MERRILL LYNCH
TEXAS
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Annual Report
July 31, 1997
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 Texas
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #16054 -- 7/97
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch Texas Municipal Bond Fund July 31, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1997, a number of very favorable
factors combined to push both tax-exempt and taxable bond yields to
recent historic lows. A slowing domestic economy, a continued benign, if
not improving, inflationary environment, a declining Federal budget
deficit with resultant reduced Treasury borrowing needs, and a
successful Congressional budget accord all resulted in significant
declines in fixed-income yields. By the end of July, 30-year US Treasury
bond yields had declined approximately 50 basis points (0.50%) to 6.30%,
their lowest level in over a year. Similarly, as measured by the Bond
Buyer Revenue Bond Index, long-term municipal revenue bond yields fell
over 50 basis points to end the July 31, 1997 quarter at 5.49%, their
lowest level since early 1994.
The decline in tax-exempt yields in recent months was even more
impressive given that the municipal market lost much of the technical
support it enjoyed for over a year. In previous quarters, new tax-exempt
bond issuance declined, or remained stable. During the six months ended
July 31, 1997, approximately $100 billion in new long-term municipal
securities was underwritten, an increase of over 7.5% versus the
comparable period in 1996. As tax-exempt bond yields declined, many
municipal bond issuers took this opportunity to both issue new debt as
well as refinance older, higher-couponed debt with new, lower-yielding
issues. This refinancing led to a surge in tax-exempt issuance in recent
months. Over the three months ended July 31, 1997, new long-term tax-
exempt bond issuance totaled approximately $55 billion, an increase of
over 15% versus the July 31, 1996 quarter.
The decline in municipal bond yields also resulted in some reduction in
retail investor demand. In earlier episodes of rapidly declining
interest rates, individual investor demand initially fell until invest-
ors became more acclimated to the current levels. Should interest rates
stabilize, we expect investor demand to return to earlier levels. Also,
this past June and July, municipal bond investors received over $50
billion in assets from coupon income payments, bond maturities, and the
proceeds from early bond redemptions. Despite the continued allure of
the US equity market, it is likely that much of these assets will be
reallocated to the municipal bond market as investors adjust to the new
investment environment.
Looking forward, given the extent of the recent bond market rally, some
retrenchment or at least a period of consolidation is likely. However,
the positive backdrop of modest economic growth and low inflation
suggests that any such adjustment is not likely to be excessive. Despite
recent increases in new bond issuance, supply for all of 1997 is not
expected to be materially different than earlier estimates of
approximately $175 billion. It is likely that the recent increase in
issuance has largely borrowed from that originally scheduled for later
this year. Additionally, any significant increase in tax-exempt bond
yields will prevent any further bond refinancings, reducing future
supply. Unless the current positive economic fundamentals undergo
immediate and significant deterioration, any increase in municipal bond
yields is likely to be viewed as an opportunity to purchase more
attractively priced tax-exempt securities.
Fiscal Year in Review
During the past 12 months, the municipal bond market was characterized
by tremendous price volatility within a narrow trading range. We focused
on purchasing long-term insured bonds as yields approached 6% and
selling these securities as yields rallied to 5.50%. The Fund was fully
invested in long-term securities during most of the fiscal year to seek
to achieve a yield greater than that of similar Texas municipal bond
funds. The Fund's cash equivalent reserves fluctuated between 5% -- 10%
of total assets, and a large portion of assets committed to longer-term
maturities currently have coupons structured for income rather than
price appreciation. Over the 12 months ended July 31, 1997, our slightly
defensive strategy, coupled with an essentially fully invested position,
generated a total return performance comparable to the industry average
as well as an above average yield.
Portfolio Matters
During the six months ended July 31, 1997, we maintained the slightly
defensive posture adopted in late 1996. Our principal concern was that
the strong economic growth seen in the fourth quarter of 1996 would
continue into 1997, causing the Federal Reserve Board to raise interest
rates so that growth would not result in a significant increase in
inflation. However, US economic growth slowed in the second quarter of
1997 and inflation remained subdued, allowing interest rates to decline.
