MERRILL LYNCH
TEXAS
MUNICIPAL
BOND FUND
FUND LOGO
Semi-Annual Report
January 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
January 31, 2000
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended January 31, 2000, continued strong
domestic growth, gradual improvement in foreign economies and
investor concerns regarding future inflationary pressures pushed
long-term fixed-income bond yields higher. The Federal Reserve Board
continued to raise short-term interest rates in August and November
1999 as well as just after the period's close, seeking to moderate
US economic growth and maintain the existing benign inflationary
environment. US economic growth, in part intensified by Year 2000
preparations, grew 5.8% during the last fiscal quarter of 1999 and
had an annual rate of 4.1% for 1999. A number of inflationary
indicators have also begun to signal some increase in price
pressures.
However, most investors believe that the Federal Reserve Board will
be extremely vigilant in preventing such pressures from any material
escalation. US Treasury bond yields responded by rising
approximately 60 basis points (0.60%) by mid-January 2000. A strong
rally, largely based upon an expected significant reduction in the
future supply of US Treasury 30-year maturity bonds, pushed yields
lower to 6.50% at January 31, 2000. Over the last six months, yields
on 30-year US Treasury bonds rose approximately 40 basis points.
The tax-exempt bond market was also under pressure throughout the
entire period. Despite receiving more than $30 billion in coupon
payments, bond maturities and proceeds from early redemptions in
December and January, overall investor demand has diminished. It is
likely that the returns generated by the US equity market have
continued to attract investor attention and have left little demand
for competing investment alternatives. At January 31, 2000, the long-
term tax-exempt revenue bond yield, as measured by the Bond Buyer
Revenue Index, was 6.34%, an increase of nearly 70 basis points over
the last six months.
Issuance by municipalities has significantly declined in recent
months. Over the last six months, less than $100 billion in long-
term tax-exempt bonds were issued, representing a decline of over
20% compared to the same period a year ago. During the last three
months, less than $45 billion in long-term bonds were issued by
various municipalities. This most recent quarterly issuance is 30%
below the level of the January 31, 1999 quarter. Additionally,
during January 2000, less than $8 billion in municipal debt was
underwritten, down more than 50% from January 1999 levels. This
represents the lowest monthly issuance in over five years. Toward
the end of 1999, consensus estimates for 2000 annual issuance were
in the $210 billion--$215 billion range. January's underwritings,
as well as those expected to be issued in the near future, have led
some analysts to revise their forecasts to the $190 billion range.
We believe an overall reduction in bond supply in the coming year
should help support the municipal bond market's overall technical
position. While tax-exempt bond yields, which are at their highest
level in over three years, have attracted significant retail
investor interest, institutional demand declined sharply. Long-term
municipal mutual funds have seen consistent outflows in recent
months as the yields of individual securities rose faster than those
of larger, more diverse mutual funds. During the six months ended
January 31, 2000, tax-exempt mutual funds have had net redemptions
of approximately $9 billion. Also, the demand from property and
casualty insurance companies has weakened as a result of the losses
and anticipated losses incurred from a series of damaging storms
across much of the eastern United States. Additionally, many
institutional investors who have in recent years been attracted to
the municipal bond market by historically attractive tax-exempt bond
yield ratios of over 90%, found other asset classes even more
attractive. Even with a reduced supply position, tax-exempt issuers
have been forced to repeatedly raise municipal bond yields in an
attempt to attract adequate demand. We believe a reduced bond supply
going forward is likely to promote a more closely balanced
supply/demand structure and foster a more stable tax-exempt interest
rate environment.
Looking ahead, it appears to us that long-term tax-exempt bond
yields will remain under pressure, trading in a broad range centered
around current levels. Investors are also likely to remain concerned
regarding future action by the Federal Reserve Board in early 2000.
