MERRILL LYNCH
NEW MEXICO
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Annual Report
July 31, 1997
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
Robert E. Putney, III, Secretary
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 #18035 -- 7/97
[RECYCLE LOGO] Printed on post-consumer recycled paper
Merrill Lynch New Mexico Municipal Bond Fund July 31, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1997, a number of very favorable
factors combined to push both tax-exempt and taxable bond yields to
recent historic lows. A slowing domestic economy, a continued benign, if
not improving, inflationary environment, a declining Federal budget
deficit with resultant reduced Treasury borrowing needs, and a
successful Congressional budget accord all resulted in significant
declines in fixed-income yields. By the end of July, 30-year US Treasury
bond yields had declined approximately 50 basis points (0.50%) to 6.30%,
their lowest level in over a year. Similarly, as measured by the Bond
Buyer Revenue Bond Index, long-term municipal revenue bond yields fell
over 50 basis points to end the July 31, 1997 quarter at 5.49%,
their lowest level since early 1994.
The decline in tax-exempt yields in recent months has been even more
impressive given that the municipal market has lost much of the
technical support it had enjoyed for over a year. In previous quarters,
new tax-exempt bond issuance declined or remained stable. During the six
months ended July 31, 1997, approximately $100 billion in new long-term
municipal securities was underwritten, an increase of over 7.5% versus
the comparable period in 1996. As tax-exempt bond yields declined, many
municipal bond issuers have taken this opportunity to both issue new
debt and refinance older, higher-couponed debt with new, lower-yielding
issues. This refinancing has led to a surge in tax-exempt issuance in
recent months. Over the three months ended July 31, 1997, new
long-term tax-exempt bond issuance totaled approximately $55 billion, an
increase of over 15% versus the July 31, 1996 quarter.
The decline in municipal bond yields has also resulted in some reduction
in retail investor demand. In earlier episodes of rapidly declining
interest rates, individual investor demand initially fell until
investors became more acclimated to the current levels. Should interest
rates stabilize, we expect investor demand to return to earlier levels.
Also, this past June and July, municipal bond investors received over
$50 billion in assets from coupon income payments, bond maturities, and
the proceeds from early bond redemptions. Despite the continued allure
of the US equity market, it is likely that much of these assets will be
reallocated to the municipal bond market as investors adjust to the new
investment environment.
Looking forward, given the extent of the recent bond market rally, some
retrenchment or at least a period of consolidation is likely. However,
the positive backdrop of modest economic growth and low inflation
suggests that any such adjustment is not likely to be excessive. Despite
recent increases in new bond issuance, supply for all of 1997 is not
expected to be materially different than earlier estimates of
approximately $175 billion. It is likely that the recent increase in
issuance has largely borrowed from that originally scheduled for later
this year. Additionally, any significant increase in tax-exempt bond
yields will prevent any further bond refinancings, reducing future
supply. Unless the current positive economic fundamentals undergo
immediate and significant deterioration, any increase in municipal bond
yields is likely to be viewed as an opportunity to purchase more
attractively priced tax-exempt securities.
Fiscal Year in Review
During the past 12 months, the municipal bond market was characterized
by tremendous price volatility within a narrow trading range. We focused
on purchasing long-term bonds as yields approached 6.00% and selling
these securities as yields rallied to 5.50%. The Fund was fully invested
in long-term securities during most of the fiscal year to seek to
achieve an above industry average current yield. During the 12-month
period, our primary emphasis was on current coupon and premium coupon
bonds. These securities provide a high level of income and are subject
to less market movement during periods of volatility. The Fund's cash
equivalent reserves fluctuated between 5% -- 10% of total assets, and a
large portion of assets committed to longer-term maturities currently
have coupons structured for income rather than price appreciation. This
strategy served the Fund well during this particularly volatile period
for the fixed-income markets in general, generating total return
performance comparable to similar New Mexico municipal bond funds as
well as an above-average yield.
Portfolio Matters
During the six months ended July 31, 1997, we maintained a slightly
constructive posture on interest rates. We believed that the strong
economic growth that prevailed in the first quarter of 1997 would slow
considerably in the second quarter. Slow growth combined with continued
low inflation and a balanced budget accord provided a significant
decline in long-term interest rates.
