Merrill Lynch Texas Municipal Bond Fund
Quarterly Report -- April 30, 1994
To Our Shareholders:
The magnitude of the rise in tax-exempt bond yields experienced this
past quarter has not been seen since 1987 when municipal bond rates
rose 250 basis points (2.50%) from March to October of that year.
It is very important to note that the municipal bond price declines
of the April quarter, while certainly damaging, were essentially much
different than those in 1987. Recent price declines were largely the
result of consistent and insistent selling pressures over the last
two months. In 1987, the tax-exempt bond market was much more volatile
and, at times, chaotic as investors sought to liquidate positions without
concern for fundamental value. For the most part, the recent price
deterioration has been orderly, and the municipal bond market's liquidity
and integrity have not been challenged or jeopardized.
Despite recent price declines, tax-exempt securities remain among the most
attractive investment alternatives available. After the yield increases
experienced in the April quarter, longer-term municipal securities yielded
approximately 90% of comparable US Treasury yields. Purchasers of these
municipal bonds also accrue substantial after-tax yield advantages. To
investors in the 39% marginal Federal income tax bracket, the purchase
of a municipal bond yielding 6.50% represents an after-tax equivalent of
10.65%. With prevailing estimates of 1994 inflation at no more than 3%--4%,
real after-tax rates in excess of 6.50% easily compensate longer-term
investors for much of the price volatility recently experienced.
<PAGE>
Portfolio Strategy
During the quarter ended April 30, 1994, the Fund's portfolio strategy
consisted of selling discounted bonds and replacing them with higher-
yielding current coupon bonds. Furthermore, we raised the Fund's cash
reserves to 10% of net assets, and premium coupon bonds were purchased
when available. Our strategy's net effect generated an increased yield
for shareholders, while modestly restructuring the Fund to exhibit a
more defensive posture. Municipal issuance of Texas bonds decreased by
31% for the April quarter, versus the same period last year, following
a 9.5% decrease in the previous quarter. This decrease made it difficult
to purchase bonds which would have fulfilled our investment strategy,
although it also set the stage for a strong technical market for Texas
municipal bonds. Looking ahead, we will seek to increase the Fund's
holdings of tax-exempt income producing bonds, while decreasing cash
reserves as opportunities to purchase current coupon bonds surface.
We appreciate your ongoing interest in Merrill Lynch Texas Municipal
Bond Fund, and we look forward to assisting you with your financial
needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
May 25, 1994
Performance Data
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of Class A
and Class B Shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
<PAGE>
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
4/30/94 1/31/94 4/30/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.39 $11.26 $10.90 -3.87%(1) -7.73%
Class B Shares 10.39 11.26 10.90 -3.87(1) -7.73
Class A Shares--Total Return +2.97(2) -6.45(3)
Class B Shares--Total Return +2.46(4) -6.57(5)
Class A Shares--Standardized 30-day Yield 5.24%
Class B Shares--Standardized 30-day Yield 4.95%
<FN>
*Investment results shown for the 3-month and 12-month periods are before the deduction of any sales charges.
(1)Percent change includes reinvestment of $0.094 per share capital gains distributions.
(2)Percent change includes reinvestment of $0.767 per share ordinary income dividends and
$0.094 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.146 per share ordinary income dividends.
(4)Percent change includes reinvestment of $0.711 per share ordinary income dividends and
$0.094 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.132 per share ordinary income dividends.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/94 +3.72% -0.43%
Inception (8/30/91)
through 3/31/94 +8.90 +7.19
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/94 +3.20% -0.62%
Inception (8/30/91)
through 3/31/94 +8.36 +7.67
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
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.
