UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4375
Name of Fund: Merrill Lynch Pennsylvania Municipal Bond Fund
of Merrill Lynch Multi-State Municipal Series Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch
Pennsylvania Municipal Bond Fund, 800 Scudders Mill Road, Plainsboro, NJ,
08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 07/31/03
Date of reporting period: 08/01/02 - 07/31/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Pennsylvania Municipal
Bond Fund
Annual Report
July 31, 2003
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Pennsylvania Municipal Bond Fund
Important Tax Information (unaudited)
All of the net investment income distributions paid monthly by Merrill Lynch
Pennsylvania Municipal Bond Fund during its taxable year ended July 31, 2003
qualify as tax-exempt interest dividends for Federal income tax purposes.
Please retain this information for your records.
Electronic Delivery
The Fund is now offering electronic delivery of communications to its
shareholders. In order to receive this service, you must register your account
and provide us with e-mail information. To sign up for this service, simply
access this website http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification number
(PIN). You will need this PIN should you wish to update your e-mail address,
choose to discontinue this service and/or make any other changes to the service.
This service is not available for certain retirement accounts at this time.
2 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003
A Letter From the President
Dear Shareholder
Now more than half behind us, 2003 has been a meaningful year in many respects.
Perhaps the most significant development was the conclusion of all-out war in
Iraq. Although not especially sensitive to geopolitical events, the municipal
market has not been exempt from the general market excitement we have seen since
fighting gave way to restructuring in Iraq.
Municipal bond yields rose and fell in response to war fears, equity market
uncertainty, sub par economic growth, unemployment and deflation. By the end of
July, long-term municipal revenue bond yields stood at 5.4%, as measured by the
Bond Buyer Revenue Bond Index. With many state deficits at record levels,
municipalities issued more than $200 billion in new long-term tax-exempt bonds
during the six-month period ended July 31, 2003, an increase of more than 20%
versus the same six months of 2002. The availability of bonds, together with
attractive yield ratios relative to U.S. Treasury issues, made municipal bonds a
popular fixed income investment alternative.
Against this backdrop, our portfolio managers continued to work diligently to
deliver on our commitment to provide superior performance within reasonable
expectations for risk and return. This included striving to outperform our peers
and the market indexes. With that said, remember also that the advice and
guidance of a skilled financial advisor can mean the difference between fruitful
and fruitless investing. A financial professional can help you choose those
investments that will best serve you as you plan for your financial future.
Finally, I am proud to premiere a new look to our shareholder communications.
Our portfolio manager commentaries have been trimmed and organized in such a way
that you can get the information you need at a glance, in plain language.
Today's markets are confusing enough. We want to help you put it all in
perspective. The report's new size also allows us certain mailing efficiencies.
The cost savings in both production and postage are passed on to the fund and,
ultimately, to fund shareholders.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Trustee
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
The Fund performed favorably during the period, primarily because we took
advantage of derivative products and hedging strategies to enhance total return.
Discuss the recent market environment relative to municipal bonds.
Amid considerable interest rate volatility, U.S. Treasury bond yields were
higher at 5.35% at the end of July, 2003 than they had been six months earlier.
Volatile equity markets, concerns over the Iraqi conflict, and sub par economic
growth combined to generally push interest rates lower through June. Bond
yields, however, moved sharply higher in July in response to more positive
business activity, especially continued strong homes sales and improving
employment trends.
Long-term tax-exempt bond yields also rose over the six months ended July 31,
2003, although to a lesser extent than U.S. Treasury obligations. Yield
volatility was lower than that seen in U.S. Treasury issues, as municipal bond
prices typically are less sensitive to worldwide geopolitical pressures on a
daily and weekly basis. By the end of July, long-term municipal revenue bond
yields, as measured by the Bond Buyer Revenue Bond Index, stood at 5.4%.
The municipal market outperformed the U.S. Treasury market over the past six
months, despite a dramatic increase in new bond issuance. Recent semi-annual
issuance has, in fact, exceeded the annual issuance seen during much of the
mid-1990s. The monthly issuance for July 2003, at almost $30 billion,
represented the largest amount of tax-exempt bonds ever sold in the month of
July. Historically low interest rates over the past year have been used by state
and local governments as an opportunity to finance existing infrastructure needs
and refinance outstanding, higher-coupon issues. Current estimates for 2003
municipal bond new issuance are approximately $350 billion, similar to 2002's
record high issuance.
A number of factors continue to foster strong investor demand for municipal
bonds. Tax-exempt money market rates have remained below 1% for much of this
year, forcing investors to invest in longer maturities to generate desired
levels of coupon income. In July and August 2003, investors are expected to
receive approximately $60 billion in coupon income, bond maturities and the
proceeds from early redemptions. We believe much of these proceeds are likely to
be reinvested in the municipal market.
As an asset class, municipal bonds have remained an attractive investment
alternative, especially relative to U.S. Treasury issues. At the end of July
2003, tax-exempt bond yields were 85% - 93% of comparable U.S. Treasury issues,
well in excess of their historic average of 82% - 88%. Current yield ratios have
made municipal securities attractive to both retail and institutional investors.
We expect the tax-exempt market's favorable technical position to remain stable
in the near term, therefore, an increase in bond issuance during the remainder
of 2003 is not likely to significantly impact the municipal bond market's
performance.
While many investors are concerned about how economic growth might affect bond
prices and yield, we believe moderate economic growth, especially within a
context of negligible inflationary pressures, should not greatly endanger the
positive fixed income environments tax-exempt products have enjoyed.
What developments in the commonwealth of Pennsylvania impacted the Fund?
The commonwealth is in the process of addressing its budget shortage, and
appears to have it well in hand. We do not expect any drama to come of the
current budget proposal. The economic condition of the state essentially is no
worse than that of the nation. If anything, it is slightly better. In fact,
going into the recession, we believe Pennsylvania was in a better position than
most states. This relative stability, coupled with low Pennsylvania issuance,
has forced the Fund to maintain low cash reserves in order to maintain a
competitive yield.
How did the Fund perform during the fiscal year?
For the 12-month period ended July 31, 2003, the Fund's Class A, Class B, Class
C and Class I Shares had total returns of +3.69%, +3.18%, +3.07% and +3.69%,
respectively, performing in line with the +3.60% return of the unmanaged
benchmark Lehman Brothers Municipal Bond Index for the same period. The Fund
outperformed its Lipper peer group of Pennsylvania Municipal Debt Funds, which
had
4 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003
an average return of +2.80% during the 12-month period. (Fund results shown do
not reflect sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 6 - 8 of this report to
shareholders.)
