MERRILL
LYNCH
CONNECTICUT
MUNICIPAL
BOND FUND
Annual Report July 31, 1994
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.
Merrill Lynch Connecticut
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, New Jersey
08543-9011
<PAGE>
TO OUR SHAREHOLDERS
We are pleased to provide you with this first annual report for
Merrill Lynch Connecticut Municipal Bond Fund. In this and future
reports to shareholders we will detail the Fund's performance, as
well as describe the investment environment and portfolio strategies
undertaken during the period under review.
The Environment
The expectation of increasing inflationary pressures and higher
interest rates initially heightened investor concerns and increased
financial market volatility during the July quarter. However, as the
quarter progressed, it was the weakness of the US dollar in foreign
exchange markets that dominated the financial news and prolonged
stock and bond market declines. Although the US dollar had
strengthened slightly by July quarter-end, which may have improved
investor confidence in the stock and bond markets, the possibility
of continued tightening by the Federal Reserve Board resurfaced
following Chairman Alan Greenspan's recent Congressional testimony.
Nevertheless, as the quarter drew to a close, a lower-than-expected
rate of growth reported for the US economy during the second
calendar quarter allayed investor concerns and led to stock and bond
market rallies.
During the July quarter, the US dollar's weakness relative to other
major currencies reflected the deteriorating US trade deficit and
widening net long-term capital outflows. In 1993, an expanding US
economy and recession in other industrial countries led to a higher
level of imports and weaker export growth, widening the US trade
deficit further. In addition, global investors favored non-US dollar
denominated assets throughout 1993, which has further depressed the
dollar's value. This trend is not improving significantly thus far
in 1994 since foreign inflows into US capital markets continue to
decline, although US investors are investing outside of the United
States to a lesser degree.
<PAGE>
Over the longer term, if the economies of the United States' major
trading partners expand (improving the prospects for US export
growth), the outlook for the US dollar is likely to improve. In the
near term, central banks have attempted to reverse the dollar's
decline through currency market intervention. These efforts have met
with limited success thus far, giving rise to the concern that the
Federal Reserve Board will be forced to continue to raise short-term
interest rates to attract investment capital back to the United
States and bolster the dollar's value. However, further interest
rate increases may jeopardize the US economic expansion. Despite
evidence of a moderating trend in the US economy, Federal Reserve
Board Chairman Alan Greenspan indicated in his July Humphrey-Hawkins
testimony that the central bank would prefer to err on the side of
too much monetary tightening rather than too little. In the weeks
ahead, investors will continue to assess economic data and
inflationary trends as they focus on the US dollar in order to gauge
whether further increases in short-term interest rates are imminent.
Continued indications of moderate and sustainable levels of economic
growth would be positive for the US capital markets.
The Municipal Market
Long-term tax-exempt bond yields ended the July quarter essentially
unchanged. The Bond Buyer Revenue Bond Index rose five basis points
(0.05%) to 6.47%. The Index, however, failed to capture the dramatic
bold rally on July 29, l994, when municipal bond yields experienced
their largest one-day decline thus far this year. Responding to
reports of a continued mild inflationary outlook and a potentially
weakening economy, municipal bond yields declined by approximately
10 basis points. US Treasury bonds displayed a similar pattern over
the July quarter, ending with an equally dramatic rally on July 29,
1994. Long-term US Treasury bonds ended the quarter yielding
approximately 7.40%.
The tax-exempt bond market has continued to be very volatile with
yields fluctuating by as much as 15 basis points from week to week.
This continued volatility is largely a reflection of the same lack
of conviction regarding the near-term direction of interest rates
that has prevailed for much of 1994. Throughout the July quarter,
the municipal bond market had been unable to maintain a consensus
regarding either the potential strength of current economic recovery
or the resultant response by the Federal Reserve Board. However, a
number of economic indicators released in late July began to suggest
that the robust pace of recent economic growth was slowing. This
promoted a more positive market environment, culminating in the
market rally on July 29.
