MERRILL LYNCH
CONNECTICUT
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1995
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
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, 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, NJ
08543-9011
TO OUR SHAREHOLDERS
In the July quarter, economic data generally showed evidence of
slowing activity. Gross domestic product growth for the first three
months of 1995 was reported at 2.7%, the weakest showing in the past
18 months. Other signs of a sluggish economy included lackluster
durable goods orders, slowing growth in the manufacturing sector,
and three consecutive months of declines in the Index of Leading
Economic Indicators, an occurrence which has often (but not always)
forecast recessions. As a result, concerns arose that the economic
"soft landing" could turn into an actual recession. However, at the
same time there were also expectations that a few months of very
slow or zero growth would be followed by a pickup in economic
activity later in the year. This view was supported by the stronger-
than-expected employment data for June and an upward revision in
May's employment figures, as well as improving housing activity
measures and consumer confidence surveys.
Thus far in 1995, economic developments have been very positive for
the US stock and bond markets, and most US stock market averages
recently have attained record levels. In contrast, the US dollar has
been persistently weak, especially relative to the yen. Following
the Federal Reserve Board's cut in short-term interest rates in
early July, continued signs of a moderating expansion and well-
contained inflationary pressures could provide further assurance
that the peak in US interest rates is behind us, creating a stronger
foundation for higher stock and bond prices. On the other hand,
indications of reaccelerating growth and increasing inflationary
pressures would likely suggest that higher interest rates are on the
horizon, a negative development for the US financial markets. The
outcome of the current deliberations on reducing the Federal budget
deficit will also play a role in the investment outlook for the US
capital markets.
The Municipal Market
Tax-exempt bond yields exhibited considerable volatility during the
three months ended July 31, 1995. Municipal bond yields initially
fell throughout May into early June as evidence of a slowing
domestic economy and moderate inflationary pressures accumulated. As
measured by the Bond Buyer Revenue Bond Index, yields of A-rated,
uninsured tax-exempt revenue bonds declined 35 basis points (0.35%)
to 5.94%. By late June, however, amid signs of a potentially
resurgent economy, particularly in the rebounding housing sector,
bond yields returned to their April quarter's levels of
approximately 6.30%. The lowering of short-term interest rates by
the Federal Reserve Board in early July temporarily restored
investor confidence and tax-exempt bond yields fell to 6.05%. As
additional economic indicators were released during July, investors
again saw signs that the economy was regaining momentum and that the
Federal Reserve Board action had been premature. Fears that an
expanding economy would have negative inflationary consequences
pushed municipal bond yields higher, ending the July 31, 1995
quarter essentially unchanged at 6.27%. US Treasury bond yields
exhibited a similar pattern of volatility during the July quarter.
However, US Treasury bond yields continued to decline, falling
approximately 50 basis points to 6.85%.
Municipal bonds have underperformed US Treasury securities for a
number of reasons. The record highs of the US equity market have
continued to attract retail investors seeking further capital gains.
Investor demand has also been diminished in recent months by the
"sticker shock" effect that periodically affects the municipal bond
market. Investors who had become accustomed to purchasing tax-exempt
securities in the 6.50%--7.00% range six to seven months ago have
demonstrated understandable reluctance to purchase similar
securities at current levels. The strong fundamental structure of
the municipal bond market, however, suggests that such hesitancy may
prove costly.
However, the major reason by far for the tax-exempt market's recent
underperformance has been concerns regarding the implication for
municipal bonds' tax advantage resulting from various proposed tax
law changes (for example, flat tax, value-added tax or national
sales tax) that have reduced investor demand for tax-exempt
products. Such concerns are likely to quickly recede as investors
realize that such, if any, changes are unlikely to be enacted before
late 1996 at the earliest. Long-term investors will also recall 1986
when similar tax proposals were made, municipal bond yields
initially rose, in some instances, to over 100% of taxable yields.
Tax-exempt bond yields quickly declined as investors' fears proved
to be unfounded.
The municipal bond market's strong technical position has diminished
somewhat in recent months. New-issue supply over the last six months
has totaled approximately $71 billion, or a decline of over 20%
compared to the corresponding period in 1994. In recent months,
however, municipalities issued approximately $41 billion in new
securities, which represents only a 6% decline versus the same
period a year earlier. Investor demand has remained muted in recent
months despite significant funds available to investors. By the end
of July investors, both individual and institutional, are expected
to have received as much as $80 billion from tax-exempt bond
maturities, coupon payments and the proceeds of early bond
redemptions. Little new money has entered the municipal market in
recent months, largely in response to the factors mentioned above.