The Fund's strong performance is attributed to two investment strategies that we
introduced in April 2003. First, we took advantage of the yield potential
offered by derivative products. At the close of the fiscal year, approximately
13% - 14% of the portfolio's assets were invested in derivatives. Second, we
hedged the Fund approximately 15% in 20-year BMA (Bond Market Association) swaps
and about 2% in ten-year London Interbank Offered Rate (LIBOR) swaps. The market
was somewhat volatile over the past six months, with higher yields at the end of
the period than at the beginning. The hedging strategy served to protect the
portfolio by reducing the volatility in a down market. It also kept us from
having to raise our cash reserves, which would have had a negative impact on the
Fund's distribution yield.
What changes were made to the portfolio during the period?
We had some major bonds called during the fiscal year. Approximately 5% of the
Fund's assets were called, whereby we had to fill the voids and continue
generating yield. Other than the hedging strategies noted earlier, we saw little
activity during the period. There has been a lack of Pennsylvania bonds
available in the longer maturities that we have been looking to buy. In July, we
collapsed a derivative position that had a maturity date of July 1, 2017, in
anticipation of purchasing a longer-maturity Pennsylvania Turnpike issue that we
intend to establish as a new derivative position with a higher yield.
How would you characterize the Fund's position at the close of the period?
We believe the Fund remains in a favorable position. Overall, we are working to
increase yield while reducing volatility. We maintained our emphasis on the
hedging strategies and, with the unwinding of one of our derivatives, we expect
to see a slight pickup in yield as well as lower volatility. We continue to
search for the most attractive investment opportunities the commonwealth has to
offer, aiming to take advantage of any market downturns.
William R. Bock
Vice President and Portfolio Manager
August 13, 2003
- --------------------------------------------------------------------------------
Effective April 14, 2003, the share class names for the Merrill Lynch family of
mutual funds were changed to be consistent with the standard share classes of
most other mutual fund families. As of that date, all Class A Shares were
redesignated Class I Shares. At the same time, Class D Shares were redesignated
Class A Shares. There are no changes to the Class B or Class C share class
labels. Trading symbols have not changed nor have current eligibility rules or
pricing structures. This redesignation of share classes does not impact your
investment in any way.
- --------------------------------------------------------------------------------
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
Effective April 14, 2003, Class A Shares were redesignated Class I Shares and
Class D Shares were redesignated Class A Shares. Investors are able to purchase
shares of the Fund through multiple pricing alternatives:
o Class A Shares incur a maximum initial sales charge of 4% and an account
maintenance fee of 0.10% (but no distribution fee).
o Effective December 1, 2002, Class B Shares are subject to a maximum
contingent deferred sales charge of 4%, declining to 0% after six years.
All Class B Shares purchased prior to December 1, 2002 will maintain the
four-year schedule. 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 A Shares after approximately ten
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 I Shares incur a maximum initial sales charge (front-end load) of 4%
and bear no ongoing distribution or account maintenance fees. Class I
Shares are available only to eligible investors.
None of the past results shown should be considered a representation of future
performance. Performance results do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund shares.
Figures shown in each of the following 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.
Recent Performance Results
Ten-Year/
6-Month 12-Month Since Inception Standardized
As of July 31, 2003 Total Return Total Return Total Return 30-Day Yield
==================================================================================================================
ML Pennsylvania Municipal Bond Fund Class A Shares* +1.08% +3.69% +67.83% 3.69%
- ------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class B Shares* +0.79 +3.18 +61.73 3.43
- ------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class C Shares* +0.74 +3.07 +60.22 3.33
- ------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class I Shares* +1.03 +3.69 +70.13 3.79
- ------------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index** +0.43 +3.60 +78.78/+80.70 --
- ------------------------------------------------------------------------------------------------------------------
* 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 ten-year / since inception periods
are ten years for Class B & Class I Shares and from 10/21/94 for Class A &
Class C Shares.
** This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds. Ten-year/since
inception total returns are for ten years and from 10/31/94, respectively.
6 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003
Performance Data (continued)
ML Pennsylvania Municipal Bond Fund's Class A and Class C Shares--Total Return
Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Portfolio's Class A
and Class C Shares compared to growth of an investment in the Lehman Brothers
Municipal Bond Index. Values are from October 21, 1994 to July 2003:
10/21/94** 7/95 7/96 7/97 7/98 7/99
ML Pennsylvania
Municipal Bond Fund+--
Class A Shares* $ 9,600 $10,404 $11,070 $12,135 $12,860 $13,028
ML Pennsylvania
Municipal Bond Fund+--
Class C Shares* $10,000 $10,784 $11,417 $12,451 $13,129 $13,221
7/00 7/01 7/02 7/03
ML Pennsylvania
Municipal Bond Fund+--
Class A Shares* $13,323 $14,590 $15,538 $16,112
ML Pennsylvania
Municipal Bond Fund+--
Class C Shares* $13,463 $14,670 $15,545 $16,022
10/31/94 7/95 7/96 7/97 7/98 7/99
Lehman Brothers Municipal
Bond Index++ $10,000 $11,107 $11,840 $13,054 $13,837 $14,235
7/00 7/01 7/02 7/03
Lehman Brothers Municipal
Bond Index++ $14,848 $16,345 $17,441 $18,070
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML Pennsylvania Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the Commonwealth of
Pennsylvania, 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 C Shares' graph is from 10/31/94.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 7/31/03 +3.69% -0.45%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/03 +4.61 +3.76
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 7/31/03 +6.08 +5.59
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 7/31/03 +3.07% +2.08%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/03 +4.06 +4.06
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 7/31/03 +5.52 +5.52
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003 7
[LOGO] Merrill Lynch Investment Managers
ML Pennsylvania Municipal Bond Fund's Class B and Class I Shares--Total Return
Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Portfolio's Class B
Shares and Class I Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Values are from July 1993 to July 2003:
7/93 7/94 7/95 7/96 7/97
ML Pennsylvania
Municipal Bond Fund+--
Class B Shares* $10,000 $10,186 $10,798 $11,444 $12,493
ML Pennsylvania
Municipal Bond Fund+--
Class I Shares* $ 9,600 $9,828 $10,473 $11,155 $12,240
7/98 7/99 7/00 7/01 7/02 7/03
ML Pennsylvania
Municipal Bond Fund+--
Class B Shares* $13,186 $13,292 $13,549 $14,778 $15,675 $16,173
ML Pennsylvania
Municipal Bond Fund+--
Class I Shares* $12,973 $13,155 $13,478 $14,775 $15,752 $16,332
7/93 7/94 7/95 7/96 7/97
Lehman Brothers Municipal
Bond Index++ $10,000 $10,187 $10,989 $11,714 $12,916
7/98 7/99 7/00 7/01 7/02 7/03
Lehman Brothers Municipal
Bond Index++ $13,690 $14,083 $14,691 $16,171 $17,256 $17,878
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ ML Pennsylvania Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the Commonwealth of
Pennsylvania, its political subdivisions, agencies and instrumentalities
and obligations of other qualifying issuers.