<PAGE>
The municipal bond market's technical position has remained
supportive. Approximately $40 billion in long-term securities were
issued during the three months ended July 31, 1994. This represents
a decline of over 50% versus the July quarter from the previous
year. This reduction in new-issue supply minimized the selling
pressure by larger institutional investors who fear being unable to
purchase sizable amounts of securities in the future. Such a
significant decline in issuance would normally be expected to
trigger a decline in yields as investors chase a commodity in scarce
supply. Investor demand, however, has also diminished somewhat in
recent months as net flows into long-term municipal bond funds have
dramatically slowed or, in some instances, reversed. Consequently,
the supply/demand relationship within the municipal bond market has
remained in balance, promoting the overall stability in yield levels
seen in the past months.
With after-tax equivalents in excess of 10%, long-term tax-exempt
bonds continue to represent considerable value relative to other
investment alternatives. We continue to anticipate that municipal
bond yields will decline further in late 1994 and into 1995. The
economic impact of the significant interest rate increases
experienced since early February have yet to be totally realized.
The resultant drag on the economy should provide the foundation for
further interest rate declines. Under such a scenario, current tax-
exempt bond yields may prove to represent considerable value.
Portfolio Strategy
Merrill Lynch Connecticut Municipal Bond Fund commenced operations
on July 1, 1994. Our initial strategy was to invest the portfolio as
quickly as possible in long-term municipal bonds. The recent
positive trend in the municipal bond market has borne that strategy
out. Demand for Connecticut municipal bonds is strong while supply
volume remains low. Connecticut new-issue municipal bond supply is
down 60% this past quarter compared to a 50% decline in the national
supply. The supply picture allowed the Connecticut sector of the tax-
exempt market to continue to outperform the general market. We chose
to emphasize quality securities with 90% of the portfolio rated A or
better. As we embark on a new fiscal year, we will continue to seek
investment opportunities that offer shareholders a competitive level
of tax-exempt income.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Connecticut
Municipal Bond Fund, and we look forward to assisting you with your
financial needs in the months and years ahead.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
August 15, 1994
PERFORMANCE DATA
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
Class A and Class B Shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
<TABLE>
Recent Performance Results*
<CAPTION>
Since Inception
7/31/94 7/1/94** % Change
<S> <C> <C> <C>
Class A Shares $10.22 $10.00 + 2.20%
Class B Shares 10.22 10.00 + 2.20
Class A Shares--Total Return + 2.68(1)
Class B Shares--Total Return + 2.64(2)
Class A Shares--Standardized 30-day Yield 5.07%
Class B Shares--Standardized 30-day Yield 4.82%
<FN>
*Investment results shown are before the deduction of any sales
charges.
**Commencement of Operations.
(1)Percent change includes reinvestment of $0.037 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.034 per share ordinary
income dividends.
</TABLE>
<PAGE>
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by
Merrill Lynch Connecticut Municipal Bond Fund during its taxable
period ended July 31, 1994 qualify as tax-exempt interest dividends
for Federal income tax purposes.
Additionally, there were no capital gains distributed by the Fund
during the period.
Please retain this information for your records.
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Kenneth S. Axelson, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