The municipal market in New Mexico continued to see very little activity
during the past six months. This was a result of the small amount of new
issuance, just over $750 million in municipal bonds, coming to the New
Mexico tax-exempt market, although this represents an increase in
issuance as compared to the same period in 1996. During the past three
months, just over $300 million in bonds was issued in New Mexico, a
decline of 7% versus the comparable period a year ago. Additionally, the
majority of new issuance in New Mexico had been dominated by current
coupons and poor call protection features, which would not have enhanced
the Fund's overall structure.
In Conclusion
We have adopted a slightly defensive posture for the second half of
1997. We believe that economic growth will reappear and that there will
be an increase in long-term interest rates. Our strategy will be to
favor higher-couponed issues that have greater potential for capital
appreciation over interest rate-sensitive securities. As new issuance in
the New Mexico tax-exempt market remains at low levels, we expect to
continue to remain fully invested in the coming months.
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,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/ROBERT D. SNEEDEN
Robert D. Sneeden
Portfolio Manager
September 5, 1997
We are pleased to announce that Robert D. Sneeden is responsible for the
day-to-day management of Merrill Lynch New Mexico Municipal Bond Fund.
Mr. Sneeden has been employed by Merrill Lynch Asset Management, L.P.
(an affiliate of the Fund's investment adviser) since 1994 as Portfolio
Manager. Prior thereto, he was a Vice President at Lehman Brothers from
1990 to 1994.
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] 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.
[bullet] 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.)
[bullet] 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.
[bullet] Class D Shares incur a maximum initial sales charge of 4% and
an account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Average Annual Total Return"
tables as well as the total returns and cumulative total returns in the
"Performance Summary" tables assume reinvestment of all dividends and
capital gains distributions at net asset value on the payable date.
Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer
agency fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
7/31/97 4/30/97 7/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.82 $10.40 $10.36 +4.44% +4.04%
Class B Shares* 10.82 10.40 10.36 +4.44 +4.04
Class C Shares* 10.83 10.41 10.36 +4.54 +4.03
Class D Shares* 10.82 10.40 10.36 +4.44 +4.04
Class A Shares -- Total Return* +9.86(1) +5.33(2)
Class B Shares -- Total Return* +9.30(3) +5.19(4)
Class C Shares -- Total Return* +9.29(5) +5.16(6)
Class D Shares -- Total Return* +9.75(7) +5.30(8)
Class A Shares -- Standardized 30-day Yield 4.39%
Class B Shares -- Standardized 30-day Yield 4.08%
Class C Shares -- Standardized 30-day Yield 3.97%
Class D Shares -- Standardized 30-day Yield 4.30%
* 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 $0.531 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.130 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.478 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.117 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.467 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.114 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.521 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.127 per share ordinary income dividends.
</TABLE>
[GRAPHIC WORM CHART OMITTED: Total Return Based on a $10,000 Investment]
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** 7/97
ML New Mexico Municipal Bond Fund+--
Class A Shares* $9,600 $12,433
ML New Mexico Municipal Bond Fund+--
Class B Shares* $10,000 $12,640
Lehman Brothers Municipal Bond
Index++ $10,000 $12,943
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** 7/97
ML New Mexico Municipal Bond Fund+--
Class C Shares* $10,000 $12,534
ML New Mexico Municipal Bond Fund+--
Class D Shares* $9,600 $12,211
Lehman Brothers Municipal Bond
Index++ $10,000 $13,054
* 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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/97 +8.08% +3.76%
Inception (5/06/94)
through 6/30/97 +7.68 +6.29
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +7.54% +3.54%
Inception (5/06/94)
through 6/30/97 +7.13 +6.86
* 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 6/30/97 +7.32% +6.32%
Inception (10/21/94)
through 6/30/97 +7.71 +7.71
* 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 6/30/97 +7.98% +3.66%
Inception (10/21/94)
through 6/30/97 +8.33 +6.69
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
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
1996 10.75 10.54 -- 0.543 + 3.27
1/1/97 -- 7/31/97 10.54 10.82 -- 0.292 + 5.68
Total $1.844
Cumulative total return as of 7/31/97: +29.51%**
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
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
1996 10.75 10.54 -- 0.490 + 2.75
1/1/97 -- 7/31/97 10.54 10.82 -- 0.262 + 5.37
Total $1.676
Cumulative total return as of 7/31/97: +27.40%***
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
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
1996 10.76 10.55 -- 0.479 + 2.64
1/1/97 -- 7/31/97 10.55 10.83 -- 0.256 + 5.30
Total $1.390
Cumulative total return as of 7/31/97: +25.34%***
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
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 +17.53
1996 10.75 10.54 -- 0.533 + 3.17
1/1/97 -- 7/31/97 10.54 10.82 -- 0.286 + 5.62
Total $1.551
Cumulative total return as of 7/31/97: +27.20%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
*** Figures do not reflect deduction of any sales charge; results would be lower if sales charge
was deducted.
