MERRILL LYNCH PENNSYLVANIA
MUNICIPAL BOND FUND
Quarterly Report April 30, 1995
TO OUR SHAREHOLDERS
During most of the three-month period ended April 30, 1995, the
municipal bond market continued the improvement that began in late
1994. Signs of a weakening domestic economy and ongoing moderate
inflationary pressure have fostered an environment of declining
interest rates. A-rated, uninsured municipal revenue bond yields, as
measured by the Bond Buyer Revenue Bond Index, have declined an
additional 50 basis points (0.50%) to close the three-month period
ended April 30, 1995 at 6.29%. Tax-exempt bond yields fell over 100
basis points since the highs experienced in November 1994, and are
now lower than they were a year ago. US Treasury bond yields have
experienced a similar, but less dramatic, improvement during the
last quarter. During the period ended April 30, 1995, 30-year US
Treasury bond yields declined approximately 35 basis points to close
the April quarter at 7.33%.
<PAGE>
Tax-exempt bond yields have declined more than their taxable
counterparts so far in 1995 largely in response to the significant
decline in new bond issuance in recent quarters. During the April
1995 quarter, less than $30 billion in new long-term municipal
securities were underwritten, a decline of nearly 40% versus the
April 1994 quarter levels. Similarly, over the past six months, less
than $60 billion in municipal bonds were issued, a decline of
approximately 45% versus the comparable period a year ago. Both
institutional and individual investors saw significant cash inflows
in recent months. These assets were derived from regular coupon
payments, bond maturities and the proceeds from early bond calls and
redemptions. It has been estimated that investors received over $20
billion in principal redemptions and coupon income in January 1995
alone. With monthly issuance in the $10 billion range thus far in
1995, the current supply/demand imbalance has dominated the
municipal market and bond prices rose accordingly. The tax-exempt
bond market's technical position is likely to remain very strong
throughout most of 1995. Investors are expected to receive almost
$40 billion in principal and coupon payments on July 1, 1995.
Investor proceeds from all sources have been estimated to exceed
$200 billion for all of 1995. Estimates of total new bond issuance
for 1995 continue to be lowered with most estimates now in the $125
billion range. Investors should find it increasingly difficult to
replace existing holdings as they mature and to reinvest coupon
income in such an environment.
The municipal bond market's outperformance thus far this year caused
the tax-exempt market to become temporarily expensive relative to
its taxable counterpart in late April. Investor concerns regarding
the international currency situation and the future impact of
proposed revisions to US taxation policies upon the tax advantage
inherent to municipal bonds have combined to cause tax-exempt bond
yields to increase marginally in recent weeks. Municipal bond yields
have risen approximately 15 basis points from their lows in
mid-April 1995. Long-term US Treasury bond yields have remained
essentially stable.
Such an underperformance by the tax-exempt bond yields is likely to
be limited in duration. The recent increase in tax-exempt bond
yields has already begun to attract institutional investors since
some municipal bonds yielding in excess of 85% of US Treasury bond
yields are again available. Also, concerns regarding the implication
for municipal bonds' tax advantage resulting from various proposed
tax law changes (for example, flat-tax, value-added tax, or national
sales tax) are all likely to quickly recede as investors realize
that such, if any, changes are unlikely to be enacted before late
1996 at the earliest. Long-term investors will also recall 1986 when
similar tax proposals were made and tax-exempt bond yields initially
rose and then quickly fell. Investors are likely to view the current
situation as an opportunity to purchase very attractively priced tax-
advantaged products. This should cause municipal bond yields to
quickly return to their more historic relationship.
<PAGE>
Portfolio Strategy
Supply constraints continued to plague the Pennsylvania sector of
the tax-exempt market during the quarter ended April 30, 1995. When
measured against the same period last year, Pennsylvania tax-exempt
issuance actually decreased by about 52% versus a national decrease
of 36%. Therefore, Pennsylvania securities became scarce and were
repriced to expensive levels to reflect the strong technical
dynamics.
