MERRILL LYNCH
COLORADO
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1998
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 -- 1/98
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch Colorado Municipal Bond Fund January 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended January 31, 1998, long-term bond yields
declined to recent historic lows. Prior to late October, the ongoing
positive combination of moderate economic growth and low inflation had
allowed interest rates to gradually move lower. During the last three
months, however, the decline in interest rates was driven more by the
continued turmoil in Asian equity markets than by fundamental
concerns. A significant "flight to quality" has benefited the US
Treasury bond market, particularly longer-maturity US Treasury bonds,
as foreign investors have sought safe haven in the relative stability
of US financial markets. Over the six months ended January 31, 1998,
US Treasury bond yields declined approximately 50 basis points (0.50%)
to 5.81%.
Without the ability to benefit from the tax advantage inherent in
municipal bonds, foreign investors have not participated in the tax-
exempt market. Consequently, municipal bond yields have not declined
dramatically as have taxable US Treasury securities. Long-term
municipal revenue bond yields, as measured by the Bond Buyer Revenue
Index, declined only 15 basis points to end the six-month period ended
January 31, 1998 at 5.33%. Nevertheless, tax-exempt bond yields have
not reached these levels since the mid-1970s.
The increase in new municipal bond issuance over the past six months
has also prevented the tax-exempt bond market from more closely
mirroring the yield declines exhibited by its taxable counterpart.
During the last six months, over $120 billion in new long-term
municipal bonds were underwritten, an increase of over 30% compared to
the same six-month period one year ago. As interest rates have
continued to decline in recent months, new tax-exempt bond issuance
has remained strong. Over $60 million in new long-term municipal
securities were issued during the last three months, an increase of
over 20% compared to the same three-month period ended January 31,
1997. During the past month, over $16 billion in new long-term
municipal securities were underwritten, representing an increase of
over 40% compared to the January 1997 level.
In our opinion, the recent correction in world equity markets has
enhanced the near-term prospects for continued low, if not declining,
interest rates in the United States. It is likely that the recent
correction will result in slower US domestic growth in the coming
months. This decline should be generated in part by reduced US export
growth. Additionally, some decline in consumer spending can also be
expected because of reduced consumer confidence. Perhaps more
importantly, it is likely that, barring a dramatic and unexpected
resurgence in domestic growth, the Federal Reserve Board will be
unwilling to raise interest rates until the full impact of the equity
market's corrections can be established.
All of these factors suggest that over the near term, interest rates,
including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable that municipal bond yields will
remain under some relative pressure because of continued strong new-
issue supply. However, the recent pace of municipal bond issuance is
likely to be unsustainable. Continued increases in bond issuance will
require lower and lower tax-exempt bond yields to generate the
economic savings necessary for additional municipal bond refinancings.
Preliminary estimates of 1998 total municipal bond issuance are
presently in the $195 billion -- $220 billion range. These estimates
suggest that recent supply pressures are likely to abate somewhat next
year, or at least exert only minimal technical pressure during 1998.
Additionally, municipal bond investors received approximately $23
billion in January coupon payments, bond maturities and proceeds from
early redemptions, which should serve to intensify investor demand in
the near future. With tax-exempt bond yields at already attractive
yield ratios relative to US Treasury bonds (approximately 90% at the
end of December 1997), any further pressure on the municipal market
may well represent an attractive investment opportunity.
Portfolio Strategy
During the six months ended January 31, 1998, our portfolio strategy
was a continuation of our positive outlook on the market. Since the
spring of 1997, the Fund has been fully invested in quality long-
duration municipal bonds, allowing it to participate in the powerful
bond market appreciation. As mentioned in our last report to
shareholders, we stated that at that time we expected to restructure
the Fund to become slightly more defensive as interest rates continued
to decline. However, we chose not to do this because of the
significant turmoil caused by the Asian financial crisis. As world
markets experienced periods of volatility, investors sought the safe
haven of US Treasury bonds which, in turn, benefited fixed-income
securities.
The structure of the Fund remained focused on quality municipal bonds.
As of January 31, 1998, 86.3% of the Fund's portfolio was rated A or
better. Looking ahead, we anticipate keeping our present portfolio
structure in place until Asia stabilizes or the US economy shows signs
of pushing inflation higher.
