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 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 - 07/31/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Pennsylvania Municipal
Bond Fund
Annual Report
July 31, 2004
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Pennsylvania Municipal Bond Fund
Distribution by Market Sector
Percent of Total
As of July 31, 2004 Market Value
- --------------------------------------------------------------------------------
Other Revenue Bonds .......................................... 73.4%
General Obligation & Tax Revenue Bonds ....................... 17.1
Prerefunded Bonds* ........................................... 6.4
Mutual Funds ................................................. 3.1
-----
Total ........................................................ 100.0%
=====
* Backed by an escrow fund.
Important Tax Information
All of the net investment income distributions paid monthly by Merrill Lynch
Pennsylvania Municipal Bond Fund during the taxable year ended July 31, 2004
qualify as tax-exempt interest dividends for federal income tax purposes.
Please retain this information for your records.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
2 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004
A Letter From the President
Dear Shareholder
In recent months, the Federal Reserve Board (the Fed) has taken center stage as
it shifts away from its long-accommodative monetary stance. In a
much-anticipated move, the Fed raised the Federal Funds rate 25 basis points
(.25%) on June 30, representing the first interest rate increase in four years.
Shortly after period-end, the Fed announced an additional 25 basis point rate
hike, bringing the target short-term interest rate to 1.50% -- still low by
historical standards. The Fed has been very deliberate in telegraphing its
intention to take a "measured" approach to the interest rate increases in order
to avoid upsetting the economy or the financial markets. Still, the Fed has
stated that it may move more aggressively if inflation and economic growth
accelerate more than anticipated. In addition to the Fed policy change, the
financial markets recently have had to grapple with a tense geopolitical
environment, higher oil prices and the worry and anticipation that accompanies a
presidential election.
While inflation has moved up on a cyclical basis, this is an indication that the
Fed has been successful in avoiding deflation -- just as it set out to do a year
ago. The challenge now is to normalize interest rates in order to keep inflation
within acceptable limits. The futures curve currently projects further increases
in short-term interest rates before year-end.
The transition to higher rates can cause concern among equity and fixed income
investors alike. For bond investors, rising rates means the value of older
issues declines because they bear the former lower rates. In addition,
increasing inflation erodes the purchasing power of fixed income securities. But
because municipal bonds offer the advantage of tax-exempt income, they continue
to be an attractive alternative for many fixed income investors. For the
six-month and 12-month periods ended July 31, 2004, municipal bonds posted
returns of +.06% and +5.79%, respectively, as measured by the Lehman Brothers
Municipal Bond Index.
As always, our investment professionals are closely monitoring the markets, the
economy and the overall environment in an effort to make well-informed decisions
for the portfolios they manage. Our goal is to provide shareholders with
competitive returns, while always keeping one eye on managing the unavoidable
risk inherent in investing.
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, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
The Fund continued to generate an attractive yield and provided a 12-month
total return greater than the Lipper Pennsylvania Municipal Debt Funds average.
Discuss the recent market environment relative to municipal bonds.
Over the past 12 months, long-term U.S. Treasury bond yields, while displaying
considerable month-to-month volatility, were little changed. As the period
began, bond prices were on the rise as yields, which move in the opposite
direction, declined. Despite continued improvement in U.S. economic conditions,
solid job creation remained elusive. Consumer confidence faltered, and investors
became increasingly convinced that the Federal Reserve Board (the Fed) would
hold short-term interest rates at their historic lows. Under the circumstances,
long-term U.S. Treasury bond yields fell to 4.65% by mid-March 2004.
Beginning in early April, however, monthly employment reports began to show
unexpectedly large gains. In response, bond prices fell (yields increased).
Associated improvements in consumer confidence and spending led some investors
to reverse their earlier expectations, believing instead that the Fed would soon
be forced to raise short-term interest rates to ward off potential inflation. By
early June, long-term U.S. Treasury bond yields had risen to over 5.50%.
For the remainder of the period, bond yields generally declined. While economic
growth remained positive, inflationary measures continued to be negligible. More
importantly, on June 30, the Fed raised its short-term interest rate target for
the first time in four years -- from 1% to 1.25%. In doing so, the Fed indicated
a tendency toward a measured, moderate monetary tightening cycle, which helped
support higher bond prices (and lower yields). By the end of July 2004,
long-term U.S. Treasury bond yields stood at 5.20%, a decline of 10 basis points
(.10%) over the past year. The 10-year U.S. Treasury note yield ended the period
at 4.48%, an increase of less than 10 basis points during the past 12 months.
Tax-exempt issues, supported by a favorable technical backdrop, experienced less
volatility than their taxable counterparts during the year. Declining supply
trends allowed tax-exempt bond prices to register modest gains. Long-term
revenue bond yields, as measured by the Bond Buyer Revenue Bond Index, fell
approximately 10 basis points over the last year to 5.31%. According to
Municipal Market Data, yields on AAA-rated issues maturing in 30 years declined
more than 15 basis points to 4.90% at July 31, while yields on 10-year AAA-rated
issues fell more than 25 basis points to 3.79%.
During the past 12 months, more than $360 billion in new long-term tax-exempt
bonds was underwritten, a decline of approximately 8% versus last year.
Approximately $100 billion in long-term tax-exempt bonds was issued in the last
three months of the period, a decline of more than 15% compared to the same
period a year ago. The tax-exempt bond market maintained a positive
supply/demand position throughout the year, allowing municipal issues to
outperform their taxable counterparts.
Describe conditions in the Commonwealth of Pennsylvania.
