MERRILL LYNCH
NEW MEXICO
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1999
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, 1999
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1999, long-term bond yields
rose significantly. Steady US economic growth combined with
improvement in foreign economies, most notably Japan and Brazil, as
well as an inflation scare in early May put upward pressure on bond
yields throughout the period. Continued strong US employment growth,
particularly the decline in the US unemployment rate to 4.2% in
early June, was among the reasons the Federal Reserve Board cited
for raising short-term interest rates in late June. US Treasury bond
yields reacted by climbing above 6.15% by late June before improving
somewhat to 6.10% by July 31, 1999. During the last six months,
yields on long-term US Treasury securities increased approximately
100 basis points (1.00%).
Long-term tax-exempt bond yields also rose during the last six
months. Until early May, the municipal bond market had been able to
withstand much of the upward pressure on bond yields. However,
investor concerns regarding ongoing US economic strength and the
fear of additional moves by the Federal Reserve Board eventually
pushed municipal bond yields higher throughout June and July. During
the period, the yields on long-term tax-exempt revenue bonds rose
almost 50 basis points to 5.65%, as measured by the Bond Buyer
Revenue Bond Index.
The ability of the tax-exempt bond market to withstand much of the
recent upward pressure on long-term fixed-income bond yields has
been a reflection of the continued strong technical position the
municipal bond market has enjoyed in recent quarters. During the
last six months, more than $120 billion in long-term municipal bonds
was underwritten, a decrease of more than 20% compared to the same
period a year ago. During the past three months, more than $60
billion in municipal bonds was underwritten. This quarterly issuance
represents a decline of nearly 25% compared to the same three-month
period in 1998.
Recently, the municipal supply position deteriorated even further.
Total issuance in July 1999 of $16.5 billion was more than 30% lower
than July 1998 levels. Additionally, in June and July, investors
received more than $40 billion in coupon income and proceeds from
bond maturities and early bond redemptions. These proceeds have
generated significant retail investor interest, easily absorbing the
recent diminished supply. This very favorable supply/demand position
allowed the tax-exempt bond market to outperform its taxable
counterpart in recent months.
However, the recent relative outperformance of the municipal bond
market has somewhat reduced the very attractive tax-exempt bond
yield ratios that were available at the end of 1998. In December
1998, long-term, uninsured municipal bond yields were higher than
those of their taxable counterparts. Historically, long-term tax-
exempt bond yields have been approximately 82%--85% of long-term US
Treasury bond yields. Municipal bond yields rose at a lower rate in
recent months than US Treasury bond yields, causing the yield ratio
to decline. At July 31, 1999, long-term municipal bond yields were
approximately 92% of their taxable counterparts. Current ratios,
while lower than those available at the end of 1998, still represent
historically attractive levels. We expect the municipal bond market
to maintain its strong technical position for the remainder of 1999.
Consequently, there appears to be little reason for the tax-exempt
bond market to underperform the taxable US Treasury bond market.
This suggests that the present bond yield ratio is likely to remain
stable in the coming months and a return to a ratio in excess of
100% of taxable Treasury securities is improbable.
Looking ahead, it appears to us that long-term municipal bond yields
will trade in a relatively tight range near current levels. Strong
US economic performance is being balanced by nearly negligible
inflation data, as well as improvements in productivity in both
manufacturing and service industries. Future moves by the Federal
Reserve Board have largely been discounted by bond markets and are
to a great extent reflected in present bond yields.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
Any improvement in bond prices is likely to be contingent upon
weakening in both US employment growth and consumer spending. The
100 basis point rise in US Treasury bond yields seen thus far this
year is likely to negatively affect US economic growth. The US
housing market will be among the first sectors likely to be
affected, as some declines have already been evidenced because of
higher mortgage rates. We believe it is also unrealistic to expect
double-digit returns in US equity markets to continue indefinitely.
Much of the US consumer's wealth is tied to recent stock market
appreciation. Any slowing in these incredible growth rates is likely
to reduce consumer spending. These factors suggest that the worst of
the recent increase in bond yields has passed and stable, if not
slightly improving, bond prices may be expected.
