MERRILL LYNCH
CONNECTICUT
MUNICIPAL
BOND FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
July 31, 1998
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
TO OUR SHAREHOLDERS
During the six months ended July 31, 1998, long-term tax-exempt revenue bond
yields were little changed. Throughout the period, the near absence of
inflationary pressures continued to support low interest rates. However,
consistently strong domestic economic growth has caused some investors to fear
that the Federal Reserve Board will be forced eventually to raise short-term
interest rates. Such action would be taken to ensure that the US economy's
present rate of growth would decelerate before any inflationary pressures could
develop. These concerns pushed bond yields modestly higher by late April.
However, the weakening financial conditions in many Asian countries subsequently
calmed investor fears of Federal Reserve Board intervention, and fixed-income
prices again moved higher. Long-term uninsured municipal bond yields, as
measured by the Bond Buyer Revenue Bond Index, rose less than 5 basis points
(0.05%) to end the July quarter at 5.36%. As in late 1997 and early 1998, US
Treasury bond yields benefited from a "flight to quality" as foreign investors
were drawn to the relative safe haven of US Government securities. Long-term US
Treasury bond yields declined approximately 10 basis points to end the July
quarter at 5.71%.
Thus far in 1998, the municipal bond market has experienced unexpectedly strong
supply pressures. These supply pressures have prevented tax-exempt bond yields
from declining as much as US Treasury bond yields. During the first six months
of 1998, more than $153 billion in new tax-exempt bonds were underwritten, an
increase of almost 50% compared to the same period a year ago. During the
quarter ended July 31, 1998, municipalities issued over $75 billion in new
securities, an increase of more than 35% compared to the same three-month period
in 1997. Additionally, corporate issuers have also viewed current interest rate
levels as an opportunity to issue significant amounts of taxable securities.
Thus far in 1998, over $500 billion in investment-grade corporate bonds have
been underwritten, an increase of more than 70% compared to the same period a
year ago. This sizeable corporate bond issuance has tended to both support
generally higher fixed-income yields and reduce the demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely to be
maintained. Continued increases in bond issuance will require lower and lower
tax-exempt bond yields to generate the economic savings necessary for additional
municipal bond refinancings. Preliminary estimates for 1998 total municipal bond
issuance are in the $200 billion-$225 billion range. These estimates suggest
that recent supply pressures are likely to abate later in the year. Earlier this
year, municipal bond investors received approximately $30 billion in coupon
payments, bond maturities and proceeds from early redemptions. The demand
generated by these assets has helped to offset the increase in supply seen thus
far in 1998.
The continued impact of the Asian financial crisis on the US domestic economy's
future growth remains unclear. Current Asian economic conditions continue to
reflect ongoing weakness. Recent trade data indicated that reduced US exports to
these countries may have lowered US economic growth by as much as 2% in the
first quarter of 1998. Since further trade deterioration is possible in the
coming months, we do not believe that the Federal Reserve Board will be willing
to raise interest rates, barring a dramatic and unexpected resurgence of
domestic inflation.
These factors suggest that over the near term, interest rates are unlikely to
rise by any appreciable amount. Recent supply pressures have caused municipal
bond yield ratios to rise relative to US Treasury bond yields. At July 31, 1998,
long-term tax-exempt bond yields were at attractive yield ratios relative to US
Treasury securities of comparable maturities (over 90%), well in excess of their
expected range of 85%-88%. Tax-exempt bond yield ratios rarely exceeded 90% in
the 1980s and 1990s. Previous instances have usually been associated with
potential changes in Federal tax code that would have adversely affected the
tax-favored status of municipal bonds. The present situation has developed
largely because of a temporary supply imbalance. These imbalances should soon be
corrected as tax-exempt bond issuance slows from its current rapid pace later
this year. Any further pressure on the municipal market may well represent a
very attractive investment opportunity.
