MERRILL LYNCH
TEXAS
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1997
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
Jerry Weiss, 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
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 -- 1/97
Merrill Lynch Texas Municipal Bond Fund January 31, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
Long-term fixed-income bond yields generally declined over the six
months ended January 31, 1997. Initially, US Treasury bond yields
declined over 45 basis points (0.45%) to 6.45% by late November as
low employment growth and continued low inflation combined to
support lower bond yields. Concurrently, long-term municipal
revenue bond yields, as measured by the Bond Buyer Revenue Bond
Index, declined over 20 basis points to approximately 5.80%.
However, signs of increased economic activity and renewed
inflation fears pushed bond yields up for the remainder of the
period. By the end of January 1997, US Treasury bond yields rose
35 basis points to end the period at approximately 6.80%. Similarly,
long-term municipal revenue bond yields rose approximately 20 basis
points from their lows in late November to approximately 6.00%. During
the six months ended January 31, 1997, US Treasury bond yields declined
approximately 10 basis points, while tax-exempt bond yields were
essentially unchanged.
Recently, tax-exempt bond yields underperformed their taxable
counterparts despite a continued strong supply position. During
the six-month period ended January 31, 1997, over $88 billion in
long-term tax-exempt bonds was underwritten, essentially unchanged
from issuance a year ago. Approximately $50 billion in new
municipal bonds was issued during the three-month period ended
January 31, 1997, representing a decline of over 5% compared to
the same period in 1996. This declining trend in bond issuance was
even more apparent recently. Slightly more than $10 billion in
long-term bonds was issued in January 1997, a decrease of over 15%
compared to January 1996 issuance.
The municipal bond market's recent underperformance relative to
Treasury issues was the result of a number of other factors. The
historic strength of the US equity market has attracted
significant investor interest. Additionally, as tax-exempt bond
yields declined again below 6%, some investors temporarily lost
interest in the municipal bond market. If interest rates continue
to decline as they did at the end of 1994 and throughout 1995,
investors, in general, will quickly adjust to the new levels. The
tax advantages generated by municipal bonds quickly outweigh low
nominal yields and investor demand increases.
The Presidential and Congressional elections this past November
resurrected some investor concerns regarding continued Federal
deficit reduction and potential legislative restrictions upon the
municipal bond market. This situation was similar to that at the
beginning of 1996 when tax-exempt bond yields were negatively
impacted by fears that legislation reducing the tax advantage of
municipal bonds would be introduced to aid further deficit
reductions.
However, the US Treasury bond market's recent relatively strong
performance resulted in municipal bonds becoming a particularly
attractive investment alternative. At current levels, long-term
tax-exempt revenue bonds yield over 88% of comparable US Treasury
bond yields. Current levels make tax-advantaged products more
attractive than they were at mid-year when yield ratios declined
to approximately 85%. For example, to an investor in the 36%
Federal income tax bracket, a current tax-exempt bond yield of 6%
represents a taxable equivalent yield of approximately 9.37%.
Looking forward, the supply of new bond issuance for 1997 is
expected to be very similar to that of 1996, with most annual
estimates falling in the $170 billion -- $175 billion range.
Investor demand is also expected to regain its former strength,
with 1997 total municipal redemptions (refundings, maturities and
coupon payments) in the $175 billion -- $185 billion range. This
overall balance suggests that the positive technical backdrop the
municipal bond market enjoyed in 1996 could continue in 1997.
However, it is likely that seasonal factors may temporarily
distort this overall balanced technical scenario. During periods
of reduced bond issuance, the ease and ability to purchase tax-
advantaged products at their current attractive levels may be
greatly restricted.
Portfolio Strategy
During the six month period ended January 31, 1997, we primarily
maintained the defensive posture of the Fund which we adopted in
mid-1996. Our principal strategy was to favor higher-couponed
issues over more interest rate-sensitive securities that have
greater potential for capital appreciation. We believed that tax-
exempt interest rates would fluctuate in a broad range and larger-
couponed securities would offer both greater principal preservation
and generous tax-exempt income. In addition, we maintained minimal
cash reserves in recent months to further augment shareholder income.
