UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
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 of Merrill Lynch Multi-State Municipal
Series Trust, 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: 07/31/04
Date of reporting period: 08/01/03 - 01/31/04
Item 1 - Report to Shareholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Pennsylvania Municipal
Bond Fund
Semi-Annual Report
January 31, 2004
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Pennsylvania Municipal Bond Fund
Officers and Trustees
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Joe Grills, Trustee
Herbert I. London, Trustee
Andre F. Perold, Trustee
Roberta Cooper Ramo, Trustee
Robert S. Salomon, Jr., Trustee
Stephen B. Swensrud, Trustee
Kenneth A. Jacob, Senior Vice President
John M. Loffredo, Senior Vice President
William R. Bock, Vice President
Donald C. Burke, Vice President and Treasurer
Brian D. Stewart, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
2 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004
A Letter From the President
Dear Shareholder
In my 35 years in the asset management business, 2003 was among the more
memorable. The year, which opened with geopolitical turmoil, unrelenting
economic uncertainty and a dismal continuation of a three-year equity market
slump, vigorously reversed course in the months that followed.
As we entered 2004, the equity markets maintained their positive momentum from
year-end 2003. For the six-month and 12-month periods ended January 31, 2004,
the Standard & Poor's (S&P) 500 Index returned +15.23% and +34.57%,
respectively. In the fixed income markets, investors willing to accept the
greatest risk were rewarded the most. This trend held true in the municipal bond
market as well, where high yield issues generally outperformed investment grade
bonds. For the six-month and 12-month periods ended January 31, 2004, the Lehman
Brothers Non-Investment Grade Index of municipal bonds posted respective returns
of +9.99% and +15.33%.
The major signposts indicate that we are seeing a shift from economic growth
fueled primarily by fiscal and monetary stimulus to a broader-based,
self-sustaining economic expansion. Gross domestic product growth, which peaked
at an annualized rate of 8.2% in the third quarter of 2003, is estimated at a
more sustainable 4% in the fourth quarter. That level of growth is expected to
repeat itself in the first quarter of 2004. For its part, the Federal Reserve
Board has reiterated its willingness to keep short-term interest rates at
current low levels to ensure the economy's strength.
Accompanying the increase in economic activity was an improvement in corporate
earnings. By the end of January, 298 of the S&P 500 companies had reported their
fourth-quarter results, and 67.4% of those exceeded expectations. In the
meantime, the American consumer, who continued to spend despite the faltering
economy, may get further incentive from another round of Federal tax refunds in
2004.
At Merrill Lynch Investment Managers, we believe the events and efforts of 2003
leave us with a much stronger economy and recent optimism suggests it is time
for investors to consider what can go right in 2004. We encourage you to revisit
your portfolio and your asset allocation strategy to ensure you are well
positioned to take advantage of the opportunities that lie ahead.
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 JANUARY 31, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
We maintained a conservative stance throughout the period and focused on
enhancing yield and preserving the Fund's net asset value in a highly volatile
interest rate environment.
Discuss the recent market environment relative to municipal bonds.
Over the past six months, long-term fixed income interest rates generally
declined as the U.S. economy gained strength. Gross domestic product growth
expanded at an annualized rate of 8.2% in the third quarter of 2003, with
fourth-quarter growth estimated at 4.0%. These figures were well above the 1.4%
rate of growth registered in the first quarter of 2003. Improving economic
conditions benefited equity markets, as the Standard & Poor's 500 Index, a
widely recognized measure of U.S. stock market performance, returned +15.23% for
the six months ended January 31, 2004. Despite the strong growth, the Federal
Reserve Board seemed apt to leave short-term interest rates at their current low
levels, citing subdued employment growth and the absence of material
inflationary pressures.
While short-term interest rates remained at historic lows, long-term interest
rates generally declined over the past six months. At the end of January 2004,
long-term U.S. Treasury bond yields stood at 4.96%, having dropped 40 basis
points (.40%) from six months earlier. In the tax-exempt bond market, long-term
revenue bond yields also fell 40 basis points to 5.02%, as measured by the Bond
Buyer Revenue Bond Index. Both 30-year and 10-year Aaa-rated municipal issues --
the highest rated -- saw their yields decrease approximately 50 basis points
during the six-month period ended January 31, 2004, as reported by Municipal
Market Data.
Although improving U.S. equity valuations took some attention away from fixed
income markets, overall demand for tax-exempt products remained positive. With
tax-exempt money market rates at or below 1% and low nominal municipal bond
yields in general, many investors have moved increasingly further out on the
municipal yield curve to generate the desired level of tax-exempt income. This
gravitation toward longer maturities helped support the strong demand and
performance exhibited by tax-exempt products during the period.
