MERRILL LYNCH
NEW MEXICO
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1998
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
Printed on post-consumer recycled paper
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1998, long-term tax-exempt
revenue bond yields were little changed. Throughout the period, the
near absence of inflationary pressures continued to support low
interest rates. However, consistently strong domestic economic
growth has caused some investors to fear that the Federal Reserve
Board will be forced eventually to raise short-term interest rates.
Such action would be taken to ensure that the US economy's present
rate of growth would decelerate before any inflationary pressures
could develop. These concerns pushed bond yields modestly higher by
late April.
However, the weakening financial conditions in many Asian countries
subsequently calmed investor fears of Federal Reserve Board
intervention, and fixed-income prices again moved higher. Long-term
uninsured municipal bond yields, as measured by the Bond Buyer
Revenue Bond Index, rose less than 5 basis points (0.05%) to end the
July quarter at 5.36%. As in late 1997 and early 1998, US Treasury
bond yields benefited from a "flight to quality" as foreign
investors were drawn to the relative safe haven of US Government
securities. Long-term US Treasury bond yields declined approximately
10 basis points to end the July quarter at 5.71%.
Thus far in 1998, the municipal bond market has experienced
unexpectedly strong supply pressures. These supply pressures have
prevented tax-exempt bond yields from declining as much as US
Treasury bond yields. During the first six months of 1998, more than
$153 billion in new tax-exempt bonds were underwritten, an increase
of almost 50% compared to the same period a year ago. During the
quarter ended July 31, 1998, municipalities issued over $75 billion
in new securities, an increase of more than 35% compared to the same
three-month period in 1997. Additionally, corporate issuers have
also viewed current interest rate levels as an opportunity to issue
significant amounts of taxable securities. Thus far in 1998, over
$500 billion in investment-grade corporate bonds have been
underwritten, an increase of more than 70% compared to the same
period a year ago. This sizeable corporate bond issuance has tended
to both support generally higher fixed-income yields and reduce the
demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely
to be maintained. Continued increases in bond issuance will require
lower and lower tax-exempt bond yields to generate the economic
savings necessary for additional municipal bond refinancings.
Preliminary estimates for 1998 total municipal bond issuance are in
the $200 billion--$225 billion range. These estimates suggest that
recent supply pressures are likely to abate later in the year.
Earlier this year, municipal bond investors received approximately
$30 billion in coupon payments, bond maturities and proceeds from
early redemptions. The demand generated by these assets has helped
to offset the increase in supply seen thus far in 1998.
The continued impact of the Asian financial crisis on the US
domestic economy's future growth remains unclear. Current Asian
economic conditions continue to reflect ongoing weakness. Recent
trade data indicated that reduced US exports to these countries may
have lowered US economic growth by as much as 2% in the first
quarter of 1998. Since further trade deterioration is possible in
the coming months, we do not believe that the Federal Reserve Board
will be willing to raise interest rates, barring a dramatic and
unexpected resurgence of domestic inflation.
These factors suggest that over the near term, interest rates are
unlikely to rise by any appreciable amount. Recent supply pressures
have caused municipal bond yield ratios to rise relative to US
Treasury bond yields. At July 31, 1998, long-term tax-exempt bond
yields were at attractive yield ratios relative to US Treasury
securities of comparable maturities (over 90%), well in excess of
their expected range of 85%--88%. Tax-exempt bond yield ratios
rarely exceeded 90% in the 1980s and 1990s. Previous instances have
usually been associated with potential changes in Federal tax code
that would have adversely affected the tax-favored status of
municipal bonds. The present situation has developed largely because
of a temporary supply imbalance. These imbalances should soon be
corrected as tax-exempt bond issuance slows from its current rapid
pace later this year. Any further pressure on the municipal market
may well represent a very attractive investment opportunity.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
Portfolio Strategy
During the six months ended July 31, 1998, our investment outlook
for Merrill Lynch New Mexico Municipal Bond Fund was basically
constructive. The deterioration in the Asian economies helped keep
interest rates low, even in the face of strong domestic economic
growth. This combination of strong growth and low inflation has kept
bond yields within a rather narrow trading range over the past six
months.