1
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
Portfolio Strategy
During the six months ended July 31, 1998, our investment outlook for Merrill
Lynch Connecticut Municipal Bond Fund was basically constructive. The
deterioration in the Asian economies helped keep interest rates low, even in the
face of strong domestic economic growth. This combination of strong growth and
low inflation has kept bond yields within a rather narrow trading range over the
past six months.
Issuance of new Connecticut tax-exempt municipal bonds was just over $1.8
million during the six-month period ended July 31, 1998. This represents an
increase of more than 40% compared to the same six-month period a year ago.
Additionally, the majority of new issuance in Connecticut was dominated by
intermediate maturities and lesser call protection. We do not view such
securities as attractive additions to the Fund's portfolio.
Looking ahead, we expect to continue to maintain our fully invested position and
our constructive portfolio strategy to seek to benefit from a lower interest
rate environment. However, anticipated lack of new issuance in Connecticut may
curtail our ability to execute this strategy.
Fiscal Year in Review
During the fiscal year ended July 31, 1998, total municipal issuance increased
by more than 40% compared to the same period last year, while Connecticut
municipal issuance increased by more than 35% over the same period. Both the
tax-exempt and US Treasury markets experienced a decline in yields, although the
greater increase in tax-exempt issuance resulted in municipal performance
lagging that of US Treasury securities.
Given the narrow trading range of the municipal bond market, we maintained a
slightly defensive strategy going into the second half of 1997. We believed that
economic growth would resurge and the Federal Reserve Board would raise interest
rates in order to keep inflation under control. However, in late October 1997,
the Asian equity market turmoil created an increased demand for US Treasury
securities, causing a rally in the bond market. In response to the Asian
economic crisis and the continued domestic low inflation environment, we shifted
the Fund to a more aggressive position by early November 1997. We remained
constructive through July 31, 1998, participating in the continued bond market
rally, which brought interest rates to their recent historic lows.
Throughout the fiscal year ended July 31, 1998, we maintained the Fund's fully
invested position. These strategies produced total returns of +6.00%, +5.47%,
+5.36% and +5.90% for the Fund's Class A, Class B, Class C and Class D Shares,
respectively, for the year ended July 31, 1998. This compares to the Lipper
Analytical Services, Inc. average total return of +5.53% for similar Connecticut
tax-exempt funds during the same 12-month period.
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,
/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, 1998
- --------------------------------------------------------------------------------
We are pleased to announce that William R. Bock is responsible for the
day-to-day management of Merrill Lynch Connecticut Municipal Bond Fund. Mr. Bock
has been employed by Merrill Lynch Asset Management, L.P. (an affiliate of the
Fund's investment adviser) since 1989 as Vice President.
- --------------------------------------------------------------------------------
2
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers four pricing alternatives:
o 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.
o 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.)
o 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.
o Class D Shares incur a maximum initial sales charge of 4% and an account
maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Recent Performance Results" and
"Average Annual Total Return" tables assume reinvestment of all dividends
and capital gains distributions at net asset value on the payable date.
Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost.
Dividends paid to each class of shares will vary because of the different
levels of account maintenance, distribution and transfer agency fees
applicable to each class, which are deducted from the income available to
be paid to shareholders.
<TABLE>
<CAPTION>
Recent Performance Results*
====================================================================================================================
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 7/31/98
====================================================================================================================
<S> <C> <C> <C> <C>
ML Connecticut Municipal Bond Fund Class A Shares +6.00% +2.13% +34.77% 3.96%
- --------------------------------------------------------------------------------------------------------------------
ML Connecticut Municipal Bond Fund Class B Shares +5.47 +2.00 +32.02 3.62
- --------------------------------------------------------------------------------------------------------------------
ML Connecticut Municipal Bond Fund Class C Shares +5.36 +2.07 +31.88 3.52
- --------------------------------------------------------------------------------------------------------------------
ML Connecticut Municipal Bond Fund Class D Shares +5.90 +2.11 +34.31 3.87
====================================================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results would be
lower if a sales charge was included. Total investment returns are based
on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the payable date. The Fund's inception dates are: Class A and
Class B Shares, 7/01/94; and Class C and Class DShares, 10/21/94.
