MERRILL LYNCH
CONNECTICUT
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1998
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 -- 1/98
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch Connecticut Municipal Bond Fund January 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended January 31, 1998, long-term bond yields
declined to recent historic lows. Prior to late October, the ongoing
positive combination of moderate economic growth and low inflation had
allowed interest rates to gradually move lower. During the last three
months, however, the decline in interest rates was driven more by the
continued turmoil in Asian equity markets than by fundamental
concerns. A significant "flight to quality" has benefited the US
Treasury bond market, particularly longer-maturity US Treasury bonds,
as foreign investors have sought safe haven in the relative stability
of US financial markets. Over the six months ended January 31, 1998,
US Treasury bond yields declined approximately 50 basis points (0.50%)
to 5.81%.
Without the ability to benefit from the tax advantage inherent in
municipal bonds, foreign investors have not participated in the tax-
exempt market. Consequently, municipal bond yields have not declined
dramatically as have taxable US Treasury securities. Long-term
municipal revenue bond yields, as measured by the Bond Buyer Revenue
Index, declined only 15 basis points to end the six-month period ended
January 31, 1998 at 5.33%. Nevertheless, tax-exempt bond yields have
not reached these levels since the mid-1970s.
The increase in new municipal bond issuance over the past six months
has also prevented the tax-exempt bond market from more closely
mirroring the yield declines exhibited by its taxable counterpart.
During the last six months, over $120 billion in new long-term
municipal bonds were underwritten, an increase of over 30% compared to
the same six-month period one year ago. As interest rates have
continued to decline in recent months, new tax-exempt bond issuance
has remained strong. Over $60 million in new long-term municipal
securities were issued during the last three months, an increase of
over 20% compared to the same three-month period ended January 31,
1997. During the past month, over $16 billion in new long-term
municipal securities were underwritten, representing an increase of
over 40% compared to the January 1997 level.
In our opinion, the recent correction in world equity markets has
enhanced the near-term prospects for continued low, if not declining,
interest rates in the United States. It is likely that the recent
correction will result in slower US domestic growth in the coming
months. This decline should be generated in part by reduced US export
growth. Additionally, some decline in consumer spending can also be
expected because of reduced consumer confidence. Perhaps more
importantly, it is likely that, barring a dramatic and unexpected
resurgence in domestic growth, the Federal Reserve Board will be
unwilling to raise interest rates until the full impact of the equity
market's corrections can be established.
All of these factors suggest that over the near term, interest rates,
including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable that municipal bond yields will
remain under some relative pressure because of continued strong new-
issue supply. However, the recent pace of municipal bond issuance is
likely to be unsustainable. 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 of 1998 total municipal bond issuance are
presently in the $195 billion -- $220 billion range. These estimates
suggest that recent supply pressures are likely to abate somewhat next
year, or at least exert only minimal technical pressure during 1998.
Additionally, municipal bond investors received approximately $23
billion in January coupon payments, bond maturities and proceeds from
early redemptions, which should serve to intensify investor demand in
the near future. With tax-exempt bond yields at already attractive
yield ratios relative to US Treasury bonds (approximately 90% at the
end of December 1997), any further pressure on the municipal market
may well represent an attractive investment opportunity.
Portfolio Strategy
We adopted a slightly defensive investment strategy going into the
second half of 1997. We believed that economic growth would resurge
and that the Federal Reserve Board would have to 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
securities in the US Treasury bond market. In response to the Asian
financial crisis and the continued low domestic inflationary
environment, we shifted Merrill Lynch Connecticut Municipal Bond Fund
toward a more aggressive strategy by early November 1997.
During the six months ended January 31, 1998, new issuance was just
over $2.4 billion in the Connecticut tax-exempt bond market. This
represented an increase of approximately 30% compared to the same
period a year ago. Additionally, the majority of new issuance in
Connecticut was dominated by intermediate-term maturity issues with
lesser call protection, which would not enhance the Fund's overall
structure.