Any improvement in bond prices may be contingent upon weakening in
both US employment growth and consumer spending. The 100 basis
Merrill Lynch Texas Municipal Bond Fund
January 31, 2000
point rise in US Treasury bond yields seen thus far could negatively
affect US economic growth. The US housing market is likely to be
among the first sectors 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 may reduce consumer spending. We believe
that 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.
Portfolio Strategy
The volatility within the municipal market during the past six
months stands in sharp contrast to the relative stability that
typified the environment for the first half of last year. The degree
and suddenness of the decline caught many investors by surprise as
few anticipated the extent to which tax-exempt yields would climb
relative to their taxable counterparts. Much emphasis had been
placed on the favorable implications of a sharp reduction in new-
issue supply coupled with vigorous retail investor demand. Instead,
institutional selling proved the market's undoing as both mutual
funds and casualty insurers moved aggressively to liquidate tax-
exempt holdings. Consequently, yield ratios on long-term municipal
bonds are once again approaching 100% of Treasury bond yields and
therefore represent one of the more compelling values in the fixed-
income marketplace.
Developments within the Texas municipal market mirrored those of the
overall marketplace since the respective declines in issuance were
roughly comparable during the six-month period. At the beginning of
the six months ended January 31, 2000, our investment outlook was
for a fairly stable interest rate environment. We reduced our cash
reserve position on the expectation that an income-oriented approach
would generate the most favorable returns for the Fund. While we
achieved modest success through the use of selective restructuring,
hindsight suggests that Fund performance would have benefited from a
more consistent and prolonged defensive strategy designed to
preserve unrealized gains from last year's market rally. More
recently, with long-term interest rates at their highest level in
over two years, we have turned our efforts to seeking to limit tax
liabilities through a program designed to offset existing capital
gains with the realization of losses incurred in recent months.
We are comfortable with the Fund's current position given the
absolute level of long-term interest rates as well as the inherent
value in the tax-exempt sector. Economic fundamentals point to a
modestly slower pace of economic growth with no solid evidence of a
broad-based pickup in inflation. Investors' increased level of
comfort with Federal Reserve Board monetary policy combined with a
favorable seasonal outlook for municipal bonds suggest that a more
constructive outlook may soon be warranted.
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
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Theodore R. Jaeckel Jr.)
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
March 7, 2000
Merrill Lynch Texas Municipal Bond Fund
January 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.
<TABLE>
Recent Performance Results*
<CAPTION>
6 Month 12 Month Since Inception Standardized
As of January 31, 2000 Total Return Total Return Total Return 30-Day Yield
<S> <C> <C> <C> <C>
ML Texas Municipal Bond Fund Class A Shares -5.34% -8.76% +57.41% 4.95%
ML Texas Municipal Bond Fund Class B Shares -5.58 -9.22 +50.85 4.65
ML Texas Municipal Bond Fund Class C Shares -5.62 -9.31 +20.94 4.54
ML Texas Municipal Bond Fund Class D Shares -5.38 -8.92 +24.33 4.86
*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
January 31, 2000
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/99 -6.25% -10.00%
Five Years Ended 12/31/99 +4.92 + 4.07
Inception (8/30/91)
through 12/31/99 +5.74 + 5.23
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/99 -6.72% -10.17%
Five Years Ended 12/31/99 +4.39 + 4.39
Inception (8/30/91)
through 12/31/99 +5.21 + 5.21
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/99 -6.81% -7.68%
Five Years Ended 12/31/99 +4.30 +4.30
Inception (10/21/94)
through 12/31/99 +3.97 +3.97
*Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/99 -6.42% -10.16%
Five Years Ended 12/31/99 +4.82 + 3.97
Inception (10/21/94)
through 12/31/99 +4.52 + 3.70
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Texas Municipal Bond Fund
January 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face
Ratings Ratings Amount Issue Value
Texas--102.3%
<S> <S> <S> <C> <C>
Alliance Airport Authority Inc., Texas, Special Facilities
Revenue Bonds, AMT:
BBB- Baa1 $ 2,500 (American Airlines Inc. Project), 7% due 12/01/2011 (k) $ 2,577
BBB Baa2 1,640 (Federal Express Corporation Project), 6.375% due 4/01/2021 1,560
AAA Aaa 2,290 Austin, Texas, Revenue Refunding Bonds, Sub-Lien, Series A, 4.62%**
due 5/15/2013 (g) 1,030
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) 1,963
AAA Aaa 1,000 Corpus Christi, Texas, Utility System Revenue Refunding and
Improvement Bonds, 5% due 7/15/2019 (e) 855
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 1,021
AA NR* 1,510 Fort Bend County, Texas, Municipal Utility District Number 23, GO,
6.625% 25% due 9/01/2024 1,535
A1+ VMIG1++ 500 Gulf Coast, Texas, Waste Disposal Authority, PCR, Refunding
(Amoco Oil Company Project), VRDN, 3.55% due 10/01/2017 (j) 500
Gulf Coast, Texas, Waste Disposal Authority Revenue Bonds
(Champion International Corporation), AMT:
BBB NR* 725 7.25% due 4/01/2002 (h) 773
BBB Baa1 1,025 7.25% due 4/01/2017 1,059
NR* NR* 1,000 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Memorial Hospital System Project), 7.125%
due 6/01/2015 1,061
A1+ NR* 1,300 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN, 3.60%
due 12/01/2025 (j) 1,300
Harris County, Texas, Health Facilties Development Corporation,
Revenue Refunding Bonds (b):
NR* Aa3 1,000 RITR, Series 6, 7.795% due 7/01/2027 (i) 921
AA Aa3 2,500 (School Health Care System), Series B, 6.25% due 7/01/2027 2,475
AAA Aaa 1,750 Lamar, Texas, Consolidated Independent School District, GO,
Refunding, 4.75% due 2/15/2020 1,423
AAA Aaa 2,000 Lower Colorado River Authority, Texas, Revenue Refunding Bonds,
Series A, 5.875% due 5/15/2017 (a) 1,971
AA Aa3 2,400 Lubbock, Texas, Heath Facilities Development Corporation, Revenue
Refunding Bonds (Saint Joseph Health System), 5.25% due 7/01/2014 2,157
AAA Aaa 1,500 Port Arthur, Texas, GO, 5% due 2/15/2021 (g) 1,267
AA NR* 1,000 Red River, Texas, Education Finance Revenue Bonds (Saint Mark's
School--Texas Project), 6% due 8/15/2019 979
A1+ VMIG1++ 200 Sabine River Authority, Texas, PCR, Refunding (Texas Utilities
Electric Company Project), VRDN, Series A, 3.60% due 3/01/2026 (a)(j) 200
</TABLE>
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
Merrill Lynch Texas Municipal Bond Fund
January 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face
Ratings Ratings Amount Issue Value
Texas (concluded)
<S> <S> <S> <C> <C>
NR* Aa1 $ 4,000 San Antonio, Texas, Electric and Gas Revenue Refunding Bonds,
RIB, Series 76, 6.895% due 2/01/2015 (i) $ 3,360
NR* Aaa 1,000 South Plains, Texas, Housing Finance Corporation, S/F Mortgage
Revenue Bonds, AMT, Series A, 7.30% due 9/01/2031 (d) 1,072
Southeast Texas, Housing Finance Corporation Revenue Bonds, AMT (c)(f):
NR* Aaa 2,325 Series A, 8% due 11/01/2025 2,498
NR* Aaa 1,270 Series B, 8.50% due 11/01/2025 1,356
NR* Aaa 1,000 Texas Southern University, Public Finance Authority
Revenue Bonds, 4.50% due 11/01/2023 (a) 766
AA Aa1 2,000 Texas State, GO, Refunding, RIB, Series B, 7.655% due 9/30/2011 (i) 2,233
AA Aa1 800 Texas State, GO, Veterans' Housing Assistance Fund II, AMT,
Series A, 7% due 12/01/2025 822
AA NR* 805 Texas State, GO, Water Development Board, 7% due 8/01/2004 (h) 870
AAA Aa1 2,000 Texas Water Development Board Revenue Bonds (State Revolving Fund),
Senior Lien, Series A, 5.75% due 7/15/2014 1,998
AAA Aaa 1,575 Ysleta, Texas, Independent School District, Public Facility
Corporation, School Facility Lease Revenue Bonds, 6% due 11/15/2013 (a) 1,608
Total Investments (Cost--$44,284)--102.3% 43,210
Variation Margin on Financial Futures Contracts***--0.1% 36
Liabilities in Excess of Other Assets--(2.4%) (998)
--------
Net Assets--100.0% $ 42,248
========
(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 January 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 January 31, 2000.
