MERRILL
LYNCH
COLORADO
MUNICIPAL
BOND FUND
Annual Report July 31, 1994
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.
Merrill Lynch Colorado
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, New Jersey
08543-9011
<PAGE>
TO OUR SHAREHOLDERS
The expectation of increasing inflationary pressures and higher
interest rates initially heightened investor concerns and increased
financial market volatility during the July quarter. However, as the
quarter progressed, it was the weakness of the US dollar in foreign
exchange markets that dominated the financial news and prolonged
stock and bond market declines. Although the US dollar had
strengthened slightly by July quarter-end, which may have improved
investor confidence in the stock and bond markets, the possibility
of continued tightening by the Federal Reserve Board resurfaced
following Chairman Alan Greenspan's recent congressional testimony.
Nevertheless, as the quarter drew to a close, a lower-than-expected
rate of growth reported for the US economy during the second
calendar quarter allayed investor concerns and led to stock and bond
market rallies.
During the July quarter, the US dollar's weakness relative to other
major currencies reflected the deteriorating US trade deficit and
widening net long-term capital outflows. In 1993, an expanding US
economy and recession in other industrial countries led to a higher
level of imports and weaker export growth, widening the US trade
deficit further. In addition, global investors favored non-US dollar
denominated assets throughout 1993, which has further depressed the
dollar's value. This trend is not improving significantly thus far
in 1994 since foreign inflows into US capital markets continue to
decline, although US investors are investing outside of the United
States to a lesser degree.
Over the longer term, if the economies of the United States' major
trading partners expand (improving the prospects for US export
growth), the outlook for the US dollar is likely to improve. In the
near term, central banks have attempted to reverse the dollar's
decline through currency market intervention. These efforts have met
with limited success thus far, giving rise to the concern that the
Federal Reserve Board will be forced to continue to raise short-term
interest rates to attract investment capital back to the United
States and bolster the dollar's value. However, further interest
rate increases may jeopardize the US economic expansion. Despite
evidence of a moderating trend in the US economy, Federal Reserve
Board Chairman Alan Greenspan indicated in his July Humphrey-Hawkins
testimony that the central bank would prefer to err on the side of
too much monetary tightening rather than too little. In the weeks
ahead, investors will continue to assess economic data and
inflationary trends as they focus on the US dollar in order to gauge
whether further increases in short-term interest rates are imminent.
Continued indications of moderate and sustainable levels of economic
growth would be positive for the US capital markets.
<PAGE>
The Municipal Market
Long-term tax-exempt bond yields ended the July quarter essentially
unchanged. The Bond Buyer Revenue Bond Index rose five basis points
(0.05%) to 6.47%. The Index, however, failed to capture the dramatic
bond rally on July 29, 1994, when municipal bond yields had their
largest one-day decline thus far this year. Responding to reports of
a continued mild inflationary outlook and a potentially weakening
economy, municipal bond yields declined by approximately 10 basis
points. US Treasury bonds displayed a similar pattern over the last
three months, ending with an equally dramatic rally on July 29,
1994. Long-term US Treasury bonds ended the quarter yielding
approximately 7.40%.
The tax-exempt bond market has continued to be very volatile with
yields fluctuating by as much as 15 basis points from week to week.
This continued volatility is largely a reflection of the same lack
of conviction regarding the near-term direction of interest rates
that has prevailed for much of 1994. Throughout this past quarter,
the municipal bond market had been unable to maintain a consensus
regarding either the potential strength of the current economic
recovery or the resultant response by the Federal Reserve Board.
However, a number of economic indicators released in late July began
to suggest that the robust pace of recent economic growth was
slowing. This promoted a more positive market environment,
culminating in the market rally on July 29.