3
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
PERFORMANCE DATA (continued)
Merrill Lynch Connecticut Municipal Bond Fund
Total Return Based on a $10,000 Investment
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** 7/98
ML Connecticut Municipal Bond Fund+--Class A Shares* $9,600 $12,938
ML Connecticut Municipal Bond Fund+--Class B Shares* $10,000 $13,202
Lehman Brothers Municipal Bond Index++ $10,000 $13,684
A line graph depicting the growth of an investment in the Fund's Class C Shares
and Class D Shares compared to growth of an investment in the Lehman Brothers
Municipal Bond Index. Beginning and ending values are:
10/21/94** 7/98
ML Connecticut Municipal Bond Fund+--Class C Shares* $10,000 $13,188
ML Connecticut Municipal Bond Fund+--Class D Shares* $9,600 $12,894
Lehman Brothers Municipal Bond Index++ $10,000 $13,837
* 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. The starting date for
the Index in the Class A & Class B Shares graph is 6/30/94 and in the
Class C & Class D Shares graph is 10/31/94.
Past performance is not predictive of future performance.
4
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 6/30/98 +8.65% +4.30%
- --------------------------------------------------------------------------------
Inception (7/01/94)
through 6/30/98 +7.71 +6.62
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 6/30/98 +8.10% +4.10%
- --------------------------------------------------------------------------------
Inception (7/01/94)
through 6/30/98 +7.17 +6.97
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Year Ended 6/30/98 +7.89% +6.89%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/98 +7.74 +7.74
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
Year Ended 6/30/98 +8.54% +4.20%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/98 +8.28 +7.09
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Connecticut Municipal Bond Fund's
portfolio holdings in the Schedule of Investments, we have abbreviated the names
of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
HFA Housing Finance Authority
PCR Pollution Control Revenue Bonds
UT Unlimited Tax
VRDN Variable Rate Demand Notes
5
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
=================================================================================================================================
Connecticut--89.2%
=================================================================================================================================
<S> <C> <C> <C> <C>
AAA Aaa $1,000 Connecticut State Clean Water Fund Revenue Bonds, 5.80% due 6/01/2016 $ 1,072
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Connecticut State Development Authority, Governmental Lease Revenue Bonds,
6.60% due 6/15/2014 (b) 1,122
- ---------------------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,700 Connecticut State Development Authority, PCR, Refunding (Western
Massachusetts Electric Co.), VRDN, Series A, 3.15% due 9/01/2028 (a) 1,700
- ---------------------------------------------------------------------------------------------------------------------------------
AA- A1 2,000 Connecticut State Development Authority Revenue Bonds (General Fund), Series A,
6.375% due 10/15/2024 2,215
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Connecticut State Development Authority, Solid Waste Disposal Facilities Revenue
Bonds (Pfizer Inc. Project), AMT, 7% due 7/01/2025 1,735
- ---------------------------------------------------------------------------------------------------------------------------------
Connecticut State Development Authority, Water Facility Revenue Bonds
(Bridgeport Hydraulic Co. Project):
A+ NR* 1,250 AMT, 6.15% due 4/01/2035 1,351
A+ NR* 3,000 AMT, 6% due 9/01/2036 3,160
AAA Aaa 1,000 Refunding, Series A, 6.05% due 3/01/2029 (b) 1,088
AAA Aaa 1,890 Refunding, Series B, 5.50% due 6/01/2028 (b) 1,936
- ---------------------------------------------------------------------------------------------------------------------------------
AA- Aa3 1,000 Connecticut State, GO, Series A, 5.50% due 5/15/2014 1,047
- ---------------------------------------------------------------------------------------------------------------------------------
AA- Aa3 3,750 Connecticut State, GO, UT, Series C, 5.25% due 8/01/2017 3,797
- ---------------------------------------------------------------------------------------------------------------------------------
Connecticut State, HFA, Revenue Bonds (Housing Mortgage Finance Program):
AA Aa2 975 AMT, Series A, Sub-Series A-2, 6.20% due 11/15/2022 1,033
AA Aa 655 AMT, Series A, Sub-Series A-2, 6.50% due 5/15/2027 697
AA Aa3 1,000 AMT, Series B, Sub-Series B-2, 5.70% due 5/15/2017 1,034
AA Aa2 2,110 Series B, 6.75% due 11/15/2023 2,283
AAA Aaa 2,110 Series B, 6.75% due 11/15/2023 (b) 2,283
AA Aa 1,200 Series C-1, 6.30% due 11/15/2017 1,285
- ---------------------------------------------------------------------------------------------------------------------------------
Connecticut State Health and Educational Facilities Authority Revenue Bonds:
AAA Aaa 1,000 (Bridgeport Hospital), Series A, 6.625% due 7/01/2018 (b) 1,090
AAA Aaa 500 (Choate Rosemary Hall), Series A, 7% due 7/01/2004 (b)(e) 576
AAA Aaa 1,400 (Newington Children's Hospital), Series A, 6.30% due 7/01/2021 (b) 1,538
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 1,088
