MERRILL LYNCH
TEXAS
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1998
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 -- 1/98
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch Texas Municipal Bond Fund January 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended January 31, 1998, long-term bond yields
declined to recent historic lows. Prior to late October, the ongoing
positive combination of moderate economic growth and low inflation had
allowed interest rates to gradually move lower. During the last three
months, however, the decline in interest rates was driven more by the
continued turmoil in Asian equity markets than by fundamental
concerns. A significant "flight to quality" has benefited the US
Treasury bond market, particularly longer-maturity US Treasury bonds,
as foreign investors have sought safe haven in the relative stability
of US financial markets. Over the six months ended January 31, 1998,
US Treasury bond yields declined approximately 50 basis points (0.50%)
to 5.81%.
Without the ability to benefit from the tax advantage inherent in
municipal bonds, foreign investors have not participated in the tax-
exempt market. Consequently, municipal bond yields have not declined
dramatically as have taxable US Treasury securities. Long-term
municipal revenue bond yields, as measured by the Bond Buyer Revenue
Index, declined only 15 basis points to end the six-month period ended
January 31, 1998 at 5.33%. Nevertheless, tax-exempt bond yields have
not reached these levels since the mid-1970s.
The increase in new municipal bond issuance over the past six months
has also prevented the tax-exempt bond market from more closely
mirroring the yield declines exhibited by its taxable counterpart.
During the last six months, over $120 billion in new long-term
municipal bonds were underwritten, an increase of over 30% compared to
the same six-month period one year ago. As interest rates have
continued to decline in recent months, new tax-exempt bond issuance
has remained strong. Over $60 million in new long-term municipal
securities were issued during the last three months, an increase of
over 20% compared to the same three-month period ended January 31,
1997. During the past month, over $16 billion in new long-term
municipal securities were underwritten, representing an increase of
over 40% compared to the January 1997 level.
In our opinion, the recent correction in world equity markets has
enhanced the near-term prospects for continued low, if not declining,
interest rates in the United States. It is likely that the recent
correction will result in slower US domestic growth in the coming
months. This decline should be generated in part by reduced US export
growth. Additionally, some decline in consumer spending can also be
expected because of reduced consumer confidence. Perhaps more
importantly, it is likely that, barring a dramatic and unexpected
resurgence in domestic growth, the Federal Reserve Board will be
unwilling to raise interest rates until the full impact of the equity
market's corrections can be established.
All of these factors suggest that over the near term, interest rates,
including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable that municipal bond yields will
remain under some relative pressure because of continued strong new-
issue supply. However, the recent pace of municipal bond issuance is
likely to be unsustainable. Continued increases in bond issuance will
require lower and lower tax-exempt bond yields to generate the
economic savings necessary for additional municipal bond refinancings.
Preliminary estimates of 1998 total municipal bond issuance are
presently in the $195 billion -- $220 billion range. These estimates
suggest that recent supply pressures are likely to abate somewhat next
year, or at least exert only minimal technical pressure during 1998.
Additionally, municipal bond investors received approximately $23
billion in January coupon payments, bond maturities and proceeds from
early redemptions, which should serve to intensify investor demand in
the near future. With tax-exempt bond yields at already attractive
yield ratios relative to US Treasury bonds (approximately 90% at the
end of December 1997), any further pressure on the municipal market
may well represent an attractive investment opportunity.
Portfolio Strategy
Going into the second half of 1997, we maintained a slightly defensive
posture for the Fund. During the six months ended January 31, 1998,
several changes took place in the US economy which eased our concerns
for a higher interest rate environment. In November 1997, we adopted a
less defensive strategy in response to the Asian financial crisis and
the continued domestic low inflation environment. This change in
structure was obtained by maintaining a fully invested position and
seeking out interest rate-sensitive issues when available.
While total municipal bond issuance increased by over 30% for the six
months ended January 31, 1998 compared to same six-month period last
year, total Texas municipal bond issuance increased by over 50% during
1997. More issues were brought in the form of current-coupon bonds
without attractive call protection. We did not participate in these
issues since they did not benefit the Fund's overall portfolio
structure. We expect issuance in Texas to remain strong going into
1998.