The municipal bond market's technical position has remained
supportive. Approximately $40 billion in long-term securities were
issued during the three months ended July 31, 1994. This represents
a decline of over 50% versus the July quarter from the previous
year. As discussed in earlier reports, this reduction in new-issue
supply has minimized the selling pressure by larger institutional
investors who fear being unable to purchase sizable amounts of
securities in the future. Such a significant decline in issuance
would normally be expected to trigger a decline in yields as
investors chase a commodity in scarce supply. Investor demand,
however, has also diminished somewhat in recent months as net flows
into long-term municipal bond funds have dramatically slowed or, in
some instances, reversed. Consequently, the supply/demand
relationship within the municipal bond market has remained in
balance, promoting the overall stability in yield levels seen in the
past months.
<PAGE>
With after-tax equivalents in excess of 10%, long-term tax-exempt
bonds continue to represent considerable value relative to other
investment alternatives. We continue to anticipate that municipal
bond yields will decline further in late 1994 and into 1995. The
economic impact of the significant interest rate increases
experienced since early February have yet to be totally realized.
The resultant drag on the economy should provide the foundation for
further interest rate declines. Under such a scenario, current tax-
exempt bond yields may prove to represent considerable value.
Fiscal Year in Review
Merrill Lynch Colorado Municipal Bond Fund commenced operations on
November 26, 1993. Our initial strategy was to invest the portfolio
in long-term municipal bonds. Since that time, the Fund has grown
from $11.4 million to $25 million on July 31, 1994, representing a
118% growth rate. When the Fund started, the municipal bond market
rallied briefly and has been on a volatile downward trend since. The
Bond Buyer Revenue Bond Index declined approximately 70 basis points
since the Fund's inception. During this unsettled time, we
emphasized quality securities with 80% of the portfolio rated A or
better. Nevertheless, demand for Colorado municipal bonds remained
strong as new-issue supply volume has fallen 32% over the last six
months. The supply picture has allowed the Colorado sector of the
tax-exempt market to continue to outperform the general market.
Since the Fund's inception, the municipal bond market has settled
into a trading range, allowing us to take advantage of purchasing
higher-coupon securities when attractively priced to enhance total
returns of the Fund's Class A and Class B Shares. This strategy has
helped improve the Fund's performance in a rising interest rate
environment. Moreover, these higher-coupon securities should afford
our shareholders with a competitive level of tax-exempt income.
We appreciate your ongoing interest in Merrill Lynch Colorado
Municipal Bond Fund, and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
<PAGE>
August 23, 1994
PERFORMANCE DATA
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
Class A and Class B Shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Aggregate Total Return--Class A Shares*
% Return Without % Return With
Sales Charge Sales Charge**
Inception (11/26/93)
through 6/30/94 -4.98% -8.78%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL: Item 1.
Aggregate Total Return--Class B Shares*
% Return % Return
Without CDSC With CDSC**
Inception (11/26/93)
through 6/30/94 -5.26% -9.26%
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL: Item 2.
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results*
<CAPTION>
Since Inception 3 Month
7/31/94 4/30/94 11/26/93** % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $9.38 $9.30 $10.00 -6.20% +0.86%
Class B Shares 9.38 9.29 10.00 -6.20 +0.97
Class A Shares--Total Return -2.83(1) +2.27(2)
Class B Shares--Total Return -3.16(3) +2.25(4)
Class A Shares--Standardized 30-day Yield 5.36%
Class B Shares--Standardized 30-day Yield 5.08%
<FN>
*Investment results shown for the 3-month and since inception
periods are before the deduction of any sales charges.
**Commencement of Operations.
(1)Percent change includes reinvestment of $0.330 per share ordinary income dividends.
(2)Percent change includes reinvestment of $0.129 per share ordinary income dividends.
(3)Percent change includes reinvestment of $0.298 per share ordinary income dividends.