We believed the Fund's structure would allow it to perform well during
periods of market improvement.
We generally maintained the Fund's cash reserves below 5% of net assets
in order to seek to enhance the Fund's dividend stream and in response
to the continued scarcity of attractively priced tax-exempt Texas
issues. During the last six months, approximately $7.2 billion in Texas
municipal securities was underwritten, an increase of over 15% as
compared to the same period a year ago. However, the majority of recent
Texas issuance was dominated by current-couponed issues, with poor call
protection features, which would not have enhanced the Fund's overall
structure.
Looking forward, we expect to maintain our current strategy of waiting
for an environment characterized by higher interest rates before
adopting a more aggressive portfolio structure. In such an environment,
we expect to emphasize higher-couponed issues over more interest rate-
sensitive securities. The generation of an optimal amount of tax-exempt
income will remain the primary investment strategy of the Fund. As new
bond issuance is expected to be approximately $175 billion on an annual
basis for all of 1997, we expect to maintain the Fund's fully invested
position.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Texas Municipal
Bond Fund, and we look forward to serving your investment needs in the
months and years to come.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/FRED K. STUEBE
Fred K. Stuebe
Vice President and Portfolio Manager
September 3, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] 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.
[bullet] 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.)
[bullet] 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.
[bullet] 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 "Average Annual Total Return"
tables as well as the total returns and cumulative total returns in the
"Performance Summary" tables assume reinvestment of all dividends and
capital gains distributions at net asset value on the payable date.
Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer
agency fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
7/31/97 4/30/97 7/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.96 $10.57 $10.57 +3.69% +3.69%
Class B Shares* 10.96 10.57 10.57 +3.69 +3.69
Class C Shares* 10.97 10.58 10.58 +3.69 +3.69
Class D Shares* 10.98 10.59 10.58 +3.78 +3.68
Class A Shares -- Total Return* +9.39(1) +5.08(2)
Class B Shares -- Total Return* +8.84(3) +4.95(4)
Class C Shares -- Total Return* +8.71(5) +4.92(6)
Class D Shares -- Total Return* +9.38(7) +5.05(8)
Class A Shares -- Standardized 30-day Yield 4.21%
Class B Shares -- Standardized 30-day Yield 3.89%
Class C Shares -- Standardized 30-day Yield 3.77%
Class D Shares -- Standardized 30-day Yield 4.12%
* Investment results shown do not reflect sales charges; results shown would be lower if a sales charge was included.
(1) Percent change includes reinvestment of $0.569 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.143 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.515 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.129 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.504 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.127 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.560 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.140 per share ordinary income dividends.
</TABLE>
<TABLE>
<CAPTION>
[GRAPHIC LINE CHART OMITTED: TOTAL RETURN BASED ON A $10,000 INVESTMENT]
Merrill Lynch Texas Municipal Bond Fund
Total Return Based On a $10,000 Investment -- Class A Shares and Class B Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares and Class B
Shares compared to growth of an investment in the Lehman Brothers Municipal Bond Index.
Beginning and ending values are:
8/30/91** 7/97
<S> <C> <C>
ML Texas Municipal Bond Fund+-
Class A Shares* $9,600 $15,164
ML Texas Municipal Bond Fund+-
Class B Shares* $10,000 $15,329
Lehman Brothers Municipal Bond Index++ $10,000 $15,780
Total Return Based On a $10,000 Investment -- Class C Shares and Class D Shares
A line graph depicting the growth of an investment in the Fund's Class C Shares and Class D
Shares compared to growth of an investment in the Lehman Brothers Municipal Bond Index.
Beginning and ending values are:
10/21/94** 7/97
<S> <C> <C>
ML Texas Municipal Bond Fund+-
Class C Shares* $10,000 $12,322
ML Texas Municipal Bond Fund+-
Class D Shares* $9,600 $12,015
Lehman Brothers Municipal Bond Index++ $10,000 $13,054
* 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 and obligations of other qualifying
issuers.
++ This unmanaged Index consists of long-term revenue bonds, prerefunded bonds, general obligation bonds and insured
bonds.