Consequently, much of the technical support the municipal market
enjoyed earlier this year has evaporated, causing municipal bond
yields to decline at a slower rate than their taxable counterparts.
However, the recent relative underperformance of municipal bonds has
made them particularly attractive to long-term investors. Tax-exempt
bonds currently yield well over 90% of US Treasury securities. In
some instances, A-rated, long-term revenue bonds have yielded almost
95% of US Treasury bonds. Analysts usually consider municipal bonds
yielding over 82% of US Treasury securities to be historically
attractive. With inflation-adjusted, "real" after-tax equivalent tax-
exempt yields of over 6.50%, municipal securities appear to
represent considerable value.
Current tax-exempt yield levels appear to be overcompensating for
any proposed changes in tax law that can reasonably be expected to
be enacted. As Congressional hearings on this matter would continue
into 1996, and the revenue losses resultant from such changes become
more apparent, the likelihood of any significant changes to tax
codes and the resultant decline of municipal bonds' inherent tax
advantage should decline. Under such a scenario, tax-exempt bond
yields would quickly decline and currently available municipal bond
yields would return to their normal historic relationship.
Fiscal Year in Review
Since the Fund's inception on July 1, 1994, our portfolio strategy
has concentrated on sustaining an attractive level of tax-exempt
income by emphasizing the acquisition of high-quality, current-
coupon income-oriented issues. During the 12 months ended July 31,
1995, there were two entirely different market environments. The
Bond Buyer Revenue Bond Index was at 6.50% in July 1994, rose to a
high of 7.27% by December 1994 and fell to 6.21% in July 1995.
During the first six months of 1995, we had a cautious approach to
the market. Nevertheless, market turbulence created a number of
buying opportunities, and our approach involved selective buying
during pronounced weakness. We also had the need to respond to an
astonishing decrease in new-issue supply of over 58% of Connecticut
municipal securities. During the past six months, our investment
strategy reflected our decidedly more optimistic view toward the
municipal bond market. As a consequence, we kept the Fund fully
invested and kept cash reserves at a minimum. This investment
approach allowed the Fund to benefit from the municipal bond
market's rebound that occurred during the last half of the fiscal
year. The result of these strategies has been a positive total
return and a competitive current yield for our shareholders.
Looking ahead, we expect the Fund's investment strategy to continue
to involve investing new assets in high-quality, current-coupon
securities that are presently reflected in the 95% of the portfolio
rated A or better by at least one of the major rating agencies.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
August 29, 1995
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been 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.
* 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).
Performance data for all of the Fund's shares are presented in the
"Recent Performance Results," "Total Return Based on a $10,000
Investment" and "Aggregate Total Return" tables below and on page 4.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for Class A and Class B
Shares for the 12-month and 3-month periods ended July 31, 1995 and
for Class C and Class D Shares for the since inception (October 21,
1994) and 3-month periods ended July 31, 1995. All data in this
table assume imposition of the actual total expenses incurred by
each class of shares during the relevant period.
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
7/31/95 4/30/95 7/31/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.23 $10.08 $10.22 +0.10% +1.49%
Class B Shares* 10.23 10.08 10.22 +0.10 +1.49
Class C Shares* 10.24 10.09 9.82 +4.28 +1.49
Class D Shares* 10.23 10.08 9.82 +4.18 +1.49
Class A Shares--Total Return* +6.30(1) +2.98(2)
Class B Shares--Total Return* +5.77(3) +2.85(4)
Class C Shares--Total Return* +8.79(5) +2.82(6)
Class D Shares--Total Return* +9.10(7) +2.95(8)
Class A Shares--Standardized 30-day Yield 5.62%
Class B Shares--Standardized 30-day Yield 5.34%
Class C Shares--Standardized 30-day Yield 5.24%
Class D Shares--Standardized 30-day Yield 5.52%
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
++Investment results shown for Class C and Class D Shares are since
inception (10/21/94).
