MERRILL
LYNCH
COLORADO
MUNICIPAL
BOND FUND
Semi-Annual Report January 31, 1994
This report is not authorized for use as an offer of sale or a solici-
tation of an offer to buy shares of the Fund unless accompanied or pre-
ceded by the Fund's current prospectus. Past performance results shown
in this report should not be considered a representation of future per-
formance. 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
TO OUR SHAREHOLDERS
We are pleased to provide you with this first semi-annual report for
Merrill Lynch Colorado Municipal Bond Fund. In this and future share-
holder reports, we will highlight the Fund's investment performance,
describe recent investment activities, and examine some of the important
market developments that helped shape our investment strategy during the
period under review.
Merrill Lynch Colorado Municipal Bond Fund seeks to provide shareholders
with as high a level of income exempt from Federal and Colorado income
taxes as is consistent with prudent investment management. The Fund
invests primarily in a non-diversified portfolio of long-term, invest-
ment-grade obligations, the interest on which is exempt from Federal and
Colorado income taxes.
<PAGE>
The Environment
As 1993 drew to a close, the US economy showed signs of strong improvement.
The initial estimate for gross domestic product (GDP) growth in the final
quarter of 1993 was +5.9% in real terms, the strongest quarterly performance
since the fourth quarter of 1987. GDP growth was led by interest rate-
sensitive sectors, such as housing, durable goods orders and business
investment in capital equipment. Consumer confidence also improved after
remaining lackluster throughout most of 1993. While the exceptionally
robust rate of growth may not be sustainable in the first quarter of
1994 (especially considering the harsh winter weather experienced by
virtually half of the country in January), this strong showing suggests
that the US economy may at last be gaining momentum. This was supported
by the December increase in the Index of Leading Economic Indicators, the
fifth monthly rise in this indicator of future economic activity.
At the same time, the rate of inflation remains in check. Nevertheless,
concerns arose late in 1993 that the rate of business activity might in-
crease inflationary pressures, which were reflected in an upturn of longer-
term interest rates. In January, Federal Reserve Board Chairman Alan
Greenspan indicated in Congressional testimony that continued strong
expansion of economic activity would lead the central bank to tighten
monetary policy in an effort to contain inflation. On February 4, 1994,
the central bank broke with tradition and publicly announced an increase
in short-term interest rates. In the weeks ahead, investors will continue
to gauge the pace of the economic expansion and watch for signs of an
overheating economy that could prompt successive Federal Reserve Board
actions to raise short-term interest rates.
The Municipal Market
Yields on tax-exempt securities generally declined over the three months
ended January 31, 1994. Long-term revenue bond yields, as measured by the
Bond Buyer Revenue Bond Index, declined an additional six basis points
(0.06%) to end the quarter at 5.50%. US Treasury bond yields, however,
rose approximately 25 basis points to end the period at approximately
6.20%. This outperformance by municipal securities is likely to be the
dominant theme for much of 1994.
During the January quarter, taxable yields remained volatile in reaction
to the inherent conflicts between the extremely strong economic recovery
seen during the last quarter of 1993 and continued low inflationary
pressures. Tax-exempt bond yields, however, reflected very positive
technical factors. During the 12 months ended January 31, 1994,
municipalities issued more than $288 billion in securities, an
increase of more than 21% versus one year ago. As we have discussed
in earlier reports to shareholders, much of this increase has been
the result of municipalities refinancing existing higher-couponed
debt. At current yield levels, few of these issues remain to be
refunded. This has led to estimates of municipal bond issuance
declining to approximately $175 billion for all of 1994. More
than $290 billion in long-term tax-exempt securities was issued
in 1993.