The municipal bond market's performance also benefited from a notable
improvement in supply/demand dynamics. In recent months, the pace of new
municipal bond issuance has greatly declined. For the 12 months ended January
31, 2004, municipalities issued more than $375 billion in new securities, an
increase of approximately 5% compared to last year's issuance. Clearly,
municipalities viewed the historically low interest rates over the past year as
an opportunity to finance existing infrastructure needs and to refinance
outstanding, higher-coupon debt. Over the past six months, however, new issuance
fell 11.5% compared to the same period a year earlier. The decline was even more
pronounced in the last three months, with a decrease of more than 13% compared
to the same three months last year. This decline in supply helped strengthen the
municipal market's positive technical position and enhanced recent performance.
New-issue supply is expected to remain manageable in early 2004 and should help
support the tax-exempt bond market's position as an attractive fixed income
investment alternative.
Describe conditions in the Commonwealth of Pennsylvania.
Despite recession and slow growth in the past few years, the Commonwealth of
Pennsylvania managed to protect its Aa2/AA/AA credit ratings from the national
rating agencies. This is attributed to its conservative budgeting practices,
maintenance of a relatively low debt burden and a more service-diversified
economy. In fiscal year 2001-2002, prolonged weakness resulted in the full use
of the commonwealth's rainy-day reserves to balance the budget. In fiscal year
2002-2003, a combination of tax increases (cigarettes), one-time measures and
appropriation cuts resulted in a balanced budget.
The tightly balanced 2003-2004 budget, passed five months late in December 2003,
includes increases in personal income taxes (from 2.8% to 3.1%) and beer taxes.
Under Governor Rendell's plan, Pennsylvania would assume a larger portion of
school funding to allow for local property-tax relief. The proposed fiscal
2004-2005 budget has been presented to the legislature and calls for a 4.1%
increase over the prior year's spending plan, focused largely on quality-of-life
issues with the goal of attracting more employers and residents to the Keystone
State.
4 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended January 31, 2004, the Fund's Class A, Class B,
Class C and Class I Shares had total returns of +5.86%, +5.75%, +5.69% and
+6.02%, respectively. (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 and 7 of this report to shareholders.) For the most part, Fund
returns exceeded the +5.73% return of the unmanaged benchmark Lehman Brothers
Municipal Bond Index for the same period.
The Fund outperformed its comparable Lipper category of Pennsylvania Municipal
Debt Funds, which had an average return of +5.27% for the six-month period.
(Funds in this Lipper category limit their investment to those securities exempt
from taxation in the Commonwealth of Pennsylvania.) During the period, we
continued to focus on enhancing the Fund's dividend yield and reducing net asset
value volatility in a highly variable interest rate environment. This focus on
generating income for our shareholders was apparent in the Fund's yield, which
was above that of many of its peers for the period.
What changes were made to the portfolio during the period?
During the period, we collapsed an existing non-callable derivative position in
order to establish a new derivative position that we believed would generate
greater income for our shareholders. The new position consisted of
higher-yielding, less price-sensitive callable bonds.
In the past six months, several of the Fund's higher-coupon housing bonds were
called. Until these positions can be replaced with bonds that we believe possess
attractive risk/reward characteristics, we expect that this may adversely affect
the Fund's yield. Unfortunately, the majority of new Pennsylvania issues that
came to market during the period were intermediate maturities and lower coupons.
How would you characterize the portfolio's position at the close of the period?
We expect that the municipal market will continue to experience periods of
volatility, with interest rates moving to higher levels some time in the first
half of 2004. This is based on our view that economic growth will be favorable,
and economic data should make this clear to the market in the months ahead.
With that said, we believe that the municipal market will outperform the
Treasury market, but with tepid returns. The growing appetite for tax-exempt
income on the part of property and casualty insurance companies and individual
investors should help to cushion the municipal market from the impact of rising
interest rates. Under these conditions, we feel that maintaining a defensive
market position by focusing on premium-coupon bonds in the 20-year - 25-year
maturity range is a prudent investment strategy that should moderate the
downside potential to the Fund's net asset value in a rising interest rate
environment.
