MERRILL LYNCH
COLORADO
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1996
Officers and Trustees
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Hugh T. Hurley III, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
<PAGE>
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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 Colorado
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
TO OUR SHAREHOLDERS
<PAGE>
The Municipal Market Environment
Municipal bond yields rose dramatically over the six-month period
ended July 31, 1996. Investors became increasingly alarmed that
earlier forecasts of continued moderate growth were overly
optimistic. As indications of stronger growth were released,
particularly the strong employment reports released beginning in
March, fears of associated inflationary pressures mounted and yields
rose in response. By May and June, long-term municipal bond yields
rose into the 6.25%--6.30% range.
However, in early July the combination of the Federal Reserve Board
suggesting that growth was expected to slow later in 1996 and a
temporary stock market correction allowed municipal bond yields to
fall as investors scrambled to purchase relatively scarce
securities. As measured by the Bond Buyer Revenue Bond Index, long-
term, A-rated uninsured tax-exempt bonds yielded 6.02% at July 31,
1996, an increase of over 30 basis points (0.30%) in the last six
months. Long-term US Treasury bond yields rose significantly higher
over the same period. By July 31, 1996, yields on US Treasury bonds
increased almost 100 basis points to end the six-month period at
6.97%.
The municipal bond market's recent outperformance as compared to its
taxable counterpart was largely the result of two principal factors.
First, much of the concern in the tax-exempt market regarding the
potential loss of the inherent tax-advantage of the municipal bonds
dissipated. For much of 1995, various tax proposals, such as the
flat-tax or national sales tax, were put forward either to reduce
the national debt or reform the current tax system. Most of these
proposals would have severely limited the tax advantages enjoyed by
the municipal bond market. However, in February 1996, the Kemp
Commission released its findings regarding various tax reform
proposals. While noting that numerous changes should be made, no
mention of curtailing or stopping municipal bonds' current favored
tax status was made.
The second major factor leading to the municipal bond market's
recent outperformance was the return of a more favorable technical
environment. The rate of increase in new bond issuance recently
slowed. Over the last 12 months, approximately $175 billion in long-
term municipal securities were issued, an increase of over 27% as
compared to the same period a year earlier. Much of this increase
was the result of issuers seeking to refinance their existing higher-
couponed debt as interest rates declined in 1995 and early 1996. As
interest rates rose, these financings became increasingly
economically impractical and issuance declined. Over the last six
months, less than $70 billion in long-term tax-exempt securities
were underwritten, an increase of 20% versus the comparable period a
year earlier. Only $43 billion in tax-exempt securities were issued
in the last three months, a total essentially unchanged from the
comparable quarter in 1995. In July 1996, less than $10 billion in
long-term municipal bonds were issued, representing the lowest
issuance for the month of July since 1990.
<PAGE>
At the same time investor demand remained consistently strong. With
nominal new-issue yields above 6%, retail investor interest was
steady. Additionally, investors received over $50 billion this June
and July in assets derived from coupon income, bond maturities, and
proceeds from early redemptions. Annual new bond issuance has
declined in recent years and is expected to remain below levels seen
in the early 1990s. Consequently, as the higher-coupon bonds issued
in the early-to-mid 1980s were redeemed at their first optional call
dates, the total number of outstanding tax-exempt bonds has
declined. This combination of a declining net supply and significant
amounts of assets helped maintain investor demand in recent months.
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance led to the yield
ratio between long-term taxable and tax-exempt securities falling
from in excess of 90% to approximately 85%. While still historically
very attractive, some institutional investors, particularly short-
term traders, began to view the tax-exempt bond market's recent
outperformance as an opportunity to sell a relatively expensive
asset. However, to the long-term investor, such a sale would
represent the loss of an attractively priced asset which may not be
easily replaced given the relative scarcity of municipal bonds under
present supply conditions.
Looking ahead, no clear consensus for the direction of interest
rates currently exists. Perhaps, the primary focus going forward
will be the extent to which the increase in interest rates seen thus
far in 1996 will negatively impact future economic growth. Should
growth slow in the interest rate-sensitive sectors of the economy,
like housing, auto, and consumer spending, as many economists assert
is likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of the US Treasury bond market.
Fiscal Year in Review
Over the first half of the Fund's fiscal year, interest rates
steadily declined and Merrill Lynch Colorado Municipal Bond Fund's
net asset value benefited in this environment. Early in 1996, the
economic picture changed from slow growth to an expanding economy.