In the months ahead, we expect to maintain the Fund's fully invested
position. We believe that interest rates will stay within their
current trading range. We will look for periods of higher interest
rates before adopting a more aggressive investment strategy.
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/THEODORE R. JAECKEL JR.
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
March 4, 1998
We are pleased to announce that Theodore R. Jaeckel Jr. is responsible
for the day-to-day management of Merrill Lynch Texas Municipal Bond
Fund. Mr. Jaeckel has been employed by Merrill Lynch Asset Management,
L.P. (an affiliate of the Fund's investment adviser) since 1991 as
Vice President and Portfolio Manager.
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
1/31/98 10/31/97 1/31/97 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $11.02 $10.91 $10.64 +3.57% +1.01%
Class B Shares* 11.02 10.91 10.64 +3.57 +1.01
Class C Shares* 11.03 10.92 10.65 +3.57 +1.01
Class D Shares* 11.04 10.92 10.66 +3.56 +1.10
Class A Shares -- Total Return* +9.20(1) +2.34(2)
Class B Shares -- Total Return* +8.65(3) +2.21(4)
Class C Shares -- Total Return* +8.53(5) +2.18(6)
Class D Shares -- Total Return* +9.08(7) +2.40(8)
Class A Shares -- Standardized 30-day Yield 3.91%
Class B Shares -- Standardized 30-day Yield 3.57%
Class C Shares -- Standardized 30-day Yield 3.46%
Class D Shares -- Standardized 30-day Yield 3.82%
* 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 $0.573 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.144 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.518 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.130 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.507 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.127 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.563 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.141 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
1997 10.68 10.99 -- 0.574 + 8.53
1/1/98 -- 1/31/98 10.99 11.02 -- 0.040 + 0.72
Total $0.094 Total $4.083
Cumulative total return as of 1/31/98: +63.09%**
* 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
1997 10.68 10.99 -- 0.520 + 7.98
1/1/98 -- 1/31/98 10.99 11.02 -- 0.036 + 0.68
Total $0.094 Total $3.736
Cumulative total return as of 1/31/98: +57.89%**
* 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
1997 10.69 11.00 -- 0.508 + 7.86
1/1/98 -- 1/31/98 11.00 11.03 -- 0.035 + 0.67
Total $1.649
Cumulative total return as of 1/31/98: +26.84%**
* 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
1997 10.69 11.01 -- 0.565 + 8.52
1/1/98 -- 1/31/98 11.01 11.04 -- 0.039 + 0.71
Total $1.836
Cumulative total return as of 1/31/98: +29.17%**
* Figures may include short-term capital gains distributions.
** Figures 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 12/31/97 +8.53% +4.19%
Five Years Ended 12/31/97 +6.86 +5.99
Inception (8/30/91)
through 12/31/97 +7.90 +7.21
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/97 +7.98% +3.98%
Five Years Ended 12/31/97 +6.32 +6.32
Inception (8/30/91)
through 12/31/97 +7.36 +7.36
* 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 12/31/97 +7.86% +6.86%
Inception (10/21/94)
through 12/31/97 +7.50 +7.50
* 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 12/31/97 +8.52% +4.18%
Inception (10/21/94)
through 12/31/97 +8.10 +6.73
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Texas Municipal Bond Fund January 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Texas -- 97.2%
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 $1,767
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) 2,078
AAA Aaa 1,000 Dallas - Fort Worth, Texas, International Airport Facility Improvement
Corporation Revenue Bonds (United Parcel Service, Inc.), AMT, 6.60% due
5/01/2032 1,093
