MERRILL LYNCH
CONNECTICUT
MUNICIPAL
BOND FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
July 31, 2000
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 2000, US domestic economic growth remained
robust. After growing at a 4.2% annual rate in 1999, US domestic economic growth
expanded at a 4.8% rate during the first quarter of 2000 and at a 5.2% rate
during the second quarter. However, despite these significant growth rates, few
price measure indicators have shown any meaningful signs of future price
pressures at the consumer level, despite the lowest unemployment rates since
1970. With few signs of any economic slowdown, the Federal Reserve Board
continued to raise short-term interest rates in February, March and May 2000.
The Federal Reserve Board cited both the continued growth of US employment and
the continued strength of US equity markets as reasons for attempting to
moderate US economic growth before inflationary price pressures can occur.
However, since then fixed-income markets have largely ignored strong economic
fundamentals and concentrated upon very positive technical supply factors.
Declining bond issuance--both current, and more importantly, expected future
issuance--helped push bond yields lower into mid-April 2000. In late January and
early February 2000, the US Treasury announced its intention to reduce the
amounts to be auctioned in the quarterly Treasury note and bond auctions.
Furthermore, budgetary surpluses allowed the US Treasury to repurchase
outstanding, higher-couponed Treasury issues, primarily in the 15-year and
longer maturity sector. Both these actions resulted in significant reduction in
the outstanding supply of longer-dated maturity US Treasury debt. Domestic and
international investors quickly began to accumulate what was expected to become
a scarce commodity and bond prices quickly rose.
By mid-April 2000, US Treasury bond yields had declined more than 80 basis
points (0.80%) to 5.67%. During the remainder of the period, US Treasury bond
prices were volatile as strong economic reports and investors' concerns of
additional moves by the Federal Reserve Board occasionally overshadowed the
positive technical position of the long-term US Treasury bond market.
Recently, a number of economic indicators have begun to suggest that the actions
taken by the Federal Reserve Board in 1999 and early 2000 have started to affect
US economic growth. Both new home sales and consumer spending have slowed,
suggesting that economic growth may subside into a 4%-4.5% range by late 2000.
In our opinion, this range of growth was targeted by the Federal Reserve Board
as being sustainable, given current productivity measures, without endangering
the present benign inflationary environment.
By June, investor focus returned to the dwindling supply of long-term US
Treasury securities and bond prices generally rose for the remainder of the
period. The decline in long-term US Treasury bond yields resulted in an inverted
yield curve as short-term and intermediate-term interest rates did not fall
proportionately to long-term interest rates as the Federal Reserve Board was
expected to continue to raise short-term interest rates. The current inversion
has had as much to do with debt reduction and US Treasury buybacks as with
investor expectations of slower economic growth. During the last six months, US
Treasury bond yields have declined more than 70 basis points to end the period
at 5.78%, their lowest monthly closing level since May 1999.
Tax-exempt bond yields also have declined in recent months. The decline has
largely been in response to the rally in US Treasury securities, as well as a
continued positive technical supply environment. States such as California and
Maryland have announced that their large current and anticipated future budget
surpluses will permit the cancellation or postponement of expected bond
issuance. Additionally, some issuers have also initiated tenders to repurchase
existing debt, reducing the supply of tax-exempt bonds in the secondary market
as well. Given the decline in available long-term US Treasury securities, some
investors who need longer maturity investment vehicles have begun to consider
long-term municipal bonds as potential substitutes. This has further
strengthened the overall positive technical position of the tax-exempt market.
During the last six months, long-term municipal revenue bond yields have
declined nearly 50 basis points to 5.85%, their lowest level since late August
1999, as measured by the Bond Buyer Revenue Bond Index.
The recent relative underperformance of the municipal bond market in recent
months has been especially disappointing given the strong technical
1
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
position the tax-exempt bond market has enjoyed. The issuance of long-term
tax-exempt securities has dramatically declined. During the last year, almost
$200 billion in new long-term municipal securities was issued, a decline of
almost 20% compared to the same period a year earlier. For the six months ended
July 31, 2000, approximately $100 billion in new tax-exempt bonds was
underwritten, a decline of 17% compared to the same period in 1999.
Although investors received more than $45 billion in coupon payments, bond
maturities and the proceeds from early bond redemptions during June and July,
overall investor demand has diminished. Long-term municipal bond mutual funds
have seen consistent outflows in recent months as the yields of individual
securities have risen faster than those of larger, more diverse mutual funds.