This growing environment caused municipal bond yields to rise
dramatically over the second half of the fiscal year ended July 31,
1996. Because of the conservative investment strategy we employed
this year, Merrill Lynch Colorado Municipal Bond Fund was slightly
hindered in its total returns to shareholders for the fiscal year
ended July 31, 1996. However, the Fund provided attractive yields
for the 12 months ended July 31, 1996.
<PAGE>
Colorado municipal bonds continued to outperform compared to the
rest of the municipal bond market. This strong performance was
caused by continued demand and a lack of supply of new-issue
Colorado municipal bonds. The lack of supply was largely responsible
for the Fund remaining nearly fully invested even in these volatile
times. We continued to put a heavy emphasis on quality with 95% of
the Fund's portfolio holdings rated A or better by at least one of
the major rating agencies. We still believe that quality bonds will
be the most attractive investments over the long term. Looking
ahead, we will continue to monitor signs of economic growth and
await further supply of Colorado municipal bonds.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Colorado
Municipal Bond Fund, and we look forward to serving your investment
needs in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
September 6, 1996
<PAGE>
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. 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>
12 Month 3 Month
7/31/96 4/30/96 7/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $9.45 $9.42 $9.41 +0.43% +0.32%
Class B Shares* 9.45 9.42 9.41 +0.43 +0.32
Class C Shares* 9.46 9.42 9.41 +0.53 +0.42
Class D Shares* 9.45 9.41 9.40 +0.53 +0.43
Class A Shares--Total Return* +5.83(1) +1.65(2)
Class B Shares--Total Return* +5.29(3) +1.52(4)
Class C Shares--Total Return* +5.29(5) +1.60(6)
Class D Shares--Total Return* +5.84(7) +1.73(8)
Class A Shares--Standardized 30-day Yield 4.91%
Class B Shares--Standardized 30-day Yield 4.61%
Class C Shares--Standardized 30-day Yield 4.50%
Class D Shares--Standardized 30-day Yield 4.81%
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.499 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.122 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.450 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.110 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.441 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.108 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.489 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.120 per share ordinary
income dividends.
</TABLE>
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Class A Shares and Class B Shares
A line graph depicting the growth of an investment in the Fund's
Class A Shares and Class B Shares compared to growth of an
investment in the Lehman Brothers Municipal Bond Index. Beginning
and ending values are:
11/26/93** 7/96
ML Colorado Municipal Bond Fund++--
Class A Shares* $ 9,600 $10,484
ML Colorado Municipal Bond Fund++--
Class B Shares* $10,000 $10,584
Lehman Brothers Municipal Bond
Index++++ $10,000 $11,425
Total Return Based on a $10,000 Investment--Class C Shares and Class D Shares
<PAGE>
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an investment
in the Lehman Brothers Municipal Bond Index. Beginning and ending
values are:
10/21/94** 7/96
ML Colorado Municipal Bond Fund++--
Class C Shares* $10,000 $11,399
ML Colorado Municipal Bond Fund++--
Class D Shares* $ 9,600 $11,049
Lehman Brothers Municpal Bond
Index++++ $10,000 $11,840
[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 behalf of the State
of Colorado, its political subdivisions, agencies and instrumentalities
++++This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/96 +5.93% +1.70%
Inception (11/26/93)
through 6/30/96 +3.07 +1.46
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/96 +5.39% +1.39%
Inception (11/26/93)
through 6/30/96 +2.55 +1.84
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/96 +5.28% +4.28%
Inception (10/21/94)
through 6/30/96 +7.39 +7.39
[FN]
*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 6/30/96 +5.94% +1.70%
Inception (10/21/94)
through 6/30/96 +8.03 +5.46