(1)Percent change includes reinvestment of $0.601 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.150 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.550 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.137 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.414 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.135 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.452 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.148 per share ordinary
income dividends.
</TABLE>
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:
7/1/94** 7/31/95
ML Connecticut Municipal Bond Fund--
Class A Shares $ 9,600 $10,478
ML Connecicut Municipal Bond Fund--
Class B Shares++ $10,000 $10,556
Lehman Brothers Municipal Bond Index++++ $10,000 $10,984
[FN]
*Assuming maximum sales chharge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML Connecticut Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the State of
Connecticut, its political subdivisions, agencies and
instrumentalities and obligations of other qualifying issuers.
++++This unmanaged Index consists of long-term revenue bonds,
prerefunded bonds, general obligation bonds and insured bonds.
Past performance is not predictive of future performance.
Aggregate Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Inception (7/1/94)
through 6/30/95 +8.55% +4.21%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Inception (7/1/94) through 6/30/95 +8.01% +4.01%
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
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 B 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** 7/31/95
ML Connecticut Municipal Bond Fund--
Class C Shares++ $10,000 $10,779
ML Connecticut Municipal Bond Fund--
Class D Shares++ $ 9,600 $10,474
Lehman Brothers Municipal Bond Index++++ $10,000 $11,107
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML Connecticut Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the State of
Connecticut, its political subdivisions, agencies and
instrumentalities and obligations of other qualifying issuers.
++++This unmanaged Index consists of long-term revenue bonds,
prerefunded bonds, general obligation bonds and insured bonds.
Past performance is not predictive of future performance.
Aggregate Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94)
through 6/30/95 +8.14% +7.14%
[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*
Inception (10/21/94) through 6/30/95 +8.51% +4.17%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
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)
HFA Housing Finance Agency
PCR Pollution Control Revenue Bonds
S/F Single-Family
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--87.4%
<S> <S> <C> <S> <C>
AA+ Aa $1,000 Connecticut State Clean Water Fund Revenue Bonds, 5.80% due 6/01/2016 $ 990
AAA Aaa 1,000 Connecticut State Development Authority, Governmental Lease Revenue Bonds,
6.60% due 6/15/2014 (b) 1,060
NR* VMIG1++ 300 Connecticut State Development Authority, Health Care Revenue Bonds
(Independent Living Project), VRDN, 3.70% due 7/01/2015 (a) 300
Connecticut State Development Authority, PCR, Refunding (Connecticut
Light & Power Co. Project), VRDN (a):
A1+ VMIG1++ 400 Series A, 3.85% due 9/01/2028 400
A1+ VMIG1++ 200 Series B, AMT, 3.95% due 9/01/2028 200
AA- A1 1,380 Connecticut State Development Authority Revenue Bonds (General Fund),
Series A, 6.375% due 10/15/2024 1,430
AAA Aaa 1,500 Connecticut State Development Authority, Solid Waste Disposal Facilities
Revenue Bonds (Pfizer Inc. Project), AMT, 7% due 7/01/2025 1,610
Connecticut State Development Authority, Water Facilities, Revenue
Refunding Bonds:
AAA Aaa 1,000 (Bridgeport Hydraulic Co.), Series A, 6.05% due 3/01/2029 (b) 993
AAA Aaa 1,150 (The Connecticut Water Company Project), AMT, Series A, 5.75% due
7/01/2028 (d) 1,081
A+ NR* 500 (Stamford Water Company Project), 5.30% due 9/01/2028 434
A1 VMIG1++ 200 Connecticut State Economic Recovery Notes, VRDN, Series B, 3.75%
due 6/01/1996 (a) 200
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
AAA Aaa 2,000 (Choate Rosemary Hall), Series A, 7% due 7/01/2025 (b) 2,186
NR* Baa1 500 (Griffin Hospital), Series A, 5.75% due 7/01/2023 409
AAA Aaa 1,000 (Loomis Chaffee School Project), Series B, 6% due 7/01/2025 (b) 985
AAA Aaa 1,400 (Newington Children's Hospital), Series A, 6.30% due 7/01/2021 (b) 1,427
AA- A1 2,000 (Nursing Home Program), 7.125% due 11/01/2024 2,214
AAA Aaa 900 Refunding (Trinity College), Series D, 6.125% due 7/01/2024 (c) 906
AAA Aaa 1,450 (Yale-New Haven Hospital), Series G, 6.50% due 7/01/2012 (b) 1,514
AAA Aaa 800 (Yale University), 5.928% due 6/10/2030 785
Connecticut State HFA Revenue Bonds (Housing Mortgage Finance Program):
AA Aa 1,000 AMT, Series A, Sub-Series A-2, 6.45% due 5/15/2022 992
AA Aa 1,000 AMT, Series A, Sub-Series A-2, 6.50% due 5/15/2027 998