Thus far this year, tax-exempt mutual funds have had net redemptions of more
than $12 billion.
However, the rate at which these redemptions have been occurring has slowed in
recent months. Recent US equity market volatility, especially in the NASDAQ, has
reduced some investor interest in the stock market. This investor interest,
especially earlier this year, had been siphoning away demand for municipal bonds
by retail investors. Also, the demand from property and casualty companies is
expected to increase in the coming months. These firms are becoming more
profitable after experiencing losses in the past few years resulting from a
series of weather-related natural disasters. Yet as positive as the tax-exempt
bond market's technical environment has been for much of this year, investor
response to the reduction in both current and future supply of US Treasury bonds
has been overwhelmingly positive and municipal bond yields have underperformed
their taxable counterparts.
Significantly lower municipal bond yields are still likely to require weaker US
employment growth and consumer spending. The actions taken in recent months by
the Federal Reserve Board should eventually slow US economic growth. Recent
declines in US new home sales are perhaps the first sign that consumer spending
is being slowed by higher interest rates. Until further signs develop, it is
likely that the municipal bond market's current favorable technical position
will dampen significant tax-exempt interest rate volatility and provide a stable
environment for eventual improvement in municipal bond prices.
Portfolio Strategy
During the period ended January 31, 2000, we gradually adopted a more neutral
portfolio structure and we continued this strategy into the six-month period
ended July 31, 2000. More interest rate-sensitive issues have been sold and
replaced with higher-couponed issues in the 15-year-20-year maturity range.
Given the steepness of the tax-exempt yield curve, bonds in this maturity range
are able to capture approximately 95% of the yield available in the entire
municipal yield curve. Bonds with this structure are significantly less
sensitive to interest rate changes than bonds maturing in 25 years-30 years, yet
still allow us to maintain an attractive dividend stream. However, reduced new
bond issuance in recent months has hampered our efforts.
Credit quality has continued to be of primary concern. We purposely
underutilized the portion of assets that can be committed to lower-rated
securities. This helped performance in the recent period of widening credit
quality spreads. Looking forward, we expect to continue the process of
increasing average coupon structure and limiting duration in an effort to temper
the portfolio's volatility and exposure to long-term interest rate swings.
Fiscal Year in Review
For the 12 months ended July 31, 2000, we largely structured the Fund in
anticipation of a benign interest rate environment. This strategy was based on
the belief that inflationary pressures would remain negligible during the next
12 months. During that period, our view on inflation was correct, but interest
rates increased as the Federal Reserve Board raised short-term interest rates in
an effort to curtail domestic economic growth. This overly optimistic strategy
produced below-average total returns of +1.96%, +1.45%, +1.45% and +1.86% for
the Fund's Class A, Class B, Class C and Class D Shares, respectively, for the
year ended July 31, 2000. This compares to the Lipper Analytical Services, Inc.
average total return of +2.31% for similar Connecticut Municipal Debt Funds
during the same 12-month period. (Investment results shown do not reflect sales
charges and would be lower if sales charges were included. Complete
2
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
performance information can be found on pages 4 and 5 of this report to
shareholders.)
In Conclusion
We appreciate your continuing 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/ Terry K. Glenn
Terry K. Glenn
President and Trustee
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ William R. Bock
William R. Bock
Vice President and Portfolio Manager
August 30, 2000
3
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
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. The Fund's
Investment Adviser voluntarily waived a portion of its management fee. Without
such waiver, the Fund's performance would have been lower.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 6/30/00 +0.86% -3.17%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +5.06 +4.20
--------------------------------------------------------------------------------
Inception (7/01/94)
through 6/30/00 +5.63 +4.92
--------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 6/30/00 +0.35% -3.49%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +4.53 +4.53
--------------------------------------------------------------------------------
Inception (7/01/94)
through 6/30/00 +5.10 +5.10
--------------------------------------------------------------------------------
* 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*
================================================================================
One Year Ended 6/30/00 +0.16% -0.80%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +4.42 +4.42
--------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/00 +5.31 +5.31
--------------------------------------------------------------------------------
* 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*
================================================================================
One Year Ended 6/30/00 +0.76% -3.27%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +4.95 +4.10
--------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/00 +5.84 +5.09
--------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
4
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment
ML Connecticut Municipal Bond Fund's Class A and Class B Shares--
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Portfolio'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** 7/00
ML Connecticut
Municipal Bond Fund+--
Class A Shares* $ 9,600 $13,521
ML Connecticut
Municipal Bond Fund+--
Class B Shares* $10,000 $13,659
Lehman Brothers Municipal
Bond Index++ $10,000 $14,686
ML Connecticut Municipal Bond Fund's Class C and Class D Shares--
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Portfolio's Class C
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** 7/00
ML Connecticut
Municipal Bond Fund+--
Class C Shares* $10,000 $13,619
ML Connecticut
Municipal Bond Fund+--
Class D Shares* $ 9,600 $13,449
Lehman Brothers Municipal
Bond Index++ $10,000 $14,849
* 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 from 6/30/94 and in the Class C &
Class D Shares' graph is from 10/31/94.
