90% to approximately 85%. While historically still
very attractive, some institutional investors, particularly short-
term traders, began to view the tax-exempt bond market's recent
outperformance as an opportunity to sell a relatively expensive
asset. However, to the long-term investor, such a sale would
represent the loss of an attractively priced asset which may not be
easily replaced given the relative scarcity of municipal bonds under
present supply conditions.
Looking ahead, no clear consensus for the direction of interest
rates currently exists. Perhaps, the primary focus going forward
will be the extent to which the increase in interest rates seen thus
far in 1996 will negatively impact future economic growth. Should
growth slow in the interest rate-sensitive sectors of the economy,
like housing, auto, and consumer spending, as many economists assert
is likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of the US Treasury bond market.
Fiscal Year in Review
Our portfolio strategy changed markedly over the course of the
fiscal year ended July 31, 1996. As we entered the last half of the
fiscal year we anticipated that municipal bond yields would continue
to decline because of below-trend growth in the economy. Therefore,
we concentrated on seeking to enhance the total return potential of
the Fund by buying high-quality performance-oriented bonds and
selling short-term securities. However, as indications of stronger
economic growth were released, particularly the strong employment
report released in early March 1996, fears of inflationary pressures
mounted and municipal bond yields rose in response. We subsequently
adopted a more defensive portfolio strategy by adding higher-coupon
issues and selling lower-coupon bonds. We also raised the cash
reserve level of the Fund in order to seek to protect principal.
This investment strategy benefited the Fund's total returns for the
fiscal year ended July 31, 1996. The Fund also provided attractive
yields for its shareholders for the 12 months ended July 31, 1996.
Looking ahead, we expect the municipal market to continue to
experience volatility within a wide trading range. Therefore our
investment strategy will be cautious. We intend to increase the
Fund's cash reserve level as the market moves higher and to
selectively buy during periods of market weakness, emphasizing high-
quality, full-coupon issues that are presently reflected in all of
the portfolio's holdings which are A-rated or better by at least one
of the major rating agencies.
<PAGE>
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
Senior Vice President
(William R. Bock)
William R. Bock
Vice President and Portfolio Manager
September 5, 1996
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
*Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
<PAGE>
*Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.25% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 10 years. (There is no initial
sales charge for automatic share conversions.)
*Class C Shares are subject to a distribution fee of 0.35% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
*Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
7/31/96 4/30/96 7/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.36 $10.28 $10.29 +0.68% +0.78%
Class B Shares* 10.36 10.28 10.29 +0.68 +0.78
Class C Shares* 10.36 10.29 10.30 +0.58 +0.68
Class D Shares* 10.36 10.28 10.29 +0.68 +0.78
Class A Shares--Total Return* +6.53(1) +2.12(2)
Class B Shares--Total Return* +5.98(3) +1.99(4)
Class C Shares--Total Return* +5.76(5) +1.86(6)
Class D Shares--Total Return* +6.42(7) +2.09(8)
Class A Shares--Standardized 30-day Yield 4.98%
Class B Shares--Standardized 30-day Yield 4.69%
Class C Shares--Standardized 30-day Yield 4.58%
Class D Shares--Standardized 30-day Yield 4.89%
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.589 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.135 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.536 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.122 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.525 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.119 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.579 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.133 per share ordinary
income dividends.
</TABLE>
<PAGE>
PERFORMANCE DATA (continued)
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 Lehman Brothers Municipal Bond Index. Beginning
and ending values are:
5/06/94** 7/31/96
ML New Mexico Municipal Bond Fund++--
Class A Shares* $ 9,600 $11,317
ML New Mexico Municipal Bond Fund++--
Class B Shares $10,000 $11,456
Lehman Brothers Municipal Bond Index++++ $10,000 $11,739
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 B 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** 7/31/96
ML New Mexico Municipal Bond Fund++--
Class C Shares* $10,000 $11,468
ML New Mexico Municipal Bond Fund++--
Class D Shares* $ 9,600 $11,127
Lehman Brothers Municipal Bond Index++++ $10,000 $11,840
[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,
prefunded bonds, general obligation bonds and insured bonds.
