MERRILL
LYNCH
TEXAS
MUNICIPAL
BOND FUND
Annual Report July 31, 1994
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.
Merrill Lynch Texas
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, New Jersey
08543-9011
<PAGE>
DEAR SHAREHOLDER
The expectation of increasing inflationary pressures and higher
interest rates initially heightened investor concerns and increased
financial market volatility during the July quarter. However, as the
quarter progressed, it was the weakness of the US dollar in foreign
exchange markets that dominated the financial news and prolonged
stock and bond market declines. Although the US dollar had
strengthened slightly by July quarter-end, which may have improved
investor confidence in the stock and bond markets, the possibility
of continued tightening by the Federal Reserve Board resurfaced
following Chairman Alan Greenspan's recent congressional testimony.
Nevertheless, as the quarter drew to a close, a lower-than-expected
rate of growth reported for the US economy during the second
calendar quarter allayed investor concerns and led to stock and bond
market rallies.
During the July quarter, the US dollar's weakness relative to other
major currencies reflected the deteriorating US trade deficit and
widening net long-term capital outflows. In 1993, an expanding US
economy and recession in other industrial countries led to a higher
level of imports and weaker export growth, widening the US trade
deficit further. In addition, global investors favored non-US dollar
denominated assets throughout 1993, which has further depressed the
dollar's value. This trend is not improving significantly thus far
in 1994 since foreign inflows into US capital markets continue to
decline, although US investors are investing outside of the United
States to a lesser degree.
Over the longer term, if the economies of the United States' major
trading partners expand (improving the prospects for US export
growth), the outlook for the US dollar is likely to improve. In the
near term, central banks have attempted to reverse the dollar's
decline through currency market intervention. These efforts have met
with limited success thus far, giving rise to the concern that the
Federal Reserve Board will be forced to continue to raise short-term
interest rates to attract investment capital back to the United
States and bolster the dollar's value. However, further interest
rate increases may jeopardize the US economic expansion. Despite
evidence of a moderating trend in the US economy, Federal Reserve
Board Chairman Alan Greenspan indicated in his July Humphrey-Hawkins
testimony that the central bank would prefer to err on the side of
too much monetary tightening rather than too little. In the weeks
ahead, investors will continue to assess economic data and
inflationary trends as they focus on the US dollar in order to gauge
whether further increases in short-term interest rates are imminent.
Continued indications of moderate and sustainable levels of economic
growth would be positive for the US capital markets.
<PAGE>
The Municipal Market
Long-term tax-exempt bond yields ended the July quarter essentially
unchanged. The Bond Buyer Revenue Bond Index rose five basis points
(0.05%) to 6.47%. The Index, however, failed to capture the dramatic
bond rally on July 29, 1994, when municipal bond yields had their
largest one-day decline thus far this year. Responding to reports of
a continued mild inflationary outlook and a potentially weakening
economy, municipal bond yields declined by approximately 10 basis
points. US Treasury bonds displayed a similar pattern over the last
three months ending with an equally dramatic rally on July 29, 1994.
Long-term US Treasury bonds ended the quarter yielding approximately
7.40%.
The tax-exempt bond market has continued to be very volatile with
yields fluctuating by as much as 15 basis points from week to week.
This continued volatility is largely a reflection of the same lack
of conviction regarding the near-term direction of interest rates
that has prevailed for much of 1994. Throughout this past quarter,
the municipal bond market had been unable to maintain a consensus
regarding either the potential strength of the current economic
recovery or the resultant response by the Federal Reserve Board.
However, a number of economic indicators released in late July began
to suggest that the robust pace of recent economic growth was
slowing. This promoted a more positive market environment,
culminating in the market rally on July 29, 1994.