++ This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 7/31/03 +3.18% -0.78%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/03 +4.16 +3.84
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/03 +4.92 +4.92
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 7/31/03 +3.69% -0.46%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/03 +4.71 +3.86
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/03 +5.46 +5.03
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
8 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003
Schedule of Investments (in Thousands)
S&P Moody's Face
State Ratings+ Ratings+ Amount Municipal Bonds Value
===================================================================================================================================
Pennsylvania--75.9% A NR* $ 1,500 Allegheny County, Pennsylvania, Hospital Development Authority Revenue
Bonds (University of Pittsburgh Medical Center), Series B, 5.25%
due 6/15/2015 $ 1,518
--------------------------------------------------------------------------------------------------------------
AAA Aaa 4,785 Allegheny County, Pennsylvania, IDA, Commercial Development Revenue
Refunding Bonds (MPB Associates Project), 7.70% due 12/01/2013 (d) 5,883
--------------------------------------------------------------------------------------------------------------
BBB+ Baa1 1,500 Allegheny County, Pennsylvania, IDA, Environmental Improvement Revenue
Refunding Bonds (USX Corporation), 6.10% due 7/15/2020 1,526
--------------------------------------------------------------------------------------------------------------
NR* NR* 1,000 Allegheny County, Pennsylvania, Redevelopment Authority, Tax Increment
Revenue Bonds (Waterfront Project), Series A, 6.30% due 12/15/2018 1,084
--------------------------------------------------------------------------------------------------------------
BBB+ NR* 1,000 Bucks County, Pennsylvania, IDA, Revenue Refunding Bonds (Pennswood
Village Project), Series A, 6% due 10/01/2027 1,004
--------------------------------------------------------------------------------------------------------------
BBB Baa2 1,000 Delaware County, Pennsylvania, Hospital Authority Revenue Bonds, GO
(Crozer-Chester Medical Center), 6.25% due 12/15/2022 1,004
--------------------------------------------------------------------------------------------------------------
NR* Aaa 2,200 Downingtown, Pennsylvania, Area School District, GO, Refunding, 5.70%
due 3/01/2021 (a) 2,319
--------------------------------------------------------------------------------------------------------------
NR* NR* 920 Erie, Western Pennsylvania Port Authority Revenue Bonds, 6.875%
due 6/15/2016 957
--------------------------------------------------------------------------------------------------------------
A A2 1,500 Lehigh County, Pennsylvania, General Purpose Authority, Hospital
Revenue Bonds (Lehigh Valley Health Network), Series A, 5.25%
due 7/01/2032 1,395
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Luzerne County, Pennsylvania, IDA, Exempt Facilities Revenue Refunding
Bonds (Pennsylvania Gas and Water Company Project), AMT, Series A, 7%
due 12/01/2017 (a) 2,166
--------------------------------------------------------------------------------------------------------------
Mifflin County, Pennsylvania, Hospital Authority, Revenue Refunding
Bonds (Lewiston Hospital):
AA NR* 2,550 6.40% due 7/01/2020 2,772
AA NR* 1,000 6.20% due 7/01/2030 1,069
--------------------------------------------------------------------------------------------------------------
Pennsylvania Convention Center Revenue Refunding Bonds, Series A (e):
AAA Aaa 1,555 6.70% due 9/01/2014 1,667
AAA Aaa 2,500 6.75% due 9/01/2019 2,680
--------------------------------------------------------------------------------------------------------------
NR* NR* 1,000 Pennsylvania Economic Development Financing Authority, Exempt
Facilities Revenue Bonds (National Gypsum Company), AMT, Series B,
6.125% due 11/01/2027 900
--------------------------------------------------------------------------------------------------------------
A Baa3 2,000 Pennsylvania Economic Development Financing Authority Revenue Bonds
(30th Station Garage Project), AMT, 5.875% due 6/01/2033 2,025
--------------------------------------------------------------------------------------------------------------
BBB Baa2 4,000 Pennsylvania Economic Development Financing Authority, Wastewater
Treatment Revenue Bonds (Sun Company Inc.--R & M Project), AMT,
Series A, 7.60% due 12/01/2024 4,220
--------------------------------------------------------------------------------------------------------------
AA+ Aa2 1,950 Pennsylvania HFA, Revenue Bonds, RIB, AMT, 10.98% due 4/01/2025 (f) 1,982
--------------------------------------------------------------------------------------------------------------
AA+ Aa2 1,160 Pennsylvania HFA, S/F Mortgage Revenue Bonds, AMT, Series 40, 6.90%
due 4/01/2025 1,185
Portfolio Abbreviations
To simplify the listings of Merrill Lynch Pennsylvania 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
IDA Industrial Development Authority
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
State Ratings+ Ratings+ Amount Municipal Bonds Value
===================================================================================================================================
Pennsylvania Pennsylvania HFA, S/F Mortgage Revenue Refunding Bonds, AMT:
(concluded) AA+ Aa2 $ 790 Series 41B, 6.65% due 4/01/2025 $ 810
AA+ Aa2 1,250 Series 59A, 5.80% due 10/01/2029 1,271
--------------------------------------------------------------------------------------------------------------
AA+ Aa2 2,000 Pennsylvania HFA, S/F Revenue Refunding Bonds, AMT, Series 73A, 5.45%
due 10/01/2032 2,003
--------------------------------------------------------------------------------------------------------------
Pennsylvania State, GO (e):
NR* Aaa 1,500 RIB, Series 465X, 10.36% due 10/01/2019 (f) 1,726
AAA Aaa 4,000 Refunding, First Series, 6% due 1/15/2017 4,442
--------------------------------------------------------------------------------------------------------------
Pennsylvania State Higher Educational Facilities Authority, College
and University Revenue Refunding Bonds:
AA NR* 1,440 (University of the Arts), 5.75% due 3/15/2030 (h) 1,478
A- NR* 2,000 (Ursinus College), 5.90% due 1/01/2027 2,041
--------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania, Authority for Industrial Development,
Senior Living Revenue Bonds:
NR* Baa2 500 (Rieder House Project), Series A, 6.10% due 7/01/2033 480
NR* Baa2 500 (Saligman House Project), Series C, 6.10% due 7/01/2033 480
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Philadelphia, Pennsylvania, Gas Works Revenue Bonds, 12th Series B,
7% due 5/15/2020 (b)(e) 2,429
--------------------------------------------------------------------------------------------------------------
AAA NR* 3,000 Philadelphia, Pennsylvania, Hospitals and Higher Education Facilities
Authority, Hospital Revenue Refunding Bonds (Presbyterian Medical
Center), 6.65% due 12/01/2019 (b) 3,626
--------------------------------------------------------------------------------------------------------------
AAA Aaa 4,400 Philadelphia, Pennsylvania, School District, GO, Series A, 5.75% due
2/01/2030 (d) 4,628
--------------------------------------------------------------------------------------------------------------
A- NR* 2,000 Sayre, Pennsylvania, Health Care Facilities Authority Revenue Bonds
(Guthrie Health), Series A, 5.875% due 12/01/2031 1,997
--------------------------------------------------------------------------------------------------------------