(4)Percent change includes reinvestment of $0.118 per share ordinary income dividends.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
Colorado--89.8%
AAA Aaa $ 1,000 Adams County, Colorado, PCR, Refunding (Public Service Company, Colorado
Project), Series A, 5.875% due 4/01/2014 (b) $ 990
AAA Aaa 500 Arvada, Colorado, Sales and Use Tax Revenue Refunding and Improvement Bonds,
6.25% due 12/01/2017 (d) 511
AAA Aaa 1,000 Auraria, Colorado, Higher Education Center Revenue Bonds (Student Fee),
Series B, 6.50% due 11/01/2016 (c) 1,041
BBB+ Baa1 1,500 Boulder County, Colorado, Hospital Revenue Refunding Bonds (Longmont United
Hospital Project), 5.875% due 12/01/2020 1,334
Colorado Health Facilities Authority Revenue Bonds:
NR A 500 (Craig Hospital Project), 5.50% due 12/01/2021 429
AAA Aaa 1,750 Refunding (Boulder Community Hospital), Series B, 5.875% due 10/01/2023 (b) 1,701
BBB+ Baa1 500 (Swedish Medical Center Project), Series A, 6.80% due l/01/2023 495
NR VMIG1 800 Colorado Housing Financing Authority, M/F Revenue Bonds (Hamden & Estes), VRDN,
2.75% due 12/01/2005 (a) 800
AAA Aaa 1,000 Colorado Regional Transportation District, Sales Tax Revenue Refunding and
Improvement Bonds, 6.25% due 11/01/2012 (d) 1,030
AA Aa 2,000 Colorado Springs, Colorado, Utilities Revenue Refunding Bonds, Series A, 6.125%
due 11/15/2020 1,996
AAA Aaa 1,000 Colorado State Colleges Board of Trustees, Auxiliary Facilities System Revenue
Bonds, Refunding (Enterprise-Mesa State College), Series B, 5.70% due 5/15/2014 (b) 975
NR A 1,000 Colorado State Student Obligation Board Authority, Student Loan Notes, Senior
Sub-Series 1-B, 5.70% due 12/01/2006 1,002
AA Aa 1,000 Colorado Water Resource Power Development Authority, Clean Water Revenue Bonds,
Series A, 6.30% due 9/01/2014 1,019
Denver, Colorado, City and County, Airport Revenue Bonds, Series D, AMT:
BB Baa 500 7.75% due 11/15/2013 514
BB Baa 620 7% due 11/15/2025 578
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Colorado 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)
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
Colorado (concluded)
Denver, Colorado, City and County, School District Number 1, Refunding
Bonds, Series A:
A+ A $ 1,000 6.50% due 6/01/2010 $ 1,056
A+ A 2,000 6.50% due 12/01/2010 2,118
A Baa1 1,000 El Paso County, Colorado, School District Number 020, Refunding Bonds, UT,
Series A, 6.15% due 12/15/2008 1,009
AAA Aaa 1,500 La Plata County, Colorado, School District Number 9, Refunding Bonds (R Durango),
6.60% due 11/01/2017 (d) 1,578
AAA MIG1++ 400 Northglenn, Colorado, IDR, Refunding (Castle Gardens Retirement), VRDN, 2.45% due
l/01/2009 (a) 400
A+ Aa 500 Platte River Power Authority, Colorado, Power Revenue Refunding Bonds, Series BB,
6.125% due 6/01/2009 514
BBB NR 500 Prowers County, Colorado, Sales and Use Tax Revenue Refunding Bonds, 5.50% due
7/15/2011 458
AAA Aaa 1,000 Thorton, Colorado, Sales and Use Tax Revenue Bonds, Series A, 6.25% due
9/01/2012 (d) 1,031
Puerto Rico--5.8%
A Baa1 1,000 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway Revenue
Refunding Bonds, Series V, 5.75% due 7/01/2018 934
BBB- NR 600 Puerto Rico, Industrial, Tourist, Educational, Medical and Environmental Control
Facilities Financing Authority, Higher Education Revenue Bonds (PolyTechnic
University of Puerto Rico Project), Series A, 5.50% due 8/01/2024 526
Total Investments (Cost--$24,778)--95.6% 24,039
Other Assets Less Liabilities--4.4% 1,118
-------
Net Assets--100.0% $25,157
=======
<PAGE>
(a)The interest rate is subject to change periodically based upon the prevailing market rate.
The interest rates shown are those in effect at July 31, 1994.
(b)MBIA Insured.
(c)AMBAC Insured.
(d)FGIC Insured.