Through the past few years of recession and slow growth, the Commonwealth of
Pennsylvania managed to protect its credit ratings of Aa2, AA and AA, as
assigned by the three major credit-rating agencies. This was achieved through
conservative budgeting practices, maintenance of a relatively low debt burden
and a more service-diversified economy. In fiscal year 2001 - 2002, Pennsylvania
was forced to turn to its rainy-day reserves to balance the budget. The
following year, the budget was thinly balanced through a combination of tax
increases, one-time measures and appropriation cuts. In contrast, the 2003 -
2004 fiscal year ended with a $637 million surplus. This was largely due to
increases in the personal income tax rate (which was raised from 2.8% to 3.1%,
effective January 1, 2004), along with higher taxes on cigarettes and cellular
phones. The tax increases were precipitated by a projected budget deficit of $1
billion a year ago.
The Pennsylvania Legislature recently approved Governor Rendell's plan to use
slot machine tax revenues to finance increased aid to local school districts.
The expansion of gaming in the commonwealth is projected to allow for $1 billion
in local property tax relief among Pennsylvania's 501 school districts. The 2004
- - 2005 budget was enacted in July. The $22.8 billion budget calls for a modest
4.1% increase over the prior year's spending plan, focused largely on education
and environmental issues with the goal of attracting more employers and
residents to the Keystone State. Under Governor Rendell's economic stimulus
program, the commonwealth's currently favorable debt profile is expected to
weaken with the issuance of $2 billion in bonds. Overall,
4 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004
unemployment rates and personal income remain on par with national measures, and
job growth has begun to show small gains.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended July 31, 2004, the Fund's Class A, Class B, Class
C and Class I Shares had total returns of +5.37%, +5.04%, +4.93% and +5.57%,
respectively. This compared to a return of +5.79% for the benchmark Lehman
Brothers Municipal Bond Index for the same period. The Index measures the
performance of municipal bonds nationwide, while the Fund invests only in
Pennsylvania issues. This explains some of the disparity in performance. (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.)
Fund performance for the year generally exceeded the +4.95% average return of
the Lipper Pennsylvania Municipal Debt Funds category. Unlike the benchmark
Index, the Lipper category consists of funds that limit their investment to
those securities exempt from taxation in Pennsylvania. For that reason, it
provides a better measure of the Fund's relative performance. The Fund's
12-month net yield of 4.72% exceeded that of the Lipper category.
The Fund's above-market duration benefited performance for much of the period,
although it hindered relative results somewhat at times when interest rates
increased. In general, investments with longer durations are more sensitive to
interest rate increases; therefore, their value will fluctuate more in a rising
interest rate environment. We saw a substantial amount of volatility over the
past year, but our duration stance generally worked to the Fund's advantage as
interest rates remained at historic lows. The volatility also presented us with
trading opportunities throughout the year.
What changes were made to the portfolio during the year?
We continued to focus on buying premium-coupon bonds with longer maturities,
usually in the 20-year - 30-year range. Our observations and research reveal
that the longer end of the yield curve has held firm, while the 10-year -
15-year sector has continued to be volatile. By taking advantage of the steep
curve, we generally have been able to increase the Fund's yield while muting its
price volatility.
One specific transaction during the period involved the purchase of longer-dated
premium-coupon Pennsylvania Turnpike bonds that we converted into a derivative
position. To offset the price volatility associated with derivative securities,
we made use of hedge positions. We also reduced the Fund's hospital exposure and
its position in tobacco bonds. Overall, we were successfully able to add to the
Fund's yield while maintaining a high-quality portfolio. In fact, throughout the
year, the Fund maintained an average credit-quality rating of AA2.
How would you characterize the Fund's position at the close of the period?
We believe the market will continue to be hypersensitive to economic news in the
coming months and, as a result, we would expect bond price volatility to
continue. This should present both buying and selling opportunities for the
Fund.
The Fed has articulated its intention to gradually increase short-term interest
rates over the next 12 months - 18 months, causing bond yields to rise. Based on
this scenario, we would expect to further reduce the Fund's holdings of
longer-dated bonds with coupons of 5% - 5.125% and purchase premium-coupon bonds
in the 20-year - 30-year range. This is because longer-duration bonds, such as
those with coupons of 5% - 5.125%, are more sensitive to interest rate increases
whereas bonds selling at a premium have less price movement in a rising interest
rate environment. We would also anticipate closing our shorter-maturity
derivatives, which would be most affected as interest rates increase and the
yield curve flattens. Of course, the execution of this strategy is contingent on
the availability of premium-coupon bonds. We expect that these actions, combined
with the Fund's existing hedge position, should result in favorable relative
performance in a rising interest rate environment.