Past performance is not predictive of future performance.
<PAGE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/96 +5.91% +1.67%
Inception (5/6/94)
through 6/30/96 +7.49 +5.47
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/96 +5.37% +1.37%
Inception (5/6/94) through 6/30/96 +6.94 +6.08
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/96 +5.25% +4.25%
Inception (10/21/94)
through 6/30/96 +7.93 +7.93
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/96 +5.80% +1.57%
Inception (10/21/94) through 6/30/96 +8.52 +5.93
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
5/6/94--12/31/94 $10.00 $ 9.70 -- $0.388 + 0.87%
1995 9.70 10.75 -- 0.621 +17.65
1/1/96--7/31/96 10.75 10.36 -- 0.304 - 0.66
------
Total $1.313
Cumulative total return as of 7/31/96: +17.89%***
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
5/6/94--12/31/94 $10.00 $ 9.70 -- $0.355 + 0.53%
1995 9.70 10.75 -- 0.569 +17.06
1/1/96--7/31/96 10.75 10.36 -- 0.274 - 0.95
------
Total $1.198
Cumulative total return as of 7/31/96: +16.56%**
</TABLE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.89 $ 9.70 -- $0.099 - 0.90%
1995 9.70 10.76 -- 0.556 +17.02
1/1/96--7/31/96 10.76 10.36 -- 0.268 - 1.11
------
Total $0.923
Cumulative total return as of 7/31/96: +14.68%**
</TABLE>
<PAGE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.89 $ 9.70 -- $0.121 - 0.67%
1995 9.70 10.75 -- 0.611 +17.54
1/1/96--7/31/96 10.75 10.36 -- 0.298 - 0.72
------
Total $1.030
Cumulative total return as of 7/31/96: +15.90%***
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
***Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
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)
PCR Pollution Control Revenue Bonds
S/F Single-Family
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
New Mexico--92.8%
<S> <S> <C> <C> <C>
AAA Aaa $ 1,000 Albuquerque, New Mexico, Airport Revenue Bonds, AMT, Series A, 6.60%
due 7/01/2016 (d) $ 1,061
<PAGE>
Bernalillo County, New Mexico, Gross Receipts Tax Revenue Bonds, Series A:
AA Aa 1,035 5.40% due 4/01/2007 1,047
AA Aa 500 5.75% due 4/01/2016 499
NR* A 500 Carlsbad, New Mexico, Sales Tax Revenue Bonds, 6.30% due 10/01/2010 (c) 517
A1+ NR* 200 Eddy County, New Mexico, PCR, Refunding (IMC Fertilizer Inc. Project), VRDN,
3.50% due 2/01/2003 (a) 200
A1+ P1 1,000 Farmington, New Mexico, PCR (Arizona Public Service Co.), VRDN, AMT,
Series C, 3.75% due 9/01/2024 (a) 1,000
Farmington, New Mexico, PCR, Refunding, Series A:
AAA Aaa 500 (Public Service Company of New Mexico), 6.375% due 12/15/2022 (d) 520
A+ A2 1,000 (Southern California Edison Company), 7.20% due 4/01/2021 1,079
AAA Aaa 1,780 Gallup, New Mexico, PCR, Refunding (Plains Electric Generation), 6.65%
due 8/15/2017 (b) 1,913
AAA Aaa 1,000 Las Cruces, New Mexico, Health Facilities Revenue Refunding Bonds
(Evangelical Lutheran Project), 6.45% due 12/01/2017 (e) 1,050
AAA Aaa 1,000 Las Cruces, New Mexico, Revenue Bonds, AMT, 5.50% due 12/01/2015 (b) 962
A A2 1,450 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge Corporation Project), 6.50%
due 4/01/2013 1,505
AAA Aaa 2,000 Los Alamos County, New Mexico, Utility System Revenue Refunding Bonds,
Series A, 6% due 7/01/2015 (e) 2,019
NR* A 955 New Mexico Educational Assistance Foundation, Student Loan Revenue Bonds, AMT,
First Sub-Series A-2, 6.65% due 11/01/2025 958
New Mexico Mortgage Finance Authority, Mortgage-Backed Securities (f)(g):
NR* Aaa 750 Series A, 6.875% due 1/01/2025 803
AAA NR* 500 Series F, 7% due 1/01/2026 536
New Mexico Mortgage Finance Authority, S/F Mortgage Program, AMT (f):
AAA NR* 900 Series A (Class D), 6.65% due 7/01/2026 922
AAA NR* 990 Series H, 6.60% due 7/01/2015 1,016
AA A1 750 New Mexico State University, Revenue Refunding and Improvement Bonds, 5.75%
due 4/01/2016 728
NR* A 750 San Juan County, New Mexico, Gross Receipts, Gas Tax Revenue Bonds, Series B,
7% due 9/15/2004 (c)(h) 863
AAA Aaa 750 Santa Fe, New Mexico, Revenue Bonds, Series A, 6.25% due 6/01/2004 (d)(h) 818
AA A1 500 University of New Mexico, University Revenue Bonds, Series B, 5.75%
due 6/01/2022 479
<PAGE>