Past performance is not predictive of future performance.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/97 +7.58% +3.28%
Five Years Ended 6/30/97 +6.75 +5.89
Inception (8/30/91)
through 6/30/97 +7.68 +6.93
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +7.04% +3.04%
Five Years Ended 6/30/97 +6.21 +6.21
Inception (8/30/91) through 6/30/97 +7.13 +7.13
* Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/97 +7.02% +6.02%
Inception (10/21/94)
through 6/30/97 +7.10 +7.10
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/97 +7.47% +3.17%
Inception (10/21/94)
through 6/30/97 +7.67 +6.05
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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
1994 11.15 9.98 -- 0.589 - 5.28
1995 9.98 11.00 -- 0.578 +16.38
1996 11.00 10.68 -- 0.563 + 2.35
1/1/97 -- 7/31/97 10.68 10.96 -- 0.317 + 5.86
Total $0.094 Total $3.786
Cumulative total return as of 7/31/97: +57.94%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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
1994 11.15 9.98 -- 0.536 - 5.76
1995 9.98 11.00 -- 0.524 +15.80
1996 11.00 10.68 -- 0.508 + 1.83
1/1/97 -- 7/31/97 10.68 10.96 -- 0.287 + 5.55
Total $0.094 Total $3.467
Cumulative total return as of 7/31/97: +53.29%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $10.16 $9.98 -- $0.097 - 0.80%
1995 9.98 11.01 -- 0.512 +15.77
1996 11.01 10.69 -- 0.497 + 1.72
1/1/97 -- 7/31/97 10.69 10.97 -- 0.281 + 5.48
Total $1.387
Cumulative total return as of 7/31/97: +23.22%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $10.16 $9.99 -- $0.111 - 0.57%
1995 9.99 11.02 -- 0.568 +16.36
1996 11.02 10.69 -- 0.553 + 2.16
1/1/97 -- 7/31/97 10.69 10.98 -- 0.312 + 5.89
Total $1.544
Cumulative total return as of 7/31/97: +25.16%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
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.
<S> <C>
AMT Alternative Minimun Tax (subject to)
GO General Obligation Bonds
INFLOS Inverse Floating Rate Municipal Bonds
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Texas Municipal Bond Fund July 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Texas -- 99.2%
BBB- Baa2 $1,500 Alliance Airport Authority Inc., Texas, Special Facilities Revenue Bonds
(AMR Corporation/American Airlines, Inc. Project), AMT, 7% due 12/01/2011 $1,738
AAA Aaa 2,000 Austin, Texas, Independent School District, UT, 6% due 8/01/2004 2,197
AAA NR* 1,915 Cameron County, Texas, Housing Finance Corporation, S/F Mortgage Revenue
Refunding Bonds, Series B - 1, 6.75% due 9/01/2025 (d)(e) 2,042
NR* Aaa 2,500 Coppell, Texas, Independent School District, Refunding, UT, 5.375% due
8/15/2020 2,526
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 1,090
NR* Aaa 2,000 Ector County, Texas, Hospital District, Hospital Revenue Bonds (Medical
Center Hospital), 7.30% due 4/15/2002 (g) 2,292
NR* Aaa 4,720 Galena Park, Texas, Independent School District, School Building and
Refunding Bonds, UT, 5.56%** due 8/15/2029 835
BBB Baa1 1,750 Gulf Coast, Texas, Waste Disposal Authority, Solid Waste Disposal Revenue Bonds
(Champion International Corporation Project), AMT, 7.25% due 4/01/2017 1,910
A- A2 1,000 Harris County, Texas, Health Facilities Development Corporation, Hospital
Crossover Revenue Refunding Bonds (Memorial Hospital System Project), 7.125%
due 6/01/2015 (h) 1,154
AAA Aa3 2,000 Harris County, Texas, Health Facilities Development Corporation, Hospital
Revenue Bonds (Saint Luke's Episcopal Hospital Project), Series A, 6.625% due