NR* Aaa 2,000 Ector County, Texas, Hospital District, Hospital Revenue Bonds (Medical
Center Hospital), 7.30% due 4/15/2002 (g) 2,279
Galena Park, Texas, Independent School District, School Building and
Refunding Bonds, UT:
NR* Aaa 2,470 5.20%** due 8/15/2030 459
NR* Aaa 3,520 5.09%** due 8/15/2031 632
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 1,921
A- A2 1,000 Harris County, Texas, Health Facilities Development Corporation, Hospital
Crossover Revenue Refunding Bonds (Memorial Hospital System Project), AMT,
7.125% due 6/01/2015 (h) 1,141
Harris County, Texas, Health Facilities Development Corporation, Hospital
Revenue Bonds:
A1+ NR* 200 (Methodist Hospital), VRDN, 3.65% due 12/01/2025 (a) 200
AAA Aa3 2,000 (Saint Luke's Episcopal Hospital Project), Series A, 6.625% due 2/15/2012
(h) 2,183
AA Aa3 1,000 Harris County, Texas, Health Facilities Development Corporation Revenue
Bonds, RITR, Series 6, 7.445% due 12/01/2027 (f) 1,114
AA Aa3 2,500 Harris County, Texas, Health Facilities Development Corporation, Revenue
Refunding Bonds (School Health Care Systems), Series B, 6.25% due
7/01/2027 3,001
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 1,094
AAA Aaa 1,010 Houston, Texas, Airport System Revenue Bonds, Sub-Lien, Series B, 6.625%
due 7/01/2001 (c)(g) 1,112
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) 2,093
NR* A 1,000 Laredo, Texas, International Toll Bridge Revenue Bonds, 7% due 10/01/2002
(g) 1,129
Matagorda County, Texas, Navigation District No. 1:
A A2 3,100 PCR (Central Power and Light Company Project), 7.50% due 12/15/2014 3,365
AAA Aaa 1,000 Revenue Refunding Bonds (Houston Light and Power Company), Series C,
7.125% due 7/01/2019 (c) 1,062
A- NR* 1,500 Midland County, Texas, Hospital District Revenue Bonds (Midland Memorial
Hospital), 7.50% due 6/01/2002 (g) 1,711
North Central Texas, Health Facilities Development Corporation Revenue
Bonds:
AA Aa 3,000 (Baylor University Medical Center), INFLOS, Series A, 9.867% due 5/15/2001
(f)(g) 3,615
A-1 Aaa 200 (Methodist Hospitals of Dallas), VRDN, Series B, 3.65% due 10/01/2015 (a)
(i) 200
AAA Aaa 4,000 (Presbyterian Health Systems), 6.685% due 6/01/2001 (b)(g) 4,394
BBB Baa2 1,500 Nueces River Authority, Texas, Environmental Improvement Revenue Refunding
Bonds (Asarco Inc. Project), 5.60% due 1/01/2027 1,529
Port Neches - Groves, Texas, Independent School District, UT:
AAA Aaa 1,000 5% due 2/15/2015 1,002
AAA Aaa 1,000 5% due 2/15/2016 1,000
AAA Aaa 1,000 5% due 2/15/2017 990
NR* VMIG1+ 200 Port of Port Arthur, Texas, Navigation District, PCR, Refunding (Texaco
Inc. Project), VRDN, 3.70% due 10/01/2024 (a) 200
Southeast Texas, Housing Finance Corporation, S/F Mortgage Revenue Bonds,
AMT:
NR* Aaa 2,730 Series A, 8% due 11/01/2025 (d) 3,180
NR* Aaa 1,555 Series B, 8.50% due 11/01/2025 (j) 1,815
A+ Aa 1,205 Texas Housing Agency, S/F Mortgage Revenue Refunding Bonds, Series A,
7.15% due 9/01/2012 1,292
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) 1,532
AAA NR* 490 Texas State Department of Housing and Community Affairs, Home Mortgage
Revenue Refunding Bonds, Series A, 6.95% due 7/01/2023 (d) 529
AA Aa2 4,000 Texas State, UT, Series B1 and B2, 6.20% due 9/30/2011 4,661
AA Aa2 965 Texas State, Veterans Housing Assistance, AMT, UT, Fund II, Series A,
7% due 12/01/2025 1,044
AA Aa2 3,225 Texas State, Water Development Board, GO, UT, 7% due 8/01/2020 3,703
AAA NR* 360 Travis County, Texas, Housing Finance Corporation, Residential Mortgage
Revenue Refunding Bonds, Series A, 7% due 12/01/2011 (d)(e) 384
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 1,895
---------
Total Investments (Cost -- $56,507) -- 97.2% 62,399
Other Assets Less Liabilities -- 2.8% 1,774
---------
Net Assets -- 100.0% $64,173
=========
(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, 1998.
