MERRILL LYNCH
CONNECTICUT
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31,1996
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
William R. Bock, Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
<PAGE>
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.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch Connecticut
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
TO OUR SHAREHOLDERS
The Municipal Market Environment
Municipal bond yields rose dramatically over the six-month period
ended July 31, 1996. Investors became increasingly alarmed that
earlier forecasts of continued moderate growth were overly
optimistic. As indications of stronger growth were released,
particularly the strong employment reports released beginning in
March, fears of associated inflationary pressures mounted and yield
rose in response. By May and June, long-term municipal bond yields
rose into the 6.25%--6.30% range.
<PAGE>
However, in early July the combination of the Federal Reserve Board
suggesting that growth was expected to slow later in 1996 and a
temporary stock market correction allowed municipal bond yields to
fall as investors scrambled to purchase relatively scarce
securities. As measured by the Bond Buyer Revenue Bond Index, long-
term, A-rated uninsured tax-exempt bonds yielded 6.02% at July 31,
1996, an increase of over 30 basis points (0.30%) in the last six
months. Long-term US Treasury bond yields rose significantly higher
over the same period. By July 31, 1996, yields on US Treasury bonds
increased almost 100 basis points to end the six-month period at
6.97%.
The municipal bond market's recent outperformance as compared to its
taxable counterpart was largely the result of two principal factors.
First, much of the concern in the tax-exempt market regarding the
potential loss of the inherent tax-advantage of the municipal bonds
dissipated. For much of 1995, various tax proposals, such as the
flat-tax or national sales tax, were put forward either to reduce
the national debt or reform the current tax system. Most of these
proposals would have severely limited the tax advantages enjoyed by
the municipal bond market. However, in February 1996, the Kemp
Commission released its findings regarding various tax reform
proposals. While noting that numerous changes should be made, no
mention of curtailing or stopping municipal bonds' current favored
tax status was made.
The second major factor leading to the municipal bond market's
recent outperformance was the return of a more favorable technical
environment. The rate of increase in new bond issuance recently
slowed. Over the last 12 months, approximately $175 billion in long-
term municipal securities were issued, an increase of over 27% as
compared to the same period a year earlier. Much of this increase
was the result of issuers seeking to refinance their existing higher-
couponed debt as interest rates declined in 1995 and early 1996. As
interest rates rose, these financings became increasingly
economically impractical and issuance declined. Over the last six
months, less than $70 billion in long-term tax-exempt securities
were underwritten, an increase of 20% versus the comparable period a
year earlier. Only $43 billion in tax-exempt securities were issued
in the last three months, a total essentially unchanged from the
comparable quarter in 1995. In July 1996, less than $10 billion long-
term municipal bonds were issued, representing the lowest issuance
for the month of July since 1990.
<PAGE>
At the same time investor demand remained consistently strong. With
nominal new issue yields above 6%, retail investor interest was
steady. Additionally, investors received over $50 billion this June
and July in assets derived from coupon income, bond maturities, and
proceeds from early redemptions. Annual new bond issuance has
declined in recent years and is expected to remain below levels seen
in the early 1990s. Consequently, as the higher-coupon bonds issued
in the early-to-mid 1980s were redeemed at their first optional call
dates, the total number of outstanding tax-exempt bonds has
declined. This combination of a declining net supply and significant
amounts of assets helped maintain investor demand in recent months.
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance led to the yield
ratio between long-term taxable and tax-exempt securities falling
from in excess of 90% to approximately 85%. While still historically
very attractive, some institutional investors, particularly short-
term traders, began to view the tax-exempt bond market's recent
outperformance as an opportunity to sell a relatively expensive
asset. However, to the long-term investor, such a sale would
represent the loss of an attractively priced asset which may not be
easily replaced given the relative scarcity of municipal bonds under
present supply conditions.
Looking ahead, no clear consensus for the direction of interest
rates currently exists. Perhaps, the primary focus going forward
will be the extent to which the increase in interest rates seen thus
far in 1996 will negatively impact future economic growth. Should
growth slow in the interest rate-sensitive sectors of the economy,
like housing, auto, and consumer spending, as many economists assert
is likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of the US Treasury bond market.