Fiscal Year in Review
The Fund started the fiscal year ended July 31, 1999 fully invested
based on our expectations for steady economic growth and low
inflation. This scenario characterized the first six months of the
fiscal year. Therefore, we held a neutral-to-aggressive investment
posture for much of this period. We maintained the Fund's fully
invested position and structured the portfolio in an effort to
participate in any bond market rally, thus enhancing the total
return to shareholders. In addition, we carefully monitored our call
protection in order to seek to achieve ample tax-exempt income for
our shareholders for many years to come.
During the second half of the fiscal year, the combination of strong
growth and accelerating inflationary concerns caused the Federal
Reserve Board to raise short-term interest rates by 25 basis points.
Over the last few months of the fiscal year, we realized that both
growth and inflationary fears could negatively impact the bond
market. Therefore, we shifted our portfolio strategy. We adopted a
defensive position by reducing our exposure to the bond market and
by maintaining a cash reserve position of about 10%--15% of net
assets.
Looking ahead, we are seeking an opportune time to reenter the bond
market. Since long-term Treasury yields are now over 6% and long-
term municipal bonds are trading at approximately 95% of Treasury
issues (as compared to the historic average of between 85%--90%), we
are considering this opportunity to reinvest the Fund's cash
reserves at significantly higher yields than just a few months
earlier.
During the fiscal year ended July 31, 1999, our investment
strategies benefited the Fund's performance as the Fund had total
returns of +1.83%, +1.31%, +1.21% and +1.73% for Class A, Class B,
Class C and Class D Shares, respectively. (Complete performance
information can be found on pages 3-5 of this report to
shareholders.)
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 to come.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
September 13, 1999
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
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 7/31/99
<S> <C> <C> <C> <C>
ML New Mexico Municipal Bond Fund Class A Shares +1.83% -1.57% +39.16% 2.95%
ML New Mexico Municipal Bond Fund Class B Shares +1.31 -1.69 +35.51 2.56
ML New Mexico Municipal Bond Fund Class C Shares +1.21 -1.71 +33.05 2.46
ML New Mexico Municipal Bond Fund Class D Shares +1.73 -1.59 +36.41 2.85
<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
since inception dates are from 5/06/94 for Class A & Class B Shares
and from 10/21/94 for Class C & Class D Shares.
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
PERFORMANCE DATA (continued)
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 Brothers Municipal Bond Index. Beginning
and ending values are:
5/06/94** 7/99
ML New Mexico Municipal Bond Fund++--
Class A Shares* $ 9,600 $13,359
ML New Mexico Municipal Bond Fund++--
Class B Shares* $10,000 $13,551
Lehman Brothers Municipal Bond
Index++++ $10,000 $14,113
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** 7/99
ML New Mexico Municipal Bond Fund++--
Class C Shares* $10,000 $13,305
ML New Mexico Municipal Bond Fund++--
Class D Shares* $ 9,600 $13,096
Lehman Brothers Municipal Bond
Index++++ $10,000 $14,235
[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
from 4/30/94 and in the Class C & Class D Shares' graph is
from 10/31/94.