AA Aa 1,500 AMT, Series D, Sub-Series D-2, 6.90% due 5/15/2020 1,545
AA Aa 2,500 Series B, 6.75% due 11/15/2023 2,585
AAA Aaa 2,500 Series B, 6.75% due 11/15/2023 (b) 2,603
</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>
NR* A1 $ 795 Connecticut State Higher Education, Supplemental Loan Authority
Revenue Bonds (Family Education Loan Program), AMT, Series A, 6.40%
due 11/15/2014 $ 816
NR* NR* 1,000 Connecticut State Regional Learning Educational Service Center
Revenue Bonds (Office/Education Center Facilities), 7.75% due 2/01/2015 1,037
AA- Baa1 1,000 Connecticut State Resource Recovery Authority, Revenue Refunding Bonds
(American Refuse Fuel), AMT, Series A, 8% due 11/15/2015 1,106
Connecticut State Special Tax Obligation Revenue Bonds (Transportation
Infrastructure), Series A (c):
AAA Aaa 765 5.60% due 6/01/2013 748
AAA Aaa 1,000 5.60% due 6/01/2015 965
AAA Aaa 1,500 South Central Connecticut, Regulation Water Authority, Water System
Revenue Bonds, 11th Series, 5.75% due 8/01/2012 (c) 1,506
Puerto Rico--11.0%
Puerto Rico Commonwealth, Highway and Transportation Authority,
Highway Revenue Bonds:
A Baa1 1,000 Refunding, Series X, 5.50% due 7/01/2015 944
A Baa1 1,000 Series W, 5.50% due 7/01/2015 937
AAA Aaa 900 Puerto Rico Housing, Banking and Finance Agency, S/F Mortgage Revenue
Bonds (Affordable Housing Mortgage-Portfolio I), AMT, 6.25% due 4/01/2029 899
AA Aa3 1,500 Puerto Rico Industrial, Medical and Environmental Pollution Control
Facilities, Financing Authority Revenue Bonds (Motorola Inc. Project),
Series A, 6.75% due 1/01/2014 1,622
Total Investments (Cost--$37,773)--98.4% 39,479
Other Assets Less Liabilities--1.6% 652
-------
Net Assets--100.0% $40,131
=======
<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, 1995.
(b)MBIA Insured.
(c)FGIC Insured.
(d)AMBAC Insured.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche
LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$37,773,123) (Note 1a) $39,478,727
Cash 54,571
Receivables:
Interest $ 466,736
Beneficial interest sold 114,485
Investment adviser (Note 2) 55,367 636,588
-----------
Deferred organization expenses (Note 1e) 28,648
Prepaid registration fees and other assets (Note 1e) 15,001
-----------
Total assets 40,213,535
-----------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 41,798
Distributor (Note 2) 12,418 54,216
-----------
Accrued expenses and other liabilities 28,187
-----------
Total liabilities 82,403
-----------
Net Assets: Net assets $40,131,132
===========
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 77,967
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 295,707
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 8,007
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 10,431
Paid-in capital in excess of par 38,767,964
Accumulated realized capital losses on investments--net (Note 5) (734,548)
Unrealized appreciation on investments--net 1,705,604
-----------
Net assets $40,131,132
===========
Net Asset Value: Class A--Based on net assets of $7,979,518 and 779,666 shares
of beneficial interest outstanding $ 10.23
===========
Class B--Based on net assets of $30,264,531 and 2,957,066 shares
of beneficial interest outstanding $ 10.23
===========
Class C--Based on net assets of $819,742 and 80,073 shares
of beneficial interest outstanding $ 10.24
===========
Class D--Based on net assets of $1,067,341 and 104,307 shares
of beneficial interest outstanding $ 10.23
===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1995
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,099,955
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 189,526
Account maintenance and distribution fees--Class B (Note 2) 128,965
Printing and shareholder reports 92,438
Professional fees 43,914
Accounting services (Note 2) 41,674
Transfer agent fees--Class B (Note 2) 11,457
Registration fees (Note 1e) 10,220
Amortization of organization expenses (Note 1e) 7,312
Custodian fees 4,218
Pricing fees 4,212
Transfer agent fees--Class A (Note 2) 2,933
Account maintenance and distribution fees--Class C (Note 2) 2,335
Trustees' fees and expenses 1,520
Account maintenance fees--Class D (Note 2) 607
Transfer agent fees--Class D (Note 2) 222
Transfer agent fees--Class C (Note 2) 174
Other 2,280
-----------
Total expenses before reimbursement 544,007
Reimbursement of expenses (Note 2) (384,358)
-----------
Total expenses after reimbursement 159,649
-----------
Investment income--net 1,940,306
-----------
Realized & Realized loss on investments--net (733,977)
Unrealized Change in unrealized appreciation on investments--net 1,220,984
Gain (Loss) -----------
on Investments Net Increase in Net Assets Resulting from Operations $ 2,427,313
--Net (Notes 1b, ===========
1d & 3):
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the
Period
For the Year July 1, 1994++
Ended to July 31,
