MERRILL LYNCH
PENNSYLVANIA
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1998
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.
Merrill Lynch Pennsylvania
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #11299 -- 1/98
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch Pennsylvania Municipal Bond Fund January 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended January 31, 1998, long-term bond yields
declined to recent historic lows. Prior to late October, the ongoing
positive combination of moderate economic growth and low inflation had
allowed interest rates to gradually move lower. During the last three
months, however, the decline in interest rates was driven more by the
continued turmoil in Asian equity markets than by fundamental
concerns. A significant "flight to quality" has benefited the US
Treasury bond market, particularly longer-maturity US Treasury bonds,
as foreign investors have sought safe haven in the relative stability
of US financial markets. Over the six months ended January 31, 1998,
US Treasury bond yields declined approximately 50 basis points (0.50%)
to 5.81%.
Without the ability to benefit from the tax advantage inherent in
municipal bonds, foreign investors have not participated in the tax-
exempt market. Consequently, municipal bond yields have not declined
dramatically as have taxable US Treasury securities. Long-term
municipal revenue bond yields, as measured by the Bond Buyer Revenue
Index, declined only 15 basis points to end the six-month period ended
January 31, 1998 at 5.33%. Nevertheless, tax-exempt bond yields have
not reached these levels since the mid-1970s.
The increase in new municipal bond issuance over the past six months
has also prevented the tax-exempt bond market from more closely
mirroring the yield declines exhibited by its taxable counterpart.
During the last six months, over $120 billion in new long-term
municipal bonds were underwritten, an increase of over 30% compared to
the same six-month period one year ago. As interest rates have
continued to decline in recent months, new tax-exempt bond issuance
has remained strong. Over $60 million in new long-term municipal
securities were issued during the last three months, an increase of
over 20% compared to the same three-month period ended January 31,
1997. During the past month, over $16 billion in new long-term
municipal securities were underwritten, representing an increase of
over 40% compared to the January 1997 level.
In our opinion, the recent correction in world equity markets has
enhanced the near-term prospects for continued low, if not declining,
interest rates in the United States. It is likely that the recent
correction will result in slower US domestic growth in the coming
months. This decline should be generated in part by reduced US export
growth. Additionally, some decline in consumer spending can also be
expected because of reduced consumer confidence. Perhaps more
importantly, it is likely that, barring a dramatic and unexpected
resurgence in domestic growth, the Federal Reserve Board will be
unwilling to raise interest rates until the full impact of the equity
market's corrections can be established.
All of these factors suggest that over the near term, interest rates,
including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable that municipal bond yields will
remain under some relative pressure because of continued strong new-
issue supply. However, the recent pace of municipal bond issuance is
likely to be unsustainable. Continued increases in bond issuance will
require lower and lower tax-exempt bond yields to generate the
economic savings necessary for additional municipal bond refinancings.
Preliminary estimates of 1998 total municipal bond issuance are
presently in the $195 billion--$220 billion range. These estimates
suggest that recent supply pressures are likely to abate somewhat next
year, or at least exert only minimal technical pressure during 1998.
Additionally, municipal bond investors received approximately $23
billion in January coupon payments, bond maturities and proceeds from
early redemptions, which should serve to intensify investor demand in
the near future. With tax-exempt bond yields at already attractive
yield ratios relative to US Treasury bonds (approximately 90% at the
end of December 1997), any further pressure on the municipal market
may well represent an attractive investment opportunity.
Portfolio Strategy
During the six-month period ended January 31, 1998, our investment
strategy consisted of maintaining cash reserves below 5% and having a
defensive portfolio structure of current and premium coupon issues
that would have outperformed other tax-exempt issues in a rising
interest rate environment. Our expectation was that further economic
growth would lead to additional tightenings of monetary policy by the
Federal Reserve Board. We essentially maintained this strategy until
September, when our outlook became positive toward the municipal bond
market. At that time, it appeared that risk was biased toward lower
rather than higher interest rates. Accordingly, we adopted a more
aggressive portfolio strategy by increasing the duration of the Fund
with the purchase of securities that offered superior total return
prospects. We also reduced our cash reserves to below 2%. In October,
as a result of the turmoil in the world financial markets, a more
positive outlook for bonds occurred with the expectation that Federal
Reserve Board policy would be on hold. In addition, most economic
forecasts changed to slower growth and stable-to-lower long-term
interest rates in 1998 as inflationary pressures receded and commodity
prices dropped, reflecting the effect of the Asian financial crisis.
