MERRILL LYNCH
CONNECTICUT
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Annual Report
July 31, 1997
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 #18138 -- 7/97
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1997, a number of very favorable
factors combined to push both tax-exempt and taxable bond yields to
recent historic lows. A slowing domestic economy, a continued benign,
ifnot improving, inflationary environment, a declining Federal budget
deficit with resultant reduced Treasury borrowing needs, and a
successful Congressional budget accord all resulted in significant
declines in fixed-income yields. By the end of July, 30-year US Treasury
bond yields had declined approximately 50 basis points (0.50%) to 6.30%,
their lowest level in over a year. Similarly, as measured by the Bond
Buyer Revenue Bond Index, long-term municipal revenue bond yields fell
over 50 basis points to end the July 31, 1997 quarter at 5.49%,
their lowest level since early 1994.
The decline in tax-exempt yields in recent months has been even more
impressive given that the municipal market has lost much of the
technical support it had enjoyed for over a year. In previous quarters,
new tax-exempt bond issuance declined or remained stable. During the six
months ended July 31, 1997, approximately $100 billion in new long-term
municipal securities was underwritten, an increase of over 7.5% versus
the comparable period in 1996. As tax-exempt bond yields declined, many
municipal bond issuers have taken this opportunity to both issue new
debt and refinance older, higher-couponed debt with new, lower-yielding
issues. This refinancing has led to a surge in tax-exempt issuance in
recent months. Over the three months ended July 31, 1997, new
long-term tax-exempt bond issuance totaled approximately $55 billion, an
increase of over 15% versus the July 31, 1996 quarter.
The decline in municipal bond yields has also resulted in some reduction
in retail investor demand. In earlier episodes of rapidly declining
interest rates, individual investor demand initially fell until
investors became more acclimated to the current levels. Should interest
rates stabilize, we expect investor demand to return to earlier levels.
Also, this past June and July, municipal bond investors received over
$50 billion in assets from coupon income payments, bond maturities, and
the proceeds from early bond redemptions. Despite the continued allure
of the US equity market, it is likely that much of these assets will be
reallocated to the municipal bond market as investors adjust to the new
investment environment.
Looking forward, given the extent of the recent bond market rally, some
retrenchment or at least a period of consolidation is likely. However,
the positive backdrop of modest economic growth and low inflation
suggests that any such adjustment is not likely to be excessive. Despite
recent increases in new bond issuance, supply for all of 1997 is not
expected to be materially different than earlier estimates of
approximately $175 billion. It is likely that the recent increase in
issuance has largely borrowed from that originally scheduled for later
this year. Additionally, any significant increase in tax-exempt bond
yields will prevent any further bond refinancings, reducing future
supply. Unless the current positive economic fundamentals undergo
immediate and significant deterioration, any increase in
municipal bond yields is likely to be viewed as an opportunity to
purchase more attractively priced tax-exempt securities.
Fiscal Year in Review
During the past 12 months, the municipal bond market was characterized
by tremendous price volatility within a narrow trading range. We focused
on purchasing long-term insured bonds as yields approached 6.00% and
selling these securities as yields rallied to 5.50%. The Fund was fully
invested in long-term securities during most of the fiscal year to seek
to achieve a yield greater than that of similar Connecticut municipal
bond funds. The Fund's cash equivalent reserves fluctuated between 5% --
10% of total assets, and a large portion of assets committed to longer-
term maturities currently have coupons structured for income rather than
price appreciation. This strategy served the Fund well during this
particularly volatile period for the fixed-income markets in general,
generating total return performance comparable to the industry average
as well as an above-average yield.
Portfolio Matters
During the six months ended July 31, 1997, we maintained the slightly
defensive posture we had adopted in late 1996. Our principal concern was
that the strong economic growth seen in the fourth quarter of 1996 would
continue into 1997, causing the Federal Reserve Board to raise interest
rates so that growth would not result in a significant increase in
inflation. However, US economic growth slowed in the second quarter of
1997 and inflation remained subdued, allowing interest rates to decline.