New issuance of New Mexico tax-exempt municipal bonds was just over
$600 million during the six-month period ended July 31, 1998. This
represents a decrease of more than 15% compared to the same six-
month period a year ago. Additionally, the majority of new issuance
in New Mexico was dominated by current coupons and lesser call
protection. We do not view such securities as attractive additions
to the Fund's portfolio.
Looking ahead, we expect to continue to maintain our fully invested
position and our constructive portfolio strategy to seek to benefit
from a lower interest rate environment. However, anticipated lack of
new issuance in New Mexico may curtail our ability to execute this
strategy.
Fiscal Year in Review
During the fiscal year ended July 31, 1998, total municipal issuance
increased by more than 40% compared to the same period last year,
while New Mexico municipal issuance decreased by more than 25% over
the same period. Both the tax-exempt and US Treasury markets
experienced a decline in yields, although the greater increase in
tax-exempt issuance resulted in municipal performance lagging that
of US Treasury securities.
Given the narrow trading range of the municipal bond market, we
maintained a slightly defensive strategy going into the second half
of 1997. We believed that economic growth would resurge and the
Federal Reserve Board would raise interest rates in order to keep
inflation under control. However, in late October 1997, the Asian
equity market turmoil created an increased demand for US Treasury
securities, causing a rally in the bond market. In response to the
Asian economic crisis and the continued domestic low inflation
environment, we shifted the Fund to a more aggressive position by
early November 1997. We remained constructive through July 31, 1998,
participating in the continued bond market rally, which brought
interest rates to their recent historic lows. These strategies
produced total returns of +5.52%, +4.99%, +4.88% and +5.42% for the
Fund's Class A, Class B, Class C and Class D Shares, respectively,
for the year ended July 31, 1998.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch New Mexico
Municipal Bond Fund, and we look forward to serving your investment
needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
September 9, 1998
We are pleased to announce that Hugh T. Hurley III is responsible
for the day-to-day management of Merrill Lynch New Mexico Municipal
Bond Fund. Mr. Hurley has been employed by Merrill Lynch Asset
Management, L.P. (an affiliate of the Fund's investment adviser)
since 1996 as Vice President and since 1993 as Assistant Vice
President.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* 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. (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. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the payable date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent Performance Results*
<CAPTION>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 7/31/98
<S> <C> <C> <C> <C>
ML New Mexico Municipal Bond Fund Class A Shares +5.52% +1.95% +36.66% 3.45%
ML New Mexico Municipal Bond Fund Class B Shares +4.99 +1.82 +33.76 3.08
ML New Mexico Municipal Bond Fund Class C Shares +4.88 +1.89 +31.46 2.98
ML New Mexico Municipal Bond Fund Class D Shares +5.42 +1.93 +34.10 3.35
<FN>
*Investment results shown do not reflect sales charges; results
would be lower if a sales charge was included. Total investment
returns are based on changes in net asset values for the periods
shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date. The Fund's
inception dates are: Class A and Class B Shares, 5/06/94; and Class
C and Class D Shares, 10/21/94.
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment
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 Brother's Municipal Bond Index. Beginning
and ending values are:
5/06/94** 7/98
ML New Mexico Municipal Bond Fund++--
Class A Shares* $ 9,600 $13,119
ML New Mexico Municipal Bond Fund++--
Class B Shares* $10,000 $13,376
Lehman Brothers Municipal Bond
Index++++ $10,000 $13,718
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 Brother's Municipal Bond Index. Beginning
and ending values are:
10/21/94** 7/98
ML New Mexico Municipal Bond Fund++--
Class C Shares* $10,000 $13,146
ML New Mexico Municipal Bond Fund++--
Class D Shares* $ 9,600 $12,873
Lehman Brothers Municipal Bond
Index++++ $10,000 $13,837
[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. The
starting date for the Index in the Class A & Class B Shares graph is
4/30/94 and in the Class C & Class D Shares graph is 10/31/94.