Puerto Rico--4.7%
A- Baa1 1,000 Puerto Rico Electric Power Authority, Power Revenue Bonds,
Series T, 6.375% due 7/01/2024 1,032
Total Investments (Cost--$20,776)--97.5% 21,527
Other Assets Less Liabilities--2.5% 546
-------
Net Assets--100.0% $22,073
=======
<FN>
(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, 1996.
(b)MBIA Insured.
(c)Bank Qualified.
(d)AMBAC Insured.
(e)FSA Insured.
(f)GNMA/FNMA Insured.
(g)FHA Insured.
(h)Prerefunded.
*Not Rated.
Ratings of issues 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, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$20,776,412) (Note 1a) $21,526,942
Cash 28,015
Receivables:
Securities sold $ 1,258,368
Interest 243,555
Beneficial interest sold 49,233
Investment adviser (Note 2) 13,147 1,564,303
-----------
Deferred organization expenses (Note 1e) 31,960
Prepaid registration fees and other assets (Note 1e) 11,207
-----------
Total assets 23,162,427
-----------
<PAGE>
Liabilities: Payables:
Securities purchased 961,092
Beneficial interest redeemed 38,397
Dividends to shareholders (Note 1f) 26,255
Distributor (Note 2) 6,294 1,032,038
-----------
Accrued expenses and other liabilities 57,095
-----------
Total liabilities 1,089,133
-----------
Net Assets: Net assets $22,073,294
===========
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $ 51,046
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 134,822
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 6,872
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 20,373
Paid-in capital in excess of par 21,296,821
Accumulated realized capital losses on investments--net (100,823)
Accumulated distributions in excess of realized capital gains--
net (Note 1f) (86,347)
Unrealized appreciation on investments--net 750,530
-----------
Net assets $22,073,294
===========
Net Asset Value: Class A--Based on net assets of $5,286,910 and 510,456 shares
of beneficial interest outstanding $ 10.36
===========
Class B--Based on net assets of $13,964,323 and 1,348,223 shares
of beneficial interest outstanding $ 10.36
===========
Class C--Based on net assets of $712,154 and 68,719 shares
of beneficial interest outstanding $ 10.36
===========
Class D--Based on net assets of $2,109,907 and 203,728 shares
of beneficial interest outstanding $ 10.36
===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 1,334,044
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 125,811
Account maintenance & distribution fees--Class B (Note 2) 67,777
Accounting services (Note 2) 55,886
Professional fees 54,761
Printing and shareholder reports 49,418
Amortization of organization expenses (Note 1e) 11,605
Registration fees (Note 1e) 8,717
Transfer agent fees--Class B (Note 2) 6,492
Pricing fees 4,131
Transfer agent fees--Class A (Note 2) 2,780
Custodian fees 2,399
Account maintenance & distribution fees--Class C (Note 2) 2,036
Account maintenance fees--Class D (Note 2) 1,877
Trustees' fees and expenses 1,199
Transfer agent fees--Class D (Note 2) 734
Transfer agent fees--Class C (Note 2) 188
Other 1,567
-----------
Total expenses before reimbursement 397,378
Reimbursement of expenses (Note 2) (209,982)
-----------
Total expenses after reimbursement 187,396
-----------
Investment income--net 1,146,648
-----------
Realized & Realized loss on investments--net (5,034)
Unrealized Change in unrealized appreciation on investments--net 147,724
Gain (Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 1,289,338
(Notes 1b, 1d & 3): ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 1,146,648 $ 1,058,469
Realized loss on investments--net (5,034) (88,319)
Change in unrealized appreciation on investments--net 147,724 271,370
----------- -----------
Net increase in net assets resulting from operations 1,289,338 1,241,520
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (379,304) (475,870)
Shareholders Class B (653,404) (536,222)
(Note 1f): Class C (15,894) (2,737)
Class D (98,046) (43,640)
In excess of realized gain on investments--net:
Class A (24,218) (5,153)
Class B (43,528) (6,007)
Class C (813) (1)
Class D (6,212) (415)
----------- -----------