We believed the Fund's structure would allow it to perform well during
periods of market improvement.
We generally maintained the Fund's cash reserves below 5% of net assets
in order to seek to enhance the Fund's dividend stream and in response
to the continued scarcity of attractively priced tax-exempt Connecticut
issues. During the last six months, approximately $1.0 billion in
Connecticut municipal securities was underwritten, a decrease of more
than 48% as compared to the same period a year ago. However, the
majority of recent issuance has been concentrated in intermediate-term
securities with less desirable call protection, which we believe would
not have enhanced the Fund's overall structure.
Looking forward, we expect to emphasize higher-couponed issues over more
interest rate-sensitive securities. The generation of an optimal amount
of tax-exempt income will remain the primary investment strategy of the
Fund. Should it become evident that the economy is declerating, we would
expect to adopt a more aggressive portfolio structure. We expect the
Fund to be fully invested in the upcoming quarter.
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 to come.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/WILLIAM R. BOCK
William R. Bock
Vice President and Portfolio Manager
September 3, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
[bullet] Class B Shares are subject to a maximum contingent deferred
sales charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B Shares
are subject to a distribution fee of 0.25% and an account maintenance
fee of 0.25%. These shares automatically convert to Class D Shares after
approximately 10 years. (There is no initial sales charge for automatic
share conversions.)
[bullet] Class C Shares are subject to a distribution fee of 0.35% and an
account maintenance fee of 0.25%. In addition, Class C Shares are subject
to a 1% contingent deferred sales charge if redeemed within one year of
purchase.
[bullet] Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Average Annual Total Return"
tables as well as the total returns and cumulative total returns in the
"Performance Summary" tables assume reinvestment of all dividends and
capital gains distributions at net asset value on the payable date.
Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer
agency fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
7/31/97 4/30/97 7/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.68 $10.29 $10.29 +3.79% +3.79%
Class B Shares* 10.68 10.29 10.29 +3.79 +3.79
Class C Shares* 10.69 10.30 10.30 +3.79 +3.79
Class D Shares* 10.68 10.30 10.29 +3.79 +3.69
Class A Shares -- Total Return* +9.51(1) +5.13(2)
Class B Shares -- Total Return* +8.96(3) +5.00(4)
Class C Shares -- Total Return* +8.84(5) +4.97(6)
Class D Shares -- Total Return* +9.40(7) +5.00(8)
Class A Shares -- Standardized 30-day Yield 4.53%
Class B Shares -- Standardized 30-day Yield 4.22%
Class C Shares -- Standardized 30-day Yield 4.12%
Class D Shares -- Standardized 30-day Yield 4.44%
* 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 $0.558 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.134 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.506 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.121 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.496 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.119 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.548 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.132 per share ordinary income dividends.