The municipal bond market's technical position has remained
supportive. Approximately $40 billion in long-term securities were
issued during the three months ended July 31, 1994. This represents
a decline of over 50% versus the July quarter from the previous
year. As discussed in earlier reports, this reduction in new-issue
supply has minimized the selling pressure by larger institutional
investors who fear being unable to purchase sizable amounts of
securities in the future. Such a significant decline in issuance
would normally be expected to trigger a decline in yields as
investors chase a commodity in scarce supply. Investor demand,
however, has also diminished somewhat in recent months as net flows
into long-term municipal bond funds have dramatically slowed or, in
some instances, reversed. Consequently, the supply/demand
relationship within the municipal bond market has remained in
balance, promoting the overall stability in yield levels seen in the
past months.
<PAGE>
With after-tax equivalents in excess of 10%, long-term tax-exempt
bonds continue to represent considerable value relative to other
investment alternatives. We continue to anticipate that municipal
bond yields will decline further in late 1994 and into 1995. The
economic impact of the significant interest rate increases
experienced since early February have yet to be totally realized.
The resultant drag on the economy should provide the foundation for
further interest rate declines. Under such a scenario, current tax-
exempt bond yields may prove to represent considerable value.
Portfolio Strategy
During the quarter ended July 31, 1994, our portfolio strategy was
similar to the prior quarter and consisted of selling discounted
bonds and replacing them with higher-yielding current coupon bonds.
Furthermore, the Fund's cash reserves averaged 5% of net assets for
the quarter, and premium coupon bonds were purchased when available.
The net effect of this strategy generated an increased yield for
shareholders, while restructuring the Fund more defensively.
Fiscal Year In Review
For the fiscal year ended July 31, 1994, our portfolio strategy was
based on the expectation the economy would gather momentum with help
from the low interest rate environment of the first half of the
fiscal year. With this in mind, we sold discounted bonds and
replaced them with premium coupon bonds in a more defensive
strategy. The Fund's cash reserves were not increased significantly
in order to maintain a competitive yield for shareholders. Also,
finding suitable replacement bonds was difficult. A main cause of
this concern was a 49% decrease in municipal issuance of Texas bonds
for this fiscal year versus the prior fiscal year. This decrease
made it difficult to purchase bonds that would have fulfilled our
investment strategy and left the Fund somewhat vulnerable during the
February to March rise in interest rates, thereby decreasing the
total returns of the Fund's Class A and Class B Shares. Looking
ahead, we believe the reduction of supply should help Texas issues
perform attractively relative to national issues.
During the upcoming quarter, we expect interest rates will fluctuate
within a relatively narrow range. To take full advantage of this
scenario, we will attempt to increase the Fund's holdings of current
coupon bonds to generate a more competitive yield for shareholders
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Texas Municipal
Bond Fund, and we look forward to serving your investment needs and
objectives in the months and years to come.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
August 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.
Average Annual Total Return--Class A Shares*
% Return Without % Return With
Sales Charge Sales Charge**
Year Ended 6/30/94 +0.49% -3.53%
Inception (8/30/91)
through 6/30/94 +8.59 +7.03
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Total Return Based on a $10,000 Investment--Class A Shares*
GRAPHIC MATERIAL APPEARS HERE.
SEE APPENDIX GRAPHIC AND IMAGE MATERIAL ITEM 1.
Average Annual Total Return--Class B Shares*
% Return % Return
Without CDSC With CDSC**
Year Ended 6/30/94 +0.07% -3.63%
Inception (8/30/91)
through 6/30/94 +8.05 +7.43
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
Total Return Based on a $10,000 Investment--Class B Shares*
GRAPHIC MATERIAL APPEARS HERE.
SEE APPENDIX GRAPHIC AND IMAGE MATERIAL ITEM 1.
