MERRILL LYNCH
COLORADO
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Annual Report
July 31, 1997
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 #16915 -- 7/97
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch Colorado Municipal Bond Fund July 31, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1997, a number of very favorable
factors combined to push both tax-exempt and taxable bond yields to
recent historic lows. A slowing domestic economy, a continued benign, if
not improving, inflationary environment,a declining Federal budget
deficit with resultant reduced Treasury borrowing needs, and a
successful Congressional budget accord all resulted in significant
declines in fixed-income yields. By the end of July, 30-year US Treasury
bond yields had declined approximately 50 basis points (0.50%) to 6.30%,
their lowest level in over a year. Similarly, as measured by the Bond
Buyer Revenue Bond Index, long-term municipal revenue bond yields fell
over 50 basis points to end the July 31, 1997 quarter at 5.49%, their
lowest level since early 1994.
The decline in tax-exempt yields in recent months was even more
impressive given that the municipal market lost much of the technical
support it enjoyed for over a year. In previous quarters, new tax-exempt
bond issuance declined, or remained stable. During the six months ended
July 31, 1997, approximately $100 billion in new long-term municipal
securities was underwritten, an increase of over 7.5% versus the
comparable period in 1996. As tax-exempt bond yields declined, many
municipal bond issuers took this opportunity to both issue new debt as
well as refinance older, higher-couponed debt with new, lower-yielding
issues. This refinancing led to a surge in tax-exempt issuance in recent
months. Over the three months ended July 31, 1997, new long-term tax-
exempt bond issuance totaled approximately $55 billion, an increase of
over 15% versus the July 31, 1996 quarter.
The decline in municipal bond yields also resulted in some reduction in
retail investor demand. In earlier episodes of rapidly declining
interest rates, individual investor demand initially fell until
investors became more acclimated to the current levels. Should interest
rates stabilize, we expect investor demand to return to earlier levels.
Also, this past June and July, municipal bond investors received over
$50 billion in assets from coupon income payments, bond maturities, and
the proceeds from early bond redemptions. Despite the continued allure
of the US equity market, it is likely that much of these assets will be
reallocated to the municipal bond market as investors adjust to the new
investment environment.
Looking forward, given the extent of the recent bond market rally, some
retrenchment or at least a period of consolidation is likely. However,
the positive backdrop of modest economic growth and low inflation
suggests that any such adjustment is not likely to be excessive. Despite
recent increases in new bond issuance, supply for all of 1997 is not
expected to be materially different than earlier estimates of
approximately $175 billion. It is likely that the recent increase in
issuance has largely borrowed from that originally scheduled for later
this year. Additionally, any significant increase in tax-exempt bond
yields will prevent any further bond refinancings, reducing future
supply. Unless the current positive economic fundamentals undergo
immediate and significant deterioration, any increase in municipal bond
yields is likely to be viewed as an opportunity to purchase more
attractively priced tax-exempt securities.
Fiscal Year in Review
Our portfolio strategy during the fiscal year provided shareholders with
yield and total return results in line with similar Colorado tax-exempt
mutual funds.
During the 12 months ended July 31, 1997, interest rates experienced a
great deal of volatility. At the start of the Fund's fiscal year in
August 1996, we believed that the economy was showing full employment,
and expected inflation to accelerate. However, inflation never surfaced,
which set the bond market up for a significant rally. After being
defensively postured in the late spring, we restructured the Fund to
take advantage of any increase in bond prices. This strategy paid off
for the first six months of the fiscal year. However, we experienced an
extremely strong economy in the first quarter of 1997 and expected a
Federal Reserve Board interest rate increase. The increase of 25 basis
points came in February, and many economists predicted more would
follow.
While Federal Reserve Board Chairman Alan Greenspan's "irrational
exuberance" and the "new paradigm" theories worked themselves out, our
investment strategy went into a neutral mode to seek to protect the
Fund's net asset values. We increased cash reserves to 5% in March,
which proved ineffective as the bond market reached its high in yields
for the year. However, being in the market soon became beneficial to the
Fund, because spring brought lower yields and higher bond prices. Since
April the Fund has been fully invested and fully participated in
the powerful market appreciation. As interest rates continue to decline,
our strategy is expected to become slightly more defensive in order to
seek to protect some of the gains the Fund enjoyed during the fiscal
year.