William R. Bock
Vice President and Portfolio Manager
August 18, 2004
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
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 gain distributions, if any, 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 July 31, 2004 Total Return Total Return Total Return 30-Day Yield
=========================================================================================================================
ML Pennsylvania Municipal Bond Fund Class A Shares* -0.47% +5.37% +76.84% 3.98%
- -------------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class B Shares* -0.67 +5.04 +66.77 3.73
- -------------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class C Shares* -0.72 +4.93 +68.12 3.64
- -------------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class I Shares* -0.42 +5.57 +75.44 4.07
- -------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index** +0.06 +5.79 +85.65/+91.15 --
- -------------------------------------------------------------------------------------------------------------------------
* 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 JULY 31, 2004
Performance Data (continued)
A line graph depicting the growth of an investment in the Fund'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 2004:
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 7/04
ML Pennsylvania
Municipal Bond Fund+--
Class A Shares* $13,323 $14,590 $15,538 $16,112 $16,976
ML Pennsylvania
Municipal Bond Fund+--
Class C Shares* $13,463 $14,670 $15,545 $16,022 $16,812
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 7/04
Lehman Brothers Municipal
Bond Index++ $14,848 $16,345 $17,441 $18,070 $19,115
* 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 7/31/04 +5.37% +1.15%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/04 +5.43 +4.58
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 7/31/04 +6.01 +5.56
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 7/31/04 +4.93% +3.93%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/04 +4.92 +4.92
Inception (10/21/94)
through 7/31/04 +5.46 +5.46
- --------------------------------------------------------------------------------
* 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, 2004 7
[LOGO] Merrill Lynch Investment Managers
Performance Data (concluded)
A line graph depicting the growth of an investment in the Fund'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 1994 to July 2004:
7/94 7/95 7/96 7/97 7/98
ML Pennsylvania
Municipal Bond Fund+--
Class B Shares* $10,000 $10,601 $11,235 $12,265 $12,946
ML Pennsylvania
Municipal Bond Fund+--
Class I Shares* $ 9,600 $10,230 $10,896 $11,956 $12,672
7/99 7/00 7/01 7/02 7/03 7/04
ML Pennsylvania
Municipal Bond Fund+--
Class B Shares* $13,049 $13,302 $14,509 $15,389 $15,878 $16,677
ML Pennsylvania
Municipal Bond Fund+--
Class I Shares* $12,850 $13,165 $14,433 $15,386 $15,954 $16,842
7/94 7/95 7/96 7/97 7/98
Lehman Brothers Municipal
Bond Index++ $10,000 $10,787 $11,499 $12,678 $13,438
7/99 7/00 7/01 7/02 7/03 7/04
Lehman Brothers Municipal
Bond Index++ $13,824 $14,420 $15,874 $16,939 $17,549 $18,565
* 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 7/31/04 +5.04% +1.04%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/04 +5.03 +4.69
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/04 +5.25 +5.25
- --------------------------------------------------------------------------------
* 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 7/31/04 +5.57% +1.35%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/04 +5.56 +4.70
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/04 +5.78 +5.35
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
8 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees, and exchange fees;
and (b) operating expenses including advisory fees, distribution fees including
12(b)-1 fees, and other Fund expenses. The following example (which is based on
a hypothetical investment of $1,000 invested on February 1, 2004 and held
through July 31, 2004) is intended to assist shareholders both in calculating
expenses based on an investment in the Fund and in comparing these expenses with
similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees, or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value February 1, 2004
February 1, 2004 July 31, 2004 to July 31, 2004
================================================================================
Actual
================================================================================
Class A $1,000 $ 995.30 $4.95
- --------------------------------------------------------------------------------
Class B $1,000 $ 993.30 $6.97
- --------------------------------------------------------------------------------
Class C $1,000 $ 992.80 $7.46
- --------------------------------------------------------------------------------
Class I $1,000 $ 995.80 $4.45
================================================================================
Hypothetical (5% annual return before expenses)**
================================================================================
Class A $1,000 $1,019.84 $5.01
- --------------------------------------------------------------------------------
Class B $1,000 $1,017.80 $7.05
- --------------------------------------------------------------------------------
Class C $1,000 $1,017.31 $7.55
- --------------------------------------------------------------------------------
Class I $1,000 $1,020.33 $4.51
- --------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (1.00% for Class A, 1.41% for Class B, 1.51% for Class
C and .90% for Class I), multiplied by the average account value over the
period, multiplied by 182/367 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by multiplying
the number of days in the most recent fiscal half-year divided by 367.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (in Thousands)
S&P Moody's Face
Ratings+ Ratings+ Amount Municipal Bonds Value
===================================================================================================================================
Pennsylvania--79.9%
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $ 4,785 Allegheny County, Pennsylvania, IDA, Commercial Development
Revenue Refunding Bonds (MPB Associates Project), 7.70%
due 12/01/2013 (d) $ 5,829
---------------------------------------------------------------------------------------------------------
BBB+ Baa1 1,500 Allegheny County, Pennsylvania, IDA, Environmental
Improvement Revenue Refunding Bonds (USX Corporation),
6.10% due 7/15/2020 1,559
---------------------------------------------------------------------------------------------------------
NR* NR* 1,000 Allegheny County, Pennsylvania, Redevelopment Authority, Tax
Increment Revenue Bonds (Waterfront Project), Series A, 6.30%
due 12/15/2018 1,083
---------------------------------------------------------------------------------------------------------
BBB+ NR* 1,000 Bucks County, Pennsylvania, IDA, Revenue Refunding Bonds
(Pennswood Village Project), Series A, 6% due 10/01/2027 1,018
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Dauphin County, Pennsylvania, GO, Series C, 5%
due 3/01/2024 (b) 1,018
---------------------------------------------------------------------------------------------------------
BBB Baa2 1,000 Delaware County, Pennsylvania, Hospital Authority Revenue
Bonds, GO (Crozer-Chester Medical Center), 6.25%
due 12/15/2022 1,028
---------------------------------------------------------------------------------------------------------
AA- Aa3 1,000 Delaware Valley, Pennsylvania, Regional Finance Authority,
Local Government Revenue Bonds, 5.75% due 7/01/2032 1,108
---------------------------------------------------------------------------------------------------------
NR* Aaa 2,200 Downingtown, Pennsylvania, Area School District, GO,
Refunding, 5.70% due 3/01/2021 (a) 2,388