Looking ahead, we expect to maintain the Fund's fully invested
position. We believe that interest rates will remain in a narrow
trading range. We plan to use periods of higher interest rates to
structure the portfolio more aggressively. However, an anticipated
lack of new issuance in Connecticut may curtail our ability to execute
this strategy.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Connecticut
Municipal Bond Fund, and we look forward to serving your investment
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/ROBERT D. SNEEDEN
Robert D. Sneeden
Vice President and Portfolio Manager
March 5, 1998
We are pleased to announce that Robert D. Sneeden is responsible for
the day-to-day management of Merrill Lynch Connecticut Municipal Bond
Fund. Mr. Sneeden has been employed by Merrill Lynch Asset Management,
L.P. (an affiliate of the Fund's investment adviser) since 1994 as
Portfolio Manager. Prior thereto, he was vice president with Lehman
Brothers from 1990 to 1994.
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
1/31/98 10/31/97 1/31/97 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.84 $10.66 $10.39 +4.33% +1.69%
Class B Shares* 10.84 10.66 10.38 +4.43 +1.69
Class C Shares* 10.85 10.67 10.39 +4.43 +1.69
Class D Shares* 10.84 10.66 10.39 +4.33 +1.69
Class A Shares -- Total Return* +9.73(1) +2.93(2)
Class B Shares -- Total Return* +9.28(3) +2.80(4)
Class C Shares -- Total Return* +9.17(5) +2.77(6)
Class D Shares -- Total Return* +9.62(7) +2.90(8)
Class A Shares -- Standardized 30-day Yield 4.17%
Class B Shares -- Standardized 30-day Yield 3.83%
Class C Shares -- Standardized 30-day Yield 3.73%
Class D Shares -- Standardized 30-day Yield 4.07%
* 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 $0.534 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.131 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.480 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.117 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.470 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.115 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.523 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.128 per share ordinary income dividends.
</TABLE>
<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
1997 10.45 10.78 -- 0.538 + 8.57
1/1/98 -- 1/31/98 10.78 10.84 -- 0.036 + 0.97
Total $2.045
Cumulative total return as of 1/31/98: +32.29%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</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
1997 10.44 10.78 -- 0.485 + 8.13
1/1/98 -- 1/31/98 10.78 10.84 -- 0.032 + 0.92
Total $1.858
Cumulative total return as of 1/31/98: +29.91%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</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
1997 10.45 10.79 -- 0.475 + 8.02
1/1/98 -- 1/31/98 10.79 10.85 -- 0.031 + 0.91
Total $1.663
Cumulative total return as of 1/31/98: +29.84%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</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
1997 10.45 10.79 -- 0.528 + 8.56
1/1/98 -- 1/31/98 10.79 10.84 -- 0.035 + 0.86
Total $1.834
Cumulative total return as of 1/31/98: +31.90%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/97 +8.57% +4.23%
Inception (7/1/94)
through 12/31/97 +8.02 +6.77
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/97 +8.13% +4.13%
Inception (7/1/94)
through 12/31/97 +7.48 +7.24
* 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 12/31/97 +8.02% +7.02%
Inception (10/21/94)
through 12/31/97 +8.21 +8.21
* 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 12/31/97 +8.56% +4.22%
Inception (10/21/94)
through 12/31/97 +8.76 +7.38
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Connecticut Municipal Bond Fund January 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Connecticut -- 96.7%
Ansonia, Connecticut, GO, UT (c):
AAA Aaa $1,075 5% due 10/15/2016 $1,078
