MERRILL LYNCH
TEXAS
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 2000
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, 2000
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 2000, US domestic economic
growth remained robust. After growing at a 4.2% annual rate in 1999,
US domestic economic growth expanded at a 4.8% rate during the first
quarter of 2000 and at a 5.2% rate during the second quarter.
However, despite these significant growth rates, few price measure
indicators have shown any meaningful signs of future price pressures
at the consumer level, despite the lowest unemployment rates since
1970. With few signs of any economic slowdown, the Federal Reserve
Board continued to raise short-term interest rates in February,
March and May 2000. The Federal Reserve Board cited both the
continued growth of US employment and the continued strength of US
equity markets as reasons for attempting to moderate US economic
growth before inflationary price pressures can occur.
However, since then fixed-income markets have largely ignored strong
economic fundamentals and concentrated upon very positive technical
supply factors. Declining bond issuance--both current, and more
importantly, expected future issuance--helped push bond yields lower
into mid-April 2000. In late January and early February 2000, the US
Treasury announced its intention to reduce the amounts to be
auctioned in the quarterly Treasury note and bond auctions. Further-
more, budgetary surpluses allowed the US Treasury to repurchase
outstanding, higher-couponed Treasury issues, primarily in the 15-
year and longer maturity sector. Both these actions resulted in
significant reduction in the outstanding supply of longer-dated
maturity US Treasury debt. Domestic and international investors
quickly began to accumulate what was expected to become a scarce
commodity and bond prices quickly rose.
By mid-April 2000, US Treasury bond yields had declined more than 80
basis points (0.80%) to 5.67%. During the remainder of the period,
US Treasury bond prices were volatile as strong economic reports and
investors' concerns of additional moves by the Federal Reserve Board
occasionally overshadowed the positive technical position of the
long-term US Treasury bond market.
Recently, a number of economic indicators have begun to suggest that
the actions taken by the Federal Reserve Board in 1999 and early
2000 have started to affect US economic growth. Both new home sales
and consumer spending have slowed, suggesting that economic growth
may subside into a 4%--4.5% range by late 2000. In our opinion, this
range of growth was targeted by the Federal Reserve Board as being
sustainable, given current productivity measures, without
endangering the present benign inflationary environment.
By June, investor focus returned to the dwindling supply of long-
term US Treasury securities and bond prices generally rose for the
remainder of the period. The decline in long-term US Treasury bond
yields resulted in an inverted yield curve as short-term and
intermediate-term interest rates did not fall proportionately to
long-term interest rates as the Federal Reserve Board was expected
to continue to raise short-term interest rates. The current
inversion has had as much to do with debt reduction and US Treasury
buybacks as with investor expectations of slower economic growth.
During the last six months, US Treasury bond yields have declined
more than 70 basis points to end the period at 5.78%, their lowest
monthly closing level since May 1999.
Tax-exempt bond yields also have declined in recent months. The
decline has largely been in response to the rally in US Treasury
securities, as well as a continued positive technical supply
environment. States such as California and Maryland have announced
that their large current and anticipated future budget surpluses
will permit the cancellation or postponement of expected bond
issuance. Additionally, some issuers have also initiated tenders to
repurchase existing debt, reducing the supply of tax-exempt bonds in
the secondary market as well. Given the decline in available long-
term US Treasury securities, some investors who need longer maturity
investment vehicles have begun to consider long-term municipal bonds
as potential substitutes. This has further strengthened the overall
positive technical position of the tax-exempt market. During the
last six months, long-term municipal revenue bond yields have
declined nearly 50 basis points to 5.85%, their lowest level since
late August 1999, as measured by the Bond Buyer Revenue Bond Index.
The recent relative underperformance of the municipal bond market
has been especially disappointing given the strong technical
position the tax-exempt bond market has enjoyed. The issuance of
long-term tax-exempt securities has dramatically declined. During
the last year, almost $200 billion in new long-term municipal
securities was issued, a decline of almost 20% compared to the same
period a year earlier. For the six months ended July 31, 2000,
approximately $100 billion in new tax-exempt bonds was underwritten,
a decline of 17% compared to the same period in 1999.