---------------------------------------------------------------------------------------------------------
NR* NR* 920 Erie, Western Pennsylvania Port Authority Revenue Bonds,
6.875% due 6/15/2016 959
---------------------------------------------------------------------------------------------------------
A- NR* 1,000 Lancaster County, Pennsylvania, Hospital Authority Revenue
Bonds (Lancaster General Hospital Project), 5.50%
due 3/15/2026 1,001
---------------------------------------------------------------------------------------------------------
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 2,081
---------------------------------------------------------------------------------------------------------
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) 2,073
---------------------------------------------------------------------------------------------------------
Mifflin County, Pennsylvania, Hospital Authority, Revenue
Refunding Bonds (Lewiston Hospital) (g):
AA Baa1 2,550 6.40% due 7/01/2020 2,852
AA Baa1 1,000 6.20% due 7/01/2030 1,060
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Pennsylvania Convention Center, Revenue Refunding Bonds,
Series A, 6.75% due 9/01/2019 (b) 2,636
---------------------------------------------------------------------------------------------------------
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 983
---------------------------------------------------------------------------------------------------------
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 4,146
---------------------------------------------------------------------------------------------------------
AA+ Aa2 1,040 Pennsylvania HFA, S/F Mortgage Revenue Refunding Bonds, AMT,
Series 59A, 5.80% due 10/01/2029 1,065
---------------------------------------------------------------------------------------------------------
AA+ Aa2 2,000 Pennsylvania HFA, S/F Revenue Refunding Bonds, AMT, Series 73A,
5.45% due 10/01/2032 2,035
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
10 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
Ratings+ Ratings+ Amount Municipal Bonds Value
===================================================================================================================================
Pennsylvania (concluded)
- -----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa $ 1,500 Pennsylvania State, GO, RIB, Series 465X, 10.14%
due 10/01/2019 (b)(c) $ 1,851
---------------------------------------------------------------------------------------------------------
BBB+ NR* 500 Pennsylvania State Higher Educational Facilities Authority,
Revenue Refunding Bonds (Widener University), 5.375%
due 7/15/2029 497
---------------------------------------------------------------------------------------------------------
AAA NR* 2,500 Pennsylvania State Public School Building Authority, School
Revenue Bonds, DRIVERS, Series 371, 9.131% due 6/01/2011 (c)(d) 2,647
---------------------------------------------------------------------------------------------------------
AAA NR* 2,500 Pennsylvania State Turnpike Commission, Oil Franchise Tax
Revenue Bonds, DRIVERS, Series 366, 9.63% due 6/01/2011 (b)(c) 2,804
---------------------------------------------------------------------------------------------------------
NR* NR* 800 Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds,
DRIVERS, Series 460-Z, 9.63% due 6/01/2012 (a)(c) 904
---------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania, Authority for Industrial
Development, Senior Living Revenue Bonds:
NR* Baa2 500 (Rieder House Project), Series A, 6.10% due 7/01/2033 475
NR* Baa2 500 (Saligman House Project), Series C, 6.10% due 7/01/2033 475
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Philadelphia, Pennsylvania, Gas Works Revenue Bonds, 12th
Series B, 7% due 5/15/2020 (b)(e) 2,443
---------------------------------------------------------------------------------------------------------
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 (e) 3,637
---------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania, School District, GO:
AAA Aaa 4,400 Series A, 5.75% due 2/01/2011 (d)(h) 4,984
AAA Aaa 1,000 Series D, 5.125% due 6/01/2034 (f) 1,007
---------------------------------------------------------------------------------------------------------
A- NR* 1,400 Sayre, Pennsylvania, Health Care Facilities Authority, Revenue
Refunding Bonds (Guthrie Health), Series A, 5.875%
due 12/01/2031 1,419
---------------------------------------------------------------------------------------------------------
NR* Aa3 1,745 South Central Pennsylvania, General Authority, Revenue
Refunding Bonds (Wellspan Health Obligated), 5.625%
due 5/15/2026 1,794
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,185 Washington County, Pennsylvania, Capital Funding Authority
Revenue Bonds (Capital Projects and Equipment Program), 6.15%
due 12/01/2029 (a) 1,357
===================================================================================================================================
Guam--0.6%
- -----------------------------------------------------------------------------------------------------------------------------------
B+ Ba3 500 Commonwealth of the Northern Mariana Islands, Guam, GO,
Series A, 6.75% due 10/01/2033 504
===================================================================================================================================
Puerto Rico--14.5%
- -----------------------------------------------------------------------------------------------------------------------------------
BBB Baa3 1,320 Children's Trust Fund Project of Puerto Rico, Tobacco
Settlement Revenue Refunding Bonds, 5.375% due 5/15/2033 1,151
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Puerto Rico Commonwealth, GO, Refunding, RITR, Class R,
Series 3, 10.09% due 7/01/2016 (b)(c) 2,517
---------------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority, Power Revenue Bonds,
Series NN:
A- A3 1,000 5.125% due 7/01/2024 1,014
A- A3 1,000 5.125% due 7/01/2029 1,001
---------------------------------------------------------------------------------------------------------
Puerto Rico Public Buildings Authority, Government Facilities
Revenue Refunding Bonds:
A- Baa1 2,940 Series D, 5.375% due 7/01/2033 2,992
A- Baa1 2,500 Series I, 5.50% due 7/01/2025 2,621
===================================================================================================================================
Virgin Islands--2.0%
- -----------------------------------------------------------------------------------------------------------------------------------
BBB- Baa3 1,000 Virgin Islands Government Refinery Facilities, Revenue
Refunding Bonds (Hovensa Coker Project), AMT, 6.50%
due 7/01/2021 1,064
---------------------------------------------------------------------------------------------------------
BBB- Baa3 500 Virgin Islands Public Finance Authority, Refinery Facilities
Revenue Bonds (Hovensa Refinery), AMT, 6.125% due 7/01/2022 519
---------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$71,272)--97.0% 75,599
=========================================================================================================
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004 11
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded) (in Thousands)
Shares
Held Short-Term Securities Value
=========================================================================================================
2,418 CMA Pennsylvania Municipal Money Fund (i) $ 2,418
---------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$2,418)--3.1% 2,418
=========================================================================================================
Total Investments (Cost--$73,690++)--100.1% 78,017
Liabilities in Excess of Other Assets--(0.1%) (41)
----------
Net Assets--100.0% $ 77,976
==========
(a) AMBAC Insured.
(b) MBIA Insured.
(c) 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, 2004.