Fiscal Year in Review
Our portfolio strategy changed markedly over the course of the
fiscal year ended July 31, 1996. As we entered the last half of the
fiscal year we anticipated that municipal bond yields would continue
to decline because of below-trend growth in the economy. Therefore,
we concentrated on seeking to enhance the total return potential of
the Fund by buying high-quality performance-oriented bonds and
selling short-term securities. However, as indications of stronger
economic growth were released, particularly the strong employment
report released in early March 1996, fears of inflationary pressures
mounted and municipal bond yields rose in response. We subsequently
adopted a more defensive portfolio strategy by adding higher-coupon
issues and selling lower-coupon bonds. We also raised the cash
reserve level of the Fund in order to seek to protect principal.
This investment strategy benefited the Fund's total returns for the
fiscal year ended July 31, 1996. The Fund also provided attractive
yields for its shareholders for the 12 months ended July 31, 1996.
<PAGE>
Looking ahead, we expect the municipal market to continue to
experience volatility within a wide trading range. Therefore our
investment strategy will be cautious. We intend to increase the
Fund's cash reserve level as the market moves higher and to
selectively buy during periods of market weakness, emphasizing high-
quality, full-coupon issues that are presently reflected in 94% of
the portfolio being A-rated or better by at least one of the major
rating agencies.
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.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(William R. Bock)
William R. Bock
Vice President and Portfolio Manager
August 30, 1996
<PAGE>
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, 1996 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.
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).
<PAGE>
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
7/31/96 4/30/96 7/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.29 $10.21 $10.23 +0.59% +0.78%
Class B Shares* 10.29 10.21 10.23 +0.59 +0.78
Class C Shares* 10.30 10.22 10.24 +0.59 +0.78
Class D Shares* 10.29 10.21 10.23 +0.59 +0.78
Class A Shares--Total Return* +6.37(1) +2.19(2)
Class B Shares--Total Return* +5.82(3) +2.06(4)
Class C Shares--Total Return* +5.72(5) +2.03(6)
Class D Shares--Total Return* +6.26(7) +2.16(8)
Class A Shares--Standardized 30-day Yield 5.22%
Class B Shares--Standardized 30-day Yield 4.93%
Class C Shares--Standardized 30-day Yield 4.83%
Class D Shares--Standardized 30-day Yield 5.12%
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.577 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.140 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.525 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.128 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.515 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.125 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.567 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.138 per share ordinary
income dividends.
</TABLE>
<PAGE>
PERFORMANCE DATA (continued)
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 B Shares compared to growth of an investment in
the Lehman Brothers Municipal Bond Index. Beginning and ending
values are:
7/1/94** 7/96
ML Connecticut Municipal Bond Fund++--
Class A Shares* $ 9,600 $11,146
ML Connecticut Municipal Bond Fund++--
Class B Shares* $10,000 $11,289
Lehman Brothers Municipal Bond Index++++ $10,000 $11,709
Total Return Based on a $10,000 Investment--Class C Shares and Class D Shares
A line 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** 7/96
ML Connecticut Municipal Bond Fund++--
Class C Shares* $10,000 $11,501
ML Connecticut Municipal Bond Fund++-- $ 9,600 $11,129
Class D Shares*
Lehman Brothers Municipal Bond Index++++ $10,000 $11,840
[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.
