MERRILL LYNCH
TEXAS
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1999
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
Printed on post-consumer recycled paper
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1999, long-term bond yields
rose significantly. Steady US economic growth combined with
improvement in foreign economies, most notably Japan and Brazil, as
well as an inflation scare in early May put upward pressure on bond
yields throughout the period. Continued strong US employment growth,
particularly the decline in the US unemployment rate to 4.2% in
early June, was among the reasons the Federal Reserve Board cited
for raising short-term interest rates in late June. US Treasury bond
yields reacted by climbing above 6.15% by late June before improving
somewhat to 6.10% by July 31, 1999. During the last six months,
yields on long-term US Treasury securities increased approximately
100 basis points (1.00%).
Long-term tax-exempt bond yields also rose during the last six
months. Until early May, the municipal bond market had been able to
withstand much of the upward pressure on bond yields. However,
investor concerns regarding ongoing US economic strength and the
fear of additional moves by the Federal Reserve Board eventually
pushed municipal bond yields higher throughout June and July. During
the period, yields on long-term tax-exempt revenue bonds rose almost
50 basis points to 5.65%, as measured by the Bond Buyer Revenue Bond
Index.
The ability of the tax-exempt bond market to withstand much of the
recent upward pressure on long-term fixed-income bond yields
reflects the continued strong technical position the municipal bond
market has enjoyed in recent quarters. During the last six months,
more than $120 billion in long-term municipal bonds was
underwritten, a decrease of more than 20% compared to the same
period a year ago. During the past three months, more than $60
billion in municipal bonds was underwritten. This quarterly issuance
represents a decline of nearly 25% compared to the same three-month
period in 1998.
Recently, the municipal supply position deteriorated even further.
Total issuance in July 1999 of $16.5 billion was more than 30% lower
than July 1998 levels. Additionally, in June and July, investors
received more than $40 billion in coupon income and proceeds from
bond maturities and early bond redemptions. These proceeds have
generated significant retail investor interest, easily absorbing the
recent diminished supply. This very favorable supply/demand position
has allowed the tax-exempt bond market to outperform its taxable
counterpart in recent months.
However, the recent relative outperformance of the municipal bond
market has somewhat reduced the very attractive tax-exempt bond
yield ratios that were available at the end of 1998. In December
1998, long-term, uninsured municipal bond yields were higher than
those of their taxable counterparts. Historically, long-term tax-
exempt bond yields have been approximately 82%--85% of long-term US
Treasury bond yields. Municipal bond yields rose at a lower rate in
recent months than US Treasury bond yields, causing the yield ratio
to decline. At July 31, 1999, long-term municipal bond yields were
approximately 92% of their taxable counterparts. Current ratios,
while lower than those available at the end of 1998, still represent
historically attractive levels. We expect the municipal bond market
to maintain its strong technical position for the remainder of 1999.
Consequently, there appears to be little reason for the tax-exempt
bond market to underperform the taxable US Treasury bond market.
This suggests that the present bond yield ratio is likely to be
stable in the coming months and a return to a ratio in excess of
100% of taxable Treasury securities is improbable.
Looking ahead, it appears to us that long-term municipal bond yields
will trade in a relatively tight range near current levels. Strong
US economic performance is being balanced by nearly negligible
inflation readings, as well as improvements in productivity in both
manufacturing and service industries. Future moves by the Federal
Reserve Board have largely been discounted by bond markets and are
to a great extent reflected in present bond yields.
Any improvement in bond prices is likely to be contingent upon
weakening in both US employment growth and consumer spending. The
100 basis point rise in US Treasury bond yields seen thus far this
year is likely to negatively affect US economic growth. The US
housing market will be among the first sectors likely to be
affected, as some declines have already been evidenced because of
higher mortgage rates. We believe it is also unrealistic to expect
double-digit returns in US equity markets to continue indefinitely.
Much of the US consumer's wealth is tied to recent stock market
appreciation. Any slowing in these incredible growth rates is likely
to reduce consumer spending. We believe these factors suggest that
the worst of the recent increase in bond yields has passed and
stable, if not slightly improving, bond prices may be expected.
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
Fiscal Year in Review
Given the considerable volatility exhibited by long-term interest
rates during the past year, we made several changes in portfolio
strategy in order to guide the Fund through a difficult investment
environment. Initially, the worldwide economic and financial market
turbulence witnessed last fall prompted a more constructive outlook
on our part as expectations of sharp declines in long-term interest
rates were soon fulfilled. As a result, the Fund benefited from our
efforts to position the portfolio more aggressively during this
period.
