SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                     -------

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)
|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

For the fiscal year ended                      March 31, 1999
                          ------------------------------------------------------
                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

                         Commission file number 33-56254
                        Merrill Lynch Municipal ABS, Inc.
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               (Exact Name of registrant as specified in charter)

             New York                                    13-369-8229
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  (State or other jurisdiction                 (IRS Employer Identification No.)
of incorporation or organization)

World Financial Center, North Tower, Ninth Floor, New York, New York   10281
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(Address of principal executive offices)                             (Zip Code)

Registrant's telephone number, including area code (212) 449-0670
                                                   -----------------------------

Securities registered pursuant to Section 12 (b) of the Act:

                                                         Name of each exchange
      Title of each class                                on which registered
      -------------------                                ---------------------

Prerefunded Municipal Certificates, Series 2,            New York Stock Exchange
  due October 1, 2010

Prerefunded Municipal Certificates, Series 3,            New York Stock Exchange
  due October 1, 2011

Securities registered pursuant to Section 12 (g) of the Act:

--------------------------------------------------------------------------------
                                (Title of class)

--------------------------------------------------------------------------------
                                (Title of class)


                            [Cover page 1 of 2 pages]
<PAGE>

      Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. |X|

      State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing. (See definition of affiliate in Rule 405).

      Note. If a determination as to whether a particular person or entity is an
      affiliate cannot be made without involving unreasonable effort and
      expense, the aggregate market value of the common stock held by
      non-affiliates may be calculated on the basis of assumptions reasonable
      under the circumstances, provided that the assumptions are set forth in
      this form.

      All the voting stock is held by affiliates of the registrant.

             (APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS)

      Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes |_| No |_|

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

      Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

      As of March 31, 1999, there are 100 shares of common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

      List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document
is incorporated: (1) any annual report to security-holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424 (b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security-holders
for fiscal year ended December 24, 1980).


                            [Cover page 2 of 2 pages]
<PAGE>

PART I

Item 1.     Business.
            Exempt per No-Action Letter publicly available May 30, 1996.

Item 2.     Properties.
            Exempt per No-Action Letter publicly available May 30, 1996.

Item 3.     Legal Proceedings.
            None.

Item 4.     Submission of Matters to a Vote of Security-Holders.
            None.

                                     PART II

Item 5.     Market for Registrant's Common Equity and Related
            Stockholders Matters.

            (a) Number of holders of record of each Series of Certificates as of
      March 31, 1999:      Series 1: 46 holders*;
                           Series 2: 66 holders*;
                           Series 3: 115 holders*.

            (b) Principal market in which registrant's Certificates are being
      traded:

                           Series 1:      Over the Counter
                           Series 2:      Over the Counter
                           Series 3:      Over the Counter

            (c) Report of Dividends:

            Exempt per No-Action Letter publicly available May 30, 1996.

Item 6.     Selected Financial Data.

            Exempt per No-Action Letter publicly available May 30, 1996.

Item 7.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations.

            Exempt per No-Action Letter publicly available May 30, 1996.

Item 8.     Financial Statements and Supplementary Data.

            Exempt per No-Action Letter publicly available May 30, 1996.

Item 9.     Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosure.

            None.

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* Number of Holders per Series equals the number of Direct Participants holding
Certificates through The Depository Trust Company plus the number of accounts
held at Merrill Lynch for the benefit of Certificateholders.


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<PAGE>

                                    PART III

Item 10.    Directors and Executive Officers of the Registrant.

            Exempt per No-Action Letter publicly available May 30, 1996.

Item 11.    Executive Compensation.

            Exempt per No-Action Letter publicly available May 30, 1996.

Item 12.    Security Ownership of Certain Beneficial Owners and Management.

            Exempt per No-Action Letter publicly available May 30, 1996.

Item 13.    Certain Relationships and Related Transactions.

            Exempt per No-Action Letter publicly available May 30, 1996.

Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

            (a) Exhibits

                  1.  Annual Accountants' Report

                  2.  Notice of Substitution of Defeasance Obligations

            (b) Financial Statement Schedules

            None.

            (c) Reports on Form 8-K

            Exhibits.

                  1. Statements to holders of Merrill Lynch Municipal ABS, Inc.
                     Prerefunded Municipal Certificates, Series 1, Series 2,
                     Series 3 relating to the Distribution Dates of April 1,
                     1998 and October 1, 1998, as amended.

Supplemental Information.

            (a) Annual Report
            None.

            (b) Proxy Statement
            None.


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<PAGE>

                                   Signatures

      Pursuant to the requirements of the Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        MERRILL LYNCH MUNICIPAL ABS, INC.