Past performance is not predictive of future performance.
Recent Performance Results*
<TABLE>
<CAPTION>
6 Month 12 Month Since Inception Standardized
As of July 31, 2000 Total Return Total Return Total Return 30-Day Yield
=============================================================================================================
<S> <C> <C> <C> <C>
ML Connecticut Municipal Bond Fund Class A Shares +6.18% +1.96% +40.85% 4.76%
-------------------------------------------------------------------------------------------------------------
ML Connecticut Municipal Bond Fund Class B Shares +5.81 +1.45 +36.59 4.45
-------------------------------------------------------------------------------------------------------------
ML Connecticut Municipal Bond Fund Class C Shares +5.86 +1.45 +36.19 4.35
-------------------------------------------------------------------------------------------------------------
ML Connecticut Municipal Bond Fund Class D Shares +6.02 +1.86 +40.09 4.66
-------------------------------------------------------------------------------------------------------------
</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 since inception dates are from 7/01/94 for Class A & Class B
Shares and from 10/21/94 for Class C & Class D Shares.
5
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
S&P Moody's Face
Ratings Ratings Amount Issue Value
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA Aaa $2,000 Bridgeport, Connecticut, GO, Refunding, Series A, 5.875% due 7/15/2019 (c) $ 2,046
--------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Connecticut State Development Authority, Governmental Lease
Revenue Bonds, 6.60% due 6/15/2014 (b) 1,077
--------------------------------------------------------------------------------------------------------------------------------
NR* VMIG1+ 300 Connecticut State Development Authority, Health Care Revenue Refunding Bonds
(Independent Living Project), VRDN, 4.10% due 7/01/2015 (a) 300
--------------------------------------------------------------------------------------------------------------------------------
BB+ Ba1 2,500 Connecticut State Development Authority, PCR, Refunding (Connecticut Light and
Power Company), AMT, Series B, 5.95% due 9/01/2028 2,293
--------------------------------------------------------------------------------------------------------------------------------
AA A1 2,000 Connecticut State Development Authority Revenue Bonds (General Fund),
Series A, 6.375% due 10/15/2024 2,104
--------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Connecticut State Development Authority, Solid Waste Disposal Facilities Revenue Bonds
(Pfizer Inc. Project), AMT, 7% due 7/01/2025 1,644
--------------------------------------------------------------------------------------------------------------------------------
AAA NR* 1,250 Connecticut State Development Authority, Water Facility Revenue Bonds
(Bridgeport Hydraulic Company), AMT, 6.15% due 4/01/2035 (d) 1,283
--------------------------------------------------------------------------------------------------------------------------------
Connecticut State, GO:
AA Aa3 2,000 Series A, 6% due 4/15/2015 2,126
AA Aa3 2,000 Series B, 5.875% due 6/15/2017 2,075
AA Aa3 2,000 Series B, 5.50% due 11/01/2018 2,006
--------------------------------------------------------------------------------------------------------------------------------
Connecticut State, HFA, Revenue Bonds (Housing Mortgage Finance Program):
AA Aa2 825 AMT, Series A, Sub-Series A-2, 6.20% due 11/15/2022 837
AAA Aaa 4,110 Series B, 6.75% due 11/15/2023 (b) 4,297
--------------------------------------------------------------------------------------------------------------------------------
Connecticut State, HFA, Revenue Refunding Bonds (Housing Mortgage Finance Program):
AA Aa2 1,000 AMT, Series B, Sub-Series B-2, 5.70% due 5/15/2017 989
AA Aa2 2,000 Series A-1, 6% due 11/15/2028 2,013
AA Aa2 1,200 Series C-1, 6.30% due 11/15/2017 1,221
--------------------------------------------------------------------------------------------------------------------------------
Connecticut State Health and Educational Facilities Authority Revenue Bonds:
AAA Aaa 1,000 (Bridgeport Hospital), Series A, 6.625% due 7/01/2018 (b) 1,053
AAA Aaa 980 (Child Care Facilities Program), Series C, 5.50% due 7/01/2019 (d) 967
