MERRILL LYNCH
COLORADO
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1997
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
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, maybe
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 -- 1/97
Merrill Lynch Colorado Municipal Bond Fund January 31, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
Long-term fixed-income bond yields generally declined over the six
months ended January 31, 1997. Initially, US Treasury bond yields
declined over 45 basis points (0.45%) to 6.45% by late November as low
employment growth and continued low inflation combined to support lower
bond yields. Concurrently, long-term municipal revenue bond yields, as
measured by the Bond Buyer Revenue Bond Index, declined over 20 basis
points to approximately 5.80%. However, signs of increased economic
activity and renewed inflation fears pushed bond yields up for the
remainder of the period. By the end of January 1997, US Treasury bond
yields rose 35 basis points to end the period at approximately 6.80%.
Similarly, long-term municipal revenue bond yields rose approximately 20
basis points from their lows in late November to approximately 6.00%.
During the six months ended January 31, 1997, US Treasury bond yields
declined approximately 10 basis points, while tax-exempt bond yields
were essentially unchanged.
Recently, tax-exempt bond yields underperformed their taxable
counterparts despite a continued strong supply position. During the six-
month period ended January 31, 1997, over $88 billion in long-term tax-
exempt bonds was underwritten, essentially unchanged from issuance a
year ago. Approximately $50 billion in new municipal bonds was issued
during the three-month period ended January 31, 1997, representing a
decline of over 5% compared to the same period in 1996. This declining
trend in bond issuance was even more apparent recently. Slightly more
than $10 billion in long-term bonds was issued in January 1997, a
decrease of over 15% compared to January 1996 issuance.
The municipal bond market's recent underperformance relative to Treasury
issues was the result of a number of other factors. The historic
strength of the US equity market has attracted significant investor
interest. Additionally, as tax-exempt bond yields declined again below
6%, some investors temporarily lost interest in the municipal bond
market. If interest rates continue to decline, as they did at the end of
1994 and throughout 1995, investors, in general, will quickly adjust to
the new levels. The tax advantages generated by municipal bonds quickly
outweigh low nominal yields, and investor demand increases.
The Presidential and Congressional elections this past November
resurrected some investor concerns regarding continued Federal deficit
reduction and potential legislative restrictions upon the municipal bond
market. This situation was similar to that at the beginning of 1996 when
tax-exempt bond yields were negatively impacted by fears that
legislation reducing the tax advantage of municipal bonds would be
introduced to aid further deficit reductions.
However, the US Treasury bond market's recent relatively strong
performance resulted in municipal bonds becoming a particularly
attractive investment alternative. At current levels, long-term tax-
exempt revenue bonds yield over 88% of comparable US Treasury bond
yields. Current levels make tax-advantaged products more attractive than
they were at mid-year when yield ratios declined to approximately 85%.
For example, to an investor in the 36% Federal income tax bracket, a
current tax-exempt bond yield of 6% represents a taxable equivalent
yield of approximately 9.37%.
Looking forward, the supply of new bond issuance for 1997 is expected to
be very similar to that of 1996, with most annual estimates falling in
the $170 billion -- $175 billion range. Investor demand is also expected
to regain its former strength, with 1997 total municipal redemptions
(refundings, maturities and coupon payments) in the $175 billion -- $185
billion range. This overall balance suggests that the positive technical
backdrop the municipal bond market enjoyed in 1996 could continue in
1997. However, it is likely that seasonal factors may temporarily
distort this overall balanced technical scenario. During periods of
reduced bond issuance, the ease and ability to purchase tax-advantaged
products at their current attractive levels may be greatly restricted.
Portfolio Strategy
During the six-month period ended January 31, 1997, Merrill Lynch
Colorado Municipal Bond Fund primarily maintained a low cash reserve to
augment shareholder income as much as possible. This strategy put the
Fund in a good position to fully participate in the fall rally of
interest rates.
Strong demand for Colorado municipal bonds, from both retail and
institutional investors, and a lack of supply helped Colorado municipal
bonds outperform relative to the general municipal bond marketplace. We
continue to put a heavy emphasis on quality, with 95% of the portfolio
being rated A or better by at least one of the major rating agencies. As
an actively managed mutual fund, we took steps to reduce our near term
callable bond exposure in an effort to ensure the potential for a
generous tax-exempt income stream.
Looking forward, we will continue to monitor signs of economic growth or
a possible slowdown in the economy. In addition, we are interested to
see if a balanced Federal budget can be achieved this year. Should this
occur, it would be a positive backdrop for long-term interest rates, and
we would adopt a more aggressive strategy for the Fund to seek to
enhance its total return potential.