New long-term bond issuance in Texas was slightly higher than that
in the national marketplace, although overall Texas issuance has
declined recently. During the six months ended January 31, 1997,
over $5.1 billion in long-term securities was issued by Texas
municipalities, a decline of over 5% compared to the same period
in 1996. Likewise, during the three months ended January 31, 1997,
$3 billion in municipal bonds was issued in Texas, a decline of 10%
compared to same period in 1996. This decline in new bond supply was
perhaps the major determining factor in our decision to maintain a
fully invested position. While 1997 annual issuance is expected to be
similar to that of 1996, more advantageous supply conditions are
not expected until late 1997. Consequently, we expect to remain fully
invested throughout much of 1997.
We believe that economic growth should slow by mid-1997, perhaps aided
by an increase in interest rates by the Federal Reserve Board. Slower
growth, combined with continued low inflation, may result in materially
lower interest rates. Additionally, the prospect for further Federal
deficit reduction may provide a positive backdrop for more significant
declines in long-term bond yields. Signs that such a scenario is
developing would trigger us to move to a more aggressive strategy for
the Fund, utilizing more interest rate-sensitive issues in order to
enhance the Fund's principal appreciation. At the same time, however,
we will still seek to generate an attractive level of tax-exempt income.
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 ahead.
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
March 4, 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. 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
1/31/97 10/31/96 1/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.64 $10.67 $11.00 -3.27% -0.28%
Class B Shares* 10.64 10.67 11.00 -3.27 -0.28
Class C Shares* 10.65 10.69 11.01 -3.27 -0.37
Class D Shares* 10.66 10.69 11.02 -3.27 -0.28
Class A Shares -- Total Return* +2.02(1) +1.11(2)
Class B Shares -- Total Return* +1.51(3) +0.98(4)
Class C Shares -- Total Return* +1.40(5) +0.86(6)
Class D Shares -- Total Return* +1.93(7) +1.09(8)
Class A Shares -- Standardized 30-day Yield 4.81%
Class B Shares -- Standardized 30-day Yield 4.50%
Class C Shares -- Standardized 30-day Yield 4.39%
Class D Shares -- Standardized 30-day Yield 4.71%
* 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 $0.572 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.155 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.517 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.140 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.506 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.137 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.562 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.152 per share ordinary income dividends.
</TABLE>
<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 -- 1/31/97 10.68 10.64 -- 0.041 + 0.10
Total $0.094 Total $3.510
Cumulative total return as of 1/31/97: +49.35%**
* 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>
<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 -- 1/31/97 10.68 10.64 -- 0.037 + 0.06
Total $0.094 Total $3.217
Cumulative total return as of 1/31/97: +45.31%**
* 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>
<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 -- 1/31/97 10.69 10.65 -- 0.036 + 0.05
Total $1.142
Cumulative total return as of 1/31/97: +16.87%**
* 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>
<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 -- 1/31/97 10.69 10.66 -- 0.040 + 0.19
Total $1.272
Cumulative total return as of 1/31/97: +18.42%**
* 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>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/96 +2.35% -1.75%
Five Years Ended 12/31/96 +7.29 +6.41
Inception (8/30/91)
through 12/31/96 +7.78 +6.96
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +1.83% -2.05%
Five Years Ended 12/31/96 +6.74 +6.74
Inception (8/30/91)
through 12/31/96 +7.24 +7.24
* 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 12/31/96 +1.72% +0.75%
Inception (10/21/94)
through 12/31/96 +7.34 +7.34
* 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 12/31/96 +2.16% -1.93%
Inception (10/21/94)
through 12/31/96 +7.91 +5.93