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
11/26/93--12/31/93 $10.00 $10.14 -- $0.042 + 1.82%
1994 10.14 8.81 -- 0.512 - 8.19
1995 8.81 9.80 -- 0.522 +17.56
1/1/96--7/31/96 9.80 9.45 -- 0.275 - 0.63
------
Total $1.351
Cumulative total return as of 7/31/96: +9.21%**
</TABLE>
<PAGE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
11/26/93--12/31/93 $10.00 $10.14 -- $0.037 + 1.77%
1994 10.14 8.81 -- 0.465 - 8.66
1995 8.81 9.80 -- 0.474 +16.97
1/1/96--7/31/96 9.80 9.45 -- 0.248 - 0.92
------
Total $1.224
Cumulative total return as of 7/31/96: +7.73%***
</TABLE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.03 $ 8.81 -- $0.077 - 1.57%
1995 8.81 9.80 -- 0.462 +16.83
1/1/96--7/31/96 9.80 9.46 -- 0.242 - 0.87
------
Total $0.781
Cumulative total return as of 7/31/96: +13.99%***
</TABLE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.03 $ 8.81 -- $0.097 - 1.34%
1995 8.81 9.80 -- 0.512 +17.45
1/1/96--7/31/96 9.80 9.45 -- 0.269 - 0.68
------
Total $0.878
Cumulative total return as of 7/31/96: +15.08%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
***Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<PAGE>
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)
S/F Single-Family
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)
Colorado--97.8%
<S> <S> <C> <S> <C>
AAA Aaa $1,000 Adams and Arapahoe Counties, Colorado, Joint School District Number 28J
(Aurora), UT, Series C, 5.75% due 12/01/2006 (b) $ 1,048
AAA Aaa 1,000 Alamosa and Conejos Counties, Colorado, School District Number 11J, UT, 5%
due 12/01/2015 (b)(f) 923
AAA Aaa 1,000 Arapahoe County, Colorado, Capital Improvement Trust Fund, Highway Revenue
Bonds (Vehicle Registration), Series A, 6.15% due 8/31/2026 (b) 1,035
AA Aa 1,400 Arapahoe County, Colorado, School District Number 5 (Cherry Creek), UT,
Series B, 5.15% due 12/15/2015 1,315
AAA Aaa 1,175 Arvada, Colorado, Sales and Use Tax Revenue Refunding and Improvement Bonds,
6.25% due 12/01/2017 (d) 1,213
AAA Aaa 250 Auraria, Colorado, Higher Education Center Revenue Refunding Bonds (Student
Fee), 5.30% due 5/01/2021 (c) 231
AAA Aaa 500 Bayfield County, Colorado, Joint School District Number 10, Building Revenue
Bonds, UT, Series R, 6.65% due 6/01/2015 (b)(f) 542
Colorado Health Facilities Authority Revenue Bonds:
A1+ VMIG1++ 100 (Boulder Community Hospital Project), VRDN, Series C, 3.55% due
10/01/2014 (a)(b) 100
AAA Aaa 1,000 Refunding (Boulder Community Hospital), Series B, 5.875%
due 10/01/2023 (b)(h) 999
NR* Aaa 500 (Swedish Medical Center Project), Series A, 6.80% due 1/01/2003 (g) 561
<PAGE>
NR* Aa 870 Colorado Housing Financing Authority, Refunding Bonds, Series D-II, 8.125%
due 6/01/2025 986
NR* Aa 770 Colorado Housing Financing Authority, S/F Program, AMT, Senior Series F,
8.625% due 6/01/2025 (e) 880
A+ A1 800 Colorado Springs, Colorado, Revenue Bonds (Colorado College Project), 5.125%
due 6/01/2016 742
Colorado Springs, Colorado, Utilities Revenue Bonds, Series A:
AA Aa 1,125 6.10% due 11/15/2024 1,146
AA Aa 500 Refunding, 6.50% due 11/15/2015 531
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Colorado (concluded)
<S> <S> <C> <S> <C>
AA Aa $1,000 Colorado Water Resource Power Development Authority, Clean Water Revenue
Bonds, Series A, 6.30% due 9/01/2014 $ 1,042
BBB Baa 500 Denver, Colorado, City and County Airport Revenue Bonds, AMT, Series D,
7.75% due 11/15/2013 588
Denver, Colorado, City and County School District Number 1, Refunding Bonds,
A+ A 1,000 Series A: 6.50% due 6/01/2010 1,107
A+ A 2,000 6.50% due 12/01/2010 2,219
AAA Aaa 3,250 Douglas County, Colorado, School District Number 1 Revenue Bonds (Douglas
and Elbert Counties Improvement Project), Series A, 6.50% due 12/15/2016 (b) 3,488
NR* Aa1 1,000 El Paso County, Colorado, School District Number 12 Revenue Bonds
(Cheyenne Mountain), UT, 6.65% due 9/15/2014 (f) 1,087
AAA Aaa 1,000 El Paso County, Colorado, School District Number 49 Revenue Bonds (Falcon),
UT, 6.50% due 12/01/2015 (b) 1,088
AAA Aaa 1,000 Garfield, Pitkin and Eagle Counties, Colorado, School District Number 1
Revenue Bonds (Roaring Fork), UT, 6.60% due 6/15/2004 (b)(g) 1,120
<PAGE>
AAA Aaa 1,500 La Plata County, Colorado, School District Number 9 Revenue Bonds