(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 January 31, 2000 were as
follows:
(in Thousands)
Number of Expiration
Contracts Issue Date Value
50 US Treasury Bonds March 2000 $ 4,611
--------
Total Financial Futures Contracts Sold
(Total Contract Price--$4,516) $ 4,611
========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of January 31, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$44,284,327) $ 43,210,313
Cash 77,475
Receivables:
Interest $ 683,052
Variation margin 35,937
Beneficial interest sold 17,500 736,489
------------
Prepaid registration fees and other assets 12,359
------------
Total assets 44,036,636
------------
Liabilities: Payables:
Securities purchased 1,600,865
Beneficial interest redeemed 42,262
Dividends to shareholders 40,522
Investment adviser 18,904
Distributor 14,244 1,716,797
------------
Accrued expenses and other liabilities 72,317
------------
Total liabilities 1,789,114
------------
Net Assets: Net assets $ 42,247,522
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 72,170
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 362,304
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 7,975
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 9,527
Paid-in capital in excess of par 46,105,226
Accumulated realized capital losses on investments--net (3,140,353)
Unrealized depreciation on investments--net (1,169,327)
------------
Net assets $ 42,247,522
============
Net Asset Value: Class A--Based on net assets of $6,745,975 and 721,702 shares
of beneficial interest outstanding $ 9.35
============
Class B--Based on net assets of $33,863,611 and 3,623,041 shares
of beneficial interest outstanding $ 9.35
============
Class C--Based on net assets of $746,187 and 79,745 shares
of beneficial interest outstanding $ 9.36
============
Class D--Based on net assets of $891,749 and 95,266 shares
of beneficial interest outstanding $ 9.36
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
January 31, 2000
<S> <S> <C> <C>
Investment Income: Interest and amortization of premium and discount earned $ 1,476,953
Expenses: Investment advisory fees $ 134,375
Account maintenance and distribution fees--Class B 98,623
Professional fees 36,349
Printing and shareholder reports 29,726
Accounting services 12,800
Transfer agent fees--Class B 10,824
Registration fees 7,827
Custodian fees 2,749
Pricing fees 2,727
Account maintenance and distribution fees--Class C 2,331
Transfer agent fees--Class A 1,802
Trustees' fees and expenses 1,783
Account maintenance fees--Class D 486
Transfer agent fees--Class C 254
Transfer agent fees--Class D 229
Other 1,369
------------
Total expenses 344,254
------------
Investment income--net 1,132,699
------------
Realized & Realized loss on investments--net (2,452,723)
Unrealized Change in unrealized appreciation/depreciation on investments--net (1,548,884)
Loss on ------------
Investments--Net: Net Decrease in Net Assets Resulting from Operations $ (2,868,908)
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 2000 1999
<S> <S> <C> <C>
Operations: Investment income--net $ 1,132,699 $ 2,530,412
Realized gain (loss)on investments--net (2,452,723) 2,283,710
Change in unrealized appreciation/depreciation
on investments--net (1,548,884) (4,737,964)
------------ ------------
Net increase (decrease) in net assets resulting from operations (2,868,908) 76,158
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (193,856) (433,734)
Shareholders: Class B (897,498) (2,015,137)
Class C (17,251) (43,592)
Class D (24,094) (37,949)
Realized gain on investments--net:
Class A (217,989) --
Class B (1,151,504) --
Class C (23,656) --
Class D (27,433) --
------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (2,553,281) (2,530,412)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial
Interest interest transactions (7,379,337) (2,867,808)
Transactions: ------------ ------------
Net Assets: Total decrease in net assets (12,801,526) (5,322,062)
Beginning of period 55,049,048 60,371,110
------------ ------------
End of period $ 42,247,522 $ 55,049,048
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
January 31, 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 period $ 10.45 $ 10.90 $ 10.96 $ 10.57 $ 10.57
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .25 .51 .58 .57 .57
Realized and unrealized gain (loss) on
investments--net (.80) (.45) (.06) .39 --
-------- -------- -------- -------- --------
Total from investment operations (.55) .06 .52 .96 .57
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.25) (.51) (.58) (.57) (.57)