NR* Aa3 2,745 South Central Pennsylvania, General Authority, Revenue Refunding Bonds
(Wellspan Health Obligated), 5.625% due 5/15/2026 2,772
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Washington County, Pennsylvania, Capital Funding Authority Revenue
Bonds (Capital Projects and Equipment Program), 6.15% due 12/01/2029 (a) 1,679
===================================================================================================================================
Puerto Rico--13.4% A- Baa2 1,280 Children's Trust Fund, Puerto Rico, Tobacco Settlement Revenue Bonds,
5.625% due 5/15/2043 1,105
--------------------------------------------------------------------------------------------------------------
A- Baa2 1,350 Children's Trust Fund, Puerto Rico, Tobacco Settlement Revenue
Refunding Bonds, 5.375% due 5/15/2033 1,168
--------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth, GO (f):
A- Aaa 2,370 RIB, Series 703X, 9.923% due 7/01/2021 (c) 2,789
AAAr Aaa 2,000 Refunding, RITR, Class R, Series 3, 10.299% due 7/01/2016 (e) 2,521
--------------------------------------------------------------------------------------------------------------
A- Baa2 4,800 Puerto Rico Commonwealth, Highway and Transportation Authority,
Transportation Revenue Bonds, 5% due 7/01/2028 4,584
===================================================================================================================================
Virgin Islands-- BBB- Baa3 1,000 Virgin Islands Government Refinery Facilities Revenue Bonds (Hovensa
1.1% Coker Project), AMT, 6.50% due 7/01/2021 1,000
--------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$78,914)--90.4% 82,385
==============================================================================================================
10 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003
Schedule of Investments (concluded) (in Thousands)
Shares
Held Short-Term Securities Value
===================================================================================================================================
4,503 CMA Pennsylvania Municipal Money Fund (g) $ 4,503
--------------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$4,503)--4.9% 4,503
===================================================================================================================================
Total Investments (Cost--$83,417)--95.3% 86,888
Unrealized Appreciation on Forward Interest Rate Swaps**--1.5% 1,382
Other Assets Less Liabilities--3.2% 2,894
--------
Net Assets--100.0% $ 91,164
========
(a) AMBAC Insured.
(b) Escrowed to maturity.
(c) FGIC Insured.
(d) FSA Insured.
(e) MBIA Insured.
(f) 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, 2003.
(g) Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
(in Thousands)
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
CMA Pennsylvania Municipal Money Fund 4,503 $8
--------------------------------------------------------------------------
(h) Radian Insured.
+ Ratings of issues shown are unaudited.
* Not Rated.
** Forward interest rate swaps entered into as of July 31, 2003 were as
follows:
(in Thousands)
--------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
--------------------------------------------------------------------------
Receive a variable rate equal to
7-Day Bond Market Association
Municipal Swap Index rate and pay a
fixed rate of 3.756%
Broker, Morgan Stanley Capital
Services Inc. Expires, September 2023 14,300 $1,382
--------------------------------------------------------------------------
See Notes to Financial Statements.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003 11
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities
As of July 31, 2003
============================================================================================================================
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at value (identified cost--$83,417,169) .................. $86,887,610
Cash .................................................................. 13,914
Unrealized appreciation on forward interest rate swaps ................ 1,382,495
Receivables:
Securities sold .................................................... $ 2,046,923
Interest ........................................................... 1,060,559
Beneficial interest sold ........................................... 57,904
Dividends from affiliates .......................................... 36 3,165,422
-----------
Prepaid registration fees and other assets ............................ 8,406
-----------
Total assets .......................................................... 91,457,847
-----------
============================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payables:
Beneficial interest redeemed ....................................... 98,962
Dividends to shareholders .......................................... 92,100
Investment adviser ................................................. 43,112
Distributor ........................................................ 27,743
Other affiliates ................................................... 10,545 272,462
-----------
Accrued expenses ...................................................... 21,538
-----------
Total liabilities ..................................................... 294,000
-----------
============================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets ............................................................ $91,163,847
===========
============================================================================================================================
Net Assets Consist of
- ----------------------------------------------------------------------------------------------------------------------------
Class A Shares of beneficial interest, $.10 par value, unlimited number
of shares authorized .................................................. $ 212,368
Class B Shares of beneficial interest, $.10 par value, unlimited number
of shares authorized .................................................. 390,600
Class C Shares of beneficial interest, $.10 par value, unlimited number
of shares authorized .................................................. 120,617
Class I Shares of beneficial interest, $.10 par value, unlimited number
of shares authorized .................................................. 102,370
Paid-in capital in excess of par ...................................... 88,600,002
Undistributed investment income--net .................................. $ 57,895
Accumulated realized capital losses on investments--net ............... (3,172,941)
Unrealized appreciation on investments--net ........................... 4,852,936
-----------
Total accumulated earnings--net ....................................... 1,737,890
-----------
Net assets ............................................................ $91,163,847
===========
============================================================================================================================
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $23,460,083 and 2,123,681 shares of
beneficial interest outstanding ....................................... $ 11.05
===========
Class B--Based on net assets of $43,098,561 and 3,906,003 shares of
beneficial interest outstanding ....................................... $ 11.03
===========
Class C--Based on net assets of $13,309,461 and 1,206,165 shares of
beneficial interest outstanding ....................................... $ 11.03
===========
Class I--Based on net assets of $11,295,742 and 1,023,700 shares of
beneficial interest outstanding ....................................... $ 11.03
===========
See Notes to Financial Statements.