Looking forward, we anticipate remaining fully invested during the
upcoming months in order to seek to enhance the Fund's performance.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Pennsylvania
Municipal Bond Fund, and we look forward to serving your investment
needs in the months and years to come.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/WILLIAM R. BOCK
William R. Bock
Vice President and Portfolio Manager
March 3, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] 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.
[bullet] 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. (There is no initial sales
charge for automatic share conversions.)
[bullet] 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.
[bullet] Class D Shares incur a maximum initial sales charge of 4%
and an account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" tables assume reinvestment of all
dividends and capital gains distributions at net asset value on the
payable date. Investment return and principal value of shares will
fluctuate so that shares, when redeemed, may be worth more or less
than their original cost. Dividends paid to each class of shares will
vary because of the different levels of account maintenance,
distribution and transfer agency fees applicable to each class, which
are deducted from the income available to be paid to shareholders.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/97 +9.08% +4.72%
Five Years Ended 12/31/97 +7.18 +6.31
Inception (8/31/90)
through 12/31/97 +8.29 +7.69
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/97 +8.53% +4.53%
Five Years Ended 12/31/97 +6.64 +6.64
Inception (8/31/90)
through 12/31/97 +7.75 +7.75
* Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/97 +8.42% +7.42%
Inception (10/21/94)
through 12/31/97 +7.96 +7.96
* 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*
Year Ended 12/31/97 +9.06% +4.70%
Inception (10/21/94)
through 12/31/97 +8.57 +7.19
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
8/31/90 -- 12/31/90 $10.00 $10.05 -- $0.237 + 2.90%
1991 10.05 10.61 -- 0.678 +12.75
1992 10.61 10.90 $0.005 0.660 + 9.31
1993 10.90 11.65 0.040 0.638 +13.39
1994 11.65 10.43 -- 0.606 - 5.35
1995 10.43 11.57 -- 0.617 +17.26
1996 11.57 11.27 0.021 0.611 + 3.03
1997 11.27 11.51 0.087 0.667 + 9.08
1/1/98 -- 1/31/98 11.51 11.55 -- 0.040 + 0.78
Total $0.153 Total $4.754
Cumulative total return as of 1/31/98: +80.79%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
8/31/90 -- 12/31/90 $10.00 $10.05 -- $0.219 + 2.73%
1991 10.05 10.61 -- 0.626 +12.18
1992 10.61 10.90 $0.005 0.605 + 8.76
1993 10.90 11.65 0.040 0.580 +12.82
1994 11.65 10.43 -- 0.551 - 5.82
1995 10.43 11.56 -- 0.561 +16.57
1996 11.56 11.27 0.021 0.554 + 2.60
1997 11.27 11.51 0.087 0.609 + 8.53
1/1/98 -- 1/31/98 11.51 11.55 -- 0.036 + 0.74
Total $0.153 Total $4.341
Cumulative total return as of 1/31/98: +74.12%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $10.68 $10.43 -- $0.109 - 1.31%
1995 10.43 11.57 -- 0.550 +16.55
1996 11.57 11.27 $0.021 0.543 + 2.41
1997 11.27 11.51 0.087 0.598 + 8.42
1/1/98 -- 1/31/98 11.51 11.55 -- 0.035 + 0.73
Total $0.108 Total $1.835
Cumulative total return as of 1/31/98: +28.65%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $10.68 $10.44 -- $0.120 - 1.10%
1995 10.44 11.58 -- 0.607 +17.13
1996 11.58 11.28 $0.021 0.601 + 2.93
1997 11.28 11.53 0.087 0.656 + 9.06
1/1/98 -- 1/31/98 11.53 11.56 -- 0.040 + 0.68
Total $0.108 Total $2.024
Cumulative total return as of 1/31/98: +30.93%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
1/31/98 10/31/97 1/31/97 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $11.55 $11.54 $11.22 +3.72%(1) +0.84%(1)
Class B Shares* 11.55 11.54 11.22 +3.72(1) +0.84(1)
Class C Shares* 11.55 11.54 11.22 +3.72(1) +0.84(1)
Class D Shares* 11.56 11.55 11.23 +3.71(1) +0.84(1)
Class A Shares -- Total Return* +9.91(2) +2.72(3)
Class B Shares -- Total Return* +9.35(4) +2.59(5)
Class C Shares -- Total Return* +9.24(6) +2.57(7)
Class D Shares -- Total Return* +9.79(8) +2.70(9)
Class A Shares -- Standardized 30-day Yield 4.19%
Class B Shares -- Standardized 30-day Yield 3.85%
Class C Shares -- Standardized 30-day Yield 3.75%
Class D Shares -- Standardized 30-day Yield 4.09%
* Investment results shown do not reflect sales charges; results shown would be lower if a sales charge was included.