Past performance is not predictive of future performance.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/99 +1.91% -2.17%
Five Years Ended 6/30/99 +6.34 +5.48
Inception (5/06/94)
through 6/30/99 +6.58 +5.74
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/99 +1.39% -2.38%
Five Years Ended 6/30/99 +5.82 +5.82
Inception (5/06/94)
through 6/30/99 +6.05 +6.05
[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 6/30/99 +1.19% +0.25%
Inception (10/21/94)
through 6/30/99 +6.22 +6.22
[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 6/30/99 +1.81% -2.26%
Inception (10/21/94)
through 6/30/99 +6.80 +5.88
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
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
UPDATES Unit Priced Demand Adjustable Tax-Exempt
Securities
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--93.1%
<S> <S> <C> <S> <C>
AAA Aaa $1,000 Albuquerque, New Mexico, Airport Revenue Bonds, AMT, Series A, 6.60% due
7/01/2016 (a)(g) $ 1,066
AA Aa3 500 Bernalillo County, New Mexico, Gross Receipts Tax Revenue Bonds, Series A, 5.75% due
4/01/2006 (e) 532
NR* A 500 Carlsbad, New Mexico, Sales Tax Revenue Bonds, 6.30% due 10/01/2010 529
NR* Aaa 500 Dona Ana, County, New Mexico, Gross Receipt Tax Revenue Refunding and Improvement
Bonds, 5.50% due 6/01/2016 (a) 513
A1+ NR* 500 Eddy County, New Mexico, PCR, Refunding (IMC Fertilizer Inc. Project), VRDN, 3.10%
due 2/01/2003 (f) 500
A1+ P1 500 Hurley, New Mexico, PCR (Kennecott Santa Fe), UPDATES, 3.40% due 12/01/2015 (f) 500
AAA Aaa 500 Las Cruces, New Mexico, Health Facilities Revenue Refunding Bonds (Evangelical
Lutheran Project), 6.45% due 12/01/2017 (d) 536
AAA Aaa 500 Los Alamos County, New Mexico, Utility System Revenue Refunding Bonds, Series A,
6% due 7/01/2015 (d) 529
AAA Aaa 250 New Mexico Finance Authority Revenue Bonds (Federal Highway Grant Anticipation),
Series A, 5.25% due 9/01/2014 (a) 249
New Mexico Mortgage Finance Authority Revenue Bonds, S/F Mortgage Program, AMT (c):
AAA NR* 895 Series A, 6.65% due 7/01/2026 941
AAA NR* 975 Series H, 6.60% due 7/01/2015 1,025
New Mexico Mortgage Finance Authority, Revenue Refunding Bonds (Mortgage-Backed
Securities):
NR* Aaa 750 Series A, 6.875% due 1/01/2025 (b) 839
AAA NR* 500 Series F, 7% due 1/01/2026 (c) 559
AA A1 500 New Mexico State University, Revenue Refunding and Improvement Bonds, 5.75% due
4/01/2016 511
Santa Fe, New Mexico, Educational Facilities Revenue Bonds:
BBB- NR* 350 (College of Santa Fe Project), Series A, 5.50% due 10/01/2028 329
BBB- NR* 500 Refunding (Saint John's College Project), 5.50% due 3/01/2024 472
AA A1 500 University of New Mexico, University Revenue Refunding Bonds, Series B, 5.75% due
6/01/2022 509
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Puerto Rico--6.0%
<S> <S> <C> <S> <C>
A1+ VMIG1++ $ 100 Puerto Rico Commonwealth Highway and Transportation Authority, Transportation Revenue
Refunding Bonds, VRDN, Series A, 2.85% due 7/01/2028 (a)(f) $ 100
BBB+ Baa1 500 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series T, 6.375% due
7/01/2004 (e) 554
Total Investments (Cost--$10,287)--99.1% 10,793
Variation Margin on Financial Futures Contracts**--0.0% 3
Other Assets Less Liabilities--0.9% 98
-------
Net Assets--100.0% $10,894
=======
<FN>
(a)AMBAC Insured.
(b)FHA Insured.
(c)FNMA/GNMA Collateralized.
(d)FSA Insured.
(e)Prerefunded.
(f)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, 1999.
(g)All or a portion of security held as collateral in connection
with open financial futures contracts.
*Not Rated.
**Financial futures contracts sold as of July 31, 1999 were as
follows:
(in Thousands)
Value
Number of Expiration (Notes
Contracts Issue Date 1a & 1b)
10 US Treasury Bonds September 1999 $1,150
Total Financial Futures Contracts Sold
(Total Contract Price--$1,142) $1,150
======
++Highest short-term rating by Moody's Investors Service, Inc.