However, soon thereafter interest rates began to rise as evidence of
renewed financial market stability slowly mounted. Signs of
continued strength in the domestic economy added to investor
concerns, signaling a shift in investor psychology. Our efforts
turned to repositioning the portfolio more defensively as a means to
preserve net asset values. We increased cash reserves temporarily
while we accomplished modest restructuring of the Fund's holdings.
While these efforts helped to insulate the Fund to some degree, the
full impact of the bond market's decline was unavoidable.
Technical limitations inherent within the municipal market and the
Texas market in particular further hindered our efforts to insulate
the portfolio. New-issue tax-exempt volume in Texas for the year
increased 10%, more than the 10% decline in national volume. This
modest increase in issuance allowed for some opportunities to
restructure the portfolio in a manner consistent with our changing
investment outlook.
Finally, two other investment themes affected the Fund during the
year. First, quality spreads (that is, yield spreads between higher-
rated and lower-rated credits) remained very narrow for most of the
year. In our opinion, investors were not being adequately
compensated for the assumption of added credit risk. Consequently,
we sought to upgrade the average quality of the portfolio. Second,
with many of the Fund's holdings facing early redemption during the
next few years, the current rise in long-term interest rates, in our
opinion, presented an excellent opportunity to sell these holdings
and reinvest the proceeds in securities possessing more attractive
redemption features. We sought to extend the portfolio's average
call protection at an opportune time. Furthermore, we believe that
our proactive approach toward managing call protection should help
to insulate the Fund from any untimely redemptions, which we believe
will help sustain shareholder income for the near term.
As a result of our efforts this year, the Fund generated total
returns for the 12-month period ended July 31, 1999 that modestly
underperformed the average return for all Texas municipal tax-exempt
funds, as measured by Lipper Analytical Services, Inc. However, the
Fund did produce 12-month yields that exceeded the industry average.
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,
(Terry K. Glenn)
Terry K. Glenn
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Theodore R. Jaeckel Jr.)
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
September 9, 1999
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* 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.
* 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.)
* 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.
* 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 "Recent Performance
Results" and "Average Annual Total Return" 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>
Recent Performance Results*
<CAPTION>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 7/31/99
<S> <C> <C> <C> <C>
ML Texas Municipal Bond Fund Class A Shares +0.43% -2.81% +66.28% 4.30%
ML Texas Municipal Bond Fund Class B Shares -0.08 -2.94 +59.76 3.98
ML Texas Municipal Bond Fund Class C Shares -0.18 -2.96 +28.14 3.87
ML Texas Municipal Bond Fund Class D Shares +0.24 -2.92 +31.39 4.21
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. The
Fund's since inception dates are from 8/30/91 for Class A & Class B
Shares and from 10/21/94 for Class C & Class D Shares.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
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** 7/99
ML Texas Municipal Bond Fund++--
Class A Shares* $ 9,600 $15,965
ML Texas Municipal Bond Fund++--
Class B Shares* $10,000 $15,976
Lehman Brothers Municipal Bond
Index++++ $10,000 $17,208
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** 7/99
ML Texas Municipal Bond Fund++--
Class C Shares* $10,000 $12,814
ML Texas Municipal Bond Fund++--
Class D Shares* $ 9,600 $12,613
Lehman Brothers Municipal Bond
Index++++ $10,000 $14,235
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++ML Texas Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the state of
Texas, its political subdivisions, agencies and instrumentalities
and obligations of other qualifying issuers.
++++This unmanaged Index consists of long-term revenue bonds,
prerefunded bonds, general obligation bonds and insured bonds. The
starting date for the Index in the Class C & Class D Shares' graph
is from 10/31/94.
Past performance is not predictive of future performance.
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/99 -0.08% -4.08%
Five Years Ended 6/30/99 +5.50 +4.65
Inception (8/30/91)
through 6/30/99 +6.61 +6.06
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/99 -0.59% -4.39%
Five Years Ended 6/30/99 +4.97 +4.97
Inception (8/30/91)
through 6/30/99 +6.07 +6.07
[FN]
*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 6/30/99 -0.69% -1.64%
Inception (10/21/94)
through 6/30/99 +5.28 +5.28
[FN]
*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 6/30/99 -0.27% -4.26%
Inception (10/21/94)
through 6/30/99 +5.84 +4.92
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by
Merrill Lynch Texas Municipal Bond Fund during its taxable year
ended July 31, 1999 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.