12 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003
Statement of Operations
For the Year Ended July 31, 2003
============================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------
Interest ............................................. $ 5,300,250
Dividends from affiliates ............................ 7,809
-----------
Total income ......................................... 5,308,059
-----------
============================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................. $ 513,528
Account maintenance and distribution fees--Class B ... 248,657
Accounting services .................................. 81,891
Professional fees .................................... 77,587
Account maintenance and distribution fees--Class C ... 68,489
Printing and shareholder reports ..................... 41,809
Transfer agent fees--Class B ......................... 29,861
Account maintenance fees--Class A .................... 20,566
Registration fees .................................... 20,048
Trustees' fees and expenses .......................... 16,860
Transfer agent fees--Class A ......................... 10,571
Custodian fees ....................................... 7,686
Transfer agent fees--Class C ......................... 6,900
Pricing fees ......................................... 6,400
Transfer agent fees--Class I ......................... 6,008
Other ................................................ 13,913
-----------
Total expenses before reimbursement .................. 1,170,774
Reimbursement of expenses ............................ (7,411)
-----------
Total expenses after reimbursement ................... 1,163,363
-----------
Investment income--net ............................... 4,144,696
-----------
============================================================================================================
Realized & Unrealized Gain (Loss) on Investments -- Net
- ------------------------------------------------------------------------------------------------------------
Realized gain on investments--net .................... 356,164
Change in unrealized appreciation on investments--net (1,374,424)
-----------
Total realized and unrealized loss on investments--net (1,018,260)
-----------
Net Increase in Net Assets Resulting from Operations . $ 3,126,436
===========
See Notes to Financial Statements.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003 13
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets
For the Year Ended
July 31,
-----------------------------
Increase (Decrease) in Net Assets: 2003 2002
==========================================================================================================================
Operations
- --------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................... $ 4,144,696 $ 4,121,694
Realized gain on investments--net .................................... 356,164 903,353
Change in unrealized appreciation on investments--net ................ (1,374,424) 455,837
-----------------------------
Net increase in net assets resulting from operations ................. 3,126,436 5,480,884
-----------------------------
==========================================================================================================================
Dividends to Shareholders
- --------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ........................................................... (964,384) (669,652)
Class B ........................................................... (2,139,645) (2,484,553)
Class C ........................................................... (477,116) (325,975)
Class I ........................................................... (560,042) (635,828)
-----------------------------
Net decrease in net assets resulting from dividends to shareholders .. (4,141,187) (4,116,008)
-----------------------------
==========================================================================================================================
Beneficial Interest Transactions
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from beneficial interest
transactions ......................................................... 49,289 (2,193,671)
-----------------------------
==========================================================================================================================
Net Assets
- --------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ......................................... (965,462) (828,795)
Beginning of year .................................................... 92,129,309 92,958,104
-----------------------------
End of year* ......................................................... $ 91,163,847 $ 92,129,309
=============================
* Undistributed investment income--net ............................ $ 57,895 $ 54,386
=============================
See Notes to Financial Statements.
14 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003
Financial Highlights
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: 2003 2002 2001 2000 1999
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .................... $ 11.17 $ 11.00 $ 10.55 $ 10.92 $ 11.54
-------------------------------------------------------
Investment income--net ................................ .53+ .53 .53 .53 .53
Realized and unrealized gain (loss) on investments--net (.12) .17 .45 (.31) (.38)
-------------------------------------------------------
Total from investment operations ...................... .41 .70 .98 .22 .15
-------------------------------------------------------
Less dividends and distributions:
Investment income--net ............................. (.53) (.53) (.53) (.53) (.53)
Realized gain on investments--net .................. -- -- -- -- (.16)
In excess of realized gain on investments--net ..... -- -- -- (.06) (.08)
-------------------------------------------------------
Total dividends and distributions ..................... (.53) (.53) (.53) (.59) (.77)
-------------------------------------------------------
Net asset value, end of year .......................... $ 11.05 $ 11.17 $ 11.00 $ 10.55 $ 10.92
=======================================================
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .................... 3.69% 6.50% 9.51% 2.25% 1.29%
=======================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ........................ .98% 1.00% .95% .91% .90%
=======================================================
Expenses .............................................. .99% 1.00% .95% .91% .90%
=======================================================
Investment income--net ................................ 4.69% 4.78% 4.91% 5.09% 4.69%
=======================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ................ $23,460 $16,295 $12,121 $ 6,673 $ 9,900
=======================================================
Portfolio turnover .................................... 34.92% 30.23% 73.23% 51.32% 43.18%
=======================================================
* Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
See Notes to Financial Statements.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003 15
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued)
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: 2003 2002 2001 2000 1999
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .................... $ 11.16 $ 10.99 $ 10.54 $ 10.90 $ 11.53
-------------------------------------------------------
Investment income--net ................................ .49+ .48 .49 .48 .49
Realized and unrealized gain (loss) on investments--net (.14) .17 .45 (.30) (.39)
-------------------------------------------------------
Total from investment operations ...................... .35 .65 .94 .18 .10
-------------------------------------------------------
Less dividends and distributions:
Investment income--net ............................. (.48) (.48) (.49) (.48) (.49)
Realized gain on investments--net .................. -- -- -- -- (.16)
In excess of realized gain on investments--net ..... -- -- -- (.06) (.08)
-------------------------------------------------------
Total dividends and distributions ..................... (.48) (.48) (.49) (.54) (.73)
-------------------------------------------------------
Net asset value, end of year .......................... $ 11.03 $ 11.16 $ 10.99 $ 10.54 $ 10.90
=======================================================
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .................... 3.18% 6.07% 9.07% 1.92% .78%
=======================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ........................ 1.39% 1.40% 1.35% 1.32% 1.31%
=======================================================
Expenses .............................................. 1.40% 1.40% 1.35% 1.32% 1.31%
=======================================================
Investment income--net ................................ 4.31% 4.36% 4.52% 4.69% 4.29%
=======================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ................ $43,099 $54,421 $60,252 $68,723 $93,164
=======================================================
Portfolio turnover .................................... 34.92% 30.23% 73.23% 51.32% 43.18%
=======================================================
* Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
See Notes to Financial Statements.