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Texas Municipal Bond Fund January 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Texas -- 100.2%
<S> <C> <C> <C> <C>
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 $1,658
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) 2,008
NR* Aaa 2,500 Coppell, Texas, Independent School District, Refunding, UT, 5.375% due 8/15/2020 2,395
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 1,060
NR* A2 2,000 Ector County, Texas, Hospital District, Hospital Revenue Bonds (Medical Center Hospital),
7.30% due 4/15/2002 (g) 2,285
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 1,856
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 1,081
Harris County, Texas, Health Facilities Development Corporation, Hospital Revenue Bonds:
A- A2 2,000 (Memorial Hospital Systems Project), Series A, 6.625% due 6/01/2024 2,129
A1+ NR* 2,600 (Methodist Hospital), VRDN, 3.65% due 12/01/2025 (a) 2,600
AA Aa 2,000 (Saint Luke's Episcopal Hospital Project), Series A, 6.625% due 2/15/2012 2,105
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 1,037
AAA NR* 1,250 Hillsboro, Texas, Independent School District, Refunding, UT, 5.25% due 8/15/2021 1,173
AAA Aaa 1,010 Houston, Texas, Airport System, Sub-Lien Revenue Bonds, Series B, 6.625%
due 7/01/2022 (c) 1,093
AAA NR* 2,000 Laredo, Texas, Housing Finance Corporation, S/F Mortgage Revenue Bonds (Mortgage
Backed Securities Program), AMT, 6.95% due 10/01/2027 (d)(e) 2,090
NR* A 1,000 Laredo, Texas, International Toll Bridge Revenue Bonds, 7% due 10/01/2002 (g) 1,124
AAA Aaa 1,000 Longview, Texas, Water and Sewer Revenue Bonds, 5% due 3/01/2015 (b) 934
Matagorda County, Texas, Navigation District No. 1:
A A2 3,100 PCR (Central Power and Light Company Project), 7.50% due 12/15/2014 3,410
AAA Aaa 1,000 Refunding (Houston Light and Power Company), Series C, 7.125% due 7/01/2019 (c) 1,074
BBB NR* 1,500 Midland County, Texas, Hospital District Revenue Bonds (Midland Memorial Hospital),
7.50% due 6/01/2016 1,600
North Central Texas, Health Facilities Development Corporation (g):
AA Aa 3,000 (Baylor University Medical Center), INFLOS, Series A, 9.968% due 5/15/2001 (f) 3,630
AAA Aaa 4,000 (Presbyterian Health Systems), 6.685% due 6/01/2001 (b) 4,398
Port Neches-Groves, Texas, Independent School District, UT:
AAA Aaa 1,000 5% due 2/15/2015 935
AAA Aaa 1,000 5% due 2/15/2016 927
AAA Aaa 1,000 5% due 2/15/2017 925
NR* VMIG1+ 500 Port of Port Arthur, Texas, Navigational District, PCR, Refunding (Texaco Incorporated
Project), VRDN, 3.70% due 10/01/2024 (a) 500
AAA Aaa 3,000 Red River Authority, Texas, PCR, Refunding (West Texas Utilities Co.- Public Service Co.
of Oklahoma - Central Power and Light Co.), 6% due 6/01/2020 (b) 3,067
NR* Aaa 2,500 Socorro, Texas, Independent School District, UT, 5.125% due 2/15/2027 2,301
Southeast Texas, Housing Finance Corporation, S/F Mortgage Revenue Bonds, AMT (d):
NR* Aaa 2,730 Series A, 8% due 11/01/2025 3,101
NR* Aaa 1,555 Series B, 8.50% due 11/01/2025 1,770
A+ Aa 1,260 Texas Housing Agency, S/F Mortgage Revenue Refunding Bonds, Series A, 7.15%
due 9/01/2012 1,306
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) 1,536
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) 526
BBB+ NR* 2,330 Texas State, Public Property Finance Corporation Revenue Bonds (Mental Health /
Mental Retardation), 6.20% due 9/01/2016 2,316
AA Aa 4,000 Texas State, UT, Series B1 and B2, 6.20% due 9/30/2011 4,337
AA Aa 965 Texas State, Veterans Housing Assistance, AMT, UT, Fund II, Series A, 7% due 12/01/2025 1,015
AA Aa 3,225 Texas State, Water Development Board, GO, UT, 7% due 8/01/2020 3,590
AAA NR* 395 Travis County, Texas, Housing Finance Corporation, Residential Mortgage Revenue
Refunding Bonds, Series A, 7% due 12/01/2011 (d)(e) 418
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 1,896
Total Investments (Cost -- $67,047) -- 100.2% 71,206
Liabilities in Excess of Other Assets -- (0.2%) (159)
---------
Net Assets -- 100.0 $71,047
=========
(a) The interest rate is subject to change periodically based upon prevailing market rates.
The interest rate shown is the rate in effect at January 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 January 31, 1997.
(g) Prerefunded.
+ Highest short-term rating by Moody's Investors Service, Inc.
* Not Rated.
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.