(d) FSA Insured.
(e) Escrowed to maturity.
(f) FGIC Insured.
(g) Radian Insured.
(h) Prerefunded.
(i) 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 (2,085) $11
--------------------------------------------------------------------------
* Not Rated.
+ Ratings of issues shown are unaudited.
++ The cost and unrealized appreciation/depreciation of investments as of
July 31, 2004, as computed for federal income tax purposes, were as
follows:
(in Thousands)
--------------------------------------------------------------------------
Aggregate cost .............................................. $73,683
=======
Gross unrealized appreciation ............................... $ 4,556
Gross unrealized depreciation ............................... (222)
-------
Net unrealized appreciation ................................. $ 4,334
=======
Forward interest rate swaps outstanding as of July 31, 2004 are as
follows:
(in Thousands)
--------------------------------------------------------------------------
Notional Unrealized
Amount Depreciation
--------------------------------------------------------------------------
Receive a variable rate equal to
7-Day Bond Market Association
Municipal Swap Index Rate and pay a
fixed rate of 4.136%
Broker, J.P. Morgan Chase Bank
Expires September 2014 $12,000 $(367)
--------------------------------------------------------------------------
See Notes to Financial Statements.
12 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004
Statement of Assets and Liabilities
As of July 31, 2004
===========================================================================================================================
Assets
- ---------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified
cost--$71,271,031) ............................................... $ 75,598,968
Investments in affiliated securities, at value (identified
cost--$2,418,515) ................................................ 2,418,515
Cash .............................................................. 94,708
Receivables:
Securities sold ................................................ $ 3,401,944
Interest ....................................................... 975,595
Beneficial interest sold ....................................... 54,984
Dividends from affiliates ...................................... 31 4,432,554
------------
Prepaid expenses .................................................. 12,618
------------
Total assets ...................................................... 82,557,363
------------
===========================================================================================================================
Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on forward interest rate swaps ............ 366,984
Payables:
Securities purchased ........................................... 4,005,381
Dividends to shareholders ...................................... 96,085
Investment adviser ............................................. 39,720
Distributor .................................................... 21,923
Beneficial interest redeemed ................................... 16,269
Other affiliates ............................................... 8,591 4,187,969
------------
Accrued expenses .................................................. 26,115
------------
Total liabilities ................................................. 4,581,068
------------
===========================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------------
Net assets ........................................................ $ 77,976,295
============
===========================================================================================================================
Net Assets Consist of
- ---------------------------------------------------------------------------------------------------------------------------
Class A Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized ...................................... $ 228,457
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized ...................................... 258,555
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized ...................................... 119,251
Class I Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized ...................................... 94,753
Paid-in capital in excess of par .................................. 74,731,882
Undistributed investment income--net .............................. $ 62,471
Accumulated realized capital losses on investments--net ........... (1,480,027)
Unrealized appreciation on investments--net ....................... 3,960,953
------------
Total accumulated earnings--net ................................... 2,543,397
------------
Net Assets ........................................................ $ 77,976,295
============
===========================================================================================================================
Net Asset Value
- ---------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $25,432,061 and 2,284,568 shares
of beneficial interest outstanding ............................... $ 11.13
============
Class B--Based on net assets of $28,748,565 and 2,585,550 shares
of beneficial interest outstanding ............................... $ 11.12
============
Class C--Based on net assets of $13,260,021 and 1,192,508 shares
of beneficial interest outstanding ............................... $ 11.12
============
Class I--Based on net assets of $10,535,648 and 947,534 shares
of beneficial interest outstanding ............................... $ 11.12
============
See Notes to Financial Statements.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004 13
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
For the Year Ended July 31, 2004
===========================================================================================================================
Investment Income
- ---------------------------------------------------------------------------------------------------------------------------
Interest .......................................................... $ 4,753,791
Dividends from affiliates ......................................... 11,224
------------
Total income ...................................................... 4,765,015
------------
===========================================================================================================================
Expenses
- ---------------------------------------------------------------------------------------------------------------------------
Investment advisory fees .......................................... $ 477,477
Account maintenance and distribution fees--Class B ................ 181,107
Accounting services ............................................... 81,297
Account maintenance and distribution fees--Class C ................ 80,749
Professional fees ................................................. 60,223
Printing and shareholder reports .................................. 43,669
Account maintenance fees--Class A ................................. 25,924
Transfer agent fees--Class B ...................................... 23,587
Transfer agent fees--Class A ...................................... 14,735
Registration fees ................................................. 12,973
Trustees' fees and expenses ....................................... 10,341
Transfer agent fees--Class C ...................................... 8,811
Custodian fees .................................................... 7,951
Transfer agent fees--Class I ...................................... 6,351
Pricing fees ...................................................... 6,298
Other ............................................................. 28,574
------------
Total expenses before reimbursement ............................... 1,070,067
Reimbursement of expenses ......................................... (14,121)
------------
Total expenses after reimbursement ................................ 1,055,946
------------
Investment income--net ............................................ 3,709,069
------------
===========================================================================================================================
Realized & Unrealized Gain (Loss) from Investments--Net
- ---------------------------------------------------------------------------------------------------------------------------
Realized gain from:
Investments--net ............................................... 826,405
Forward interest rate swaps--net ............................... 866,509 1,692,914
------------
Change in unrealized appreciation/depreciation from:
Investments--net ............................................... 857,496
Forward interest rate swaps--net ............................... (1,749,479) (891,983)
-----------------------------
Total realized and unrealized gain--net ........................... 800,931
------------
Net Increase in Net Assets Resulting from Operations .............. $ 4,510,000
============
See Notes to Financial Statements.