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 ahead.
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
February 28, 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. 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
1/31/97 10/31/96 1/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $9.54 $9.54 $9.82 -2.85% 0.00%
Class B Shares* 9.54 9.54 9.82 -2.85 0.00
Class C Shares* 9.54 9.54 9.82 -2.85 0.00
Class D Shares* 9.53 9.54 9.81 -2.85 -0.10
Class A Shares -- Total Return* +2.23(1) +1.27(2)
Class B Shares -- Total Return* +1.71(3) +1.14(4)
Class C Shares -- Total Return* +1.60(5) +1.11(6)
Class D Shares -- Total Return* +2.12(7) +1.14(8)
Class A Shares -- Standardized 30-day Yield 4.59%
Class B Shares -- Standardized 30-day Yield 4.27%
Class C Shares -- Standardized 30-day Yield 4.16%
Class D Shares -- Standardized 30-day Yield 4.49%
* 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 $0.490 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.126 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.441 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.113 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.431 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.110 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.480 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.123 per share ordinary income dividends.
</TABLE>
<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 -- 1/31/97 9.62 9.54 -- 0.034 - 0.39
Total $1.595
Cumulative total return as of 1/31/97: +13.05%**
* 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.
</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 -- 1/31/97 9.62 9.54 -- 0.031 - 0.44
Total $1.443
Cumulative total return as of 1/31/97: +11.23%**
* 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 reflect deduction of any sales
charge; results would be lower if sales charge was deducted.
</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 -- 1/31/97 9.63 9.54 -- 0.030 - 0.55
Total $0.995
Cumulative total return as of 1/31/97: +17.51%**
* 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 reflectdeduction of any sales
charge; results would be lower if sales charge was deducted.
</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 -- 1/31/97 9.62 9.53 -- 0.033 - 0.51
Total $1.117
Cumulative total return as of 1/31/97: +18.94%**
* 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.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/96 +3.28% -0.86%
Inception (11/26/93)
through 12/31/96 +4.18 +2.81
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +2.75% -1.18%
Inception (11/26/93)
through 12/31/96 +3.65 +3.36
* 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 12/31/96 +2.75% +1.77%
Inception (10/21/94)
through 12/31/96 +7.90 +7.90
* 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 12/31/96 +3.17% -0.95%
Inception (10/21/94)
through 12/31/96 +8.48 +6.48
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Colorado Municipal Bond Fund January 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 -- 99.0%
AAA Aaa $1,500 Adams and Weld Counties, Colorado, Joint School District Number 27J (Brighton),
Series C, 5.50% due 12/01/2016 (d) $1,491
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) 1,045
AAA Aaa 1,175 Arvada, Colorado, Sales and Use Tax Revenue Refunding and Improvement Bonds,
6.25% due 12/01/2017 (d) 1,224
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) 546
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
A1+ VMIG1+ 400 (North Colorado Medical Center), VRDN, 3.55% due 5/15/2020 (a)(b) 400
A1+ VMIG1+ 200 (Sisters of Charity Health Services), VRDN, Series C, 3.55% due 5/15/2022 (a) 200
NR* Aaa 500 (Swedish Medical Center Project), Series A, 6.80% due 1/01/2003 (e) 561
AAA Aaa 1,000 Colorado Housing Finance Authority, S/F Housing Revenue Refunding Bonds, Series AA,
5.625% due 11/01/2023 (b) 977
Colorado Springs, Colorado, Utilities Revenue Bonds, Series A:
AA Aa 1,125 6.10% due 11/15/2024 1,160
AA Aa 500 Refunding, 6.50% due 11/15/2015 536
AA Aa2 1,000 Colorado Water Resource Power Development Authority, Clean Water Revenue Bonds,
Series A, 6.30% due 9/01/2014 1,062
BBB Baa 500 Denver, Colorado, City and County Airport Revenue Bonds, AMT, Series D, 7.75% due
11/15/2013 599
Denver, Colorado, City and County School District Number 1, Refunding, Series A:
A A1 1,000 6.50% due 6/01/2010 1,122
A A1 2,000 6.50% due 12/01/2010 2,250
AAA Aaa 4,000 Douglas County, Colorado, School District Number 1, Refunding Bonds (Douglas and
Elbert Counties Improvement Project), UT, 5.125% due 12/15/2016 (b) 3,783
NR* Aa1 1,000 El Paso County, Colorado, School District Number 12, GO (Cheyenne Mountain), UT,
6.65% due 9/15/2014 (f) 1,105