Increase (Decrease) in Net Assets: July 31, 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 1,940,306 $ 84,724
Realized gain (loss) on investments--net (733,977) 5,752
Change in unrealized appreciation on investments--net 1,220,984 484,620
----------- -----------
Net increase in net assets resulting from operations 2,427,313 575,096
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (461,871) (26,747)
Shareholders Class B (1,421,132) (57,977)
(Note 1f): Class C (21,114) --
Class D (36,189) --
Realized gain on investments--net:
Class A (1,473) --
Class B (4,654) --
Class C (67) --
Class D (129) --
----------- -----------
Net decrease in net assets resulting from dividends and
distributions to shareholders (1,946,629) (84,724)
----------- -----------
Beneficial Net increase in net assets derived from beneficial
Interest interest transactions 16,204,480 22,855,596
Transactions ----------- -----------
(Note 4):
Net Assets: Total increase in net assets 16,685,164 23,345,968
Beginning of period 23,445,968 100,000
----------- -----------
End of period $40,131,132 $23,445,968
=========== ===========
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A Class B
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year July 1, Year July 1,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.22 $ 10.00 $ 10.22 $ 10.00
Operating ------- ------- ------- -------
Performance: Investment income--net .60 .05 .55 .04
Realized and unrealized gain on investments--net .01 .22 .01 .22
------- ------- ------- -------
Total from investment operations .61 .27 .56 .26
------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.60) (.05) (.55) (.04)
Realized gain on investments--net --++++ -- --++++ --
------- ------- ------- -------
Total dividends and distributions (.60) (.05) (.55) (.04)
------- ------- ------- -------
Net asset value, end of period $ 10.23 $ 10.22 $ 10.23 $ 10.22
======= ======= ======= =======
Total Investment Based on net asset value per share 6.30% 2.68%+++ 5.77% 2.64%+++
Return:** ======= ======= ======= =======
Ratios to Expenses, excluding account maintenance and
Average distribution fees and net of reimbursement .07% .00% .08% .00%
Net Assets: ======= ======= ======= =======
Expenses, net of reimbursement .07% .00% .58% .50%*
======= ======= ======= =======
Expenses 1.19% 1.54%* 1.70% 2.04%*
======= ======= ======= =======
Investment income--net 6.02% 5.48%* 5.51% 5.00%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 7,979 $ 6,557 $30,265 $16,889
Data: ======= ======= ======= =======
Portfolio turnover 60.99% 3.07% 60.99% 3.07%
======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++ to
July 31, 1995
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 9.82 $ 9.82
Operating ----------- -----------
Performance: Investment income--net .42 .46
Realized and unrealized gain on investments--net .42 .41
----------- -----------
Total from investment operations .84 .87
----------- -----------
Less dividends and distributions:
Investment income--net (.42) (.46)
Realized gain on investments--net --++++ --++++
----------- -----------
Total dividends and distributions (.42) (.46)
----------- -----------
Net asset value, end of period $ 10.24 $ 10.23
=========== ===========
Total Investment Based on net asset value per share 8.79%+++ 9.10%+++
Return:** =========== ===========
Ratios to Expenses, excluding account maintenance and distribution
Average fees and net of reimbursement .14%* .12%*
Net Assets: =========== ===========
Expenses, net of reimbursement .74%* .22%*
=========== ===========
Expenses 1.77%* 1.27%*
=========== ===========
Investment income--net 5.43%* 5.96%*
=========== ===========
Supplemental Net assets, end of period (in thousands) $ 820 $ 1,067
Data: =========== ===========
Portfolio turnover 60.99% 60.99%
=========== ===========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Connecticut Municipal Bond Fund (the "Fund") is a
series 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 interest
rate futures contracts and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits andEmaintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agreesEto 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. The Investment Advisory Agreement obligates
FAM to reimburse the Fund to the extent of the Fund's expenses
(excluding interest taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of the Fund's
next $70 million of average daily net assets, and 1.5% of the
average daily net assets in excess thereof. No fee payment will be
made to the Investment Adviser during any fiscal year which will
cause such expenses to exceed the pro rata expense limitation at the
time of such payment. For the period ended July 31, 1995, FAM earned
fees of $189,526, all of which was voluntarily waived. FAM also
reimbursed the Fund additional expenses of $194,832.