AAA Aaa 900 Refunding (Trinity College), Series D, 6.125% due 7/01/2004 (c)(e) 1,003
AAA Aaa 1,000 Refunding (Yale--New Haven Hospital), Series H, 5.70% due 7/01/2025 (b) 1,049
BBB- Baa3 1,000 (Sacred Heart University), Series D, 6.20% due 7/01/2027 1,054
AAA Aaa 2,250 (Trinity College), Series F, 5% due 7/01/2028 (b) 2,199
BBB- NR* 1,000 (University of New Haven), Series D, 6.625% due 7/01/2016 1,088
AAA Aaa 1,000 (Yale--New Haven Hospital), Series G, 6.50% due 7/01/2012 (b) 1,083
A1+ VMIG1+ 200 (Yale University), VRDN, Series T, 3.40% due 7/01/2029 (a) 200
- ---------------------------------------------------------------------------------------------------------------------------------
NR* A1 700 Connecticut State Higher Education, Supplemental Loan Authority Revenue Bonds
(Family Education Loan Program), AMT, Series A, 6.40% due 11/15/2014 752
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
=================================================================================================================================
Connecticut (concluded)
=================================================================================================================================
<S> <C> <C> <C> <C>
NR* NR* $1,000 Connecticut State Regional Learning Educational Service Center Revenue Bonds
(Office/Education Center Facility), 7.75% due 2/01/2015 $ 1,140
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Connecticut State Resource Recovery Authority, Revenue Refunding Bonds
(Mid-Connecticut System), Series A, 5.50% due 11/15/2012 (b) 1,055
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 East Haven, Connecticut, GO, UT, 5.50% due 9/01/2014 (c) 1,036
- ---------------------------------------------------------------------------------------------------------------------------------
BBB NR* 900 Eastern Connecticut Resource Recovery Authority, Solid Waste Revenue Bonds
(Wheelabrator Lisbon Project), Series A, AMT, 5.50% due 1/01/2020 888
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 500 Hartford, Connecticut, GO, UT, 5.75% due 10/01/2015 (c) 533
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,400 South Central Connecticut, Regional Water Authority, Water System Revenue Bonds,
11th Series, 5.75% due 8/01/2012 (c) 1,497
- ---------------------------------------------------------------------------------------------------------------------------------
Trumbull, Connecticut, GO, UT:
AA Aa2 1,000 5% due 1/15/2017 991
AA Aa2 1,200 5% due 1/15/2018 1,185
- ---------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,240 Wilton, Connecticut, GO, UT, 4.70% due 7/15/2016 1,207
- ---------------------------------------------------------------------------------------------------------------------------------
=================================================================================================================================
Puerto Rico--9.8%
=================================================================================================================================
A1+ VMIG1+ 500 Puerto Rico Commonwealth, Government Development Bank, Refunding, VRDN,
3.20% due 12/01/2015 (a)(b) 500
- ---------------------------------------------------------------------------------------------------------------------------------
A Baa1 1,000 Puerto Rico Commonwealth, Refunding (Public Improvement), 5% due 7/01/2026 962
- ---------------------------------------------------------------------------------------------------------------------------------
BBB+ Baa1 2,500 Puerto Rico Electric Power Authority Revenue Bonds, Series EE, 4.75% due 7/01/2024 2,334
- ---------------------------------------------------------------------------------------------------------------------------------
AA Aa3 1,000 Puerto Rico Industrial, Medical and Environmental Pollution Control Facilities,
Financing Authority Revenue Bonds (Motorola Inc. Project), Series A, 6.75% due 1/01/2014 1,101
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Puerto Rico Public Buildings Authority Revenue Bonds (Guaranteed Government
Facilities), Series B, 5% due 7/01/2027 (d) 978
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$55,561)--99.0% 59,258
Other Assets Less Liabilities--1.0% 594
-------
Net Assets--100.0% $59,852
=======
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at July 31, 1998.
(b) MBIA Insured.
(c) FGIC Insured.
(d) AMBAC 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.
See Notes to Financial Statements.
7
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Statement of Assets and Liabilities as of July 31, 1998
===========================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$55,560,720) (Note 1a) ........... $ 59,257,864
Cash ..................................................................... 18,467
Receivables:
Interest ............................................................... $ 744,973
Securities sold ........................................................ 238,776
Beneficial interest sold ............................................... 134,562 1,118,311
------------
Deferred organization expenses (Note 1e) ................................. 6,692
Prepaid registration fees and other assets (Note 1e) ..................... 4,627
------------
Total assets ............................................................. 60,405,961
------------