AAA Aaa 1,400 (Newington Children's Hospital), Series A, 6.30% due 7/01/2021 (b) 1,447
AA NR* 1,500 (Waterbury Hospital Issue), Series C, 5.75% due 7/01/2020 1,482
AAA Aaa 1,000 (Yale--New Haven Hospital Issue), Series G, 6.50% due 7/01/2012 (b) 1,042
A1+ VMIG1+ 150 (Yale University), VRDN, Series T-1, 4.05% due 7/01/2029 (a) 150
A1+ VMIG1+ 100 (Yale University), VRDN, Series T-2, 4.05% due 7/01/2029 (a) 100
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Connecticut Municipal Bond Fund's
portfolio holdings in the Schedule of Investments, we have abbreviated the names
of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
HFA Housing Finance Agency
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
6
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
S&P Moody's Face
Ratings Ratings Amount Issue Value
--------------------------------------------------------------------------------------------------------------------------------
Connecticut (concluded)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Connecticut State Health and Educational Facilities Authority, Revenue Refunding Bonds:
AA NR* $2,000 (Eastern Connecticut Health Network), Series A, 6.50% due 7/01/2030 $ 2,120
BBB- Baa3 640 (Sacred Heart University), Series C, 6.625% due 7/01/2026 648
AAA Aaa 1,000 (Yale--New Haven Hospital Issue), Series H, 5.70% due 7/01/2025 (b) 999
--------------------------------------------------------------------------------------------------------------------------------
NR* A1 605 Connecticut State Higher Education, Supplemental Loan Authority Revenue Bonds
(Family Education Loan Program), AMT, Series A, 6.40% due 11/15/2014 626
--------------------------------------------------------------------------------------------------------------------------------
NR* NR* 1,000 Connecticut State Regional Learning Educational Service Center Revenue Bonds
(Office/Education Center Facility), 7.75% due 2/01/2015 1,059
--------------------------------------------------------------------------------------------------------------------------------
Connecticut State Special Tax Obligation Revenue Bonds (Transportation Infrastructure):
AAA Aaa 2,000 Series A, 5.625% due 9/01/2014 (g) 2,057
A1+ VMIG1+ 1,900 VRDN, Second Lien, Series 1, 4.10% due 12/01/2010 (a) 1,900
--------------------------------------------------------------------------------------------------------------------------------
NR* NR* 1,660 Eastern Connecticut, State Regional Educational Service Center Revenue Bonds,
6.50% due 5/15/2009 1,700
--------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 625 Ridgefield, Connecticut, GO, Lot A, 5.50% due 7/01/2020 627
--------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 University of Connecticut, GO, Series A, 5.625% due 3/01/2020 (c) 2,021
--------------------------------------------------------------------------------------------------------------------------------
Waterbury, Connecticut, GO:
AA Baa3 860 6% due 2/01/2017 881
AA Baa3 1,870 5% due 2/15/2018 1,699
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
Guam--1.9%
--------------------------------------------------------------------------------------------------------------------------------
AAA NR* 1,000 Guam Housing Corporation, S/F Mortgage Revenue Bonds, AMT, Series A,
5.75% due 9/01/2031 (f) 986
--------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--7.9%
--------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Puerto Rico Commonwealth, GO, Refunding, RITR, Class R, Series 3,
5.853% due 7/01/2016 (b)(e) 2,108
--------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Puerto Rico Commonwealth Highway and Transportation Authority, Transportation
Revenue Bonds, Series B, 5.875% due 7/01/2021 (b) 2,074
--------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$52,736)--102.6% 54,057
Liabilities in Excess of Other Assets--(2.6%) (1,355)
-------
Net Assets--100.0% $52,702
=======
--------------------------------------------------------------------------------------------------------------------------------
</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,
2000.
(b) MBIA Insured.
(c) FGIC Insured.
(d) AMBAC Insured.
(e) The interest rate is subject to change periodically and inversely based upon
prevailing market rates. The interest rate shown is the rate in effect at
July 31, 2000.
(f) FHLMC Collateralized.