<PAGE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/96 +5.84% +1.60%
Inception (7/1/94)
through 6/30/96 +7.19 +5.02
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/96 +5.30% +1.30%
Inception (7/1/94)
through 6/30/96 +6.65 +5.23
[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 6/30/96 +5.29% +4.29%
Inception (10/21/94)
through 6/30/96 +7.97 +7.97
[FN]<
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/96 +5.73% +1.50%
Inception (10/21/94)
through 6/30/96 +8.46 +5.87
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
7/1/94--12/31/94 $10.00 $ 9.62 -- $0.297 - 0.84%
1995 9.62 10.64 -- 0.600 +17.25
1/1/96--7/31/96 10.64 10.29 -- 0.318 - 0.14
------
Total $1.215
Cumulative total return as of 7/31/96: +16.10%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
7/1/94--12/31/94 $10.00 $ 9.62 -- $0.271 - 1.10%
1995 9.62 10.64 -- 0.549 +16.67
1/1/96--7/31/96 10.64 10.29 -- 0.289 - 0.44
------
Total $1.109
<PAGE>
Cumulative total return as of 7/31/96: +14.89%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.82 $ 9.62 -- $0.107 - 0.93%
1995 9.62 10.65 -- 0.539 +16.66
1/1/96--7/31/96 10.65 10.30 -- 0.283 - 0.49
------
Total $0.929
Cumulative total return as of 7/31/96: +15.01%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.82 $ 9.62 -- $0.117 - 0.83%
1995 9.62 10.64 -- 0.590 +17.14
1/1/96--7/31/96 10.64 10.29 -- 0.312 - 0.20
------
Total $1.019
Cumulative total return as of 7/31/96: +15.93%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
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)
GO General Obligation Bonds
HFA Housing Finance Agency
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--90.7%
<S> <S> <C> <C> <C>
AA+ Aaa $1,000 Connecticut State Clean Water Fund Revenue Bonds, 5.80% due 6/01/2016 $ 1,006
AAA Aaa 1,000 Connecticut State Development Authority, Governmental
Lease Revenue Bonds, 6.60% due 6/15/2014 (b) 1,084
NR* VMIG1++ 900 Connecticut State Development Authority, Health Care Revenue Bonds
(Corporation Independent Living Project), VRDN, 3.45% due 7/01/2015 (a) 900
A1+ VMIG1++ 400 Connecticut State Development Authority, PCR, Refunding (Connecticut
Light &Power Co. Project), VRDN, AMT, Series B, 3.50% due 9/01/2028 (a) 400
AA- A1 2,000 Connecticut State Development Authority Revenue Bonds
(General Fund), Series A, 6.375% due 10/15/2024 2,086
<PAGE>
AAA Aaa 1,500 Connecticut State Development Authority, Solid Waste Disposal Facilities
Revenue Bonds (Pfizer Inc. Project), AMT, 7% due 7/01/2025 1,680
Connecticut State Development Authority, Water Facility Revenue
Refunding Bonds (Bridgeport Hydraulic Co.)(b):
AAA Aaa 1,000 Series A, 6.05% due 3/01/2029 1,027
AAA Aaa 1,890 Series B, 5.50% due 6/01/2028 1,821
AA- Aa 1,000 Connecticut State, GO, Series A, 5.50% due 5/15/2014 983
Connecticut State Health and Educational Facilities Authority Revenue Bonds:
AAA Aaa 1,000 (Bridgeport Hospital), Series A, 6.625% due 7/01/2018 (b) 1,064
AAA Aaa 2,000 (Choate Rosemary Hall), Series A, 7% due 7/01/2025 (b) 2,233
AAA Aaa 1,000 (Loomis Chaffee School Project), Series B, 6% due 7/01/2025 (b) 1,011
AAA Aaa 1,400 (Newington Children's Hospital), Series A, 6.30% due 7/01/2021 (b) 1,455
AA- A1 2,000 (Nursing Home Program--AHF/Hartford), 7.125% due 11/01/2024 2,240
AA- A1 1,000 Refunding (Nursing Home Program--3030 Fairfield Park Health Center
Project), 6% due 11/01/2015 1,007
BBB- Baa 1,000 Refunding (Sacred Heart University), Series C, 6.625% due 7/01/2026 1,011
AAA Aaa 900 Refunding (Trinity College), Series D, 6.125% due 7/01/2024 (c) 927
BBB- NR* 1,000 (University of New Haven), Series D, 6% due 7/01/2006 999
BBB- NR* 500 (University of New Haven), Series D, 6.625% due 7/01/2016 498
AAA Aaa 1,000 (Yale-New Haven Hospital), Series G, 6.50% due 7/01/2012 (b) 1,070
</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> <C> <C>
Connecticut State, HFA, Revenue Bonds (Housing Mortgage Finance Program):
AA Aa $1,000 AMT, Series A, Sub-Series A-2, 6.20% due 11/15/2022 $ 987
AA Aa 1,000 AMT, Series A, Sub-Series A-2, 6.50% due 5/15/2027 1,008
AA Aa 1,500 AMT, Series D, Sub-Series D-2, 6.90% due 5/15/2020 1,554
AA Aa 2,500 Series B, 6.75% due 11/15/2023 2,593
AAA Aaa 2,500 Series B, 6.75% due 11/15/2023 (b) 2,604
AA Aa 1,200 Series C-1, 6.30% due 11/15/2017 1,215
NR* A1 775 Connecticut State Higher Education, Supplemental Loan Authority Revenue
Bonds (Family Education Loan Program), AMT, Series A, 6.40% due 11/15/2014 800
