UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-04375
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: Robert C. Doll, Jr., Chief Executive
Officer, 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: 07/31/05
Date of reporting period: 08/01/04 - 01/31/05
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Pennsylvania Municipal Bond Fund
Semi-Annual Report
January 31, 2005
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Pennsylvania Municipal Bond Fund
Portfolio Information as of January 31, 2005
Percent of Total
Distribution by Market Sector Investments
- --------------------------------------------------------------------------------
Other Revenue Bonds ........................................... 48.5%
General Obligation & Tax Revenue Bonds ........................ 42.9
Prerefunded Bonds* ............................................ 8.3
Mutual Funds .................................................. 0.3
- --------------------------------------------------------------------------------
* Backed by an escrow fund.
Quality Ratings by Percent of Total
S&P/Moody's Investments
- --------------------------------------------------------------------------------
AAA/Aaa ................................................. 49.5%
AA/Aa ................................................... 15.9
A/A ..................................................... 11.5
BBB/Baa ................................................. 16.4
BB/Ba ................................................... 0.7
CCC/Caa ................................................. 0.7
NR (Not Rated) .......................................... 5.0
Other* .................................................. 0.3
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
Officers and Trustees
Robert C. Doll, Jr., President and Trustee
James H. Bodurtha, Trustee
Joe Grills, Trustee
Herbert I. London, Trustee
Roberta Cooper Ramo, Trustee
Robert S. Salomon, Jr., Trustee
Stephen B. Swensrud, Trustee
Kenneth A. Jacob, Senior Vice President
John M. Loffredo, Senior Vice President
William R. Bock, Vice President
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
- --------------------------------------------------------------------------------
Andre F. Perold resigned as a Trustee of Merrill Lynch Pennsylvania Municipal
Bond Fund of Merrill Lynch Multi-State Municipal Series Trust effective October
22, 2004.
Effective January 1, 2005, Terry K. Glenn retired as President and Trustee of
the Fund. The Fund's Board of Trustees wishes Mr. Glenn well in his retirement.
Effective January 1, 2005, Robert C. Doll, Jr. became President and Trustee of
the Fund.
- --------------------------------------------------------------------------------
2 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005
A Letter From the President
Dear Shareholder
The U.S. equity market ended the current reporting period in positive territory,
although not without some suspense along the way. Fixed income markets also
performed well, with high yield bond investors enjoying some of the best
returns.
Total Returns as of January 31, 2005 6-month 12-month
===================================================================================
Equities (Standard & Poor's 500 Index) +8.16% +6.23%
- -----------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) +3.81 +4.16
- -----------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +4.80 +4.86
- -----------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) +7.85 +9.81
- -----------------------------------------------------------------------------------
Over the past year, the U.S. economy transitioned from dependence on record
monetary and fiscal stimulus to a broad-based, high-productivity,
high-profit-margin growth engine. The year also marked the end of one of the
most aggressive Federal Reserve Board (Fed) policy periods in history as
deflation concerns, prevalent at the beginning of 2004, gave way to modest
inflation scares -- notably, food prices in the spring and energy prices in the
fall.
The Fed more than doubled the federal funds rate, increasing it from 1% to 2.25%
in five separate moves between June and December 2004. Yet, even as the Fed
raised its target short-term interest rate, long-term bond yields were little
changed year over year as buying interest on the part of foreign central banks
remained strong. The yield on the 10-year Treasury note stood at 4.14% on
January 31, 2005. Despite very strong earnings growth, stocks remained in a
narrow trading range for most of 2004, but rebounded nicely in the fourth
quarter as election uncertainties and energy price concerns dissipated. January,
the first month of the new year and the final month of the current reporting
period, was a challenging one for equities as reflected in the -2.44% return of
the S&P 500 Index for the month.
As we ended the current reporting period, the economy and earnings growth were
beginning to slow and the Fed appeared poised to continue moving interest rates
higher (and, in fact, raised the federal funds rate another 25 basis points on
February 2, 2005). Progress was being monitored on many fronts in Washington,
although concerns remained about the structural problems of debt and deficits,
as reflected by a significant decline in the U.S. dollar.
Looking ahead, the environment is likely to be a challenging one for investors.
At the start of the new year, we encourage you to meet with your financial
advisor to review your goals and asset allocation and to rebalance your
portfolio, as necessary, to ensure it remains aligned with your objectives and
risk tolerance. As always, 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/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Trustee
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
The Fund provided competitive total returns and an above-average yield
over the past six months as we maintained our focus on net asset value
preservation and yield enhancement.
Discuss the recent market environment relative to municipal bonds.
Long-term bond yields exhibited significant declines over the past six months,
even as the Federal Reserve Board (the Fed) continued to raise short-term
interest rates. The associated rise in long-term bond prices, which move
opposite yields, came as somewhat of a surprise given the generally positive
economic environment. Gross domestic product (GDP) in the United States grew at
a rate of 4% in the third quarter of 2004 and was recently estimated at a 3.1%
rate for the fourth quarter. During all of 2004, real GDP expanded at a rate of
4%, well above the 3% growth rate registered in 2003. Nevertheless, recent
improvements in domestic business activity have been offset by inflationary
measures remaining in the 1.5% - 2% range. The Fed's measured program of
interest rate increases, which brought the federal funds rate to 2.25% by
period-end, had limited market impact as monthly U.S. employment gains remained
modest. In addition, strong currency-related demand for U.S. Treasury issues
from many foreign governments has helped bolster fixed income bond prices. By
the end of January, long-term U.S. Treasury bond yields stood at 4.59%, a
decline of 70 basis points (.70%) over the past six months. The 10-year U.S.