Merrill Lynch Pennsylvania Municipal Bond Fund maintained a fully
invested posture during the April quarter in response to the
extremely low levels of anticipated issuance. Our portfolio
decisions were influenced by an apparent slowdown in economic
activity which helped drive bond yields lower. We selectively sold
par bonds with limited room for price appreciation and replaced them
with discount coupon bonds, in keeping with a more aggressive
investment strategy. Our portfolio restructuring during the April
quarter also focused on tightening credit quality spreads as the
market rallied significantly from February through April. This
presented opportunities to improve the quality of the portfolio's
holdings with little decrease in yield. At the end of the April
quarter, 74% of the securities in the Fund's portfolio were rated A
or better by at least one of the major rating agencies.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
<PAGE>
May 25, 1995
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been able to purchase shares
of the Fund through the Merrill Lynch Select Pricing SM System,
which offers four pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.25% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 10 years.
* Class C Shares are subject to a distribution fee of 0.35% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and
an account maintenance fee of 0.10% (but no distribution fee).
Performance data for the Fund's Class A and Class B Shares are
presented in the "Average Annual Total Return" tables below. Data
for the Fund's Class C and Class D Shares are also presented below
in the "Aggregate Total Return" tables. Data for all of the Fund's
shares are presented in the "Recent Performance Results" table on
page 3. The "Recent Performance Results" table shows investment
results before the deduction of any sales charges for Class A and
Class B Shares for the 12-month and 3-month periods ended April 30,
1995 and for Class C and Class D Shares for the since inception and
3-month periods ended April 30, 1995. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
<PAGE>
None of the past results shown should 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. 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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/95 +6.33% +2.08%
Inception (8/31/90)
through 3/31/95 +8.39 +7.43
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/95 +5.79% +1.79%
Inception (8/31/90)
through 3/31/95 +7.85 +7.85
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
Aggregate Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94)
through 3/31/95 +4.76% +3.76%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (10/21/94)
through 3/31/95 +5.09% +0.89%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
4/30/95 1/31/95 4/30/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.89 $10.68 $10.89 0.00% +1.97%
Class B Shares* 10.89 10.68 10.89 0.00 +1.97
Class C Shares* 10.89 10.68 10.68 +1.97 +1.97
Class D Shares* 10.90 10.69 10.68 +2.06 +1.96
Class A Shares--Total Return* +5.84(1) +3.42(2)
Class B Shares--Total Return* +5.31(3) +3.29(4)
Class C Shares--Total Return* +4.78(5) +3.27(6)
Class D Shares--Total Return* +5.16(7) +3.40(8)
Class A Shares--Standardized 30-day Yield 5.15%
Class B Shares--Standardized 30-day Yield 4.85%
Class C Shares--Standardized 30-day Yield 4.75%
Class D Shares--Standardized 30-day Yield 5.06%
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
++Investment results shown for Class C and Class D Shares are since
inception (10/21/94).
(1)Percent change includes reinvestment of $0.611 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.155 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.557 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.142 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.280 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.139 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.309 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.153 per share ordinary
income dividends.
</TABLE>
PORTFOLIO COMPOSITION
For the Quarter Ended April 30, 1995
Distribution by Market Sector*
Other Revenue Bonds 60.2%
General Obligations & Tax Revenue Bonds 16.8
Prerefunded Bonds** 13.8
Utility Revenue Bonds 9.2
------
Total 100.0%
======
Net assets as of April 30, 1995 were $150,739,592.
<PAGE>
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 37%
AA/Aa 9%
A/A 25%
BBB/Baa 23%
Other++ 3%
NR++++ 3%
[FN]
*Based on total market value of the portfolio as of April 30, 1995.
**Backed by an escrow fund.
++Temporary investments in short-term municipal securities.
++++Not Rated.
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.
Officers and Trustees
Arthur Zeikel, President and Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
Transfer Agent
Merrill Lynch
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund
Merrill Lynch Multi-State Municipal Series Trust
Box 9011
Princeton, New Jersey 08543-9011
