MERRILL LYNCH
COLORADO
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1998
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
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch Colorado
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
Merrill Lynch Colorado Municipal Bond Fund
July 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1998, long-term tax-exempt
revenue bond yields were little changed. Throughout the period, the
near absence of inflationary pressures continued to support low
interest rates. However, consistently strong domestic economic
growth has caused some investors to fear that the Federal Reserve
Board will be forced eventually to raise short-term interest rates.
Such action would be taken to ensure that the US economy's present
rate of growth would decelerate before any inflationary pressures
could develop. These concerns pushed bond yields modestly higher by
late April.
However, the weakening financial conditions in many Asian countries
subsequently calmed investor fears of Federal Reserve Board
intervention, and fixed-income prices again moved higher. Long-term
uninsured municipal bond yields, as measured by the Bond Buyer
Revenue Bond Index, rose less than 5 basis points (0.05%) to end the
July quarter at 5.36%. As in late 1997 and early 1998, US Treasury
bond yields benefited from a "flight to quality" as foreign
investors were drawn to the relative safe haven of US Government
securities. Long-term US Treasury bond yields declined approximately
10 basis points to end the July quarter at 5.71%.
Thus far in 1998, the municipal bond market has experienced
unexpectedly strong supply pressures. These supply pressures have
prevented tax-exempt bond yields from declining as much as US
Treasury bond yields. During the first six months of 1998, more than
$153 billion in new tax-exempt bonds were underwritten, an increase
of almost 50% compared to the same period a year ago. During the
quarter ended July 31, 1998, municipalities issued over $75 billion
in new securities, an increase of more than 35% compared to the same
three-month period in 1997. Additionally, corporate issuers have
also viewed current interest rate levels as an opportunity to issue
significant amounts of taxable securities. Thus far in 1998, over
$500 billion in investment-grade corporate bonds have been
underwritten, an increase of more than 70% compared to the same
period a year ago. This sizeable corporate bond issuance has tended
to both support generally higher fixed-income yields and reduce the
demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely
to be maintained. 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 for 1998 total municipal bond issuance are in
the $200 billion--$225 billion range. These estimates suggest that
recent supply pressures are likely to abate later in the year.
Earlier this year, municipal bond investors received approximately
$30 billion in coupon payments, bond maturities and proceeds from
early redemptions. The demand generated by these assets has helped
to offset the increase in supply seen thus far in 1998.
The continued impact of the Asian financial crisis on the US
domestic economy's future growth remains unclear. Current Asian
economic conditions continue to reflect ongoing weakness. Recent
trade data indicated that reduced US exports to these countries may
have lowered US economic growth by as much as 2% in the first
quarter of 1998. Since further trade deterioration is possible in
the coming months, we do not believe that the Federal Reserve Board
will be willing to raise interest rates, barring a dramatic and
unexpected resurgence of domestic inflation.
These factors suggest that over the near term, interest rates are
unlikely to rise by any appreciable amount. Recent supply pressures
have caused municipal bond yield ratios to rise relative to US
Treasury bond yields. At July 31, 1998, long-term tax-exempt bond
yields were at attractive yield ratios relative to US Treasury
securities of comparable maturities (over 90%), well in excess of
their expected range of 85%--88%. Tax-exempt bond yield ratios
rarely exceeded 90% in the 1980s and 1990s. Previous instances have
usually been associated with potential changes in Federal tax code
that would have adversely affected the tax-favored status of
municipal bonds. The present situation has developed largely because
of a temporary supply imbalance. These imbalances should soon be
corrected as tax-exempt bond issuance slows from its current rapid
pace later this year. Any further pressure on the municipal market
may well represent a very attractive investment opportunity.