(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, 1998.
(g) Prerefunded.
(h) Escrowed to Maturity.
(i) BIG Insured.
(j) FHLMC Insured.
* 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.
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 manyof 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
RITR Residual Interest Trust Receipts
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, 1998
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $56,507,050)(Note 1a) $62,399,034
Cash 5,337
Receivables:
Securities sold $1,037,936
Interest 960,194
Beneficial interest sold 86,396 2,084,526
------------
Prepaid registration fees and other assets (Note 1e) 8,872
------------
Total assets 64,497,769
------------
Liabilities: Payables:
Beneficial interest redeemed 127,336
Dividends to shareholders (Note 1f) 50,973
Investment adviser (Note 2) 30,186
Distributor (Note 2) 23,142 231,637
------------
Accrued expenses and other liabilities 92,926
------------
Total liabilities 324,563
------------
Net Assets: Net assets $64,173,206
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $90,882
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 477,475
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 10,953
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 3,069
Paid-in capital in excess of par 59,352,475
Accumulated realized capital losses on investments -- net (Note 5) (1,653,632)
Unrealized appreciation on investments -- net 5,891,984
------------
Net assets $64,173,206
============
Net Asset Value: Class A -- Based on net assets of $10,014,724 and 908,819 shares of
beneficial interest outstanding $11.02
============
Class B -- Based on net assets of $52,611,597 and 4,774,750 shares of
beneficial interest outstanding $11.02
============
Class C -- Based on net assets of $1,208,131 and 109,525 shares of
beneficial interest outstanding $11.03
============
Class D -- Based on net assets of $338,754 and 30,694 shares of
beneficial interest outstanding $11.04
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
January 31, 1998
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $2,017,368
(Note 1d):
Expenses: Investment advisory fees (Note 2) $181,235
Account maintenance and distribution fees -- Class B (Note 2) 135,371
Accounting services (Note 2) 30,852
Professional fees 29,267
Transfer agent fees -- Class B (Note 2) 13,292
Printing and shareholder reports 11,913
Registration fees (Note 1e) 9,296
Account maintenance and distribution fees -- Class C (Note 2) 3,136
Pricing fees 3,062
Transfer agent fees -- Class A (Note 2) 2,149
Trustees' fees and expenses 1,864
Custodian fees 1,602
Transfer agent fees -- Class C (Note 2) 304
Account maintenance fees -- Class D (Note 2) 159
Transfer agent fees -- Class D (Note 2) 66
Other 1,188
----------
Total expenses 424,756
----------
Investment income -- net 1,592,612
----------
Realized & Realized gain on investments -- net 368,024
Unrealized Change in unrealized appreciation on investments -- net (55,543)
Gain (Loss) on ----------
Investments -- Net Net Increase in Net Assets Resulting from Operations $1,905,093
(Notes 1b, 1d & 3): ==========
See Notes to Financial Statements.