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,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/HUGH T. HURLEY III
Hugh T. Hurley III
Vice President and Portfolio Manager
September 4, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] 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.
[bullet] 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.)
[bullet] 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.
[bullet] Class D Shares incur a maximum initial sales charge of
4% and an account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Average Annual Total Return"
tables as well as the total returns and cumulative total returns in the
"Performance Summary" tables assume reinvestment of all dividends and
capital gains distributions at net asset value on the payable date.
Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer
agency fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
7/31/97 4/30/97 7/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $9.89 $9.46 $9.45 +4.66% +4.55%
Class B Shares* 9.89 9.46 9.45 +4.66 +4.55
Class C Shares* 9.89 9.46 9.46 +4.55 +4.55
Class D Shares* 9.88 9.45 9.45 +4.55 +4.55
Class A Shares -- Total Return* +9.93(1) +5.84(2)
Class B Shares -- Total Return* +9.38(3) +5.71(4)
Class C Shares -- Total Return* +9.15(5) +5.68(6)
Class D Shares -- Total Return* +9.71(7) +5.82(8)
Class A Shares -- Standardized 30-day Yield 4.35%
Class B Shares -- Standardized 30-day Yield 4.03%
Class C Shares -- Standardized 30-day Yield 3.93%
Class D Shares -- Standardized 30-day Yield 4.26%
* 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 $0.471 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.118 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.422 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.106 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.413 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.104 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.461 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.116 per share ordinary income dividends.
</TABLE>
<TABLE>
<CAPTION>
[GRAPHIC LINE CHART OMITTED: TOTAL RETURN BASED ON A $10,000 INVESTMENT]
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** 7/97
<S> <C> <C>
ML Colorado Municipal Bond Fund+-
Class A Shares* $9,600 $11,525
ML Colorado Municipal Bond Fund+-
Class B Shares* $10,000 $11,684
Lehman Brothers Municipal Bond Index++ $10,000 $12,596
Total Return Based on a $10,000 Investment--Class C Shares and Class D Shares
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** 7/97
<S> <C> <C>
ML Colorado Municipal Bond Fund+-
Class C Shares* $10,000 $12,442
ML Colorado Municipal Bond Fund+-
Class D Shares* $9,600 $12,122
Lehman Brothers Municipal Bond Index++ $10,000 $13,054
* 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
and obligations of other qualifying issuers.
++ 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.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/97 +7.76% +3.45%
Inception (11/26/93)
through 6/30/97 +4.36 +3.18
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +7.22% +3.22%
Inception (11/26/93) through 6/30/97 +3.83 +3.58
* Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/97 +7.10% +6.10%
Inception (10/21/94)
through 6/30/97 +7.29 +7.29
* 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 6/30/97 +7.54% +3.24%
Inception (10/21/94) through 6/30/97 +7.86 +6.24
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
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
1996 9.80 9.62 -- 0.485 + 3.28
1/1/97 -- 7/31/97 9.62 9.89 -- 0.261 + 5.78
Total $1.822
Cumulative total return as of 7/31/97: +20.06%**
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
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
1996 9.80 9.62 -- 0.436 + 2.75
1/1/97 -- 7/31/97 9.62 9.89 -- 0.234 + 5.47
Total $1.646
Cumulative total return as of 7/31/97: +17.84%***
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
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
1996 9.80 9.63 -- 0.426 + 2.75
1/1/97 -- 7/31/97 9.63 9.89 -- 0.229 + 5.30