14 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004
Statements of Changes in Net Assets
For the Year Ended
July 31,
-----------------------------
Increase (Decrease) in Net Assets: 2004 2003
===========================================================================================================================
Operations
- ---------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................ $ 3,709,069 $ 4,144,696
Realized gain on investments--net ................................. 1,692,914 356,164
Change in unrealized appreciation/depreciation on investments--net (891,983) (1,374,424)
-----------------------------
Net increase in net assets resulting from operations .............. 4,510,000 3,126,436
-----------------------------
===========================================================================================================================
Dividends to Shareholders
- ---------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ........................................................ (1,167,580) (964,384)
Class B ........................................................ (1,482,707) (2,139,645)
Class C ........................................................ (538,054) (477,116)
Class I ........................................................ (516,152) (560,042)
-----------------------------
Net decrease in net assets resulting from dividends to shareholders (3,704,493) (4,141,187)
-----------------------------
===========================================================================================================================
Beneficial Interest Transactions
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from beneficial
interest transactions ............................................ (13,993,059) 49,289
-----------------------------
===========================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ...................................... (13,187,552) (965,462)
Beginning of year ................................................. 91,163,847 92,129,309
-----------------------------
End of year* ...................................................... $ 77,976,295 $ 91,163,847
=============================
* Undistributed investment income--net ......................... $ 62,471 $ 57,895
=============================
See Notes to Financial Statements.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004 15
[LOGO] Merrill Lynch Investment Managers
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: 2004 2003++ 2002++ 2001++ 2000++
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 11.05 $ 11.17 $ 11.00 $ 10.55 $ 10.92
-------------------------------------------------------------------
Investment income--net ............... .51+ .53+ .53 .53 .53
Realized and unrealized gain (loss)
on investments--net ................. .08 (.12) .17 .45 (.31)
-------------------------------------------------------------------
Total from investment operations ..... .59 .41 .70 .98 .22
-------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............ (.51) (.53) (.53) (.53) (.53)
In excess of realized gain on
investments--net ................. -- -- -- -- (.06)
-------------------------------------------------------------------
Total dividends and distributions .... (.51) (.53) (.53) (.53) (.59)
-------------------------------------------------------------------
Net asset value, end of year ......... $ 11.13 $ 11.05 $ 11.17 $ 11.00 $ 10.55
===================================================================
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... 5.37% 3.69% 6.50% 9.51% 2.25%
===================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ....... .98% .98% 1.00% .95% .91%
===================================================================
Expenses ............................. 1.00% .99% 1.00% .95% .91%
===================================================================
Investment income--net ............... 4.50% 4.69% 4.78% 4.91% 5.09%
===================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $25,432 $23,460 $16,295 $12,121 $ 6,673
===================================================================
Portfolio turnover ................... 66.08% 34.92% 30.23% 73.23% 51.32%
===================================================================
* 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.
16 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004
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: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 11.03 $ 11.16 $ 10.99 $ 10.54 $ 10.90
-------------------------------------------------------------------
Investment income--net ............... .46+ .49+ .48 .49 .48
Realized and unrealized gain (loss)
on investments--net ................. .09 (.14) .17 .45 (.30)
-------------------------------------------------------------------
Total from investment operations ..... .55 .35 .65 .94 .18
-------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............ (.46) (.48) (.48) (.49) (.48)
In excess of realized gain on
investments--net ................. -- -- -- -- (.06)
-------------------------------------------------------------------
Total dividends and distributions .... (.46) (.48) (.48) (.49) (.54)
-------------------------------------------------------------------
Net asset value, end of year ......... $ 11.12 $ 11.03 $ 11.16 $ 10.99 $ 10.54
===================================================================
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... 5.04% 3.18% 6.07% 9.07% 1.92%
===================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ....... 1.38% 1.39% 1.40% 1.35% 1.32%
===================================================================
Expenses ............................. 1.40% 1.40% 1.40% 1.35% 1.32%
===================================================================
Investment income--net ............... 4.09% 4.31% 4.36% 4.52% 4.69%
===================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $28,749 $43,099 $54,421 $60,252 $68,723
===================================================================
Portfolio turnover ................... 66.08% 34.92% 30.23% 73.23% 51.32%
===================================================================
* 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, 2004 17
[LOGO] Merrill Lynch Investment Managers
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: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 11.03 $ 11.16 $ 10.99 $ 10.54 $ 10.90
-------------------------------------------------------------------
Investment income--net ............... .45+ .47+ .47 .48 .47
Realized and unrealized gain (loss)
on investments--net ................. .09 (.13) .17 .45 (.30)
-------------------------------------------------------------------
Total from investment operations ..... .54 .34 .64 .93 .17
-------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............ (.45) (.47) (.47) (.48) (.47)
In excess of realized gain on
investments--net ................. -- -- -- -- (.06)
-------------------------------------------------------------------
Total dividends and distributions .... (.45) (.47) (.47) (.48) (.53)
-------------------------------------------------------------------
Net asset value, end of year ......... $ 11.12 $ 11.03 $ 11.16 $ 10.99 $ 10.54
===================================================================
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... 4.93% 3.07% 5.96% 8.97% 1.82%
===================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ....... 1.49% 1.49% 1.51% 1.45% 1.42%
===================================================================
Expenses ............................. 1.50% 1.49% 1.51% 1.45% 1.42%
===================================================================
Investment income--net ............... 3.99% 4.18% 4.27% 4.42% 4.60%
===================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $13,260 $13,309 $ 9,309 $ 7,007 $ 5,874
===================================================================
Portfolio turnover ................... 66.08% 34.92% 30.23% 73.23% 51.32%
===================================================================
* Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
See Notes to Financial Statements.