Merrill Lynch Colorado Municipal Bond Fund
July 31, 1998
Portfolio Strategy
During the six-month period ended July 31, 1998, our investment
outlook for Merrill Lynch Colorado Municipal Bond Fund was basically
constructive. We believed that the strong economic growth seen in
late 1997 and thus far in 1998 would be offset by a combination of
the extremely positive inflationary environment and deteriorating
Asian economic conditions. Consequently, as 1998 progressed, we
expected tax-exempt bond yields to trade in a relatively narrow
range, with a bias toward lower bond yields. The Fund also
maintained a fully invested position in order to seek to enhance
shareholder income and participate fully in the anticipated market
improvement.
Looking ahead, we expect little change in the Fund's existing
structure. Current economic fundamentals and a strong domestic
economy, offset by equally favorable inflationary pressures, suggest
that interest rates should trade in a narrow range. Should economic
weakness in Asia reverse in the coming months and no longer
constrain US economic growth, we will look to adopt a more defensive
position for the Fund. Consequently, we expect the Fund to remain
fully invested in order to seek to generate optimal shareholder
income.
Fiscal Year in Review
During the fiscal year ended July 31, 1998, yields within the
municipal bond market generally declined, although there was
considerable monthly volatility. This volatility was largely the
result of an increase in new bond issuance compared to the same
period a year ago. During the fiscal year ended July 31, 1998, more
than $275 billion in long-term, tax-exempt securities were issued,
an increase of over 40% compared to the same period a year ago.
Colorado municipalities issued more than $5.4 billion in new
securities, representing an increase of almost 60% over the same
period. At times during the period, such increases in supply
outweighed investor demand, allowing yields to rise temporarily.
During the fiscal year, we generally maintained a constructive
approach toward the municipal bond market. The Fund was fully
invested in long-term Colorado tax-exempt issues throughout the 12-
month period. These strategies produced total returns of +5.56%,
+5.03%, +5.03% and +5.56% for the Fund's Class A, Class B, Class C
and Class D Shares, respectively, for the year ended July 31, 1998.
This compares to the Lipper Analytical Services, Inc. average total
return of +5.58% for similar Colorado tax-exempt funds during the
same 12-month period.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Colorado
Municipal Bond Fund, and we look forward to serving your investment
needs in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
September 3, 1998
Merrill Lynch Colorado Municipal Bond Fund
July 31, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.25% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 10 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.35% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" 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>
Recent Performance Results*
<CAPTION>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 7/31/98
<S> <C> <C> <C>
ML Colorado Municipal Bond Fund Class A Shares +5.56% +2.65% +26.74% 4.18%
ML Colorado Municipal Bond Fund Class B Shares +5.03 +2.52 +23.76 3.84
ML Colorado Municipal Bond Fund Class C Shares +5.03 +2.60 +30.67 3.74
ML Colorado Municipal Bond Fund Class D Shares +5.56 +2.73 +33.29 4.08
<FN>
*Investment results shown do not reflect sales charges; results
would be lower if a sales charge was included. Total investment
returns are based on changes in net asset values for the periods
shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date. The Fund's
inception dates are Class A and Class B Shares, 11/26/93 and Class C
and Class D Shares, 10/21/94.
</TABLE>
Merrill Lynch Colorado Municipal Bond Fund
July 31, 1998
PERFORMANCE DATA (concluded)
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** 7/98
ML Colorado Municipal Bond Fund++--
Class A Shares* $ 9,600 $12,166
ML Colorado Municipal Bond Fund++--
Class B Shares* $10,000 $12,376
Lehman Brothers Municipal Bond
Index++++ $10,000 $13,351
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** 7/98
ML Colorado Municipal Bond Fund++--
Class C Shares* $10,000 $13,067
ML Colorado Municipal Bond Fund++--
Class D Shares* $ 9,600 $12,795
Lehman Brothers Municipal Bond
Index++++ $10,000 $13,837
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++ML Colorado Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the state of
Colorado, its political subdivisions, agencies and instrumentalities
and obligations of other qualifying issuers.