Realized gain on investments--net (.30) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.55) (.51) (.58) (.57) (.57)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.35 $ 10.45 $ 10.90 $ 10.96 $ 10.57
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (5.34%)++ .43% 4.83% 9.39% 5.44%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses .98%* .98% .87% .83% .85%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 5.04%* 4.67% 5.25% 5.37% 5.29%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 6,746 $ 8,545 $ 9,842 $ 10,707 $ 9,805
Data: ======== ======== ======== ======== ========
Portfolio turnover 60.28% 129.23% 24.61% 47.83% 110.16%
======== ======== ======== ======== ========
<CAPTION>
Class B
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
January 31, 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 period $ 10.45 $ 10.90 $ 10.96 $ 10.57 $ 10.57
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .23 .45 .52 .52 .51
Realized and unrealized gain (loss) on
investments--net (.80) (.45) (.06) .39 --
-------- -------- -------- -------- --------
Total from investment operations (.57) -- .46 .91 .51
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.23) (.45) (.52) (.52) (.51)
Realized gain on investments--net (.30) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.53) (.45) (.52) (.52) (.51)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.35 $ 10.45 $ 10.90 $ 10.96 $ 10.57
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (5.58%)++ (.08%) 4.30% 8.84% 4.89%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.49%* 1.49% 1.38% 1.34% 1.36%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 4.54%* 4.15% 4.74% 4.86% 4.78%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 33,864 $ 44,502 $ 48,887 $ 56,115 $ 63,733
Data: ======== ======== ======== ======== ========
Portfolio turnover 60.28% 129.23% 24.61% 47.83% 110.16%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
January 31, 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 period $ 10.46 $ 10.91 $ 10.97 $ 10.58 $ 10.57
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .22 .44 .51 .51 .50
Realized and unrealized gain (loss) on
investments--net (.80) (.45) (.06) .39 .01
-------- -------- -------- -------- --------
Total from investment operations (.58) (.01) .45 .90 .51
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.22) (.44) (.51) (.51) (.50)
Realized gain on investments--net (.30) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.52) (.44) (.51) (.51) (.50)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.36 $ 10.46 $ 10.91 $ 10.97 $ 10.58
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (5.62%)++ (.18%) 4.18% 8.71% 4.88%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.60%* 1.59% 1.48% 1.45% 1.47%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 4.43%* 4.06% 4.63% 4.75% 4.65%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 746 $ 836 $ 1,304 $ 917 $ 1,176
Data: ======== ======== ======== ======== ========
Portfolio turnover 60.28% 129.23% 24.61% 47.83% 110.16%
======== ======== ======== ======== ========
<CAPTION>
Class D
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
January 31, 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 period $ 10.46 $ 10.92 $ 10.98 $ 10.58 $ 10.59
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .25 .50 .57 .56 .56
Realized and unrealized gain (loss) on
investments--net (.80) (.46) (.06) .40 (.01)
-------- -------- -------- -------- --------
Total from investment operations (.55) .04 .51 .96 .55
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.25) (.50) (.57) (.56) (.56)
Realized gain on investments--net (.30) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.55) (.50) (.57) (.56) (.56)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.36 $ 10.46 $ 10.92 $ 10.98 $ 10.58
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (5.38%)++ .24% 4.72% 9.38% 5.23%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.08%* 1.11% .97% .93% .96%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 4.95%* 4.49% 5.15% 5.27% 5.15%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 892 $ 1,166 $ 338 $ 335 $ 411
Data: ======== ======== ======== ======== ========
Portfolio turnover 60.28% 129.23% 24.61% 47.83% 110.16%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Texas Municipal Bond Fund
January 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 generally
accepted accounting principles, which may require the use of
management accruals and estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of
management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal
recurring nature. The Fund offers four classes of shares under the
Merrill Lynch Select 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.