National Westminster Bank NJ
Exchange Place Centre
10 Exchange Place
Jersey City, New Jersey 07302
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
<PAGE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Connecticut
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)
CP Commercial Paper
GO General Obligation Bonds
PCR Pollution Control Revenue Bonds
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)
Connecticut--69.3%
<S> <S> <C> <S> <C>
AA+ Aa $ 500 Connecticut State Clean Water Fund Revenue Bonds, 5.80% due 6/01/2016 $ 485
A1+ VMIG1 200 Connecticut State Development Authority, PCR, Refunding (Connecticut Light
& Power Co.), VRDN, Series A, 2.80% due 9/01/2028 (a) 200
Connecticut State Development Authority, Water Facilities, Revenue
Refunding Bonds:
AAA Aaa 1,000 (Bridgeport Hydraulic), Series A, AMT, 5.60% due 6/01/2028 (b) 922
AAA Aaa 1,150 (The Connecticut Water Company Project), Series A, 5.75% due 7/01/2028 (d) 1,086
A+ NR 500 (Stamford Water Company Project), 5.30% due 9/01/2028 433
AA- Aa 500 Connecticut State GO, Refunding, Series B, UT, 5.50% due 3/15/2012 480
<PAGE>
Connecticut State Health and Educational Facilities Authority Revenue
Bonds:
AAA Aaa 1,000 (Bridgeport Hospital), Series A, 6.625% due 7/01/2018 (b) 1,052
NR Baa1 500 (Griffin Hospital), Series A, 5.75% due 7/01/2023 435
AAA Aaa 500 (New Britain Hospital), Series B, 6% due 7/01/2024 (d) 495
AAA Aaa 500 Refunding (Trinity College), Series D, 6.125% due 7/01/2024 (c) 500
AA- A1 2,000 (Saint Camillus Health Center Project), 6.25% due 11/01/2018 1,980
AAA Aaa 500 (Saint Francis Hospital and Medical Center), Series C, 5% due 7/01/2023 (c) 420
A NR 500 (Taft School Issue), Series B, 5.40% due 7/01/2020 441
NR A1 820 Connecticut State Higher Education, Supplemental Loan Authority Revenue
Bonds (Family Education Loan Program), Series A, AMT, 6.40% due 11/15/2014 823
AAA Aaa 2,500 Connecticut State Housing Finance Authority Revenue Bonds (Housing Mortgage
Finance Program), Series B, 6.75% due 11/15/2023 (b) 2,570
Connecticut State Special Assessment, Unemployment Compensation, Advanced
Fund Revenue Bonds:
A-1 VMIG1 300 Series B, VRDN, 2.95% due 11/01/2001 (a) 300
A-1+ P1 700 Series C, 3.85% due 7/01/1995 (c) 699
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Connecticut (concluded)
<S> <S> <C> <S> <C>
Connecticut State Special Tax Obligation Revenue Bonds (Transportation
Infrastructure):
A1 VMIG1 $ 500 Second Lien, Series 1, VRDN, 3.05% due 12/01/2010 (a) $ 500
AA- A1 500 Series C, 5% due 10/01/2013 438
AAA Aaa 500 South Central Connecticut, Regulation Water Authority, Water System Revenue
Bonds, 11th Series, 5.75% due 8/01/2012 (c) 486
Westport, Connecticut, GO, UT:
NR Aaa 580 5.75% due 6/15/2012 575
NR Aaa 250 5.75% due 6/15/2013 248
Woodstock, Connecticut, GO, UT (Bank Qualified) (c):
AAA Aaa 345 6% due 2/15/2011 350
AAA Aaa 340 6% due 2/15/2012 344
Puerto Rico--31.5%
<PAGE>
A Baa1 2,500 Puerto Rico Commonwealth, GO, UT, 6.50% due 7/01/2023 2,577
A Baa1 2,500 Puerto Rico Commonwealth Highway and Transportation Authority, Highway
Revenue Refunding Bonds, Series V, 6.62% due 7/01/2012 2,608
Puerto Rico Electric Power Authority, Power Revenue Bonds:
A- Baa1 500 Series R, 6.25% due 7/01/2017 503
A- Baa1 500 Series T, 6% due 7/01/2016 489
A1+ P1 200 Puerto Rico Maritime Shipping Authority Revenue Bonds, CP, 2.65% due 8/04/1994 200
A+ A 1,000 Puerto Rico Telephone Authority, Revenue Refunding Bonds, Series L, 6.125%
due 1/01/2022 1,005
Total Investments (Cost--$23,160)--100.8% 23,644
Liabilities in Excess of Other Assets--(0.8%) (198)
-------
Net Assets--100.0% $23,446
=======
<FN>
(a)The interest rate is subject to change periodically based upon
the prevailing market rate. The interest rate shown is the rate in
effect at July 31, 1994.
(b)MBIA Insured.
(c)FGIC Insured.
(d)AMBAC Insured.