NR* A1 1,000 El Paso County, Colorado, School District Number 20, GO, 5.625% due 12/15/2016 1,001
AAA Aaa 1,000 El Paso County, Colorado, School District Number 49, GO (Falcon), UT, 6.50% due
12/01/2015 (b) 1,110
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) 1,122
AAA Aaa 1,000 Gunnison Watershed, Colorado, School District Number 1J Revenue Bonds, UT, 5% due
12/01/2015 (b) 937
AAA Aaa 1,500 Highlands Ranch, Colorado, Metropolitan District Number 2 Refunding Bonds, UT,
5% due 6/15/2016 (c) 1,408
La Plata County, Colorado, School District Number 9 Revenue Bonds (R Durango), UT (d):
AAA Aaa 1,260 6.60% due 11/01/2002 (e) 1,399
AAA Aaa 240 6.60% due 11/01/2017 261
AAA Aaa 1,000 Larimer, Weld and Boulder Counties, Colorado, School District Number R-2J, GO
(Thompson), UT, 5.45% due 12/15/2015 (d) 993
AAA Aaa 1,000 Mesa County, Colorado, Valley School District Number 51, GO (Grand Junction), UT,
5.50% due 12/01/2015 (b) 992
A1+ NR* 200 Pitkin County, Colorado, IDR, Refunding (Aspen Skiing Co. Project), VRDN, AMT,
Series B, 3.80% due 4/01/2014 (a) 200
NR* A 750 Pitkin County, Colorado, Refunding and Improvement, UT, 6.875% due 12/01/2024 (f) 826
AAA Aaa 1,000 Summit County, Colorado, School District Number 1, GO (Summit), UT, 6.70%
due 12/01/2004 (d)(e) 1,127
Total Investments (Cost -- $28,539) -- 99.0% 29,537
Other Assets Less Liabilities -- 1.0% 293
--------
Net Assets -- 100.0% $29,830
=========
(a) The interest rate is subject to change periodically based upon prevailing market rates.
The interest rate shown is the rate in effect at January 31, 1997.
(b) MBIA Insured.
(c) FSA Insured.
(d) FGIC Insured.
(e) Prerefunded.
(f) Bank Qualified.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
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)
GO General Obligation Bonds
IDR Industrial Development 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 January 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $28,539,128)(Note 1a) $29,537,316
Cash 68,851
Receivables:
Interest $353,381
Beneficial interest sold 52 353,433
------------
Deferred organization expenses (Note 1e) 14,815
Prepaid expenses and other assets (Note 1e) 26,249
------------
Total assets 30,000,664
------------
Liabilities: Payables:
Beneficial interest redeemed 79,480
Dividends to shareholders (Note 1f) 22,920
Distributor (Note 2) 8,645
Investment adviser (Note 2) 2,627 113,672
------------
Accrued expenses 56,994
------------
Total liabilities 170,666
------------
Net Assets: Net assets $29,829,998
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $88,497
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 196,661
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 4,495
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 23,036
Paid-in capital in excess of par 30,341,736
Accumulated realized capital losses on investments -- net (Note 5) (1,822,615)
Unrealized appreciation on investments -- net 998,188
------------
Net assets $29,829,998
============
Net Asset Value: Class A -- Based on net assets of $8,442,429 and 884,973 shares of
beneficial interest outstanding $9.54
============
Class B -- Based on net assets of $18,762,210 and 1,966,614 shares of
beneficial interest outstanding $9.54
============
Class C -- Based on net assets of $428,974 and 44,954 shares of
beneficial interest outstanding $9.54
============
Class D -- Based on net assets of $2,196,385 and 230,357 shares of
beneficial interest outstanding $9.53
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
Jaunuary 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $848,195
(Note 1d):
Expenses: Investment advisory fees (Note 2) $83,784
Account maintenance and distribution fees -- Class B (Note 2) 47,309
Professional fees 29,221
Accounting services (Note 2) 23,049
Printing and shareholder reports 8,823
Registration fees (Note 1e) 5,568
Transfer agent fees -- Class B (Note 2) 4,908
Amortization of organization expenses (Note 1e) 3,374
Pricing fees 2,339
Transfer agent fees -- Class A (Note 2) 1,830
Custodian fees 1,462
Account maintenance and distribution fees -- Class C (Note 2) 1,287
Account maintenance fees -- Class D (Note 2) 1,144
Trustees' fees and expenses 768
Transfer agent fees -- Class D (Note 2) 474
Transfer agent fees -- Class C (Note 2) 118
Other 414
------------
Total expenses before reimbursment 215,872
Reimbursement of expenses (Note 2) (68,551)
------------
Total expenses after reimbursement 147,321
------------
Investment income -- net 700,874
------------
Realized & Realized gain on investments -- net 312,204
Unrealized Change in unrealized appreciation on investments -- net (45,456)
Gain (Loss) on ------------
Investments -- Net Net Increase in Net Assets Resulting from Operations $967,622