</TABLE>
[GRAPHIC LINE CHART OMITTED: TOTAL RETURN BASED ON A $10,000 INVESTMENT --
CLASS A AND CLASS B SHARES]
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:
7/01/94** 7/97
ML Connecticut Municipal Bond Fund+--
Class A Shares* $9,600 $12,206
ML Connecticut Municipal Bond Fund+--
Class B Shares* $10,000 $12,417
Lehman Brothers Municipal Bond
Index++ $10,000 $12,910
Total Returns Based on a $10,000 Investment -- Class C Shares and Class D
Shares
A line graph depicting the growth of an investment in the Fund's Class C
Shares and Class D Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
10/21/94** 7/97
ML Connecticut Municipal Bond Fund+--
Class C Shares* $10,000 $12,517
ML Connecticut Municipal Bond Fund
Class D Shares* $9,600 $12,175
Lehman Brothers Municipal Bond
Index++ $10,000 $13,054
* 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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/97 +7.82% +3.51%
Inception (7/1/94)
through 6/30/97 +7.41 +5.95
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +7.28% +3.28%
Inception (7/1/94)
through 6/30/97 +6.86 +6.28
* 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 6/30/97 +7.17% +6.17%
Inception (10/21/94)
through 6/30/97 +7.68 +7.68
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/97 +7.72% +3.41%
Inception (10/21/94)
through 6/30/97 +8.19 +6.56
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
7/1/94 -- 12/31/94 $10.00 $9.62 -- $0.297 - 0.84%
1995 9.62 10.64 -- 0.600 +17.25
1996 10.64 10.45 -- 0.574 + 3.79
1/1/97 -- 7/31/97 10.45 10.68 -- 0.302 + 5.35
Total $1.773
Cumulative total return as of 7/31/97: +27.14%**
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
7/1/94 -- 12/31/94 $10.00 $9.62 -- $0.271 - 1.10%
1995 9.62 10.64 -- 0.549 +16.67
1996 10.64 10.44 -- 0.521 + 3.17
1/1/97-- 7/31/97 10.44 10.68 -- 0.273 + 5.15
Total $1.614
Cumulative total return as of 7/31/97: +25.17%***
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $9.82 $9.62 -- $0.107 - 0.93%
1995 9.62 10.65 -- 0.539 +16.66
1996 10.65 10.45 -- 0.511 + 3.07
1/1/97 -- 7/31/97 10.45 10.69 -- 0.268 + 5.08
Total $1.425
Cumulative total return as of 7/31/97: +25.17%***
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $9.82 $9.62 -- $0.117 -0.83%
1995 9.62 10.64 -- 0.590 +17.14
1996 10.64 10.45 -- 0.564 + 3.69
1/1/97 -- 7/31/97 10.45 10.68 -- 0.297 + 5.29
Total $1.568
Cumulative total return as of 7/31/97: +26.83%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
*** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Connecticut -- 93.6%
AA+ Aaa $1,000 Connecticut State Clean Water Fund Revenue Bonds, 5.80% due 6/01/2016 $1,044
AAA Aaa 1,000 Connecticut State Development Authority, Governmental Lease Revenue Bonds,
6.60% due 6/15/2014 (b) 1,127
Connecticut State Development Authority, PCR, Refunding (Connecticut Light
& Power Co. Project), VRDN (a):
A1+ VMIG1+ 300 AMT, Series B, 3.55% due 9/01/2028 300
A1+ VMIG1+ 750 Series A, 3.60% due 9/01/2028 750
AA- A1 2,000 Connecticut State Development Authority Revenue Bonds (General Fund),
Series A, 6.375% due 10/15/2024 2,205
AAA Aaa 1,500 Connecticut State Development Authority, Solid Waste Disposal Facilities
Revenue Bonds (Pfizer Inc. Project), AMT, 7% due 7/01/2025 1,751