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
8/30/91--12/31/91 $10.00 $10.25 -- $0.242 + 4.97%
1992 10.25 10.59 -- 0.722 +10.70
1993 10.59 11.15 $0.094 0.775 +13.81
1/1/94--7/31/94 11.15 10.51 -- 0.332 - 2.66
------ ------
Total $0.094 Total $2.071
Cumulative total return as of 7/31/94: +28.73%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
8/30/91--12/31/91 $10.00 $10.25 -- $0.224 + 4.79%
1992 10.25 10.59 -- 0.669 +10.14
1993 10.59 11.15 $0.094 0.719 +13.24
1/1/94--7/31/94 11.15 10.51 -- 0.302 - 2.94
------ ------
Total $0.094 Total $1.914
Cumulative total return as of 7/31/94: +26.86%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
7/31/94 4/30/94 7/31/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.51 $10.39 $11.09 -4.43%(1) +1.15%
Class B Shares 10.51 10.39 11.09 -4.43(1) +1.15
Class A Shares--Total Return +2.41(2) +2.61(3)
Class B Shares--Total Return +1.89(4) +2.48(5)
Class A Shares--Standardized 30-day Yield 5.49%
Class B Shares--Standardized 30-day Yield 5.21%
<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 $0.762 per share ordinary
income dividends and $0.094 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.150 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.707 per share ordinary
income dividends and $0.094 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.136 per share ordinary
income dividends.
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Texas 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.
<PAGE>
AMT Alternative Minimum Tax (subject to)
COP Certificate of Participation
DATES Daily Adjustable Tax-Exempt Securities
INFLOS Inverse Floating Rate Municipal Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITES Residual Interest Tax-Exempt Securities
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Texas--97.6%
<S> <S> <C> <S> <C>
NR A1 $ 1,390 Abilene, Texas, Higher Education Authority Incorporated, Student Loan Revenue
Bonds, Sub-Series C, AMT, 6.10% due 7/01/2008 $ 1,378
BB+ Baa2 1,500 Alliance Airport Authority Incorporated, Texas, Special Facilities Revenue Bonds
(AMR Corp./American Airlines, Incorporated Project), AMT, 7% due 12/01/2011 1,504
AAA NR 2,000 Austin, Texas, Utility System Combined Revenue Bonds, Prior Lien, Series C,
7.30% due 11/15/2001 (g) 2,265
BBB Baa2 2,500 Brazos River Authority, Texas, PCR (Texas Utilities Electric Company Project),
AMT, 7.875% due 3/01/2017 2,702
Brownwood, Texas, Independent School District, Refunding Bonds (School Building),
UT:
NR Aaa 1,000 6.30% due 2/15/2013 1,025
NR Aaa 1,000 6.30% due 2/15/2014 1,021
AAA Aaa 1,000 Dallas-Fort Worth, Texas, International Airport Facilities Improvement
Corporation Revenue Bonds (United Parcel Service, Inc.), AMT, 6.60% due 5/01/2032 1,014
BBB A 1,500 Ector County, Texas, Hospital District, Hospital Revenue Bonds (Medical Center
Hospital), 7.30% due 4/15/2012 1,552
NR A 1,640 Gainesville, Texas, Housing Authority, M/F Mortgage Revenue Bonds, Series A,
6.625% due 12/01/2011 1,648
A+ A1 750 Georgetown, Texas, Higher Education Finance Corp., Higher Education Revenue Bonds
(Southwestern University Project), 6.30% due 2/15/2014 751
<PAGE>
NR NR 750 Gulf Coast, Texas, Waste Disposal Authority, Pollution Control and Solid Waste
Disposal Revenue Bonds (Diamond Shamrock Corporation Project), 6.75% due 6/01/2009 750
BBB Baa1 2,250 Gulf Coast, Texas, Waste Disposal Authority Revenue Bonds (Champion International