Total $1.194
Cumulative total return as of 7/31/97: +24.42%***
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
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
1996 9.80 9.62 -- 0.475 + 3.17
1/1/97 -- 7/31/97 9.62 9.88 -- 0.256 + 5.61
Total $1.340
Cumulative total return as of 7/31/97: +26.26%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
*** Figures do not reflect deduction of sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Colorado Municipal Bond Fund July 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Colorado -- 98.9%
AAA Aaa $1,000 Arapahoe County, Colorado, Capital Improvement Trust Fund, Highway
Revenue Bonds (E470 Vehicle Registration), Series A, 6.15% due 8/31/2026 (b) $1,140
AA Aa2 1,000 Arapahoe County, Colorado, School District Number 5 (Cherry Creek), Series
B, UT, 5% due 12/15/2008 1,027
AAA Aaa 1,175 Arvada, Colorado, Sales and Use Tax Revenue Refunding and Improvement Bonds,
6.25% due 12/01/2017 (d) 1,266
AAA Aaa 500 Bayfield County, Colorado, Joint School District Number 10, Building Revenue
Bonds, UT, Series R, 6.65% due 6/01/2015 (b) 561
AA A1 1,250 Boulder Valley, Colorado, School District Number 2, School Building Project,
UT, Series A, 6.30% due 12/01/2014 1,371
Colorado Health Facilities Authority Revenue Bonds:
A1+ VMIG1+ 100 (Boulder Community Hospital Project), VRDN, Series C, 3.65% due 10/01/2014
(a)(b) 100
A1+ VMIG1+ 200 (Sisters of Charity Health Services), VRDN, Series C, 3.65% due 5/15/2022 (a) 200
NR* Aaa 500 (Swedish Medical Center Project), Series A, 6.80% due 1/01/2003 (e) 568
Colorado Housing Financing Authority, S/F Program:
NR* Aa2 1,000 Refunding, Senior Series A3, 7% due 11/01/2016 1,119
NR* Aa2 1,000 Senior Series B3, 6.80% due 11/01/2028 1,109
Colorado Springs, Colorado, Utilities Revenue Bonds, Series A:
AA Aa 1,125 6.10% due 11/15/2024 1,204
AA Aa 500 Refunding, 6.50% due 11/15/2015 548
AA Aa2 1,000 Colorado Water Resource Power Development Authority, Clean Water Revenue Bonds,
Series A, 6.30% due 9/01/2014 1,092
BBB Baa1 500 Denver, Colorado, City and County Airport Revenue Bonds, AMT, Series D, 7.75%
due 11/15/2013 631
Denver, Colorado, City and County School District Number 1, Refunding Bonds,
Series A:
A A1 1,000 6.50% due 6/01/2010 1,168
A A1 2,000 6.50% due 12/01/2010 2,345
AAA Aaa 1,650 Douglas County, Colorado, School District Number 1, Revenue Refunding Bonds
(Douglas and Elbert Counties), UT, 5.125% due 12/15/2016 (b) 1,647
AA- Aa 1,315 El Paso County, Colorado, School District Number 11 (Colorado Springs), UT,
6.50% due 12/01/2010 1,533
NR* Aa1 1,000 El Paso County, Colorado, School District Number 12 (Cheyenne Mountain),
UT, 6.65% due 9/15/2014 1,143
AAA Aaa 1,600 El Paso County, Colorado, School District Number 49 (Falcon), UT, 6.50% due
12/01/2015 (b) 1,833
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)(e) 1,137
AAA Aaa 750 Gunnison Watershed, Colorado, School District Number 1J, Revenue Bonds, UT,
5% due 12/01/2015 (b) 743
AAA Aaa 1,250 Highlands Ranch, Colorado, Metropolitan District Number 2, Refunding Bonds, UT,
5% due 6/15/2016 (c) 1,238
NR* NR* 850 Highlands Ranch, Colorado, Metropolitan District Number 4, Refunding Bonds, UT,
Series A, 6.30% due 12/01/2017 900
La Plata County, Colorado, School District Number 9 (R Durango), UT (d):
AAA Aaa 1,260 6.60% due 11/01/2002 (e) 1,410
AAA Aaa 240 6.60% due 11/01/2017 266
A1+ VMIG1+ 800 Moffat County, Colorado, PCR, Refunding (Pacificorp Projects), VRDN, 3.60%
due 5/01/2013 (a)(f) 800
NR* A 750 Pitkin County, Colorado, Refunding and Improvement Bonds, UT, 6.875% due
12/01/2024 853
AAA Aaa 1,000 Summit County, Colorado, School District Number 1 Revenue Bonds, UT, 6.70%
due 12/01/2004 (d)(e) 1,143
AAA Aaa 250 Widefield, Colorado, Water and Sanitation District, Water and Sewer Revenue
Refunding and Improvement Bonds, Series A, 5.60% due 12/01/2026 (b) 259
Total Investments (Cost -- $28,181) -- 98.9% 30,354
Other Assets Less Liabilities -- 1.1% 339
----------
Net Assets -- 100.0% $30,693
==========
(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, 1997.