William R. Bock
Vice President and Portfolio Manager
February 12, 2004
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004 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 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. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain more current performance
information. 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
10-Year/
6-Month 12-Month Since Inception Standardized
As of January 31, 2004 Total Return Total Return Total Return 30-Day Yield
=======================================================================================================================
ML Pennsylvania Municipal Bond Fund Class A Shares* +5.86% +7.01% +77.67% 3.47%
- -----------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class B Shares* +5.75 +6.58 +60.83 3.20
- -----------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class C Shares* +5.69 +6.48 +69.34 3.10
- -----------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class I Shares* +6.02 +7.11 +69.19 3.56
- -----------------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index** +5.73 +6.19 +78.50/+91.05 --
- -----------------------------------------------------------------------------------------------------------------------
* 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 10-year/since inception periods are
10 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 10 years and from 10/31/94.
6 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 1/31/04 +7.01% +2.73%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/04 +4.99 +4.13
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 1/31/04 +6.39 +5.92
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 1/31/04 +6.58% +2.58%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/04 +4.56 +4.22
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/04 +4.87 +4.87
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 1/31/04 +6.48% +5.48%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/04 +4.45 +4.45
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 1/31/04 +5.84 +5.84
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 1/31/04 +7.11% +2.82%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/04 +5.09 +4.23
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/04 +5.40 +4.97
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004 7
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Municipal Bonds Value
===================================================================================================================================
Pennsylvania--86.9%
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $4,785 Allegheny County, Pennsylvania, IDA, Commercial Development Revenue
Refunding Bonds (MPB Associates Project), 7.70% due 12/01/2013 (d) $ 6,067
----------------------------------------------------------------------------------------------------------------------
BBB+ Baa1 1,500 Allegheny County, Pennsylvania, IDA, Environmental Improvement Revenue
Refunding Bonds (USX Corporation), 6.10% due 7/15/2020 1,572
----------------------------------------------------------------------------------------------------------------------
NR* NR* 1,000 Allegheny County, Pennsylvania, Redevelopment Authority, Tax Increment
Revenue Bonds (Waterfront Project), Series A, 6.30% due 12/15/2018 1,090
----------------------------------------------------------------------------------------------------------------------
BBB+ NR* 1,000 Bucks County, Pennsylvania, IDA, Revenue Refunding Bonds (Pennswood
Village Project), Series A, 6% due 10/01/2027 1,034
----------------------------------------------------------------------------------------------------------------------
BBB Baa2 1,000 Delaware County, Pennsylvania, Hospital Authority Revenue Bonds, GO
(Crozer-Chester Medical Center), 6.25% due 12/15/2022 1,030
----------------------------------------------------------------------------------------------------------------------
AA- Aa2 1,000 Delaware Valley, Pennsylvania, Regional Finance Authority, Local
Government Revenue Bonds, 5.75% due 7/01/2032 1,163
----------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,200 Downingtown, Pennsylvania, Area School District, GO, Refunding, 5.70%
due 3/01/2021 (a) 2,450
----------------------------------------------------------------------------------------------------------------------
NR* NR* 920 Erie, Western Pennsylvania Port Authority Revenue Bonds, 6.875% due
6/15/2016 962
----------------------------------------------------------------------------------------------------------------------
A- NR* 1,000 Lancaster County, Pennsylvania, Hospital Authority Revenue Bonds
(Lancaster General Hospital Project), 5.50% due 3/15/2026 1,019
----------------------------------------------------------------------------------------------------------------------
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 1,500
----------------------------------------------------------------------------------------------------------------------
BBB Baa2 2,250 Lehigh County, Pennsylvania, General Purpose Authority, Hospital Revenue
Refunding Bonds (Saint Lukes Hospital of Bethlehem), 5.375% due 8/15/2033 2,266
----------------------------------------------------------------------------------------------------------------------
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) 2,129
----------------------------------------------------------------------------------------------------------------------
Mifflin County, Pennsylvania, Hospital Authority Revenue Refunding Bonds
(Lewiston Hospital)(h):
AA NR* 2,550 6.40% due 7/01/2020 2,906
AA NR* 1,000 6.20% due 7/01/2030 1,103
----------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Pennsylvania Convention Center, Revenue Refunding Bonds, Series A, 6.75%
due 9/01/2019 (f) 2,629
----------------------------------------------------------------------------------------------------------------------
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 1,016
----------------------------------------------------------------------------------------------------------------------
A Baa3 2,000 Pennsylvania Economic Development Financing Authority Revenue Bonds
(30th Station Garage Project), AMT, 5.875% due 6/01/2033 2,105
----------------------------------------------------------------------------------------------------------------------
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 4,250
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)
DRIVERS Derivative Inverse Tax-Exempt Receipts
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
8 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Municipal Bonds Value
===================================================================================================================================
Pennsylvania (concluded)