                                        By: /s/ Edward J. Sisk
                                            ------------------------------------
                                        Name:  Edward J. Sisk
                                        Title: Authorized Signatory
                                        Date:  June 30, 1999


                                        5
<PAGE>

                                  EXHIBIT INDEX

Exhibit                                                                     Page
-------                                                                     ----

   1.           Independent Accountants' Report                               7

   2.           Notice of Substitution of Defeasance Obligations             11

   3.           Amended Statements to holders of Merrill Lynch Municipal     12
                ABS, Inc. Prerefunded Municipal Certificates, Series 1,
                Series 2, Series 3 relating to the Distribution Dates of
                April 1, 1998 and October 1, 1998, Original Statements
                were included in Item 5 to registrant's Form 8-K (No.
                33-56254) filed with the Securities and Exchange
                Commission on April 12, 1999.


                                        6

<PAGE>

Independent Accountants' Report on Applying Agreed-Upon Procedures

June 29, 1999

To the Management of Merrill Lynch Municipal ABS, Inc.
World Financial Center
North Tower, 9th Floor
New York, New York 10281

Dear Sirs:

We have performed the procedures requested by you, as described below, with
respect to the Merrill Lynch Municipal ABS, Inc. (the "Company") annual report
on Form 10-K for the fiscal year ended March 31, 1999 ("Form 10-K"). This
engagement to apply agreed-upon procedures was performed in accordance with
standards established by the American Institute of Certified Public Accountants.
The sufficiency of the procedures is solely the responsibility of management of
the Company. Consequently, we make no representation regarding the sufficiency
of the procedures described below either for the purpose for which this report
has been requested or for any other purpose. The procedures that we performed
and our findings are summarized as follows:

1.    We obtained the adjusted Statements to the Holders of Merrill Lynch
      Municipal ABS, Inc. Prerefunded Municipal Certificates, Series 1, Series
      2, and Series 3 (the "Certificates") prepared by the Trustee, Bankers
      Trust Company, relating to the distribution dates of April 1, 1998 and
      October 1, 1998, statements (see Exhibit 3 to the Form 10-K) setting forth
      on a class-by-class basis the following information relating to each
      distribution date:

      (i)   The amount of interest, principal and premium received in connection
            with the distribution dates.

      (ii)  The amount of interest, principal and premium distributed to holders
            of each class of certificates.

      (iii) The amount of any Trustee's fee payable on the distribution dates.


<PAGE>

      (iv)  If the interest payments received by the Trustee with respect to the
            Prerefunded Bonds of an issue are insufficient to make the required
            interest distributions with respect to the Certificates related
            thereto, the aggregate amount of all interest shortfalls on the
            distribution dates and the amount of interest shortfall allocated to
            each Certificate class.

      (v)   If any loss is incurred with respect to the Prerefunded Bonds, the
            aggregate amount of all losses on the distribution dates and the
            allocation of the losses to each Certificate class.

      (vi)  The aggregate amount of accrued interest remaining unpaid, if any,
            for each class of Certificates and after giving the effect to the
            distributions made to each class on the distribution dates.

      (vii) The aggregate Certificate amount of each class of certificates after
            giving effect to the distributions made on such distribution dates
            and to losses allocated on such distribution dates.

2.    We proved the arithmetic accuracy of the collection and distribution of
      payments received on the Prerefunded Bonds in the related Trust during the
      period ended March 31, 1999 and found no exceptions.

3.    We compared the financial information included in the adjusted Statements
      to Holders of Merrill Lynch Municipal ABS, Inc. for the year ended March
      31, 1999 to the requirements in the Agreement between the Company and
      Certificate Holders and found no exceptions.

4.    We proved the arithmetic accuracy of the dollar amounts, shown in the
      adjusted Statements to Holders of Merrill Lynch Municipal ABS, Inc. in the
      Form 10-K and found no exceptions.

5.    We inquired of the Secretary whether there were any other significant
      events or actions taken during or subsequent to March 31, 1999 not
      reflected in the Form 10-K or the minutes and the agendas of the Company's
      Board of Directors and committees thereof. We were informed that no such
      events or actions had occurred.

We were not engaged to, and did not, perform an audit, the objective of which
would be the expression of an opinion on the financial information of the
Company. Accordingly, we do not express such an opinion. Had we performed
additional procedures, other matters might have come to our attention that would
have been reported to you.


                                       2
<PAGE>

This report is intended solely for the information and use of the Company and is
not intended to be and should not be used by anyone other than the Company. We
are aware that this report is to be filed with the Securities and Exchange
Commission as part of the Form 10-K of the Company for the fiscal year ended
March 31, 1999 and therefore is a matter of public record.

Yours truly,


/s/ Deloitte & Touche LLP
New York, New York

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