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
March 5, 1998
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
1/31/98 10/31/97 1/31/97 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.08 $9.84 $9.54 + 5.66% +2.44%
Class B Shares* 10.08 9.84 9.54 + 5.66 +2.44
Class C Shares* 10.08 9.84 9.54 + 5.66 +2.44
Class D Shares* 10.07 9.83 9.53 + 5.67 +2.44
Class A Shares -- Total Return* +10.84(1) +3.64(2)
Class B Shares -- Total Return* +10.28(3) +3.51(4)
Class C Shares -- Total Return* +10.17(5) +3.49(6)
Class D Shares -- Total Return* +10.74(7) +3.62(8)
Class A Shares -- Standardized 30-day Yield 4.08%
Class B Shares -- Standardized 30-day Yield 3.74%
Class C Shares -- Standardized 30-day Yield 3.64%
Class D Shares -- Standardized 30-day Yield 3.99%
* 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 $0.467 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.117 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.418 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.104 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.408 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.102 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.458 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.114 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
1997 9.62 10.01 -- 0.470 + 9.21
1/1/98 -- 1/31/98 10.01 10.08 -- 0.032 + 1.09
Total $2.063
Cumulative total return as of 1/31/98: +25.31%**
* Figures may include short-term capital gains distributions.
** Figures 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
1997 9.62 10.01 -- 0.420 + 8.66
1/1/98 -- 1/31/98 10.01 10.08 -- 0.028 + 1.05
Total $1.860
Cumulative total return as of 1/31/98: +22.67%**
* Figures may include short-term capital gains distributions.
** Figures 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
1997 9.63 10.01 -- 0.411 + 8.44
1/1/98 -- 1/31/98 10.01 10.08 -- 0.027 + 1.04
Total $1.403
Cumulative total return as of 1/31/98: +29.46%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction 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
1997 9.62 10.00 -- 0.460 + 8.99
1/1/98 -- 1/31/98 10.00 10.07 -- 0.031 + 1.08
Total $1.575
Cumulative total return as of 1/31/98: +31.71%**
* Figures may include short-term capital gains distributions.
** Figures 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 12/31/97 +9.21% +4.84%
Inception (11/26/93)
through 12/31/97 +5.38 +4.34
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/97 +8.66% +4.66%
Inception (11/26/93)
through 12/31/97 +4.85 +4.85
* 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 12/31/97 +8.44% +7.44%
Inception (10/21/94)
through 12/31/97 +8.07 +8.07
* 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 12/31/97 +8.99% +4.63%
Inception (10/21/94)
through 12/31/97 +8.64 +7.26
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Colorado Municipal Bond Fund January 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Colorado -- 90.4%
AAA Aaa $1,000 Arapahoe County, Colorado, Capital Improvement Trust Fund, Highway
Revenue Bonds (E-470 Vehicle Registration), Series A, 6.15% due
8/31/2026 (b) $1,117
AAA Aaa 1,175 Arvada, Colorado, Sales and Use Tax Revenue Refunding and Improvement
Bonds, 6.25% due 12/01/2017 (d) 1,277
AAA Aaa 500 Bayfield, Colorado, Joint School District Number 10, Building Revenue
Bonds, UT, Series R, 6.65% due 6/01/2015 (b) 567
Colorado Health Facilities Authority Revenue Bonds:
AA Aa2 1,635 Refunding (Catholic Health Initiatives), Series A, 5.125% due 12/01/2022 1,629
A1+ VMIG1+ 1,500 (Sisters of Charity Health Services), VRDN, 3.55% due 5/15/2025 (a) 1,500
NR* NR* 1,000 (Steamboat Springs Health Hospital), 5.75% due 9/15/2022 1,008
NR* Aa2 1,000 Colorado Housing Financing Authority, S/F Program, Senior Series B3,
6.80% due 11/01/2028 1,119
AA Aa 500 Colorado Springs, Colorado, Utilities Revenue Refunding Bonds, Series A,
6.50% due 11/15/2015 547
AA Aa2 1,000 Colorado Water Resource and Power Development Authority, Clean Water
Revenue Bonds, Series A, 6.30% due 9/01/2014 1,097
NR* Aa2 1,000 Colorado Water Resource and Power Development Authority, Drinking Water
Revenue Bonds, Series A, 5.30% due 9/01/2018 1,021
BBB Baa1 500 Denver, Colorado, City and County Airport Revenue Bonds, AMT, Series O,
7.75% due 11/15/2013 637
Denver, Colorado, City and County School District Number 1, Refunding,
Series A:
AA- A1 1,000 6.50% due 6/01/2010 1,188
AA- A1 2,000 6.50% due 12/01/2010 2,387