- -----------------------------------------------------------------------------------------------------------------------------------
AA+ Aa2 $1,070 Pennsylvania HFA, S/F Mortgage Revenue Refunding Bonds, AMT, Series 59A,
5.80% due 10/01/2029 $ 1,110
----------------------------------------------------------------------------------------------------------------------
AA+ Aa2 2,000 Pennsylvania HFA, S/F Revenue Refunding Bonds, AMT, Series 73A, 5.45%
due 10/01/2032 2,068
----------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,500 Pennsylvania State, GO, RIB, Series 465X, 10.27% due 10/01/2019 (f)(i) 1,911
----------------------------------------------------------------------------------------------------------------------
Pennsylvania State, GO, Refunding:
AAA Aaa 4,000 First Series, 6% due 1/15/2017 (f) 4,670
AAA Aaa 1,000 Second Series, 5% due 10/01/2010 (c) 1,130
----------------------------------------------------------------------------------------------------------------------
A- NR* 2,000 Pennsylvania State Higher Educational Facilities Authority, College and
University Revenue Refunding Bonds (Ursinus College), 5.90% due
1/01/2007 (g) 2,268
----------------------------------------------------------------------------------------------------------------------
BBB+ NR* 500 Pennsylvania State Higher Educational Facilities Authority, Revenue
Refunding Bonds (Widener University), 5.375% due 7/15/2029 505
----------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Pennsylvania State Public School Building Authority, School Lease Revenue
Bonds (The School District of Philadelphia Project), 5% due 6/01/2033 (d) 1,545
----------------------------------------------------------------------------------------------------------------------
AAA NR* 2,500 Pennsylvania State Public School Building Authority, School Revenue
Bonds, DRIVERS, Series 371, 9.242% due 6/01/2011 (d)(i) 2,792
----------------------------------------------------------------------------------------------------------------------
AAA NR* 2,500 Pennsylvania State Turnpike Commission, Oil Franchise Tax Revenue Bonds,
DRIVERS, Series 366, 9.741% due 6/01/2011 (f)(i) 2,965
----------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania, Authority for Industrial Development, Senior
Living Revenue Bonds:
NR* Baa2 500 (Rieder House Project), Series A, 6.10% due 7/01/2033 485
NR* Baa2 500 (Saligman House Project), Series C, 6.10% due 7/01/2033 485
----------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Philadelphia, Pennsylvania, Gas Works Revenue Bonds, 12th Series B, 7%
due 5/15/2020 (b)(f) 2,533
----------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Philadelphia, Pennsylvania, GO, Series A, 5% due 2/15/2010 (j) 1,112
----------------------------------------------------------------------------------------------------------------------
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) 3,788
----------------------------------------------------------------------------------------------------------------------
A NR* 1,000 Philadelphia, Pennsylvania, Redevelopment Authority Revenue Bonds (Beech
Student Housing Complex), Series A, 5.50% due 7/01/2035 1,019
----------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,400 Philadelphia, Pennsylvania, School District, GO, Series A, 5.75% due
2/01/2030 (d) 4,905
----------------------------------------------------------------------------------------------------------------------
A- NR* 2,000 Sayre, Pennsylvania, Health Care Facilities Authority, Revenue Refunding
Bonds (Guthrie Health), Series A, 5.875% due 12/01/2031 2,085
----------------------------------------------------------------------------------------------------------------------
NR* Aa3 1,745 South Central Pennsylvania, General Authority, Revenue Refunding Bonds
(Wellspan Health Obligated), 5.625% due 5/15/2026 1,820
----------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Washington County, Pennsylvania, Capital Funding Authority Revenue Bonds
(Capital Projects and Equipment Program), 6.15% due 12/01/2029 (a) 1,795
===================================================================================================================================
Guam--0.6%
- -----------------------------------------------------------------------------------------------------------------------------------
B+ Ba3 500 Commonwealth of the Northern Mariana Islands, GO, Series A, 6.75% due
10/01/2033 512
===================================================================================================================================
Puerto Rico--8.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Children's Trust Fund Project of Puerto Rico, Tobacco Settlement Revenue
Refunding Bonds:
BBB Baa2 1,345 5.375% due 5/15/2033 1,283
BBB Baa2 1,280 5.625% due 5/15/2043 1,217
----------------------------------------------------------------------------------------------------------------------
AAAr Aaa 2,000 Puerto Rico Commonwealth, GO, Refunding, RITR, Class R, Series 3, 10.233%
due 7/01/2016 (f)(i) 2,683
----------------------------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority, Power Revenue Bonds, Series NN:
A- A3 1,000 5.125% due 7/01/2024 1,033
A- A3 1,000 5.125% due 7/01/2029 1,027
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded) (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Municipal Bonds Value
===================================================================================================================================
Virgin Islands--1.8%
- -----------------------------------------------------------------------------------------------------------------------------------
BBB- Baa3 $1,000 Virgin Islands Government Refinery Facilities, Revenue Refunding Bonds
(Hovensa Coker Project), AMT, 6.50% due 7/01/2021 $ 1,080
----------------------------------------------------------------------------------------------------------------------
BBB- Baa3 500 Virgin Islands Public Finance Authority, Refinery Facilities Revenue
Bonds (Hovensa Refinery), AMT, 6.125% due 7/01/2022 528
----------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$79,264)--97.4% 86,645
======================================================================================================================
Shares
Held Short-Term Securities
======================================================================================================================
315 CMA Pennsylvania Municipal Money Fund (e) 315
----------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$315)--0.3% 315
===================================================================================================================================
Total Investments (Cost--$79,579)--97.7% 86,960
Unrealized Appreciation on Forward Interest Rate Swaps--Net**--0.0% 23
Other Assets Less Liabilities--2.3% 2,006
-------
Net Assets--100.0% $88,989
=======
(a) AMBAC Insured.