(R Durango), UT, 6.60% due 11/01/2017 (d) 1,612
AAA Aaa 500 Left Hand Water District, Colorado, Water Revenue Bonds, 5.70%
due 11/15/2015 (b)(f) 501
NR* A 750 Pitkin County, Colorado, Refunding and Improvement Bonds, UT, 6.875%
due 12/01/2024 (f) 809
AAA Aaa 1,000 Poudre Valley, Colorado, District Hospital Revenue Bonds, 6.625%
due 12/01/2001 (c)(g) 1,099
AAA Aaa 1,000 Summit County, Colorado, School District Number 1 Revenue Bonds (Summit),
UT, 6.70% due 12/01/2004 (d)(g) 1,124
Total Investments (Cost--$28,032)--97.8% 29,136
Variation Margin on Financial Futures Contracts**--(0.1%) (21)
Other Assets Less Liabilities--2.3% 691
-------
Net Assets--100.0% $29,806
=======
<FN>
(a)The interest rate is subject to change periodically based
upon prevailing market rates. The interest rate
shown is the rate in effect at July 31, 1996.
(b)MBIA Insured.
(c)AMBAC Insured.
(d)FGIC Insured.
(e)FHA Insured.
(f)Bank Qualified.
(g)Prerefunded.
(h)All or 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.
**Financial futures contracts sold as of July 31, 1996 (in
thousands) were as follows:
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
30 US Treasury Bonds September 1996 $(3,274)
Total Financial Futures Contracts Sold
(Total Contract Price--$3,213) $(3,274)
========
<PAGE>
Ratings of issues 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, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$28,031,771) (Note 1a) $ 29,136,352
Cash 95,738
Receivables:
Securities sold $ 505,711
Interest 349,396
Beneficial interest sold 7,995 863,102
------------
Deferred organization expenses (Note 1e) 14,815
Prepaid registration fees and other assets (Note 1e) 26,250
------------
Total assets 30,136,257
------------
Liabilities: Payables:
Beneficial interest redeemed 186,242
Dividends to shareholders (Note 1f) 36,338
Variation margin (Note 1b) 20,625
Distributor (Note 2) 8,228
Investment adviser (Note 2) 2,524 253,957
------------
Accrued expenses 75,849
------------
Total liabilities 329,806
------------
Net Assets: Net assets $ 29,806,451
------------
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 92,860
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 194,724
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 4,746
Class D Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 23,006
Paid-in capital in excess of par 30,582,291
Accumulated realized capital losses on investments--net (Note 5) (2,134,820)
Unrealized appreciation on investments--net 1,043,644
------------
Net assets $ 29,806,451
============
<PAGE>
Net Asset Value: Class A--Based on net assets of $8,777,297 and 928,601 shares
of beneficial interest outstanding $ 9.45
============
Class B--Based on net assets of $18,407,044 and 1,947,239 shares
of beneficial interest outstanding $ 9.45
============
Class C--Based on net assets of $448,695 and 47,455 shares
of beneficial interest outstanding $ 9.46
============
Class D--Based on net assets of $2,173,415 and 230,065 shares
of beneficial interest outstanding $ 9.45
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 1,703,868
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 163,546
Account maintenance and distribution fees--Class B (Note 2) 91,012
Professional fees 53,568
Accounting services (Note 2) 38,579
Printing and shareholder reports 32,247
Registration fees (Note 1e) 15,430
Transfer agent fees--Class B (Note 2) 9,451
Amortization of organization expenses (Note 1e) 6,402
Pricing fees 4,744
Transfer agent fees--Class A (Note 2) 3,859
Custodian fees 2,793
Account maintenance and distribution fees--Class C (Note 2) 2,722
Account maintenance fees--Class D (Note 2) 1,686
Trustees' fees and expenses 1,445
Transfer agent fees--Class D (Note 2) 681
Transfer agent fees--Class C (Note 2) 250
Other 1,739
------------
Total expenses before reimbursement 430,154
Reimbursement of expenses (Note 2) (191,809)
------------
Total expenses after reimbursement 238,345
------------
Investment income--net 1,465,523
------------
<PAGE>
Realized & Realized loss on investments--net (170,906)
Unrealized Change in unrealized appreciation on investments--net 281,822
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 1,576,439