E-470 Public Highway Authority, Colorado, Revenue Refunding Bonds (b):
AAA Aaa 1,000 Senior Series A, 5% due 9/01/2026 979
AAA Aaa 5,000 Senior Series B, 5.40%** due 9/01/2025 1,217
AA- Aa 1,315 El Paso County, Colorado, School District Number 11 (Colorado Springs),
UT, 6.50% due 12/01/2010 1,566
NR* Aa1 1,000 El Paso County, Colorado, School District Number 12 (Cheyenne Mountain),
UT, 6.65% due 9/15/2014 1,148
AAA Aaa 1,600 El Paso County, Colorado, School District Number 49 (Falcon), UT, 6.50%
due 12/01/2015 (b) 1,855
AAA Aaa 1,000 Highlands Ranch, Colorado, Metropolitan District Number 2, Refunding, UT,
5% due 6/15/2016 (c) 1,003
NR* NR* 850 Highlands Ranch, Colorado, Metropolitan District Number 4, Refunding, UT,
Series A, 6.30% due 12/01/2017 909
AAA Aaa 240 La Plata County, Colorado, School District Number 9 (R Durango), UT, 6.60%
due 11/01/2017 (d) 266
AAA NR* 3,000 Larimer County, Colorado, S/F Mortgage Revenue Bonds, Series A, 5.24%**
due 8/01/2015 (f) 1,251
NR* A 750 Pitkin County, Colorado, Refunding and Improvement Bonds, UT, 6.875% due
12/01/2024 856
AAA Aaa 1,000 Routt County, Colorado, School District Number 2 (Steamboat Springs), UT,
5% due 12/01/2017 (b) 995
Puerto Rico -- 8.1%
A Baa1 1,300 Puerto Rico Commonwealth Public Improvement, Refunding, 4.50% due
7/01/2023 1,188
AAA Aaa 1,250 Puerto Rico Public Buildings Authority Revenue Bonds (Guaranteed
Government Facilities), Series B, 5% due 7/01/2027 (e) 1,237
---------
Total Investments (Cost -- $27,767) -- 98.5% 29,564
Other Assets Less Liabilities -- 1.5% 436
---------
Net Assets -- 100.0% $30,000
=========
(a) The interest rate is subject to change periodically based upon prevailing market rates.
The interest rates shown are the rates in effect at January 31, 1998.
(b) MBIA Insured.
(c) FSA Insured.
(d) FGIC Insured.
(e) AMBAC Insured.
(f) Escrowed to Maturity.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective yield at the time of purchase by the Fund.
+ 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)
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, 1998
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $27,766,593)(Note 1a) $29,564,134
Cash 199,585
Receivables:
Interest $347,443
Beneficial interest sold 63,885 411,328
------------
Deferred organization expenses (Note 1e) 8,431
Prepaid registration fees and other assets (Note 1e) 29,524
------------
Total assets 30,213,002
------------
Liabilities: Payables:
Beneficial interest redeemed 115,067
Dividends to shareholders (Note 1f) 20,895
Distributor (Note 2) 7,964
Investment adviser (Note 2) 5,108 149,034
------------
Accrued expenses and other liabilities 63,813
------------
Total liabilities 212,847
------------
Net Assets: Net assets $30,000,155
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $89,323
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 170,095
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 6,695
Class D Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 31,653
Paid-in capital in excess of par 28,882,501
Accumulated realized capital losses on investments -- net (Note 5) (977,653)
Unrealized appreciation on investments -- net 1,797,541
------------
Net assets $30,000,155
============
Net Asset Value: Class A -- Based on net assets of $8,999,692 and 893,225 shares of
beneficial interest outstanding $10.08
============
Class B -- Based on net assets of $17,138,445 and 1,700,952 shares of
beneficial interest outstanding $10.08
============
Class C -- Based on net assets of $674,791 and 66,952 shares of
beneficial interest outstanding $10.08
============
Class D -- Based on net assets of $3,187,227 and 316,525 shares of
beneficial interest outstanding $10.07
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
January 31, 1998
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $826,438
(Note 1d):
Expenses: Investment advisory fees (Note 2) $84,119
Account maintenance and distribution fees -- Class B (Note 2) 46,110
Professional fees 28,058
Accounting services (Note 2) 20,721
Printing and shareholder reports 7,999
Registration fees (Note 1e) 5,733
Transfer agent fees -- Class B (Note 2) 4,335
Amortization of organization expenses (Note 1e) 3,237
Pricing fees 2,311
Account maintenance and distribution fees -- Class C (Note 2) 1,867
Transfer agent fees -- Class A (Note 2) 1,643
Account maintenance fees -- Class D (Note 2) 1,405
Custodian fees 1,374
Trustees' fees and expenses 885
