Exhibit 17.g
MERRILL LYNCH
NEW MEXICO
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 2000
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, 2000
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 2000, US domestic economic growth
remained robust. After growing at a 4.2% annual rate in 1999, US domestic
economic growth expanded at a 4.8% rate during the first quarter of 2000 and
at a 5.2% rate during the second quarter. However, despite these significant
growth rates, few price measure indicators have shown any meaningful signs of
future price pressures at the consumer level, despite the lowest unemployment
rates since 1970. With few signs of any economic slowdown, the Federal Reserve
Board continued to raise short-term interest rates in February, March and May
2000. The Federal Reserve Board cited both the continued growth of US
employment and the continued strength of US equity markets as reasons for
attempting to moderate US economic growth before inflationary price pressures
can occur.
However, since then fixed-income markets have largely ignored strong economic
fundamentals and concentrated upon very positive technical supply factors.
Declining bond issuance--both current, and more importantly, expected future
issuance--helped push bond yields lower into mid-April 2000. In late January
and early February 2000, the US Treasury announced its intention to reduce the
amounts to be auctioned in the quarterly Treasury note and bond auctions.
Furthermore, budgetary surpluses allowed the US Treasury to repurchase
outstanding, higher-couponed Treasury issues, primarily in the 15-year and
longer maturity sector. Both these actions resulted in significant reduction
in the outstanding supply of longer-dated maturity US Treasury debt. Domestic
and international investors quickly began to accumulate what was expected to
become a scarce commodity and bond prices quickly rose.
By mid-April 2000, US Treasury bond yields had declined more than 80 basis
points (0.80%) to 5.67%. During the remainder of the period, US Treasury bond
prices were volatile as strong economic reports and investors' concerns of
additional moves by the Federal Reserve Board occasionally overshadowed the
positive technical position of the long-term US Treasury bond market.
Recently, a number of economic indicators have begun to suggest that the
actions taken by the Federal Reserve Board in 1999 and early 2000 have started
to affect US economic growth. Both new home sales and consumer spending have
slowed, suggesting that economic growth may subside into a 4%--4.5% range by
late 2000. In our opinion, this range of growth was targeted by the Federal
Reserve Board as being sustainable, given current productivity measures,
without endangering the present benign inflationary environment.
By June, investor focus returned to the dwindling supply of long-term US
Treasury securities and bond prices generally rose for the remainder of the
period. The decline in long-term US Treasury bond yields resulted in an
inverted yield curve as short-term and intermediate-term interest rates did
not fall proportionately to long-term interest rates as the Federal Reserve
Board was expected to continue to raise short-term interest rates. The current
inversion has had as much to do with debt reduction and US Treasury buybacks
as with investor expectations of slower economic growth. During the last six
months, US Treasury bond yields have declined more than 70 basis points to end
the period at 5.78%, their lowest monthly closing level since May 1999.
Tax-exempt bond yields also have declined in recent months. The decline has
largely been in response to the rally in US Treasury securities, as well as a
continued positive technical supply environment. States such as California and
Maryland have announced that their large current and anticipated future budget
surpluses will permit the cancellation or postponement of expected bond
issuance. Additionally, some issuers have also initiated tenders to repurchase
existing debt, reducing the supply of tax-exempt bonds in the secondary market
as well. Given the decline in available long-term US Treasury securities,
some investors who need longer maturity investment vehicles have begun to
consider long-term municipal bonds as potential substitutes. This has further
strengthened the overall positive technical position of the tax-exempt market.
During the last six months, long-term municipal revenue bond yields have
declined nearly 50 basis points to 5.85%, their lowest level since late August
1999, as measured by the Bond Buyer Revenue Bond Index.