Corporation), AMT, 7.45% due 5/01/2026 2,359
A- A 1,000 Harris County, Texas, Health Facilities Development Corporation, Hospital Crossover
Revenue Refunding Bonds (Memorial Hospital System Project), 7.125% due 6/01/2015 1,084
A- A 2,000 Harris County, Texas, Health Facilities Development Corporation, Hospital Revenue
Bonds (Memorial Hospital Systems Project), Series A, 6.625% due 6/01/2024 1,968
A-1+ VMIG1 500 Harris County, Texas, Health Facilities Development Corporation, Special Facilities
Revenue Bonds (Texas Medical Center Project), VRDN, 3% due 2/15/2022 (b)(c) 500
A- Baa1 2,500 Harris County, Texas, Industrial Development Corporation, Marine Terminal Revenue
Refunding Bonds (GATX Terminal Corporation Project), 6.95% due 2/01/2022 2,581
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Texas (continued)
<S> <S> <C> <S> <C>
A-1+ Aaa $ 100 Harris County, Texas, Industrial Development Corporation, PCR(Exxon Project-1984),
DATES, 1984 Series B, VRDN, 2.75% due 3/01/2024 (c) $ 100
AAA Aaa 1,000 Harris County, Texas, Toll Road Senior Lien, Revenue Refunding Bonds, 5.30% due
8/15/2013 (a) 908
AA+ Aa 2,500 Harris County, Texas, Toll Road, Sub-Lien Refunding Bonds, UT, Series A, 6.50% due
8/15/2015 2,578
AA+ Aa 1,000 Harris County, Texas, Toll Road, Sub-Lien, Revenue Refunding Bonds, UT, 6.75% due
8/01/2014 1,048
AAA Aaa 1,000 Harris County, Texas, Toll Road, Tax Sub-Lien Revenue Bonds, UT, Series A, 6.40%
due 8/15/2024 (b) 1,017
AAA Aaa 1,010 Houston, Texas, Airport System Sub-Lien, Revenue Bonds, Series B, 6.625% due
7/01/2022 (d) 1,039
A1+ NR 2,100 Houston, Texas, Health Facilities Development Corporation, Hospital Revenue Bonds
(Methodist Hospital Project), VRDN, 2.75% due 12/01/2015 (c) 2,100
<PAGE>
A A 1,750 Houston, Texas, Water and Sewer Systems, Revenue Refunding Bonds, Senior Lien,
Series B, 6.375% due 12/01/2014 1,774
Houston, Texas, Water Conveyance Systems Contract, COP, Series J (a):
AAA Aaa 1,000 6.125% due 12/15/2009 1,029
AAA Aaa 1,425 6.25% due 12/15/2015 1,482
BBB- Baa 2,455 Jefferson County, Texas, Health Facilities Development Corporation, Hospital
Revenue Bonds (Baptist Healthcare Systems Project), 8.875% due 6/01/2021 2,751
A A 1,000 Laredo, Texas, International Toll Bridge Revenue Bonds, 7% due 10/01/2010 1,075
Lower Neches Valley Authority, Texas, Industrial Development Corporation, PCR,
Refunding (NRTC Project):
AA Aa2 2,000 5.35% due 11/01/2028 1,729
AA Aa2 2,000 5.65% due 2/01/2029 1,802
AA Aa 1,500 Lubbock, Texas, Health Facilities Development Corporation Revenue Bonds
(Saint Joseph Health System), Series A, 5.50% due 7/01/2014 1,357
AAA Aaa 1,000 Matagorda County, Texas, Navigational District No. 1, Collateral Revenue Refunding
Bonds (Houston Light and Power Company), UT, Series C, 7.125% due 7/01/2019 (d) 1,088
Matagorda County, Texas, Navigational District No. 1, PCR (Central Power and Light
Company Project):
A A2 2,650 7.50% due 12/15/2014 2,884
A- A3 1,000 Refunding, 6% due 7/01/2028 947
BBB NR 2,750 Midland County, Texas, Hospital District Revenue Bonds (Midland Memorial Hospital),
7.50% due 6/01/2016 2,887
AA Aa 3,000 North Central, Texas, Health Facilities Development Corporation Revenue Bonds
(Baylor University Medical Center), INFLOS, Series A, 10.43% due 5/15/2016 (h) 3,188
AAA Aaa 1,000 North Central, Texas, Health Facilities Development Corporation Revenue Bonds