2/15/2001 (g) 2,199
Harris County, Texas, Health Facilities Development Corporation, Revenue
Refunding Bonds (School Health Care Systems), Series B:
AA Aa3 1,500 5.75% due 7/01/2027 1,547
AA Aa3 2,500 6.25% due 7/01/2027 2,854
BBB+ Baa1 1,000 Harris County, Texas, Industrial Development Corporation, Marine Terminals
and Water, PCR, Refunding (GATX Terminals Corporation Project), 6.625% due
2/01/2024 1,078
AAA Aaa 1,010 Houston, Texas, Airport System Revenue Bonds, Sub - Lien, Series B, 6.625%
due 7/01/2001 (c)(g) 1,118
AAA NR* 1,955 Laredo, Texas, Housing Finance Corporation, S/F Mortgage Revenue Bonds
(Mortgage-Backed Securities Program), AMT, 6.95% due 10/01/2027 (d)(e) 2,084
NR* A 1,000 Laredo, Texas, International Toll Bridge Revenue Bonds, 7% due 10/01/2002 (g) 1,134
AAA Aaa 1,000 Longview, Texas, Water and Sewer Revenue Bonds, 5% due 3/01/2015 (b) 986
Matagorda County, Texas, Navigation District No. 1:
A A2 3,100 PCR (Central Power and Light Company Project), 7.50% due 12/15/2014 3,411
AAA Aaa 1,000 Revenue Refunding Bonds (Houston Light and Power Company), Series C,
7.125% due 7/01/2019 (c) 1,076
BBB NR* 1,500 Midland County, Texas, Hospital District Revenue Bonds (Midland Memorial
Hospital), 7.50% due 6/01/2016 1,630
North Central Texas, Health Facilities Development Corporation Revenue Bonds
(g):
AA Aa 3,000 (Baylor University Medical Center), INFLOS, Series A, 9.725% due 5/15/2001 (f) 3,682
AAA Aaa 4,000 (Presbyterian Health Systems), 6.685% due 6/01/2001 (b) 4,438
Port Neches - Groves, Texas, Independent School District, UT:
AAA Aaa 1,000 5% due 2/15/2015 986
AAA Aaa 1,000 5% due 2/15/2016 980
AAA Aaa 1,000 5% due 2/15/2017 979
NR* VMIG1+ 500 Port of Port Arthur, Texas, Navigation District, PCR, Refunding (Texaco
Incorporated Project), VRDN, 3.65% due 10/01/2024 (a) 500
Southeast Texas, Housing Finance Corporation, S/F Mortgage Revenue Bonds, AMT:
NR* Aaa 2,730 Series A, 8% due 11/01/2025 (d) 3,187
NR* Aaa 1,555 Series B, 8.50% due 11/01/2025 1,817
NR* VMIG1+ 100 Southwest Texas, Higher Education Authority Inc., Crossover Refunding Bonds
(Southern Methodist University), VRDN, 3.65% due 7/01/2015 (a) 100
AAA Aaa 1,000 Temple, Texas, Independent School District, UT, 5.125% due 8/15/2019 990
A+ Aa 1,245 Texas Housing Agency, S/F Mortgage Revenue Refunding Bonds, Series A, 7.15%
due 9/01/2012 1,315
AAA AAA 1,360 Texas National Research Laboratory Commission Financing Corporation, Lease
Revenue Bonds (Superconducting, Super Collider Project), 7.10% due 12/01/2001
(g) 1,542
AAA NR* 500 Texas State Department of Housing and Community Affairs, Home Mortgage Revenue
Refunding Bonds, Series A, 6.95% due 7/01/2023 (d) 530
AA Aa2 4,000 Texas State, UT, Series B1 and B2, 6.20% due 9/30/2011 4,543
AA Aa2 965 Texas State, Veterans Housing Assistance, AMT, UT, Fund II, Series A, 7% due
12/01/2025 1,037
AA Aa2 3,225 Texas State, Water Development Board, GO, UT, 7% due 8/01/2020 3,680
AAA NR* 380 Travis County, Texas, Housing Finance Corporation, Residential Mortgage
Revenue Refunding Bonds, Series A, 7% due 12/01/2011 (d)(e) 406
BBB Baa2 1,700 West Side Calhoun County, Texas, Navigation District, Solid Waste Disposal
Revenue Bonds (Union Carbide Chemicals and Plastics), AMT, 8.20% due 3/15/2021 1,908
Total Investments (Cost -- $61,573) -- 99.2% 67,521
Other Assets Less Liabilities -- 0.8% 553
--------
Net Assets -- 100.0% $68,074
========
(a) The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at July 31, 1997.