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Beneficial interest redeemed ........................................... 433,488
Dividends to shareholders (Note 1f) .................................... 41,070
Investment adviser (Note 2) ............................................ 24,317
Distributor (Note 2) ................................................... 21,786 520,661
------------
Accrued expenses and other liabilities ................................... 33,473
------------
Total liabilities ........................................................ 554,134
------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ............................................................... $ 59,851,827
============
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized ........................................................ $ 82,037
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................ 388,793
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................ 40,728
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................ 42,932
Paid-in capital in excess of par ......................................... 55,857,871
Accumulated realized capital losses on investments--net (Note 5) ......... (257,678)
Unrealized appreciation on investments--net .............................. 3,697,144
------------
Net assets ............................................................... $ 59,851,827
============
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $8,855,002 and 820,370 shares
of beneficial interest outstanding ....................................... $ 10.79
============
Class B--Based on net assets of $41,963,614 and 3,887,934 shares
of beneficial interest outstanding ....................................... $ 10.79
============
Class C--Based on net assets of $4,398,795 and 407,276 shares
of beneficial interest outstanding ....................................... $ 10.80
============
Class D--Based on net assets of $4,634,416 and 429,316 shares
of beneficial interest outstanding ....................................... $ 10.79
============
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Statement of Operations
===========================================================================================================================
For the Year Ended
July 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned ................. $ 3,134,389
(Note 1d):
- ---------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ........................................ $ 310,622
Account maintenance and distribution fees--Class B (Note 2) .............. 197,228
Professional fees ........................................................ 66,063
Printing and shareholder reports ......................................... 43,479
Accounting services (Note 2) ............................................. 38,764
Account maintenance and distribution fees--Class C (Note 2) .............. 24,341
Transfer agent fees--Class B (Note 2) .................................... 12,882
Registration fees (Note 1e) .............................................. 8,738
Amortization of organization expenses (Note 1e) .......................... 7,312
Pricing fees ............................................................. 5,381
Account maintenance fees--Class D (Note 2) ............................... 4,360
Custodian fees ........................................................... 3,621
Trustees' fees and expenses .............................................. 2,966
Transfer agent fees--Class A (Note 2) .................................... 2,283
Transfer agent fees--Class C (Note 2) .................................... 1,297
Transfer agent fees--Class D (Note 2) .................................... 1,159
Other .................................................................... 1,924
------------
Total expenses before reimbursement ...................................... 732,420
Reimbursement of expenses (Note 2) ....................................... (70,737)
------------
Total expenses after reimbursement ....................................... 661,683
------------
Investment income--net ................................................... 2,472,706
------------
- ---------------------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments--net ........................................ 619,908
Unrealized Gain Change in unrealized appreciation on investments--net .................... (1,223)
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations ..................... $ 3,091,391
(Notes 1b, 1d & 3): ============
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
===========================================================================================================================
For the Year Ended
July 31,
--------------------------
Increase (Decrease) in Net Assets: 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ..................................................... $ 2,472,706 $ 2,310,943
Realized gain on investments--net .......................................... 619,908 193,542
Change in unrealized appreciation on investments--net ...................... (1,223) 1,539,167
------------ ------------
Net increase in net assets resulting from operations ....................... 3,091,391 4,043,652
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------
Dividends to Investment income--net:
Shareholders Class A .................................................................. (412,542) (431,014)
(Note 1f): Class B .................................................................. (1,687,290) (1,640,570)
Class C .................................................................. (169,203) (84,261)
Class D .................................................................. (203,671) (155,098)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders ........ (2,472,706) (2,310,943)
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Net increase in net assets derived from beneficial interest transactions ... 9,834,240 4,232,008
Transactions ------------ ------------
(Note 4):
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets ............................................... 10,452,925 5,964,717
Beginning of year .......................................................... 49,398,902 43,434,185
------------ ------------
End of year ................................................................ $ 59,851,827 $ 49,398,902
============ ============
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Financial Highlights
================================================================================================================================
Class A
-------------------------------------------------------------
For the
Period
The following per share data and ratios have been derived July 1,
from information provided in the financial statements. For the Year Ended July 31, 1994+ to
------------------------------------------------ July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 10.68 $ 10.29 $ 10.23 $ 10.22 $ 10.00
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net ..................... .52 .56 .58 .60 .05
Realized and unrealized gain on
investments--net .11 .39 .06 .01 .22
--------- --------- --------- --------- ---------
Total from investment operations ........... .63 .95 .64 .61 .27
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net ................... (.52) (.56) (.58) (.60) (.05)
Realized gain on investments--net ........ -- -- -- --++ --
--------- --------- --------- --------- ---------
Total dividends and distributions .......... (.52) (.56) (.58) (.60) (.05)
--------- --------- --------- --------- ---------
Net asset value, end of period ............. $ 10.79 $ 10.68 $ 10.29 $ 10.23 $ 10.22
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... 6.00% 9.51% 6.37% 6.30% 2.68%@
Return:** ========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement ............. .77% .52% .34% .07% .00%*
Net Assets: ========= ========= ========= ========= =========
Expenses ................................... .89% .92% .98% 1.19% 1.54%*
========= ========= ========= ========= =========
Investment income--net ..................... 4.79% 5.38% 5.58% 6.02% 5.48%*
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ... $ 8,855 $ 8,380 $ 7,589 $ 7,979 $ 6,557
Data: ========= ========= ========= ========= =========
Portfolio turnover ......................... 53.99% 32.46% 57.58% 60.99% 3.07%
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
11
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Financial Highlights (continued)
================================================================================================================================
Class B
-------------------------------------------------------------
For the
Period
The following per share data and ratios have been derived July 1,
from information provided in the financial statements. For the Year Ended July 31, 1994+ to
------------------------------------------------ July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 10.68 $ 10.29 $ 10.23 $ 10.22 $ 10.00
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net ..................... .46 .51 .53 .55 .04
Realized and unrealized gain on
investments--net ........................... .11 .39 .06 .01 .22
--------- --------- --------- --------- ---------
Total from investment operations ........... .57 .90 .59 .56 .26
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net ................... (.46) (.51) (.53) (.55) (.04)
Realized gain on investments--net ........ -- -- -- --++ --
--------- --------- --------- --------- ---------
Total dividends and distributions .......... (.46) (.51) (.53) (.55) (.04)
--------- --------- --------- --------- ---------
Net asset value, end of period ............. $ 10.79 $ 10.68 $ 10.29 $ 10.23 $ 10.22
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... 5.47% 8.96% 5.82% 5.77% 2.64%@
Return:** ========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement ............. 1.27% 1.02% .85% .58% .50%*
Net Assets: ========= ========= ========= ========= =========
Expenses ................................... 1.40% 1.43% 1.49% 1.70% 2.04%*
========= ========= ========= ========= =========
Investment income--net ..................... 4.28% 4.87% 5.07% 5.51% 5.00%*
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ... $ 41,964 $ 35,563 $ 31,359 $ 30,265 $ 16,889
Data: ========= ========= ========= ========= =========
Portfolio turnover ......................... 53.99% 32.46% 57.58% 60.99% 3.07%
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
12
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Financial Highlights (continued)