18 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004
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: 2004 2003++ 2002++ 2001++ 2000++
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 11.03 $ 11.16 $ 10.99 $ 10.54 $ 10.90
-------------------------------------------------------------------
Investment income--net ............... .52+ .54+ .54 .54 .54
Realized and unrealized gain (loss)
on investments--net ................. .08 (.13) .17 .45 (.30)
-------------------------------------------------------------------
Total from investment operations ..... .60 .41 .71 .99 .24
-------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............ (.51) (.54) (.54) (.54) (.54)
In excess of realized gain on
investments--net ................. -- -- -- -- (.06)
-------------------------------------------------------------------
Total dividends and distributions .... (.51) (.54) (.54) (.54) (.60)
-------------------------------------------------------------------
Net asset value, end of year ......... $ 11.12 $ 11.03 $ 11.16 $ 10.99 $ 10.54
===================================================================
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... 5.57% 3.69% 6.61% 9.63% 2.44%
===================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ....... .88% .88% .90% .84% .81%
===================================================================
Expenses ............................. .89% .89% .90% .84% .81%
===================================================================
Investment income--net ............... 4.60% 4.81% 4.88% 5.03% 5.20%
===================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $10,536 $11,296 $12,104 $13,578 $14,494
===================================================================
Portfolio turnover ................... 66.08% 34.92% 30.23% 73.23% 51.32%
===================================================================
* 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.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004 19
[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 U.S. generally accepted accounting principles, which
may require the use of management accruals and estimates. Actual results may
differ from these estimates. 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.
(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.
20 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004
Notes to Financial Statements (continued)
(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, 2004, FAM reimbursed the Fund in the amount
of $14,121.
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, 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 .............................. $ 970 $8,172
Class I .............................. $ 49 $ 534
- --------------------------------------------------------------------------------
For the year ended July 31, 2004, MLPF&S received contingent deferred sales
charges of $36,677 and $888 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, 2004, the Fund reimbursed FAM $2,454 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, 2004 were $54,820,132 and $63,026,350, respectively.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $(13,993,059) and $49,289 for the years ended July 31, 2004 and
July 31, 2003, respectively.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004 21
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
Transactions in shares of beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 42,048 $ 475,704
Automatic conversion of shares ........... 531,874 5,992,601
Shares issued to shareholders in
reinvestment of dividends ............. 49,901 562,406
-----------------------------
Total issued ............................. 623,823 7,030,711
Shares redeemed .......................... (462,936) (5,213,252)
-----------------------------
Net increase ............................. 160,887 $ 1,817,459
=============================
- --------------------------------------------------------------------------------
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
=============================
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 62,040 $ 697,738
Shares issued to shareholders in
reinvestment of dividends ............. 66,107 744,167
-----------------------------
Total issued ............................. 128,147 1,441,905
Automatic conversion of shares ........... (532,496) (5,992,601)
Shares redeemed .......................... (916,104) (10,266,049)
-----------------------------
Net decrease ............................. (1,320,453) $(14,816,745)
=============================
- --------------------------------------------------------------------------------
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 Year Dollar
Ended July 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 204,520 $ 2,304,491
Shares issued to shareholders in
reinvestment of dividends ............. 27,815 312,987
-----------------------------
Total issued ............................. 232,335 2,617,478
Shares redeemed .......................... (245,992) (2,752,277)
-----------------------------
Net decrease ............................. (13,657) $ (134,799)
=============================
- --------------------------------------------------------------------------------
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 Year Dollar
Ended July 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 123,705 $ 1,403,372
Shares issued to shareholders in
reinvestment of dividends ............. 24,268 273,141
-----------------------------
Total issued ............................. 147,973 1,676,513
Shares redeemed .......................... (224,139) (2,535,487)
-----------------------------
Net decrease ............................. (76,166) $ (858,974)
=============================
- --------------------------------------------------------------------------------
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)
=============================
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 year ended July 31, 2004.
22 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004
Notes to Financial Statements (concluded)
6. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended July 31,
2004 and July 31, 2003 was as follows:
- --------------------------------------------------------------------------------
7/31/2004 7/31/2003
- --------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income ................... $3,704,493 $4,141,187
------------------------------
Total distributions .................... $3,704,493 $4,141,187
==============================
As of July 31, 2004, the components of accumulated earnings on a tax basis were
as follows:
- --------------------------------------------------------------------------------
Undistributed tax-exempt income--net .................... $ 55,711
Undistributed long-term capital gains--net .............. --
-----------
Total undistributed earnings--net ....................... 55,711
Capital loss carryforward ............................... (960,703)*
Unrealized gains--net ................................... 3,448,389**
-----------
Total accumulated earnings--net ......................... $ 2,543,397
===========
* On July 31, 2004, the Fund had a net capital loss carryforward of
$960,703, 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.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004 23
[LOGO] Merrill Lynch Investment Managers
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
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 (the "Trust") as of July 31,
2004, 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 Trust'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 the auditing standards of the Public
Company Accounting Oversight Board (United States). 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, 2004 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, 2004, 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 U.S. generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 17, 2004
24 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004
Officers and Trustees (unaudited)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 1999 to President of the Merrill Lynch Investment Managers, 125 Funds None
Glenn* Princeton, NJ and present L.P. ("MLIM")/Fund Asset Management, L.P. 160 Portfolios
08543-9011 Trustee and ("FAM")--Advised Funds since 1999; Chairman
Age: 63 1992 to (Americas Region) of MLIM from 2000 to 2002;
present Executive Vice President of MLIM and FAM (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. since 1985.