++Highest short-term rating by Moody's Investors Service, Inc.
NR--Not Rated.
Ratings shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$24,777,884) (Note 1a) $24,038,507
Cash 696,703
Receivables:
Securities sold $ 1,101,995
Interest 292,250
Investment adviser (Note 2) 134,420
Beneficial interest sold 31,002 1,559,667
------------
Deferred organization expenses (Note 1e) 32,493
Prepaid expenses and other assets (Note 1e) 41,210
------------
Total assets 26,368,580
============
Liabilities: Payables:
Securities purchased 1,000,000
Beneficial interest redeemed 116,905
Dividends to shareholders (Note 1f) 21,218
Distributor (Note 2) 6,153 1,144,276
------------
Accrued expenses and other liabilities 67,757
------------
Total liabilities 1,212,033
------------
Net Assets: Net assets $ 25,156,547
============
<PAGE>
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 113,310
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 154,766
Paid-in capital in excess of par 26,429,981
Accumulated realized capital losses--net (802,133)
Unrealized depreciation on investments--net (739,377)
------------
Net assets $ 25,156,547
============
Net Asset Class A--Based on net assets of $10,634,060 and 1,133,095 shares of
Value: beneficial interest outstanding $ 9.38
============
Class B--Based on net assets of $14,522,487 and 1,547,664 shares of
beneficial interest outstanding $ 9.38
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Period
November 26, 1993++
to July 31, 1994
<S> <S> <C>
Investment Interest and amortization of premium and discount earned $ 759,864
Income
(Note 1d):
Expenses: Investment advisory fees (Note 2) 78,643
Printing and shareholder reports 59,225
Distribution fees--Class B (Note 2) 43,694
Accounting services (Note 2) 18,821
Registration fees (Note 1e) 18,380
Professional fees 11,864
Listing fees 9,618
Custodian fees 5,440
Amortization of organization expenses (Note 1e) 5,106
Transfer agent fees--Class B (Note 2) 4,889
Transfer agent fees--Class A (Note 2) 2,479
Pricing fees 2,415
Trustees' fees and expenses 257
Other 722
<PAGE> ------------
Total expenses before reimbursement 261,553
Reimbursement of expenses (Note 2) (213,063)
------------
Total expenses after reimbursement 48,490
------------
Investment income--net 711,374
------------
Realized & Realized loss on investments--net (802,133)
Unrealized Unrealized depreciation on investments--net (739,377)
Losses on ------------
Investments Net Decrease in Net Assets Resulting from Operations $ (830,136)
- --Net (Notes ============
1d & 3):
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Period
November 26, 1993++
Increase (Decrease) in Net Assets: to July 31, 1994
<S> <S> <C>
Operations: Investment income--net $ 711,374
Realized loss on investments--net (802,133)
Unrealized depreciation on investments--net (739,377)
------------
Net decrease in net assets resulting from operations (830,136)
============
Dividends to Investment income--net:
Shareholders Class A (297,744)
(Note 1f): Class B (413,630)
------------
Net decrease in net assets resulting from dividends to shareholders (711,374)
------------
Beneficial Net increase in net assets derived from capital share transactions 26,598,057
Interest ------------
Transactions
(Note 4):
<PAGE>
Net Assets: Total increase in net assets 25,056,547
Beginning of period 100,000
------------
End of period $ 25,156,547
============
<FN>
++Commencement of Operations.