(b) MBIA Insured.
(c) FGIC Insured.
(d) GNMA Collateralized.
(e) FNMA Collateralized.
(f) The interest rate is subject to change periodically and
inversely based upon prevailing market rates. The interest
rate shown is the rate in effect at July 31, 1997.
(g) Prerefunded.
(h) Escrowed to maturity.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective yield at the time of purchase by the Fund.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $61,573,424) (Note 1a) $67,520,951
Cash 14,203
Receivables:
Interest $1,079,440
Beneficial interest sold 25,163 1,104,603
-----------
Prepaid registration fees and other assets (Note 1e) 8,872
-----------
Total assets 68,648,629
-----------
Liabilities: Payables:
Beneficial interest redeemed 347,676
Dividends to shareholders (Note 1f) 90,411
Investment adviser (Note 2) 31,822
Distributor (Note 2) 24,422 494,331
-----------
Accrued expenses and other liabilities 80,106
-----------
Total liabilities 574,437
-----------
Net Assets: Net assets $68,074,192
===========
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $97,693
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 512,044
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 8,360
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 3,056
Paid-in capital in excess of par 63,527,168
Accumulated realized capital losses on investments -- net (Note 5) (2,021,656)
Unrealized appreciation on investments -- net 5,947,527
-----------
Net assets $68,074,192
===========
Net Asset Value: Class A -- Based on net assets of $10,706,691 and 976,934 shares of
beneficial interest outstanding $10.96
===========
Class B -- Based on net assets of $56,114,943 and 5,120,443 shares of
beneficial interest outstanding $10.96
===========
Class C -- Based on net assets of $917,182 and 83,599 shares of
beneficial interest outstanding $10.97
===========
Class D -- Based on net assets of $335,376 and 30,555 shares of
beneficial interest outstanding $10.98
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
July 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $4,403,079
(Note 1d):
Expenses: Investment advisory fees (Note 2) $390,807
Account maintenance and distribution fees -- Class B (Note 2) 298,524
Professional fees 57,353
Accounting services (Note 2) 55,744
Transfer agent fees -- Class B (Note 2) 28,334
Printing and shareholder reports 23,858
Registration fees (Note 1e) 16,042
Account maintenance and distribution fees -- Class C (Note 2) 6,254
Pricing fees 6,032
Custodian fees 4,909
Transfer agent fees -- Class A (Note 2) 3,905
Trustees' fees and expenses 3,149
Amortization of organization expenses (Note 1e) 654
Transfer agent fees -- Class C (Note 2) 611
Account maintenance fees -- Class D (Note 2) 376
Transfer agent fees -- Class D (Note 2) 149
Other 2,907
----------
Total expenses 899,608
----------
Investment income -- net 3,503,471
----------
Realized & Realized gain on investments -- net 425,994
Unrealized Gain on Change in unrealized appreciation on investments -- net 2,075,093
Investments -- Net ----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $6,004,558
==========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended July 31,
1997 1996
Increase (Decrease) in Net Assets: ------------ ------------
<S> <C> <C> <C>
Operations: Investment income -- net $3,503,471 $3,910,733
Realized gain (loss) on investments -- net 425,994 (491,651)
Change in unrealized appreciation on investments -- net 2,075,093 577,503
------------ ------------
Net increase in net assets resulting from operations 6,004,558 3,996,585
------------ ------------
Dividends to Investment income -- net:
Shareholders Class A (533,168) (553,259)
(Note 1f): Class B (2,900,983) (3,298,727)
Class C (49,486) (43,024)
Class D (19,834) (15,723)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (3,503,471) (3,910,733)
------------ ------------
Beneficial Interest Net decrease in net assets derived from beneficial interest transactions (9,551,520) (8,419,639)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (7,050,433) (8,333,787)
Beginning of year 75,124,625 83,458,412
------------ ------------
End of year $68,074,192 $75,124,625
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended July 31,
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $10.57 $10.57 $10.51 $11.09 $10.84
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net .57 .57 .57 .60 .62
Realized and unrealized gain (loss) on