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 1,465,523 $ 1,363,938
Realized loss on investments--net (170,906) (1,161,781)
Change in unrealized appreciation on investments--net 281,822 1,501,199
------------ ------------
Net increase in net assets resulting from operations 1,576,439 1,703,356
------------ ------------
Dividends to Investment income--net:
Shareholders Class A (494,015) (524,727)
(Note 1f): Class B (863,714) (795,258)
Class C (21,014) (1,891)
Class D (86,780) (42,062)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (1,465,523) (1,363,938)
------------ ------------
Beneficial Net increase in net assets derived from beneficial interest
Interest transactions 1,398,401 2,801,169
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase in net assets 1,509,317 3,140,587
Beginning of year 28,297,134 25,156,547
------------ ------------
End of year $ 29,806,451 $ 28,297,134
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
Class A Class B
For the For the
Period Period
The following per share data and ratios have been derived Nov. 26, Nov. 26,
from information provided in the financial statements. For the Year Ended 1993++ to For the Year Ended 1993++ to
July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of
Operating period $ 9.41 $ 9.38 $ 10.00 $ 9.41 $ 9.38 $ 10.00
Performance: --------- --------- --------- --------- --------- ---------
Investment income--net .50 .52 .34 .45 .48 .31
Realized and unrealized gain
(loss) on investments--net .04 .03 (.62) .04 .03 (.62)
--------- --------- --------- --------- --------- ---------
Total from investment operations .54 .55 (.28) .49 .51 (.31)
--------- --------- --------- --------- --------- ---------
Less dividends from investment
income--net (.50) (.52) (.34) (.45) (.48) (.31)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 9.45 $ 9.41 $ 9.38 $ 9.45 $ 9.41 $ 9.38
========= ========= ========= ========= ========= =========
Total Investment Based on net asset value per share 5.83% 6.20% (2.83%)+++ 5.29% 5.66% (3.16%)+++
Return:** ========= ========= ========= ========= ========= =========
Ratios to Expenses, net of reimbursement .47% .24% .03%* .98% .76% .54%*
Average ========= ========= ========= ========= ========= =========
Net Assets: Expenses 1.12% 1.40% 1.52%* 1.62% 1.93% 2.03%*
========= ========= ========= ========= ========= =========
Investment income--net 5.24% 5.71% 5.36%* 4.73% 5.20% 4.73%*
========= ========= ========= ========= ========= =========
Supplemental Net assets, end of period
Data: (in thousands) $ 8,777 $ 9,755 $ 10,634 $ 18,407 $ 17,116 $ 14,522
========= ========= ========= ========= ========= =========
Portfolio turnover 49.13% 73.86% 82.71% 49.13% 73.86% 82.71%
========= ========= ========= ========= ========= =========
<CAPTION>
Class C Class D
<PAGE>
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.41 $ 9.03 $ 9.40 $ 9.03
Operating -------- -------- -------- --------
Performance: Investment income--net .44 .35 .49 .40
Realized and unrealized gain on investments--net .05 .38 .05 .37
-------- -------- -------- --------
Total from investment operations .49 .73 .54 .77
-------- -------- -------- --------
Less dividends from investment income--net (.44) (.35) (.49) (.40)
-------- -------- -------- --------
Net asset value, end of period $ 9.46 $ 9.41 $ 9.45 $ 9.40
======== ======== ======== ========
Total Investment Based on net asset value per share 5.29% 8.27%+++ 5.84% 8.74%+++
Return:** ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.09% .95%* .58% .38%*
Average ======== ======== ======== ========
Net Assets: Expenses 1.72% 2.04%* 1.21% 1.49%*
======== ======== ======== ========
Investment income--net 4.62% 5.01%* 5.13% 5.66%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 449 $ 162 $ 2,173 $ 1,265
Data: ======== ======== ======== ========
Portfolio turnover 49.13% 73.86% 49.13% 73.86%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects
of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
<PAGE>
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. 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 interest
rate 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.