(Presbyterian Healthcare Systems), Registered RITES, Series C, 10.105% due
6/15/2021 (b)(h) 1,055
AAA VMIG1 900 North Texas Higher Education Authority Incorporation, Student Loan Revenue Refunding
Bonds, Student Loan MarketingAssociation, AMT, VRDN, 2.50% due 4/01/2020 (c) 900
NR P1 300 Port Arthur, Texas, Navigational District, Industrial Development Corporation, PCR
(American Petrofina Incorporation), AMT, VRDN, 2.85% due 5/01/2003 (c) 300
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<PAGE>
Texas (concluded)
<S> <S> <C> <S> <C>
AA- A2 $ 1,000 Red River Authority, Texas, PCR (Hoechst Celanese Corporation Project), AMT,
6.875% due 4/01/2017 $ 1,033
AA Aa1 3,135 San Antonio, Texas, Electric and Gas Revenue Refunding Bonds, 5% due 2/01/2017 2,678
NR Aaa 2,230 South San Antonio, Texas, Independent School District, Refunding Bonds, UT,
5.125% due 12/01/2017 1,951
NR Aa 1,000 Tarrant County, Texas, Health Facilities Development Corporation, Health
System Revenue Bonds (Harris Methodist Health System), 6% due 9/01/2024 946
BBB Baa 1,400 Tarrant County, Texas, HealthFacilities Development Corporation, Hospital
Revenue Refunding and Improvement Bonds (Fort Worth Osteopathic), 7% due 5/15/2028 1,398
A Aa 2,660 Texas Housing Agency, S/F Mortgage Revenue Refunding Bonds, Series A, 7.15%
due 9/01/2012 2,735
AAA Aaa 1,100 Texas Municipal Power Agency, Revenue Refunding Bonds, 5.50% due 9/01/2010 (b) 1,051
AAA Aaa 625 Texas National Guard Armory Board, Armory Improvement Revenue Refunding Bonds
(Texas Public Finance Authority), 6% due 10/01/2014 (a) 619
A- A 3,000 Texas National Research Laboratory Commission Financing Corporation, Lease
Revenue Bonds (Super Conducting, Super Collider Project), 7.10% due 12/01/2021 3,075
AAA NR 525 Texas State Department of Housing and Community Affairs, Home Mortgage Collateral,
Revenue Refunding Bonds, Series A, 6.95% due 7/01/2023 (e) 540
AA Aa 2,000 Texas State, Registered RIB, UT, Series B1 and B2, 8.871% due 9/30/2011 (h) 2,148
AA Aa 1,000 Texas State, Veterans, AMT, 6.40% due 12/01/2024 1,009
AA Aa 2,000 Texas State, Veterans Housing Assistance, AMT, UT, Series B-4, 6.70% due 12/01/2024 2,076
Texas Water Development Board, Water Revenue Bonds (State Revolving Fund-
Senior Lien):
AAA Aa 3,000 6% due 7/15/2013 2,997
AAA Aa 1,500 5.25% due 7/15/2015 1,337
AAA NR 545 Travis County, Texas, Housing Finance Corporation, Residential Mortgage Revenue
Refunding Bonds, Series A, 7% due 12/01/2011 (e)(f) 558
AA+ Aa1 2,500 University ofTexas, Permanent University Fund, Refunding Bonds, Series A, 6.25%
due 7/01/2013 2,534
<PAGE>
BBB Baa2 1,700 West Side Calhoun County, Texas, Navigational District, Solid Waste Disposal
Revenue Bonds (Union Carbide Chemicals and Plastics), AMT, 8.20% due 3/15/2021 1,858
Total Investments (Cost--$88,415)--97.6% 89,683
Other Assets Less Liabilities--2.4% 2,249
-------
Net Assets--100.0% $91,932
=======
<FN>
(a)AMBAC Insured.
(b)MBIA Insured.
(c)The interest rate is subject to change periodically based upon
the prevailing market rate. The interest rate shown is the rate in
effect at July 31, 1994.
(d)FGIC Insured.
(e)GNMA Collateralized.
(f)FNMA Collateralized.
(g)Prerefunded.
(h)The interest rate is subject to change periodically and inversely
based upon the prevailing market rate. The interest rate shown is
the rate in effect at July 31, 1994.