</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: 1998 1997
<S> <C> <C> <C>
Operations: Investment income -- net $1,592,612 $3,503,471
Realized gain on investments -- net 368,024 425,994
Change in unrealized appreciation on investments -- net (55,543) 2,075,093
------------ ------------
Net increase in net assets resulting from operations 1,905,093 6,004,558
------------ ------------
Dividends to Investment income -- net:
Shareholders Class A (273,313) (533,168)
(Note 1f): Class B (1,286,801) (2,900,983)
Class C (24,272) (49,486)
Class D (8,226) (19,834)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (1,592,612) (3,503,471)
------------ ------------
Beneficial Interest Net decrease in net assets derived from beneficial interest
Transactions transactions (4,213,467) (9,551,520)
(Note 4): ------------ ------------
Net Assets: Total decrease in net assets (3,900,986) (7,050,433)
Beginning of period 68,074,192 75,124,625
------------ ------------
End of period $64,173,206 $68,074,192
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
For the
Six Months
The following per share data and ratios have been derived Ended
from information provided in the financial statements. Jan. 31, For the Year Ended July 31,
1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.96 $10.57 $10.57 $10.51 $11.09
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .29 .57 .57 .57 .60
Realized and unrealized gain (loss) on
investments -- net .06 .39 -- .06 (.32)
--------- --------- --------- --------- ---------
Total from investment operations .35 .96 .57 .63 .28
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.29) (.57) (.57) (.57) (.60)
Realized gain on investments -- net -- -- -- -- (.23)
In excess of realized gain on
investments -- net -- -- -- -- (.03)
--------- --------- --------- --------- ---------
Total dividends and distributions (.29) (.57) (.57) (.57) (.86)
--------- --------- --------- --------- ---------
Net asset value, end of period $11.02 $10.96 $10.57 $10.57 $10.51
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 3.26%++++ 9.39% 5.44% 6.39% 2.41%
Return:** ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement .86%* .83% .85% .82% .67%
Net Assets: ========= ========= ========= ========= =========
Expenses .86%* .83% .85% .83% .84%
========= ========= ========= ========= =========
Investment income -- net 5.26%* 5.37% 5.29% 5.64% 5.45%
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $10,015 $10,707 $9,805 $11,012 $12,973
Data: ========= ========= ========= ========= =========
Portfolio turnover 12.06% 47.83% 110.16% 99.40% 59.68%
========= ========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class B
For the
Six Months
The following per share data and ratios have been derived Ended
from information provided in the financial statements. Jan. 31, For the Year Ended July 31,
1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.96 $10.57 $10.57 $10.51 $11.09
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .26 .52 .51 .52 .55
Realized and unrealized gain (loss) on
investments -- net .06 .39 -- .06 (.32)
--------- --------- --------- --------- ---------
Total from investment operations .32 .91 .51 .58 .23
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.26) (.52) (.51) (.52) (.55)
Realized gain on investments -- net -- -- -- -- (.23)
In excess of realized gain on
investments -- net -- -- -- -- (.03)
--------- --------- --------- --------- ---------
Total dividends and distributions (.26) (.52) (.51) (.52) (.81)
--------- --------- --------- --------- ---------
Net asset value, end of period $11.02 $10.96 $10.57 $10.57 $10.51
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 2.99%++++ 8.84% 4.89% 5.85% 1.89%
Return:** ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement 1.37%* 1.34% 1.36% 1.33% 1.17%
Net Assets: ========= ========= ========= ========= =========
Expenses 1.37%* 1.34% 1.36% 1.34% 1.34%
========= ========= ========= ========= =========
Investment income -- net 4.75%* 4.86% 4.78% 5.13% 4.95%
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $52,611 $56,115 $63,733 $71,783 $78,958
Data: ========= ========= ========= ========= =========
Portfolio turnover 12.06% 47.83% 110.16% 99.40% 59.68%
========= ========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class C
For the For the
Six Period
Months Oct. 21,
The following per share data and ratios have been derived Ended For the Year 1994+ to
from information provided in the financial statements. Jan. 31, Ended July 31, July 31,
1998 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.97 $10.58 $10.57 $10.16
Operating --------- --------- --------- ---------
Performance: Investment income -- net .26 .51 .50 .39
Realized and unrealized gain on investments -- net .06 .39 .01 .41
--------- --------- --------- ---------
Total from investment operations .32 .90 .51 .80
--------- --------- --------- ---------
Less dividends from investment income -- net (.26) (.51) (.50) (.39)
--------- --------- --------- ---------
Net asset value, end of period $11.03 $10.97 $10.58 $10.57
========= ========= ========= =========
Total Investment Based on net asset value per share 2.94%++++ 8.71% 4.88% 8.07%++++
Return:** ========= ========= ========= =========