Treasury note yield was 4.14% at period-end, representing a decline of 45 basis
points during the period.
While tax-exempt bond yields followed the same pattern as their taxable
counterparts, yield volatility in the municipal market was generally more
subdued. Long-term revenue bond yields, as measured by the Bond Buyer Revenue
Bond Index, fell 44 basis points over the past six months. According to
Municipal Market Data, AAA-rated issues maturing in 30 years saw their yields
decline 59 basis points to 4.43% while yields on AAA-rated issues maturing in 10
years declined 47 basis points to 3.48%.
Declining supply trends allowed tax-exempt bond prices to register significant
gains over the past six months. During this time, more than $165 billion in new
long-term tax-exempt bonds was underwritten, a decline of nearly 2% versus the
same period a year ago. New-issue municipal volume is expected to be easily
manageable in early 2005 and should continue to support the tax-exempt market's
favorable technical position.
Finally, long-term tax-exempt bond yield ratios (relative to their taxable
counterparts) have remained in the 89% - 96% range, at or above their recent
historic average of 85% - 88%. These attractive yield ratios should continue to
draw both traditional and non-traditional investors to the municipal market. The
positive technical position should allow the municipal market to continue to
outperform the taxable market in the coming months.
Describe conditions in the Commonwealth of Pennsylvania.
Through the past few years of recession and slow growth, the Commonwealth of
Pennsylvania has managed to protect its Aa2/AA/AA credit ratings, as assigned by
the three major credit-rating agencies. This was accomplished through
conservative budgeting practices, maintenance of a relatively low debt burden
and a more diversified economy.
The threat of a $1 billion budget deficit for fiscal year 2004 resulted in
higher taxes on cigarettes and cellular phones and an increase in the personal
income tax rate. In the end, fiscal year 2004 concluded with a $637 million
surplus, which has been deployed to help balance the $22.8 billion 2005 budget.
Other budget-balancing strategies for fiscal year 2005 include the increased
personal income taxes, effective for the whole year, and the shifting of
expenditures away from the general revenue fund. Through the end of December,
general fund collections for fiscal year 2005 exceeded budget estimates by 2.5%
or $252 million.
The Pennsylvania legislature recently approved Governor Rendell's plan to use
slot machine revenues to finance increased state 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
authorization of slot machines is not expected to affect the commonwealth's
budget equation, as this potentially significant source of new revenues will be
accounted for outside of the general budget.
Under the governor's economic stimulus program, Pennsylvania's currently
favorable debt profile is expected to weaken with the issuance of $1.8 billion
in bonds. The debt package is a mix of appropriation and general obligation debt
focused on redevelopment assistance, capital investment, water,
4 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005
sewer and environmental projects, as well as various funding programs through
the newly created Commonwealth Financing Authority.
Pennsylvania's employment picture began to brighten in 2004 after three years of
employment losses. In December 2004, total employment was up 2.6% compared to
the prior year. Manufacturing accounts for slightly more than 12% of employment,
equal to the government sector. Pennsylvania's seasonally adjusted unemployment
rate of 5.6% in December was slightly above the national rate. Personal income
growth modestly outperformed the national average, with third-quarter 2004 up 1%
from the second quarter, compared to a .8% rise nationally.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended January 31, 2005, the Fund's Class A, Class B,
Class C and Class I Shares had total returns of +5.05%, +4.84%, +4.79% and
+5.11%, respectively. This compared favorably to the +4.80% return of 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. (Fund results shown do not reflect sales charges
and would be lower if sales charges were included. Complete performance
information can be found on pages 6 and 7 of this report to shareholders.)
Fund returns exceeded the +4.37% average return of the Lipper Pennsylvania
Municipal Debt Funds category. Unlike the Lehman Brothers Municipal Bond Index,
the Lipper category consists of funds that limit their investment to those
securities exempt from taxation in Pennsylvania. The Fund's positive performance
is attributed to its above-market duration and its derivative holdings.
What changes were made to the portfolio during the period?
The Fund experienced bond calls representing approximately 8.6% of net assets.
The holdings that were called had an average coupon and book yield of 7.40%.
Proceeds from the bond calls were reinvested in above-average coupon structures,
when available, and despite today's lower-rate environment, the Fund was still
able to maintain a very competitive current yield distribution.
Throughout the period, we continued to focus on adding premium-coupon bonds in
the 23-year - 28-year maturity range, whenever they were attractively priced.
Although the yield curve began to flatten somewhat in the intermediate area as
short-term interest rates rose and long-term interest rates declined, the long
end remained quite steep. This area of the curve also has been less subject to
bouts of volatility, allowing us the opportunity to pick up incremental yield
while also muting the Fund's price volatility. Implementing our strategy proved
to be a challenge at times as the Pennsylvania new-issue market continued to be
dominated by par bonds that did not fit our desired investment characteristics.