The relative underperformance of the municipal bond market in recent months
has been especially disappointing given the strong technical position the
tax-exempt bond market has enjoyed. The issuance of long-term tax-exempt
securities has dramatically declined. During the last year, almost $200
billion in new long-term municipal securities was issued, a decline of almost
20% compared to the same period a year earlier. For the six months ended July
31, 2000, approximately $100 billion in new tax-exempt bonds was underwritten,
a decline of 17% compared to the same period in 1999.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
Although investors received more than $45 billion in coupon payments, bond
maturities and the proceeds from early bond redemptions during June and July,
overall investor demand has diminished. Long-term municipal bond mutual funds
have seen consistent outflows in recent months as the yields of individual
securities have risen faster than those larger, more diverse mutual funds.
Thus far this year, tax-exempt mutual funds have had net redemptions of more
than $12 billion.
However, the rate at which these redemptions have been occurring has slowed in
recent months. Recent US equity market volatility, especially in the NASDAQ,
has reduced some investor interest in the stock market. This investor
interest, especially earlier this year, had been siphoning away demand for
municipal bonds by retail investors. Also, the demand from property and
casualty companies is expected to increase in the coming months. These firms
are becoming more profitable after experiencing losses in the past few years
resulting from a series of weather-related natural disasters. Yet as positive
as the tax-exempt bond market's technical environment has been for much of
this year, investor response to the reduction in both current and future
supply of US Treasury bonds has been overwhelmingly positive and municipal
bond yields have underperformed their taxable counterparts.
Significantly lower municipal bond yields are still likely to require weaker
US employment growth and consumer spending. The actions taken in recent months
by the Federal Reserve Board should eventually slow US economic growth. Recent
declines in US new home sales are perhaps the first sign that consumer
spending is being slowed by higher interest rates. Until further signs
develop, it is likely that the municipal bond market's current favorable
technical position will dampen significant tax-exempt interest rate volatility
and provide a stable environment for eventual improvement in municipal bond
prices.
Fiscal Year in Review
We entered the fiscal year ended July 31, 2000 in a defensive position in
response to heightened economic growth and inflationary fears. During the
first six months of the fiscal year, we initially retained our defensive
position toward the municipal bond market, then gradually shifted to a neutral
stance. We accomplished this shift by investing the majority of the Fund's
cash reserve and by purchasing bonds with longer maturities in exchange for
bonds with shorter maturities. Our goal in this shift of strategy was to both
enhance shareholder income and to take advantage of the highest absolute
municipal yields since the spring of 1997. During the last six months, we
maintained our neutral investment position and fully invested status for the
majority of the period. We found it prudent to maintain this position in
anticipation of clearer signs regarding future economic growth and inflation
expectations. Our shift in strategy to a neutral stance from a defensive one
aided the Fund's performance during the last six months as municipal yields
declined in conjunction with the US Treasury market.
During the fiscal year, the Fund's investment restructuring was somewhat
inhibited by a lack of municipal bond issuance. New Mexico municipal issuance
declined 27% from year ago levels. While the lack of supply may have aided in
keeping the prices of New Mexico municipal bonds relatively firm, it also
limited our options of coupon structuring, issuer diversification and call
protection. We continually monitor the call protection, credit quality, coupon
structuring and diversification of the Fund in an effort to provide optimal
performance. The decline in new municipal bond issuance can be traced, in
part, to the strong fiscal performance of municipal entities at most levels of
government.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
Our strategy throughout the period resulted in total returns of +0.72%,
+0.21%, +0.10% and +0.62% for the Fund's Class A, Class B, Class C and Class D
Shares, respectively, for the year ended July 31, 2000. This compares to the
Lipper Analytical Services, Inc. Other States Municipal Debt Funds Average
total return of +1.91% for the same 12-month period. (Investment results shown
do not reflect sales charges and would be lower if sales charges were
included. Complete performance information can be found on pages 4 and 5 of
this report to shareholders.) Looking ahead, we intend to remain fully
invested in the municipal market in an effort to enhance shareholder income.