<PAGE>
In addition to this dramatic decline in issuance, investor demand is
expected to increase in the coming year. Greater demand should be gen-
erated by a number of factors, with the recent increases in marginal
Federal income tax rates the most important. Also, bond calls and early
redemptions are expected to increase significantly in the coming quarters
and last into early 1995, at least. The combination of declining new-issue
volume and increasing numbers of bonds redeemed prior to their stated
maturities will eventually lead to a net decline in the number of bonds
outstanding. In such a scenario, investor demand rises as bondholders are
forced to continually purchase new municipal bonds to replace their
previous holdings.
The outlook for the municipal bond market is very favorable. While the
historic declines in yields seen over the last year are unlikely to be
repeated, the strong technical framework within the tax-exempt market
would support further modest declines in tax-exempt yields. At the very
least, should interest rates rise in response to continued strong econo-
mic growth and a resurgence in inflationary pressures, we believe that
municipal bond price deterioration will be limited in comparison to tax-
able investment alternatives.
Portfolio Strategy
For the quarter ended January 31, 1994, net assets for Merrill Lynch
Colorado Municipal Bond Fund totaled $19 million. This represents a growth
rate of 66% since the Fund's inception on November 26, 1993. Demand for
municipal bonds remains high as investors anticipate dwindling volume.
The Colorado sector of the tax-exempt bond market outperformed the general
market as supply remained low. As a result, the Fund is fully invested
in long-term Colorado tax-exempt securities. Looking ahead, our port-
folio strategy will continue to focus on investing new assets in high-
quality securities that will yield an attractive level of income while
offering superior price appreciation potential.
We appreciate your ongoing interest in Merrill Lynch Colorado Municipal
Bond Fund, and we look forward to serving your investment needs and
objectives in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
March 16, 1994
PERFORMANCE DATA
<PAGE>
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.
<TABLE>
Recent Performance Results*
<CAPTION>
Since
Inception
1/31/94 11/26/93** % Change
<S> <C> <C> <C>
Class A Shares $10.28 $10.00 +2.80%
Class B Shares 10.27 10.00 +2.70
Class A Shares--Total Return +3.64(1)
Class B Shares--Total Return +3.46(2)
Class A Shares--Standardized 30-day Yield 4.84%
Class B Shares--Standardized 30-day Yield 4.40%
<FN>
*Investment results shown for the since inception period
is before the deduction of any sales charges.
**Commencement of Operations.
(1)Percent change includes reinvestment of $0.073 per
share ordinary income dividends.
(2)Percent change includes reinvestment of $0.065 per
share ordinary income dividends.
</TABLE>
Aggregate Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Inception (11/26/93)
through 12/31/93 +1.82% -2.25%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return Without % Return With
Class B Shares* CDSC CDSC**
Inception (11/26/93)
through 12/31/93 +1.77% -2.23%
[FN]
*Maximum contingent deferred sales charge is 4% and
is reduced to 0% after 4 years.
**Assuming payment of applicable contingent deferred
sales charge.