(g) FSA Insured.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
7
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 2000
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$52,736,024)....................... $ 54,056,872
Cash .................................................................... 230,225
Receivables:
Interest............................................................ $ 668,289
Securities sold..................................................... 20,092
Beneficial interest sold............................................ 11,995 700,376
-----------
Prepaid expenses fees and other assets..................................... 610
-------------
Total assets............................................................... 54,988,083
-------------
------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased................................................ 2,068,353
Beneficial interest redeemed........................................ 75,168
Dividends to shareholders........................................... 45,374
Investment adviser.................................................. 18,669
Distributor......................................................... 16,618 2,224,182
-----------
Accrued expenses and other liabilities..................................... 61,560
-------------
Total liabilities.......................................................... 2,285,742
-------------
------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets................................................................. $ 52,702,341
=============
------------------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized.......................................................... $ 67,623
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized.......................................................... 342,626
Class CShares of beneficial interest, $.10 par value, unlimited number of
shares authorized.......................................................... 49,762
Class DShares of beneficial interest, $.10 par value, unlimited number of
shares authorized.......................................................... 56,029
Paid-in capital in excess of par........................................... 52,577,342
Accumulated realized capital losses on investments--net.................... (1,362,140)
Accumulated distributions in excess of realized capital gains on
investments--net........................................................... (349,749)
Unrealized appreciation on investments--net................................ 1,320,848
-------------
Net assets................................................................. $ 52,702,341
=============
------------------------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $6,904,811 and 676,232 shares
of beneficial interest outstanding......................................... $ 10.21
=============
Class B--Based on net assets of $34,989,522 and 3,426,257 shares
of beneficial interest outstanding......................................... $ 10.21
=============
Class C--Based on net assets of $5,085,130 and 497,623 shares
of beneficial interest outstanding......................................... $ 10.22
=============
Class D--Based on net assets of $5,722,878 and 560,285 shares
of beneficial interest outstanding......................................... $ 10.21
=============
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
July 31, 2000
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income: Interest and amortization of premium and discount earned $ 3,182,211
----------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees............................. $ 303,208
Account maintenance and distribution fees--Class B.... 184,971
Professional fees.................................... 78,303
Accounting services.................................. 60,072
Account maintenance and distribution fees--Class C.... 31,554
Transfer agent fees--Class B.......................... 12,506
Trustees' fees and expenses.......................... 5,992
Account maintenance fees--Class D..................... 5,814
Printing and shareholder reports..................... 5,148
Pricing fees......................................... 4,372
Custodian fees....................................... 3,627
Transfer agent fees--Class A.......................... 1,945
Transfer agent fees--Class C.......................... 1,693
Registration fees.................................... 1,627
Transfer agent fees--Class D.......................... 1,605
Other................................................ 3,143
-----------
Total expenses before reimbursement.................. 705,580
Reimbursement of expenses............................ (55,129)
-----------
Total expenses after reimbursement................... 650,451
-----------
Investment income--net ............................... 2,531,760
-----------
----------------------------------------------------------------------------------------------------------------
Realized & Realized loss on investments--net .................... (1,503,396)
Unrealized Change in unrealized appreciation on investments--net. (503,493)
Loss on -----------
Investments--Net: Net Increase in Net Assets Resulting from Operations. $ 524,871
===========
----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended
July 31,
---------------------------------
Increase (Decrease) in Net Assets: 2000 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ............................... $ 2,531,760 $ 2,646,129
Realized gain (loss) on investments--net ............. (1,503,396) 398,934
Change in unrealized appreciation on investments--net. (503,493) (1,872,803)
------------ ------------
Net increase in net assets resulting from operations.. 524,871 1,172,260
------------ ------------
---------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Class A.......................................... (352,599) (412,500)
Shareholders: Class B.......................................... (1,663,422) (1,720,492)
Class C.......................................... (231,023) (225,980)
Class D.......................................... (284,716) (287,157)
In excess of realized gain on investments--net:
Class A.......................................... (2,382) (46,064)
Class B.......................................... (12,672) (216,885)
Class C.......................................... (1,685) (30,363)
Class D.......................................... (1,865) (37,833)
------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders.................... (2,550,364) (2,977,274)