We will be looking for opportunities provided by new New Mexico municipal
issuance to enhance the Fund's call protection and issuer diversification. We
will also consider taking a more aggressive investment stance should the
economic indicators continue to point to a cooling of growth and a more stable
inflation environment.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch New Mexico Municipal Bond
Fund, and we look forward to assisting you with your financial needs in the
months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Trustee
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Michael Kalinoski)
Michael Kalinoski
Vice President and Portfolio Manager
September 1, 2000
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
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. The
Fund's Investment Adviser voluntarily waived a portion of its management fee.
Without such waiver, the Fund's performance would have been lower.
Recent Performance Results*
6 Month 12 Month Since Inception Standardized
As of July 31, 2000 Total Return Total Return Total Return 30-Day Yield
ML New Mexico Municipal Bond Fund Class A Shares +4.37% +0.72% +40.16% 2.14%
ML New Mexico Municipal Bond Fund Class B Shares +4.11 +0.21 +35.79 1.72
ML New Mexico Municipal Bond Fund Class C Shares +4.16 +0.10 +33.19 1.61
ML New Mexico Municipal Bond Fund Class D Shares +4.32 +0.62 +37.26 2.05
*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.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of ML New Mexico Municipal Bond
Fund++--Class A and Class B Shares compared to growth of an investment in the
Lehman Brothers Municipal Bond Index++++. Beginning and ending values are:
5/05/94** 7/00
ML New Mexico Municipal Bond Fund++--
Class A Shares* $ 9,600 $13,455
ML New Mexico Municipal Bond Fund++--
Class B Shares* $10,000 $13,579
Lehman Brothers Municipal
Bond Index++++ $10,000 $14,722
A line graph depicting the growth of ML New Mexico Municipal Bond
Fund++--Class C 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** 7/00
ML New Mexico Municipal Bond Fund++--
Class A Shares* $10,000 $13,319
ML New Mexico Municipal Bond Fund++--
Class B Shares* $ 9,600 $13,177
Lehman Brothers Municipal
Bond Index++++ $10,000 $14,849
*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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 6/30/00 -0.09% -4.09%
Five Years Ended 6/30/00 +4.70 +3.85
Inception (5/06/94) through 6/30/00 +5.47 +4.77
*Maximum sales charge is 4%. **Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 6/30/00 -0.60% -4.45%
Five Years Ended 6/30/00 +4.17 +4.17
Inception (5/06/94) through 6/30/00 +4.93 +4.93
*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*
One Year Ended 6/30/00 -0.71% -1.68%
Five Years Ended 6/30/00 +4.04 +4.04
Inception(10/21/94)through6/30/00 +4.97 +4.97
*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*
One Year Ended 6/30/00 -0.19% -4.19%
Five Years Ended 6/30/00 +4.60 +3.75
Inception (10/21/94) through 6/30/00 +5.53 +4.78
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
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
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
New Mexico--93.4%
AAA Aaa $250 Albuquerque, New Mexico, Airport Revenue Bonds, AMT, Series A, 6.60% due
7/01/2016 (a) $ 263
AAA Aaa 750 Albuquerque, New Mexico, Gross Receipts, Lodgers Tax Revenue Refunding Bonds,
Series B, 5.80%** due 7/01/2013 (d) 367
AA Aa3 300 Bernalillo County, New Mexico, Gross Receipts Tax Revenue Bonds, Series A,
5.75% due 4/01/2006 (e) 315
NR* A 300 Carlsbad, New Mexico, Sales Tax Revenue Bonds, 6.30% due 10/01/2010 311
NR* Aaa 300 Dona Ana County, New Mexico, Gross Receipts Tax Revenue Bonds (Water System),
5.75% due 5/01/2029 300
A1+ NR* 100 Eddy County, New Mexico, PCR, Refunding (IMC Fertilizer Inc. Project), VRDN,
4.25% due 2/01/2003 (f) 100
AAA Aaa 300 Las Cruces, New Mexico, Health Facilities Revenue Refunding Bonds (Evangelical
Lutheran Project), 6.45% due 12/01/2017 (d) 311
AAA Aaa 150 Los Alamos County, New Mexico, Utility System Revenue Refunding Bonds, Series A,
6% due 7/01/2015 (d) 158
New Mexico Mortgage Finance Authority Revenue Bonds, S/F Mortgage Program, AMT (c):
AAA NR* 895 Series A, 6.65% due 7/01/2026 911
AAA NR* 250 Series H, 6.60% due 7/01/2015 254
New Mexico Mortgage Finance Authority, Revenue Refunding Bonds (Mortgage-Backed