++++This unmanaged Index consists of long-term revenue bonds,
prerefunded bonds, general obligation bonds and insured bonds. The
starting date for the Index in the Class A & Class B Shares graph is
11/30/93 and in the Class C & Class D Shares graph is 10/31/94.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/98 +8.61% +4.27%
Inception (11/26/93)
through 6/30/98 +5.27 +4.34
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/98 +8.06% +4.06%
Inception (11/26/93)
through 6/30/98 +4.74 +4.74
[FN]
*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 6/30/98 +7.96% +6.96%
Inception (10/21/94)
through 6/30/98 +7.47 +7.47
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/98 +8.51% +4.17%
Inception (10/21/94)
through 6/30/98 +8.03 +6.85
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Colorado Municipal Bond Fund
July 31, 1998
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)
COP Certificates of Participation
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
Colorado--102.3%
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) $ 1,108
AAA Aaa 1,175 Arvada, Colorado, Sales and Use Tax Revenue Refunding and Improvement Bonds,
6.25% due 12/01/2017 (d) 1,262
AAA Aaa 1,000 Avon, Colorado, COP, 5% due 12/01/2018 (b) 982
AAA Aaa 500 Bayfield, Colorado, Joint School District Number 10, Building Revenue Bonds,
UT, Series R, 6.65% due 6/01/2015 (b) 560
NR* NR* 1,000 Colorado Health Facilities Authority Revenue Bonds (Steamboat Springs
Health Hospital), 5.75% due 9/15/2022 1,015
AA Aa2 1,000 Colorado Housing Financing Authority, M/F Insured Mortgage Program,
Refunding, Series C3, 5.65% due 10/01/2015 1,030
Colorado Housing Financing Authority, S/F Program:
NR* Aa2 1,000 Senior Series A3, 6.50% due 11/01/2029 1,109
NR* Aa2 1,000 Senior Series B3, 6.80% due 11/01/2028 1,121
Colorado Springs, Colorado, Utilities Revenue Bonds:
AA Aa2 1,500 RITR, Series 19, 6.695% due 11/15/2026 (c) 1,547
AA Aa2 500 Refunding, Series A, 6.50% due 11/15/2015 543
AAA Aa1 1,000 Colorado Water Resource Power Development Authority, Clean Water Revenue
Bonds, Series A, 6.30% due 9/01/2014 1,087
Denver, Colorado, City and County Airport Revenue Bonds:
BBB Baa1 500 AMT, Series D, 7.75% due 11/15/2013 625
AAA Aaa 1,500 RITR, Series 13, 6.52% due 11/15/2023 (b)(c) 1,507
AA- A1 2,000 Denver, Colorado, City and County School District Number 1, Refunding,
Series A, 6.50% due 12/01/2010 2,352
BBB Baa2 1,000 Denver, Colorado, Health and Hospital Authority, Healthcare Revenue Bonds,
Series A, 5.375% due 12/01/2028 976
E-470 Public Highway Authority, Colorado, Revenue Refunding Bonds (b):
AAA Aaa 1,100 Senior Series A, 5% due 9/01/2026 1,066
AAA Aaa 5,000 Senior Series B, 5.40%** due 9/01/2025 1,229
AA- Aa3 1,315 El Paso County, Colorado, School District Number 11 (Colorado Springs), UT,
6.50% due 12/01/2010 1,541
</TABLE>
Merrill Lynch Colorado Municipal Bond Fund
July 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
Colorado (concluded)
NR* Aa1 $1,000 El Paso County, Colorado, School District Number 12 (Cheyenne Mountain),
UT, 6.65% due 9/15/2005 (e) $ 1,146
AAA Aaa 1,600 El Paso County, Colorado, School District Number 49 (Falcon), UT, 6.50%
due 12/01/2015 (b) 1,834
NR* Aaa 1,000 Fort Collins, Colorado, COP (Civic Center Facilities Project), 5.125%
due 12/01/2018 (b) 993
NR* NR* 850 Highlands Ranch, Colorado, Metropolitan District Number 4, Refunding, UT,
Series A, 6.30% due 12/01/2017 914
AAA Aaa 240 La Plata County, Colorado, School District Number 9 (R Durango), UT,
6.60% due 11/01/2017 (d) 263
AAA Aaa 1,000 Moffat County, Colorado, COP (Public Safety Center Project), 5.125% due
6/01/2023 (f) 989
A1+ VMIG1++ 400 Moffat County, Colorado, PCR, Refunding (Pacificorp Projects), VRDN,
3.65% due 5/01/2013 (a)(f) 400
A1+ NR* 300 Pitkin County, Colorado, IDR, Refunding (Aspen Skiing Co. Project),
VRDN, AMT, Series B, 3.80% due 4/01/2014 (a) 300
NR* A 750 Pitkin County, Colorado, Refunding and Improvement Bonds, UT, 6.875%
due 12/01/2024 850
Puerto Rico--3.4%
BBB+ Baa1 1,000 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds
Series EE, 4.75% due 7/01/2024 934
Total Investments (Cost--$27,969)--105.7% 29,283
Liabilities in Excess of Other Assets--(5.7%) (1,569)
-------
Net Assets--100.0% $27,714
=======
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at July 31, 1998.