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch New Mexico Municipal Bond Fund July 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
New Mexico -- 92.5%
AAA Aaa $1,000 Albuquerque, New Mexico, Airport Revenue Bonds, AMT, Series A, 6.60% due 7/01/2016 (d) $1,096
AA Aa 500 Bernalillo County, New Mexico, Gross Receipts Tax Revenue Bonds, Series A, 5.75%
due 4/01/2016 520
NR* A 500 Carlsbad, New Mexico, Sales Tax Revenue Bonds, 6.30% due 10/01/2010 534
A1+ P1 500 Farmington, New Mexico, PCR (Arizona Public Service Co.), VRDN, AMT, Series C,
3.70% due 9/01/2024 (a) 500
Farmington, New Mexico, PCR, Refunding, Series A:
AAA Aaa 500 (Public Service Company of New Mexico), 6.375% due 12/15/2022 (d) 553
BB+ Ba1 500 (Public Service Company of San Juan), 6.30% due 12/01/2016 522
A+ A2 1,000 (Southern California Edison Company), 7.20% due 4/01/2021 1,092
AAA Aaa 1,780 Gallup, New Mexico, PCR, Refunding (Plains Electric Generation), 6.65% due 8/15/2017 (b) 1,977
AAA Aaa 1,000 Las Cruces, New Mexico, Health Facilities Revenue Refunding Bonds (Evangelical
Lutheran Project), 6.45% due 12/01/2017 (e) 1,106
A A2 1,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge Corporation Project),
6.50% due 4/01/2013 1,079
AAA Aaa 1,000 Los Alamos County, New Mexico, Utility System Revenue Refunding Bonds, Series A,
6% due 7/01/2015 (e) 1,067
NR* A 1,955 New Mexico Educational Assistance Foundation, Student Loan Revenue Bonds, AMT,
First Sub-Series A-2, 6.65% due 11/01/2025 2,074
New Mexico Mortgage Finance Authority, Mortgage-Backed Securities (c)(f):
NR* Aaa 750 Series A, 6.875% due 1/01/2025 833
AAA NR* 500 Series F, 7% due 1/01/2026 557
New Mexico Mortgage Finance Authority, S/F Mortgage Program, AMT (f):
AAA NR* 895 Series A, 6.65% due 7/01/2026 947
AAA NR* 985 Series H, 6.60% due 7/01/2015 1,040
AA A1 750 New Mexico State University, Revenue Refunding and Improvement Bonds, 5.75%
due 4/01/2016 769
AAA Aaa 1,000 Santa Fe County, New Mexico, Correctional System Revenue Bonds, 6% due 2/01/2027 (e) 1,123
AA A1 500 University of New Mexico, University Revenue Bonds, Series B, 5.75% due 6/01/2022 516
Puerto Rico -- 5.7%
BBB+ Baa1 1,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series T, 6.375%
due 7/01/2024 1,098
Total Investments (Cost -- $17,730) -- 98.2% 19,003
Other Assets Less Liabilities -- 1.8% 343
-----------
Net Assets -- 100.0% $19,346
===========
(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, 1997.