Merrill Lynch Texas Municipal Bond Fund
January 31, 2000
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("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 six months ended January 31, 2000, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class D Shares as follows:
MLFD MLPF&S
Class D $62 $669
For the six months ended January 31, 2000, MLPF&S received
contingent deferred sales charges of $34,552 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, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended January 31, 2000 were $28,484,559 and
$34,956,410, respectively.
Net realized gains (losses) for the six months ended January 31,
2000 and net unrealized losses as of January 31, 2000 were as
follows:
Realized Unrealized
Gains (Losses) Losses
Long-term investments. $(2,796,315) $(1,074,014)
Financial futures contracts 343,592 (95,313)
----------- -----------
Total $(2,452,723) $(1,169,327)
=========== ===========
As of January 31, 2000, net unrealized depreciation for Federal
income tax purposes aggregated $1,074,014, of which $564,731 related
to appreciated securities and $1,638,745 related to depreciated
securities. The aggregate cost of investments at January 31, 2000
for Federal income tax purposes was $44,284,327.
Merrill Lynch Texas Municipal Bond Fund
January 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $7,379,337 and $2,867,808 for the six months ended
January 31, 2000 and for the year ended July 31, 1999, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
Shares sold 13,655 $ 131,773
Shares issued to share-
holders in reinvestment of
dividends and distributions 25,055 241,596
---------- -----------
Total issued 38,710 373,369
Shares redeemed (134,829) (1,331,169)
---------- -----------
Net decrease (96,119) $ (957,800)
========== ===========
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 B Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
Shares sold 67,151 $ 658,295
Shares issued to share-
holders in reinvestment of
dividends and distributions 101,104 973,524
---------- -----------
Total issued 168,255 1,631,819
Automatic conversion of
shares (257) (2,498)
Shares redeemed (804,490) (7,880,754)
---------- -----------
Net decrease (636,492) $(6,251,433)
========== ===========
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 C Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
Shares sold 4,235 $ 42,152
Shares issued to share-
holders in reinvestment of
dividends and distributions 2,803 26,972
---------- -----------
Total issued 7,038 69,124
Shares redeemed (7,282) (72,726)
---------- -----------
Net decrease (244) $ (3,602)
========== ===========
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 D Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
Shares sold 2,404 $ 23,011
Automatic conversion of
shares 257 2,498
Shares issued to share-
holders in reinvestment of
dividends and distributions 1,998 19,282
---------- -----------
Total issued 4,659 44,791
Shares redeemed (20,837) (211,293)
---------- -----------
Net decrease (16,178) $ (166,502)
========== ===========
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
========== ===========
Merrill Lynch Texas Municipal Bond Fund
January 31, 2000
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
Robert R. Martin, Trustee of Merrill Lynch Texas Municipal Bond Fund
has recently retired. The Fund's Board of Trustees wishes Mr. Martin
well in his retirement.
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