(1) Percent change includes reinvestment of $0.087 per share capital gains distributions.
(2) Percent change includes reinvestment of $0.664 per share ordinary income dividends and $0.087 per share capital gains
distributions.
(3) Percent change includes reinvestment of $0.215 per share ordinary income dividends and $0.087 per share capital gains
distributions.
(4) Percent change includes reinvestment of $0.607 per share ordinary income dividends and $0.087 per share capital gains
distributions.
(5) Percent change includes reinvestment of $0.201 per share ordinary income dividends and $0.087 per share capital gains
distributions.
(6) Percent change includes reinvestment of $0.595 per share ordinary income dividends and $0.087 per share capital gains
distributions.
(7) Percent change includes reinvestment of $0.198 per share ordinary income dividends and $0.087 per share capital gains
distributions.
(8) Percent change includes reinvestment of $0.654 per share ordinary income dividends and $0.087 per share capital gains
distributions.
(9) Percent change includes reinvestment of $0.213 per share ordinary income dividends and $0.087 per share capital gains
distributions.
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Pennsylvania Municipal Bond Fund January 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Pennsylvania -- 98.0%
AAA Aaa $4,000 Allegheny County, Pennsylvania, Airport Revenue Refunding Bonds
(Pittsburgh International Airport), Series B, 5% due 1/01/2019 (c) $3,944
NR* A3 2,000 Allegheny County, Pennsylvania, Hospital Development Authority Revenue Bonds
(South Hills Health System), Series A, 6.50% due 5/01/2014 2,216
Allegheny County, Pennsylvania, IDA, Revenue Refunding Bonds:
AAA Aaa 4,785 (Commercial Development MPB Association Project), Mercy Hospital of Pittsburgh,
7.70% due 12/01/2013 (e) 6,362
BBB- Baa3 2,000 (Environmental Improvement -- USX Corporation Project), 6.10% due 7/15/2020 2,137
AAA Aaa 3,500 Allegheny County, Pennsylvania, Sanitation Authority, Sewer Revenue Bonds,
5.375% due 12/01/2024 (c) 3,588
AAA Aaa 3,550 Cambria County, Pennsylvania, Refunding, GO, UT, Series A, 6.625%
due 8/15/2014 (d) 4,031
BBB+ NR* 2,000 Cumberland County, Pennsylvania, Municipal Authority Revenue Bonds
(Presbyterian Homes Inc. Project), 6% due 12/01/2026 2,100
A- NR* 5,350 Delaware County, Pennsylvania, Hospital Authority Revenue Bonds
(Riddle Memorial Hospital), 6.50% due 1/01/2022 5,687
Delaware County, Pennsylvania, IDA, PCR (a):
A1+ P1 4,500 (BP Oil Inc. Project), UPDATES, 3.65% due 12/01/2009 4,500
A1+ P1 1,600 Refunding (BP Exploration and Oil), VRDN, 3.65% due 10/01/2019 1,600
NR* NR* 920 Erie -- Western Pennsylvania, Port Authority, General Revenue Bonds,
6.875% due 6/15/2016 1,000
A- NR* 4,990 Gettysburg, Pennsylvania, Municipal Authority, College Revenue
Refunding Bonds (Gettysburg College Project), 6.60% due 2/15/2012 5,333
NR* Baa1 3,000 Latrobe, Pennsylvania, IDA, College Revenue Bonds (Saint Vincent
College Project), 6.75% due 5/01/2024 3,274
AAA Aaa 3,000 Lehigh County, Pennsylvania, General Purpose Authority Revenue Bonds
(Saint Luke's Hospital -- Bethlehem), 6.25% due 7/01/2022 (b) 3,266
Luzerne County, Pennsylvania, IDA, Exempt Facilities Revenue Refunding Bonds
(Pennsylvania Gas and Water Company Project), AMT, Series A:
A- A3 3,600 7.20% due 10/01/2017 3,987
AAA Aaa 2,000 7% due 12/01/2017 (b) 2,291
Montgomery County, Pennsylvania, Higher Education and Health Authority,