(b) MBIA Insured.
(c) FHA Insured.
(d) AMBAC Insured.
(e) FSA Insured.
(f) GNMA/FNMA Collateralized.
* Not Rated.
Ratings of issues shown have not been
audited by Deloitte & Touche LLP.
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
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost --$17,729,989) (Note 1a) $19,003,082
Cash 95,361
Receivables:
Interest $257,416
Beneficial interest sold 33,664 291,080
------------
Deferred organization expenses (Note 1e) 20,387
Prepaid registration fees and other assets (Note 1e) 11,205
------------
Total assets 19,421,115
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 24,495
Beneficial interest redeemed 11,564
Distributor (Note 2) 6,173
Investment adviser (Note 2) 1,762 43,994
------------
Accrued expenses and other liabilities 31,197
------------
Total liabilities 75,191
------------
Net Assets: Net assets $19,345,924
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $35,687
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 108,138
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 9,988
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 24,946
Paid-in capital in excess of par 17,676,759
Undistributed realized capital gains on investments -- net 217,313
Unrealized appreciation on investments -- net 1,273,093
------------
Net assets $19,345,924
============
Net Asset Value: Class A -- Based on net assets of $3,861,823 and 356,866 shares
of beneficial interest outstanding $10.82
============
Class B -- Based on net assets of $11,703,165 and 1,081,380 shares
of beneficial interest outstanding $10.82
============
Class C -- Based on net assets of $1,081,509 and 99,883 shares
of beneficial interest outstanding $10.83
============
Class D -- Based on net assets of $2,699,427 and 249,457 shares
of beneficial interest outstanding $10.82
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
July 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $1,280,938
(Note 1d):
Expenses: Investment advisory fees (Note 2) $120,031
Account maintenance & distribution fees -- Class B (Note 2) 69,591
Professional fees 56,941
Printing and shareholder reports 40,367
Accounting services (Note 2) 32,909
Registration fees (Note 1e) 11,972
Amortization of organization expenses (Note 1e) 11,573
Transfer agent fees -- Class B (Note 2) 6,565
Account maintenance & distribution fees -- Class C (Note 2) 5,338
Pricing fees 3,700
Account maintenance fees -- Class D (Note 2) 2,293
Custodian fees 2,112
Transfer agent fees -- Class A (Note 2) 1,861
Trustees' fees and expenses 1,049
Transfer agent fees -- Class D (Note 2) 908
Transfer agent fees -- Class C (Note 2) 455
Other 1,887
------------
Total expenses before reimbursement 369,552
Reimbursement of expenses (Note 2) (118,290)
------------
Total expenses after reimbursement 251,262
------------
Investment income -- net 1,029,676
------------
Realized & Realized gain on investments -- net 404,483
Unrealized Gain on Change in unrealized appreciation on investments -- net 522,563
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $1,956,722
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended July 31,
1997 1996
Increase (Decrease) in Net Assets:
<S> <C> <C> <C>
Operations: Investment income -- net $1,029,676 $1,146,648
Realized gain (loss) on investments -- net 404,483 (5,034)
Change in unrealized appreciation on investments -- net 522,563 147,724
------------ ------------
Net increase in net assets resulting from operations 1,956,722 1,289,338
------------ ------------
Dividends & Investment income -- net:
Distributions to Class A (239,874) (379,304)
Shareholders Class B (636,250) (653,404)
(Note 1f): Class C (39,611) (15,894)
Class D (113,941) (98,046)
In excess of realized gain on investments -- net:
Class A -- (24,218)
Class B -- (43,528)
Class C -- (813)
Class D -- (6,212)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (1,029,676) (1,221,419)
------------ ------------
Beneficial Interest Net increase (decrease) in net assets derived from beneficial interest
Transactions transactions (3,654,416) 453,019
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (2,727,370) 520,938
Beginning of year 22,073,294 21,552,356
------------ ------------
End of year $19,345,924 $22,073,294
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
For the Period
The following per share data and ratios have been derived May 6,
from information provided in the financial statements. For the Year Ended July 31 1994+ to
1997 1996 1995 July 31, 1994
------ ------ ------ -------------
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.36 $10.29 $10.24 $10.00
Operating ------ ------ ------ ------
Performance: Investment income -- net .53 .56 .60 .13