Connecticut State Development Authority, Water Facility Revenue Bonds
(Bridgeport Hydraulic Co. Project):
A+ NR* 1,250 AMT, 6.15% due 4/01/2035 1,330
A+ NR* 1,000 AMT, 6% due 9/01/2036 1,043
AAA Aaa 1,000 Refunding, Series A, 6.05% due 3/01/2029 (b) 1,068
AAA Aaa 1,890 Refunding, Series B, 5.50% due 6/01/2028 (b) 1,903
AA- Aa3 1,000 Connecticut State, GO, Series A, 5.50% due 5/15/2014 1,039
A1+ VMIG1+ 2,100 Connecticut State, GO, UT, VRDN, Series B, 3.65% due 5/15/2014 (a) 2,100
Connecticut State, HFA, Revenue Bonds (Housing Mortgage Finance Program):
AA Aa 995 AMT, Series A, Sub-Series A-2, 6.20% due 11/15/2022 1,033
AA Aa 950 AMT, Series A, Sub-Series A-2, 6.50% due 5/15/2027 1,000
AA Aa3 1,000 AMT, Series B, Sub-Series B-2, 5.70% due 5/15/2017 1,014
AA Aa 845 AMT, Series D, Sub-Series D-2, 6.90% due 5/15/2020 903
AA Aa 2,110 Series B, 6.75% due 11/15/2023 2,242
AAA Aaa 2,195 Series B, 6.75% due 11/15/2023 (b) 2,324
AA Aa 1,200 Series C-1, 6.30% due 11/15/2017 1,268
Connecticut State Health and Educational Facilities Authority
Revenue Bonds:
AAA Aaa 1,000 (Bridgeport Hospital), Series A, 6.625% due 7/01/2018 (b) 1,107
AAA NR* 500 (Bridgeport Hospital), Series C, 5.25% due 7/01/2015 (d) 496
AAA Aaa 2,000 (Choate Rosemary Hall), Series A, 7% due 7/01/2004 (b)(e) 2,319
AAA Aaa 1,400 (Newington Children's Hospital), Series A, 6.30% due 7/01/2021 (b) 1,521
AA- A1 2,000 (Nursing Home Program - AHF/Hartford), 7.125% due 11/01/2024 2,293
BBB- Baa3 1,000 Refunding (Sacred Heart University), Series C, 6.625% due 7/01/2026 1,083
NR* A3 1,150 Refunding (Saint Mary's Hospital), Series E, 5.50% due 7/01/2020 1,152
AAA Aaa 900 Refunding (Trinity College), Series D, 6.125% due 7/01/2024 (c) 970
AAA Aaa 1,000 Refunding (Yale-New Haven Hospital), Series H, 5.70% due 7/01/2025 (b) 1,038
BBB- Baa3 1,000 (Sacred Heart University), Series D, 6.20% due 7/01/2027 1,043
BBB- NR* 1,000 (University of New Haven), Series D, 6.625% due 7/01/2016 1,066
AAA Aaa 1,000 (Yale-New Haven Hospital), Series G, 6.50% due 7/01/2012 (b) 1,102
NR* A1 735 Connecticut State Higher Education, Supplemental Loan Authority Revenue
Bonds (Family Education Loan Program), AMT, Series A, 6.40% due 11/15/2014 793
NR* NR* 1,000 Connecticut State Regional Learning Educational Service Center Revenue Bonds
(Office/Education Center Facility), 7.75% due 2/01/2015 1,128
Connecticut State Resource Recovery Authority, Revenue Refunding Bonds
(Mid-Connecticut Systems), Series A (b):
AAA Aaa 1,000 5.75% due 11/15/2007 1,095
AAA Aaa 1,000 5.50% due 11/15/2012 1,042
AAA Aaa 1,000 East Haven, Connecticut, GO, UT, 5.50% due 9/01/2014 (c) 1,028
AAA Aaa 500 Hartford, Connecticut, GO, UT, 5.75% due 10/01/2015 (c) 527
Puerto Rico -- 5.4%
A Baa1 1,000 Puerto Rico Commonwealth, GO, UT, 5.375% due 7/01/2025 999
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 1,658
Total Investments (Cost -- $45,206) -- 99.0% 48,904
Other Assets Less Liabilities -- 1.0% 495
---------
Net Assets -- 100.0% $49,399
=========
(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, 1997.
(b) MBIA Insured.
(c) FGIC Insured.
(d) Connie Lee Insured.
(e) Prerefunded.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche llp.