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, 1999
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$10,286,933) (Note 1a) $ 10,793,140
Cash 44,655
Receivables:
Interest $ 100,573
Variation margin (Note 1b) 3,437 104,010
------------
Prepaid registration fees and other assets (Note 1e) 10,917
------------
Total assets 10,952,722
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 5,602
Distributor (Note 2) 3,018
Beneficial interest redeemed 2,606
Investment adviser (Note 2) 1,468 12,694
------------
Accrued expenses and other liabilities 46,141
------------
Total liabilities 58,835
------------
Net Assets: Net assets $ 10,893,887
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $ 32,691
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 56,236
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 6,749
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 13,131
Paid-in capital in excess of par 10,344,969
Accumulated distributions in excess of realized capital gains on
investments--net (Note 1f) (58,283)
Unrealized appreciation on investments--net 498,394
------------
Net assets $ 10,893,887
============
Net Asset Value: Class A--Based on net assets of $3,272,727 and 326,908 shares of
beneficial interest outstanding $ 10.01
============
Class B--Based on net assets of $5,630,585 and 562,358 shares of
beneficial interest outstanding $ 10.01
============
Class C--Based on net assets of $676,064 and 67,489 shares of
beneficial interest outstanding $ 10.02
============
Class D--Based on net assets of $1,314,511 and 131,308 shares of
beneficial interest outstanding $ 10.01
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1999
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 717,454
(Note 1d):
Expenses: Professional fees $ 75,174
Investment advisory fees (Note 2) 71,016
Accounting services (Note 2) 57,688
Account maintenance and distribution fees--Class B (Note 2) 34,484
Printing and shareholder reports 30,768
Amortization of organization expenses (Note 1e) 8,814
Registration fees (Note 1e) 6,930
Account maintenance and distribution fees--Class C (Note 2) 4,491
Transfer agent fees--Class B (Note 2) 3,750
Pricing fees 3,534
Custodian fees 2,228
Transfer agent fees--Class A (Note 2) 1,657
Account maintenance fees--Class D (Note 2) 1,607
Trustees' fees and expenses 802
Transfer agent fees--Class D (Note 2) 724
Transfer agent fees--Class C (Note 2) 422
Other 729
------------
Total expenses before reimbursement 304,818
Reimbursement of expenses (Note 2) (51,648)
------------
Total expenses after reimbursement 253,170
------------
Investment income--net 464,284
------------
Realized & Realized gain on investments--net 173,918
Unrealized Change in unrealized appreciation on investments--net (407,062)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 231,140
(Notes 1b, ============
1d & 3):
See Notes to Financial Statements.
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 464,284 $ 660,736
Realized gain on investments--net 173,918 518,170
Change in unrealized appreciation on investments--net (407,062) (367,637)
------------ ------------
Net increase in net assets resulting from operations 231,140 811,269
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (143,113) (175,945)
Shareholders Class B (235,059) (346,758)
(Note 1f): Class C (24,708) (36,414)
Class D (61,404) (101,619)
Realized gain on investments--net:
Class A (115,401) (126,513)
Class B (218,999) (258,634)
Class C (20,965) (35,045)
Class D (52,202) (81,643)
In excess of realized gain on investments--net:
Class A (16,503) --
Class B (31,317) --
Class C (2,998) --
Class D (7,465) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (930,134) (1,162,571)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial interest
Interest transactions (2,197,450) (5,204,291)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (2,896,444) (5,555,593)
Beginning of year 13,790,331 19,345,924
------------ ------------
End of year $ 10,893,887 $ 13,790,331
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.58 $ 10.82 $ 10.36 $ 10.29 $ 10.24
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .40 .47 .53 .56 .60
Realized and unrealized gain (loss) on
investments--net (.21) .10 .46 .10 .06
-------- -------- -------- -------- --------
Total from investment operations .19 .57 .99 .66 .66
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.40) (.47) (.53) (.56) (.60)
Realized gain on investments--net (.32) (.34) -- -- --
In excess of realized gain on
investments--net (.04) -- -- (.03) (.01)
-------- -------- -------- -------- --------
Total dividends and distributions (.76) (.81) (.53) (.59) (.61)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.01 $ 10.58 $ 10.82 $ 10.36 $ 10.29
======== ======== ======== ======== ========
Total Based on net asset value per share 1.83% 5.52% 9.86% 6.53% 6.65%
Investment ======== ======== ======== ======== ========
Return:*
Ratios to Average Expenses, net of reimbursement 1.64% 1.23% .79% .49% .07%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.04% 1.63% 1.33% 1.42% 1.65%
======== ======== ======== ======== ========