Realized and unrealized gain on investments -- net .46 .10 .06 .24
------ ------ ------ ------
Total from investment operations .99 .66 .66 .37
------ ------ ------ ------
Less dividends and distributions:
Investment income -- net (.53) (.56) (.60) (.13)
In excess of realized gain on investments -- net -- (.03) (.01) --
------ ------ ------ ------
Total dividends and distributions (.53) (.59) (.61) (.13)
------ ------ ------ ------
Net asset value, end of period $10.82 $10.36 $10.29 $10.24
====== ====== ====== ======
Total Investment Based on net asset value per share 9.86% 6.53% 6.65% 3.76%++++
Return:** ====== ====== ====== ======
Ratios to Expenses, net of reimbursement .79% .49% .07% .00%*
Average Net ====== ====== ====== ======
Assets: Expenses 1.33% 1.42% 1.65% 2.47%*
====== ====== ====== ======
Investment income -- net 5.08% 5.33% 5.92% 5.49%*
====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $3,862 $5,287 $7,715 $8,166
Data: ====== ====== ====== ======
Portfolio turnover 40.53% 63.02% 28.16% 16.06%
====== ====== ====== ======
Class B
For the Period
The following per share data and ratios have been derived May 6,
from information provided in the financial statements. For the Year Ended July 31 1994+ to
1997 1996 1995 July 31, 1994
------- ------- ------- -------------
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.36 $10.29 $10.24 $10.00
Operating ------- ------- ------- -------
Performance: Investment income -- net .48 .50 .54 .12
Realized and unrealized gain on investments -- net .46 .10 .06 .24
------- ------- ------- -------
Total from investment operations .94 .60 .60 .36
------- ------- ------- -------
Less dividends and distributions:
Investment income -- net (.48) (.50) (.54) (.12)
In excess of realized gain on investments -- net -- (.03) (.01) --
------- ------- ------- -------
Total dividends and distributions (.48) (.53) (.55) (.12)
------- ------- ------- -------
Net asset value, end of period $10.82 $10.36 $10.29 $10.24
======= ======= ======= =======
Total Investment Based on net asset value per share 9.30% 5.98% 6.11% 3.64%++++
Return:** ======= ======= ======= =======
Ratios to Expenses, net of reimbursement 1.30% 1.01% .59% .50%*
Average Net ======= ======= ======= =======
Assets: Expenses 1.84% 1.92% 2.16% 2.97%*
======= ======= ======= =======
Investment income -- net 4.57% 4.81% 5.40% 4.98%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $11,703 $13,964 $12,104 $8,505
Data: ======= ======= ======= =======
Portfolio turnover 40.53% 63.02% 28.16% 16.06%
======= ======= ======= =======
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (concluded)
Class C Class D
For the For the
Period Period
Oct. 21, Oct. 21,
The following per share data and ratios have been derived For the Year 1994+ to For the Year 1994+ to
from information provided in the financial statements. Ended July 31, July 31, Ended July 31, July 31,
1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
Per Share Net asset value, beginning of period $10.36 $10.30 $9.89 $10.36 $10.29 $9.89
Operating ------- ------- ------- ------- ------- -------
Performance: Investment income -- net .47 .49 .40 .52 .55 .46
Realized and unrealized gain on
investments -- net .47 .09 .42 .46 .10 .41
------- ------- ------- ------- ------- -------
Total from investment operations .94 .58 .82 .98 .65 .87
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net (.47) (.49) (.40) (.52) (.55) (.46)
In excess of realized gain on
investments -- net -- (.03) (.01) -- (.03) (.01)
------- ------- ------- ------- ------- -------
Total dividends and distributions (.47) (.52) (.41) (.52) (.58) (.47)
------- ------- ------- ------- ------- -------
Net asset value, end of period $10.83 $10.36 $10.30 $10.82 $10.36 $10.29
======= ======= ======= ======= ======= =======
Total Investment Based on net asset value per share 9.29% 5.76% 8.44%++++ 9.75% 6.42% 8.91%++++
Return:** ======= ======= ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement 1.42% 1.15% .80%* .90% .61% .23%*
Net Assets: ======= ======= ======= ======= ======= =======
Expenses 1.95% 2.03% 2.27%* 1.44% 1.51% 1.74%*
======= ======= ======= ======= ======= =======
Investment income -- net 4.45% 4.67% 5.20%* 4.97% 5.21% 5.80%*
======= ======= ======= ======= ======= =======
Supplemental Net assets, end of period
Data: (in thousands) $1,082 $712 $164 $2,699 $2,110 $1,569
======= ======= ======= ======= ======= =======
Portfolio turnover 40.53% 63.02% 28.16% 40.53% 63.02% 28.16%
======= ======= ======= ======= ======= =======
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund July 31, 1997
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.