Hospital Revenue Bonds:
AAA Aaa 2,500 (Abington Hospital), MVRICS, Series A, 9.145% due 6/01/2011 (b)(h) 2,941
BBB NR* 2,835 (Northwestern Corporation), 7% due 6/01/2012 3,084
BBB+ Baa2 2,665 Montgomery County, Pennsylvania, IDA, PCR, Refunding (Philadelphia
Electric Company), AMT, Series A, 7.60% due 4/01/2021 2,907
NR* Aaa 2,000 North Allegheny, Pennsylvania, School District, UT, Series D, 5%
due 5/01/2021 (d) 1,965
AAA Aaa 4,000 North Wales, Pennsylvania, Water Authority Revenue Bonds, 7%
due 11/01/2004 (d)(f) 4,652
AAA Aaa 2,500 Penn-Trafford, Pennsylvania, School District, Refunding, 4.80%
due 5/01/2015 (b) 2,448
Pennsylvania Convention Center Authority, Revenue Refunding Bonds, Series A:
BBB Baa 1,555 6.70% due 9/01/2014 1,724
BBB Baa 2,500 6.75% due 9/01/2019 2,773
BBB- Baa2 1,500 Pennsylvania Economic Development Financing Authority, Exempt
Facilities Revenue Bonds
(MacMillan Limited Partnership Project), AMT, 7.60% due 12/01/2020 1,661
BBB Baa3 4,000 Pennsylvania Economic Development Financing Authority, Wastewater Treatment
Revenue Bonds (Sun Company Inc. -- R & M Project), AMT, Series A, 7.60%
due 12/01/2024 4,690
AA Aa2 1,000 Pennsylvania HFA, Refunding, RIB, AMT, Series 1991-31C, 10.005%
due 10/01/2023 (h) 1,147
Pennsylvania HFA, S/F Mortgage, AMT:
AA+ Aa2 1,865 Refunding, Series 60A, 5.85% due 10/01/2027 1,919
AA+ Aa 905 Series 28, 7.65% due 10/01/2023 953
AA+ Aa 2,165 Series 40, 6.90% due 4/01/2025 2,347
AA+ Aa 1,500 Series 41B, 6.65% due 4/01/2025 1,610
AA+ Aa2 1,250 Series 59A, 5.80% due 10/01/2029 1,282
AA- NR* 2,000 Pennsylvania State Finance Authority, Revenue Refunding Bonds
(Municipal Capital Improvements Program), 6.60% due 11/01/2009 2,223
Pennsylvania State Higher Educational Facilities Authority,
College and University Revenue Bonds:
NR* Baa3 2,295 (Delaware Valley College of Science & Agriculture), 7% due 4/01/2022 2,508
NR* NR* 1,030 (Pennsylvania College of Podiatric Medicine), 8.50% due 10/01/2014 1,091
BBB+ NR* 2,000 (Ursinus College), 5.90% due 1/01/2027 2,087
Pennsylvania State Higher Educational Facilities Authority Revenue Bonds:
AAA Aaa 2,500 (Drexel University), 4.80% due 5/01/2028 (c) 2,381
NR* A2 2,000 Refunding (Thomas Jefferson University), Series A, 6.625% due 8/15/2009 2,205
AAA Aaa 1,500 Philadelphia, Pennsylvania, Airport Revenue Bonds (Philadelphia
Airport System), AMT, Series B, 5.40% due 6/15/2027 (d) 1,524
Philadelphia, Pennsylvania, Authority for IDR:
NR* Baa2 1,300 (Franklin Institute Project), 5.20% due 6/15/2026 1,266
A+ NR* 1,895 (National Board of Medical Examiners Project), 6.75% due 5/01/2012 2,084
AA Aa3 1,690 Philadelphia, Pennsylvania, Authority for Industrial Development,
Industrial and Commercial Revenue Bonds (Girard Estate Coal Mining
Project), 5.50% due 11/15/2016 1,754
AAA Aaa 1,440 Philadelphia, Pennsylvania, Gas Works Revenue Bonds, 12th Series B,
7% due 5/15/2020 (c)(g) 1,761
Philadelphia, Pennsylvania, Hospitals and Higher Education Facilities
Authority, Hospital Revenue Bonds:
A- NR* 1,015 (Children's Seashore House), Series A, 7% due 8/15/2017 1,117
A- NR* 3,000 (Children's Seashore House), Series B, 7% due 8/15/2022 3,289
BBB NR* 2,595 (Northwestern Corp.), 7.125% due 6/01/2018 2,845
A- Baa1 3,750 Refunding (Chestnut Hill Hospital), 6.50% due 11/15/2022 4,024
AAA NR* 3,000 Refunding (Presbyterian Medical Center), 6.65% due 12/01/2019 (g) 3,553
AAA Aaa 1,340 Philadelphia, Pennsylvania, Water and Wastewater Revenue Bonds,