Transfer agent fees -- Class D (Note 2) 530
Transfer agent fees -- Class C (Note 2) 150
Other 1,672
-----------
Total expenses before reimbursement 212,149
Reimbursement of expenses (Note 2) (53,530)
-----------
Total expenses after reimbursement 158,619
-----------
Investment income -- net 667,819
-----------
Realized & Realized gain on investments -- net 934,251
Unrealized Gain on Change in unrealized appreciation on investments -- net (375,173)
Investments -- Net -----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $1,226,897
===========
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: 1998 1997
<S> <C> <C> <C>
Operations: Investment income -- net $667,819 $1,375,497
Realized gain on investments -- net 934,251 222,916
Change in unrealized appreciation on investments -- net (375,173) 1,129,070
----------- -----------
Net increase in net assets resulting from operations 1,226,897 2,727,483
----------- -----------
Dividends to Investment income -- net:
Shareholders Class A (204,524) (419,529)
(Note 1f): Class B (386,052) (823,087)
Class C (12,711) (19,065)
Class D (64,532) (113,816)
----------- -----------
Net decrease in net assets resulting from dividends to shareholders (667,819) (1,375,497)
----------- -----------
Beneficial Interest Net decrease in net assets derived from beneficial interest transactions (1,252,340) (465,020)
Transactions ----------- -----------
(Note 4):
Net Assets: Total increase (decrease) in net assets (693,262) 886,966
Beginning of period 30,693,417 29,806,451
----------- -----------
End of period $30,000,155 $30,693,417
=========== ===========
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 1993+ to
from information provided in the financial statements. Jan. 31, For the Year Ended July 31, July 31,
1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.89 $9.45 $9.41 $9.38 $10.00
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .23 .47 .50 .52 .34
Realized and unrealized gain (loss) on
investments -- net .19 .44 .04 .03 (.62)
--------- --------- --------- --------- ---------
Total from investment operations .42 .91 .54 .55 (.28)
--------- --------- --------- --------- ---------
Less dividends from investment income -- net (.23) (.47) (.50) (.52) (.34)
--------- --------- --------- --------- ---------
Net asset value, end of period $10.08 $9.89 $9.45 $9.41 $9.38
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 4.37%++++ 9.93% 5.83% 6.20% (2.83%)++++
Return:** ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement .71%* .62% .47% .24% .03%*
Net Assets: ========= ========= ========= ========= =========
Expenses 1.06%* 1.05% 1.12% 1.40% 1.52%*
========= ========= ========= ========= =========
Investment income -- net 4.69%* 4.94% 5.24% 5.71% 5.36%*
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $9,000 $8,481 $8,777 $9,755 $10,634
Data: ========= ========= ========= ========= =========
Portfolio turnover 69.34% 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.
</TABLE>
<TABLE>
<CAPTION>
Class B
For the For the
Six Period
Months Nov. 26,
The following per share data and ratios have been derived Ended 1993+ to
from information provided in the financial statements. Jan. 31, For the Year Ended July 31, July 31,
1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.89 $9.45 $9.41 $9.38 $10.00
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .21 .42 .45 .48 .31
Realized and unrealized gain (loss) on
investments -- net .19 .44 .04 .03 (.62)
--------- --------- --------- --------- ---------
Total from investment operations .40 .86 .49 .51 (.31)
--------- --------- --------- --------- ---------
Less dividends from investment income -- net (.21) (.42) (.45) (.48) (.31)
--------- --------- --------- --------- ---------
Net asset value, end of period $10.08 $9.89 $9.45 $9.41 $9.38
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 4.10%++++ 9.38% 5.29% 5.66% (3.16%)++++
Return:** ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement 1.22%* 1.13% .98% .76% .54%*
Net Assets: ========= ========= ========= ========= =========
Expenses 1.57%* 1.56% 1.62% 1.93% 2.03%*
========= ========= ========= ========= =========
Investment income -- net 4.19%* 4.43% 4.73% 5.20% 4.73%*
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $17,138 $18,987 $18,407 $17,116 $14,522
Data: ========= ========= ========= ========= =========
Portfolio turnover 69.34% 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.