AAA Aaa 1,075 5% due 10/15/2017 1,072
AAA Aaa 1,000 Connecticut State Clean Water Fund Revenue Bonds, 5.80% due 6/01/2016 1,081
AAA Aaa 1,000 Connecticut State Development Authority, Governmental Lease Revenue Bonds, 6.60%
due 6/15/2014 (b) 1,131
NR* VMIG1+ 2,500 Connecticut State Development Authority, Health Care Revenue Bonds (Independent
Living Project), VRDN, 3.20% due 7/01/2015 (a) 2,500
A1+ VMIG1+ 300 Connecticut State Development Authority, PCR, Refunding (Connecticut Light & Power
Co. Project), VRDN, AMT, Series B, 3.40% due 9/01/2028 (a) 300
AA- A1 2,000 Connecticut State Development Authority Revenue Bonds (General Fund), Series A,
6.375% due 10/15/2024 2,235
AAA Aaa 1,500 Connecticut State Development Authority, Solid Waste Disposal Facilities Revenue
Bonds (Pfizer Inc. Project), AMT, 7% due 7/01/2025 1,753
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 3,173
AAA Aaa 1,000 Refunding, Series A, 6.05% due 3/01/2029 (b) 1,093
AAA Aaa 1,890 Refunding, Series B, 5.50% due 6/01/2028 (b) 1,943
AA- Aa3 1,000 Connecticut State, GO, Series A, 5.50% due 5/15/2014 1,060
AA- Aa3 4,000 Connecticut State, GO, UT, Series C, 5.25% due 8/01/2017 4,097
Connecticut State, HFA, Revenue Bonds (Housing Mortgage Finance Program):
AA Aa2 995 AMT, Series A, Sub-Series A-2, 6.20% due 11/15/2022 1,055
AA Aa 910 AMT, Series A, Sub-Series A-2, 6.50% due 5/15/2027 969
AA Aa3 1,000 AMT, Series B, Sub-Series B-2, 5.70% due 5/15/2017 1,025
AA Aa2 235 AMT, Series D, Sub-Series D-2, 6.90% due 5/15/2020 251
AA Aa2 2,110 Series B, 6.75% due 11/15/2023 2,259
AAA Aaa 2,110 Series B, 6.75% due 11/15/2023 (b) 2,267
AA Aa 1,200 Series C-1, 6.30% due 11/15/2017 1,290
Connecticut State Health and Educational Facilities Authority Revenue Bonds:
AAA Aaa 1,000 (Bridgeport Hospital), Series A, 6.625% due 7/01/2018 (b) 1,099
AAA Aaa 1,500 (Masonicare), Series A, 5% due 7/01/2020 (e) 1,474
AAA Aaa 1,400 (Newington Children's Hospital), Series A, 6.30% due 7/01/2021 (b) 1,552
AA- A1 2,000 (Nursing Home Program - AHF/Hartford), 7.125% due 11/01/2024 2,316
BBB Baa2 1,000 Refunding (Hospital for Special Care), Series B, 5.375% due 7/01/2017 998
NR* Aaa 1,000 Refunding (Middlesex Hospital), Series H, 5.125% due 7/01/2027 (b) 992
BBB- Baa3 1,000 Refunding (Sacred Heart University), Series C, 6.625% due 7/01/2026 1,093
AAA Aaa 900 Refunding (Trinity College), Series D, 6.125% due 7/01/2024 (c) 991
AAA Aaa 1,000 Refunding (Yale - New Haven Hospital), Series H, 5.70% due 7/01/2025 (b) 1,062
BBB- Baa3 1,000 (Sacred Heart University), Series D, 6.20% due 7/01/2027 1,057
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) 1,094
NR* A1 720 Connecticut State Higher Education, Supplemental Loan Authority Revenue Bonds
(Family Education Loan Program), AMT, Series A, 6.40% due 11/15/2014 781
NR* NR* 1,000 Connecticut State Regional Learning Educational Service Center Revenue Bonds
(Office/Education Center Facility), 7.75% due 2/01/2015 1,144
AAA Aaa 1,000 Connecticut State Resource Recovery Authority, Revenue Refunding Bonds
(Mid-Connecticut System), Series A, 5.50% due 11/15/2012 (b) 1,059
AAA Aaa 2,380 Connecticut State Special Tax Obligation Revenue Bonds (Transportation
Infrastructure), Series A, 5% due 11/01/2015 (d) 2,384
AAA Aaa 1,000 East Haven, Connecticut, GO, UT, 5.50% due 9/01/2014 (c) 1,043
AAA Aaa 500 Hartford, Connecticut, GO, UT, 5.75% due 10/01/2015 (c) 538
Puerto Rico -- 5.5%
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 1,107
A Baa1 2,000 Puerto Rico Public Buildings Authority Revenue Bonds (GTO Government
Facilities), Series B, 5.25% due 7/01/2021 2,010
---------
Total Investments (Cost -- $53,709) -- 102.2% 57,865
Liabilities in Excess of Other Assets -- (2.2%) (1,229)
---------
Net Assets -- 100.0% $56,636
=========
(a) The interest rate is subject to change periodically based upon prevailing market rates.