NR--Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche
LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$88,414,831) (Note 1a) $89,682,685
Cash 90,954
Receivables:
Securities sold $ 1,791,900
Interest 1,403,058
Beneficial interest sold 182,465 3,377,423
-----------
Deferred organization expenses (Note 1e) 18,324
Prepaid registration fees and other assets (Note 1e) 37,100
-----------
Total assets 93,206,486
-----------
<PAGE>
Liabilities: Payables:
Securities purchased 937,417
Beneficial interest redeemed 90,433
Dividends to shareholders (Note 1f) 78,239
Investment adviser (Note 2) 37,515
Distributor (Note 2) 33,081 1,176,685
-----------
Accrued expenses and other liabilities 98,260
-----------
Total liabilities 1,274,945
-----------
Net Assets: Net assets $91,931,541
===========
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number
Consist of: of shares authorized $ 123,424
Class B Shares of beneficial interest, $.10 par value, unlimited number
of shares authorized 751,179
Paid-in capital in excess of par 90,012,288
Accumulated distribution in excess of realized capital gains--net (223,204)
Unrealized appreciation on investments--net 1,267,854
-----------
Net assets $91,931,541
===========
Net Asset Class A--Based on net assets of $12,973,356 and 1,234,240 shares of
Value: beneficial interest outstanding $ 10.51
===========
Class B--Based on net assets of $78,958,185 and 7,511,789 shares of
beneficial interest outstanding $ 10.51
===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
For the
Year Ended
July 31, 1994
<S> <S> <C>
Investment Interest and amortization of premium and discount earned $ 5,675,645
Income
(Note 1d):
<PAGE>
Expenses: Investment advisory fees (Note 2) 509,953
Distribution fees--Class B (Note 2) 392,708
Printing and shareholder reports 58,535
Professional fees 55,085
Registration fees (Note 1e) 41,082
Transfer agent fees--Class B (Note 2) 32,935
Accounting services (Note 2) 32,733
Custodian fees 13,745
Amortization of organization expenses (Note 1e) 8,835
Pricing fees 7,859
Transfer agent fees--Class A (Note 2) 5,217
Trustees' fees and expenses 4,178
Other 10,933
-----------
Total expenses before reimbursement 1,173,798
Reimbursement of expenses (Note 2) (157,415)
-----------
Total expenses after reimbursement 1,016,383
-----------
Investment income--net 4,659,262
-----------
Realized & Realized gain on investments--net 380,407
Unrealized Change in unrealized appreciation on investments--net (3,519,965)
Gain (Loss) -----------
on Invest- Net Increase in Net Assets Resulting from Operations $ 1,519,704
ments--Net ===========
(Notes 1d
& 3):
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 4,659,262 $ 3,903,671
Realized gain on investments--net 380,407 1,580,712
Change in unrealized appreciation on investments--net (3,519,965) 1,038,052
----------- -----------
Net increase in net assets resulting from operations 1,519,704 6,522,435
----------- -----------
<PAGE>
Dividends & Investment income--net:
Distribu- Class A (772,091) (704,588)
tions to Class B (3,887,171) (3,199,083)
Shareholders Realized gain on investments--net:
(Note 1f): Class A (304,751) (80,744)
Class B (1,656,370) (400,700)
In excess of realized gain on investments--net:
Class A (34,685) --
Class B (188,519) --
----------- -----------
Net decrease in net assets resulting from dividends and distributions
to shareholders (6,843,587) (4,385,115)
----------- -----------
Beneficial Net increase in net assets derived from beneficial interest
Interest transactions 10,741,291 22,532,723
Transactions ----------- -----------
(Note 4):
Net Assets: Total increase in net assets 5,417,408 24,670,043
Beginning of year 86,514,133 61,844,090
----------- -----------
End of year $91,931,541 $86,514,133
=========== ===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
Class A Class B
For the For the
Period Period
The following per share data and ratios have been derived Aug. 30, Aug. 30,
from information provided in the financial statements. For the Year 1991++ to For the Year 1991++ to
Ended July 31, July 31, Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.09 $ 10.84 $ 10.00 $ 11.09 $ 10.84 $ 10.00
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income--net .60 .62 .61 .55 .57 .56
Realized and unrealized gain (loss) on
investments--net (.32) .32 .85 (.32) .32 .85
-------- -------- -------- -------- -------- --------
Total from investment operations .28 .94 1.46 .23 .89 1.41
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.60) (.62) (.61) (.55) (.57) (.56)
Realized gain on investments--net (.23) (.07) (.01) (.23) (.07) (.01)
In excess of realized gain on