[bullet] 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 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.
For the year ended July 31, 1997, FAM earned fees of $120,031, of which
$112,203 was voluntarily waived. FAM also reimbursed the Fund additional
expenses of $6,087.
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.
For the year ended July 31, 1997, 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 $199 $2,319
Class D $765 $7,991
For the year ended July 31, 1997, MLPF&S received contingent deferred
sales charges of $74,568 and $64 relating to transactions in Class B and
Class C Shares, respectively.
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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the year ended July 31, 1997 were $8,418,378 and $11,160,567,
respectively.
Net realized and unrealized gains as of July 31, 1997 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $404,483 $1,273,093
--------- ----------
Total $404,483 $1,273,093
========= ==========
As of July 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $1,273,093, all of which related to appreciated
securities. The aggregate cost of investments at July 31, 1997 for
Federal income tax purposes was $17,729,989.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $(3,654,416) and $453,019 for the years ended July 31,
1997 and July 31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 141,231 $1,483,036
Shares issued to shareholders
in reinvestment of dividends 6,350 66,621
------------ ------------
Total issued 147,581 1,549,657
Shares redeemed (301,171) (3,172,107)
------------ ------------
Net decrease (153,590) $(1,622,450)
============ ============
Class A Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 35,804 $375,197
Shares issued to shareholders
in reinvestment of dividends
and 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 B Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 260,889 $2,740,720
Shares issued to shareholders
in reinvestment of dividends 27,133 284,566
------------ ------------
Total issued 288,022 3,025,286
Automatic conversion
of shares (1,409) (14,659)
Shares redeemed (553,456) (5,843,171)
------------ ------------
Net decrease (266,843) $(2,832,544)
============ ============
Class B Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 379,728 $3,988,696
Shares issued to shareholders
in reinvestment of dividends
and 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 C Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 47,282 $492,323
Shares issued to shareholders
in reinvestment of dividends 2,768 29,059
------------ ------------
Total issued 50,050 521,382
Shares redeemed (18,886) (198,644)
------------ ------------
Net increase 31,164 $322,738
============ ============
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 63,403 $667,096
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,180 12,350
------------ ------------
Total issued 64,583 679,446
Shares redeemed (11,803) (126,868)
------------ ------------
Net increase 52,780 $552,578
============ ============
Class D Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 44,220 $462,121
Automatic conversion
of shares 1,409 14,659
Shares issued to shareholders
in reinvestment of dividends 5,906 61,981
------------ ------------
Total issued 51,535 538,761
Shares redeemed (5,806) (60,921)
------------ ------------
Net increase 45,729 $477,840
============ ============
Class D Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 53,269 $558,846
Shares issued to shareholders
in reinvestment of dividends
and distributions 5,883 61,650
------------ ------------
Total issued 59,152 620,496
Shares redeemed (7,864) (81,504)
------------ ------------
Net increase 51,288 $538,992
============ ============
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, 1997, the related state-ments 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 three-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, 1997 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, 1997, 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, 1997
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, 1997 qualify as tax-exempt interest dividends for Federal income tax
purposes.
Additionally, there were no capital gains distributed by the Fund during
the year.
Please retain this information for your records.