(b)MBIA Insured.
(c)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at July 31, 1998.
(d)FGIC Insured.
(e)Prerefunded.
(f)AMBAC Insured.
*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.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Colorado Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$27,968,874) (Note 1a) $ 29,283,180
Cash 106,991
Receivables:
Interest $ 370,879
Beneficial interest sold 44,668 415,547
------------
Deferred organization expenses (Note 1e) 2,046
Prepaid registration fees and other assets (Note 1e) 26,155
------------
Total assets 29,833,919
------------
Liabilities: Payables:
Securities purchased 1,980,051
Beneficial interest redeemed 90,304
Dividends to shareholders (Note 1f) 19,830
Distributor (Note 2) 7,617
Investment adviser (Note 2) 5,018 2,102,820
------------
Accrued expenses and other liabilities 16,957
------------
Total liabilities 2,119,777
------------
Net Assets: Net assets $ 27,714,142
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 93,689
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 156,432
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 6,758
Class D Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 21,248
Paid-in capital in excess of par 26,945,044
Accumulated realized capital losses on investments--net (Note 5) (823,335)
Unrealized appreciation on investments--net 1,314,306
------------
Net assets $ 27,714,142
============
Net Asset Value: Class A--Based on net assets of $9,336,054 and 936,893 shares of
beneficial interest outstanding $ 9.96
============
Class B--Based on net assets of $15,588,446 and 1,564,323 shares of
beneficial interest outstanding $ 9.96
============
Class C--Based on net assets of $673,576 and 67,579 shares of
beneficial interest outstanding $ 9.97
============
Class D--Based on net assets of $2,116,066 and 212,478 shares of
beneficial interest outstanding $ 9.96
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Colorado Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1998
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 1,606,163
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 163,150
Account maintenance and distribution fees--Class B (Note 2) 86,750
Professional fees 52,120
Accounting services (Note 2) 43,948
Printing and shareholder reports 17,242
Registration fees (Note 1e) 12,556
Transfer agent fees--Class B (Note 2) 7,789
Amortization of organization expenses (Note 1e) 6,384
Pricing fees 4,513
Account maintenance and distribution fees--Class C (Note 2) 3,766
Transfer agent fees--Class A (Note 2) 3,174
Custodian fees 2,851
Account maintenance fees--Class D (Note 2) 2,798
Trustees' fees and expenses 1,711
Transfer agent fees--Class D (Note 2) 994
Transfer agent fees--Class C (Note 2) 289
Other 2,351
------------
Total expenses before reimbursement 412,386
Reimbursement of expenses (Note 2) (103,823)
------------
Total expenses after reimbursement 308,563
------------
Investment income--net 1,297,600
------------
Realized & Realized gain on investments--net 1,088,569
Unrealized Change in unrealized appreciation on investments--net (858,408)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 1,527,761
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Colorado Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 1,297,600 $ 1,375,497
Realized gain on investments--net 1,088,569 222,916
Change in unrealized appreciation on investments--net (858,408) 1,129,070
------------ ------------
Net increase in net assets resulting from operations 1,527,761 2,727,483
------------ ------------
Dividends to Investment income--net:
Shareholders Class A (417,250) (419,529)
(Note 1f): Class B (726,172) (823,087)
Class C (25,629) (19,065)
Class D (128,549) (113,816)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (1,297,600) (1,375,497)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial
Interest interest transactions (3,209,436) (465,020)
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (2,979,275) 886,966
Beginning of year 30,693,417 29,806,451
------------ ------------
End of year $ 27,714,142 $ 30,693,417
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Colorado Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Nov. 26, 1993++
For the Year Ended July 31, to July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <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 .47 .47 .50 .52 .34
Realized and unrealized gain (loss) on
investments--net .07 .44 .04 .03 (.62)
-------- -------- -------- -------- --------
Total from investment operations .54 .91 .54 .55 (.28)