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
Although investors received more than $45 billion in coupon
payments, bond maturities and the proceeds from early bond
redemptions during June and July, overall investor demand has
diminished. Long-term municipal bond mutual funds have seen
consistent outflows in recent months as the yields of individual
securities have risen faster than those larger, more diverse mutual
funds. Thus far this year, tax-exempt mutual funds have had net
redemptions of more than $12 billion.
However, the rate at which these redemptions have been occurring has
slowed in recent months. Recent US equity market volatility,
especially in the NASDAQ, has reduced some investor interest in the
stock market. This investor interest, especially earlier this year,
had been siphoning away demand for municipal bonds by retail
investors. Also, the demand from property and casualty companies is
expected to increase in the coming months. These firms are becoming
more profitable after experiencing losses in the past few years
resulting from a series of weather-related natural disasters. Yet as
positive as the tax-exempt bond market's technical environment has
been for much of this year, investor response to the reduction in
both current and future supply of US Treasury bonds has been
overwhelmingly positive and municipal bond yields have
underperformed their taxable counterparts.
Significantly lower municipal bond yields are still likely to
require weaker US employment growth and consumer spending. The
actions taken in recent months by the Federal Reserve Board should
eventually slow US economic growth. Recent declines in US new home
sales are perhaps the first sign that consumer spending is being
slowed by higher interest rates. Until further signs develop, it is
likely that the municipal bond market's current favorable technical
position will dampen significant tax-exempt interest rate volatility
and provide a stable environment for eventual improvement in
municipal bond prices.
Fiscal Year in Review
For the year ended July 31, 2000, the Fund's Class A, Class B, Class
C and Class D Shares had total returns of +1.19%, +0.68%, +0.58% and
+1.10%, respectively. (Investment results shown do not reflect sales
charges and would be lower if sales charges were included. Complete
performance information can be found on pages 3--5 of this report to
shareholders.) The Fund generated total returns that underperformed
the average return of +1.48% for all Texas municipal debt funds, as
measured by Lipper Analytical Services, Inc.
With interest rates under pressure for much of the fiscal year, our
portfolio strategy focused on seeking to insulate the Fund from
volatility, while still maintaining an attractive dividend. As an
asset class, tax-exempt bonds faced tough competition from a surging
equity market and mounting pressures from a monetary policy designed
to curb economic growth and prevent inflation. Until recently,
investor appetite for tax-exempt products had waned, as demonstrated
by the consistent outflows throughout the mutual fund industry. This
environment was also characterized by declining year-over-year
municipal issuance.
In our last letter to shareholders, we spoke of the various factors
contributing to the tax-exempt market's weak performance relative to
the Treasury market. At the same time, we noted the compelling value
reflected in the yields available on intermediate-term--long-term
tax-exempt securities and our growing level of comfort with evolving
market fundamentals. Given this investment outlook, we positioned
the Fund to further benefit from both a decline in interest rates
and renewed investor appetite for municipal bonds.
Initially, portfolio activity consisted primarily of efforts to
modestly extend duration (a measure of sensitivity to interest rate
fluctuations) as well as to upgrade the average credit quality of
our investments. Credit spreads, having already widened appreciably
throughout 1999, were still viewed as susceptible to additional
pressure and a potential drag on a fixed-income portfolio in a
declining interest rate environment. Our efforts, in conjunction
with maintaining minimal cash reserves, contributed to the Fund's
overall performance for the fiscal year ended July 31, 2000, and
relative improvement in the Fund's performance for the six months
ended July 31, 2000. In an effort to limit volatility, we shifted
our portfolio strategy to achieve a more neutral position. While
market fundamentals remain positive, the extent of the recent rally,
combined with the uncertain outcome of the November elections,
suggests a more cautious approach in the near term.