Securities):
NR* Aaa 750 Series A, 6.875% due 1/01/2025 (b) 807
AAA NR* 250 Series F, 7% due 1/01/2026 (c) 269
AA A1 300 New Mexico State University, Revenue Refunding and Improvement Bonds,
5.75% due 4/01/2016 303
AAA Aaa 250 Santa Fe County, New Mexico, Correctional System Revenue Bonds, 6% due 2/01/2027 (d) 263
BBB- NR* 250 Santa Fe, New Mexico, Educational Facilities Revenue Bonds (College of Santa Fe
Project), Series A, 5.50% due 10/01/2028 219
BBB- NR* 300 Santa Fe, New Mexico, Educational Facilities Revenue Refunding Bonds (Saint John's
College Project), 5.50% due 3/01/2024 266
AAA Aaa 200 Santa Fe, New Mexico, Utility Revenue Refunding Bonds, Series A, 8% due 6/01/2006 (a) 233
AA A1 200 University of New Mexico, University Revenue Refunding Bonds, Series B, 5.75% due
6/01/2022 200
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
Puerto Rico--5.2%
AAA Baa1 $300 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series T, 6.375% due
7/01/2004 (e) $ 328
Total Investments (Cost--$6,008)--98.6% 6,178
Other Assets Less Liabilities--1.4% 90
------
Net Assets--100.0% $6,268
======
(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,
2000.
*Not Rated.
**Represents a zero coupon; the interest rate shown reflects the effective
yield at the time of purchase by the Fund.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 2000
Assets: Investments, at value (identified cost--$6,008,158) $ 6,177,859
Cash 63,827
Interest receivable 65,174
Prepaid registration fees and other assets 10,833
-------------
Total assets 6,317,693
-------------
Liabilities: Payables:
Beneficial interest redeemed $ 3,861
Dividends to shareholders 2,374
Distributor 1,377
Investment adviser 758 8,370
-------------
Accrued expenses and other liabilities 40,951
-------------
Total liabilities 49,321
-------------
Net Assets: Net assets $ 6,268,372
=============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 19,026
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 29,853
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 2,357
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 13,308
Paid-in capital in excess of par 6,097,793
Accumulated distributions in excess of realized capital
gains on investments--net (63,666)
Unrealized appreciation on investments--net 169,701
-------------
Net assets $ 6,268,372
=============
Net Asset Value: Class A--Based on net assets of $1,847,610 and 190,260 shares of
beneficial interest outstanding $ 9.71
=============
Class B--Based on net assets of $2,899,430 and 298,529 shares of
beneficial interest outstanding $ 9.71
=============
Class C--Based on net assets of $228,981 and 23,567 shares of
beneficial interest outstanding $ 9.72
=============
Class D--Based on net assets of $1,292,351 and 133,081 shares of
beneficial interest outstanding $ 9.71
=============
See Notes to Financial Statements.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Statement of Operations
For the Year Ended
July 31, 2000
Investment Income: Interest and amortization of premium and discount earned $ 474,960
Expenses: Professional fees $ 78,217
Printing and shareholder reports 59,384
Accounting services 54,945
Investment advisory fees 44,004
Account maintenance and distribution fees--Class B 20,101
Registration fees 4,981
Trustees' fees and expenses 3,352
Custodian fees 2,862
Transfer agent fees--Class B 2,636
Pricing fees 2,422
Account maintenance and distribution fees--Class C 1,649
Transfer agent fees--Class A 1,321
Account maintenance fees--Class D 1,271
Transfer agent fees--Class D 712
Transfer agent fees--Class C 208
Other 2,381
-------------
Total expenses before reimbursement 280,446
Reimbursement of expenses (32,003)
-------------
Total expenses after reimbursement 248,443
-------------
Investment income--net 226,517
-------------
Realized & Realized gain on investments--net 52,801
Unrealized Change in unrealized appreciation on investments--net (328,693)
Gain (Loss) on -------------
Investments--Net: Net Decrease in Net Assets Resulting from Operations $ (49,375)
=============
See Notes to Financial Statements.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 2000 1999
Operations: Investment income--net $ 226,517 $ 464,284
Realized gain on investments--net 52,801 173,918
Change in unrealized appreciation on investments--net (328,693) (407,062)
------------- -------------