(b) Escrowed to maturity.
(c) FGIC Insured.
(d) FSA Insured.
(e) 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 (4,188) $6
--------------------------------------------------------------------------
(f) MBIA Insured.
(g) Prerefunded.
(h) Radian Insured.
(i) 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 January 31, 2004.
(j) XL Capital Insured.
* Not Rated.
** Forward interest rate swaps entered into as of January 31, 2004 were as
follows:
(in Thousands)
--------------------------------------------------------------------------
Unrealized
Notional Appreciation
Amount (Depreciation)
--------------------------------------------------------------------------
Receive a variable rate equal to
7-Day Bond Market Association
Municipal Swap Index rate and pay a
fixed rate of 4.19%
Broker, Morgan Stanley Capital
Services Inc.
Expires March 2024 $6,300 $(2)
Receive a variable rate equal to
7-Day Bond Market Association
Municipal Swap Index rate and pay a
fixed rate of 3.486%
Broker, J.P. Morgan Chase Bank
Expires April 2014 $2,700 25
--------------------------------------------------------------------------
Total $23
===
See Notes to Financial Statements.
10 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004
Statement of Assets and Liabilities
As of January 31, 2004
=====================================================================================================================
Assets
- ---------------------------------------------------------------------------------------------------------------------
Investments, at value (identified cost--$79,579,222) ..... $ 86,960,470
Cash ..................................................... 64,021
Unrealized appreciation on forward interest rate swaps ... 24,648
Receivables:
Interest .............................................. $ 1,060,807
Securities sold ....................................... 1,056,371
Beneficial interest sold .............................. 71,276
Dividends from affiliates ............................. 3 2,188,457
------------
Prepaid registration fees and other assets ............... 8,729
------------
Total assets ............................................. 89,246,325
------------
=====================================================================================================================
Liabilities
- ---------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on forward interest rate swaps ... 1,884
Payables:
Dividends to shareholders ............................. 98,971
Beneficial interest redeemed .......................... 70,182
Investment adviser .................................... 46,653
Distributor ........................................... 24,985
Other affiliates ...................................... 14,883 255,674
-----------------------------
Total liabilities ........................................ 257,558
------------
=====================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Net assets ............................................... $ 88,988,767
============
=====================================================================================================================
Net Assets Consist of
- ---------------------------------------------------------------------------------------------------------------------
Class A Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................... $ 235,037
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................... 320,761
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................... 119,416
Class I Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................... 103,175
Paid-in capital in excess of par ......................... 83,336,649
Undistributed investment income--net ..................... $ 51,097
Accumulated realized capital losses on investments--net .. (2,581,380)
Unrealized appreciation on investments--net .............. 7,404,012
------------
Total accumulated earnings--net .......................... 4,873,729
------------
Net Assets ............................................... $ 88,988,767
============
=====================================================================================================================
Net Asset Value
- ---------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $26,892,272 and
2,350,368 shares of beneficial interest outstanding ...... $ 11.44
============
Class B--Based on net assets of $36,657,272 and
3,207,611 shares of beneficial interest outstanding ...... $ 11.43
============
Class C--Based on net assets of $13,647,832 and
1,194,163 shares of beneficial interest outstanding ...... $ 11.43
============
Class I--Based on net assets of $11,791,391 and
1,031,753 shares of beneficial interest outstanding ...... $ 11.43
============
See Notes to Financial Statements.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004 11
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
For the Six Months Ended January 31, 2004
=====================================================================================================================
Investment Income
- ---------------------------------------------------------------------------------------------------------------------
Interest ................................................. $ 2,431,787
Dividends from affiliates ................................ 5,798
------------
Total income ............................................. 2,437,585
------------
=====================================================================================================================
Expenses
- ---------------------------------------------------------------------------------------------------------------------
Investment advisory fees ................................. $ 249,048
Account maintenance and distribution fees--Class B ....... 100,004
Account maintenance and distribution fees--Class C ....... 40,535
Accounting services ...................................... 39,796
Professional fees ........................................ 29,792
Printing and shareholder reports ......................... 25,330