-------- -------- -------- -------- --------
Less dividends from investment income--net (.47) (.47) (.50) (.52) (.34)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.96 $ 9.89 $ 9.45 $ 9.41 $ 9.38
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.56% 9.93% 5.83% 6.20% (2.83%)+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .72% .62% .47% .24% .03%*
Net Assets: ======== ======== ======== ======== ========
Expenses 1.07% 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) $ 9,336 $ 8,481 $ 8,777 $ 9,755 $ 10,634
Data: ======== ======== ======== ======== ========
Portfolio turnover 131.91% 108.22% 49.13% 73.86% 82.71%
======== ======== ======== ======== ========
<CAPTION>
Class B
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Nov. 26, 1993++
For the Year Ended July 31, to July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <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 .42 .42 .45 .48 .31
Realized and unrealized gain (loss) on
investments--net .07 .44 .04 .03 (.62)
-------- -------- -------- -------- --------
Total from investment operations .49 .86 .49 .51 (.31)
-------- -------- -------- -------- --------
Less dividends from investment income--net (.42) (.42) (.45) (.48) (.31)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.96 $ 9.89 $ 9.45 $ 9.41 $ 9.38
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.03% 9.38% 5.29% 5.66% (3.16%)+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.23% 1.13% .98% .76% .54%*
Net Assets: ======== ======== ======== ======== ========
Expenses 1.58% 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) $ 15,588 $ 18,987 $ 18,407 $ 17,116 $ 14,522
Data: ======== ======== ======== ======== ========
Portfolio turnover 131.91% 108.22% 49.13% 73.86% 82.71%
======== ======== ======== ======== ========
<FN>
*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, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Oct. 21, 1994++
For the Year Ended July 31, to July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <S> <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 .41 .41 .44 .35
Realized and unrealized gain on investments--net .08 .43 .05 .38
-------- -------- -------- --------
Total from investment operations .49 .84 .49 .73
-------- -------- -------- --------
Less dividends from investment income--net (.41) (.41) (.44) (.35)
-------- -------- -------- --------
Net asset value, end of period $ 9.97 $ 9.89 $ 9.46 $ 9.41
======== ======== ======== ========
Total Investment Based on net asset value per share 5.03% 9.15% 5.29% 8.27%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.33% 1.23% 1.09% .95%*
Net Assets: ======== ======== ======== ========
Expenses 1.68% 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) $ 674 $ 578 $ 449 $ 162
Data: ======== ======== ======== ========
Portfolio turnover 131.91% 108.22% 49.13% 73.86%
======== ======== ======== ========
<CAPTION>
Class D
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Oct. 21, 1994++
For the Year Ended July 31, to July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <S> <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 .46 .46 .49 .40
Realized and unrealized gain on investments--net .08 .43 .05 .37
-------- -------- -------- --------
Total from investment operations .54 .89 .54 .77
-------- -------- -------- --------
Less dividends from investment income--net (.46) (.46) (.49) (.40)
-------- -------- -------- --------
Net asset value, end of period $ 9.96 $ 9.88 $ 9.45 $ 9.40
======== ======== ======== ========
Total Investment Based on net asset value per share 5.56% 9.71% 5.84% 8.74%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .82% .72% .58% .38%*
Net Assets: ======== ======== ======== ========
Expenses 1.17% 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) $ 2,116 $ 2,647 $ 2,173 $ 1,265
Data: ======== ======== ======== ========
Portfolio turnover 131.91% 108.22% 49.13% 73.86%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Colorado Municipal Bond Fund
July 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. The Fund offers
four classes of shares under the Merrill Lynch Select Pricing SM
System. Shares of Class A and Class D are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and Class D
Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Trust, including
valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Trust under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell 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 period not exceeding five years. 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.