The maturities of the new issues have been shorter, generally in the 20-year
range. Our purchases focused on bonds with an average coupon of 5.18% and an
average maturity of October 26, 2033.
How would you characterize the Fund's position at the close of the period?
Given the relatively low nominal yields available in the municipal market, we
believe supply/demand dynamics will continue to be one of the main drivers of
tax-exempt bond performance. Should new long-term issuance decline in 2005, as
expected, the municipal market should be well positioned to outperform other
fixed income alternatives.
We believe the Fed will continue its program of interest rate tightening en
route to a more "neutral" federal funds rate in the area of 3.25% - 3.50%. (In
fact, the Fed increased its target short-term interest rate another 25 basis
points shortly after the close of the period, bringing it to 2.5% on February
2.) Based on this interest rate forecast, we believe the prudent strategy is to
decrease the duration of the Fund. We will continue to target premium-coupon
issues with 23-year - 28-year maturities, as we believe this strategy will
result in yield enhancement.
William R. Bock
Vice President and Portfolio Manager
February 15, 2005
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005 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 (front-end load) of 4%
and an account maintenance fee of 0.10% per year (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% per year and an
account maintenance fee of 0.25% per year. 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% per year and an
account maintenance fee of 0.25% per year. 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 performance data current to the
most recent month-end. 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.
The Fund's Investment Adviser agreed to reimburse a portion of its fee. Without
such reimbursement, the Fund's performance would have been lower.
Recent Performance Results
6-Month 12-Month 10-Year Standardized
As of January 31, 2005 Total Return Total Return Total Return 30-Day Yield
=================================================================================================================
ML Pennsylvania Municipal Bond Fund Class A Shares* +5.05% +4.56% +82.66% 3.79%
- -----------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class B Shares* +4.84 +4.14 +75.38 3.54
- -----------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class C Shares* +4.79 +4.03 +73.62 3.44
- -----------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class I Shares* +5.11 +4.66 +84.49 3.88
- -----------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index** +4.80 +4.86 +94.07 --
- -----------------------------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results would be
lower if a sales charge was included. Cumulative 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.
** This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds.
6 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 1/31/05 +4.56% +0.38%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/05 +7.32 +6.44
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/05 +6.21 +5.78
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 1/31/05 +4.14% +0.14%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/05 +6.88 +6.58
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/05 +5.78 +5.78
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 1/31/05 +4.03% +3.03%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/05 +6.78 +6.78
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/05 +5.67 +5.67
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 1/31/05 +4.66% +0.48%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/05 +7.42 +6.55
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/05 +6.32 +5.88
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005 7
[LOGO] Merrill Lynch Investment Managers
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 August 1, 2004 and held through
January 31, 2005) 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 August 1, 2004
August 1, 2004 January 31, 2005 to January 31, 2005
==========================================================================================================
Actual
==========================================================================================================
Class A $1,000 $1,050.50 $5.19
- ----------------------------------------------------------------------------------------------------------
Class B $1,000 $1,048.40 $7.29
- ----------------------------------------------------------------------------------------------------------
Class C $1,000 $1,047.90 $7.80
- ----------------------------------------------------------------------------------------------------------
Class I $1,000 $1,051.10 $4.68
==========================================================================================================
Hypothetical (5% annual return before expenses)**
==========================================================================================================
Class A $1,000 $1,020.00 $5.11
- ----------------------------------------------------------------------------------------------------------
Class B $1,000 $1,017.95 $7.18
- ----------------------------------------------------------------------------------------------------------
Class C $1,000 $1,017.45 $7.69
- ----------------------------------------------------------------------------------------------------------
Class I $1,000 $1,020.51 $4.61
- ----------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (1.01% for Class A, 1.42% for Class B, 1.52% for Class
C and .91% for Class I), multiplied by the average account value over the
period, multiplied by 183/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half-year divided by 365.