16 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003
Financial Highlights (continued)
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: 2003 2002 2001 2000 1999
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .................... $ 11.16 $ 10.99 $ 10.54 $ 10.90 $ 11.53
-------------------------------------------------------
Investment income--net ................................ .47+ .47 .48 .47 .48
Realized and unrealized gain (loss) on investments--net (.13) .17 .45 (.30) (.39)
-------------------------------------------------------
Total from investment operations ...................... .34 .64 .93 .17 .09
-------------------------------------------------------
Less dividends and distributions:
Investment income--net ............................. (.47) (.47) (.48) (.47) (.48)
Realized gain on investments--net .................. -- -- -- -- (.16)
In excess of realized gain on investments--net ..... -- -- -- (.06) (.08)
-------------------------------------------------------
Total dividends and distributions ..................... (.47) (.47) (.48) (.53) (.72)
-------------------------------------------------------
Net asset value, end of year .......................... $ 11.03 $ 11.16 $ 10.99 $ 10.54 $ 10.90
=======================================================
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .................... 3.07% 5.96% 8.97% 1.82% .68%
=======================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ........................ 1.49% 1.51% 1.45% 1.42% 1.41%
=======================================================
Expenses .............................................. 1.49% 1.51% 1.45% 1.42% 1.41%
=======================================================
Investment income--net ................................ 4.18% 4.27% 4.42% 4.60% 4.19%
=======================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ................ $13,309 $ 9,309 $ 7,007 $ 5,874 $ 7,088
=======================================================
Portfolio turnover .................................... 34.92% 30.23% 73.23% 51.32% 43.18%
=======================================================
* Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003 17
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (concluded)
Class I++
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: 2003 2002 2001 2000 1999
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .................... $ 11.16 $ 10.99 $ 10.54 $ 10.90 $ 11.52
-------------------------------------------------------
Investment income--net ................................ .54+ .54 .54 .54 .54
Realized and unrealized gain (loss) on investments--net (.13) .17 .45 (.30) (.38)
-------------------------------------------------------
Total from investment operations ...................... .41 .71 .99 .24 .16
-------------------------------------------------------
Less dividends and distributions:
Investment income--net ............................. (.54) (.54) (.54) (.54) (.54)
Realized gain on investments--net .................. -- -- -- -- (.16)
In excess of realized gain on investments--net ..... -- -- -- (.06) (.08)
-------------------------------------------------------
Total dividends and distributions ..................... (.54) (.54) (.54) (.60) (.78)
-------------------------------------------------------
Net asset value, end of year .......................... $ 11.03 $ 11.16 $ 10.99 $ 10.54 $ 10.90
=======================================================
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .................... 3.69% 6.61% 9.63% 2.44% 1.38%
=======================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ........................ .88% .90% .84% .81% .80%
=======================================================
Expenses .............................................. .89% .90% .84% .81% .80%
=======================================================
Investment income--net ................................ 4.81% 4.88% 5.03% 5.20% 4.80%
=======================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ................ $11,296 $12,104 $13,578 $14,494 $19,536
=======================================================
Portfolio turnover .................................... 34.92% 30.23% 73.23% 51.32% 43.18%
=======================================================
* Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
See Notes to Financial Statements.
18 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003
Notes to Financial Statements
1. Significant Accounting Policies:
Merrill Lynch Pennsylvania 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 amended, as a non-diversified,
open-end management investment company. The Fund's financial statements are
prepared in conformity with accounting principles generally accepted in the
United States of America, which may require the use of management accruals and
estimates. The Fund offers multiple classes of shares. Effective April 14, 2003,
Class A Shares were redesignated Class I Shares and Class D Shares were
redesignated Class A Shares. The Fund's financial statements and financial
highlights contained within this report reflect the new share class
redesignation. Shares of Class A and Class I 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 A, Class B
and Class C 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. Income, expenses (other than expenses attributable to a specific
class) and realized and unrealized gains and losses on investments are allocated
daily to each class based on its relative net assets. 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. Forward interest rate
swaps are valued by quoted fair values received daily by the Fund from the
counterparty. 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 both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movement and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
o Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such futures contracts. 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.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003 19
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
o Forward interest rate swaps -- The Fund may enter into forward interest
rate swaps. In a forward interest rate swap, the Fund and the counterparty
agree to make periodic net payments on a specified notional contract
amount, commencing on a specified future effective date, unless terminated
earlier. When the agreement is closed, the Fund records a realized gain or
loss in an amount equal to the value of the agreement.
(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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(e) Prepaid registration fees -- 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.
(g) Expenses -- Certain expenses have been allocated to the individual funds in
the Trust on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Trust.
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, 2003, FAM reimbursed the Fund in the amount
of $7,411.
20 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003
Notes to Financial Statements (continued)
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 A .............................. .10% --
Class B .............................. .25% .25%
Class C .............................. .25% .35%
- --------------------------------------------------------------------------------
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 A, Class B and Class C 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, 2003, FAMD earned underwriting discounts and MLPF&S
earned dealer concessions on sales of the Fund's Class A and Class I Shares as
follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A ............................ $ 1,189 $13,522
Class I ............................ $ 168 $ 1,707
- --------------------------------------------------------------------------------
For the year ended July 31, 2003, MLPF&S received contingent deferred sales
charges of $25,959 and $1,058 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.
For the year ended July 31, 2003, the Fund reimbursed FAM $2,015 for certain
accounting services.
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, 2003 were $31,394,499 and $38,258,012, respectively.
Net realized gains (losses) for the year ended July 31, 2003 and net unrealized
gains as of July 31, 2003 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments ................... $ 1,608,180 $ 3,470,441
Forward interest rate swaps ............. -- 1,382,495
Financial futures contracts ............. (1,252,016) --
-------------------------------
Total ................................... $ 356,164 $ 4,852,936
===============================
- --------------------------------------------------------------------------------
As of July 31, 2003, net unrealized appreciation for Federal income tax purposes
aggregated $3,472,689, of which $4,164,272 related to appreciated securities and
$691,583 related to depreciated securities. The aggregate cost of investments at
July 31, 2003 for Federal income tax purposes was $83,414,921.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003 21
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $49,289 and $(2,193,671) for the years ended July 31, 2003 and
July 31, 2002, respectively.