AMT Alternative Minimum 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
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of January 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $67,047,147)(Note 1a) $71,205,660
Cash 69,104
Receivables:
Interest $1,194,032
Beneficial interest sold 136,980
Securities sold 10,298 1,341,310
------------
Deferred organization expenses (Note 1e) 654
Prepaid registration fees and other assets (Note 1e) 8,920
------------
Total assets 72,625,648
------------
Liabilities: Payables:
Securities purchased 1,175,338
Beneficial interest redeemed 213,203
Dividends to shareholders (Note 1f) 58,036
Investment adviser (Note 2) 34,342
Distributor (Note 2) 26,908 1,507,827
------------
Accrued expenses and other liabilities 71,012
------------
Total liabilities 1,578,839
------------
Net Assets: Net assets $71,046,809
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $93,111
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 561,670
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 9,608
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 3,260
Paid-in capital in excess of par 68,442,457
Accumulated realized capital losses on investments -- net (Note 5) (1,998,606)
Accumulated distributions in excess of realized capital gains --
net (Note 1f) (223,204)
Unrealized appreciation on investments -- net 4,158,513
------------
Net assets $71,046,809
============
Net Asset Value: Class A -- Based on net assets of $9,908,599 and 931,112 shares of
beneficial interest outstanding $10.64
============
Class B -- Based on net assets of $59,767,313 and 5,616,697 shares of
beneficial interest outstanding $10.64
============
Class C -- Based on net assets of $1,023,422 and 96,076 shares of
beneficial interest outstanding $10.65
============
Class D -- Based on net assets of $347,475 and 32,602 shares of
beneficial interest outstanding $10.66
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
January 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $2,298,244
(Note 1d):
Expenses: Investment advisory fees (Note 2) $204,271
Account maintenance and distribution fees -- Class B (Note 2) 157,397
Professional fees 30,971
Accounting services (Note 2) 28,095
Printing and shareholder reports 16,405
Transfer agent fees -- Class B (Note 2) 16,194
Registration fees (Note 1e) 7,746
Pricing fees 3,605
Account maintenance and distribution fees -- Class C (Note 2) 3,311
Custodian fees 2,781
Transfer agent fees -- Class A (Note 2) 2,121
Trustees' fees and expenses 1,744
Amortization of organization expenses (Note 1e) 357
Transfer agent fees -- Class C (Note 2) 345
Account maintenance fees -- Class D (Note 2) 214
Transfer agent fees -- Class D (Note 2) 93
Other 1,322
------------
Total expenses 476,972
------------
Investment income -- net 1,821,272
------------
Realized & Realized gain on investments -- net 225,841
Unrealized Gain on Change in unrealized appreciation on investments -- net 286,079
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $2,333,192
============
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $1,821,272 $3,910,733
Realized gain (loss) on investments -- net 225,841 (491,651)
Change in unrealized appreciation on investments -- net 286,079 577,503
------------ ------------
Net increase in net assets resulting from operations 2,333,192 3,996,585
------------ ------------
Dividends to Investment income -- net:
Shareholders Class A (261,612) (553,259)
(Note 1f): Class B (1,522,361) (3,298,727)
Class C (26,061) (43,024)
Class D (11,238) (15,723)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (1,821,272) (3,910,733)
------------ ------------
Beneficial
Interest Net decrease in net assets derived from beneficial interest transactions (4,589,736) (8,419,639)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (4,077,816) (8,333,787)
Beginning of period 75,124,625 83,458,412
------------ ------------
End of period $71,046,809 $75,124,625
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
For the Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, 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 period $10.57 $10.57 $10.51 $11.09 $10.84
Operating ------ ------ ------ ------ ------
Performance: Investment income -- net .29 .57 .57 .60 .62
Realized and unrealized gain (loss) on
investments -- net .07 -- .06 (.32) .32
------ ------ ------ ------ ------
Total from investment operations .36 .57 .63 .28 .94
------ ------ ------ ------ ------
Less dividends and distributions:
Investment income -- net (.29) (.57) (.57) (.60) (.62)
Realized gain on investments -- net -- -- -- (.23) (.07)
In excess of realized gain on investments -- net -- -- -- (.03) --
------ ------ ------ ------ ------
Total dividends and distributions (.29) (.57) (.57) (.86) (.69)
------ ------ ------ ------ ------
Net asset value, end of period $10.64 $10.57 $10.57 $10.51 $11.09
====== ====== ====== ====== ======
Total Investment Based on net asset value per share 3.44%++ 5.44% 6.39% 2.41% 9.15%
Return:** ====== ====== ====== ====== ======
Ratios to Average Expenses, net of reimbursement .84%* .85% .82% .67% .70%
Net Assets: ====== ====== ====== ====== ======
Expenses .84%* .85% .83% .84% .94%
====== ====== ====== ====== ======
Investment income -- net 5.34%* 5.29% 5.64% 5.45% 5.77%
====== ====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $9,909 $9,805 $11,012 $12,973 $14,033
Data: ====== ====== ====== ====== ======
Portfolio turnover 27.59% 110.16% 99.40% 59.68% 56.10%
====== ====== ====== ====== ======
* Annualized.