Net increase (decrease) in net assets resulting from operations (49,375) 231,140
------------- -------------
Dividends & Investment income--net:
Distributions to Class A (76,257) (143,113)
Shareholders: Class B (105,567) (235,059)
Class C (6,945) (24,708)
Class D (37,748) (61,404)
Realized gain on investments--net:
Class A (16,460) (115,401)
Class B (26,458) (218,999)
Class C (1,613) (20,965)
Class D (8,270) (52,202)
In excess of realized gain on investments--net:
Class A (1,678) (16,503)
Class B (2,697) (31,317)
Class C (165) (2,998)
Class D (843) (7,465)
------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (284,701) (930,134)
------------- -------------
Beneficial Net decrease in net assets derived from beneficial interest
Interest transactions (4,291,439) (2,197,450)
Transactions: ------------- -------------
Net Assets: Total decrease in net assets (4,625,515) (2,896,444)
Beginning of year 10,893,887 13,790,331
------------- -------------
End of year $ 6,268,372 $ 10,893,887
============= =============
See Notes to Financial Statements.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights
The following per share data and ratios have been derived Class A
from information provided in the financial statements. For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
Per Share Net asset value, beginning of year $ 10.01 $ 10.58 $ 10.82 $ 10.36 $ 10.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .30 .40 .47 .53 .56
Realized and unrealized gain (loss) on
investments--net (.23) (.21) .10 .46 .10
-------- -------- -------- -------- --------
Total from investment operations .07 .19 .57 .99 .66
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.30) (.40) (.47) (.53) (.56)
Realized gain on investments--net (.06) (.32) (.34) -- --
In excess of realized gain on
investments--net (.01) (.04) -- -- (.03)
-------- -------- -------- -------- --------
Total dividends and distributions (.37) (.76) (.81) (.53) (.59)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.71 $ 10.01 $ 10.58 $ 10.82 $ 10.36
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .72% 1.83% 5.52% 9.86% 6.53%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.79% 1.64% 1.23% .79% .49%
Net Assets: ======== ======== ======== ======== ========
Expenses 3.19% 2.04% 1.63% 1.33% 1.42%
======== ======== ======== ======== ========
Investment income--net 3.12% 3.91% 4.41% 5.08% 5.33%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 1,848 $ 3,273 $ 3,873 $ 3,862 $ 5,287
Data: ======== ======== ======== ======== ========
Portfolio turnover 26.97% 30.75% 50.91% 40.53% 63.02%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
The following per share data and ratios have been derived Class B
from information provided in the financial statements. For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
Per Share Net asset value, beginning of year $ 10.01 $ 10.58 $ 10.82 $ 10.36 $ 10.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .25 .35 .42 .48 .50
Realized and unrealized gain (loss) on
investments--net (.23) (.21) .10 .46 .10
-------- -------- -------- -------- --------
Total from investment operations .02 .14 .52 .94 .60
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.25) (.35) (.42) (.48) (.50)
Realized gain on investments--net (.06) (.32) (.34) -- --
In excess of realized gain on
investments--net (.01) (.04) -- -- (.03)
-------- -------- -------- -------- --------
Total dividends and distributions (.32) (.71) (.76) (.48) (.53)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.71 $ 10.01 $ 10.58 $ 10.82 $ 10.36
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .21% 1.31% 4.99% 9.30% 5.98%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 3.30% 2.15% 1.71% 1.30% 1.01%
Net Assets: ======== ======== ======== ======== ========
Expenses 3.70% 2.55% 2.12% 1.84% 1.92%
======== ======== ======== ======== ========
Investment income--net 2.62% 3.41% 3.93% 4.57% 4.81%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 2,899 $ 5,631 $ 7,422 $ 11,703 $ 13,964
Data: ======== ======== ======== ======== ========
Portfolio turnover 26.97% 30.75% 50.91% 40.53% 63.02%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
The following per share data and ratios have been derived Class C
from information provided in the financial statements. For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