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
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
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Texas--98.8%
<S> <S> <C> <S> <C>
BBB- Baa1 $2,500 Alliance Airport Authority, Inc., Texas, Special Facilities
Revenue Bonds (American Airlines Inc. Project), AMT, 7% due 12/01/2011 $ 2,840
AAA Aaa 2,290 Austin, Texas, Revenue Bonds, Series A, 4.62%** due 5/15/2013 (g) 1,097
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) 2,048
AAA Aaa 1,000 Corpus Christi, Texas, Utility System Revenue Refunding and Improvement
Bonds, 5% due 7/15/2019 (e) 943
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 1,062
NR* Aaa 1,000 Frisco, Texas, Independent School District, GO, Refunding, 5.375%
due 8/15/2019 988
AAA Aaa 1,000 Granbury, Texas, Independent School District, GO, Refunding, 5.50% due 8/01/2026 990
Gulf Coast, Texas, Waste Disposal Authority Revenue Bonds
(Champion International Corporation), AMT:
NR* NR* 725 7.25% due 4/01/2002 (h)(k) 790
BBB Baa1 1,025 7.25% due 4/01/2017 1,093
Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds:
NR* NR* 1,000 (Memorial Hospital System Project), 7.125% due 6/01/2015 1,094
AAA Aa3 2,000 (Saint Luke's Episcopal Hospital Project), 6.625% due 2/15/2012 (b) 2,113
A1+ NR* 2,700 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN, 3.30%
due 12/01/2025 (j) 2,700
AAA Aaa 1,835 Harris County, Texas, Health Facilities Development Corporation, Medical
Facilities Revenue Bonds (Baylor College Medical Project), Series A,
5.375% due 11/15/2016 (a) 1,818
Harris County, Texas, Health Facilities Development Corporation,
Revenue Refunding Bonds (b):
NR* Aa3 1,000 RITR, Series 6, 7.845% due 12/01/2027 (i) 1,070
AA Aa3 2,500 (School Health Care System), Series B, 6.25% due 7/01/2027 2,745
AAA Aaa 1,000 Houston, Texas, Community College System Revenue Bonds, Student Fee,
5.125% due 4/15/2019 (a) 955
AAA Aaa 1,750 Houston, Texas, Water and Sewer System Revenue Refunding Bonds,
Series A, 4.75% due 12/01/2024 (e) 1,550
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Texas (concluded)
<S> <S> <C> <S> <C>
AAA Aaa $2,750 Katy, Texas, Independent School District, GO, Refunding, Series A,
4.50% due 2/15/2020 $ 2,380
AA Aa3 2,500 Lubbock, Texas, Heath Facilities Development Corporation,
Revenue Refunding Bonds (Saint Joseph Health System), 5.25% due 7/01/2014 2,462
AAA Aaa 1,000 Matagorda County, Texas, Navigation District Number 1 Revenue
Refunding Bonds (Reliant Energy Inc.), Series A, 5.25% due 6/01/2026 (a) 953
AAA VMIG1++ 100 Sabine River Authority, Texas, PCR, Refunding (Texas Utilities
Electric Company Project), VRDN, Series A, 3.45% due 3/01/2026 (a)(j) 100
NR* Aa1 6,000 San Antonio, Texas, Electric and Gas Revenue Refunding Bonds, RITR,
Series 77, 6.985% due 2/01/2016 (i) 5,831
AA Aa1 4,500 San Antonio, Texas, Electric and Gas Revenue Refunding Bonds,
Series A, 4.50% due 2/01/2021 3,876
Southeast Texas, Housing Finance Corporation Revenue Bonds, AMT (c)(f):
NR* Aaa 2,440 Series A, 8% due 11/01/2025 2,742
NR* Aaa 1,270 Series B, 8.50% due 11/01/2025 1,396
AA+ Aa2 1,000 Texas A&M University Revenue Bonds, Financing System, 5.375% due 5/15/2013 1,013
NR* Aaa 1,000 Texas Southern University, Public Finance Authority Revenue Bonds,
4.50% due 11/01/2023 (a) 851
AA Aa1 2,000 Texas State, GO, Refunding, RIB, Series B, 8.679% due 9/30/2011 (i) 2,405
AA Aa1 800 Texas State, GO, Veterans' Housing Assistance Fund II, AMT, Series A,
7% due 12/01/2025 852
AA NR* 805 Texas State, GO, Water Development Board, 7% due 8/01/2004 (h) 897
AAA Aaa 3,000 Texas Technology University Revenue Refunding and Improvement
Bonds, Financing System, 6th Series, 5% due 2/15/2029 (a) 2,758
Total Investments (Cost--$54,333)--98.8% 54,412
Variation Margin on Financial Futures Contracts***--0.1% 57
Other Assets Less Liabilities--1.1% 580
--------
Net Assets--100.0% $ 55,049
========
<FN>
(a)AMBAC Insured.