** Total investment returns exclude the effect of sales loads.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
Class B
For the Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, 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 period $10.57 $10.57 $10.51 $11.09 $10.84
Operating ------ ------ ------ ------ ------
Performance: Investment income -- net .26 .51 .52 .55 .57
Realized and unrealized gain (loss) on
investments -- net .07 -- .06 (.32) .32
------ ------ ------ ------ ------
Total from investment operations .33 .51 .58 .23 .89
------ ------ ------ ------ ------
Less dividends and distributions:
Investment income -- net (.26) (.51) (.52) (.55) (.57)
Realized gain on investments -- net -- -- -- (.23) (.07)
In excess of realized gain on investments -- net -- -- -- (.03) --
------ ------ ------ ------ ------
Total dividends and distributions (.26) (.51) (.52) (.81) (.64)
------ ------ ------ ------ ------
Net asset value, end of period $10.64 $10.57 $10.57 $10.51 $11.09
====== ====== ====== ====== ======
Total Investment Based on net asset value per share 3.17%++ 4.89% 5.85% 1.89% 8.60%
Return:** ====== ====== ====== ====== ======
Ratios to Average Expenses, net of reimbursement 1.35%* 1.36% 1.33% 1.17% 1.20%
Net Assets: ====== ====== ====== ====== ======
Expenses 1.35%* 1.36% 1.34% 1.34% 1.44%
====== ====== ====== ====== ======
Investment income -- net 4.84%* 4.78% 5.13% 4.95% 5.26%
====== ====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $59,767 $63,733 $71,783 $78,958 $72,482
Data: ====== ====== ====== ====== ======
Portfolio turnover 27.59% 110.16% 99.40% .68% 56.10%
====== ====== ====== ====== ======
* Annualized.
** Total investment returns exclude the effect of sales loads.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (concluded)
Class C
For the For the
Six For the Period
The following per share data and ratios have been derived Months Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to
Jan. 31, July 31, July 31,
1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.58 $10.57 $10.16
Operating ------ ------ ------
Performance: Investment income-- net .26 .50 .39
Realized and unrealized gain on investments -- net .07 .01 .41
------ ------ ------
Total from investment operations .33 .51 .80
------ ------ ------
Less dividends from investment income -- net (.26) (.50) (.39)
------ ------ ------
Net asset value, end of period $10.65 $10.58 $10.57
====== ====== ======
Total Investment Based on net asset value per share 3.11%++ 4.88% 8.07%++
Return:** ====== ====== ======
Ratios to Average Expenses 1.46%* 1.47% 1.48%*
Net Assets: ====== ====== ======
Investment income -- net 4.72%* 4.65% 4.87%*
====== ====== ======
Supplemental Net assets, end of period (in thousands) $1,023 $1,176 $501
Data: ====== ====== ======
Portfolio turnover 27.59% 110.16% 99.40%
====== ====== ======
<CAPTION>
Class D
For the For the
Six For the Period
The following per share data and ratios have been derived Months Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to
Jan. 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.58 $10.59 $10.16
Operating ------ ------ ------
Performance: Investment income-- net .28 .56 .44
Realized and unrealized gain (loss)
on investments -- net .08 (.01) .43
------ ------ ------
Total from investment operations .36 .55 .87
------ ------ ------
Less dividends from investment income -- net (.28) (.56) (.44)
------ ------ ------
Net asset value, end of period $10.66 $10.58 $10.59
====== ====== ======
Total Investment Based on net asset value per share 3.48%++ 5.23% 8.74%++
Return:** ====== ====== ======
Ratios to Average Expenses .94%* .96% .95%*
Net Assets: ====== ====== ======
Investment income -- net 5.25%* 5.15% 5.41%*
====== ====== ======
Supplemental Net assets, end of period (in thousands) $348 $411 $163
Data: ====== ====== ======
Portfolio turnover 27.59% 110.16% 99.40%
====== ====== ======
* Annualized.