See Notes to Financial Statements
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
Class A Class B
For the For the
Period Period
November 26, November 26,
The following per share data and ratios have been derived 1993++ 1993++
from information provided in the financial statements. to July 31, to July 31,
Increase (Decrease) in Net Asset Value: 1994 1994
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00
Operating ------------ ------------
Performance: Investment income--net .34 .31
Realized and unrealized loss on investments--net (.62) (.62)
------------ ------------
Total from investment operations (.28) (.31)
------------ ------------
Less dividends from investment income--net (.34) (.31)
------------ ------------
Net asset value, end of period $ 9.38 $ 9.38
============ ============
Total Investment Based on net asset value per share (2.83%)+++ (3.16%)+++
Return:** ============ ============
Ratios to Expenses, excluding distribution fees and net of reimbursement .03%* .04%*
Average ============ ============
Net Assets: Expenses, net of reimbursement .03%* .54%*
============ ============
Expenses 1.52%* 2.03%*
============ ============
Investment income--net 5.36%* 4.73%*
============ ============
<PAGE>
Supplemental Net assets, end of period (in thousands) $ 10,634 $ 14,522
Data: ============ ============
Portfolio turnover 82.71% 82.71%
============ ============
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Colorado 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. Prior to
commencement of operations on November 26, 1993, the Fund had no
operations other than those relating to organizational matters and
the issuance of 5,000 Class A Shares of beneficial interest and
5,000 Class B Shares of beneficial interest of the Fund to Fund
Asset Management, L.P. ("FAM") for $100,000. The Fund offers both
Class A and Class B Shares. Class A Shares are sold with a front-end
sales charge. Class B Shares may be subject to a contingent deferred
sales charge. Both classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and
conditions, except that Class B Shares bear certain expenses related
to the distribution of such shares and have exclusive voting rights
with respect to matters relating to such distribution expenditures.
The following is a summary of significant accounting policies
followed by the Fund.
<PAGE>
(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. Options, which
are traded on exchanges, are valued at their last sale price as of
the close of such exchanges or, lacking any sales, at the last
available bid price. Short-term investments with a remaining
maturity of sixty days or less are valued on an amortized cost
basis, 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) Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing 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
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
(e) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. Prepaid registration fees are
charged to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment income
are declared daily and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM.
Effective January 1, 1994, the investment advisory business of FAM
was reorganized from a corporation to a limited partnership. Both
prior to and after the reorganization, ultimate control of FAM was
vested with Merrill Lynch & Co., Inc. ("ML & Co."). The general
partner of FAM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of ML&Co. The limited partners are ML & Co.
and Fund Asset Management, Inc. ("FAMI"), which is also an indirect
wholly-owned subsidiary of ML & Co. The Fund has also entered into
Distribution Agreements and a Distribution Plan with Merrill Lynch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Investment Management, Inc. ("MLIM"),
which is also an indirect wholly-owned subsidiary of ML&Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion. The Investment Advisory Agreement obligates
FAM to reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets, and 1.5% of the average daily
net assets in excess thereof. FAM's obligation to reimburse the Fund
is limited to the amount of the management fee. No fee payment will
be made during any fiscal year which will cause such expenses to
exceed expense limitations at the time of such payment. For the
period November 26, 1993 to July 31, 1994, FAM earned fees of
$78,643, all of which was voluntarily waived. FAM also voluntarily
reimbursed the Fund additional expenses of $134,420.
<PAGE>
The Fund has adopted a Plan of Distribution (the "Plan") in
accordance with Rule 12b-1 under the Investment Company Act of 1940,
pursuant to which the Fund pays the Distributor an ongoing account
maintenance fee and distribution fee from the Fund for the sale of
Class B Shares, which are accrued daily and paid monthly at the
annual rates of 0.25% and 0.25%, respectively, of the average daily
net assets of the Class B Shares of the Fund. Pursuant to a sub-
agreement with the Distributor, Merrill Lynch, Pierce, Fenner &
Smith, Inc. ("MLPF&S"), an affiliate of ML & Co., also provides
account maintenance and distribution services to the Fund. The
ongoing distribution and account maintenance fees compensate the
Distributor and MLPF&S for providing distribution and account
maintenance services to Class B shareholders. As authorized by the
Plan, the Distributor has entered into an agreement with MLPF&S, an
affiliate of ML & Co., which provides for the compensation of MLPF&S
for providing distribution-related services to the Fund. For the
period November 26, 1993 to July 31, 1994, MLFD earned underwriting
discounts of $2,080, and MLPF&S earned dealer concessions of
$118,709 on sales of the Fund's Class A Shares.
MLPF&S also received contingent deferred sales charges of $16,384
relating to Class B Share transactions during the period.