(b)Escrowed to maturity.
(c)FHLMC Insured.
(d)FNMA/GNMA Collateralized.
(e)FSA Insured.
(f)GNMA Collateralized.
(g)MBIA Insured.
(h)Prerefunded.
(i)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, 1999.
(j)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, 1999.
(k)All or a portion of security held as collateral in connection
with open financial futures contracts.
++Highest short-term rating by Moody's Investors Service, Inc.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
***Financial futures contracts sold as of July 31, 1999 were as
follows:
(in Thousands)
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
166 US Treasury Bonds September 1999 $ 19,085
--------
Total Financial Futures Contracts Sold
(Total Contract Price--$19,386) $ 19,085
========
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets and Liabilities as of July 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$54,332,935) (Note 1a) $ 54,411,617
Cash 2,767,158
Receivables:
Interest $ 985,225
Variation margin (Note 1b) 57,062
Securities sold 35,700
Beneficial interest sold 1,358 1,079,345
------------
Prepaid registration fees and other assets (Note 1e) 12,359
------------
Total assets 58,270,479
------------
Liabilities: Payables:
Securities purchased 2,973,272
Beneficial interest redeemed 55,293
Dividends to shareholders (Note 1f) 38,491
Investment adviser (Note 2) 26,660
Distributor (Note 2) 20,113 3,113,829
------------
Accrued expenses and other liabilities 107,602
------------
Total liabilities 3,221,431
------------
Net Assets: Net assets $ 55,049,048
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 81,782
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 425,953
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 7,999
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 11,144
Paid-in capital in excess of par 53,409,661
Undistributed realized capital gains on investments--net 732,952
Unrealized appreciation on investments--net 379,557
------------
Net assets $ 55,049,048
============
Net Asset Value: Class A--Based on net assets of $8,544,712 and 817,821 shares
of beneficial interest outstanding $ 10.45
============
Class B--Based on net assets of $44,501,745 and 4,259,533 shares
of beneficial interest outstanding $ 10.45
============
Class C--Based on net assets of $836,574 and 79,989 shares
of beneficial interest outstanding $ 10.46
============
Class D--Based on net assets of $1,166,017 and 111,444 shares
of beneficial interest outstanding $ 10.46
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1999
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 3,369,161
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 328,507
Account maintenance and distribution fees--Class B (Note 2) 242,573
Professional fees 75,884
Printing and shareholder reports 64,755
Accounting services (Note 2) 62,699
Transfer agent fees--Class B (Note 2) 20,655
Registration fees (Note 1e) 14,591
Account maintenance and distribution fees--Class C (Note 2) 6,447
Custodian fees 5,762
Pricing fees 5,493
Trustees' fees and expenses 3,467
Transfer agent fees--Class A (Note 2) 3,286
Account maintenance fees--Class D (Note 2) 845
Transfer agent fees--Class C (Note 2) 549
Transfer agent fees--Class D (Note 2) 322
Other 2,914
------------
Total expenses 838,749
------------
Investment income--net 2,530,412
------------
Realized & Realized gain on investments--net 2,283,710
Unrealized Gain Change in unrealized appreciation on investments--net (4,737,964)
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 76,158
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year
Ended July 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 2,530,412 $ 3,082,111
Realized gain on investments--net 2,283,710 470,898
Change in unrealized appreciation on investments--net (4,737,964) (830,006)
------------ ------------
Net increase in net assets resulting from operations 76,158 2,723,003
------------ ------------
Dividends to Investment income--net:
Shareholders Class A (433,734) (531,769)
(Note 1f): Class B (2,015,137) (2,479,587)
Class C (43,592) (53,899)
Class D (37,949) (16,856)
------------ ------------
Net decrease in net assets resulting from
dividends to shareholders (2,530,412) (3,082,111)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial
Interest interest transactions (2,867,808) (7,343,974)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (5,322,062) (7,703,082)
Beginning of year 60,371,110 68,074,192
------------ ------------
End of year $ 55,049,048 $ 60,371,110
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
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,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.90 $ 10.96 $ 10.57 $ 10.57 $ 10.51