investments--net (.03) -- -- (.03) -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.86) (.69) (.62) (.81) (.64) (.57)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.51 $ 11.09 $ 10.84 $ 10.51 $ 11.09 $ 10.84
======== ======== ======== ======== ======== ========
Total Based on net asset value per share 2.41% 9.15% 15.16%+++ 1.89% 8.60% 14.64%+++
Investment ======== ======== ======== ======== ======== ========
Return:**
Ratios to Expenses, excluding distribution fees
Average and net of reimbursement .67% .70% .49%* .67% .70% .51%*
Net Assets: ======== ======== ======== ======== ======== ========
Expenses, net of reimbursement .67% .70% .49%* 1.17% 1.20% 1.01%*
======== ======== ======== ======== ======== ========
Expenses .84% .94% 1.10%* 1.34% 1.44% 1.60%*
======== ======== ======== ======== ======== ========
Investment income--net 5.45% 5.77% 6.39%* 4.95% 5.26% 5.88%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 12,973 $ 14,033 $ 11,232 $ 78,958 $ 72,482 $ 50,612
Data: ======== ======== ======== ======== ======== ========
Portfolio turnover 59.68% 56.10% 72.34% 59.68% 56.10% 72.34%
======== ======== ======== ======== ======== ========
<PAGE>
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Texas Municipal Bond Fund (the "Fund") is part of
Merrill Lynch Multi-State Municipal Series Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940 as a non-
diversified, open-end management investment company. The Fund offers
both Class A and Class B Shares. Class A Shares are sold with a
front-end sales charge. Class B Shares may be subject to a
contingent deferred sales charge. Both classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B Shares bear certain
expenses related to the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
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. Options, which
are traded on exchanges, are valued at their last sale price as of
the close of such exchanges or, lacking any sales, at the last
available bid price. 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.
<PAGE>
(b) Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. Prepaid registration fees are
charged to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for 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"). Effective January 1, 1994, the
investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Fund
Asset Management, Inc. ("FAMI"), which is also an indirect wholly-
owned subsidiary of ML & Co. The Fund has also entered into
Distribution Agreements and a Distribution Plan with Merrill
LynchFunds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-
owned subsidiary of Merrill Lynch Investment Management, Inc.
("MLIM"), which is also an indirect wholly-owned subsidiary of ML &
Co.
<PAGE>
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion. For the year ended July 31, 1994 FAM earned
fees of $509,953 of which $157,415 was voluntarily waived.
Pursuant to a distribution plan (the "Distribution Plan") 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 which are accrued daily and paid
monthly at the annual rates of 0.25% and 0.25%, respectively, of the
average daily net assets of the Class B Shares of the Fund. Pursuant
to a sub-agreement with the Distributor, Merrill Lynch also provides
account maintenance and distribution services to the Fund. As
authorized by the Plan, the Distributor has entered into an
agreement with Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), an affiliate of ML & Co., which provides for the
compensation of MLPF&S for providing distribution-related services
to the Fund.
For the year ended July 31, 1994 MLFD earned underwriting discounts
of $3,976, and MLPF&S earned dealer concessions of $42,181 on the
sale of the Fund's Class A Shares.
MLPF&S also received contingent deferred sales charges of $205,019
for the sale of Class B Shares during the period.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are
officers and/or directors of FAM, FAMI, PSI, MLIM, MLFD, FDS,
MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1994 were $59,477,578 and $51,363,238,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1994
were as follows:
<PAGE>
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ (265,753) $ 1,267,854
Short-term investments (5,193) --
Financial futures contracts 651,353 --
----------- -----------
Total $ 380,407 $ 1,267,854
=========== ===========
As of July 31, 1994, net unrealized appreciation for Federal income
tax purposes aggregated $1,267,854, of which $2,515,180 related to
appreciated securities and $1,247,326 related to depreciated
securities. The aggregate cost of investments at July 31, 1994 for
Federal income tax purposes was $88,414,831.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $10,741,291 and $22,532,723 for the years ended
July 31, 1994 and July 31, 1993, respectively.