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, FAMI, PSI, MLIM, MLFD, FDS, MLPF&S, and/or ML &
Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period ended July 31, 1994 were $38,260,569 and $13,764,236,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1994 were
as follows:
Realized
Gains Unrealized
(Losses) Losses
Long-term investments $ (900,983) $ (739,377)
Short-term investments 1,589 --
Financial futures contracts 97,261 --
----------- -----------
Total $ (802,133) $ (739,377)
=========== ===========
<PAGE>
As of July 31, 1994, net unrealized depreciation for Federal income
tax purposes aggregated $739,377, of which $91,802 related to
appreciated securities and $831,179 related to depreciated
securities. The aggregate cost of investments at July 31, 1994 for
Federal income tax purposes was $24,777,884.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $26,598,057 for the period ended July 31, 1994.
Transactions in shares of beneficial interest for Class A and Class
B shares were as follows:
Class A Shares for the Period
November 26, 1993++ to Dollar
July 31, 1994 Shares Amount
Shares sold 1,233,303 $12,258,088
Shares issued to shareholders
in reinvestment of dividends
and distributions 11,404 108,470
----------- -----------
Total issued 1,244,707 12,366,558
Shares redeemed (116,612) (1,140,447)
----------- -----------
Net increase 1,128,095 $11,226,111
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund
issued 5,000 shares to FAM for $50,000.
Class B Shares for the Period
November 26, 1993++ to Dollar
July 31, 1994 Shares Amount
Shares sold 1,665,981 $16,563,289
Shares issued to shareholders
in reinvestment of dividends
and distributions 14,570 139,229
----------- -----------
Total issued 1,680,551 16,702,518
Shares redeemed (137,887) (1,330,572)
----------- -----------
Net increase 1,542,664 $15,371,946
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund
issued 5,000 shares to FAM for $50,000.
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Colorado 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
Colorado Municipal Bond Fund of Merrill Lynch Multi-State Municipal
Series Trust as of July 31, 1994, the related statements of
operations and changes in net assets and financial highlights for
the period November 26, 1993 (commencement of operations) to July
31, 1994. 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 audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at July 31,
1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides
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 Colorado Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1994, the results of its
operations, the changes in its net assets, and the financial
highlights for the period November 26, 1993 to July 31, 1994 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 29, 1994
</AUDIT-REPORT>
<PAGE>
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by
Merrill Lynch Colorado Municipal Bond Fund during its taxable year
ended July 31, 1994 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, there were no capital gains distributed by the Fund
during the period.
Please retain this information for your records.
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Kenneth S. Axelson, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
National Westminster Bank NJ
Exchange Place Centre
10 Exchange Place
Jersey City, New Jersey 07302
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
APPENDIX: GRAPHIC AND IMAGE MATERIAL.
Item 1:
Total Return Based on a $10,000 Investment--Class A Shares*
A line graph depicting the growth of an investment in the Fund's Class A
Shares compared to growth of an investment in the Lehman Brothers Municipal
Bond Index. Beginning and ending values are:
<PAGE>
11/26/93** 7/94
ML Colorado Municipal Bond Fund++ $ 9,600 $ 9,328
Lehman Brothers
Municipal Bond Index++++ $10,000 $ 9,936
[FN]
* Assuming maximum sales charge, transaction costs and other operating
expenses including advisory fees.
** Commencement of Operations.
++ ML Colorado Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on the behalf of the State
of Colorado, 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.
Item 2:
Total Return Based on a $10,000 Investment--Class B Shares*
A line graph depicting the growth of an investment in the Fund's Class B
Shares compared to growth of an investment in the Lehman Brothers Municipal
Bond Index. Beginning and ending values are:
11/26/93** 7/94
ML Colorado Municipal Bond Fund++ $10,000 $ 9,309
Lehman Brothers
Municipal Bond Index $10,000 $ 9,936
[FN]
* Assuming maximum sales charge, transaction costs and other operating
expenses including advisory fees.
** Commencement of Operations.
++ ML Colorado Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on the behalf of the State
of Colorado, 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.