** Total investment returns exclude the effect of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund January 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. These
unaudited financial statements reflect all adjustments which are,
in the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are
of a normal recurring nature. The Fund offers four classes of
shares under the Merrill Lynch Select PricingSM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred
sales charge. All classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D Shares bear
certain expenses related to the account maintenance of such
shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The
following is a summary of significant accounting policies followed
by the Fund.
(a) Valuation of investments -- Municipal bonds and other
portfolio securities in which the Fund invests are traded
primarily in the over-the-counter municipal bond and money markets
and are valued at the last available bid price in the over-the-
counter market or on the basis of yield equivalents as obtained
from one or more dealers that make markets in the securities.
Financial futures contracts and options thereon, which are traded
on exchanges, are valued at their settlement prices as of the
close of such exchanges. Short-term investments with remaining
maturities of sixty days or less are valued at amortized cost,
which approximates market value. Securities and assets for which
market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the
Board of Trustees of the Trust, including valuations furnished by
a pricing service retained by the Trust, which may utilize a
matrix system for valuations. The procedures of the pricing
service and its valuations are reviewed by the officers of the
Trust under the general supervision of the Trustees.
(b) Derivative financial instruments -- The Fund
may engage in various portfolio strategies to seek
to increase its return by hedging its portfolio against adverse
movements in the debt markets. Losses
may arise due to changes in the value of the con-
tract 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. Distributions
in excess of realized capital gains are due primarily to differing
tax treatments for futures transactions and post-October losses.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill 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 six months ended January 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 $182 $1,375
Class D $12 $157
For the six months ended January 31, 1997, MLPF&S received
contingent deferred sales charges of $56,400 and $1,104 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 six months ended January 31, 1997 were
$21,171,701 and $19,198,341, respectively.
Net realized and unrealized gains as of January 31, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 225,841 $ 4,158,513
---------- ------------
Total $ 225,841 $ 4,158,513
========== ============
As of January 31, 1997, net unrealized appreciation for Federal
income tax purposes aggregated $4,158,513, of which $4,225,778
related to appreciated securities and $67,265 related to
depreciated securities. The aggregate cost of investments at
January 31, 1997 for Federal income tax purposes was $67,047,147.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $4,589,736 and $8,419,639 for the six months
ended January 31, 1997 and the year ended July 31, 1996,
respectively.
Transactions in shares of beneficial interest for each class were
as follows:
Class A Shares for the Six Dollar
Months Ended Jan. 31, 1997 Shares Amount
Shares sold 95,518 $1,016,290
Shares issued to shareholders
in reinvestment of dividends 12,466 132,341
--------- ---------
Total issued 107,984 1,148,631
Shares redeemed (104,778) (1,112,999)
--------- ---------
Net increase 3,206 $35,632
========= =========
Class A Shares For the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 38,470 $413,050
Shares issued to shareholders
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 Six Dollar
Months Ended Jan. 31, 1997 Shares Amount
Shares sold 219,415 $2,325,911
Shares issued to shareholders
in reinvestment of dividends 71,570 759,674
--------- ---------
Total issued 290,985 3,085,585
Automatic conversion
of shares (223) (2,390)
Shares redeemed (705,649) (7,483,068)
--------- ---------
Net decrease (414,887) $(4,399,873)
========= =========
Class B Shares For the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 639,049 $6,853,336
Shares issued to shareholders
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
Six Months Ended Dollar
January 31, 1997 Shares Amount
Shares sold 25,259 $268,185
Shares issued to shareholders
in reinvestment of dividends 1,974 20,965
--------- ---------
Total issued 27,233 289,150
Shares redeemed (42,348) (449,247)
--------- ---------
Net decrease (15,115) $(160,097)
========= =========
Class C Shares for the Year Dollar
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
Six Months Ended Dollar
January 31, 1997 Shares Amount
Shares sold 5,011 $53,639
Automatic conversion
of shares 223 2,390
Shares issued to shareholders
in reinvestment of dividends 740 7,862
--------- ---------
Total issued 5,974 63,891
Shares redeemed (12,155) (129,289)
--------- ---------
Net decrease (6,181) $(65,398)
========= =========
Class D Shares for the Year Dollar
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, 1996, the Fund had a net capital loss carryforward of
approximately $1,052,000, all of which expires in 2003. This
amount will be available to offset like amounts of any future
taxable gains.