PORTFOLIO ABBREVIATIONS
<PAGE>
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 some of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<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--95.3%
A NR $ 750 Adams County, Colorado, GO, Refunding (School District Number 001), UT, 5.25% due
6/01/2017 $ 753
AAA Aaa 500 Adams County, Colorado, PCR, Refunding (Public Service Company, Colorado Project),
Series A, 5.875% due 4/01/2014 (b) 536
SP1+ NR 500 Arapahoe County, Colorado, Capital Improvement Trust Fund, Highway Revenue Bonds
(E-470 Project), Series L, VRDN, 2.75% due 8/31/2026 (a)(f) 500
AAA Aaa 500 Arvada, Colorado, Sales and Use Tax Revenue Refunding and Improvement Bonds, 6.25%
due 12/01/2017 (d) 548
BBB+ Baa1 1,500 Boulder County, Colorado, Hospital Revenue Refunding Bonds (Longmont United Hospital
Project), 5.875% due 12/01/2020 1,515
Colorado Health Facilities Authority Revenue Bonds:
NR A 500 (Craig Hospital Project), 5.50% due 12/01/2021 504
A A 500 (Swedish Medical Center Project), Series A, 6.80% due 1/01/2023 541
Colorado Housing Financing Authority, M/F Revenue Bonds, VRDN (a):
A-1 A1 600 (Central Park Coven & Greenwood), 2.20% due 5/01/1997 600
NR VMIG1 800 (Hampden & Estes), 2.20% due 12/01/2005 800
A+ A1 750 Colorado Springs, Colorado, Revenue Bonds (Colorado College Project), 5.125% due
6/01/2016 754
AA Aa 750 Colorado Springs, Colorado, Utilities Revenue Refunding and Improvement Bonds, Series A,
5.125% due 11/15/2018 745
NR A 1,000 Colorado State Student Obligation Board Authority, Student Loan Notes, Senior
Sub-Series 1-B, 5.70% due 12/01/2006 1,025
<PAGE>
Denver, Colorado, City and County, Airport Revenue Bonds, AMT:
BBB Baa1 500 Series C, 6.75% due 11/15/2022 529
BBB Baa1 500 Series D, 7.75% due 11/15/2013 603
BBB Baa1 620 Series D, 7% due 11/15/2025 661
NR Aa 1,000 Denver, Colorado, City and County Revenue Bonds (Sisters of Charity Leavenworth),
5% due 12/01/2023 960
</TABLE>
<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)
AAA Aaa $ 800 Denver, Colorado, Metropolitan Major League Baseball Stadium District, Revenue
Refunding Bonds (Sales Tax--Baseball Stadium Project), 4.70% due 10/01/2006 (d) $ 803
A Baa1 1,000 El Paso County, Colorado, School District Number 020, Refunding Bonds, UT, Series A,
6.15% due 12/15/2008 1,085
AAA Aaa 500 Louisville, Colorado, Sales Tax Revenue Refunding Bonds, 5.20% due 12/01/2013 (e) 509
AAA Aaa 500 Metropolitan Wastewater Reclamation District, Colorado, Gross Revenue Refunding
Bonds, Series B, 4.75% due 4/01/2012 (b) 489
AAA Aaa 500 Municipal Sub-District, Northern Colorado, Water Conservancy District, Revenue
Refunding Bonds, Series E, 5% due 12/01/2017 (c) 500
AAA MIG1++ 700 Northglenn, Colorado, IDR, Refunding (Castle Gardens Retirement), VRDN, 2.20% due
1/01/2009 (a) 700
A-1 NR 900 Pitkin County, Colorado, IDR, Refunding (Aspen Skiing Co., Project), VRDN, Series A,
2.30% due 4/01/2016 (a) 900
A+ Aa 500 Platte River Power Authority, Colorado, Power Revenue Refunding Bonds, Series BB,
6.125% due 6/01/2009 550
AAA Aaa 500 Poudre Valley, Colorado, Hospital District Revenue Refunding Bonds, 5% due
12/01/2010 (c) 501
BBB NR 500 Prowers County, Colorado, Sales and Use Tax Revenue Refunding Bonds, 5.50% due
7/15/2011 501
Puerto Rico--11.5%
A1+ VMIG1 100 Puerto Rico Commonwealth, Government Development Bank Refunding Bonds, VRDN,
1.75% due 12/01/2015 (a) 100
<PAGE>
A Baa1 1,000 Puerto Rico Commonwealth, Highway & Transportation Authority, Highway Revenue
Refunding Bonds, Series X, 5.50% due 7/01/2019 1,005
A Baa1 500 Puerto Rico Commonwealth Refunding Bonds, UT, 5.25% due 7/01/2018 492
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 589
Total Investments (Cost--$19,941)--106.8% 20,298
Variation Margin on Futures Contracts--0.0%* 6
Liabilities in Excess of Other Assets--(6.8%) (1,299)
-------
Net Assets--100.0% $19,005
=======
<FN>
(a) The interest rate is subject to change periodically based
upon the prevailing market rate. The interest rate shown
is the rate in effect at January 31, 1994.