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 6/30/98 +7.95% +3.64%
Inception (5/06/94)
through 6/30/98 +7.74 +6.69
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/98 +7.41% +3.41%
Inception (5/06/94)
through 6/30/98 +7.20 +7.20
[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 6/30/98 +7.40% +6.40%
Inception (10/21/94)
through 6/30/98 +7.63 +7.63
[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 6/30/98 +7.85% +3.53%
Inception (10/21/94)
through 6/30/98 +8.20 +7.00
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
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--93.0%
<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) $ 1,087
AA Aa3 500 Bernalillo County, New Mexico, Gross Receipts Tax Revenue Bonds, Series A,
5.75% due 4/01/2006 (g) 544
NR* A 500 Carlsbad, New Mexico, Sales Tax Revenue Bonds, 6.30% due 10/01/2010 538
NR* Aaa 500 Dona Ana County, New Mexico, Gross Receipts Tax Revenue Refunding and
Improvement Bonds, 5.50% due 6/01/2016 (d) 530
A1+ NR* 600 Eddy County, New Mexico, PCR, Refunding (IMCFertilizer Inc. Project), VRDN,
3.55% due 2/01/2003 (a) 600
Farmington, New Mexico, PCR, Refunding, Series A:
AAA Aaa 500 (Public Service Company of New Mexico), 6.375% due 12/15/2022 (d) 546
BB+ Ba1 500 (Public Service Company of San Juan), 6.30% due 12/01/2016 537
A+ A2 1,000 (Southern California Edison Company), 7.20% due 4/01/2021 1,081
AAA Aaa 280 Gallup, New Mexico, PCR, Refunding (Plains Electric Generation), 6.65%
due 8/15/2017 (b) 306
A+ P1 400 Hurley, New Mexico, PCR (Kennecott Santa Fe), VRDN, 3.65% due 12/01/2015 (a) 400
AAA Aaa 500 Las Cruces, New Mexico, Health Facilities Revenue Refunding Bonds
(Evangelical Lutheran Project), 6.45% due 12/01/2017 (e) 546
AAA Aaa 500 Los Alamos County, New Mexico, Utility System Revenue Refunding Bonds,
Series A, 6% due 7/01/2015 (e) 536
New Mexico Mortgage Finance Authority, Mortgage-Backed Securities (c)(f):
NR* Aaa 750 Series A, 6.875% due 1/01/2025 844
AAA NR* 500 Series F, 7% due 1/01/2026 570
New Mexico Mortgage Finance Authority, S/F Mortgage Program, AMT (f):
AAA NR* 895 Series A, Class D, 6.65% due 7/01/2026 954
AAA NR* 985 Series H, 6.60% due 7/01/2015 1,049
AA A1 750 New Mexico State University, Revenue Refunding and Improvement Bonds,
5.75% due 4/01/2016 783
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
<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, Educational Facilities Revenue Bonds:
BBB- NR* $ 350 (College of Santa Fe Project), Series A, 5.50% due 10/01/2028 $ 348
BBB- NR* 500 Refunding (St. John's College Project), 5.50% due 3/01/2024 499
AA A1 500 University of New Mexico, University Revenue Bonds, Series B, 5.75% due
6/01/2022 522
Puerto Rico--5.8%
BBB+ Baa1 500 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series T, 6.375%
due 7/01/2004 (g) 564
AAA Aaa 250 Puerto Rico Public Buildings Authority Revenue Bonds (Guaranteed Government
Facilities), Series B, 5% due 7/01/2027 (d) 244
Total Investments (Cost--$12,723)--98.8% 13,628
Other Assets Less Liabilities--1.2% 162
-------
Net Assets--100.0% $13,790
=======
<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, 1998.
(b)MBIA Insured.