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
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $45,205,536) (Note 1a) $48,903,903
Cash 226,833
Receivables:
Securities sold $793,825
Interest 532,028
Beneficial interest sold 55,274 1,381,127
-----------
Deferred organization expenses (Note 1e) 14,004
Prepaid registration fees and other assets (Note 1e) 10,771
-----------
Total assets 50,536,638
-----------
Liabilities: Payables:
Securities purchased 1,005,170
Dividends to shareholders (Note 1f) 62,128
Distributor (Note 2) 16,093
Investment adviser (Note 2) 14,425
Beneficial interest redeemed 7,997 1,105,813
-----------
Accrued expenses and other liabilities 31,923
-----------
Total liabilities 1,137,736
-----------
Net Assets: Net assets $49,398,902
===========
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $78,456
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 332,983
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 18,862
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 32,207
Paid-in capital in excess of par 46,115,613
Accumulated realized capital losses on investments -- net (Note 5) (877,586)
Unrealized appreciation on investments -- net 3,698,367
-----------
Net assets $49,398,902
===========
Net Asset Value: Class A -- Based on net assets of $8,379,648 and 784,560 shares of
beneficial interest outstanding $10.68
===========
Class B -- Based on net assets of $35,562,821 and 3,329,833 shares of
beneficial interest outstanding $10.68
===========
Class C -- Based on net assets of $2,015,986 and 188,620 shares of
beneficial interest outstanding $10.69
===========
Class D -- Based on net assets of $3,440,447 and 322,066 shares of
beneficial interest outstanding $10.68
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
July 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $2,735,926
(Note 1d):
Expenses: Investment advisory fees (Note 2) $255,318
Account maintenance and distribution fees -- Class B (Note 2) 168,474
Professional fees 54,144
Accounting services (Note 2) 39,772
Printing and shareholder reports 39,154
Transfer agent fees -- Class B (Note 2) 12,825
Account maintenance and distribution fees -- Class C (Note 2) 10,594
Registration fees (Note 1e) 7,792
Amortization of organization expenses (Note 1e) 7,312
Pricing fees 4,496
Account maintenance fees -- Class D (Note 2) 2,944
Transfer agent fees -- Class A (Note 2) 2,477
Trustees' fees and expenses 2,255
Custodian fees 1,983
Transfer agent fees -- Class D (Note 2) 911
Transfer agent fees -- Class C (Note 2) 701
Other 2,757
----------
Total expenses before reimbursement 613,909
Reimbursement of expenses (Note 2) (188,926)
----------
Total expenses after reimbursement 424,983
----------
Investment income -- net 2,310,943
----------
Realized & Realized gain on investments -- net 193,542
Unrealized Gain on Change in unrealized appreciation on investments -- net 1,539,167
Investments -- Net ----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $4,043,652
==========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $2,310,943 $2,082,774
Realized gain (loss) on investments -- net 193,542 (336,579)
Change in unrealized appreciation on investments -- net 1,539,167 453,596
----------- -----------
Net increase in net assets resulting from operations 4,043,652 2,199,791
----------- -----------
Dividends to Investment income -- net:
Shareholders Class A (431,014) (408,628)
(Note 1f): Class B (1,640,570) (1,511,028)
Class C (84,261) (66,587)
Class D (155,098) (96,531)
----------- -----------
Net decrease in net assets resulting from dividends to shareholders (2,310,943) (2,082,774)
----------- -----------
Beneficial Interest Net increase in net assets derived from beneficial interest
Transactions transactions 4,232,008 3,186,036
(Note 4): ----------- -----------
Net Assets: Total increase in net assets 5,964,717 3,303,053
Beginning of year 43,434,185 40,131,132
----------- -----------
End of year $49,398,902 $43,434,185
=========== ===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
For the
Period
July 1,
The following per share data and ratios have been derived 1994+ to
from information provided in the financial statements. For the Year Ended July 31, July 31,
1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.29 $10.23 $10.22 $10.00
Operating -------- -------- -------- --------
Performance: Investment income -- net .56 .58 .60 .05
Realized and unrealized gain on investments
-- net .39 .06 .01 .22
-------- -------- -------- --------
Total from investment operations .95 .64 .61 .27
-------- -------- -------- --------
Less dividends and distributions:
Investment income -- net (.56) (.58) (.60) (.05)
Realized gain on investments -- net -- -- --++ --
-------- -------- -------- --------
Total dividends and distributions (.56) (.58) (.60) (.05)
-------- -------- -------- --------
Net asset value, end of period $10.68 $10.29 $10.23 $10.22
======== ======== ======== ========
Total Investment Based on net asset value per share 9.51% 6.37% 6.30% 2.68%++++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .52% .34% .07% .00%*
Net Assets: ======== ======== ======== ========
Expenses .92% .98% 1.19% 1.54%*
======== ======== ======== ========
Investment income -- net 5.38% 5.58% 6.02% 5.48%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $8,380 $7,589 $7,979 $6,557
Data: ======== ======== ======== ========
Portfolio turnover 32.46% 57.58% 60.99% 3.07%
======== ======== ======== ========
* 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.