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .51 .58 .57 .57 .57
Realized and unrealized gain (loss) on
investments--net (.45) (.06) .39 -- .06
-------- -------- -------- -------- --------
Total from investment operations .06 .52 .96 .57 .63
-------- -------- -------- -------- --------
Less dividends from investment income--net (.51) (.58) (.57) (.57) (.57)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.45 $ 10.90 $ 10.96 $ 10.57 $ 10.57
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .43% 4.83% 9.39% 5.44% 6.39%
Return:* ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement .98% .87% .83% .85% .82%
Average ======== ======== ======== ======== ========
Net Assets: Expenses .98% .87% .83% .85% .83%
======== ======== ======== ======== ========
Investment income--net 4.67% 5.25% 5.37% 5.29% 5.64%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 8,545 $ 9,842 $ 10,707 $ 9,805 $ 11,012
Data: ======== ======== ======== ======== ========
Portfolio turnover 129.23% 24.61% 47.83% 110.16% 99.40%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
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,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.90 $ 10.96 $ 10.57 $ 10.57 $ 10.51
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .45 .52 .52 .51 .52
Realized and unrealized gain (loss) on
investments--net (.45) (.06) .39 -- .06
-------- -------- -------- -------- --------
Total from investment operations -- .46 .91 .51 .58
-------- -------- -------- -------- --------
Less dividends from investment income--net (.45) (.52) (.52) (.51) (.52)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.45 $ 10.90 $ 10.96 $ 10.57 $ 10.57
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (.08%) 4.30% 8.84% 4.89% 5.85%
Return:* ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.49% 1.38% 1.34% 1.36% 1.33%
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.49% 1.38% 1.34% 1.36% 1.34%
======== ======== ======== ======== ========
Investment income--net 4.15% 4.74% 4.86% 4.78% 5.13%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 44,502 $ 48,887 $ 56,115 $ 63,733 $ 71,783
Data: ======== ======== ======== ======== ========
Portfolio turnover 129.23% 24.61% 47.83% 110.16% 99.40%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year 1994++ to
Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.91 $ 10.97 $ 10.58 $ 10.57 $ 10.16
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .44 .51 .51 .50 .39
Realized and unrealized gain (loss) on
investments--net (.45) (.06) .39 .01 .41
-------- -------- -------- -------- --------
Total from investment operations (.01) .45 .90 .51 .80
-------- -------- -------- -------- --------
Less dividends from investment income--net (.44) (.51) (.51) (.50) (.39)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.46 $ 10.91 $ 10.97 $ 10.58 $ 10.57
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (.18%) 4.18% 8.71% 4.88% 8.07%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.59% 1.48% 1.45% 1.47% 1.48%*
Net Assets: ======== ======== ======== ======== ========
Investment income--net 4.06% 4.63% 4.75% 4.65% 4.87%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands). $ 836 $ 1,304 $ 917 $ 1,176 $ 501
Data: ======== ======== ======== ======== ========
Portfolio turnover 129.23% 24.61% 47.83% 110.16% 99.40%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year 1994++ to
Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.92 $ 10.98 $ 10.58 $ 10.59 $ 10.16
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .50 .57 .56 .56 .44
Realized and unrealized gain (loss) on
investments--net (.46) (.06) .40 (.01) .43
-------- -------- -------- -------- --------
Total from investment operations .04 .51 .96 .55 .87
-------- -------- -------- -------- --------
Less dividends from investment income--net (.50) (.57) (.56) (.56) (.44)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.46 $ 10.92 $ 10.98 $ 10.58 $ 10.59
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .24% 4.72% 9.38% 5.23% 8.74%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.11% .97% .93% .96% .95%*
Net Assets: ======== ======== ======== ======== ========
Investment income--net 4.49% 5.15% 5.27% 5.15% 5.41%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 1,166 $ 338 $ 335 $ 411 $ 163
Data: ======== ======== ======== ======== ========
Portfolio turnover 129.23% 24.61% 47.83% 110.16% 99.40%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
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's
financial statements are prepared in accordance with generally
accepted accounting principles, which may require the use of
management accruals and estimates. 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.