NR--Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<PAGE>
<TABLE>
Statement of Assets and Liabilities as of July 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$23,159,839) (Note 1a) $23,644,459
Cash 56,452
Receivables:
Beneficial interest sold $ 554,241
Securities sold 498,961
Interest 217,976
Investment adviser (Note 2) 16,461 1,287,639
-----------
Deferred organization expenses (Note 1e) 46,792
Prepaid registration fees and other assets (Note 1e) 5,053
-----------
Total assets 25,040,395
-----------
Liabilities: Payables:
Securities purchased 1,504,589
Dividends to shareholders (Note 1f) 20,790
Distributor (Note 2) 5,795 1,531,174
-----------
Accrued expenses and other liabilities 63,253
-----------
Total liabilities 1,594,427
-----------
Net Assets: Net assets $23,445,968
===========
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 64,150
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 165,221
Paid-in capital in excess of par 22,726,225
Undistributed realized capital gains--net 5,752
Unrealized appreciation on investments--net 484,620
-----------
Net assets $23,445,968
===========
Net Asset Class A--Based on net assets of $6,557,221 and 641,497 shares of
Value: beneficial interest outstanding $ 10.22
===========
Class B--Based on net assets of $16,888,747 and 1,652,211 shares of
beneficial interest outstanding $ 10.22
===========
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Period July 1, 1994++ to
July 31, 1994
<S> <S> <C>
Investment Interest and amortization of premium and discount earned $ 90,519
Income
(Note 1d):
Expenses: Registration fees (Note 1e) 9,891
Investment advisory fees (Note 2) 9,061
Distribution fees--Class B (Note 2) 5,795
Accounting services (Note 2) 1,813
Professional fees 1,700
Amortization of organization expenses (Note 1e) 808
Custodian fees 537
Transfer agent fees--Class B (Note 2) 317
Pricing fees 275
Transfer agent fees--Class A (Note 2) 115
Other 1,005
-----------
Total expenses before reimbursement 31,317
Reimbursement of expenses (Note 2) (25,522)
-----------
Total expenses after reimbursement 5,795
-----------
Investment income--net 84,724
-----------
Realized & Realized gain on investments--net 5,752
Unrealized Unrealized appreciation on investments--net 484,620
Gain on -----------
Investments Net Increase in Net Assets Resulting from Operations $ 575,096
- --Net (Notes ===========
1d & 3):
</TABLE>
<PAGE>
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
For the Period July 1, 1994++ to
Increase (Decrease) in Net Assets: July 31, 1994
<S> <S> <C>
Operations: Investment income--net $ 84,724
Realized gain on investments--net 5,752
Unrealized appreciation on investments--net 484,620
-----------
Net increase in net assets resulting from operations 575,096
-----------
Dividends to Investment income--net:
Shareholders Class A (26,747)
(Note 1f): Class B (57,977)
-----------
Net decrease in net assets resulting from dividends to shareholders (84,724)
-----------
Beneficial Net increase in net assets derived from beneficial interest transactions 22,855,596
Interest -----------
Transactions
(Note 4):
Net Assets: Total increase in net assets 23,345,968
Beginning of period 100,000
-----------
End of period $23,445,968
===========
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period July 1, 1994++
to July 31, 1994
Increase (Decrease) in Net Asset Value: Class A Class B
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00
Operating ----------- -----------
Performance: Investment income--net .05 .04
Realized and unrealized gain on investments--net .22 .22
----------- -----------
Total from investment operations .27 .26
----------- -----------
Less dividends:
Investment income--net (.05) (.04)
----------- -----------
Total dividends (.05) (.04)
----------- -----------
Net asset value, end of period $ 10.22 $ 10.22
=========== ===========
Total Based on net asset value per share 2.68%+++ 2.64%+++
Investment =========== ===========
Return:**
Ratios to Expenses, net of reimbursement and excluding distribution fees -- --
Average =========== ===========
Net Assets: Expenses, net of reimbursement -- .50%*
=========== ===========
Expenses 1.54%* 2.04%*
=========== ===========
Investment income--net 5.48%* 5.00%*
=========== ===========
Supplemental Net assets, end of period (in thousands) $ 6,557 $ 16,889
Data: =========== ===========
Portfolio turnover 3.07% 3.07%
=========== ===========
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Connecticut 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. Prior to
commencement of operations on July 1, 1994, the Fund had no
operations other than those relating to organizational matters and
the issuance of 5,000 Class A Shares of beneficial interest and
5,000 Class B Shares of beneficial interest of the Fund to Fund
Asset Management, L.P. ("FAM") for $100,000. The Fund offers both
Class A and Class B Shares. Class A Shares are sold with a front-end
sales charge. Class B Shares may be subject to a contingent deferred
sales charge. Both classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and
conditions, except that Class B Shares bear certain expenses related
to the distribution of such shares and have exclusive voting rights
with respect to matters relating to such 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. Options, which
are traded on exchanges, are valued at their last sale price as of
the close of such exchanges or, lacking any sales, at the last
available bid price. Short-term investments with a remaining
maturity of sixty days or less are valued on an amortized cost
basis, 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.