Ratios to Average Expenses 1.48%* 1.45% 1.47% 1.48%*
Net Assets: ========= ========= ========= =========
Investment income -- net 4.64%* 4.75% 4.65% 4.87%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $1,208 $917 $1,176 $501
Data: ========= ========= ========= =========
Portfolio turnover 12.06% 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>
<TABLE>
<CAPTION>
Class D
For the For the
Six Period
Months Oct. 21,
The following per share data and ratios have been derived Ended For the Year 1994+ to
from information provided in the financial statements. Jan. 31, Ended July 31, July 31,
1998 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.98 $10.58 $10.59 $10.16
Operating --------- --------- --------- ---------
Performance: Investment income -- net .29 .56 .56 .44
Realized and unrealized gain (loss) on investments
-- net .06 .40 (.01) .43
--------- --------- --------- ---------
Total from investment operations .35 .96 .55 .87
--------- --------- --------- ---------
Less dividends from investment income -- net (.29) (.56) (.56) (.44)
--------- --------- --------- ---------
Net asset value, end of period $11.04 $10.98 $10.58 $10.59
========= ========= ========= =========
Total Investment Based on net asset value per share 3.20%++++ 9.38% 5.23% 8.74%++++
Return:** ========= ========= ========= =========
Ratios to Average Expenses .96%* .93% .96% .95%*
Net Assets: ========= ========= ========= =========
Investment income -- net 5.16%* 5.27% 5.15% 5.41%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $339 $335 $411 $163
Data: ========= ========= ========= =========
Portfolio turnover 12.06% 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 January 31, 1998
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 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) Prepaid registration fees -- Prepaid registration fees are charged
to expense as the related shares are issued.
(f) Dividends and distributions -- Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
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 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
Maintenance Distribution
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, 1998, 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 $7 $85
Class D $50 $863
For the six months ended January 31, 1998, MLPF&S received contingent
deferred sales charges of $20,818 and $34 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, 1998 were $7,659,400 and
$14,203,872, respectively.
Net realized and unrealized gains as of January 31, 1998 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $368,024 $5,891,984
----------- -----------
Total $368,024 $5,891,984
=========== ===========
As of January 31, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $5,891,984, of which $5,921,505 related to
appreciated securities and $29,521 related to depreciated securities.
The aggregate cost of investments at January 31, 1998 for Federal
income tax purposes was $56,507,050.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $4,213,467 and $9,551,520 for the six months ended
January 31, 1998 and for the year ended July 31, 1997, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 41,980 $456,493
Shares issued to shareholders
in reinvestment of dividends 13,750 149,921
------------ ------------
Total issued 55,730 606,414
Shares redeemed (123,845) (1,347,994)
------------ ------------
Net decrease (68,115) $(741,580)
============ ============
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 252,315 $2,686,473
Shares issued to shareholders
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 B Shares for the Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 138,031 $1,509,940
Shares issued to shareholders
in reinvestment of dividends 56,673 617,751
------------ ------------
Total issued 194,704 2,127,691
Automatic conversion
of shares (141) (1,566)
Shares redeemed (540,256) (5,884,844)
------------ ------------
Net decrease (345,693) $(3,758,719)
============ ============
Class B Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 357,634 $3,799,843
Shares issued to shareholders
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 C Shares for the Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 39,796 $435,484
Shares issued to shareholders
in reinvestment of dividends 1,502 16,409
------------ ------------
Total issued 41,298 451,893
Shares redeemed (15,372) (167,501)
------------ ------------
Net increase 25,926 $284,392
============ ============
Class C Shares for the Year Dollar
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 D Shares for the Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 6,132 $67,409
Automatic conversion
of shares 141 1,566
Shares issued to shareholders
in reinvestment of dividends 449 4,910
------------ ------------
Total issued 6,722 73,885
Share redeemed (6,583) (71,445)
------------ ------------
Net increase 139 $2,440
============ ============
Class D Shares for the Year Dollar
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)
============ ============
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.
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
Theodore R. Jaeckel Jr., 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