------------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which MLIM
or FAM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of
the Fund based on his present and former positions with MLIM, FAM, 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 Fund 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 38 Funds None
Bodurtha Princeton, NJ present 1996 and Executive Vice President thereof from 55 Portfolios
08543-9095 1996 to 2003; Chairman of the Board, Berkshire
Age: 60 Holding Corporation since 1980; Partner, Squire,
Sanders & Dempsey from 1980 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Joe Grills P.O. Box 9095 Trustee 2000 to Member of the Committee of Investment of 38 Funds Kimco Realty
Princeton, NJ present Employee Benefit Assets of the Association of 55 Portfolios Corporation
08543-9095 Financial Professionals ("CIEBA") since 1986;
Age: 69 Member of CIEBA's Executive Committee since
1988 and its Chairman from 1991 to 1992;
Assistant Treasurer of International Business
Machines Corporation ("IBM") and Chief
Investment Officer of IBM Retirement Funds
from 1986 to 1993; Member of the Investment
Advisory Committee 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 University Management
Company from 1992 to 2004, Vice Chairman
thereof from 1998 to 2004 and Director Emeritus
thereof since 2004; 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 its Vice Chairman 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.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004 25
[LOGO] Merrill Lynch Investment Managers
Officers and Trustees (unaudited) (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Trustee 1987 to John M. Olin Professor of Humanities, New York 38 Funds None
London Princeton, NJ present University since 1993 and Professor thereof since 55 Portfolios
08543-9095 1980; President, Hudson Institute since 1997
Age: 65 and Trustee thereof since 1980; Dean, Gallatin
Division of New York University from 1976 to 1993;
Distinguished Fellow, Herman Kahn Chair, Hudson
Institute from 1984 to 1985; Director, Damon Corp.
from 1991 to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993; Director, Level Playing
Field (education) from 2000 to 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Andre F. P.O. Box 9095 Trustee 1985 to Harvard Business School: George Gund Professor 38 Funds None
Perold Princeton, NJ present of Finance and Banking since 2000; Senior 55 Portfolios
08543-9095 Associate Dean, Director of Faculty Recruiting
Age: 52 since 2001; Finance Area Chair from 1996 to
2001; Sylvan C. Coleman Professor of Financial
Management from 1993 to 2000; Director,
Genbel Securities Limited and Gensec Bank from
1999 to 2003; Director, Stockback, Inc. from 2000
to 2002; Director, Sanlam Limited from 2001 to
2003; Trustee, Commonfund from 1989 to 2001;
Director, Sanlam Investment Management from
1999 to 2001; Director, Bulldogresearch.com from
2000 to 2001; Director, Quantec Limited from 1991
to 1999; Director and Chairman of the Board of
UNX Inc. since 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Trustee 2000 to Shareholder of Modrall, Sperling, Roehl, Harris & 38 Funds None
Cooper Princeton, NJ present Sisk, P.A. since 1993; President, American Bar 55 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of
Age: 61 the Board of Governors thereof from 1994 to 1997;
Shareholder of Poole, Kelly & Ramo, Attorneys at Law,
P.C. from 1977 to 1993; Director, Coopers, Inc.
since 1999; Director of ECMC Group (service
provider to students, schools and lenders) since
2001; Director, United New Mexico Bank (now
Wells Fargo) from 1983 to 1988; Director, First
National Bank of New Mexico (now Wells Fargo)
from 1975 to 1976.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Trustee 2002 to Principal of STI Management (investment adviser) 38 Funds None
Salomon, Princeton, NJ present since 1994; Chairman and CEO of Salomon 55 Portfolios
Jr. 08543-9095 Brothers Asset Management from 1992 until 1995;
Age: 67 Chairman of Salomon Brothers equity mutual funds
from 1992 to 1995; regular columnist with Forbes
Magazine from 1992 to 2002; Director of Stock
Research and U.S. Equity Strategist at Salomon
Brothers from 1975 until 1991; Trustee, Commonfund
from 1980 to 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen B. P.O. Box 9095 Trustee 2002 to Chairman of Fernwood Advisors (investment 39 Funds None
Swensrud Princeton, NJ present adviser) since 1996; Principal, Fernwood Associates 56 Portfolios
08543-9095 (financial consultants) since 1975; Chairman of
Age: 71 R.P.P. Corporation (manufacturing) since
1978; Director of International Mobile
Communications, Incorporated (telecommunications)
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.
26 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JULY 31, 2004
Officers and Trustees (unaudited) (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Trust Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999; Vice
08543-9011 and and President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 44 Treasurer 1999 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: 53
- ------------------------------------------------------------------------------------------------------------------------------------
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: 40
- ------------------------------------------------------------------------------------------------------------------------------------
William R. P.O. Box 9011 Vice 1997 to Vice President of MLIM since 1994.
Bock Princeton, NJ President present
08543-9011
Age: 68
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip S. P.O. Box 9011 Secretary 2003 to First Vice President of MLIM since 2001; Director (Legal Advisory) of MLIM from
Gillespie Princeton, NJ present 2000 to 2001; Vice President of MLIM from 1999 to 2000 and Attorney associated with
08543-9011 MLIM since 1998.
Age: 40
------------------------------------------------------------------------------------------------------------------------
* 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
Electronic Delivery
The Fund offers electronic delivery of communi cations 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 Web
site 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 JULY 31, 2004 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)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site 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 -- 7/04
Item 2 - Code of Ethics - 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 - Audit Committee Financial Expert - 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 F. Perold, (3) Robert S. Salomon, Jr., and (4) Stephen B.
Swensrud.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending July 31, 2004 - $24,000
Fiscal Year Ending July 31, 2003 - $26,000
(b) Audit-Related Fees - Fiscal Year Ending July 31, 2004 - $0
Fiscal Year Ending July 31, 2003 - $0
(c) Tax Fees - Fiscal Year Ending July 31, 2004 - $5,610
Fiscal Year Ending July 31, 2003 - $4,800
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending July 31, 2004 - $0
Fiscal Year Ending July 31, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending July 31, 2004 - $15,735,706
Fiscal Year Ending July 31, 2003 - $18,108,889
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's 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.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
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 changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - 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: September 17, 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: September 17, 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: September 17, 2004