NOTES TO FINANCIAL STATEMENTS (concluded)
Transactions in shares of beneficial interest for Class A and Class
B Shares were as follows:
Class A Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
Shares sold 196,267 $ 2,137,113
Shares issued to shareholders
in reinvestment of dividends
and distributions 46,773 549,313
----------- -----------
Total issued 243,040 2,686,426
Shares redeemed (273,904) (2,943,253)
----------- -----------
Net decrease (30,864) $ (256,827)
=========== ===========
<PAGE>
Class A Shares for the Year Dollar
Ended July 31, 1993 Shares Amount
Shares sold 276,160 $ 2,989,624
Shares issued to shareholders
in reinvestment of dividends
and distributions 39,409 422,706
----------- -----------
Total issued 315,569 3,412,330
Shares redeemed (86,918) (934,980)
----------- -----------
Net increase 228,651 $ 2,477,350
=========== ===========
Class B Shares for the Dollar
Year Ended July 31, 1994 Shares Amount
Shares sold 1,961,356 $21,507,864
Shares issued to shareholders
in reinvestment of dividends
and distributions 249,570 2,897,719
----------- -----------
Total issued 2,210,926 24,405,583
Shares redeemed (1,233,752) (13,407,465)
----------- -----------
Net increase 977,174 $10,998,118
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1993 Shares Amount
Shares sold 2,439,177 $26,296,192
Shares issued to shareholders
in reinvestment of dividends
and distributions 157,083 1,687,035
----------- -----------
Total issued 2,596,260 27,983,227
Shares redeemed (731,892) (7,927,854)
----------- -----------
Net increase 1,864,368 $20,055,373
=========== ===========
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Texas Municipal Bond Fund of Merrill Lynch Multi-State
Municipal Series Trust:
<PAGE>
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Texas Municipal Bond Fund of Merrill Lynch Multi-State Municipal
Series Trust as of July 31, 1994, 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 two-year period
then ended and for the period August 30, 1991 (commencement of
operations) to July 31, 1992. 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,
1994 by correspondence with the custodian and brokers. 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 Texas Municipal Bond Fund of Merrill Lynch Multi-State
Municipal Series Trust as of July 31, 1994, 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
August 29, 1994
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by
Merrill Lynch Texas Municipal Bond Fund during its taxable year
ended July 31, 1994 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, the Fund distributed short-term capital gains of
$.167050 per share and long-term capital gains of $.094257 per share
to shareholders of record on December 22, 1993.
<PAGE>
Please retain this information for your records.
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Kenneth S. Axelson, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
National Westminster Bank NJ
10 Exchange Place Center
Jersey City, New Jersey 07302
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
APPENDIX: GRAPHIC AND IMAGE MATERIAL.
Item 1:
Total Return Based on a $10,000 Investment--Class A Shares*
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
<PAGE>
8/30/91** 7/94
ML New Jersey Municipal
Bond Fund++ $ 9,600 $12,358
Lehman Brothers Municipal
Bond Index++++ $10,000 $12,477
<PAGE>
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML Texas Municipal Bond Fund invests primarily in
long-term investment-grade obligations issued by or on behalf of
the State of Texas, its political subdivisions,
agencies and instrumentalities.
++++This unmanaged Index consists of long-term revenue bonds,
prerefunded bonds, general obligation bonds and insured bonds.
Item 2:
Total Return Based on a $10,000 Investment--Class B Shares*
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
8/31/91** 7/94
ML Texas Municipal
Bond Fund++ $10,000 $12,486
Lehman Brothers Municipal
Bond Index++++ $10,000 $12,477
<PAGE>
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML Texas Municipal Bond Fund invests primarily in
long-term investment-grade obligations issued by or on behalf of
the State of Texas, its political subdivisions,
agencies and instrumentalities.
++++This unmanaged Index consists of long-term revenue bonds,
prerefunded bonds, general obligation bonds and insured bonds.