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1995, 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 $2,775 $28,749
Class D $1,479 $18,540
For the year ended July 31, 1995, MLPF&S received contingent
deferred sales charges of $35,238 and $7 relating to transactions in
Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1995 were $34,168,671 and $19,023,920,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1995 were
as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (510,080) $ 1,705,604
Short-term investments (4,375) --
Financial futures contracts (219,522) --
------------ ------------
Total $ (733,977) $ 1,705,604
============ ============
As of July 31, 1995, net unrealized appreciation for Federal income
tax purposes aggregated $1,705,604 of which $1,763,029 related to
appreciated securities and $57,425 related to depreciated
securities. The aggregate cost of investments at July 31, 1995 for
Federal income tax purposes was $37,773,123.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $16,204,480 and $22,855,596 for the year ended July
31, 1995 and the period ended July 31, 1994, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 209,452 $ 2,077,114
Shares issued to share-
holders in reinvestment
of dividends & distributions 29,893 297,919
------------ ------------
Total issued 239,345 2,375,033
Shares redeemed (101,176) (1,024,995)
------------ ------------
Net increase 138,169 $ 1,350,038
============ ============
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 share-
holders in reinvestment
of dividends 1,293 13,068
------------ ------------
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 Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 1,748,461 $ 17,443,829
Shares issued to share-
holders in reinvestment of
dividends & distributions 98,302 980,903
------------ ------------
Total issued 1,846,763 18,424,732
Shares redeemed (541,908) (5,365,859)
------------ ------------
Net increase 1,304,855 $ 13,058,873
============ ============
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.
Class C Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 86,725 $ 857,547
Shares issued to share-
holders in reinvestment of
dividends & distributions 885 8,941
------------ ------------
Total issued 87,610 866,488
Shares redeemed (7,537) (76,804)
------------ ------------
Net increase 80,073 $ 789,684
============ ============
<FN>
++Commencement of Operations.
Class D Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 109,791 $ 1,061,351
Shares issued to share-
holders in reinvestment of
dividends & distributions 960 9,053
------------ ------------
Total issued 110,751 1,070,404
Shares redeemed (6,444) (64,519)
------------ ------------
Net increase 104,307 $ 1,005,885
============ ============
<FN>
++Commencement of Operations.
5. Capital Loss Carryforward:
At July 31, 1995, the Fund had a net capital loss carryforward of
approximately $62,000, all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable
gains.
<AUDIT-REPORT>
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, 1995, the related statements
of operations for the year then ended and changes in net assets, and
the financial highlights for the year then ended and 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 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,
1995 by correspondence with the custodian. 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 Connecticut Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1995, 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
August 29, 1995
</TABLE>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
Merrill Lynch Connecticut Municipal Bond Fund during its taxable
period ended July 31, 1995 qualify as tax-exempt interest dividends
for Federal income tax purposes.
Additionally, the Fund distributed short-term capital gains of
$.001866 per share to shareholders of record as of December 20,
1994. There were no long-term capital gains distributed during the
year.
Please retain this information for your records.