(c)FHA Insured.
(d)AMBAC Insured.
(e)FSA Insured.
(f)GNMA/FNMA Collateralized.
(g)Prerefunded.
*Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$12,722,537) (Note 1a) $ 13,627,993
Cash 63,213
Receivables:
Interest 151,109
Beneficial interest sold 6 151,115
------------
Deferred organization expenses (Note 1e) 8,814
Prepaid registration fees and other assets (Note 1e) 11,092
------------
Total assets 13,862,227
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 8,784
Distributor (Note 2) 3,941
Investment adviser (Note 2) 1,875
Beneficial interest redeemed 200 14,800
------------
Accrued expenses and other liabilities 57,096
Total liabilities 71,896
------------
Net Assets: Net assets $ 13,790,331
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 36,596
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 70,122
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 7,551
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 16,019
Paid-in capital in excess of par 12,520,939
Undistributed realized capital gains on investments--net 233,648
Unrealized appreciation on investments--net 905,456
------------
Net assets $ 13,790,331
============
Net Asset Value: Class A--Based on net assets of $3,873,271 and 365,954 shares of
beneficial interest outstanding $ 10.58
============
Class B--Based on net assets of $7,422,157 and 701,214 shares of
beneficial interest outstanding $ 10.58
============
Class C--Based on net assets of $799,634 and 75,508 shares of
beneficial interest outstanding $ 10.59
============
Class D--Based on net assets of $1,695,269 and 160,190 shares of
beneficial interest outstanding $ 10.58
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1998
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 909,047
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 88,673
Professional fees 57,916
Accounting services (Note 2) 45,678
Account maintenance and distribution fees--Class B (Note 2) 44,130
Printing and shareholder reports 28,082
Registration fees (Note 1e) 12,546
Amortization of organization expenses (Note 1e) 11,573
Account maintenance and distribution fees--Class C (Note 2) 5,728
Transfer agent fees--Class B (Note 2) 5,220
Pricing fees 3,449
Account maintenance fees--Class D (Note 2) 2,350
Transfer agent fees--Class A (Note 2) 2,034
Custodian fees 1,479
Transfer agent fees--Class D (Note 2) 1,179
Trustees' fees and expenses 1,000
Transfer agent fees--Class C (Note 2) 580
Other 2,061
------------
Total expenses before reimbursement 313,678
Reimbursement of expenses (Note 2) (65,367)
------------
Total expenses after reimbursement 248,311
------------
Investment income--net 660,736
------------
Realized & Realized gain on investments--net 518,170
Unrealized Change in unrealized appreciation on investments--net (367,637)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 811,269
(Notes 1b, ============
1d & 3):
See Notes to Financial Statements.
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 660,736 $ 1,029,676
Realized gain on investments--net 518,170 404,483
Change in unrealized appreciation on investments--net (367,637) 522,563
------------ ------------
Net increase in net assets resulting from operations 811,269 1,956,722
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (175,945) (239,874)
Shareholders Class B (346,758) (636,250)
(Note 1f): Class C (36,414) (39,611)
Class D (101,619) (113,941)
Realized gain on investments--net:
Class A (126,513) --
Class B (258,634) --
Class C (35,045) --
Class D (81,643) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (1,162,571) (1,029,676)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial
Interest interest transactions (5,204,291) (3,654,416)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (5,555,593) (2,727,370)
Beginning of year 19,345,924 22,073,294
------------ ------------
End of year $ 13,790,331 $ 19,345,924
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the
Period
The following per share data and ratios have been derived May 6,
from information provided in the financial statements. 1994++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.82 $ 10.36 $ 10.29 $ 10.24 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .47 .53 .56 .60 .13
Realized and unrealized gain on
investments--net .10 .46 .10 .06 .24
-------- -------- -------- -------- --------
Total from investment operations .57 .99 .66 .66 .37
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.47) (.53) (.56) (.60) (.13)
Realized gain on investments--net (.34) -- -- -- --
In excess of realized gain on
investments--net -- -- (.03) (.01) --
-------- -------- -------- -------- --------
Total dividends and distributions (.81) (.53) (.59) (.61) (.13)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.58 $ 10.82 $ 10.36 $ 10.29 $ 10.24
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.52% 9.86% 6.53% 6.65% 3.76%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.23% .79% .49% .07% .00%*
Net Assets: ======== ======== ======== ======== ========
Expenses 1.63% 1.33% 1.42% 1.65% 2.47%*