Investment income--net 3.91% 4.41% 5.08% 5.33% 5.92%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 3,273 $ 3,873 $ 3,862 $ 5,287 $ 7,715
Data: ======== ======== ======== ======== ========
Portfolio turnover 30.75% 50.91% 40.53% 63.02% 28.16%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.58 $ 10.82 $ 10.36 $ 10.29 $ 10.24
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .35 .42 .48 .50 .54
Realized and unrealized gain (loss) on
investments--net (.21) .10 .46 .10 .06
-------- -------- -------- -------- --------
Total from investment operations .14 .52 .94 .60 .60
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.35) (.42) (.48) (.50) (.54)
Realized gain on investments--net (.32) (.34) -- -- --
In excess of realized gain on
investments--net (.04) -- -- (.03) (.01)
-------- -------- -------- -------- --------
Total dividends and distributions (.71) (.76) (.48) (.53) (.55)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.01 $ 10.58 $ 10.82 $ 10.36 $ 10.29
======== ======== ======== ======== ========
Total Based on net asset value per share 1.31% 4.99% 9.30% 5.98% 6.11%
Investment ======== ======== ======== ======== ========
Return:*
Ratios to Average Expenses, net of reimbursement 2.15% 1.71% 1.30% 1.01% .59%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.55% 2.12% 1.84% 1.92% 2.16%
======== ======== ======== ======== ========
Investment income--net 3.41% 3.93% 4.57% 4.81% 5.40%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 5,631 $ 7,422 $ 11,703 $ 13,964 $ 12,104
Data: ======== ======== ======== ======== ========
Portfolio turnover 30.75% 50.91% 40.53% 63.02% 28.16%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
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: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.59 $ 10.83 $ 10.36 $ 10.30 $ 9.89
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .34 .41 .47 .49 .40
Realized and unrealized gain (loss) on
investments--net (.21) .10 .47 .09 .42
-------- -------- -------- -------- --------
Total from investment operations .13 .51 .94 .58 .82
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.34) (.41) (.47) (.49) (.40)
Realized gain on investments--net (.32) (.34) -- -- --
In excess of realized gain on
investments--net (.04) -- -- (.03) (.01)
-------- -------- -------- -------- --------
Total dividends and distributions (.70) (.75) (.47) (.52) (.41)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.02 $ 10.59 $ 10.83 $ 10.36 $ 10.30
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 1.21% 4.88% 9.29% 5.76% 8.44%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.25% 1.82% 1.42% 1.15% .80%*
Net Assets: ======== ======== ======== ======== ========
Expenses 2.65% 2.22% 1.95% 2.03% 2.27%*
======== ======== ======== ======== ========
Investment income--net 3.30% 3.81% 4.45% 4.67% 5.20%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 676 $ 800 $ 1,082 $ 712 $ 164
Data: ======== ======== ======== ======== ========
Portfolio turnover 30.75% 50.91% 40.53% 63.02% 28.16%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
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: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.58 $ 10.82 $ 10.36 $ 10.29 $ 9.89
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .39 .46 .52 .55 .46
Realized and unrealized gain (loss) on
investments--net (.21) .10 .46 .10 .41
-------- -------- -------- -------- --------
Total from investment operations .18 .56 .98 .65 .87
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.39) (.46) (.52) (.55) (.46)
Realized gain on investments--net (.32) (.34) -- -- --
In excess of realized gain on
investments--net (.04) -- -- (.03) (.01)
-------- -------- -------- -------- --------
Total dividends and distributions (.75) (.80) (.52) (.58) (.47)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.01 $ 10.58 $ 10.82 $ 10.36 $ 10.29
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 1.73% 5.42% 9.75% 6.42% 8.91%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.74% 1.31% .90% .61% .23%*
Net Assets: ======== ======== ======== ======== ========
Expenses 2.14% 1.71% 1.44% 1.51% 1.74%*
======== ======== ======== ======== ========
Investment income--net 3.82% 4.32% 4.97% 5.21% 5.80%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 1,314 $ 1,695 $ 2,699 $ 2,110 $ 1,569
Data: ======== ======== ======== ======== ========
Portfolio turnover 30.75% 50.91% 40.53% 63.02% 28.16%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
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's
financial statements are prepared in accordance with generally
accepted accounting principles, which may require the use of
management accruals and estimates. The Fund offers four classes of
shares under the Merrill Lynch Select PricingSM 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.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
(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 Merill Lynch Funds Distributor
("MLFD" or the "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: .55%
of the Fund's average daily net assets not exceeding $500 million;
.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and .50% of average daily net assets in excess
of $1 billion.