Per Share Net asset value, beginning of year $ 10.02 $ 10.59 $ 10.83 $ 10.36 $ 10.30
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .24 .34 .41 .47 .49
Realized and unrealized gain (loss) on
investments--net (.23) (.21) .10 .47 .09
-------- -------- -------- -------- --------
Total from investment operations .01 .13 .51 .94 .58
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.24) (.34) (.41) (.47) (.49)
Realized gain on investments--net (.06) (.32) (.34) -- --
In excess of realized gain on
investments--net (.01) (.04) -- -- (.03)
-------- -------- -------- -------- --------
Total dividends and distributions (.31) (.70) (.75) (.47) (.52)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.72 $ 10.02 $ 10.59 $ 10.83 $ 10.36
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .10% 1.21% 4.88% 9.29% 5.76%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 3.38% 2.25% 1.82% 1.42% 1.15%
Net Assets: ======== ======== ======== ======== ========
Expenses 3.78% 2.65% 2.22% 1.95% 2.03%
======== ======== ======== ======== ========
Investment income--net 2.52% 3.30% 3.81% 4.45% 4.67%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 229 $ 676 $ 800 $ 1,082 $ 712
Data: ======== ======== ======== ======== ========
Portfolio turnover 26.97% 30.75% 50.91% 40.53% 63.02%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
The following per share data and ratios have been derived Class D
from information provided in the financial statements. For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
Per Share Net asset value, beginning of year $ 10.01 $ 10.58 $ 10.82 $ 10.36 $ 10.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .29 .39 .46 .52 .55
Realized and unrealized gain (loss) on
investments--net (.23) (.21) .10 .46 .10
-------- -------- -------- -------- --------
Total from investment operations .06 .18 .56 .98 .65
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.29) (.39) (.46) (.52) (.55)
Realized gain on investments--net (.06) (.32) (.34) -- --
In excess of realized gain on
investments--net (.01) (.04) -- -- (.03)
-------- -------- -------- -------- --------
Total dividends and distributions (.36) (.75) (.80) (.52) (.58)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.71 $ 10.01 $ 10.58 $ 10.82 $ 10.36
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .62% 1.73% 5.42% 9.75% 6.42%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.97% 1.74% 1.31% .90% .612%
Net Assets: ======== ======== ======== ======== ========
Expenses 3.37% 2.14% 1.71% 1.44% 1.51%
======== ======== ======== ======== ========
Investment income--net 2.96% 3.82% 4.32% 4.97% 5.21%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 1,292 $ 1,314 $ 1,695 $ 2,699 $ 2,110
Data: ======== ======== ======== ======== ========
Portfolio turnover 26.97% 30.75% 50.91% 40.53% 63.02%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
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 accounting principles generally accepted in the United States
of America, which may require the use of management accruals and estimates.
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
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types
of instruments. 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) Prepaid registration fees--Prepaid registration fees are charged to
expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded
on the ex-dividend dates. Distributions in excess of realized capital gains
are due primarily to differing tax treatments for futures transactions and
post-October losses.
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
NOTES TO FINANCIAL STATEMENTS (continued)
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 FAM Distributors, Inc. ("FAMD"
or the "Distributor"), 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, 2000, FAM earned fees of $44,004, of which $32,003
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, 2000, FAMD earned underwriting discounts and
MLPF&S earned dealer concessions on sales of the Fund's Class A and Class D
Shares as follows:
FAMD MLPF&S
Class A $ 1 $ 21
Class D $125 $1,680
For the year ended July 31, 2000, MLPF&S received contingent deferred sales
charges of $9,648 and $923 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, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 2000 were $2,013,751 and $5,360,788, respectively.