investments -- net .39 -- .06 (.32) .32
------- ------- ------- ------- -------
Total from investment operations .96 .57 .63 .28 .94
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net (.57) (.57) (.57) (.60) (.62)
Realized gain on investments -- net -- -- -- (.23) (.07)
In excess of realized gain on
investments -- net -- -- -- (.03) --
------- ------- ------- ------- -------
Total dividends and distributions (.57) (.57) (.57) (.86) (.69)
------- ------- ------- ------- -------
Net asset value, end of year $10.96 $10.57 $10.57 $10.51 $11.09
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 9.39% 5.44% 6.39% 2.41% 9.15%
Return:* ======= ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement .83% .85% .82% .67% .70%
Net Assets: ======= ======= ======= ======= =======
Expenses .83% .85% .83% .84% .94%
======= ======= ======= ======= =======
Investment income -- net 5.37% 5.29% 5.64% 5.45% 5.77%
======= ======= ======= ======= =======
Supplemental Net assets, end of year (in thousands) $10,707 $9,805 $11,012 $12,973 $14,033
Data: ======= ======= ======= ======= =======
Portfolio turnover 47.83% 110.16% 99.40% 59.68% 56.10%
======= ======= ======= ======= =======
* Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended July 31,
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $10.57 $10.57 $10.51 $11.09 $10.84
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net .52 .51 .52 .55 .57
Realized and unrealized gain (loss) on
investments -- net .39 -- .06 (.32) .32
------- ------- ------- ------- -------
Total from investment operations .91 .51 .58 .23 .89
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net (.52) (.51) (.52) (.55) (.57)
Realized gain on investments -- net -- -- -- (.23) (.07)
In excess of realized gain on
investments -- net -- -- -- (.03) --
------- ------- ------- ------- -------
Total dividends and distributions (.52) (.51) (.52) (.81) (.64)
------- ------- ------- ------- -------
Net asset value, end of year 10.96 10.57 10.57 10.51 11.09
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 8.84% 4.89% 5.85% 1.89% 8.60%
Return:* ======= ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement 1.34% 1.36% 1.33% 1.17% 1.20%
Net Assets: ======= ======= ======= ======= =======
Expenses 1.34% 1.36% 1.34% 1.34% 1.44%
======= ======= ======= ======= =======
Investment income -- net 4.86% 4.78% 5.13% 4.95% 5.26%
======= ======= ======= ======= =======
Supplemental Net assets, end of year (in thousands) $56,115 $63,733 $71,783 $78,958 $72,482
Data: ======= ======= ======= ======= =======
Portfolio turnover 47.83% 110.16% 99.40% 59.68% 56.10%
======= ======= ======= ======= =======
* Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (concluded)
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994+ to Ended 1994+ to
July 31, July 31, July 31, July 31,
1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- -------
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.58 $10.57 $10.16 $10.58 $10.59 $10.16
Operating ------- ------- ------- ------- ------- -------
Performance: Investment income -- net .51 .50 .39 .56 .56 .44
Realized and unrealized gain (loss)
on investments -- net .39 .01 .41 .40 (.01) .43
------- ------- ------- ------- ------- -------
Total from investment operations .90 .51 .80 .96 .55 .87
------- ------- ------- ------- ------- -------
Less dividends from investment
income -- net (.51) (.50) (.39) (.56) (.56) (.44)
------- ------- ------- ------- ------- -------
Net asset value, end of period $10.97 $10.58 $10.57 $10.98 $10.58 $10.59
======= ======= ======= ======= ======= =======
Total Investment Based on net asset value per share 8.71% 4.88% 8.07%++++ 9.38% 5.23% 8.74%++++
Return:** ======= ======= ======= ======= ======= =======
Ratios to Average Expenses 1.45% 1.47% 1.48%* .93% .96% .95%*
Net Assets: ======= ======= ======= ======= ======= =======
Investment income -- net 4.75% 4.65% 4.87%* 5.27% 5.15% 5.41%*
======= ======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousand $917 $1,176 $501 $335 $411 $163
Data: ======= ======= ======= ======= ======= =======
Portfolio turnover 47.83% 110.16% 99.40% 47.83% 110.16% 99.40%
======= ======= ======= ======= ======= =======
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund July 31, 1997
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
four classes of shares under the Merrill Lynch Select Pricing SM System.