8 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005
Schedule of Investments (in Thousands)
Face
Amount Municipal Bonds Value
====================================================================================================================================
Pennsylvania--80.3%
- ------------------------------------------------------------------------------------------------------------------------------------
$1,000 Allegheny County, Pennsylvania, Higher Education Building Authority, University
Revenue Bonds (Carnegie Mellon University), 5.125% due 3/01/2032 $ 1,045
----------------------------------------------------------------------------------------------------------
4,785 Allegheny County, Pennsylvania, IDA, Commercial Development Revenue Refunding Bonds
(MPB Associates Project), 7.70% due 12/01/2013 (d) 5,805
----------------------------------------------------------------------------------------------------------
1,500 Allegheny County, Pennsylvania, IDA, Environmental Improvement Revenue Refunding
Bonds (USX Corporation), 6.10% due 7/15/2020 1,597
----------------------------------------------------------------------------------------------------------
1,000 Allegheny County, Pennsylvania, Redevelopment Authority, Tax Increment Revenue
Bonds (Waterfront Project), Series A, 6.30% due 12/15/2018 1,103
----------------------------------------------------------------------------------------------------------
1,000 Bucks County, Pennsylvania, IDA, Revenue Refunding Bonds (Pennswood Village
Project), Series A, 6% due 10/01/2027 1,058
----------------------------------------------------------------------------------------------------------
1,000 Delaware County, Pennsylvania, Hospital Authority Revenue Bonds, GO (Crozer-Chester
Medical Center), 6.25% due 12/15/2022 1,083
----------------------------------------------------------------------------------------------------------
1,000 Delaware Valley, Pennsylvania, Regional Finance Authority, Local Government Revenue
Bonds, 5.75% due 7/01/2032 1,157
----------------------------------------------------------------------------------------------------------
2,200 Downingtown, Pennsylvania, Area School District, GO, Refunding, 5.70%
due 9/01/2008 (a)(h) 2,410
----------------------------------------------------------------------------------------------------------
920 Erie, Western Pennsylvania Port Authority Revenue Bonds, 6.875% due 6/15/2016 967
----------------------------------------------------------------------------------------------------------
1,000 Lancaster County, Pennsylvania, Hospital Authority Revenue Bonds (Lancaster General
Hospital Project), 5.50% due 3/15/2026 1,037
----------------------------------------------------------------------------------------------------------
2,250 Lehigh County, Pennsylvania, General Purpose Authority, Hospital Revenue Refunding
Bonds (Saint Lukes Hospital of Bethlehem), 5.375% due 8/15/2033 2,304
----------------------------------------------------------------------------------------------------------
3,000 Luzerne County, Pennsylvania, IDA, Water Facility Revenue Refunding Bonds
(Pennsylvania American Water Company Project), AMT, Series A, 5.10%
due 9/01/2034 (a) 3,095
----------------------------------------------------------------------------------------------------------
Mifflin County, Pennsylvania, Hospital Authority, Revenue Refunding Bonds (Lewiston
Hospital) (g):
2,550 6.40% due 7/01/2020 2,902
1,000 6.20% due 7/01/2030 1,128
----------------------------------------------------------------------------------------------------------
750 Montgomery County, Pennsylvania, IDA, Revenue Bonds (Whitemarsh Continuing Care
Project), 6.25% due 2/01/2035 758
----------------------------------------------------------------------------------------------------------
2,500 Northumberland County, Pennsylvania, IDA, Water Facilities Revenue Refunding Bonds
(Aqua Pennsylvania Inc. Project), AMT, 5.05% due 10/01/2039 (f) 2,568
----------------------------------------------------------------------------------------------------------
2,500 Pennsylvania Convention Center Revenue Refunding Bonds, Series A, 6.75%
due 9/01/2019 (b) 2,650
----------------------------------------------------------------------------------------------------------
975 Pennsylvania HFA, S/F Mortgage Revenue Refunding Bonds, AMT, Series 59A, 5.80%
due 10/01/2029 1,008
----------------------------------------------------------------------------------------------------------
2,000 Pennsylvania HFA, S/F Revenue Refunding Bonds, AMT, Series 73A, 5.45%
due 10/01/2032 2,069
----------------------------------------------------------------------------------------------------------
1,500 Pennsylvania State, GO, RIB, Series 465X, 9.39% due 10/01/2019 (b)(c) 1,904
----------------------------------------------------------------------------------------------------------
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
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
====================================================================================================================================
Pennsylvania (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 900 Pennsylvania State Higher Educational Facilities Authority, Association of
Independent Colleges and Universities Financing Program Revenue Bonds (Lycoming
College Project), 5.25% due 11/01/2027 (g) $ 957
----------------------------------------------------------------------------------------------------------
500 Pennsylvania State Higher Educational Facilities Authority, Revenue Refunding Bonds
(Widener University), 5.375% due 7/15/2029 522
----------------------------------------------------------------------------------------------------------
2,500 Pennsylvania State Public School Building Authority, School Revenue Bonds, DRIVERS,
Series 371, 8.365% due 6/01/2011 (c)(d) 2,902
----------------------------------------------------------------------------------------------------------
2,500 Pennsylvania State Turnpike Commission, Oil Franchise Tax Revenue Bonds, DRIVERS,
Series 366, 8.864% due 6/01/2011 (b)(c) 3,100
----------------------------------------------------------------------------------------------------------
800 Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds, DRIVERS, Series
460-Z, 8.864% due 6/01/2012 (a)(c) 977
----------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania, Authority for Industrial Development, Senior Living
Revenue Bonds:
500 (Rieder House Project), Series A, 6.10% due 7/01/2033 487
500 (Saligman House Project), Series C, 6.10% due 7/01/2033 487
----------------------------------------------------------------------------------------------------------
2,000 Philadelphia, Pennsylvania, Gas Works Revenue Bonds, 12th Series B, 7%
due 5/15/2020 (b)(e) 2,496
----------------------------------------------------------------------------------------------------------
3,000 Philadelphia, Pennsylvania, Hospitals and Higher Education Facilities Authority,
Hospital Revenue Refunding Bonds (Presbyterian Medical Center), 6.65%
due 12/01/2019 (e) 3,761
----------------------------------------------------------------------------------------------------------
3,400 Philadelphia, Pennsylvania, School District, GO, Series A, 5.75%
due 2/01/2011 (d)(h) 3,890
----------------------------------------------------------------------------------------------------------
1,400 Sayre, Pennsylvania, Health Care Facilities Authority, Revenue Refunding Bonds
(Guthrie Health), Series A, 5.875% due 12/01/2031 1,490
----------------------------------------------------------------------------------------------------------
1,745 South Central Pennsylvania, General Authority, Revenue Refunding Bonds (Wellspan
Health Obligated), 5.625% due 5/15/2026 1,871
----------------------------------------------------------------------------------------------------------
570 Washington County, Pennsylvania, Capital Funding Authority Revenue Bonds (Capital
Projects and Equipment Program), 6.15% due 12/01/2029 (a) 606
====================================================================================================================================
Guam--0.7%
- ------------------------------------------------------------------------------------------------------------------------------------