<PAGE>
(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) 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 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 Merill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 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 to FAM during any fiscal year which will cause such expenses
to exceed expense limitations at the time of payment. For the year
ended July 31, 1996, FAM earned fees of $163,546, of which $161,021
was voluntarily waived. FAM also reimbursed the Fund additional
expenses of $30,788.
<PAGE>
Pursuant to the distribution plans (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
Maintenance Distribution
Fee Fee
Class B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1996, MLFD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
MLFD MLPF&S
Class A $ 260 $1,237
Class D $1,010 $4,862
For the year ended July 31, 1996, MLPF&S received contingent
deferred sales charges of $35,113 and $1,229 relating to
transactions in Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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, MLPF&S, MLFDS, MLFD, and/or ML & Co.
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1996 were $17,038,699 and $13,979,803,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1996 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 46,018 $ 1,104,581
Financial futures contracts (216,924) (60,937)
----------- -----------
Total $ (170,906) $ 1,043,644
=========== ===========
As of July 31, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $1,104,581, of which $1,239,097 related to
appreciated securities and $134,516 related to depreciated
securities. The aggregate cost of investments at July 31, 1996 for
Federal income tax purposes was $28,031,771.
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $1,398,401 and $2,801,169 for the years ended July
31, 1996 and July 31, 1995, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 146,883 $ 1,403,098
Shares issued to share-
holders in reinvestment
of dividends 15,973 152,184
----------- -----------
Total issued 162,856 1,555,282
Shares redeemed (271,026) (2,585,723)
----------- -----------
Net decrease (108,170) $(1,030,441)
=========== ===========
<PAGE>
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 845,320 $ 7,350,840
Shares issued to share-
holders in reinvestment
of dividends 17,353 159,391
----------- -----------
Total issued 862,673 7,510,231
Shares redeemed (958,997) (8,589,491)
----------- -----------
Net decrease (96,324) $(1,079,260)
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 429,323 $ 4,107,558
Shares issued to share-
holders in reinvestment
of dividends 35,409 337,321
----------- -----------
Total issued 464,732 4,444,879
Shares redeemed (332,089) (3,170,672)
Automatic conversion
of shares (4,546) (42,736)
----------- -----------
Net increase 128,097 $ 1,231,471
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 590,823 $ 5,418,198
Shares issued to share-
holders in reinvestment
of dividends 30,471 279,150
----------- -----------
Total issued 621,294 5,697,348
Shares redeemed (349,817) (3,164,237)
----------- -----------
Net increase 271,477 $ 2,533,111
=========== ===========
<PAGE>
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 44,615 $ 421,180
Shares issued to share-
holders in reinvestment
of dividends 1,423 13,580
----------- -----------
Total issued 46,038 434,760
Shares redeemed (15,840) (150,183)
----------- -----------
Net increase 30,198 $ 284,577
=========== ===========
Class C Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 17,718 $ 165,714
Shares issued to share-
holders in reinvestment
of dividends 121 1,130
----------- -----------
Total issued 17,839 166,844
Shares redeemed (581) (5,534)
----------- -----------
Net increase 17,258 $ 161,310
=========== ===========
[FN]
++Commencement of operations.
Class D Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 146,932 $ 1,396,111
Automatic conversion
of shares 4,548 42,736
Shares issued to share-
holders in reinvestment
of dividends 3,609 34,400
----------- -----------
Total issued 155,089 1,473,247
Shares redeemed (59,500) (560,453)
----------- -----------
Net increase 95,589 $ 912,794
=========== ===========
<PAGE>
Class D Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 160,346 $ 1,421,717
Shares issued to share-
holders in reinvestment
of dividends 1,729 16,078
----------- -----------
Total issued 162,075 1,437,795
Shares redeemed (27,599) (251,787)
----------- -----------
Net increase 134,476 $ 1,186,008
=========== ===========
[FN]
++Commencement of operations.
5. Capital Loss Carryforward:
At July 31, 1996, the Fund had a net capital loss
carryforward of approximately $1,833,000, of which $1,707,000
expires in 2003 and $126,000 expires in 2004. This amount will be
available to offset like amounts of any future taxable gains.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch 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, 1996, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the two-year period then ended
and 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 audits.
<PAGE>
We conducted our audits 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,
1996 by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Colorado Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1996, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 6, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
Merrill Lynch Colorado Municipal Bond Fund during its taxable year
ended July 31, 1996 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, there were no capital gains distributed
by the Fund during the year.
Please retain this information for your records.