<CAPTION>
Financial Highlights
Class B
For the
Period
July 1,
The following per share data and ratios have been derived 1994+ to
from information provided in the financial statements. For the Year Ended July 31, July 31,
1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.29 $10.23 $10.22 $10.00
Operating -------- -------- -------- --------
Performance: Investment income -- net .51 .53 .55 .04
Realized and unrealized gain on investments
-- net .39 .06 .01 .22
-------- -------- -------- --------
Total from investment operations .90 .59 .56 .26
-------- -------- -------- --------
Less dividends and distributions:
Investment income -- net (.51) (.53) (.55) (.04)
Realized gain on investments -- net -- -- --++ --
-------- -------- -------- --------
Total dividends and distributions (.51) (.53) (.55) (.04)
-------- -------- -------- --------
Net asset value, end of period $10.68 $10.29 $10.23 $10.22
======== ======== ======== ========
Total Investment Based on net asset value per share 8.96% 5.82% 5.77% 2.64%++++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.02% .85% .58% .50%*
Net Assets: ======== ======== ======== ========
Expenses 1.43% 1.49% 1.70% 2.04%*
======== ======== ======== ========
Investment income -- net 4.87% 5.07% 5.51% 5.00%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $35,563 $31,359 $30,265 $16,889
Data: ======== ======== ======== ========
Portfolio turnover 32.46% 57.58% 60.99% 3.07%
======== ======== ======== ========
* 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.
<CAPTION>
Class C Class D
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: 1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $10.30 $10.24 $9.82 $10.29 $10.23 $9.82
Performance: --------- --------- --------- --------- --------- ---------
Investment income -- net .50 .52 .42 .55 .57 .46
Realized and unrealized gain on
investments -- net .39 .06 .42 .39 .06 .41
--------- --------- --------- --------- --------- ---------
Total from investment
operations .89 .58 .84 .94 .63 .87
--------- --------- --------- --------- --------- ---------
Less dividends and
distributions:
Investment income -- net (.50) (.52) (.42) (.55) (.57) (.46)
Realized gain on investments
-- net -- -- --++ -- -- --++
--------- --------- --------- --------- --------- ---------
Total dividends and
distributions (.50) (.52) (.42) (.55) (.57) (.46)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $10.69 $10.30 $10.24 $10.68 $10.29 $10.23
========= ========= ========= ========= ========= =========
Total Investment Based on net asset value 8.84% 5.72% 8.79%++++ 9.40% 6.26% 9.10%++++
Return:** per share ========= ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement 1.12% .95% .74%* .62% .44% .22%*
Net Assets: ========= ========= ========= ========= ========= =========
Expenses 1.53% 1.58% 1.77%* 1.03% 1.07% 1.27%*
========= ========= ========= ========= ========= =========
Investment income -- net 4.77% 4.96% 5.43%* 5.27% 5.46% 5.96%*
========= ========= ========= ========= ========= =========
Supplemental Net assets, end of period $2,016 $1,829 $820 $3,440 $2,657 $1,067
Data: (in thousands) ========= ========= ========= ========= ========= =========
Portfolio turnover 32.46% 57.58% 60.99% 32.46% 57.58% 60.99%
========= ========= ========= ========= ========= =========
* 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>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1997
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. 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.
[bullet] 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.
(c) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no Federal income tax provision
is required.