Merrill Lynch Colorado Municipal Bond Fund
July 31, 1998
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 ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is 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, 1998, FAM earned fees of $163,150, of
which $103,823 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 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, 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 $ 81 $ 516
Class D $238 $1,501
For the year ended July 31, 1998, MLPF&S received contingent
deferred sales charges of $20,973 and $286 relating to transactions
in Class B and Class C Shares, respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1998 were $37,156,978 and $38,085,213,
respectively.
Net realized gains for the year ended July 31, 1998 and unrealized
gains as of July 31, 1998 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $1,088,569 $1,314,306
---------- ----------
Total $1,088,569 $1,314,306
========== ==========
As of July 31, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $1,314,306, of which $1,376,413 was related
to appreciated securities and $62,107 was related to depreciated
securities. The aggregate cost of investments at July 31, 1998 for
Federal income tax purposes was $27,968,874.
Merrill Lynch Colorado Municipal Bond Fund
July 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $3,209,436 and $465,020 for the years ended July
31, 1998 and July 31, 1997, respectively.
Class A Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 172,724 $ 1,711,096
Shares issued to shareholders
in reinvestment of dividends 9,328 92,555
---------- -----------
Total issued 182,052 1,803,651
Shares redeemed (102,743) (1,017,942)
---------- -----------
Net increase 79,309 $ 785,709
========== ===========
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 Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 104,428 $ 1,036,993
Shares issued to shareholders
in reinvestment of dividends 34,071 337,920
---------- -----------
Total issued 138,499 1,374,913
Automatic conversion of shares (2,510) (25,001)
Shares redeemed (491,623) (4,883,768)
---------- -----------
Net decrease (355,634) $(3,533,856)
========== ===========
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 Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 28,304 $ 282,278
Shares issued to shareholders
in reinvestment of dividends 1,924 19,108
---------- -----------
Total issued 30,228 301,386
Shares redeemed (21,095) (209,591)
---------- -----------
Net increase 9,133 $ 91,795
========== ===========
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 Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 69,461 $ 686,529
Automatic conversion of shares 2,512 25,001
Shares issued to shareholders
in reinvestment of dividends 3,103 30,818
---------- -----------
Total issued 75,076 742,348
Shares redeemed (130,391) (1,295,432)
---------- -----------
Net decrease (55,315) $ (553,084)
========== ===========
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, 1998, the Fund had a net capital loss carryforward of
approximatley $466,000, of which $340,000 expires in 2003 and
$126,000 expires in 2004. This amount will be available to offset
like amounts of any future taxable gains.
Merrill Lynch Colorado Municipal Bond Fund
July 31, 1998
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Colorado Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Colorado Municipal Bond Fund of Merrill Lynch Multi-State Municipal
Series Trust as of July 31, 1998, 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 four-year period
then ended and for the period November 26, 1993 (commencement of
operations) to July 31, 1994. These financial statements and the
financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at July 31,
1998 by correspondence with the custodian and brokers. 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, 1998, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 5, 1998
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
Merrill Lynch Colorado Municipal Bond Fund during its taxable year
ended July 31, 1998 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.