Series A, 5% due 8/01/2022 (b) 1,316
A1+ NR* 1,500 Schuylkill County, Pennsylvania, IDA, Resource Recovery Revenue
Refunding Bonds (Northeastern Power Company), VRDN, Series A, 3.70%
due 12/01/2022 (a) 1,500
A- NR* 1,750 Scranton-Lackawanna, Pennsylvania, Health and Welfare Authority, Revenue
Refunding Bonds (University of Scranton Project), Series A, 6.50%
due 3/01/2013 1,882
AA Aa3 5,000 Upper Saint Clair Township, Pennsylvania, School District Refunding Bonds,
UT, 5.20% due 7/15/2027 5,044
Puerto Rico -- 1.7%
A Baa1 2,600 Puerto Rico Commonwealth, Refunding (Public Improvements), 4.50%
due 7/01/2023 2,376
Total Investments (Cost -- $130,292 ) -- 99.7% 141,249
Other Assets Less Liabilities -- 0.3% 357
--------
Net Assets -- 100.0% $141,606
========
(a) The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at January 31, 1998.
(b) AMBAC Insured.
(c) MBIA Insured.
(d) FGIC Insured.
(e) FSA Insured.
(f) Prerefunded.
(g) Escrowed to maturity.
(h) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at January 31, 1998.
* Not Rated.
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 below and at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
MVRICS Municipal Variable Rate Inverse Class Securities
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
UPDATES Unit Priced Demand Adjustable Tax-Exempt Securities
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of January 31, 1998
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $130,292,019) (Note 1a) $141,248,959
Cash 66,642
Receivables:
Securities sold $3,723,751
Interest 1,913,633
Beneficial interest sold 240,759 5,878,143
------------
Prepaid registration fees and other assets (Note 1e) 16,854
------------
Total assets 147,210,598
------------
Liabilities: Payables:
Securities purchased 4,871,133
Beneficial interest redeemed 418,415
Dividends to shareholders (Note 1f) 106,661
Investment adviser (Note 2) 66,592
Distributor (Note 2) 49,605 5,512,406
------------
Accrued expenses and other liabilities 92,689
------------
Total liabilities 5,605,095
------------
Net Assets: Net assets $141,605,503
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $183,676
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 916,106
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 61,986
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 64,030
Paid-in capital in excess of par 130,143,200
Accumulated realized capital losses on investments -- net (720,435)
Unrealized appreciation on investments -- net 10,956,940
------------
Net assets $141,605,503
============
Net Asset Value: Class A -- Based on net assets of $21,217,218 and 1,836,763 shares
of beneficial interest outstanding $11.55
============
Class B -- Based on net assets of $105,823,528 and 9,161,058 shares
of beneficial interest outstanding $11.55
============
Class C -- Based on net assets of $7,160,823 and 619,857 shares
of beneficial interest outstanding $11.55
============
Class D -- Based on net assets of $7,403,934 and 640,298 shares
of beneficial interest outstanding $11.56
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
January 31, 1998
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $4,202,044
(Note 1d):
Expenses: Investment advisory fees (Note 2) $393,019
Account maintenance and distribution fees -- Class B (Note 2) 271,301
Accounting services (Note 2) 38,192
Professional fees 30,888
Transfer agent fees -- Class B (Note 2) 27,261
Account maintenance and distribution fees -- Class C (Note 2) 20,299