Texas continues to demonstrate strong credit fundamentals as the
local economy has exhibited steady growth in personal income and
employment, outpacing that of the nation. Repeated budget surpluses
in conjunction with low debt levels provide ample cushion for
dealing with the challenges ahead that include spending pressures
arising from a growing population and the need to address school
funding equity issues.
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Texas Municipal
Bond Fund, and we look forward to assisting you with your financial
needs in the months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Trustee
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Theodore R. Jaeckel Jr.)
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
September 6, 2000
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
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.
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
A line graph depicting total return based on a $10,000 investment of
ML Texas Municipal Bond Fund's Class A Shares and Class B Shares
compared to growth of the Lehman Brothers Municipal Bond Index++++.
Beginning and ending values are:
8/30/91** 7/00
ML Texas Municipal Bond Fund++--
Class A Shares* $ 9,600 $16,155
ML Texas Municipal Bond Fund++--
Class B Shares* $10,000 $16,085
Lehman Brothers Municipal
Bond Index++++ $10,000 $17,950
*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, 2000
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 6/30/00 +0.44% -3.57%
Five Years Ended 6/30/00 +3.99 +3.15
Inception (8/30/91)
through 6/30/00 +5.89 +5.40
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 6/30/00 -0.07% -3.77%
Five Years Ended 6/30/00 +3.46 +3.46
Inception (8/30/91)
through 6/30/00 +5.36 +5.36
*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*
One Year Ended 6/30/00 -0.17% -1.10%
Five Years Ended 6/30/00 +3.37 +3.37
Inception (10/21/94)
through 6/30/00 +4.30 +4.30
*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*
One Year Ended 6/30/00 +0.45% -3.57%
Five Years Ended 6/30/00 +3.89 +3.05
Inception (10/21/94)
through 6/30/00 +4.87 +4.12
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
Recent Performance Results*
<CAPTION>
6 Month 12 Month Since Inception Standardized
As of July 31, 2000 Total Return Total Return Total Return 30-Day Yield
<S> <C> <C> <C> <C>
ML Texas Municipal Bond Fund Class A Shares +6.90% +1.19% +68.26% 4.90%
ML Texas Municipal Bond Fund Class B Shares +6.63 +0.68 +60.85 4.60
ML Texas Municipal Bond Fund Class C Shares +6.57 +0.58 +28.88 4.49
ML Texas Municipal Bond Fund Class D Shares +6.84 +1.10 +32.83 4.80
*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 periods 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, 2000
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
Ratings Ratings Amount Issue Value
Texas--100.4%
<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 $ 2,701
AAA Aaa 2,190 Austin, Texas, Revenue Refunding Bonds, Sub-Lien, Series A, 4.62%** due
5/15/2013 (g) 1,085
AAA NR* 820 Brownsboro, Texas, Independent School District, GO, 5.60% due 8/15/2018 822
AAA NR* 1,415 Cameron County, Texas, Housing Finance Corporation, S/F Mortgage Revenue
Refunding Bonds, Series B-1, 6.75% due 9/01/2025 (d) 1,463
AAA Aaa 1,000 Cypress-Fairbanks, Texas, Independent School District, GO (Schoolhouse),