(b) MBIA Insured.
(c) AMBAC Insured.
(d) FGIC Insured.
(e) FSA Insured.
(f) Escrowed in US Treasuries to February 28, 1994.
* Futures contracts sold as of January 31, 1994 were as follows:
Number of Expiration Value
Contracts Issue Date (Note 1a)
20 US Treasury Bonds March 1994 $(2,343,125)
-----------
Total Futures Contracts
(Total Contract Price--$2,349,375) $(2,343,125)
===========
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of January 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$19,941,117) (Note 1a) $20,298,058
Cash 906,472
Receivables:
Securities sold $ 800,633
Beneficial interest sold 650,201
Interest 162,203
Investment adviser (Note 2) 37,118
Variation margin 5,625 1,655,780
-----------
<PAGE>
Deferred organization expenses (Note 1e) 37,600
-----------
Total assets 22,897,910
-----------
Liabilities: Payables:
Securities purchased 3,839,446
Dividends to shareholders (Note 1f) 14,399
Beneficial interest redeemed 7,279
Distributor (Note 2) 4,482 3,865,606
-----------
Accrued expenses and other liabilities 27,536
-----------
Total liabilities 3,893,142
-----------
Net Assets: Net assets $19,004,768
===========
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $ 61,525
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 123,447
Paid-in capital in excess of par 18,410,753
Undistributed realized capital gains--net 45,852
Unrealized appreciation on investments--net 363,191
-----------
Net assets $19,004,768
===========
Net Asset Value: Class A--Based on net assets of $6,321,828 and 615,249 shares of
beneficial interest outstanding $ 10.28
===========
Class B--Based on net assets of $12,682,940 and 1,234,467 shares of
beneficial interest outstanding $ 10.27
===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Period
November 26, 1993++
to January 31, 1994
<S> <S> <C>
Investment Income Interest and amortization of premium and discount earned $ 118,805
(Note 1d):
<PAGE>
Expenses: Printing and shareholder reports 15,044
Investment advisory fees (Note 2) 14,499
Distribution fees--Class B (Note 2) 9,547
Registration fees (Note 1e) 6,544
Accounting services (Note 2) 5,638
Professional fees 4,053
Transfer agent fees--Class B (Note 2) 1,606
Amortization of organization expenses (Note 1e) 1,381
Custodian fees 1,128
Pricing fees 631
Transfer agent fees--Class A (Note 2) 540
Trustees' fees and expenses 189
Other 364
----------
Total expenses before reimbursement 61,164
Reimbursement of expenses (Note 2) (51,617)
----------
Total expenses after reimbursement 9,547
----------
Investment income--net 109,258
----------
Realized & Realized gain on investments--net 45,852
Unrealized Gain on Unrealized appreciation on investments--net 363,191
Investments--Net ----------
(Notes 1d & 3): Net Increase in Net Assets Resulting from Operations $ 518,301
==========
</TABLE>
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
For the Period
November 26, 1993++
Increase (Decrease) in Net Assets: to January 31, 1994
<S> <S> <C>
Operations: Investment income--net $ 109,258
Realized gain on investments--net 45,852
Unrealized appreciation on investments--net 363,191
-----------
Net increase in net assets resulting from operations 518,301
-----------
Dividends to Investment income--net:
Shareholders Class A (33,147)
(Note 1f): Class B (76,111)
-----------
Net decrease in net assets resulting from dividends to shareholders (109,258)
-----------
Beneficial Interest Net increase in net assets derived from beneficial interest transactions 18,495,725
Transactions -----------
(Note 4):
Net Assets: Total increase in net assets 18,904,768
Beginning of period 100,000
-----------
End of period $19,004,768
===========
<PAGE>
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. November 26, 1993++ to
January 31, 1994
Increase (Decrease) in Net Asset Value: Class A Class B
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00
Operating -------- --------
Performance: Investment income--net .08 .07
Realized and unrealized gain on investments--net .28 .27
-------- --------
Total from investment operations .36 .34
-------- --------
Less dividends from investment income--net (.08) (.07)
-------- --------
Net asset value, end of period $ 10.28 $ 10.27
======== ========
Total Investment Based on net asset value per share 3.64%+++ 3.46%+++
Return:** ======== ========
Ratios to Expenses, excluding distribution fees and net of reimbursement .00% .00%
Average ======== ========
Net Assets: Expenses, net of reimbursement .00% .50%*
======== ========
Expenses 1.93%* 2.47%*
======== ========
Investment income--net 4.56%* 3.99%*
======== ========
Supplemental Net assets, end of period (in thousands) $ 6,322 $ 12,683
Data: ======== ========
Portfolio turnover 39.95% 39.95%
======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
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.