For the year ended July 31, 1999, FAM earned fees of $71,016, of
which $51,648 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 .25% .25%
Class C .25% .35%
Class D .10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("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, 1999, 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 $129 $1,393
Class D $ 29 $ 375
For the year ended July 31, 1999, MLPF&S received contingent
deferred sales charges of $17,154 and $750 relating to transactions
in Class B and Class C Shares, respectively.
Financial Data Services, Inc., 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, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1999 were $3,714,328 and $6,420,507,
respectively.
Net realized gains for the year ended July 31, 1999 and net
unrealized gains (losses) as of July 31, 1999 were as follows:
Unrealized
Realized Gains
Gains (Losses)
Long-term investments $ 173,918 $ 506,207
Financial futures -- (7,813)
---------- ----------
Total $ 173,918 $ 498,394
========== ==========
As of July 31, 1999, net unrealized appreciation for Federal income
tax purposes aggregated $506,207, of which $558,942 was related to
appreciation securities and $52,735 was related to depreciated
securities. The aggregate cost of investments at July 31, 1999 for
Federal income tax purposes was $10,286,933.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $2,197,450 and $5,204,291 for the years ended July
31, 1999 and July 31, 1998, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 84,428 $ 875,454
Shares issued to shareholders
in reinvestment of dividends
and distributions 15,406 159,128
---------- -----------
Total issued 99,834 1,034,582
Shares redeemed (138,880) (1,433,734)
---------- -----------
Net decrease (39,046) $ (399,152)
========== ===========
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 B Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 73,370 $ 776,681
Shares issued to shareholders
in reinvestment of dividends
and distributions 23,601 244,049
---------- -----------
Total issued 96,971 1,020,730
Automatic conversion of shares (1,316) (13,303)
Shares redeemed (234,511) (2,424,297)
---------- -----------
Net decrease (138,856) $(1,416,870)
========== ===========
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 C Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 13,414 $ 142,253
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,366 34,791
---------- -----------
Total issued 16,780 177,044
Shares redeemed (24,799) (263,750)
---------- -----------
Net decrease (8,019) $ (86,706)
========== ===========
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 D Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 10,590 $ 112,489
Automatic conversion of shares 1,316 13,303
Shares issued to shareholders
in reinvestment of dividends
and distributions 9,795 101,321
---------- -----------
Total issued 21,701 227,113
Shares redeemed (50,583) (521,835)
---------- -----------
Net decrease (28,882) $ (294,722)
========== ===========
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)
========== ===========
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
<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, 1999, 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 five-year period
then ended. 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,
1999 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, 1999, 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 13, 1999
</AUDIT-REPORT>
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, 1999 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, the following table summarizes the dividends and
distributions paid by the Fund during the year:
Long-Term
Record Payable Ordinary Capital
Date Date Income Gains*
12/21/98 12/31/98 $.038000 $.325272
[FN]
*The entire distribution is subject to the 20% tax rate.
Please retain this information for your records.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 1999
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Hugh T. Hurley III, Vice President
Kenneth A. Jacob, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, 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