Account maintenance fees--Class A ........................ 12,779
Transfer agent fees--Class B ............................. 12,510
Registration fees ........................................ 9,890
Transfer agent fees--Class A ............................. 6,901
Trustees' fees and expenses .............................. 4,823
Transfer agent fees--Class C ............................. 4,244
Custodian fees ........................................... 3,722
Pricing fees ............................................. 3,290
Transfer agent fees--Class I ............................. 3,098
Other .................................................... 6,512
------------
Total expenses before reimbursement ...................... 552,274
Reimbursement of expenses ................................ (7,716)
------------
Total expenses after reimbursement ....................... 544,558
------------
Investment income--net ................................... 1,893,027
------------
=====================================================================================================================
Realized & Unrealized Gain on Investments--Net
- ---------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ........................ 591,561
Change in unrealized appreciation on investments--net .... 2,551,076
------------
Total realized and unrealized gain on investments--net ... 3,142,637
------------
Net Increase in Net Assets Resulting from Operations ..... $ 5,035,664
============
See Notes to Financial Statements.
12 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 2004 2003
=====================================================================================================================
Operations
- ---------------------------------------------------------------------------------------------------------------------
Investment income--net ...................................... $ 1,893,027 $ 4,144,696
Realized gain on investments--net ........................... 591,561 356,164
Change in unrealized appreciation on investments--net ....... 2,551,076 (1,374,424)
-----------------------------
Net increase in net assets resulting from operations ........ 5,035,664 3,126,436
-----------------------------
=====================================================================================================================
Dividends to Shareholders
- ---------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A .................................................. (566,016) (964,384)
Class B .................................................. (807,778) (2,139,645)
Class C .................................................. (265,337) (477,116)
Class I .................................................. (260,694) (560,042)
-----------------------------
Net decrease in net assets resulting from dividends to
shareholders ................................................ (1,899,825) (4,141,187)
-----------------------------
=====================================================================================================================
Beneficial Interest Transactions
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from beneficial
interest transactions ....................................... (5,310,919) 49,289
-----------------------------
=====================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ................................ (2,175,080) (965,462)
Beginning of period ......................................... 91,163,847 92,129,309
-----------------------------
End of period* .............................................. $ 88,988,767 $ 91,163,847
=============================
* Undistributed investment income--net ................... $ 51,097 $ 57,895
=============================
See Notes to Financial Statements.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004 13
[LOGO] Merrill Lynch Investment Managers
Financial Highlights
Class A
------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the
from information provided in the financial statements. Months Ended Year Ended July 31,++
January 31, -------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................. $ 11.05 $ 11.17 $ 11.00 $ 10.55 $ 10.92
----------------------------------------------------------------
Investment income--net ................................ .25+ .53+ .53 .53 .53
Realized and unrealized gain (loss) on investments--net .39 (.12) .17 .45 (.31)
----------------------------------------------------------------
Total from investment operations ...................... .64 .41 .70 .98 .22
----------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............................. (.25) (.53) (.53) (.53) (.53)
In excess of realized gain on investments--net ..... -- -- -- -- (.06)
----------------------------------------------------------------
Total dividends and distributions ..................... (.25) (.53) (.53) (.53) (.59)
----------------------------------------------------------------
Net asset value, end of period ........................ $ 11.44 $ 11.05 $ 11.17 $ 11.00 $ 10.55
================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .................... 5.86%@ 3.69% 6.50% 9.51% 2.25%
================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ........................ .96%* .98% 1.00% .95% .91%
================================================================
Expenses .............................................. .97%* .99% 1.00% .95% .91%
================================================================
Investment income--net ................................ 4.40%* 4.69% 4.78% 4.91% 5.09%
================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .............. $ 26,892 $ 23,460 $ 16,295 $ 12,121 $ 6,673
================================================================
Portfolio turnover .................................... 39.52% 34.92% 30.23% 73.23% 51.32%
================================================================
* Annualized.
** 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.
@ Aggregate total investment return.