</TABLE>
<TABLE>
<CAPTION>
Class C
For the For the
Six Period
Months Oct. 21,
The following per share data and ratios have been derived Ended For the Year 1994+ to
from information provided in the financial statements. Jan. 31, Ended July 31, July 31,
1998 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.89 $9.46 $9.41 $9.03
Operating -------- -------- -------- --------
Performance: Investment income -- net .20 .41 .44 .35
Realized and unrealized gain on investments -- net .19 .43 .05 .38
-------- -------- -------- --------
Total from investment operations .39 .84 .49 .73
-------- -------- -------- --------
Less dividends from investment income -- net (.20) (.41) (.44) (.35)
-------- -------- -------- --------
Net asset value, end of period $10.08 $9.89 $9.46 $9.41
======== ======== ======== ========
Total Investment Based on net asset value per share 4.05%++++ 9.15% 5.29% 8.27%++++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.32%* 1.23% 1.09% .95%*
Net Assets: ======== ======== ======== ========
Expenses 1.67%* 1.66% 1.72% 2.04%*
======== ======== ======== ========
Investment income -- net 4.08%* 4.33% 4.62% 5.01%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $675 $578 $449 $162
Data: ======== ======== ======== ========
Portfolio turnover 69.34% 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>
<TABLE>
<CAPTION>
Class D
For the For the
Six Period
Months Oct. 21,
The following per share data and ratios have been derived Ended For the Year 1994+ to
from information provided in the financial statements. Jan. 31, Ended July 31, July 31,
1998 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.88 $9.45 $9.40 $9.03
Operating -------- -------- -------- --------
Performance: Investment income -- net .23 .46 .49 .40
Realized and unrealized gain on investments -- net .19 .43 .05 .37
-------- -------- -------- --------
Total from investment operations .42 .89 .54 .77
-------- -------- -------- --------
Less dividends from investment income -- net (.23) (.46) (.49) (.40)
-------- -------- -------- --------
Net asset value, end of period $10.07 $9.88 $9.45 $9.40
======== ======== ======== ========
Total Investment Based on net asset value per share 4.32%++++ 9.71% 5.84% 8.74%++++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .81%* .72% .58% .38%*
Net Assets: ======== ======== ======== ========
Expenses 1.16%* 1.15% 1.21% 1.49%*
======== ======== ======== ========
Investment income -- net 4.59%* 4.84% 5.13% 5.66%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $3,187 $2,647 $2,173 $1,265
Data: ======== ======== ======== ========
Portfolio turnover 69.34% 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 January 31, 1998
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
financial 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, 1998, FAM earned fees of $84,119,
of which $53,530 was voluntarily waived.
Pursuant to 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 six months ended January 31, 1998, 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 $50 $266
Class D $28 $162
For the six months ended January 31, 1998, MLPF&S received contingent
deferred sales charges of $14,322 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, 1998 were $20,002,430 and
$21,751,129, respectively.
Net realized gains for the six months ended January 31, 1998 and net
unrealized gains as of January 31, 1998 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $934,251 $1,797,541
---------- ----------
Total $934,251 $1,797,541
========== ==========
As of January 31, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $1,797,541, of which $1,811,541 was related to
appreciated securities and $14,000 was related to depreciated
securities. The aggregate cost of investments at January 31, 1998 for
Federal income tax purposes was $27,766,593.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $1,252,340 and $465,020 for the six months ended
January 31, 1998 and for the year ended July 31, 1997, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 88,391 $872,743
Shares issued to shareholders
in reinvestment of dividends 4,688 46,278
----------- -----------
Total issued 93,079 919,021
Shares redeemed (57,438) (566,440)
----------- -----------
Net increase 35,641 $352,581
=========== ===========
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 B Shares for the Six Dollar
MonthsEnded January 31, 1998 Shares Amount
Shares sold 62,146 $614,738
Shares issued to shareholders
in reinvestment of dividends 17,922 176,846
----------- -----------
Total issued 80,068 791,584
Automatic conversion
of shares (375) (3,678)
Shares redeemed (298,698) (2,958,880)
----------- -----------
Net decrease (219,005) $(2,170,974)
=========== ===========
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 C Shares for the Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 10,413 $103,770
Shares issued to shareholders
in reinvestment of dividends 954 9,429
----------- -----------
Total issued 11,367 113,199
Shares redeemed (2,861) (28,777)
----------- -----------
Net increase 8,506 $84,422
=========== ===========
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 D Shares for the Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 56,581 $558,744
Automatic conversion
of shares 375 3,678
Shares issued to shareholders
in reinvestment of dividends 1,408 13,921
----------- -----------
Total issued 58,364 576,343
Shares redeemed (9,632) (94,712)
----------- -----------
Net increase 48,732 $481,631
=========== ===========
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
=========== ===========
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.
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