(b) MBIA Insured.
(c) FSA Insured.
(d) FGIC Insured.
(e) Prerefunded.
(f) AMBAC Insured.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
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)
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $28,181,390) (Note 1a) $30,354,104
Cash 82,737
Receivables:
Securities sold $1,007,625
Interest 347,503 1,355,128
-----------
Deferred organization expenses (Note 1e) 8,431
Prepaid registration fees and other assets (Note 1e) 29,524
-----------
Total assets 31,829,924
-----------
Liabilities: Payables:
Securities purchased 996,365
Dividends to shareholders (Note 1f) 37,880
Beneficial interest redeemed 25,961
Distributor (Note 2) 8,509
Investment adviser (Note 2) 5,153 1,073,868
-----------
Accrued expenses and other liabilities 62,639
-----------
Total liabilities 1,136,507
-----------
Net Assets: Net assets $30,693,417
===========
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $85,758
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 191,996
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 5,845
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 26,779
Paid-in capital in excess of par 30,122,229
Accumulated realized capital losses on investments -- net (Note 5) (1,911,904)
Unrealized appreciation on investments -- net 2,172,714
-----------
Net assets $30,693,417
===========
Net Asset Value: Class A -- Based on net assets of $8,480,798 and 857,584 shares of
beneficial interest outstanding $9.89
===========
Class B -- Based on net assets of $18,987,663 and 1,919,957 shares of
beneficial interest outstanding $9.89
===========
Class C -- Based on net assets of $578,179 and 58,446 shares of
beneficial interest outstanding $9.89
===========
Class D -- Based on net assets of $2,646,777 and 267,793 shares of
beneficial interest outstanding $9.88
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
July 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $1,661,121
(Note 1d):
Expenses: Investment advisory fees (Note 2) $164,290
Account maintenance and distribution fees -- Class B (Note 2) 92,920
Professional fees 51,432
Accounting services (Note 2) 43,881
Printing and shareholder reports 14,014
Registration fees (Note 1e) 10,552
Transfer agent fees -- Class B (Note 2) 9,029
Amortization of organization expenses (Note 1e) 6,384
Pricing fees 4,467
Transfer agent fees -- Class A (Note 2) 3,273
Custodian fees 2,648
Account maintenance and distribution fees -- Class C (Note 2) 2,644
Account maintenance fees -- Class D (Note 2) 2,352
Trustees' fees and expenses 1,481
Transfer agent fees -- Class D (Note 2) 901
Transfer agent fees -- Class C (Note 2) 225
Other 2,791
----------
Total expenses before reimbursement 413,284
Reimbursement of expenses (Note 2) (127,660)
----------
Total expenses after reimbursement 285,624
----------
Investment income -- net 1,375,497
----------
Realized & Realized gain on investments -- net 222,916
Unrealized Gain on Change in unrealized appreciation on investments -- net 1,129,070
Investments -- Net ----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $2,727,483
==========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended July 31,
1997 1996
Increase (Decrease) in Net Assets:
<S> <C> <C> <C>
Operations: Investment income -- net $1,375,497 $1,465,523
Realized gain (loss) on investments -- net 222,916 (170,906)
Change in unrealized appreciation on investments -- net 1,129,070 281,822
------------ ------------
Net increase in net assets resulting from operations 2,727,483 1,576,439
------------ ------------
Dividends to Investment income -- net:
Shareholders Class A (419,529) (494,015)
(Note 1f): Class B (823,087) (863,714)
Class C (19,065) (21,014)
Class D (113,816) (86,780)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (1,375,497) (1,465,523)
------------ ------------
Beneficial Interest Net increase (decrease) in net assets derived from beneficial interest
Transactions transactions (465,020) 1,398,401
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 886,966 1,509,317
Beginning of year 29,806,451 28,297,134
------------ ------------
End of year $30,693,417 $29,806,451
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
For the
Period
Nov. 26,
The following per share data and ratios have been derived 1993+ to
from information provided in the financial statements. For the Year Ended July 31, July 31,
1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.45 $9.41 $9.38 $10.00