Transactions in shares of beneficial interest for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2003+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 127,366 $ 1,430,014
Automatic conversion of shares ........... 685,816 7,757,166
Shares issued to shareholders in
reinvestment of dividends .............. 42,608 480,285
-------------------------------
Total issued ............................. 855,790 9,667,465
Shares redeemed .......................... (190,556) (2,147,504)
-------------------------------
Net increase ............................. 665,234 $ 7,519,961
===============================
+ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2002+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 57,816 $ 634,872
Automatic conversion of shares ........... 547,991 6,045,097
Shares issued to shareholders in
reinvestment of dividends .............. 29,116 320,670
-------------------------------
Total issued ............................. 634,923 7,000,639
Shares redeemed .......................... (277,985) (3,042,102)
-------------------------------
Net increase ............................. 356,938 $ 3,958,537
===============================
+ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 391,686 $ 4,420,473
Shares issued to shareholders in
reinvestment of dividends .............. 93,594 1,053,147
-------------------------------
Total issued ............................. 485,280 5,473,620
Automatic conversion of shares ........... (686,486) (7,757,166)
Shares redeemed .......................... (769,446) (8,688,344)
-------------------------------
Net decrease ............................. (970,652) $(10,971,890)
===============================
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 546,035 $ 6,010,548
Shares issued to shareholders in
reinvestment of dividends .............. 110,155 1,211,642
-------------------------------
Total issued ............................. 656,190 7,222,190
Automatic conversion of shares ........... (548,706) (6,045,097)
Shares redeemed .......................... (712,662) (7,841,415)
-------------------------------
Net decrease ............................. (605,178) $ (6,664,322)
===============================
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 491,888 $ 5,547,248
Shares issued to shareholders in
reinvestment of dividends .............. 23,499 264,648
-------------------------------
Total issued ............................. 515,387 5,811,896
Shares redeemed .......................... (143,404) (1,628,417)
-------------------------------
Net increase ............................. 371,983 $ 4,183,479
===============================
22 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003
Notes to Financial Statements (continued)
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 338,313 $ 3,725,702
Shares issued to shareholders in
reinvestment of dividends .............. 16,075 176,815
-------------------------------
Total issued ............................. 354,388 3,902,517
Shares redeemed .......................... (157,701) (1,730,173)
-------------------------------
Net increase ............................. 196,687 $ 2,172,344
===============================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended July 31, 2003+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 83,885 $ 949,230
Shares issued to shareholders in
reinvestment of dividends .............. 25,095 282,463
-------------------------------
Total issued ............................. 108,980 1,231,693
Shares redeemed .......................... (169,901) (1,913,954)
-------------------------------
Net decrease ............................. (60,921) $ (682,261)
===============================
+ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended July 31, 2002+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 144,370 $ 1,589,151
Shares issued to shareholders in
reinvestment of dividends .............. 29,344 322,725
-------------------------------
Total issued ............................. 173,714 1,911,876
Shares redeemed .......................... (324,412) (3,572,106)
-------------------------------
Net decrease ............................. (150,698) $ (1,660,230)
===============================
+ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
5. Short-Term Borrowings:
The Fund, along with certain other funds managed by FAM and its affiliates, is a
party to a $500,000,000 credit agreement with Bank One, N.A. and certain other
lenders. The Fund may borrow under the credit agreement to fund shareholder
redemptions and for other lawful purposes other than for leverage. The 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 Fund pays a commitment fee of .09% per
annum based on the Fund's pro rata share of the unused portion of the credit
agreement. Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each fund's election, the Federal Funds rate plus .50% or a base
rate as determined by Bank One, N.A. On November 29, 2002, the credit agreement
was renewed for one year under the same terms, except that the commitment was
reduced from $1,000,000,000 to $500,000,000. The Fund did not borrow under the
credit agreement during the year ended July 31, 2003.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003 23
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded)
6. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended July 31,
2003 and July 31, 2002 was as follows:
- -------------------------------------------------------------------------------
7/31/2003 7/31/2002
- -------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income ...................... $ 4,141,187 $ 4,116,008
-------------------------------
Total distributions ...................... $ 4,141,187 $ 4,116,008
===============================
As of July 31, 2003, the components of accumulated earnings on a tax basis were
as follows:
- -----------------------------------------------------------------------------
Undistributed tax-exempt income--net .................... $ 55,646
Undistributed long-term capital gains--net .............. --
-----------
Total undistributed earnings--net ....................... 55,646
Capital loss carryforward ............................... (2,422,327)*
Unrealized gains--net ................................... 4,104,571**
-----------
Total accumulated earnings--net ......................... $ 1,737,890
===========
* On July 31, 2003, the Fund had a net capital loss carryforward of
$2,422,327, all of which expires in 2009. This amount will be available to
offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on straddles and the
difference between book and tax amortization methods for premiums and
discounts on fixed income securities.
24 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003
Independent Auditors' Report
To the Shareholders and Board of Trustees of
Merrill Lynch Pennsylvania 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 Pennsylvania Municipal Bond Fund
of Merrill Lynch Multi-State Municipal Series Trust as of July 31, 2003, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and 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 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 as of July 31, 2003 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Pennsylvania Municipal Bond Fund of Merrill Lynch Multi-State
Municipal Series Trust as of July 31, 2003, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
September 19, 2003
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003 25
[LOGO] Merrill Lynch Investment Managers
Officers and Trustees (unaudited)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 1999 to President and Chairman of Merrill Lynch Invest- 118 Funds None
Glenn* Princeton, NJ and present ment Managers, L.P. ("MLIM")/Fund Asset 163 Portfolios
08543-9011 Trustee and Management, L.P. ("FAM")--Advised Funds since
Age: 62 1992 to 1999; Chairman (Americas Region) of MLIM from
present 2000 to 2002; Executive Vice President of FAM
and MLIM (which terms as used herein include
their corporate predecessors) from 1983 to 2002;
President of FAM Distributors, Inc. ("FAMD")
from 1986 to 2002 and Director thereof from 1991
to 2002; Executive Vice President and Director
of Princeton Services, Inc. ("Princeton
Services") from 1993 to 2002; President of
Princeton Administrators, L.P. from 1989 to
2002; Director of Financial Data Services, Inc.
from 1985 to 2002.
----------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM
or MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company
Act, of the Trust based on his former positions with FAM, MLIM, FAMD, Princeton Services and Princeton
Administrators, L.P. The Trustee's term is unlimited. Trustees serve until their resignation, removal, or death, or
until December 31 of the year in which they turn 72. As Trust President, Mr. Glenn serves at the pleasure of the
Board of Trustees.
====================================================================================================================================
Independent Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Trustee 1995 to Director, The China Business Group, Inc. since 40 Funds None
Bodurtha Princeton, NJ present 1996 and Executive Vice President thereof from 59 Portfolios
08543-9095 1996 to 2003; Chairman, Berkshire Holding
Age: 59 Corporation since 1982.
- ------------------------------------------------------------------------------------------------------------------------------------
Joe Grills P.O. Box 9095 Trustee 2002 to Member of the Committee of Investment of 40 Funds Kimco Realty
Princeton, NJ present Employee Benefit Assets of the Association of 59 Portfolios Corporation
08543-9095 Financial Professionals ("CIEBA") since 1986 and
Age: 68 Chairman thereof from 1991 to 1992; Member of
the Investment Advisory Committees of the State
of New York Common Retirement Fund since 1989;
Member of the Investment Advisory Committee of
the Howard Hughes Medical Institute from 1997 to
2000; Director, Duke Management Company since
1992 and Vice Chairman thereof since 1998;
Director, LaSalle Street Fund from 1995 to 2001;
Director, Kimco Realty Corporation since 1997;
Member of the Investment Advisory Committee of
the Virginia Retirement System since 1998 and Vice
Chairman thereof since 2002; Director, Montpelier
Foundation since 1998 and Vice Chairman thereof
since 2000; Member of the Investment Committee
of the Woodberry Forest School since 2000; Member
of the Investment Committee of the National Trust
for Historic Preservation since 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Trustee 1987 to John M. Olin Professor of Humanities, New York 40 Funds None
London Princeton, NJ present University since 1993 and Professor thereof 59 Portfolios
08543-9095 since 1980; President of Hudson Institute since
Age: 64 1997 and Trustee thereof since 1980.