500 Commonwealth of the Northern Mariana Islands, Guam, GO, Series A, 6.75%
due 10/01/2033 517
====================================================================================================================================
Puerto Rico--16.6%
- ------------------------------------------------------------------------------------------------------------------------------------
1,315 Children's Trust Fund Project of Puerto Rico, Tobacco Settlement Revenue Refunding
Bonds, 5.375% due 5/15/2033 1,282
----------------------------------------------------------------------------------------------------------
2,000 Puerto Rico Commonwealth, GO, Refunding, RITR, Class R, Series 3, 9.353%
due 7/01/2016 (b)(c) 2,516
----------------------------------------------------------------------------------------------------------
3,000 Puerto Rico Commonwealth, Public Improvement, GO, Series A, 5% due 7/01/2034 3,112
----------------------------------------------------------------------------------------------------------
750 Puerto Rico Ports Authority, Special Facilities Revenue Bonds (American Airlines),
AMT, Series A, 6.25% due 6/01/2026 529
----------------------------------------------------------------------------------------------------------
2,940 Puerto Rico Public Buildings Authority, Government Facilities Revenue Refunding
Bonds, Series D, 5.375% due 7/01/2033 3,133
----------------------------------------------------------------------------------------------------------
1,950 Puerto Rico Public Finance Corporation, Commonwealth Appropriation Revenue Bonds,
Series E, 5.50% due 8/01/2029 2,085
====================================================================================================================================
U.S. Virgin Islands--2.1%
- ------------------------------------------------------------------------------------------------------------------------------------
1,000 Virgin Islands Government Refinery Facilities, Revenue Refunding Bonds (Hovensa
Coker Project), AMT, 6.50% due 7/01/2021 1,097
----------------------------------------------------------------------------------------------------------
500 Virgin Islands Public Finance Authority, Refinery Facilities Revenue Bonds (Hovensa
Refinery), AMT, 6.125% due 7/01/2022 538
----------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$69,870)--99.7% 76,003
==========================================================================================================
10 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005
Schedule of Investments (concluded) (in Thousands)
Shares
Held Short-Term Securities Value
====================================================================================================================================
226 CMA Pennsylvania Municipal Money Fund (i) $ 226
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$226)--0.3% 226
====================================================================================================================================
Total Investments (Cost--$70,096+)--100.0% 76,229
Other Assets Less Liabilities--0.0% 34
--------
Net Assets--100.0% $ 76,263
========
+ The cost and unrealized appreciation (depreciation) of investments as of
January 31, 2005, as computed for federal income tax purposes, were as
follows:
(in Thousands)
--------------------------------------------------------------------------
Aggregate cost ............................................. $70,091
=======
Gross unrealized appreciation .............................. $ 6,177
Gross unrealized depreciation .............................. (39)
-------
Net unrealized appreciation ................................ $ 6,138
=======
(a) AMBAC Insured.
(b) MBIA Insured.
(c) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(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) were as follows:
(in Thousands)
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
CMA Pennsylvania Municipal Money Fund (2,192) $7
--------------------------------------------------------------------------
Forward interest rate swaps outstanding as of January 31, 2005 were 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 3.671%
Broker, JPMorgan Chase Bank
Expires February 2015 $12,000 $(185)
--------------------------------------------------------------------------
See Notes to Financial Statements.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005 11
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities
As of January 31, 2005
===================================================================================================================
Assets
- -------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$69,869,734) ........................... $ 76,003,450
Investments in affiliated securities, at value
(identified cost--$225,864) .............................. 225,864
Cash ...................................................... 88,559
Receivables:
Interest ............................................... $ 995,355
Securities sold ........................................ 30,594
Beneficial interest sold ............................... 4,871
Dividends from affiliates .............................. 7 1,030,827
------------
Prepaid expenses and other assets ......................... 13,354
------------
Total assets .............................................. 77,362,054
------------
===================================================================================================================
Liabilities
- -------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on forward interest rate swaps .... 185,460
Payables:
Securities purchased ................................... 738,301
Dividends to shareholders .............................. 70,612
Investment adviser ..................................... 32,853
Beneficial interest redeemed ........................... 20,085
Distributor ............................................ 18,846
Other affiliates ....................................... 7,996 888,693
------------
Accrued expenses .......................................... 24,740
------------
Total liabilities ......................................... 1,098,893
------------
===================================================================================================================
Net Assets
- -------------------------------------------------------------------------------------------------------------------
Net assets ................................................ $ 76,263,161
============
===================================================================================================================
Net Assets Consist of
- -------------------------------------------------------------------------------------------------------------------
Class A Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................... $ 230,847
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................... 230,626
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................... 115,248
Class I Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................... 90,937
Paid-in capital in excess of par .......................... 71,003,727
Undistributed investment income--net ...................... $ 64,498
Accumulated realized capital losses--net .................. (1,420,978)
Unrealized appreciation--net .............................. 5,948,256
------------
Total accumulated earnings--net ........................... 4,591,776
------------
Net Assets ................................................ $ 76,263,161
============
===================================================================================================================
Net Asset Value
- -------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $26,388,630 and 2,308,471
shares of beneficial interest outstanding ................ $ 11.43
============
Class B--Based on net assets of $26,332,172 and 2,306,257
shares of beneficial interest outstanding ................ $ 11.42
============
Class C--Based on net assets of $13,159,208 and 1,152,476
shares of beneficial interest outstanding ................ $ 11.42
============
Class I--Based on net assets of $10,383,151 and 909,372
shares of beneficial interest outstanding ................ $ 11.42
============
See Notes to Financial Statements.