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $700,874 $1,465,523
Realized gain (loss) on investments -- net 312,204 (170,906)
Change in unrealized appreciation on investments -- net (45,456) 281,822
------------ ------------
Net increase in net assets resulting from operations 967,622 1,576,439
------------ ------------
Dividends to Investment income -- net:
Shareholders Class A (217,763) (494,015)
(Note 1f): Class B (418,556) (863,714)
Class C (9,275) (21,014)
Class D (55,280) (86,780)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (700,874) (1,465,523)
------------ ------------
Beneficial Interest Net increase (decrease) in net assets derived from beneficial
Transactions interest transactions (243,201) 1,398,401
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 23,547 1,509,317
Beginning of period 29,806,451 28,297,134
------------ ------------
End of period $29,829,998 $29,806,451
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
For the For the
Six Period
Months Nov. 26,
The following per share data and ratios have been derived Ended For the Year 1993+ to
from information provided in the financial statements. Jan. 31, 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 .24 .50 .52 .34
Realized and unrealized gain (loss) on investments -- net .09 .04 .03 (.62)
------- ------- ------- -------
Total from investment operations .33 .54 .55 (.28)
------- ------- ------- -------
Less dividends from investment income -- net (.24) (.50) (.52) (.34)
------- ------- ------- -------
Net asset value, end of period $9.54 $9.45 $9.41 $9.38
======= ======= ======= =======
Total Investment Based on net asset value per share 3.52%++ 5.83% 6.20% (2.83%)++
Return:** ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement .63%* .47% .24% .03%*
Net Assets: ======= ======= ======= =======
Expenses 1.08%* 1.12% 1.40% 1.52%*
======= ======= ======= =======
Investment income -- net 4.93%* 5.24% 5.71% 5.36%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $8,443 $8,777 $9,755 $10,634
Data: ======= ======= ======= =======
Portfolio turnover 49.77% 49.13% 73.86% 82.71%
======= ======= ======= =======
Class B
For the For the
Six Period
Months Nov. 26,
The following per share data and ratios have been derived Ended For the Year 1993+ to
from information provided in the financial statements. Jan. 31, Ended July 31 July 31,
1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
Per Share Net asset value, beginning of period $9.45 $9.41 $9.38 $10.00
Operating ------- ------- ------- -------
Performance: Investment income -- net .21 .45 .48 .31
Realized and unrealized gain (loss) on investments -- net .09 .04 .03 (.62)
------- ------- ------- -------
Total from investment operations .30 .49 .51 (.31)
------- ------- ------- -------
Less dividends from investment income -- net (.21) (.45) (.48) (.31)
------- ------- ------- -------
Net asset value, end of period $9.54 $9.45 $9.41 $9.38
======= ======= ======= =======
Total Investment Based on net asset value per share 3.25%++ 5.29% 5.66% (3.16%)++
Return:** ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement 1.14%* .98% .76% .54%*
Net Assets: ======= ======= ======= =======
Expenses 1.59%* 1.62% 1.93% 2.03%*
======= ======= ======= =======
Investment income -- net 4.42%* 4.73% 5.20% 4.73%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $18,762 $18,407 $17,116 $14,522
Data: ======= ======= ======= =======
Portfolio turnover 49.77% 49.13% 73.86% 82.71%
======= ======= ======= =======
<CAPTION>
Financial Highlights (concluded)
Class C
For the For the
Six For the Period
Months Year Oct. 21,
The following per share data and ratios have been derived Ended Ended 1994+ to
from information provided in the financial statements. Jan. 31, July 31, July 31,
1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.46 $9.41 $9.03
Operating ------- ------- -------
Performance: Investment income -- net .21 .44 .35
Realized and unrealized gain on investments -- net .08 .05 .38
------- ------- -------
Total from investment operations .29 .49 .73
------- ------- -------
Less dividends from investment income -- net (.21) (.44) (.35)
------- ------- -------
Net asset value, end of period $9.54 $9.46 $9.41
======= ======= =======
Total Investment Based on net asset value per share 3.09%++ 5.29% 8.27%++
Return:** ======= ======= =======
Ratios to Average Expenses, net of reimbursement 1.25%* 1.09% .95%*
Net Assets: ======= ======= =======
Expenses 1.70%* 1.72% 2.04%*
======= ======= =======
Investment income -- net 4.32%* 4.62% 5.01%*
======= ======= =======
Supplemental Net assets, end of period (in thousands) $429 $449 $162
Data: ======= ======= =======
Portfolio turnover 49.77% 49.13% 73.86%
======= ======= =======
Class D
For the For the
Six For the Period