Operating -------- -------- -------- --------
Performance: Investment income -- net .47 .50 .52 .34
Realized and unrealized gain (loss)
on investments -- net .44 .04 .03 (.62)
-------- -------- -------- --------
Total from investment operations .91 .54 .55 (.28)
-------- -------- -------- --------
Less dividends from investment income
-- net (.47) (.50) (.52) (.34)
-------- -------- -------- --------
Net asset value, end of period $9.89 $9.45 $9.41 $9.38
======== ======== ======== ========
Total Investment Based on net asset value per share 9.93% 5.83% 6.20% (2.83%)++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .62% .47% .24% .03%*
Net Assets: ======== ======== ======== ========
Expenses 1.05% 1.12% 1.40% 1.52%*
======== ======== ======== ========
Investment income -- net 4.94% 5.24% 5.71% 5.36%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $8,481 $8,777 $9,755 $10,634
Data: ======== ======== ======== ========
Portfolio turnover 108.22% 49.13% 73.86% 82.71%
======== ======== ======== ========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
<CAPTION>
Class B
For the
Period
Nov. 26,
The following per share data and ratios have been derived 1993+ to
from information provided in the financial statements. For the Year Ended July 31, July 31,
1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.45 $9.41 $9.38 $10.00
Operating -------- -------- -------- --------
Performance: Investment income -- net .42 .45 .48 .31
Realized and unrealized gain (loss)
on investments -- net .44 .04 .03 (.62)
-------- -------- -------- --------
Total from investment operations .86 .49 .51 (.31)
-------- -------- -------- --------
Less dividends from investment income
-- net (.42) (.45) (.48) (.31)
-------- -------- -------- --------
Net asset value, end of period $9.89 $9.45 $9.41 $9.38
======== ======== ======== ========
Total Investment Based on net asset value per share 9.38% 5.29% 5.66% (3.16%)++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.13% .98% .76% .54%*
Net Assets: ======== ======== ======== ========
Expenses 1.56% 1.62% 1.93% 2.03%*
======== ======== ======== ========
Investment income -- net 4.43% 4.73% 5.20% 4.73%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $18,987 $18,407 $17,116 $14,522
Data: ======== ======== ======== ========
Portfolio turnover 108.22% 49.13% 73.86% 82.71%
======== ======== ======== ========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
<CAPTION>
Class C Class D
For the For the
Period Period
Oct 21, Oct. 21,
The following per share data and ratios have been derived For the Year Ended 1994+ to For the Year Ended 1994+ to
from information provided in the financial statements. July 31, July 31, July 31, July 31,
1997 1996 1995 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.46 $9.41 $9.03 $9.45 $9.40 $9.03
Operating --------- --------- --------- --------- --------- ---------
Performance: Investment income -- net .41 .44 .35 .46 .49 .40
Realized and unrealized gain on
investments -- net .43 .05 .38 .43 .05 .37
--------- --------- --------- --------- --------- ---------
Total from investment operations .84 .49 .73 .89 .54 .77
--------- --------- --------- --------- --------- ---------
Less dividends from investment
income -- net (.41) (.44) (.35) (.46) (.49) (.40)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $9.89 $9.46 $9.41 $9.88 $9.45 $9.40
========= ========= ========= ========= ========= =========
Total Investment Based on net asset value per share 9.15% 5.29% 8.27%++ 9.71% 5.84% 8.74%++
Return:** ========= ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement 1.23% 1.09% .95%* .72% .58% .38%*
Net Assets: ========= ========= ========= ========= ========= =========
Expenses 1.66% 1.72% 2.04%* 1.15% 1.21% 1.49%*
========= ========= ========= ========= ========= =========
Investment income -- net 4.33% 4.62% 5.01%* 4.84% 5.13% 5.66%*
========= ========= ========= ========= ========= =========
Supplemental Net assets, end of period
Data: (in thousands) $578 $449 $162 $2,647 $2,173 $1,265
========= ========= ========= ========= ========= =========
Portfolio turnover 108.22% 49.13% 73.86% 108.22% 49.13% 73.86%
========= ========= ========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Colorado Municipal Bond Fund July 31, 1997
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. 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.