NR* NR* 1,000 Connecticut State Regional Learning Educational Service Center Revenue
Bonds (Office/Education Center Facility), 7.75% due 2/01/2015 1,093
AA- Baa1 1,000 Connecticut State Resource Recovery Authority Revenue Bonds
(American Refuse Fuel), AMT, Series A, 8% due 11/15/2015 1,081
AA- A1 1,000 Connecticut State Special Tax Obligation Revenue Bonds
(Transportation Infrastructure), Series B, 6.125% due 9/01/2012 1,053
<PAGE>
AAA Aaa 500 Hartford, Connecticut, UT, 5.75% due 10/01/2015 (c) 500
NR* Aaa 400 New Canaan, Connecticut, UT, 5.50% due 2/01/2015 (d) 398
Puerto Rico--10.9%
A1+ VMIG1++ 1,000 Puerto Rico Commonwealth, Government Development Bank,
Refunding, VRDN, 3.20% due 12/01/2015 (a) 1,000
A1+ VMIG1++ 600 Puerto Rico Commonwealth, Highway and Transportation Authority,
Highway Revenue Bonds, VRDN, Series X, 3.20% due 7/01/1999 (a) 600
A- Baa1 1,500 Puerto Rico Electric Power Authority, Power Revenue
Refunding Bonds, Series U, 6% due 7/01/2014 1,504
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 1,641
Total Investments (Cost--$41,974)--101.6% 44,133
Liabilities in Excess of Other Assets--(1.6%) (699)
-------
Net Assets--100.0% $43,434
=======
<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, 1996.
(b)MBIA Insured.
(c)FGIC Insured.
(d)Bank Qualified.
++Highest short-term rating by Moody's Investors Service, Inc.
*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, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$41,973,702) (Note 1a) $44,132,902
Cash 152,923
Receivables:
Interest $ 524,544
Beneficial interest sold 314,894
Investment adviser (Note 2) 2,820 842,258
-----------
Deferred organization expenses (Note 1e) 21,316
Prepaid registration fees and other assets (Note 1e) 5,020
-----------
Total assets 45,154,419
-----------
Liabilities: Payables:
Securities purchased 1,604,718
Dividends to shareholders (Note 1f) 54,662
Distributor (Note 2) 14,152 1,673,532
-----------
Accrued expenses and other liabilities 46,702
-----------
Total liabilities 1,720,234
-----------
Net Assets: Net assets $43,434,185
===========
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 73,734
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 304,711
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 17,768
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 25,815
Paid-in capital in excess of par 41,924,084
Accumulated realized capital losses on investments--net (Note 5) (1,071,127)
Unrealized appreciation on investments--net 2,159,200
-----------
Net assets $43,434,185
===========
Net Asset Value: Class A--Based on net assets of $7,588,717 and 737,339 shares
of beneficial interest outstanding $ 10.29
===========
Class B--Based on net assets of $31,358,639 and 3,047,109 shares
of beneficial interest outstanding $ 10.29
===========
Class C--Based on net assets of $1,829,634 and 177,681 shares
of beneficial interest outstanding $ 10.30
===========
Class D--Based on net assets of $2,657,195 and 258,154 shares
of beneficial interest outstanding $ 10.29
===========
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended July 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned 2,379,924
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 220,672
Account maintenance and distribution fees--Class B (Note 2) 148,579
Professional fees 56,603
Printing and shareholder reports 41,581
Accounting services (Note 2) 35,067
Transfer agent fees--Class B (Note 2) 12,344
Registration fees (Note 1e) 9,016
Account maintenance and distribution fees--Class C (Note 2) 8,040
Amortization of organization expenses (Note 1e) 7,332
Pricing fees 4,469
Custodian fees 3,170
Transfer agent fees--Class A (Note 2) 2,506
Trustees' fees and expenses 1,906
Account maintenance fees--Class D (Note 2) 1,763
Transfer agent fees--Class D (Note 2) 587
Transfer agent fees--Class C (Note 2) 549
Other 1,625
-----------
Total expenses before reimbursement 555,809
Reimbursement of expenses (Note 2) (258,659)
-----------
Total expenses after reimbursement 297,150
-----------
Investment income--net 2,082,774
-----------
Realized & Realized loss on investments--net (336,579)
Unrealized Change in unrealized appreciation on investments--net 453,596
Gain (Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 2,199,791
(Notes 1b, 1d & 3): ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 2,082,774 $ 1,940,306
Realized loss on investments--net (336,579) (733,977)