Net decrease in net assets resulting from dividends and
distributions to shareholders (1,221,419) (1,070,045)
----------- -----------
Beneficial Net increase in net assets derived from beneficial interest
Interest transactions 453,019 4,709,316
Transactions ----------- -----------
(Note 4):
Net Assets: Total increase in net assets 520,938 4,880,791
Beginning of year 21,552,356 16,671,565
----------- -----------
End of year $22,073,294 $21,552,356
=========== ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A Class B
For the For the
Period Period
The following per share data and ratios have been derived May 6, May 6,
from information provided in the financial statements. For the Year 1994++ to For the Year 1994++ to
Ended July 31, July 31, Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.29 $ 10.24 $ 10.00 $ 10.29 $ 10.24 $ 10.00
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income--net .56 .60 .13 .50 .54 .12
Realized and unrealized gain on
investments--net .10 .06 .24 .10 .06 .24
-------- -------- -------- -------- -------- --------
Total from investment operations .66 .66 .37 .60 .60 .36
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.56) (.60) (.13) (.50) (.54) (.12)
In excess of realized gain on
investments--net (.03) (.01) -- (.03) (.01) --
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.59) (.61) (.13) (.53) (.55) (.12)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.36 $ 10.29 $ 10.24 $ 10.36 $ 10.29 $ 10.24
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 6.53% 6.65% 3.76%+++ 5.98% 6.11% 3.64%+++
Return:** ======== ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement .49% .07% .00%* 1.01% .59% .50%*
Average Net ======== ======== ======== ======== ======== ========
Assets: Expenses 1.42% 1.65% 2.47%* 1.92% 2.16% 2.97%*
======== ======== ======== ======== ======== ========
Investment income--net 5.33% 5.92% 5.49%* 4.81% 5.40% 4.98%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 5,287 $ 7,715 $ 8,166 $ 13,964 $ 12,104 $ 8,505
======== ======== ======== ======== ======== ========
Portfolio turnover 63.02% 28.16% 16.06% 63.02% 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>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
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: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.30 $ 9.89 $ 10.29 $ 9.89
Operating ------- ------- ------- -------
Performance: Investment income--net .49 .40 .55 .46
Realized and unrealized gain on investments--net .09 .42 .10 .41
------- ------- ------- -------
Total from investment operations .58 .82 .65 .87
------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.49) (.40) (.55) (.46)
In excess of realized gain on investments--net (.03) (.01) (.03) (.01)
------- ------- ------- -------
Total dividends and distributions (.52) (.41) (.58) (.47)
------- ------- ------- -------
Net asset value, end of period $ 10.36 $ 10.30 $ 10.36 $ 10.29
======= ======= ======= =======
Total Investment Based on net asset value per share 5.76% 8.44%+++ 6.42% 8.91%+++
Return:** ======= ======= ======= =======
Ratios to Expenses, net of reimbursement 1.15% .80%* .61% .23%*
Average ======= ======= ======= =======
Net Assets: Expenses 2.03% 2.27%* 1.51% 1.74%*
======= ======= ======= =======
Investment income--net 4.67% 5.20%* 5.21% 5.80%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 712 $ 164 $ 2,110 $ 1,569
Data: ======= ======= ======= =======
Portfolio turnover 63.02% 28.16% 63.02% 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>
<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. The Fund offers
four classes of shares under the Merrill Lynch Select Pricing SM
System. Shares of Class A and Class D are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and Class D
Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Trust, including
valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Trust under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
<PAGE>
* 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. 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.