5.25% due 2/15/2022 948
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 1,048
AA NR* 1,510 Fort Bend County, Texas, Municipal Utility District Number 23, GO, 6.625%
due 9/01/2024 1,567
AA Aa2 1,400 Fort Worth, Texas, Certificates of Obligation, GO, 6.25% due 3/01/2021 1,441
AA NR* 1,000 Gregg County, Texas, Health Facilities Development Corporation, Hospital
Revenue Bonds (Good Shepherd Medical Center Project), 6.875% due 10/01/2020 1,083
Gulf Coast, Texas, Waste Disposal Authority Revenue Bonds (Champion
International Corporation), AMT:
BBB+ NR* 725 7.25% due 4/01/2002 (h) 769
BBB+ Baa1 1,025 7.25% due 4/01/2017 1,060
Harris County, Texas, Health Facilities Development Corporation, Hospital
Revenue Refunding Bonds (Methodist Hospital), VRDN (j):
A1+ NR* 900 4.25% due 12/01/2025 900
A1+ NR* 300 4.35% due 12/01/2026 300
Harris County, Texas, Health Facilties Development Corporation, Revenue
Refunding Bonds (b):
NR* Aa3 1,000 RITR, Series 6, 6.795% due 7/01/2027 (i) 1,025
AAA Aa3 2,500 (School Health Care System), Series B, 6.25% due 7/01/2027 2,680
AAA Aaa 650 Irving, Texas, GO, 5.50% due 3/15/2016 653
AAA Aaa 1,750 Lamar, Texas, Consolidated Independent School District, GO, Refunding, 4.75%
due 2/15/2020 1,544
BBB- Baa3 1,000 Lower Colorado River Authority, Texas, PCR (Samsung Austin Semiconductor),
AMT, 6.95% due 4/01/2030 1,006
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face
Ratings Ratings Amount Issue Value
Texas (concluded)
<S> <S> <C> <S> <C>
AA NR* $1,000 Red River, Texas, Education Finance Revenue Bonds (Saint Mark's School-Texas
Project), 6% due 8/15/2019 $ 1,026
AAA Aaa 1,795 Richardson, Texas, Certificates of Obligation, Hotel Occupancy, GO, Series A,
6% due 2/15/2016 (e) 1,865
A1+c VMIG1++ 200 Sabine River Authority, Texas, PCR, Refunding (Texas Utilities Electric
Company Project), VRDN, Series A, 4.30% due 3/01/2026 (a)(j) 200
AA Aa1 1,500 San Antonio, Texas, Electric and Gas Revenue Refunding Bonds, Series A,
5.25% due 2/01/2015 1,469
NR* Aaa 1,000 South Plains, Texas, Housing Finance Corporation, S/F Mortgage Revenue
Bonds, AMT, Series A, 7.30% due 9/01/2031 1,118
Southeast Texas, Housing Finance Corporation Revenue Bonds, AMT (c)(f):
NR* Aaa 2,040 Series A, 8% due 11/01/2025 2,272
NR* Aaa 1,150 Series B, 8.50% due 11/01/2025 1,230
NR* VMIG1++ 800 Southwest Texas, Higher Education Authority Incorporated, Revenue Refunding
Bonds (Southern Methodist University), VRDN, 4.30% due 7/01/2015 (j) 800
AA Aa1 2,000 Texas State, GO, Refunding, RIB, Series B, 7.807% due 9/30/2011 (i) 2,388
AA Aa1 800 Texas State, GO, Veterans' Housing Assistance Fund II, AMT, Series A, 7%
due 12/01/2025 838
AA NR* 805 Texas State, GO, Water Development Board, 7% due 8/01/2004 (h) 874
AAA Aaa 1,575 Ysleta, Texas, Independent School District, Public Facility Corporation,
School Facility Lease Revenue Bonds, 6% due 11/15/2013 (a) 1,660
Total Investments (Cost--$36,782)--100.4% 37,835
Liabilities in Excess of Other Assets--(0.4%) (144)
--------
Net Assets--100.0% $ 37,691
========
(a)AMBAC Insured.
(b)Escrowed to maturity.
(c)FHLMC Collateralized.
(d)FNMA/GNMA Collateralized.
(e)FGIC 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, 2000.
(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, 2000.
++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.