(d) Security transactions and investment income -- Security transactions
are recorded on the dates the transactions are entered into (the trade
dates). Interest income is recognized on the accrual basis. Discounts
and market premiums are amortized into interest income. Realized gains
and losses on security transactions are determined on the identified
cost basis.
(e) Deferred organization expenses and prepaid registration fees --
Deferred organization expenses are charged to expense on a straight-line
basis over a five-year period. Prepaid registration fees are charged to
expense as the related shares are issued.
(f) Dividends and distributions -- Dividends from net investment income
are declared daily and paid monthly. Distributions of capital gains are
recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund
has also entered into a Distribution Agreement and Distribution Plans
with Merrill Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a
wholly-owned subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily value
of the Fund's net assets at the following annual rates: 0.55% of the
Fund's average daily net assets not exceeding $500 million; 0.525% of
average daily net assets in excess of $500 million but not exceeding $1
billion; and 0.50% of average daily net assets in excess of $1 billion.
For the year ended July 31, 1997, FAM earned fees of $255,318, of which
$188,926 was voluntarily waived.
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, 1997, 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 $1,019 $8,815
Class D $757 $10,122
For the year ended July 31, 1997, MLPF&S received contingent deferred
sales charges of $64,961 and $1,791 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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the year ended July 31, 1997 were $17,140,588 and $14,335,919,
respectively.
Net realized and unrealized gains as of July 31, 1997 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $188,670 $3,698,367
Short-term investments 4,872 --
----------- -----------
Total $193,542 $3,698,367
=========== ===========
As of July 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $3,698,367, of which $3,698,709 related to
appreciated securities and $342 related to depreciated securities. The
aggregate cost of investments at July 31, 1997 for Federal income tax
purposes was $45,205,536.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest transactions
was $4,232,008 and $3,186,036, for the years ended July 31, 1997 and
July 31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 145,306 $1,511,588
Shares issued to shareholders
in reinvestment of dividends 29,191 303,354
----------- -----------
Total issued 174,497 1,814,942
Shares redeemed (127,276) (1,317,412)
----------- -----------
Net increase 47,221 $497,530
=========== ===========
Class A Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 81,137 $836,173
Shares issued to shareholders
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 B Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 760,389 $7,912,969
Shares issued to shareholders
in reinvestment of dividends 80,253 833,981
----------- -----------
Total issued 840,642 8,746,950
Automatic conversion of shares (2,744) (28,597)
Shares redeemed (555,174) (5,772,686)
----------- -----------
Net increase 282,724 $2,945,667
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 1,083,666 $11,283,985
Shares issued to shareholders
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 C Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 131,493 $1,374,027
Shares issued to shareholders
in reinvestment of dividends 4,205 43,716
----------- -----------
Total issued 135,698 1,417,743
Shares redeemed (124,759) (1,293,944)
----------- -----------
Net increase 10,939 $123,799
=========== ===========
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 106,625 $1,109,389
Shares issued to shareholders
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 D Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 92,661 $963,530
Automatic conversion
of shares 2,743 28,597
Shares issued to shareholders
in reinvestment of dividends 5,456 56,735
----------- -----------
Total issued 100,860 1,048,862
Shares redeemed (36,948) (383,850)
----------- -----------
Net increase 63,912 $665,012
=========== ===========
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 shareholders
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
=========== ===========
5. Capital Loss Carryforward:
At July 31, 1997, the Fund had a capital loss carryforward of
approximately $668,000, of which $62,000 expires in 2003, $394,000
expires in 2004 and $212,000 expires in 2005. This amount will be
available to offset like amounts of any future taxable gains.
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, 1997, the related state-ments of operations for the year
then ended and changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the
years in the three-year period then ended and 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 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, 1997 by correspondence with
the custodian and broker. 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, 1997, the results of its
operations, the changes in its net assets, and the financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 5, 1997
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by Merrill
Lynch Connecticut Municipal Bond Fund during its taxable year ended July
31, 1997 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.
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
Robert E. Putney III, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