Printing and shareholder reports 14,449
Registration fees (Note 1e) 7,716
Custodian fees 4,398
Transfer agent fees -- Class A (Note 2) 4,375
Pricing fees 4,367
Trustees' fees and expenses 3,869
Account maintenance fees -- Class D (Note 2) 3,157
Transfer agent fees -- Class C (Note 2) 1,708
Transfer agent fees -- Class D (Note 2) 1,298
Other 1,916
----------
Total expenses 828,213
----------
Investment income -- net 3,373,831
----------
Realized & Realized gain on investments -- net 1,620,876
Unrealized Change in unrealized appreciation on investments -- net (164,208)
Gain (Loss) on ----------
Investments -- Net Net Increase in Net Assets Resulting from Operations $4,830,499
(Notes 1b, 1d & 3): ==========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <C> <C> <C>
Operations: Investment income -- net $3,373,831 $7,159,197
Realized gain on investments -- net 1,620,876 1,919,585
Change in unrealized appreciation on investments -- net (164,208) 3,613,001
------------ ------------
Net increase in net assets resulting from operations 4,830,499 12,691,783
------------ ------------
Dividends & Investment income -- net:
Distributions to Class A (547,948) (1,144,917)
Shareholders Class B (2,513,454) (5,531,327)
(Note 1f): Class C (153,325) (252,297)
Class D (159,104) (230,656)
Realized gain on investments -- net:
Class A (279,469) (52,975)
Class B (1,417,208) (290,647)
Class C (93,063) (13,183)
Class D (94,027) (10,473)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (5,257,598) (7,526,475)
------------ ------------
Beneficial Interest Net increase (decrease) in net assets derived from benficial interest
Transactions transactions 291,048 (13,919,756)
(Note 4): ------------ ------------
Net Assets: Total decrease in net assets (136,051) (8,754,448)
Beginning of period 141,741,554 150,496,002
------------ ------------
End of period $141,605,503 $141,741,554
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
For the Six
The following per share data and ratios have been derived Months Ended
from information provided in the financial statements. January 31, For the Year Ended July 31,
1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $11.59 $11.17 $11.07 $11.00 $11.39
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net .30 .60 .61 .62 .60
Realized and unrealized gain (loss) on
investments -- net .11 .45 .10 .07 (.33)
------- ------- ------- ------- -------
Total from investment operations .41 1.05 .71 .69 .27
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net (.30) (.60) (.61) (.62) (.60)
Realized gain on investments -- net (.15) (.03) -- -- (.04)
In excess of realized gain on
investments -- net -- -- -- -- (.02)
------- ------- ------- ------- -------
Total dividends and distributions (.45) (.63) (.61) (.62) (.66)
------- ------- ------- ------- -------
Net asset value, end of period $11.55 $11.59 $11.17 $11.07 $11.00
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 3.64%++++ 9.72% 6.53% 6.54% 2.37%
Return:** ======= ======= ======= ======= =======
Ratios to Expenses .74%* .74% .76% .77% .75%
Average ======= ======= ======= ======= =======
Net Assets: Investment income -- net 5.14%* 5.36% 5.41% 5.72% 5.30%
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $21,217 $21,179 $21,626 $23,040 $28,239
Data: ======= ======= ======= ======= =======
Portfolio turnover 20.57% 49.82% 58.33% 59.17% 37.73%
======= ======= ======= ======= =======
* Annualized.