The interest rate shown is the rate in effect at January 31, 1998.
(b) MBIA Insured.
(c) FGIC Insured.
(d) FSA Insured.
(e) AMBAC Insured.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
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 January 31, 1998
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $53,708,550)(Note 1a) $57,864,965
Receivables:
Interest $764,066
Beneficial interest sold 154,471 918,537
-------------
Deferred organization expenses (Note 1e) 14,004
Prepaid registration fees and other assets (Note 1e) 5,193
-------------
Total assets 58,802,699
-------------
Liabilities: Payables:
Securities purchased 2,004,042
Dividends to shareholders (Note 1f) 40,798
Investment adviser (Note 2) 20,671
Distributor (Note 2) 19,394
Beneficial interest redeemed 18,867 2,103,772
-------------
Accrued expenses and other liabilities 63,138
-------------
Total liabilities 2,166,910
-------------
Net Assets: Net assets $56,635,789
=============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $78,121
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 369,592
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 39,829
Class D Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 34,839
Paid-in capital in excess of par 52,431,325
Accumulated realized capital losses on investments -- net (Note 5) (474,332)
Unrealized appreciation on investments -- net 4,156,415
-------------
Net assets $56,635,789
=============
Net Asset Value: Class A -- Based on net assets of $8,469,571 and 781,211 shares of
beneficial interest outstanding $10.84
=============
Class B -- Based on net assets of $40,067,951 and 3,695,920 shares of
beneficial interest outstanding $10.84
=============
Class C -- Based on net assets of $4,320,617 and 398,294 shares of
beneficial interest outstanding $10.85
=============
Class D -- Based on net assets of $3,777,650 and 348,389 shares of
beneficial interest outstanding $10.84
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
January 31, 1998
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $1,514,346
(Note 1d):
Expenses: Investment advisory fees (Note 2) $147,777
Account maintenance and distribution fees -- Class B (Note 2) 94,584
Professional fees 28,548
Accounting services (Note 2) 18,363
Printing and shareholder reports 16,233
Account maintenance and distribution fees -- Class C (Note 2) 11,063
Transfer agent fees -- Class B (Note 2) 6,970
Registration fees (Note 1e) 6,763
Amortization of organization expenses (Note 1e) 3,714
Pricing fees 2,949
Account maintenance fees -- Class D (Note 2) 1,812
Trustees' fees and expenses 1,432
Custodian fees 1,409
Transfer agent fees -- Class A (Note 2) 1,309
Transfer agent fees -- Class C (Note 2) 660
Transfer agent fees -- Class D (Note 2) 552
Other 1,719
----------
Total expenses before reimbursement 345,857
Reimbursement of expenses (Note 2) (41,129)
----------
Total expenses after reimbursement 304,728
----------
Investment income -- net 1,209,618
----------
Realized & Realized gain on investments -- net 403,254
Unrealized Gain on Change in unrealized appreciation on investments -- net 458,048
Investments -- Net ----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $2,070,920
==========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <C> <C> <C>
Operations: Investment income -- net $1,209,618 $2,310,943
Realized gain on investments -- net 403,254 193,542
Change in unrealized appreciation on investments -- net 458,048 1,539,167
------------- -------------
Net increase in net assets resulting from operations 2,070,920 4,043,652
------------- -------------
Dividends to Investment income -- net:
Shareholders Class A (210,869) (431,014)