------------ ------------
---------------------------------------------------------------------------------------------------------------
Beneficial Interest Net increase (decrease) in net assets derived from
Transactions: beneficial interest transactions..................... (10,139,562) 6,820,583
------------ ------------
---------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets.............. (12,165,055) 5,015,569
Beginning of year ................................... 64,867,396 59,851,827
------------ ------------
End of year.......................................... $ 52,702,341 $ 64,867,396
============ ============
---------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
Class A
The following per share data and ratios have been derived -----------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
-----------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year..... $ 10.53 $ 10.79 $ 10.68 $ 10.29 $ 10.23
Operating -------- ------- ------- ------- -------
Performance: Investment income--net................. .50 .48 .52 .56 .58
Realized and unrealized gain (loss) on
investments--net....................... (.32) (.21) .11 .39 .06
-------- ------- ------- ------- -------
Total from investment operations....... .18 .27 .63 .95 .64
-------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net.............. (.50) (.48) (.52) (.56) (.58)
In excess of realized gain on
investments--net.................... -- + (.05) -- -- --
-------- ------- ------- ------- -------
Total dividends and distributions...... (.50) (.53) (.52) (.56) (.58)
-------- ------- ------- ------- -------
Net asset value, end of year........... $ 10.21 $ 10.53 $ 10.79 $ 10.68 $ 10.29
======== ======= ======= ======= =======
---------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share..... 1.96% 2.50% 6.00% 9.51% 6.37%
Return:* ======== ======= ======= ======= =======
---------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement......... .77% .84% .77% .52% .34%
Net Assets: ======== ======= ======= ======= =======
Expenses............................... .87% .94% .89% .92% .98%
======== ======= ======= ======= =======
Investment income--net................. 4.98% 4.43% 4.79% 5.38% 5.58%
======== ======= ======= ======= =======
---------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands). $ 6,905 $ 9,013 $ 8,855 $ 8,380 $ 7,589
Data: ======== ======= ======= ======= =======
Portfolio turnover..................... 85.68% 47.62% 53.99% 32.46% 57.58%
======== ======= ======= ======= =======
---------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales charges.
+ Amount is less than $.01 per share.
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class B
The following per share data and ratios have been derived ------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year...... $ 10.53 $ 10.79 $ 10.68 $ 10.29 $ 10.23
Operating -------- -------- -------- -------- --------
Performance: Investment income--net.................. .45 .43 .46 .51 .53
Realized and unrealized gain (loss) on
investments--net........................ (.32) (.21) .11 .39 .06
-------- -------- -------- -------- --------
Total from investment operations........ .13 .22 .57 .90 .59
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net............. (.45) (.43) (.46) (.51) (.53)
In excess of realized gain on
investments--net................... --+ (.05) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions....... (.45) (.48) (.46) (.51) (.53)
-------- -------- -------- -------- --------
Net asset value, end of year............ $ 10.21 $ 10.53 $ 10.79 $ 10.68 $ 10.29
======== ======== ======== ======== ========
-------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share...... 1.45% 1.99% 5.47% 8.96% 5.82%
Return:* ======== ======== ======== ======== ========
-------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement.......... 1.27% 1.35% 1.27% 1.02% .85%
Net Assets: ======== ======== ======== ======== ========
Expenses................................ 1.37% 1.45% 1.40% 1.43% 1.49%
======== ======== ======== ======== ========
Investment income--net.................. 4.48% 3.93% 4.28% 4.87% 5.07%
======== ======== ======== ======== ========
-------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands).. $ 34,989 $ 41,835 $ 41,964 $ 35,563 $ 31,359
Data: ======== ======== ======== ======== ========
Portfolio turnover...................... 85.68% 47.62% 53.99% 32.46% 57.58%
======== ======== ======== ======== ========
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales charges.
+ Amount is less than $.01 per share.
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C
The following per share data and ratios have been derived ------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year...... $ 10.53 $ 10.80 $ 10.69 $ 10.30 $ 10.24
Operating -------- -------- -------- -------- --------
Performance: Investment income--net.................. .44 .41 .45 .50 .52
Realized and unrealized gain (loss) on
investments--net........................ (.31) (.22) .11 .39 .06
-------- -------- -------- -------- --------
Total from investment operations........ .13 .19 .56 .89 .58
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net............. (.44) (.41) (.45) (.50) (.52)
In excess of realized gain on
investments--net................... --+ (.05) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions....... (.44) (.46) (.45) (.50) (.52)
-------- -------- -------- -------- --------
Net asset value, end of year............ $ 10.22 $ 10.53 $ 10.80 $ 10.69 $ 10.30
======== ======== ======== ======== ========
-------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share...... 1.45% 1.79% 5.36% 8.84% 5.72%
Return:* ======== ======== ======== ======== ========
-------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement.......... 1.37% 1.45% 1.37% 1.12% .95%
Net Assets: ======== ======== ======== ======== ========
Expenses................................ 1.47% 1.55% 1.50% 1.53% 1.58%
======== ======== ======== ======== ========
Investment income--net.................. 4.38% 3.82% 4.17% 4.77% 4.96%
======== ======== ======== ======== ========
-------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands).. $ 5,085 $ 6,837 $ 4,399 $ 2,016 $ 1,829
Data: ======== ======== ======== ======== ========
Portfolio turnover...................... 85.68% 47.62% 53.99% 32.46% 57.58%
======== ======== ======== ======== ========
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales charges.