======== ======== ======== ======== ========
Investment income--net 4.41% 5.08% 5.33% 5.92% 5.49%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 3,873 $ 3,862 $ 5,287 $ 7,715 $ 8,166
Data: ======== ======== ======== ======== ========
Portfolio turnover 50.91% 40.53% 63.02% 28.16% 16.06%
======== ======== ======== ======== ========
<FN>
*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, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B
For the
Period
The following per share data and ratios have been derived May 6,
from information provided in the financial statements. 1994++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.82 $ 10.36 $ 10.29 $ 10.24 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .42 .48 .50 .54 .12
Realized and unrealized gain on
investments--net .10 .46 .10 .06 .24
-------- -------- -------- -------- --------
Total from investment operations .52 .94 .60 .60 .36
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.42) (.48) (.50) (.54) (.12)
Realized gain on investments--net (.34) -- -- -- --
In excess of realized gain on
investments--net -- -- (.03) (.01) --
-------- -------- -------- -------- --------
Total dividends and distributions (.76) (.48) (.53) (.55) (.12)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.58 $ 10.82 $ 10.36 $ 10.29 $ 10.24
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 4.99% 9.30% 5.98% 6.11% 3.64%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.71% 1.30% 1.01% .59% .50%*
Net Assets: ======== ======== ======== ======== ========
Expenses 2.12% 1.84% 1.92% 2.16% 2.97%*
======== ======== ======== ======== ========
Investment income--net 3.93% 4.57% 4.81% 5.40% 4.98%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 7,422 $ 11,703 $ 13,964 $ 12,104 $ 8,505
Data: ======== ======== ======== ======== ========
Portfolio turnover 50.91% 40.53% 63.02% 28.16% 16.06%
======== ======== ======== ======== ========
<FN>
*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, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. 1994++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.83 $ 10.36 $ 10.30 $ 9.89
Operating -------- -------- -------- --------
Performance: Investment income--net .41 .47 .49 .40
Realized and unrealized gain on investments--net .10 .47 .09 .42
-------- -------- -------- --------
Total from investment operations .51 .94 .58 .82
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.41) (.47) (.49) (.40)
Realized gain on investments--net (.34) -- -- --
In excess of realized gain on investments--net -- -- (.03) (.01)
-------- -------- -------- --------
Total dividends and distributions (.75) (.47) (.52) (.41)
-------- -------- -------- --------
Net asset value, end of period $ 10.59 $ 10.83 $ 10.36 $ 10.30
======== ======== ======== ========
Total Investment Based on net asset value per share 4.88% 9.29% 5.76% 8.44%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.82% 1.42% 1.15% .80%*
Net Assets: ======== ======== ======== ========
Expenses 2.22% 1.95% 2.03% 2.27%*
======== ======== ======== ========
Investment income--net 3.81% 4.45% 4.67% 5.20%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 800 $ 1,082 $ 712 $ 164
Data: ======== ======== ======== ========
Portfolio turnover 50.91% 40.53% 63.02% 28.16%
======== ======== ======== ========
<FN>
*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, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. 1994++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.82 $ 10.36 $ 10.29 $ 9.89
Operating -------- -------- -------- --------
Performance: Investment income--net .46 .52 .55 .46
Realized and unrealized gain on investments--net .10 .46 .10 .41
-------- -------- -------- --------
Total from investment operations .56 .98 .65 .87
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.46) (.52) (.55) (.46)
Realized gain on investments--net (.34) -- -- --
In excess of realized gain on investments--net -- -- (.03) (.01)
-------- -------- -------- --------
Total dividends and distributions (.80) (.52) (.58) (.47)
-------- -------- -------- --------
Net asset value, end of period $ 10.58 $ 10.82 $ 10.36 $ 10.29
======== ======== ======== ========
Total Investment Based on net asset value per share 5.42% 9.75% 6.42% 8.91%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.31% .90% .61% .23%*
Net Assets: ======== ======== ======== ========
Expenses 1.71% 1.44% 1.51% 1.74%*
======== ======== ======== ========
Investment income--net 4.32% 4.97% 5.21% 5.80%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 1,695 $ 2,699 $ 2,110 $ 1,569
Data: ======== ======== ======== ========
Portfolio turnover 50.91% 40.53% 63.02% 28.16%
======== ======== ======== ========
<FN>
*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, 1998
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch New Mexico Municipal Bond Fund (the "Fund") is part of
the Merrill Lynch Multi-State Municipal Series Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940 as a
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.