** Total investment returns exclude the effects of sales loads.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class B
For the Six
The following per share data and ratios have been derived Months Ended
from information provided in the financial statements. January 31, For the Year Ended July 31,
1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $11.59 $11.17 $11.07 $11.00 $11.39
Operating -------- -------- -------- -------- --------
Performance: Investment income -- net .27 .55 .55 .56 .54
Realized and unrealized gain (loss) on
investments -- net .11 .45 .10 .07 (.33)
-------- -------- -------- -------- --------
Total from investment operations .38 1.00 .65 .63 .21
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net (.27) (.55) (.55) (.56) (.54)
Realized gain on investments -- net (.15) (.03) -- -- (.04)
In excess of realized gain on
investments -- net -- -- -- -- (.02)
-------- -------- -------- -------- --------
Total dividends and distributions (.42) (.58) (.55) (.56) (.60)
-------- -------- -------- -------- --------
Net asset value, end of period $11.55 $11.59 $11.17 $11.07 $11.00
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 3.37%++++ 9.17% 5.98% 6.00% 1.86%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses 1.25%* 1.25% 1.27% 1.28% 1.25%
Average ======== ======== ======== ======== ========
Net Assets: Investment income -- net 4.63%* 4.85% 4.91% 5.21% 4.80%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands). $105,824 $109,070 $120,565 $123,260 $130,418
Data: ======== ======== ======== ======== ========
Portfolio turnover 20.57% 49.82% 58.33% 59.17% 37.73%
======== ======== ======== ======== ========
* Annualized.
** Total investment returns exclude the effects of sales loads.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class C
For the For the
Six Period
The following per share data and ratios have been derived Months For the Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to
Jan. 31, July 31, July 31,
1998 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $11.59 $11.17 $11.07 $10.68
Operating ------ ------ ------ ------
Performance: Investment income -- net .26 .53 .54 .43
Realized and unrealized gain on
investments -- net .11 .45 .10 .39
------ ------ ------ ------
Total from investment operations .37 .98 .64 .82
------ ------ ------ ------
Less dividends and distributions:
Investment income -- net (.26) (.53) (.54) (.43)
Realized gain on investments -- net (.15) (.03) -- --
------ ------ ------ ------
Total dividends and distributions (.41) (.56) (.54) (.43)
------ ------ ------ ------
Net asset value, end of period $11.55 $11.59 $11.17 $11.07
====== ====== ====== ======
Total Investment Based on net asset value per share 3.32%++++ 9.06% 5.87% 7.83%++++
Return:** ====== ====== ====== ======
Ratios to Expenses 1.35%* 1.35% 1.37% 1.38%*
Average ====== ====== ====== ======
Net Assets: Investment income -- net 4.53%* 4.75% 4.80% 5.05%*
====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $7,161 $6,145 $4,722 $1,868
Data: ====== ====== ====== ======
Portfolio turnover 20.57% 49.82% 58.33% 59.17%
====== ====== ====== ======
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class D
For the For the
Six Period
The following per share data and ratios have been derived Months For the Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to
Jan. 31, July 31, July 31,
1998 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $11.60 $11.18 $11.08 $10.68
Operating ------ ------ ------ ------
Performance: Investment income -- net .29 .59 .60 .47
Realized and unrealized gain on
investments -- net .11 .45 .10 .40
------ ------ ------ ------
Total from investment operations .40 1.04 .70 .87
------ ------ ------ ------
Less dividends and distributions:
Investment income -- net (.29) (.59) (.60) (.47)
Realized gain on investments -- net (.15) (.03) -- --
------ ------ ------ ------
Total dividends and distributions (.44) (.62) (.60) (.47)
------ ------ ------ ------
Net asset value, end of period $11.56 $11.60 $11.18 $11.08
====== ====== ====== ======
Total Investment Based on net asset value per share 3.59%++++ 9.61% 6.42% 8.36%++++
Return:** ====== ====== ====== ======
Ratios to Expenses .84%* .84% .86% .87%*
Average ====== ====== ====== ======
Net Assets: Investment income -- net 5.04%* 5.26% 5.31% 5.65%*
====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $7,404 $5,348 $3,583 $2,630
Data: ====== ====== ====== ======
Portfolio turnover 20.57% 49.82% 58.33% 59.17%
====== ====== ====== ======
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Pennsylvania Municipal Bond Fund January 31, 1998
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 a non-
diversified, open-end management investment company. These unaudited
financial statements reflect all adjustments which are, in the opinion
of management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal
recurring nature. The Fund offers four classes of shares under the
Merrill Lynch Select PricingSM System. Shares of Class A and Class D
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 B, Class C and
Class D 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. The following
is a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the over-
the-counter municipal bond and money markets and are valued at the
last available bid price in the over-the-counter market or on the
basis of yield equivalents as obtained from one or more dealers that
make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are valued
at amortized cost, which approximates market value. Securities and
assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the
direction of the Board of Trustees of the Trust, including valuations
furnished by a pricing service retained by the Trust, which may
utilize a matrix system for valuations. The procedures of the pricing
service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
[bullet] Financial futures contracts -- The Fund may purchase or sell
interest rate futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. 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.