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, 2000
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$36,781,804) $ 37,834,680
Cash 10,872
Receivables:
Interest $ 706,701
Securities sold 265,350
Beneficial interest sold 7 972,058
------------
Prepaid registration fees and other assets 11,283
------------
Total assets 38,828,893
------------
Liabilities: Payables:
Securities purchased 951,467
Beneficial interest redeemed 57,836
Dividends to shareholders 34,821
Investment adviser 16,449
Distributor 12,368 1,072,941
------------
Accrued expenses and other liabilities 65,166
------------
Total liabilities 1,138,107
------------
Net Assets: Net assets $ 37,690,786
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 60,812
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 308,928
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 7,515
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 9,680
Paid-in capital in excess of par 39,993,731
Accumulated realized capital losses on investments--net (2,322,174)
Accumulated distributions in excess of realized capital gains on
investments--net (1,420,582)
Unrealized appreciation on investments--net 1,052,876
------------
Net assets $ 37,690,786
============
Net Asset Value: Class A--Based on net assets of $5,923,388 and 608,124 shares
of beneficial interest outstanding $ 9.74
============
Class B--Based on net assets of $30,090,347 and 3,089,282 shares
of beneficial interest outstanding $ 9.74
============
Class C--Based on net assets of $732,777 and 75,148 shares
of beneficial interest outstanding $ 9.75
============
Class D--Based on net assets of $944,274 and 96,801 shares
of beneficial interest outstanding $ 9.75
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 2000
<S> <S> <C> <C>
Investment Income: Interest and amortization of premium and discount earned $ 2,685,355
Expenses: Investment advisory fees $ 242,165
Account maintenance and distribution fees--Class B 177,331
Professional fees 63,409
Accounting services 47,047
Printing and shareholder reports 32,677
Transfer agent fees--Class B 18,432
Trustees' fees and expenses 5,394
Registration fees 5,180
Custodian fees 5,023
Account maintenance and distribution fees--Class C 4,483
Pricing fees 4,293
Transfer agent fees--Class A 3,013
Account maintenance fees--Class D 946
Transfer agent fees--Class C 461
Transfer agent fees--Class D 410
Other 1,412
------------
Total expenses 611,676
------------
Investment income--net 2,073,679
------------
Realized & Realized loss on investments--net (3,055,126)
Unrealized Gain Change in unrealized appreciation on investments--net 673,319
(Loss) on ------------
Investments--Net: Net Decrease in Net Assets Resulting from Operations $ (308,128)
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year
Ended July 31,
Increase (Decrease) in Net Assets: 2000 1999
<S> <S> <C> <C>
Operations: Investment income--net $ 2,073,679 $ 2,530,412
Realized gain (loss) on investments--net (3,055,126) 2,283,710
Change in unrealized appreciation/depreciation on investments--net 673,319 (4,737,964)
------------ ------------
Net increase (decrease) in net assets resulting from operations (308,128) 76,158
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (352,552) (433,734)
Shareholders: Class B (1,639,682) (2,015,137)
Class C (33,780) (43,592)
Class D (47,665) (37,949)
In excess of realized gain on investments--net:
Class A (217,989) --
Class B (1,151,503) --
Class C (23,657) --
Class D (27,433) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (3,494,261) (2,530,412)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial interest
Interest transactions (13,555,873) (2,867,808)
Transactions: ------------ ------------
Net Assets: Total decrease in net assets (17,358,262) (5,322,062)
Beginning of year 55,049,048 60,371,110
------------ ------------
End of year $ 37,690,786 $ 55,049,048
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements. For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.45 $ 10.90 $ 10.96 $ 10.57 $ 10.57
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .50 .51 .58 .57 .57
Realized and unrealized gain (loss) on
investments--net (.41) (.45) (.06) .39 --
-------- -------- -------- -------- --------
Total from investment operations .09 .06 .52 .96 .57
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.50) (.51) (.58) (.57) (.57)
In excess of realized gain on
investments--net (.30) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.80) (.51) (.58) (.57) (.57)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.74 $ 10.45 $ 10.90 $ 10.96 $ 10.57
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 1.19% .43% 4.83% 9.39% 5.44%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses .96% .98% .87% .83% .85%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 5.12% 4.67% 5.25% 5.37% 5.29%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 5,924 $ 8,545 $ 9,842 $ 10,707 $ 9,805