See Notes to Financial Statements.
14 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004
Financial Highlights (continued)
Class B
------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the
from information provided in the financial statements. Months Ended Year Ended July 31,
January 31, -------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................. $ 11.03 $ 11.16 $ 10.99 $ 10.54 $ 10.90
----------------------------------------------------------------
Investment income--net ................................ .23+ .49+ .48 .49 .48
Realized and unrealized gain (loss) on investments--net .40 (.14) .17 .45 (.30)
----------------------------------------------------------------
Total from investment operations ...................... .63 .35 .65 .94 .18
----------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............................. (.23) (.48) (.48) (.49) (.48)
In excess of realized gain on investments--net ..... -- -- -- -- (.06)
----------------------------------------------------------------
Total dividends and distributions ..................... (.23) (.48) (.48) (.49) (.54)
----------------------------------------------------------------
Net asset value, end of period ........................ $ 11.43 $ 11.03 $ 11.16 $ 10.99 $ 10.54
================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .................... 5.75%@ 3.18% 6.07% 9.07% 1.92%
================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ........................ 1.36%* 1.39% 1.40% 1.35% 1.32%
================================================================
Expenses .............................................. 1.38%* 1.40% 1.40% 1.35% 1.32%
================================================================
Investment income--net ................................ 4.01%* 4.31% 4.36% 4.52% 4.69%
================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .............. $ 36,657 $ 43,099 $ 54,421 $ 60,252 $ 68,723
================================================================
Portfolio turnover .................................... 39.52% 34.92% 30.23% 73.23% 51.32%
================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004 15
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued)
Class C
------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the
from information provided in the financial statements. Months Ended Year Ended July 31,
January 31, -------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................. $ 11.03 $ 11.16 $ 10.99 $ 10.54 $ 10.90
----------------------------------------------------------------
Investment income--net ................................ .22+ .47+ .47 .48 .47
Realized and unrealized gain (loss) on investments--net .40 (.13) .17 .45 (.30)
----------------------------------------------------------------
Total from investment operations ...................... .62 .34 .64 .93 .17
----------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............................. (.22) (.47) (.47) (.48) (.47)
In excess of realized gain on investments--net ..... -- -- -- -- (.06)
----------------------------------------------------------------
Total dividends and distributions ..................... (.22) (.47) (.47) (.48) (.53)
----------------------------------------------------------------
Net asset value, end of period ........................ $ 11.43 $ 11.03 $ 11.16 $ 10.99 $ 10.54
================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .................... 5.69%@ 3.07% 5.96% 8.97% 1.82%
================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ........................ 1.46%* 1.49% 1.51% 1.45% 1.42%
================================================================
Expenses .............................................. 1.48%* 1.49% 1.51% 1.45% 1.42%
================================================================
Investment income--net ................................ 3.90%* 4.18% 4.27% 4.42% 4.60%
================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .............. $ 13,648 $ 13,309 $ 9,309 $ 7,007 $ 5,874
================================================================
Portfolio turnover .................................... 39.52% 34.92% 30.23% 73.23% 51.32%
================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
16 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004
Financial Highlights (concluded)
Class I
------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the
from information provided in the financial statements. Months Ended Year Ended July 31,++
January 31, -------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................. $ 11.03 $ 11.16 $ 10.99 $ 10.54 $ 10.90
----------------------------------------------------------------
Investment income--net ................................ .26+ .54+ .54 .54 .54
Realized and unrealized gain (loss) on investments--net .40 (.13) .17 .45 (.30)
----------------------------------------------------------------
Total from investment operations ...................... .66 .41 .71 .99 .24
----------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............................. (.26) (.54) (.54) (.54) (.54)
In excess of realized gain on investments--net ..... -- -- -- -- (.06)
----------------------------------------------------------------
Total dividends and distributions ..................... (.26) (.54) (.54) (.54) (.60)
----------------------------------------------------------------
Net asset value, end of period ........................ $ 11.43 $ 11.03 $ 11.16 $ 10.99 $ 10.54
================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .................... 6.02%@ 3.69% 6.61% 9.63% 2.44%
================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ........................ .86%* .88% .90% .84% .81%
================================================================
Expenses .............................................. .87%* .89% .90% .84% .81%
================================================================
Investment income--net ................................ 4.51%* 4.81% 4.88% 5.03% 5.20%
================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .............. $ 11,791 $ 11,296 $ 12,104 $ 13,578 $ 14,494
================================================================
Portfolio turnover .................................... 39.52% 34.92% 30.23% 73.23% 51.32%
================================================================
* Annualized.