* Financial futures contracts--The Fund may purchase or sell financial
futures contracts and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on 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 period not exceeding five years. 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.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion.
For the year ended July 31, 1998, FAM earned fees of $88,673, of
which $65,367 was voluntarily waived.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor 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, 1998, 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 $299 $2,965
Class D $ 21 $ 284
For the year ended July 31, 1998, MLPF&S received contingent
deferred sales charges of $92,669 and $648 relating to transactions
in Class B and Class C Shares, respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1998 were $7,614,915 and $13,632,753,
respectively.
Net realized gains for the year ended July 31, 1998 and net
unrealized gains as of July 31, 1998 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $518,170 $ 905,456
-------- ---------
Total $518,170 $ 905,456
======== =========
As of July 31, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $905,456, all of which related to
appreciated securities. The aggregate cost of investments at July
31, 1998 for Federal income tax purposes was $12,722,537.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $5,204,291 and $3,654,416 for the years ended July
31, 1998 and July 31, 1997, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 84,935 $ 904,945
Shares issued to shareholders
in reinvestment of dividends
and distributions 14,038 148,768
---------- -----------
Total issued 98,973 1,053,713
Shares redeemed (89,885) (955,239)
---------- -----------
Net increase 9,088 $ 98,474
========== ===========
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 B Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 73,887 $ 786,905
Shares issued to shareholders
in reinvestment of dividends
anddistributions 27,170 288,281
---------- -----------
Total issued 101,057 1,075,186
Automatic conversion of shares (1,979) (21,160)
Shares redeemed (479,244) (5,158,099)
---------- -----------
Net decrease (380,166) $(4,104,073)
========== ===========
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 C Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 18,013 $ 191,561
Shares issued to shareholders
in reinvestment of dividends
and distributions 4,392 46,556
---------- -----------
Total issued 22,405 238,117
Shares redeemed (46,780) (495,353)
---------- -----------
Net decrease (24,375) $ (257,236)
========== ===========
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 D Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 6,214 $ 66,341
Automatic conversion of shares 1,981 21,160
Shares issued to shareholders
in reinvestment of dividends
and distributions 12,448 131,913
---------- -----------
Total issued 20,643 219,414
Shares redeemed (109,910) (1,160,870)
---------- -----------
Net decrease (89,267) $ (941,456)
========== ===========
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
========== ===========
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
<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, 1998, 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 four-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,
1998 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, 1998, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 9, 1998
</AUDIT-REPORT>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
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, 1998 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, the following table summarizes the capital gains
distributions paid by the Fund during the year:
Short-Term Long-Term
Record Payable Capital Capital
Date Date Gains Gains
12/19/97 12/31/97 $.046541 $.297066*
[FN]
*Of this long-term capital gain distribution, 88.71% is subject to
the 28% tax rate and 11.29% is subject to the 20% tax rate.
Please retain this information for your records.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1998
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Hugh T. Hurley III, 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
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863