Data: ======== ======== ======== ======== ========
Portfolio turnover 97.91% 129.23% 24.61% 47.83% 110.16%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements. For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.45 $ 10.90 $ 10.96 $ 10.57 $ 10.57
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .45 .45 .52 .52 .51
Realized and unrealized gain (loss) on
investments--net (.41) (.45) (.06) .39 --
-------- -------- -------- -------- --------
Total from investment operations .04 -- .46 .91 .51
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.45) (.45) (.52) (.52) (.51)
In excess of realized gain on
investments--net (.30) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.75) (.45) (.52) (.52) (.51)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.74 $ 10.45 $ 10.90 $ 10.96 $ 10.57
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .68% (.08%) 4.30% 8.84% 4.89%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.47% 1.49% 1.38% 1.34% 1.36%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 4.61% 4.15% 4.74% 4.86% 4.78%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 30,090 $ 44,502 $ 48,887 $ 56,115 $ 63,733
Data: ======== ======== ======== ======== ========
Portfolio turnover 97.91% 129.23% 24.61% 47.83% 110.16%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived Class C
from information provided in the financial statements. For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.46 $ 10.91 $ 10.97 $ 10.58 $ 10.57
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .44 .44 .51 .51 .50
Realized and unrealized gain (loss) on
investments--net (.41) (.45) (.06) .39 .01
-------- -------- -------- -------- --------
Total from investment operations .03 (.01) .45 .90 .51
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.44) (.44) (.51) (.51) (.50)
In excess of realized gain on
investments--net (.30) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.74) (.44) (.51) (.51) (.50)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.75 $ 10.46 $ 10.91 $ 10.97 $ 10.58
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .58% (.18%) 4.18% 8.71% 4.88%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.58% 1.59% 1.48% 1.45% 1.47%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 4.51% 4.06% 4.63% 4.75% 4.65%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 733 $ 836 $ 1,304 $ 917 $ 1,176
Data: ======== ======== ======== ======== ========
Portfolio turnover 97.91% 129.23% 24.61% 47.83% 110.16%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
The following per share data and ratios have been derived Class D
from information provided in the financial statements. For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.46 $ 10.92 $ 10.98 $ 10.58 $ 10.59
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .49 .50 .57 .56 .56
Realized and unrealized gain (loss) on
investments--net (.41) (.46) (.06) .40 (.01)
-------- -------- -------- -------- --------
Total from investment operations .08 .04 .51 .96 .55
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.49) (.50) (.57) (.56) (.56)
In excess of realized gain on
investments--net (.30) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.79) (.50) (.57) (.56) (.56)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.75 $ 10.46 $ 10.92 $ 10.98 $ 10.58
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 1.10% .24% 4.72% 9.38% 5.23%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.06% 1.11% .97% .93% .96%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 5.03% 4.49% 5.15% 5.27% 5.15%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 944 $ 1,166 $ 338 $ 335 $ 411
Data: ======== ======== ======== ======== ========
Portfolio turnover 97.91% 129.23% 24.61% 47.83% 110.16%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
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 accounting
principles generally accepted in the United States of America, 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 investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. 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.
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
NOTES TO FINANCIAL STATEMENTS (continued)
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for post-October losses.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with FAM Distributors, Inc. ("FAMD"
or the "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: .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, 2000, FAMD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
FAMD MLPF&S
Class A $15 $188
Class D $62 $669
For the year ended July 31, 2000, MLPF&S received contingent
deferred sales charges of $63,503 and $38 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, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 2000 were $42,569,656 and $56,393,374,
respectively.