(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. 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.
<PAGE>
(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 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. Original issue discounts and market premiums
are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost
basis.
(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.
NOTES TO FINANCIAL STATEMENTS (concluded)
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., an
indirect wholly-owned subsidiary of ML & Co. The limited partners
are ML & Co. and Merrill Lynch Investment Management, Inc.
("MLIM"), 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 MLIM.
<PAGE>
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 January 31, 1994,
FAM earned fees of $14,499, all of which were voluntarily waived.
FAM also reimbursed the Fund additional expenses of $37,118.
Pursuant to a distribution plan (the "Distribution Plan") adopted
by the Fund in accordance with Rule 12b-1 under the Investment
Company Act of 1940, the Fund pays the Distributor an ongoing
account maintenance fee and distribution fee relating to 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 also provides
account maintenance and distribution services to the Fund. As
authorized by the Plan, the Distributor has entered into an
agreement with Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), an affiliate of FAM, which provides for the
compensation of MLPF&S for providing distribution-related
services to the Fund. For the period November 26, 1993 to January
31, 1994, MLFD earned underwriting discounts of $1,439, and
MLPF&S earned dealer concessions of $89,631 on sales of the
Fund's Class A Shares.
MLPF&S also received contingent deferred sales charges of $1,210
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, MLIM, MLFD, FDS, MLPF&S, and/or ML & Co.
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the period ended January 31, 1994 were
$20,182,844 and $3,882,674, respectively.
Net realized and unrealized gains as of January 31, 1994 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 43,512 $ 356,910
Short-term investments 2,340 31
Financial futures contracts -- 6,250
---------- ----------
Total $ 45,852 $ 363,191
========== ==========
As of January 31, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $356,941, all of which related to
appreciated securities. The aggregate cost of investments at
January 31, 1994 for Federal income tax purposes was $19,941,117.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $18,495,725 for the period ended January 31,
1994.
Transactions in shares of beneficial interest for Class A and
Class B Shares were as follows:
Class A Shares for the Period Dollar
Nov. 26, 1993++ to Jan. 31, 1994 Shares Amount
Shares sold 652,339 $6,587,365
Shares issued to shareholders
in reinvestment of dividends 821 8,343
------- ----------
Total issued 653,160 6,595,708
Shares redeemed (42,911) (436,263)
------- ----------
Net increase 610,249 $6,159,445
======= ==========
[FN]
++ Prior to November 26, 1993 (commencement of operations), the
Fund issued 5,000 shares to FAM for $50,000.
<PAGE>
Class B Shares for the Period Dollar
Nov. 26, 1993++ to Jan. 31, 1994 Shares Amount
Shares sold 1,283,373 $12,880,442
Shares issued to shareholders
in reinvestment of dividends 2,074 21,071
--------- -----------
Total issued 1,285,447 12,901,513
Shares redeemed (55,980) (565,233)
--------- -----------
Net increase 1,229,467 $12,336,280
========= ===========
[FN]
++ Prior to November 26, 1993 (commencement of operations), the
Fund issued 5,000 shares to FAM for $50,000.
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
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