(Note 1f): Class B (832,412) (1,640,570)
Class C (79,220) (84,261)
Class D (87,117) (155,098)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders (1,209,618) (2,310,943)
------------- -------------
Beneficial Interest Net increase in net assets derived from beneficial interest
Transactions transactions 6,375,585 4,232,008
(Note 4): ------------- -------------
Net Assets: Total increase in net assets 7,236,887 5,964,717
Beginning of period 49,398,902 43,434,185
------------- -------------
End of period $56,635,789 $49,398,902
============= =============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
For the For the
Six Period
Months July 1,
The following per share data and ratios have been derived Ended 1994+ to
from information provided in the financial statements. Jan. 31, For the Year Ended July 31, July 31,
1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<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 .27 .56 .58 .60 .05
Realized and unrealized gain on
investments -- net .16 .39 .06 .01 .22
--------- --------- --------- --------- ---------
Total from investment operations .43 .95 .64 .61 .27
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.27) (.56) (.58) (.60) (.05)
Realized gain on investments -- net -- -- -- --++ --
--------- --------- --------- --------- ---------
Total dividends and distributions (.27) (.56) (.58) (.60) (.05)
--------- --------- --------- --------- ---------
Net asset value, end of period $10.84 $10.68 $10.29 $10.23 $10.22
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 4.05%++++ 9.51% 6.37% 6.30% 2.68%++++
Return:** ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement .73%* .52% .34% .07% .00%*
Net Assets: ========= ========= ========= ========= =========
Expenses .88%* .92% .98% 1.19% 1.54%*
========= ========= ========= ========= =========
Investment income -- net 4.91%* 5.38% 5.58% 6.02% 5.48%*
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $8,469 $8,380 $7,589 $7,979 $6,557
Data: ========= ========= ========= ========= =========
Portfolio turnover 16.14% 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.
</TABLE>
<TABLE>
<CAPTION>
Class B
For the For the
Six Period
Months July 1,
The following per share data and ratios have been derived Ended 1994+ to
from information provided in the financial statements. Jan. 31, For the Year Ended July 31, July 31,
1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<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 .24 .51 .53 .55 .04
Realized and unrealized gain on
investments -- net .16 .39 .06 .01 .22
--------- --------- --------- --------- ---------
Total from investment operations .40 .90 .59 .56 .26
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.24) (.51) (.53) (.55) (.04)
Realized gain on investments -- net -- -- -- --++ --
--------- --------- --------- --------- ---------
Total dividends and distributions (.24) (.51) (.53) (.55) (.04)
--------- --------- --------- --------- ---------
Net asset value, end of period $10.84 $10.68 $10.29 $10.23 $10.22
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 3.78%++++ 8.96% 5.82% 5.77% 2.64%++++
Return:** ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement 1.24%* 1.02% .85% .58% .50%*
Net Assets: ========= ========= ========= ========= =========
Expenses 1.39%* 1.43% 1.49% 1.70% 2.04%*
========= ========= ========= ========= =========
Investment income -- net 4.40%* 4.87% 5.07% 5.51% 5.00%*
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $40,068 $35,563 $31,359 $30,265 $16,889
Data: ========= ========= ========= ========= =========
Portfolio turnover 16.14% 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.