+ Amount is less than $.01 per share.
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
FINANCIAL INFORMATION (concluded)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class D
The following per share data and ratios have been derived ------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year..... $ 10.53 $ 10.79 $ 10.68 $ 10.29 $ 10.23
Operating -------- -------- -------- -------- --------
Performance: Investment income--net.................. .49 .47 .51 .55 .57
Realized and unrealized gain (loss) on
investments--net........................ (.32) (.21) .11 .39 .06
-------- -------- -------- -------- --------
Total from investment operations....... .17 .26 .62 .94 .63
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net............. (.49) (.47) (.51) (.55) (.57)
In excess of realized gain on
investments--net................... --+ (.05) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions...... (.49) (.52) (.51) (.55) (.57)
-------- -------- -------- -------- --------
Net asset value, end of year........... $ 10.21 $ 10.53 $ 10.79 $ 10.68 $ 10.29
======== ======== ======== ======== ========
-------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share..... 1.86% 2.40% 5.90% 9.40% 6.26%
Return:* ======== ======== ======== ======== ========
-------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement......... .87% .95% .87% .62% .44%
Net Assets: ======== ======== ======== ======== ========
Expenses............................... .97% 1.05% .99% 1.03% 1.07%
======== ======== ======== ======== ========
Investment income--net................. 4.88% 4.32% 4.67% 5.27% 5.46%
======== ======== ======== ======== ========
-------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands). $ 5,723 $ 7,182 $ 4,634 $ 3,440 $ 2,657
Data: ======== ======== ======== ======== ========
Portfolio turnover..................... 85.68% 47.62% 53.99% 32.46% 57.58%
======== ======== ======== ======== ========
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales charges.
+ Amount is less than $.01 per share.
See Notes to Financial Statements.
14
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
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's financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America, which may require the use of management accruals and estimates. 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
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. 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) 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. Distributions in excess of realized capital gains are due
primarily to differing tax treatments for post-October losses.
15
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
NOTES TO FINANCIAL STATEMENTS (continued)
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 FAM Distributors, Inc.
("FAMD" or the "Distributor"), 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: .55% of the Fund's average daily net assets not exceeding $500
million; .525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and .50% of average daily net assets in excess of $1
billion. For the year ended July 31, 2000, FAM earned fees of $303,208, of which
$55,129 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 Distribution
Maintenance Fee Fee
--------------------------------------------------------------------------------
Class B .................................. .25% .25%
Class C .................................. .25% .35%
Class D .................................. .10% --
--------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("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, 2000, FAMD earned underwriting discounts and MLPF&S
earned dealer concessions on sales of the Fund's Class A and Class D Shares as
follows:
--------------------------------------------------------------------------------
FAMD MLPF&S
--------------------------------------------------------------------------------
Class A .............................. $ 8 $ 93
Class D .............................. $1,004 $8,651
--------------------------------------------------------------------------------
For the year ended July 31, 2000, MLPF&S received contingent deferred sales
charges of $69,154 and $1,243 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, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 2000 were $44,677,598 and $50,200,524, respectively.
Net realized losses for the year ended July 31, 2000 and net unrealized gains as
of July 31, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Losses Gains
--------------------------------------------------------------------------------
Long-term investments ................. $(1,503,396) $ 1,320,848
----------- -----------
Total ................................. $(1,503,396) $ 1,320,848
=========== ===========
--------------------------------------------------------------------------------
As of July 31, 2000, net unrealized appreciation for Federal income tax purposes
aggregated $1,320,848, of which $1,474,790 related to appreciated securities and
$153,942 related to depreciated securities. The aggregate cost of investments at
July 31, 2000 for Federal income tax purposes was $52,736,024.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $(10,139,562) and $6,820,583 for the years ended July 31, 2000
and July 31, 1999, respectively.