<PAGE>
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 FAM during any fiscal year which will cause such expenses
to exceed expense limitation at the time of payment. For the year
ended July 31, 1996, FAM earned fees of $125,811, all of which was
voluntarily waived. FAM also reimbursed the Fund additional expenses
of $84,171.
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:
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.
<PAGE>
For the year ended July 31, 1996, 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 $179 $1,931
Class D $661 $7,772
For the year ended July 31, 1996, MLPF&S received contingent
deferred sales charges of $43,949 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.
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1996 were $13,519,288 and $14,286,468,
respectively.
Net realized and unrealized gains (losses) as of
July 31, 1996 were as follows:
Realized Gains Unrealized
(Losses) Gains
Long-term investments $ 89,862 $ 750,530
Financial futures contracts (94,896) --
------------ ------------
Total $ (5,034) $ 750,530
============ ============
As of July 31, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $750,530, all of which related to
appreciated securities. The aggregate cost of investments at July
31, 1996 for Federal income tax purposes was $20,776,412.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $453,019 and $4,709,316 for the years ended July
31, 1996 and July 31, 1995, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Dollar
Year Ended July 31, 1996 Shares Amount
Shares sold 35,804 $ 375,197
Shares issued to share-
holders in reinvestment of
dividends & distributions 6,444 67,522
------------ ------------
Total issued 42,248 442,719
Shares redeemed (281,275) (2,905,316)
------------ ------------
Net decrease (239,027) $ (2,462,597)
============ ============
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)
============ ============
Class B Shares for the
Year Ended Dollar
July 31, 1996 Shares Amount
Shares sold 379,728 $ 3,988,696
Shares issued to share-
holders in reinvestment of
dividends & distributions 20,659 216,452
------------ ------------
Total issued 400,387 4,205,148
Shares redeemed (227,902) (2,381,102)
------------ ------------
Net increase 172,485 $ 1,824,046
============ ============
Class B Shares for the
Year Ended Dollar
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 C Shares for the
Year Ended Dollar
July 31, 1996 Shares Amount
Shares sold 63,403 $ 667,096
Shares issued to share-
holders in reinvestment of
dividends & distributions 1,180 12,350
------------ ------------
Total issued 64,583 679,446
Shares redeemed (11,803) (126,868)
------------ ------------
Net increase 52,780 $ 552,578
============ ============
<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 Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 53,269 $ 558,846
Shares issued to share-
holders in reinvestment of
dividends & distributions 5,883 61,650
------------ ------------
Total issued 59,152 620,496
Shares redeemed (7,864) (81,504)
------------ ------------
Net increase 51,288 $ 538,992
============ ============
Class D Shares for the Period Dollar
Oct. 21, 1994++ to 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, 1996, 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 two-year period
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 procedures included confirmation of securities owned at July
31, 1996 by correspondence with the custodian and broker. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch New Mexico Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1996, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 5, 1996
</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, 1996 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, the Fund distributed short-term capital gains of
$.033365 per share to shareholders of record as of December 19,
1995. There were no long-term capital gains distributions.
Please retain this information for your records.