12 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005
Statement of Operations
For the Six Months Ended January 31, 2005
===================================================================================================================
Investment Income
- -------------------------------------------------------------------------------------------------------------------
Interest .................................................. $ 2,141,077
Dividends from affiliates ................................. 6,504
------------
Total income .............................................. 2,147,581
------------
===================================================================================================================
Expenses
- -------------------------------------------------------------------------------------------------------------------
Investment advisory fees .................................. $ 212,314
Account maintenance and distribution fees--Class B ........ 68,860
Accounting services ....................................... 40,700
Account maintenance and distribution fees--Class C ........ 40,286
Professional fees ......................................... 26,322
Printing and shareholder reports .......................... 23,447
Account maintenance fees--Class A ......................... 12,989
Transfer agent fees--Class B .............................. 8,992
Registration fees ......................................... 8,825
Transfer agent fees--Class A .............................. 7,344
Trustees' fees and expenses ............................... 6,849
Transfer agent fees--Class C .............................. 4,350
Custodian fees ............................................ 3,513
Pricing fees .............................................. 3,379
Transfer agent fees--Class I .............................. 2,900
Other ..................................................... 8,448
------------
Total expenses before reimbursement ....................... 479,518
Reimbursement of expenses ................................. (4,020)
------------
Total expenses after reimbursement ........................ 475,498
------------
Investment income--net .................................... 1,672,083
------------
===================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- -------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ....................................... 696,881
Forward interest rate swaps--net ....................... (637,832) 59,049
------------
Change in unrealized appreciation (depreciation) on:
Investments--net ....................................... 1,805,779
Forward interest rate swaps--net ....................... 181,524 1,987,303
-----------------------------
Total realized and unrealized gain--net ................... 2,046,352
------------
Net Increase in Net Assets Resulting from Operations ...... $ 3,718,435
============
See Notes to Financial Statements.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005 13
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 2005 2004
===================================================================================================================
Operations
- -------------------------------------------------------------------------------------------------------------------
Investment income--net .................................... $ 1,672,083 $ 3,709,069
Realized gain--net ........................................ 59,049 1,692,914
Change in unrealized appreciation (depreciation)--net ..... 1,987,303 (891,983)
-----------------------------
Net increase in net assets resulting from operations ...... 3,718,435 4,510,000
-----------------------------
===================================================================================================================
Dividends to Shareholders
- -------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ................................................ (590,387) (1,167,580)
Class B ................................................ (570,239) (1,482,707)
Class C ................................................ (271,136) (538,054)
Class I ................................................ (238,294) (516,152)
-----------------------------
Net decrease in net assets resulting from dividends to
shareholders ............................................. (1,670,056) (3,704,493)
-----------------------------
===================================================================================================================
Beneficial Interest Transactions
- -------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from beneficial interest
transactions ............................................. (3,761,513) (13,993,059)
-----------------------------
===================================================================================================================
Net Assets
- -------------------------------------------------------------------------------------------------------------------
Total decrease in net assets .............................. (1,713,134) (13,187,552)
Beginning of period ....................................... 77,976,295 91,163,847
-----------------------------
End of period* ............................................ $ 76,263,161 $ 77,976,295
=============================
* Undistributed investment income--net ................. $ 64,498 $ 62,471
=============================
See Notes to Financial Statements.
14 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005
Financial Highlights
Class A
-----------------------------------------------------------------
For the Six
Months Ended For the Year Ended July 31,
The following per share data and ratios have been derived January 31, -------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ..... $ 11.13 $ 11.05 $ 11.17 $ 11.00 $ 10.55
----------------------------------------------------------------
Investment income--net ................... .26+ .51+ .53+ .53 .53
Realized and unrealized gain (loss)--net . .30 .08 (.12) .17 .45
----------------------------------------------------------------
Total from investment operations ......... .56 .59 .41 .70 .98
----------------------------------------------------------------
Less dividends from investment income--net (.26) (.51) (.53) (.53) (.53)
----------------------------------------------------------------
Net asset value, end of period ........... $ 11.43 $ 11.13 $ 11.05 $ 11.17 $ 11.00
================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ....... 5.05%@ 5.37% 3.69% 6.50% 9.51%
================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ........... 1.01%* .98% .98% 1.00% .95%
================================================================
Expenses ................................. 1.02%* 1.00% .99% 1.00% .95%
================================================================
Investment income--net ................... 4.55%* 4.50% 4.69% 4.78% 4.91%
================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) . $26,389 $25,432 $23,460 $16,295 $12,121
================================================================
Portfolio turnover ....................... 19.18% 66.08% 34.92% 30.23% 73.23%
================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges. The Fund's
Investment Adviser has agreed to reimburse a portion of its fee. Without
such reimbursement, the Fund's performance would have been lower.
+ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005 15
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued)
Class B
-----------------------------------------------------------------
For the Six
Months Ended For the Year Ended July 31,
The following per share data and ratios have been derived January 31, -------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ..... $ 11.12 $ 11.03 $ 11.16 $ 10.99 $ 10.54
----------------------------------------------------------------
Investment income--net ................... .23+ .46+ .49+ .48 .49
Realized and unrealized gain (loss)--net . .30 .09 (.14) .17 .45
----------------------------------------------------------------
Total from investment operations ......... .53 .55 .35 .65 .94
----------------------------------------------------------------
Less dividends from investment income--net (.23) (.46) (.48) (.48) (.49)
----------------------------------------------------------------
Net asset value, end of period ........... $ 11.42 $ 11.12 $ 11.03 $ 11.16 $ 10.99
================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ....... 4.84%@ 5.04% 3.18% 6.07% 9.07%
================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ........... 1.42%* 1.38% 1.39% 1.40% 1.35%
================================================================
Expenses ................................. 1.43%* 1.40% 1.40% 1.40% 1.35%
================================================================
Investment income--net ................... 4.15%* 4.09% 4.31% 4.36% 4.52%
================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) . $26,332 $28,749 $43,099 $54,421 $60,252
================================================================
Portfolio turnover ....................... 19.18% 66.08% 34.92% 30.23% 73.23%
================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges. The Fund's
Investment Adviser has agreed to reimburse a portion of its fee. Without
such reimbursement, the Fund's performance would have been lower.
+ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
16 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005
Financial Highlights (continued)
Class C
-----------------------------------------------------------------
For the Six
Months Ended For the Year Ended July 31,
The following per share data and ratios have been derived January 31, -------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ..... $ 11.12 $ 11.03 $ 11.16 $ 10.99 $ 10.54
----------------------------------------------------------------
Investment income--net ................... .23+ .45+ .47+ .47 .48
Realized and unrealized gain (loss)--net . .30 .09 (.13) .17 .45
----------------------------------------------------------------
Total from investment operations ......... .53 .54 .34 .64 .93
----------------------------------------------------------------
Less dividends from investment income--net (.23) (.45) (.47) (.47) (.48)
----------------------------------------------------------------
Net asset value, end of period ........... $ 11.42 $ 11.12 $ 11.03 $ 11.16 $ 10.99
================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ....... 4.79%@ 4.93% 3.07% 5.96% 8.97%
================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ........... 1.52%* 1.49% 1.49% 1.51% 1.45%
================================================================
Expenses ................................. 1.53%* 1.50% 1.49% 1.51% 1.45%
================================================================
Investment income--net ................... 4.04%* 3.99% 4.18% 4.27% 4.42%
================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) . $13,159 $13,260 $13,309 $ 9,309 $ 7,007
================================================================
Portfolio turnover ....................... 19.18% 66.08% 34.92% 30.23% 73.23%
================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges. The Fund's
Investment Adviser has agreed to reimburse a portion of its fee. Without
such reimbursement, the Fund's performance would have been lower.
+ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005 17
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (concluded)
Class I
-----------------------------------------------------------------
For the Six
Months Ended For the Year Ended July 31,
The following per share data and ratios have been derived January 31, -------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ..... $ 11.12 $ 11.03 $ 11.16 $ 10.99 $ 10.54
----------------------------------------------------------------
Investment income--net ................... .26+ .52+ .54+ .54 .54
Realized and unrealized gain (loss)--net . .30 .08 (.13) .17 .45
----------------------------------------------------------------
Total from investment operations ......... .56 .60 .41 .71 .99
----------------------------------------------------------------
Less dividends from investment income--net (.26) (.51) (.54) (.54) (.54)
----------------------------------------------------------------
Net asset value, end of period ........... $ 11.42 $ 11.12 $ 11.03 $ 11.16 $ 10.99
================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ....... 5.11%@ 5.57% 3.69% 6.61% 9.63%
================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ........... .91%* .88% .88% .90% .84%
================================================================
Expenses ................................. .92%* .89% .89% .90% .84%
================================================================
Investment income--net ................... 4.65%* 4.60% 4.81% 4.88% 5.03%
================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) . $10,383 $10,536 $11,296 $12,104 $13,578
================================================================
Portfolio turnover ....................... 19.18% 66.08% 34.92% 30.23% 73.23%
================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges. The Fund's
Investment Adviser has agreed to reimburse a portion of its fee. Without
such reimbursement, the Fund's performance would have been lower.
+ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
18 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005
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. These unaudited financial statements reflect all
adjustments, which are, in the opinion of management, necessary to present a
fair statement of the results for the interim period. All such adjustments are
of a normal, recurring nature. The Fund offers multiple classes of shares.