=======================================================================================================================
Class C
--------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended July 31, 1994+ to
-------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............... $ 10.69 $ 10.30 $ 10.24 $ 9.82
Operating -------- -------- -------- --------
Performance: Investment income--net ............................. .45 .50 .52 .42
Realized and unrealized gain on investments--net ... .11 .39 .06 .42
-------- -------- -------- --------
Total from investment operations ................... .56 .89 .58 .84
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net ........................... (.45) (.50) (.52) (.42)
Realized gain on investments--net ................ -- -- -- --++
-------- -------- -------- --------
Total dividends and distributions .................. (.45) (.50) (.52) (.42)
-------- -------- -------- --------
Net asset value, end of period ..................... $ 10.80 $ 10.69 $ 10.30 $ 10.24
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ................. 5.36% 8.84% 5.72% 8.79%@
Return:** ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement ..................... 1.37% 1.12% .95% .74%*
Net Assets: ======== ======== ======== ========
Expenses ........................................... 1.50% 1.53% 1.58% 1.77%*
======== ======== ======== ========
Investment income--net ............................. 4.17% 4.77% 4.96% 5.43%*
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ........... $ 4,399 $ 2,016 $ 1,829 $ 820
Data: ======== ======== ======== ========
Portfolio turnover ................................. 53.99% 32.46% 57.58% 60.99%
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
13
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
<CAPTION>
Financial Highlights (concluded)
=======================================================================================================================
Class D
--------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended July 31, 1994+ to
-------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............... $ 10.68 $ 10.29 $ 10.23 $ 9.82
Operating -------- -------- -------- --------
Performance: Investment income--net ............................. .51 .55 .57 .46
Realized and unrealized gain on investments--net ... .11 .39 .06 .41
-------- -------- -------- --------
Total from investment operations ................... .62 .94 .63 .87
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net ........................... (.51) (.55) (.57) (.46)
Realized gain on investments--net ................ -- -- -- --++
-------- -------- -------- --------
Total dividends and distributions .................. (.51) (.55) (.57) (.46)
-------- -------- -------- --------
Net asset value, end of period ..................... $ 10.79 $ 10.68 $ 10.29 $ 10.23
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ................. 5.90% 9.40% 6.26% 9.10%@
Return:** ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement ..................... .87% .62% .44% .22%*
Net Assets: ======== ======== ======== ========
Expenses ........................................... .99% 1.03% 1.07% 1.27%*
======== ======== ======== ========
Investment income--net ............................. 4.67% 5.27% 5.46% 5.96%*
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ........... $ 4,634 $ 3,440 $ 2,657 $ 1,067
Data: ======== ======== ======== ========
Portfolio turnover ................................. 53.99% 32.46% 57.58% 60.99%
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
14
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
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 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.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Deferred organization expenses and prepaid registration fees--Deferred
organization expenses are charged to expense on a straight-line basis over a
period not exceeding five years. Prepaid registration fees are charged to
expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
15
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of Merrill Lynch
Group, Inc.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee
based upon the average daily value of the Fund's net assets at the following
annual rates: 0.55% of the Fund's average daily net assets not exceeding $500
million; 0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in excess of $1
billion. For the year ended July 31, 1998, FAM earned fees of $310,622, of which
$70,737 was voluntarily waived.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class B ............................... 0.25% 0.25%
Class C ............................... 0.25% 0.35%
Class D ............................... 0.10% --
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1998, MLFD earned underwriting discounts and direct
commissions 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 ............................... $ 311 $ 2,162
Class D ............................... $1,450 $12,986
- --------------------------------------------------------------------------------
For the year ended July 31, 1998, MLPF&S received contingent deferred sales
charges of $42,488 and $758 relating to transactions in Class B and Class C
Shares, respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 1998 were $39,505,068 and $29,011,208, respectively.