** 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.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004 17
[LOGO] Merrill Lynch Investment Managers
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. These unaudited financial statements reflect all adjustments, which
are, in the opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of normal, recurring
nature. The Fund offers multiple classes of shares. 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. Swap agreements are
valued by quoted fair values received daily by the Fund from the counterparty.
Short-term investments with a remaining maturity 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 Board of 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 movements 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.
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.
18 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004
Notes to Financial Statements (continued)
(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 six months ended January 31, 2004, FAM reimbursed the Fund in
the amount of $7,716.
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 six months ended January 31, 2004, 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 .............................. $ 948 $7,862
Class I .............................. $ 24 $ 268
- --------------------------------------------------------------------------------
For the six months ended January 31, 2004, MLPF&S received contingent deferred
sales charges of $16,454 and $884 relating to transactions in Class B and Class
C Shares, respectively.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004 19
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
For the six months ended January 31, 2004, the Fund reimbursed FAM $921 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 six
months ended January 31, 2004 were $34,341,109 and $33,869,904, respectively.
Net realized gains for the six months ended January 31, 2004 and net unrealized
gains as of January 31, 2004 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .................... $ 58,559 $7,381,248
Forward interest rate swaps .............. 533,002 22,764
-----------------------------
Total .................................... $ 591,561 $7,404,012
=============================
As of January 31, 2004, net unrealized appreciation for Federal income tax
purposes aggregated $7,385,765, of which $7,415,055 related to appreciated
securities and $29,290 related to depreciated securities. The aggregate cost of
investments at January 31, 2004 for Federal income tax purposes was $79,574,705.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $(5,310,919) and $49,289 for the six months ended January 31,
2004 and for the year ended July 31, 2003, respectively.
Transactions in shares of beneficial interest for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended January 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 40,694 $ 460,643
Automatic conversion of shares ........... 336,211 3,773,023
Shares issued to shareholders in
reinvestment of dividends .............. 24,384 275,304
-----------------------------
Total issued ............................. 401,289 4,508,970
Shares redeemed .......................... (174,602) (1,959,194)
-----------------------------
Net increase ............................. 226,687 $ 2,549,776
=============================
- -------------------------------------------------------------------------------
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
=============================
20 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004
Notes to Financial Statements (continued)
- -------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended January 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 45,858 $ 512,879
Shares issued to shareholders in
reinvestment of dividends .............. 35,433 399,032
-----------------------------
Total issued ............................. 81,291 911,911
Automatic conversion of shares ........... (336,615) (3,773,023)
Shares redeemed .......................... (443,068) (4,970,281)
-----------------------------
Net decrease ............................. (698,392) $ (7,831,393)
=============================
- -------------------------------------------------------------------------------
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 C Shares for the Six Months Dollar
Ended January 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 90,548 $ 1,018,666
Shares issued to shareholders in
reinvestment of dividends .............. 13,532 152,551
-----------------------------
Total issued ............................. 104,080 1,171,217
Shares redeemed .......................... (116,082) (1,299,925)
-----------------------------
Net decrease ............................. (12,002) $ (128,708)
=============================
- -------------------------------------------------------------------------------
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
=============================
- -------------------------------------------------------------------------------
Class I Shares for the Six Months Dollar
Ended January 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 77,784 $ 881,500
Shares issued to shareholders in
reinvestment of dividends .............. 12,619 142,241
-----------------------------
Total issued ............................. 90,403 1,023,741
Shares redeemed .......................... (82,350) (924,335)
-----------------------------
Net increase ............................. 8,053 $ 99,406
=============================
- -------------------------------------------------------------------------------
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)
=============================
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004 21
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded)
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 28, 2003, the credit agreement
was renewed for one year under the same terms. The Fund did not borrow under the
credit agreement during the six months ended January 31, 2004.
6. Capital Loss Carryforward:
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.
22 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004
Electronic Delivery
The Fund offers 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.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2004 23
[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 -- 1/04
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Reserved
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Reserved
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(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.
10(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 11 - Exhibits attached hereto
11(a) - Not Applicable
11(b) - 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 of Merrill Lynch
Multi-State Municipal Series Trust
By: /s/ Terry K. Glenn
-------------------------------
Terry K. Glenn,
President of
Merrill Lynch Pennsylvania Municipal Bond Fund of Merrill Lynch
Multi-State Municipal Series Trust
Date: March 19, 2004
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 of Merrill Lynch
Multi-State Municipal Series Trust
Date: March 19, 2004
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Pennsylvania Municipal Bond Fund of Merrill Lynch
Multi-State Municipal Series Trust
Date: March 19, 2004