* Financial futures contracts--The Fund may purchase or sell
financial 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.
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
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 ("MLFD" or the "Distributor"), a division of Princeton
Funds Distributor, Inc. ("PFD"), 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: .55%
of the Fund's average daily net assets not exceeding $500 million;
.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and .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 Distribution
Maintenance Fee Fee
Class B .25% .25%
Class C .25% .35%
Class D .10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("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, 1999, 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 $811 $ 3,584
Class D $126 $11,818
For the year ended July 31, 1999, MLPF&S received contingent
deferred sales charges of $26,254 and $234 relating to transactions
in Class B and Class C Shares, respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1999 were $71,474,941 and $75,664,434,
respectively.
Net realized gains for the year ended July 31, 1999 and net
unrealized gains as of July 31, 1999 were as follows:
Realized Unrealized
Gains Gains
Long-term investments. $ 2,283,710 $ 78,682
Financial futures contracts -- 300,875
----------- -----------
Total $ 2,283,710 $ 379,557
=========== ===========
As of July 31, 1999, net unrealized appreciation for Federal income
tax purposes aggregated $78,682, of which $1,722,272 related to
appreciated securities and $1,643,590 related to depreciated
securities. The aggregate cost of investments at July 31, 1999 for
Federal income tax purposes was $54,332,935.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $2,867,808 and $7,343,974 for the years ended July
31, 1999 and July 31, 1998, respectively.
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 149,938 $ 1,636,162
Shares issued to share-
holders in reinvestment of
dividends 21,010 228,449
---------- -----------
Total issued 170,948 1,864,611
Shares redeemed (255,815) (2,776,777)
---------- -----------
Net decrease (84,867) $ (912,166)
========== ===========
Class A Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 90,242 $ 984,046
Shares issued to share-
holders in reinvestment of
dividends 25,859 282,396
---------- -----------
Total issued 116,101 1,266,442
Shares redeemed (190,347) (2,075,661)
---------- -----------
Net decrease (74,246) $ (809,219)
========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 430,754 $ 4,738,122
Shares issued to share-
holders in reinvestment of
dividends 85,442 929,757
---------- -----------
Total issued 516,196 5,667,879
Automatic conversion of
shares (17,695) (188,671)
Shares redeemed (723,075) (7,884,312)
---------- -----------
Net decrease (224,574) $(2,405,104)
========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 305,132 $ 3,337,690
Shares issued to share-
holders in reinvestment of
dividends 107,337 1,172,044
---------- -----------
Total issued 412,469 4,509,734
Automatic conversion of
shares (1,685) (18,416)
Shares redeemed (1,047,120) (11,424,870)
---------- -----------
Net decrease (636,336) $(6,933,552)
========== ===========
Class C Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 10,108 $ 110,505
Shares issued to share-
holders in reinvestment of
dividends 2,034 22,159
---------- -----------
Total issued 12,142 132,664
Shares redeemed (51,606) (565,253)
---------- -----------
Net decrease (39,464) $ (432,589)
========== ===========
Class C Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 67,060 $ 734,379
Shares issued to share-
holders in reinvestment of
dividends 3,202 35,022
---------- -----------
Total issued 70,262 769,401
Shares redeemed (34,408) (375,634)
---------- -----------
Net increase 35,854 $ 393,767
========== ===========
Class D Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 72,893 $ 802,385
Automatic conversion
of shares 17,672 188,671
Shares issued to share-
holders in reinvestment of
dividends 1,210 13,128
---------- -----------
Total issued 91,775 1,004,184
Shares redeemed (11,252) (122,133)
---------- -----------
Net increase 80,523 $ 882,051
========== ===========
Class D Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 6,619 $ 72,717
Automatic conversion
of shares 1,682 18,416
Shares issued to share-
holders in reinvestment of
dividends 884 9,676
---------- -----------
Total issued 9,185 100,809
Shares redeemed (8,819) (95,779)
---------- -----------
Net increase 366 $ 5,030
========== ===========
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Texas Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust:
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, 1999, 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 generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned
at July 31, 1999 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Texas Municipal Bond Fund of Merrill Lynch Multi-State
Municipal Series Trust as of July 31, 1999, 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 13, 1999
</AUDIT-REPORT>
Merrill Lynch Texas Municipal Bond Fund
July 31, 1999
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Theodore R. Jaeckel Jr., Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