</TABLE>
<TABLE>
<CAPTION>
Class C
For the For the
Six Period
Months Oct. 21,
The following per share data and ratios have been derived Ended For the Year 1994+ to
from information provided in the financial statements. Jan. 31, Ended July 31, July 31,
1998 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<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 .23 .50 .52 .42
Realized and unrealized gain on investments
-- net .16 .39 .06 .42
--------- --------- --------- ---------
Total from investment operations .39 .89 .58 .84
--------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.23) (.50) (.52) (.42)
Realized gain on investments -- net -- -- -- --++
--------- --------- --------- ---------
Total dividends and distributions (.23) (.50) (.52) (.42)
--------- --------- --------- ---------
Net asset value, end of period $10.85 $10.69 $10.30 $10.24
========= ========= ========= =========
Total Investment Based on net asset value per share 3.73%++++ 8.84% 5.72% 8.79%++++
Return:** ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement 1.34%* 1.12% .95% .74%*
Net Assets: ========= ========= ========= =========
Expenses 1.49%* 1.53% 1.58% 1.77%*
========= ========= ========= =========
Investment income -- net 4.30%* 4.77% 4.96% 5.43%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $4,321 $2,016 $1,829 $820
Data: ========= ========= ========= =========
Portfolio turnover 16.14% 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>
<TABLE>
<CAPTION>
Class D
For the For the
Six Period
Months Oct. 21,
The following per share data and ratios have been derived Ended For the Year 1994+ to
from information provided in the financial statements. Jan. 31, Ended July 31, July 31,
1998 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<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 .26 .55 .57 .46
Realized and unrealized gain on investments -- net .16 .39 .06 .41
--------- --------- --------- ---------
Total from investment operations .42 .94 .63 .87
--------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.26) (.55) (.57) (.46)
Realized gain on investments -- net -- -- -- --++
--------- --------- --------- ---------
Total dividends and distributions (.26) (.55) (.57) (.46)
--------- --------- --------- ---------
Net asset value, end of period $10.84 $10.68 $10.29 $10.23
========= ========= ========= =========
Total Investment Based on net asset value per share 4.00%++++ 9.40% 6.26% 9.10%++++
Return:** ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement .83%* .62% .44% .22%*
Net Assets: ========= ========= ========= =========
Expenses .98%* 1.03% 1.07% 1.27%*
========= ========= ========= =========
Investment income -- net 4.81%* 5.27% 5.46% 5.96%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $3,778 $3,440 $2,657 $1,067
Data: ========= ========= ========= =========
Portfolio turnover 16.14% 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 January 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. These unaudited
financial statements reflect all adjustments which are, in the opinion
of management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal
recurring nature. 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 six months ended January 31, 1998, FAM earned
fees of $147,777, of which $41,129 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
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 six months ended January 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 $52 $600
Class D $345 $3,951
For the six months ended January 31, 1998, MLPF&S received contingent
deferred sales charges of $17,764 relating to transactions in Class B
Shares.
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 six months ended January 31, 1998 were $16,744,219 and
$8,291,956, respectively.
Net realized and unrealized gains as of January 31, 1998 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $403,254 $4,156,415
----------- -----------
Total $403,254 $4,156,415
=========== ===========
As of January 31, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $4,156,415, all of which related to
appreciated securities. The aggregate cost of investments at January
31, 1998 for Federal income tax purposes was $53,708,550.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $6,375,585 and $4,232,008, for the six months ended
January 31, 1998 and for the year ended July 31, 1997, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 79,366 $845,752
Shares issued to shareholders
in reinvestment of dividends 14,375 153,323
---------- ----------
Total issued 93,741 999,075
Shares redeemed (97,090) (1,037,822)
---------- ----------
Net decrease (3,349) $(38,747)
========== ==========
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 Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 516,121 $5,512,755
Shares issued to shareholders
in reinvestment of dividends 41,563 443,545
---------- ----------
Total issued 557,684 5,956,300
Automatic conversion
of shares (1,195) (13,053)
Shares redeemed (190,402) (2,033,785)
---------- ----------
Net increase 366,087 $3,909,462
========== ==========
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 Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 209,923 $2,224,772
Shares issued to shareholders
in reinvestment of dividends 4,501 48,158
---------- ----------
Total issued 214,424 2,272,930
Shares redeemed (4,750) (50,407)
---------- ----------
Net increase 209,674 $2,222,523
========== ==========
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 Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 31,704 $339,023
Automatic conversion
of shares 1,195 13,053
Shares issued to shareholders
in reinvestment of dividends 2,879 30,719
---------- ----------
Total issued 35,778 382,795
Shares redeemed (9,455) (100,448)
---------- ----------
Net increase 26,323 $282,347
========== ==========
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, 1997, the Fund a net 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.
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
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Robert D. Sneeden, 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
