Merrill Lynch Pennsylvania Municipal Bond Fund
Quarterly Report -- April 30, 1994
To Our Shareholders:
The magnitude of the rise in tax-exempt bond yields experienced this
past quarter has not been seen since 1987 when municipal bond rates
rose 250 basis points (2.50%) from March to October of that year. It
is very important to note that the municipal bond price declines of
the April quarter, while certainly damaging, were essentially much
different than those in 1987. Recent price declines were largely the
result of consistent and insistent selling pressures over the last two
months. In 1987, the tax-exempt bond market was much more volatile and,
at times, chaotic as investors sought to liquidate positions without
concern for fundamental value. For the most part, the recent price
deterioration has been orderly, and the municipal bond market's
liquidity and integrity have not been challenged or jeopardized.
Despite recent price declines, tax-exempt securities remain among
the most attractive investment alternatives available. After the
yield increases experienced in the April quarter, longer-term
municipal securities yielded approximately 90% of comparable US
Treasury yields. Purchasers of these municipal bonds also accrue
substantial after-tax yield advantages. To investors in the 39%
marginal Federal income tax bracket, the purchase of a municipal
bond yielding 6.50% represents an after-tax equivalent of 10.65%.
With prevailing estimates of 1994 inflation at no more than 3%--4%,
real after-tax rates in excess of 6.50% easily compensate longer-term
investors for much of the price volatility recently experienced.
Portfolio Strategy
Our near-term interest rate outlook is cautious, and we expect that
the municipal market will continue to be volatile over the coming
months. Nevertheless, we are optimistic that the expected slowing of
the economy during the second half of 1994 will prove to be
beneficial to the fixed-income markets. In particular, municipal
bonds should benefit as projected new issuance is significantly
lower than last year.
<PAGE>
In line with our short-term concerns about the market, the Fund's
cash reserves during most of the quarter ended April 30, 1994 ranged
between 5%--10% of net assets. This cash position allowed us to make
several purchases of attractively priced Pennsylvania securities
toward the end of the quarter. Looking forward, we expect to retain
up to 10% of the Fund's net assets in cash equivalents in order to
mute market volatility and allow the portfolio to seize opportunities
in the marketplace, thereby allowing us the opportunity to seek to
enhance the yield to shareholders.
We appreciate your ongoing interest in Merrill Lynch Pennsylvania
Municipal Bond Fund, and we look forward to assisting you with your
financial needs in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
May 26, 1994
<PAGE>
Performance Data
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
Class A and Class B Shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
4/30/94 1/31/94 4/30/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.89 $11.77 $11.26 -2.95%(1) -7.48%(1)
Class B Shares 10.89 11.77 11.26 -2.95(1) -7.48(1)
Class A Shares--Total Return +2.52(2) -6.22(3)
Class B Shares--Total Return +2.01(4) -6.34(5)
Class A Shares--Standardized 30-day Yield 5.08%
Class B Shares--Standardized 30-day Yield 4.78%
<FN>
*Investment results shown for the 3-month and 12-month periods are before the deduction of
any sales charges.
(1)Percent change includes reinvestment of $0.040 per share capital gains distributions.
(2)Percent change includes reinvestment of $0.630 per share ordinary income dividends and
$0.040 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.150 per share ordinary income dividends.
(4)Percent change includes reinvestment of $0.572 per share ordinary income dividends and
$0.040 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.136 per share ordinary income dividends.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/94 +3.26% -0.87%
Inception (8/31/90)
through 3/31/94 +8.98 +7.74
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/94 +2.84% -1.05%
Inception (8/31/90)
through 3/31/94 +8.43 +8.20
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
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.