16
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
Transactions in shares of beneficial interest for each class were as follows:
--------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 357,483 $ 3,550,217
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 17,160 172,742
----------- -----------
Total issued ............................. 374,643 3,722,959
Shares redeemed .......................... (554,681) (5,569,792)
----------- -----------
Net decrease ............................. (180,038) $(1,846,833)
=========== ===========
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 177,165 $ 1,934,587
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 25,662 278,945
----------- -----------
Total issued ............................. 202,827 2,213,532
Shares redeemed .......................... (166,927) (1,812,430)
----------- -----------
Net increase ............................. 35,900 $ 401,102
=========== ===========
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold ............................ 482,146 $ 4,862,485
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 69,552 700,564
----------- ------------
Total issued ........................... 551,698 5,563,049
Automatic conversion
of shares .............................. (3,927) (39,270)
Shares redeemed ........................ (1,096,134) (11,034,355)
----------- ------------
Net decrease ........................... (548,363) $ (5,510,576)
=========== ============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 759,454 $ 8,251,448
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 96,851 1,052,027
----------- -----------
Total issued ............................. 856,305 9,303,475
Automatic conversion
of shares ................................ (1,859) (20,268)
Shares redeemed .......................... (767,760) (8,274,670)
----------- -----------
Net increase ............................. 86,686 $ 1,008,537
=========== ===========
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 64,189 $ 655,144
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 16,553 166,836
----------- -----------
Total issued ............................. 80,742 821,980
Shares redeemed .......................... (232,226) (2,376,794)
----------- -----------
Net decrease ............................. (151,484) $(1,554,814)
=========== ===========
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
--------------------------------------------------------------------------------
Shares sold .......................... 274,615 $ 2,996,710
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 17,146 186,113
---------- -----------
Total issued ......................... 291,761 3,182,823
Shares redeemed ...................... (49,930) (544,294)
---------- -----------
Net increase ......................... 241,831 $ 2,638,529
========== ===========
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 77,052 $ 776,250
Automatic conversion
of shares ................................ 3,927 39,270
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 14,641 147,528
----------- -----------
Total issued ............................. 95,620 963,048
Shares redeemed .......................... (217,531) (2,190,387)
----------- -----------
Net decrease ............................. (121,911) $(1,227,339)
=========== ===========
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 360,488 $ 3,945,264
Automatic conversion
of shares ................................ 1,859 20,268
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 15,941 172,967
----------- -----------
Total issued ............................. 378,288 4,138,499
Shares redeemed .......................... (125,408) (1,366,084)
----------- -----------
Net increase ............................. 252,880 $ 2,772,415
=========== ===========
17
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
5. Short-Term Borrowings:
On December 3, 1999, the Fund, along with certain other funds managed by FAM and
its affiliates, entered into a one-year, unsecured $1,000,000,000 credit
agreement with The Bank of New York and other lenders. The funds may borrow
money for temporary or emergency purposes to meet shareholder redemptions. Each
fund may borrow up to the maximum amount allowable under the fund's current
prospectus and statement of additional information, subject to various other
legal, regulatory or contractual limits. The funds collectively pay a commitment
fee of .09% per annum on the available portion of the facility. Amounts borrowed
under the facility bear interest at the Federal Funds rate plus .50%. The Fund
did not borrow from the facility during the year ended July 31, 2000.
6. Capital Loss Carryforward:
At July 31, 2000, the Fund had a net capital loss carryforward of approximately
$723,000, all of which expires in 2008. This amount will be available to offset
like amounts of any future taxable gains.
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Connecticut Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Connecticut Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust as of July 31, 2000, 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 high lights for each of the years in the five-year period then ended.
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 auditing standards generally accepted
in the United States of America. 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, 2000 by correspondence with the custodian and
broker. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Connecticut Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series
Trust as of July 31, 2000, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Princeton, New Jersey
September 5, 2000
18
<PAGE>
Merrill Lynch Connecticut Municipal Bond Fund July 31, 2000
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, 2000
qualify as tax-exempt interest dividends for Federal income tax purposes.
Additionally, the Fund paid a long-term capital gain distribution of $.003348
per share, payable on December 31, 1999 to shareholders of record as of December
20, 1999. The entire distribution is subject to a maximum 20% tax rate.
Please retain this information for your records.
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
William R. Bock, Vice President
Kenneth A. Jacob, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, 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--7/00
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