Net realized gains (losses) for the year ended July 31, 2000 and net
unrealized gains as of July 31, 2000 were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ 62,306 $ 169,701
Financial futures contracts (9,505) --
----------- ----------
Total $ 52,801 $ 169,701
=========== ==========
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
As of July 31, 2000, net unrealized appreciation for Federal income tax
purposes aggregated $169,701, of which $226,350 was related to appreciated
securities and $56,649 was related to depreciated securities. The aggregate
cost of investments at July 31, 2000 for Federal income tax purposes was
$6,008,158.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$4,291,439 and $2,197,450 for the years ended July 31, 2000 and July 31, 1999,
respectively.
Transactions in shares of beneficial interest for each class were as follows:
Class A Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
Shares sold 17,604 $ 169,182
Shares issued to shareholders
in reinvestment of dividends
and distributions 6,874 66,230
----------- -----------
Total issued 24,478 235,412
Shares redeemed (161,126) (1,554,772)
----------- -----------
Net decrease (136,648) $(1,319,360)
=========== ===========
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 B Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
Shares sold 12,878 $ 123,519
Shares issued to shareholders
in reinvestment of dividends
and distributions 6,689 64,428
----------- -----------
Total issued 19,567 187,947
Automatic conversion of shares (4,484) (43,622)
Shares redeemed (278,912) (2,700,772)
----------- -----------
Net decrease (263,829) $(2,556,447)
=========== ===========
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
anddistributions 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 C Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
Shares sold 1,728 $ 16,772
Shares issued to shareholders
in reinvestment of dividends
and distributions 646 6,230
----------- -----------
Total issued 2,374 23,002
Shares redeemed (46,296) (456,407)
----------- -----------
Net decrease (43,922) $ (433,405)
=========== ===========
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 D Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
Shares sold 10,759 $ 103,964
Automatic conversion of shares 4,485 43,622
Shares issued to shareholders
in reinvestment of dividends
and distributions 4,343 41,816
----------- -----------
Total issued 19,587 189,402
Shares redeemed (17,814) (171,629)
----------- -----------
Net increase 1,773 $ 17,773
=========== ===========
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
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)
=========== ===========
5. Short-Term Borrowings:
On December 3, 1999, the Trust, along with certain other funds managed by MLIM
and its affiliates, entered into a one-year, unsecured $1,000,000,000 credit
agreement with The Bank of New York and other lenders. The funds may borrow
money for temporary or emergency purposes to meet shareholder redemptions.
Each fund may borrow up to the maximum amount allowable under the fund's
current prospectus and statement of additional information, subject to various
other legal, regulatory or contractual limits. The funds collectively pay a
commitment fee of .09% per annum on the available portion of the facility.
Amounts borrowed under the facility bear interest at the Federal Funds rate
plus .50%. The Fund did not borrow from the facility during the year ended
July 31, 2000.
6. Capital Loss Carryforward:
At July 31, 2000, the Fund had a net capital loss carryforward of
approximately $4,000, all of which expires in 2008. This amount will be
available to offset like amounts of any future taxable gains.
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,
2000, 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 auditing standards generally
accepted in the United States of America. 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, 2000 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, 2000, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the United States
of America.
Deloitte & Touche LLP
Princeton, New Jersey
September 6, 2000
Merrill Lynch New Mexico Municipal Bond Fund
July 31, 2000
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, 2000
qualify as tax-exempt interest dividends for Federal income tax purposes.
Additionally, the Fund paid a long-term capital gains distribution of $.067093
per share, payable on December 31, 1999 to shareholders of record as of
December 20, 1999. The entire distribution is subject to the maximum 20% tax
rate.
Please retain this information for your records.
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Michael A. Kalinoski, 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