- ------------------------------------------------------------------------------------------------------------------------------------
26 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003
Officers and Trustees (unaudited) (concluded)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Andre F. P.O. Box 9095 Trustee 1985 to George Gund Professor of Finance and Banking, 40 Funds None
Perold Princeton, NJ present Harvard Business School since 2000 and a member 59 Portfolios
08543-9095 of the faculty thereof since 1979; Director and
Age: 51 Chairman of the Board, UNX, Inc. since 2003;
Director, Stockback.com from 2002 to 2002;
Director, Sanlam Limited and Sanlam Life since
2001; Director, Genbel Securities and Gensec
Bank since 1999; Director, Bulldogresearch.com
from 2000 to 2001; Director, Sanlam Investment
Management from 1999 to 2001; Director, Quantec
Limited from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Trustee 2000 to Shareholder, Modrall, Sperling, Roehl, Harris & 40 Funds None
Cooper Ramo Princeton, NJ present Sisk, P.A. since 1993; Director of Cooper's, Inc. 59 Portfolios
08543-9095 since 1999; Chairman of the Board thereof since
Age: 60 2000; Director of ECMC, Inc. since 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Trustee 2002 to Principal of STI Management since 1994; Trustee 40 Funds None
Salomon, Jr. Princeton, NJ present of Commonfund from 1980 to 2001; Director of 59 Portfolios
08543-9095 Rye Country Day School since 2001.
Age: 66
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen B. P.O. Box 9095 Trustee 2002 to Chairman, Fernwood Advisors (investment adviser) 40 Funds None
Swensrud Princeton, NJ present since 1996; Principal of Fernwood Associates 59 Portfolios
08543-9095 (financial consultant) since 1975; Chairman of
Age: 70 RPP Corporation since 1978; Director,
International Mobile Communications, Inc. since
1998.
----------------------------------------------------------------------------------------------------------------------
* The Trustee's term is unlimited. Trustees serve until their resignation, removal or death, or until December 31 of
the year in which they turn 72.
- ------------------------------------------------------------------------------------------------------------------------------------
Position(s) Length
Held of Time
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Trust Officers
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof since
Burke Princeton, NJ President present 1999; Senior Vice President and Treasurer of Princeton Services since 1999;
08543-9011 and and 1999 Vice President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 43 Treasurer to present
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9011 Senior Vice 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
Jacob Princeton, NJ President present Management) of MLIM from 1997 to 2000.
08543-9011
Age: 52
- ------------------------------------------------------------------------------------------------------------------------------------
John M. P.O. Box 9011 Senior Vice 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
Loffredo Princeton, NJ President present Management) of MLIM from 1998 to 2000.
08543-9011
Age: 39
- ------------------------------------------------------------------------------------------------------------------------------------
William R. P.O. Box 9011 Vice 1997 to Vice President of MLIM since 1994.
Bock Princeton, NJ President present
08543-9011
Age: 67
- ------------------------------------------------------------------------------------------------------------------------------------
Brian D. P.O. Box 9011 Secretary 2003 to Vice President of MLIM since 2002; Attorney with Reed Smith from 2001 to
Stewart Princeton, NJ present 2002; Attorney with Saul Ewing from 1999 to 2001.
08543-9011
Age: 34
----------------------------------------------------------------------------------------------------------------------
* Officers of the Trust serve at the pleasure of the Board of Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Trust's Officers and Trustees is available in the Trust's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
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
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2003 27
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
website at http://www.sec.gov.
Merrill Lynch Pennsylvania Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
#11299 -- 7/03
Item 2 - Did registrant adopt a code of ethics, as of the end of the period
covered by this report, that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party? If not, why not? Briefly describe any amendments or
waivers that occurred during the period. State here if code of
ethics/amendments/waivers are on website and give website address-.
State here if fund will send code of ethics to shareholders without
charge upon request--
The registrant has adopted a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer and principal
accounting officer, or persons performing similar functions. A copy of
the code of ethics is available without charge upon request by calling
toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Did the registrant's board of directors determine that the registrant
either: (i) has at least one audit committee financial expert serving
on its audit committee; or (ii) does not have an audit committee
financial expert serving on its audit committee? If yes, disclose name
of financial expert and whether he/she is "independent," (fund may, but
is not required, to disclose name/independence of more than one
financial expert) If no, explain why not. -
The registrant's board of directors has determined that (i) the
registrant has the following audit committee financial experts serving
on its audit committee and (ii) each audit committee financial expert
is independent: (1) Joe Grills, (2) Andre Perold, (3) Robert S.
Salomon, Jr., and (4) Stephen B. Swensrud.
Item 4 - Disclose annually only (not answered until December 15, 2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last two
fiscal years for professional services rendered by the
principal accountant for the audit of the registrant's
annual financial statements or services that are
normally provided by the accountant in connection with
statutory and regulatory filings or engagements for
those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and related
services by the principal accountant that are
reasonably related to the performance of the
audit of the registrant's financial statements
and are not reported under paragraph (a) of this
Item. Registrants shall describe the nature of
the services comprising the fees disclosed under
this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and
tax planning. Registrants shall describe the nature of the
services comprising the fees disclosed under this category.
N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services provided
by the principal accountant, other than the services
reported in paragraphs (a) through (c) of this Item.
Registrants shall describe the nature of the
services comprising the fees disclosed under this
category. N/A.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. N/A.
(e)(2) Disclose the percentage of services described in each of paragraphs
(b) through (d) of this Item that were approved by the audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended on
the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-3 under the
Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d) under
the Exchange Act regarding an exemption from the listing standards for
audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by the
earlier of their first annual shareholders meeting after January 2004,
or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in their portfolio,
describe the policies and procedures that it uses to determine how to
vote proxies relating to those portfolio securities. N/A
Item 8 -- Reserved
Item 9(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b) -- There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon request
without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the Sarbanes-Oxley Act.
Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch Pennsylvania Municipal Bond Fund
By: /s/ Terry K. Glenn
--------------------------------
Terry K. Glenn,
President of
Merrill Lynch Pennsylvania Municipal Bond Fund
Date: September 23, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Terry K. Glenn
--------------------------------
Terry K. Glenn,
President of
Merrill Lynch Pennsylvania Municipal Bond Fund
Date: September 23, 2003
By: /s/ Donald C. Burke
--------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Pennsylvania Municipal Bond Fund
Date: September 23, 2003
Attached hereto as a furnished exhibit are the certifications pursuant to
Section 906 of the Sarbanes-Oxley Act.