Shares of Class A and Class D are sold with a front-end sales charge.
Shares of Class B and Class C may be subject to a contingent deferred
sales charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except
that Class B, Class C and Class D Shares bear certain expenses related
to the account maintenance of such shares, and Class B and Class C
Shares also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to matters
relating to its account maintenance and distribution expenditures. The
following is a summary of significant accounting policies followed by
the Fund.
(a) Valuation of investments -- Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the over-
the-counter municipal bond and money markets and are valued at the last
available bid price in the over-the-counter market or on the basis of
yield equivalents as obtained from one or more dealers that make markets
in the securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their settlement prices as
of the close of such exchanges. Short-term investments with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Trustees of the Trust, including valuations furnished by a pricing
service retained by the Trust, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of
the Trustees.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the counterparty
does not perform under the contract.
[bullet] 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 securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by
the Fund as unrealized gains or losses. When the contract is closed, the
Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
(c) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no Federal income tax provision
is required.
(d) Security transactions and investment income -- Security transactions
are recorded on the dates the transactions are entered into (the trade
dates). Interest income is recognized on the accrual basis. Discounts
and market premiums are amortized into interest income. Realized gains
and losses on security transactions are determined on the identified
cost basis.
(e) Deferred organization expenses and prepaid registration fees --
Deferred organization expenses are charged to expense on a straight-line
basis over a 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.
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 thelimited partner. The Fund
has also entered into a Distribution Agreement and Distribution Plans
with Merill Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a
wholly-owned subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily value
of the Fund's net assets at the following annual rates: 0.55% of the
Fund's average daily net assets not exceeding $500 million; 0.525% of
average daily net assets in excess of $500 million but not exceeding $1
billion; and 0.50% of average daily net assets in excess of $1 billion.
Pursuant to the distribution plans (the "Distribution Plans") adopted by
the Fund in accordance with Rule 12b-1 under the Investment Company Act
of 1940, the Fund pays the Distributor ongoing account maintenance and
distribution fees. The fees are accrued daily and paid monthly at annual
rates based upon the average daily net assets of the
shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce,
Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides
account maintenance and distribution services to the Fund. The ongoing
account maintenance fee compensates the Distributor and MLPF&S for
providing account maintenance services to Class B, Class C and Class D
shareholders. The ongoing distribution fee compensates the Distributor
and MLPF&S for providing shareholder and distribution-related services
to Class B and Class C shareholders.
For the year ended July 31, 1997, MLFD earned underwriting discounts and
MLPF&S earned dealer concessions on sales of the Fund's Class A and
Class D Shares as follows:
MLFD MLPF&S
Class A $338 $3,317
Class D $12 $157
For the year ended July 31, 1997, MLPF&S received contingent deferred
sales charges of $114,444 and $1,217 relating to transactions in Class B
and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the year ended July 31, 1997 were $32,462,530 and $33,654,472,
respectively.