<PAGE>
(b)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 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
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 beginning with the commencement
of operations. 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM.
Effective January 1, 1994, the investment advisory business of FAM
was reorganized from a corporation to a limited partnership. Both
prior to and after the reorganization, ultimate control of FAM was
vested with Merrill Lynch & Co., Inc. ("ML & Co."). The general
partner of FAM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of ML & Co. The limited partners are ML &
Co. and Fund Asset Management, Inc. ("FAMI"), which is also an
indirect wholly-owned subsidiary of ML & Co. The Fund has also
entered into Distribution Agreements and a Distribution Plan with
Merrill Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a
wholly-owned subsidiary of Merrill Lynch Investment Management, Inc.
("MLIM"), which is also an indirect wholly-owned subsidiary of ML
&Co.
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 the average daily net assets exceeding $500 million but
not exceeding $1.0 billion; and 0.50% of average daily net assets in
excess of $1 billion. For the period ended July 31, 1994, FAM earned
fees of $9,061, all of which was voluntarily waived. FAM also
reimbursed the Fund for additional expenses of $16,461.
Pursuant to a distribution plan (the "Distribution Plan") 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 which are accrued daily and paid
monthly at the annual rates of 0.25% and 0.25%, respectively, of the
average daily net assets of the Class B Shares of the Fund. Pursuant
to a sub-agreement with the Distributor, Merrill Lynch also provides
account maintenance and distribution services to the Fund. The
ongoing account maintenance fee compensates the Distributor and
Merrill Lynch for providing account maintenance services to Class B
shareholders. As authorized by the Plan, the Distributor has entered
into an agreement with Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), an affiliate of ML & Co., which provides for the
compensation of MLPF&S for providing distribution-related services
to the Fund. For the period ended July 31, 1994, MLFD earned
underwriting discounts of $627, and MLPF&S earned dealer concessions
of $77,812 on sales of the Fund's Class A Shares.
<PAGE>
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, FAMI, PSI, MLFD, MLIM, FDS, MLPF&S, and/or ML &
Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period ended July 31, 1994 were $21,750,595 and $496,335,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1994 were
as follows:
Unrealized
Realized Gains
Gains (Losses)
Long-term investments $ 5,740 $ 485,922
Short-term investments 12 (1,302)
----------- -----------
Total $ 5,752 $ 484,620
=========== ===========
As of July 31, 1994, net unrealized appreciation for Federal income
tax purposes aggregated $484,620, of which $485,922 related to
appreciated securities and $1,302 related to depreciated securities.
The aggregate cost of investments at July 31, 1994 for Federal
income tax purposes was $23,159,839.
<PAGE>
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $22,855,596 for the period ended July 31, 1994.
Transactions in shares of beneficial interest for Class A and Class
B Shares were as follows:
Class A Shares for the Period Dollar
July 1, 1994++ to July 31, 1994 Shares Amount
Shares sold 635,204 $ 6,356,790
Shares issued to shareholders
in reinvestment of dividends 1,293 13,068
----------- -----------
Total issued 636,497 6,369,858
----------- -----------
Net increase 636,497 $ 6,369,858
=========== ===========
[FN]
++Prior to July 1, 1994 (commencement of operations), the Fund
issued 5,000 shares to FAM for $50,000.
Class B Shares for the Period Dollar
July 1, 1994++ to July 31, 1994 Shares Amount
Shares sold . 1,702,575 $17,045,224
Shares issued to shareholders
in reinvestment of dividends. 2,852 28,836
----------- -----------
Total issued 1,705,427 17,074,060
Shares redeemed (58,216) (588,322)
----------- -----------
Net increase 1,647,211 $16,485,738
=========== ===========
[FN]
++Prior to July 1, 1994 (commencement of operations), the Fund
issued 5,000 shares to FAM for $50,000.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Connecticut 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
Connecticut Municipal Bond Fund of Merrill Lynch Multi-State
Municipal Series Trust as of July 31, 1994, the related statements
of operations and changes in net assets, and the financial highlights
for the period July 1, 1994 (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 audit.
We conducted our audit 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,
1994 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 audit provides
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 Connecticut Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1994, the results of its
operations, the changes in its net assets, and the financial
highlights for the period July 1, 1994 to July 31, 1994 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 29, 1994