Net realized gains for the year ended July 31, 1998 and net unrealized gains as
of July 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments $619,908 $ 3,697,144
-------- -----------
Total $619,908 $ 3,697,144
======== ===========
- --------------------------------------------------------------------------------
As of July 31, 1998, net unrealized appreciation for Federal income tax purposes
aggregated $3,697,144, of which $3,714,208 related to appreciated securities and
$17,064 related to depreciated securities. The aggregate cost of investments at
July 31, 1998 for Federal income tax purposes was $55,560,720.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest transactions was
$9,834,240 and $4,232,008,
16
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
for the years ended July 31, 1998 and July 31, 1997, respectively.
Transactions in shares of beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 170,255 $ 1,827,909
Shares issued to shareholders
in reinvestment of dividends ........... 26,123 280,243
----------- -------------
Total issued ........................... 196,378 2,108,152
Shares redeemed ........................ (160,568) (1,724,041)
----------- -------------
Net increase ........................... 35,810 $ 384,111
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 B Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 953,149 $ 10,228,638
Shares issued to shareholders
in reinvestment of dividends ........... 84,480 907,228
----------- -------------
Total issued ........................... 1,037,629 11,135,866
Automatic conversion of
shares ................................. (26,169) (284,672)
Shares redeemed ........................ (453,359) (4,873,260)
----------- -------------
Net increase ........................... 558,101 $ 5,977,934
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 C Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 304,263 $ 3,243,701
Shares issued to shareholders
in reinvestment of dividends ........... 9,956 107,137
----------- -------------
Total issued ........................... 314,219 3,350,838
Shares redeemed ........................ (95,563) (1,031,660)
----------- -------------
Net increase ........................... 218,656 $ 2,319,178
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 D Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 211,578 $ 2,284,155
Automatic conversion
of shares .............................. 26,169 284,672
Shares issued to shareholders
in reinvestment of dividends ........... 8,148 87,646
----------- -------------
Total issued ........................... 245,895 2,656,473
Shares redeemed ........................ (138,645) (1,503,456)
----------- -------------
Net increase ........................... 107,250 $ 1,153,017
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
=========== =============
- --------------------------------------------------------------------------------
5. Capital Loss Carryforward:
At July 31, 1998, the Fund had a net capital loss carryforward of approximately
$49,000, all of which expires in 2005. This amount will be available to offset
like amounts of any future taxable gains.
17
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
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, 1998, the
related statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the four-year period then ended
and for the period 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,
1998 by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Connecticut Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series
Trust as of July 31, 1998, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 8, 1998
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, 1998
qualify as tax-exempt interest dividends for Federal income tax purposes.
Additionally, there were no capital gains distributed by the Fund during the
year.
Please retain this information for your records.
18
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 1998
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
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
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
19
<PAGE>
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--7/98
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