Net realized and unrealized gains as of July 31, 1997 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $425,994 $5,947,527
---------- ----------
Total $425,994 $5,947,527
========== ==========
As of July 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $5,947,527, all of which related to appreciated
securities. The aggregate cost of investments at July 31, 1997 for
Federal income tax purposes was $61,573,424.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions
was $9,551,520 and $8,419,639 for the years ended July 31, 1997 and July
31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Dollar
Year Ended July 31, 1997 Shares Amount
Shares sold 252,315 $2,686,473
Shares issued to share-
holders in reinvestment
of dividends 25,365 270,194
---------- ----------
Total issued 277,680 2,956,667
Shares redeemed (228,652) (2,432,479)
---------- ----------
Net increase 49,028 $524,188
========== ==========
Class A Shares for the Dollar
Year Ended July 31, 1996 Shares Amount
Shares sold 38,470 $413,050
Shares issued to share-
holders in reinvestment
of dividends 24,896 266,171
---------- ----------
Total issued 63,366 679,221
Shares redeemed (177,467) (1,893,072)
---------- ----------
Net decrease (114,101) $(1,213,851)
========== ==========
Class B Shares for the Dollar
Year Ended July 31, 1997 Shares Amount
Shares sold 357,634 $3,799,843
Shares issued to share-
holders in reinvestment
of dividends 131,590 1,400,919
---------- ----------
Total issued 489,224 5,200,762
Automatic conversion
of shares (2,147) (22,758)
Shares redeemed (1,398,218) (14,872,578)
---------- ----------
Net decrease (911,141) $(9,694,574)
========== ==========
Class B Shares for the Dollar
Year Ended July 31, 1996 Shares Amount
Shares sold 639,049 $6,853,336
Shares issued to share-
holders in reinvestment
of dividends 150,166 1,605,891
---------- ----------
Total issued 789,215 8,459,227
Automatic conversion
of shares (7,859) (83,042)
Shares redeemed (1,542,242) (16,527,560)
---------- ----------
Net decrease (760,886) $(8,151,375)
========== ==========
Class C Shares for the Dollar
Year Ended July 31, 1997 Shares Amount
Shares sold 50,974 $541,284
Shares issued to shareholders
in reinvestment of dividends 3,478 37,035
---------- ----------
Total issued 54,452 578,319
Shares redeemed (82,044) (871,928)
---------- ----------
Net decrease (27,592) $(293,609)
========== ==========
Class C Shares for the Dollar
Year Ended July 31, 1996 Shares Amount
Shares sold 94,085 $1,013,741
Shares issued to shareholders
in reinvestment of dividends 3,298 35,266
---------- ----------
Total issued 97,383 1,049,007
Shares redeemed (33,556) (353,847)
---------- ----------
Net increase 63,827 $695,160
========== ==========
Class D Shares for the Dollar
Year Ended July 31, 1997 Shares Amount
Shares sold 5,937 $63,603
Automatic conversion of shares 2,143 22,758
Shares issued to shareholders
in reinvestment of dividends 1,135 12,088
---------- ----------
Total issued 9,215 98,449
Shares redeemed (17,443) (185,974)
---------- ----------
Net decrease (8,228) $(87,525)
========== ==========
Class D Shares for the Dollar
Year Ended July 31, 1996 Shares Amount
Shares sold 20,102 $215,896
Automatic conversion of shares 7,850 83,042
Shares issued to shareholders
in reinvestment of dividends 984 10,543
---------- ----------
Total issued 28,936 309,481
Shares redeemed (5,540) (59,054)
---------- ----------
Net increase 23,396 $250,427
========== ==========
5. Capital Loss Carryforward:
At July 31, 1997, the Fund had a net capital loss
carryforward of approximately $1,529,000, of which $1,053,000 expires in
2003 and $476,000 expires in 2005. 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 Texas 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 Texas Municipal
Bond Fund of Merrill Lynch Multi-State Municipal Series Trust as of July
31, 1997, 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 gener-ally 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, 1997 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 Texas Municipal Bond Fund of Merrill Lynch Multi-State
Municipal Series Trust as of July 31, 1997, the results of its
operations, the changes in its net assets, and the financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 5, 1997
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by Merrill
Lynch Texas Municipal Bond Fund during its taxable year ended July 31,
1997 qualify as tax-exempt interest dividends for Federal income tax
purposes.
Additionally, there were no capital gains distributed by the Fund during
the year.
Please retain this information for your records.
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Fred K. Stuebe, Vice President
Gerald M. Richard, Treasurer
Robert E. Putney III, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