Months Year Oct. 21,
The following per share data and ratios have been derived Ended Ended 1994+ to
from information provided in the financial statements. Jan. 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.45 $9.40 $9.03
Operating ------- ------- -------
Performance: Investment income -- net .23 .49 .40
Realized and unrealized gain on investments -- net .08 .05 .37
------- ------- -------
Total from investment operations .31 .54 .77
------- ------- -------
Less dividends from investment income -- net (.23) (.49) (.40)
------- ------- -------
Net asset value, end of period $9.53 $9.45 $9.40
======= ======= =======
Total Investment Based on net asset value per share 3.36%++ 5.84% 8.74%++
Return:** ======= ======= =======
Ratios to Average Expenses, net of reimbursement .73%* .58% .38%*
Net Assets: ======= ======= =======
Expenses 1.18%* 1.21% 1.49%*
======= ======= =======
Investment income -- net 4.83%* 5.13% 5.66%*
======= ======= =======
Supplemental Net assets, end of period (in thousands) $2,196 $2,173 $1,265
Data: ======= ======= =======
Portfolio turnover 49.77% 49.13% 73.86%
======= ======= =======
* Annualized.
** Total investment returns exclude the effect of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Colorado Municipal Bond Fund (the "Fund") is part of
Merrill Lynch Multi-State Municipal Series Trust (the "Trust"). The Fund
is registered under the Investment Company Act of 1940 as a non-
diversified, open-end management investment company. These unaudited
financial statements reflect all adjustments which are, in the opinion
of management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal recurring
nature. The Fund offers four classes of shares under the Merrill Lynch
Select PricingSM 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 Merrill 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 six months ended January 31, 1997, FAM earned fees of $83,784,
of which $68,551 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 six months ended January 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 $182 $858
For the six months ended January 31, 1997, MLPF&S received contingent
deferred sales charges of $18,488 relating to transactions in Class B
Shares.
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 six months ended January 31, 1997 were $14,157,855 and $14,887,011,
respectively.
Net realized and unrealized gains (losses) as of
January 31, 1997 were as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ 457,967 $ 998,188
Financial futures contracts (145,763) --
--------- ---------
Total $ 312,204 $ 998,188
========= =========
As of January 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $998,188, of which $1,102,226 related to
appreciated securities and $104,038 related to depreciated securities.
The aggregate cost of investments at January 31, 1997 for Federal income
tax purposes was $28,539,128.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $(243,201) and $1,398,401 for the six months ended
January 31, 1997 and for the year ended July 31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the
Six Months Ended Dollar
January 31, 1997 Shares Amount
Shares sold 10,583 $101,486
Shares issued to shareholders
in reinvestment of dividends 6,388 60,885
---------- ----------
Total issued 16,971 162,371
Shares redeemed (60,599) (576,589)
---------- ----------
Net decrease (43,628) $(414,218)
========== ==========
Class A Shares for the Year Dollar
Ended July 31, 1996 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
Six Months Ended Dollar
January 31, 1997 Shares Amount
Shares sold 151,504 $1,447,866
Shares issued to shareholders
in reinvestment of dividends 18,286 174,319
---------- ----------
Total issued 169,790 1,622,185
Automatic conversion
of shares (4,130) (39,277)
Shares redeemed (146,285) (1,392,077)
---------- ----------
Net increase 19,375 $190,831
========== ==========
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
Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 9,297 $89,117
Shares issued to shareholders
in reinvestment of dividends 702 6,685
---------- ----------
Total issued 9,999 95,802
Shares redeemed (12,500) (118,836)
---------- ----------
Net decrease (2,501) $(23,034)
========== ==========
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 Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 14,432 $137,251
Automatic conversion
of shares 4,134 39,277
Shares issued to shareholders
in reinvestment of dividends 1,315 12,529
---------- ----------
Total issued 19,881 189,057
Shares redeemed (19,589) (185,837)
---------- ----------
Net increase 292 $ 3,220
========== ==========
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, 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.