Change in unrealized appreciation on investments--net 453,596 1,220,984
----------- -----------
Net increase in net assets resulting from operations 2,199,791 2,427,313
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (408,628) (461,871)
Shareholders Class B (1,511,028) (1,421,132)
(Note 1f): Class C (66,587) (21,114)
Class D (96,531) (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 (2,082,774) (1,946,629)
----------- -----------
Beneficial Interest Net increase in net assets derived from beneficial interest
Transactions transactions 3,186,036 16,204,480
(Note 4): ----------- -----------
Net Assets: Total increase in net assets 3,303,053 16,685,164
Beginning of year 40,131,132 23,445,968
----------- -----------
End of year $43,434,185 $40,131,132
=========== ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
Class A Class B
For the For the
Period Period
The following per share data and ratios have been derived July 1, July 1,
from information provided in the financial statements. For the Year 1994++ to For the Year 1994++ to
Ended July 31, July 31, Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.23 $ 10.22 $ 10.00 $ 10.23 $ 10.22 $ 10.00
Operating ------- ------- ------- ------- ------- -------
Performance: Investment income--net .58 .60 .05 .53 .55 .04
Realized and unrealized gain
on investments--net .06 .01 .22 .06 .01 .22
------- ------- ------- ------- ------- -------
Total from investment operations .64 .61 .27 .59 .56 .26
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.58) (.60) (.05) (.53) (.55) (.04)
Realized gain on investments--net -- --++++ -- -- --++++ --
------- ------- ------- ------- ------- -------
Total dividends and distributions (.58) (.60) (.05) (.53) (.55) (.04)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.29 $ 10.23 $ 10.22 $ 10.29 $ 10.23 $ 10.22
======= ======= ======= ======= ======= =======
Total Investment Based on net asset value per share 6.37% 6.30% 2.68%+++ 5.82% 5.77% 2.64%+++
Return:** ======= ======= ======= ======= ======= =======
Ratios to Expenses, net of reimbursement .34% .07% .00%* .85% .58% .50%*
Average ======= ======= ======= ======= ======= =======
Net Assets: Expenses .98% 1.19% 1.54%* 1.49% 1.70% 2.04%*
======= ======= ======= ======= ======= =======
Investment income--net 5.58% 6.02% 5.48%* 5.07% 5.51% 5.00%*
======= ======= ======= ======= ======= =======
Supplemental Net assets, end of period
Data: (in thousands) $ 7,589 $ 7,979 $ 6,557 $31,359 $30,265 $16,889
======= ======= ======= ======= ======= =======
Portfolio turnover 57.58% 60.99% 3.07% 57.58% 60.99% 3.07%
======= ======= ======= ======= ======= =======
<CAPTION>
Class C Class D
<PAGE>
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
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: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.24 $ 9.82 $ 10.23 $ 9.82
Operating ------- ------- ------- -------
Performance: Investment income--net .52 .42 .57 .46
Realized and unrealized gain on investments--net .06 .42 .06 .41
------- ------- ------- -------
Total from investment operations .58 .84 .63 .87
------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.52) (.42) (.57) (.46)
Realized gain on investments--net -- --++++ -- --++++
------- ------- ------- -------
Total dividends and distributions (.52) (.42) (.57) (.46)
------- ------- ------- -------
Net asset value, end of period $ 10.30 $ 10.24 $ 10.29 $ 10.23
======= ======= ======= =======
Total Investment Based on net asset value per share 5.72% 8.79%+++ 6.26% 9.10%+++
Return:** ======= ======= ======= =======
Ratios to Expenses, net of reimbursement .95% .74%* .44% .22%*
Average ======= ======= ======= =======
Net Assets: Expenses 1.58% 1.77%* 1.07% 1.27%*
======= ======= ======= =======
Investment income--net 4.96% 5.43%* 5.46% 5.96%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 1,829 $ 820 $ 2,657 $ 1,067
Data: ======= ======= ======= =======
Portfolio turnover 57.58% 60.99% 57.58% 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.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
<PAGE>
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. The Fund
offers four classes of shares under the Merrill Lynch Select
Pricingsm System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject
to a contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and Class D
Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Trust, including
valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Trust under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell interest
rate futures contracts and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
<PAGE>
(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 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 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 FAM
during any fiscal year which will cause such expenses to exceed
expense limitation at the time of payment. For the year ended July
31, 1996, FAM earned fees of $220,672, all of which was voluntarily
waived. FAM also reimbursed the Fund additional expenses of $37,987.
<PAGE>
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
Maintenance Distribution
Fee Fee
Class B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1996, 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 $ 639 $ 6,971
Class D $3,237 $33,779
For the year ended July 31, 1996, MLPF&S received contingent
deferred sales charges of $105,576 and $328 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.
<PAGE>
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.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1996 were $25,375,881 and $22,017,658,
respectively.
NOTES TO FINANCIAL STATEMENTS (concluded)
Net realized and unrealized gains (losses) as of July 31, 1996 were
as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (148,500) $ 2,159,200
Short-term investments (2,973) --
Financial futures contracts (185,106) --
----------- -----------
Total $ (336,579) $ 2,159,200
=========== ===========
As of July 31, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $2,159,200, of which $2,159,320 related to
appreciated securities and $120 related to depreciated securities.
The aggregate cost of investments at July 31, 1996 for Federal
income tax purposes was $41,973,702.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $3,186,036 and $16,204,480 for the years ended July
31, 1996 and July 31, 1995, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
<PAGE>
Shares sold 81,137 $ 836,173
Shares issued to share-
holders in reinvestment
of dividends 27,123 281,553
------------ ------------
Total issued 108,260 1,117,726
Shares redeemed (150,587) (1,552,126)
------------ ------------
Net decrease (42,327) $ (434,400)
============ ============
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 B Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 1,083,666 $ 11,283,985
Shares issued to share-
holders in reinvestment
of dividends 80,168 831,005
------------ ------------
Total issued 1,163,834 12,114,990
Automatic conversion
of shares (11,364) (117,747)
Shares redeemed (1,062,427) (10,982,309)
------------ ------------
Net increase 90,043 $ 1,014,934
============ ============
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
============ ============
<PAGE>
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 106,625 $ 1,109,389
Shares issued to share-
holders in reinvestment
of dividends 3,314 37,148
------------ ------------
Total issued 109,939 1,146,537
Shares redeemed (12,331) (128,277)
------------ ------------
Net increase 97,608 $ 1,018,260
============ ============
Class C Shares for the
Period October 21, 1994++ Dollar
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 Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 159,356 $ 1,647,385
Automatic conversion
of shares 11,364 117,747
Shares issued to share-
holders in reinvestment
of dividends 3,379 34,993
------------ ------------
Total issued 174,099 1,800,125
Shares redeemed (20,252) (212,883)
------------ ------------
Net increase 153,847 $ 1,587,242
============ ============
<PAGE>
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, 1996, the Fund had a net capital loss carry-forward of
approximately $455,000, of which $63,000 expires in 2003 and
$392,000 expires in 2004. 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, 1996, the related statements
of operations for the year then ended, 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 two-year period
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.
<PAGE>
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,
1996 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 Connecticut Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1996, 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 30, 1996
</AUDIT-REPORT>