[bullet] 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.
(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.
For the year ended July 31, 1997, FAM earned fees of $164,290, of which
$127,660 was voluntarily waived.
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 Distribution
Maintenance 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, 1997, 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 $31 $407
Class D $501 $2,296
For the year ended July 31, 1997, MLPF&S received contingent deferred
sales charges of $39,963 and $20 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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the year ended July 31, 1997 were $30,657,167 and $31,840,631,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1997 were as
follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $368,678 $2,172,714
Financial futures contracts (145,762) --
--------- ----------
Total $222,916 $2,172,714
========= ==========
As of July 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $2,172,714, all of which was related to appreciated
securities. The aggregate cost of investments at July 31, 1997 for
Federal income tax purposes was $28,181,390.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $(465,020) and $1,398,401 for the years ended July 31,
1997 and July 31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 59,834 $573,316
Shares issued to shareholders
in reinvestment of dividends 11,426 109,164
----------- -----------
Total issued 71,260 682,480
Shares redeemed (142,277) (1,355,282)
----------- -----------
Net decrease (71,017) $(672,802)
=========== ===========
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 146,883 $1,403,098
Shares issued to shareholders
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)
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 272,575 $2,606,137
Shares issued to shareholders
in reinvestment of dividends 36,590 349,840
--------- ----------
Total issued 309,165 2,955,977
Automatic conversion
of shares (21,955) (209,480)
Shares redeemed (314,492) (3,005,799)
--------- ----------
Net decrease (27,282) $(259,302)
========= ==========
Class B Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 429,323 $4,107,558
Shares issued to shareholders
in reinvestment of dividends 35,409 337,321
--------- ----------
Total issued 464,732 4,444,879
Automatic conversion
of shares (4,546) (42,736)
Shares redeemed (332,089) (3,170,672)
--------- ----------
Net increase 128,097 $1,231,471
========= ==========
Class C Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 28,845 $276,154
Shares issued to shareholders
in reinvestment of dividends 1,371 13,114
--------- ----------
Total issued 30,216 289,268
Shares redeemed (19,225) (183,478)
--------- ----------
Net increase 10,991 $105,790
========= ==========
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 44,615 $421,180
Shares issued to shareholders
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 D Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 40,045 $382,884
Automatic conversion
of shares 21,966 209,480
Shares issued to shareholders
in reinvestment of dividends 2,458 23,480
--------- ----------
Total issued 64,469 615,844
Shares redeemed (26,741) (254,550)
--------- ----------
Net increase 37,728 $361,294
========= ==========
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 shareholders
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
========= ==========
5. Capital Loss Carryforward:
At July 31, 1997, the Fund had a net capital loss carryforward of
approximately $1,549,000, of which $1,423,000 expires in 2003 and
$126,000 expires in 2004. This amount will be available to offset like
amounts of any future taxable gains.
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, 1997, 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 three-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 responsibil-ity is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reason-able 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, 1997 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, 1997, the results of its opera-
tions, 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 5, 1997
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, 1997 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.
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
Robert E. Putney, III, Secretary
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