Net realized gains (losses) for the year ended July 31, 2000 and net
unrealized gains as of July 31, 2000 were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments. $(3,156,793) $ 1,052,876
Financial futures contracts 101,667 --
----------- -----------
Total $(3,055,126) $ 1,052,876
=========== ===========
As of July 31, 2000, net unrealized appreciation for Federal income
tax purposes aggregated $1,052,876, of which $1,372,145 related to
appreciated securities and $319,269 related to depreciated
securities. The aggregate cost of investments at July 31, 2000 for
Federal income tax purposes was $36,781,804.
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $13,555,873 and $2,867,808 for the years ended July
31, 2000 and July 31, 1999, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares
For the Year Ended Dollar
July 31, 2000 Shares Amount
Shares sold 45,456 $ 438,851
Shares issued to share-
holders in reinvestment of
dividends and distributions 33,822 325,457
------------ ------------
Total issued 79,278 764,308
Shares redeemed (288,975) (2,799,204)
------------ ------------
Net decrease (209,697) $ (2,034,896)
============ ============
Class A Shares
For the Year Ended Dollar
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 B Shares
For the Year Ended Dollar
July 31, 2000 Shares Amount
Shares sold 75,628 $ 739,360
Shares issued to share-
holders in reinvestment of
dividends and distributions 136,933 1,316,321
------------ ------------
Total issued 212,561 2,055,681
Automatic conversion of
shares (5,674) (53,695)
Shares redeemed (1,377,138) (13,323,564)
------------ ------------
Net decrease (1,170,251) $(11,321,578)
============ ============
Class B Shares
For the Year Ended Dollar
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 C Shares
For the Year Ended Dollar
July 31, 2000 Shares Amount
Shares sold 6,140 $ 60,526
Shares issued to share-
holders in reinvestment of
dividends and distributions 3,770 36,232
------------ ------------
Total issued 9,910 96,758
Shares redeemed (14,751) (143,672)
------------ ------------
Net decrease (4,841) $ (46,914)
============ ============
Class C Shares
For the Year Ended Dollar
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 D Shares
For the Year Ended Dollar
July 31, 2000 Shares Amount
Shares sold 2,501 $ 23,921
Automatic conversion
of shares 5,662 53,695
Shares issued to share-
holders in reinvestment of
dividends and distributions 3,029 29,156
------------ ------------
Total issued 11,192 106,772
Shares redeemed (25,835) (259,257)
------------ ------------
Net decrease (14,643) $ (152,485)
============ ============
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
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
============ ============
5. Short-Term Borrowings:
On December 3, 1999, the Fund, along with certain other funds
managed by FAM and its affiliates, entered into a one-year,
unsecured $1,000,000,000 credit agreement with The Bank of New York
and other lenders. The funds may borrow money for temporary or
emergency purposes to meet shareholder redemptions. Each fund may
borrow up to the maximum amount allowable under the fund's current
prospectus and statement of additional information, subject to
various other legal, regulatory or contractual limits. The funds
collectively pay a commitment fee of .09% per annum on the available
portion of the facility. Amounts borrowed under the facility bear
interest at the Federal Funds rate plus .50%. The Fund did not
borrow from the facility during the year ended July 31, 2000.
6. Capital Loss Carryforward:
At July 31, 2000, the Fund had a net capital loss carryforward of
approximately $1,864,000, all of which expires in 2008. This amount
will be available to offset like amounts of any future taxable
gains.
<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, 2000, 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 auditing standards
generally accepted in the United States of America. 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, 2000 by correspondence
with the custodian and broker. 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, 2000, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Princeton, New Jersey
September 7, 2000
</AUDIT-REPORT>
Merrill Lynch Texas Municipal Bond Fund
July 31, 2000
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
Merrill Lynch Texas Municipal Bond Fund during its taxable year
ended July 31, 2000 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, the Fund paid a long-term capital gains distribution
of $.298819 per share, payable on December 31, 1999 to shareholders
of record as of December 20, 1999. This entire distribution is
subject to the maximum 20% tax rate.
Please retain this information for your records.
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, 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