Shares of Class A and Class I are sold with a front-end sales charge. Shares of
Class B and Class C may be subject to a contingent deferred sales charge. All
classes of shares have identical voting, dividend, liquidation and other rights
and the same terms and conditions, except that Class A, Class B and Class C
Shares bear certain expenses related to the account maintenance of such shares,
and Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with respect
to matters relating to its account maintenance and distribution expenditures
(except that Class B shareholders may vote on certain changes to the Class A
distribution plan). Income, expenses (other than expenses attributable to a
specific class) and realized and unrealized gains and losses 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 are traded primarily in the
over-the-counter markets and are valued at the last available bid price in the
over-the-counter market or on the basis of values as obtained by a pricing
service. Pricing services use valuation matrixes that incorporate both
dealer-supplied valuations and valuation models. The procedures of the pricing
service and its valuations are reviewed by the officers of the Trust under the
general direction of the Board of Trustees. Such valuations and procedures are
reviewed periodically by the Board of Trustees of the Trust. Financial futures
contracts and options thereon, which are traded on exchanges, are valued at
their closing prices as of the close of such exchanges. Options written or
purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Swap agreements are valued by quoted fair values received daily by
the Fund's pricing service. Short-term investments with a remaining maturity of
60 days or less are valued at amortized cost, which approximates market value,
under which method the investment is valued at cost and any premium or discount
is amortized on a straight line basis to maturity. Investments in open-end
investment companies are valued at their net asset value each business day.
Securities and other 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.
(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
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005 19
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
regulated investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no federal income tax provision
is required.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(e) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(f) Dividends and distributions -- Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
(g) Expenses -- Certain expenses have been allocated to the individual funds in
the Trust on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Trust.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plan 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. The Investment Adviser agreed to reimburse its management fee by the
amount of management fees the Fund pays to FAM indirectly through its investment
in CMA Pennsylvania Municipal Money Fund. For the six months ended January 31,
2005, FAM reimbursed the Fund in the amount of $4,020.
Pursuant to the Distribution Plan 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"), an affiliate of FAM, also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B and Class C shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the six months ended January 31, 2005, 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 .............................. $ 541 $3,141
Class I .............................. $ 56 $ 490
- --------------------------------------------------------------------------------
For the six months ended January 31, 2005, MLPF&S received contingent deferred
sales charges of $6,266 relating to transactions in Class B Shares.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
For the six months ended January 31, 2005, the Fund reimbursed FAM $828 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.
20 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005
Notes to Financial Statements (continued)
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended January 31, 2005 were $14,293,956 and $16,298,030, respectively.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$3,761,513 and $13,993,059 for the six months ended January 31, 2005 and the
year ended July 31, 2004.
Transactions in shares of beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended January 31, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 39,062 $ 442,002
Automatic conversion of shares ........... 107,721 1,216,958
Shares issued to shareholders in
reinvestment of dividends ............. 25,877 293,097
-----------------------------
Total issued ............................. 172,660 1,952,057
Shares redeemed .......................... (148,757) (1,680,898)
-----------------------------
Net increase ............................. 23,903 $ 271,159
=============================
- --------------------------------------------------------------------------------
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 B Shares for the Six Months Dollar
Ended January 31, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 12,463 $ 140,508
Shares issued to shareholders in
reinvestment of dividends ............. 25,679 290,506
-----------------------------
Total issued ............................. 38,142 431,014
-----------------------------
Automatic conversion of shares ........... (107,862) (1,216,958)
Shares redeemed .......................... (209,573) (2,364,965)
-----------------------------
Total redeemed ........................... (317,435) (3,581,923)
-----------------------------
Net decrease ............................. (279,293) $ (3,150,909)
=============================
- --------------------------------------------------------------------------------
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)
-----------------------------
Total redeemed ........................... (1,448,600) (16,258,650)
-----------------------------
Net decrease ............................. (1,320,453) $(14,816,745)
=============================
- --------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended January 31, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 34,837 $ 393,145
Shares issued to shareholders in
reinvestment of dividends ............. 14,367 162,540
-----------------------------
Total issued ............................. 49,204 555,685
Shares redeemed .......................... (89,236) (1,009,034)
-----------------------------
Net decrease ............................. (40,032) $ (453,349)
=============================
- --------------------------------------------------------------------------------
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 I Shares for the Six Months Dollar
Ended January 31, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 64,173 $ 723,576
Shares issued to shareholders in
reinvestment of dividends ............. 10,685 120,880
-----------------------------
Total issued ............................. 74,858 844,456
Shares redeemed .......................... (113,020) (1,272,870)
-----------------------------
Net decrease ............................. (38,162) $ (428,414)
=============================
- --------------------------------------------------------------------------------
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)
=============================
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005 21
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded)
5. Short-Term Borrowings:
The Trust, on behalf of the Fund, along with certain other funds managed by FAM
and its affiliates, is a party to a $500,000,000 credit agreement with a group
of 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 .07% 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 defined in the credit agreement. The Fund did not borrow under the
credit agreement during the six months ended January 31, 2005. On November 26,
2004, the credit agreement was renewed for one year under substantially the same
terms.
6. Capital Loss Carryforward:
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.
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.
22 MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND JANUARY 31, 2005 23
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
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 -- 1/05
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(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.
11(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 last 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 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(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/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Pennsylvania Municipal Bond Fund of Merrill Lynch Multi-State
Municipal Series Trust
Date: March 21, 2005
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/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Pennsylvania Municipal Bond Fund of Merrill Lynch Multi-State
Municipal Series Trust
Date: March 21, 2005
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Pennsylvania Municipal Bond Fund of Merrill Lynch Multi-State
Municipal Series Trust
Date: March 21, 2005