(c) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income -- Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(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.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner. The Fund has also entered into a Distribution Agreement and
Distribution Plans with Merrill Lynch Funds Distributor, Inc. ("MLFD"
or "Distributor"), 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: 0.55% of
the Fund's average daily net assets not exceeding $500 million; 0.525%
of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in excess
of $1 billion.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also
provides account maintenance and distribution services to the Fund.
The ongoing account maintenance fee compensates the Distributor and
MLPF&S for providing account maintenance services to Class B, Class C
and Class D 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, 1998, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the Fund's
Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $205 $2,191
Class D $929 $6,231
For the six months ended January 31, 1998, MLPF&S received contingent
deferred sales charges of $77,458 and $1,009 relating to transactions
in Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended January 31, 1998 were $28,044,276 and
$30,288,439, respectively.
Net realized and unrealized gains as of January 31, 1998 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $1,620,876 $10,956,940
----------- -----------
Total $1,620,876 $10,956,940
=========== ===========
As of January 31, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $10,956,940, of which $11,032,395 related to
appreciated securities and $75,455 related to depreciated securities.
The aggregate cost of investments at January 31, 1998 for Federal
income tax purposes was $130,292,019.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $291,048 and $(13,919,756) for the six months ended
January 31, 1998 and for the year ended July 31, 1997, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Months Dollar
Ended January 31, 1998 Shares Amount
Shares sold 68,503 $789,200
Shares issued to shareholders
in reinvestment of
dividends and distributions 39,960 459,823
---------- ----------
Total issued 108,463 1,249,023
Shares redeemed (99,591) (1,146,793)
---------- ----------
Net increase 8,872 $102,230
========== ==========
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 463,882 $5,214,824
Shares issued to shareholders
in reinvestment of
dividends and distributions 56,819 639,033
---------- ----------
Total issued 520,701 5,853,857
Shares redeemed (628,409) (7,047,455)
---------- ----------
Net decrease (107,708) $(1,193,598)
========== ==========
Class B Shares for the Six Months Dollar
Ended January 31, 1998 Shares Amount
Shares sold 521,019 $6,003,616
Shares issued to shareholders
in reinvestment of
dividends and distributions 173,051 1,991,248
---------- ----------
Total issued 694,070 7,994,864
Automatic conversion
of shares (8,916) (102,667)
Shares redeemed (937,646) (10,809,582)
---------- ----------
Net decrease (252,492) $(2,917,385)
========== ==========
Class B Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 1,104,640 $12,428,694
Shares issued to shareholders
in reinvestment of
dividends and distributions 254,749 2,864,821
---------- ----------
Total issued 1,359,389 15,293,515
Automatic conversion
of shares (52,791) (595,361)
Shares redeemed (2,684,513) (30,214,153)
---------- ----------
Net decrease (1,377,915) $(15,515,999)
========== ==========
Class C Shares for the Six Months Dollar
Ended January 31, 1998 Shares Amount
Shares sold 128,911 $1,485,977
Shares issued to shareholders
in reinvestment of
dividends and distributions 15,630 179,879
---------- ----------
Total issued 144,541 1,665,856
Shares redeemed (54,987) (634,510)
---------- ----------
Net increase 89,554 $1,031,346
========== ==========
Class C Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 185,567 $2,085,866
Shares issued to shareholders
in reinvestment of
dividends and distributions 15,175 170,763
---------- ----------
Total issued 200,742 2,256,629
Shares redeemed (93,032) (1,044,842)
---------- ----------
Net increase 107,710 $1,211,787
========== ==========
Class D Shares for the Six Months Dollar
Ended January 31, 1998 Shares Amount
Shares sold 185,779 $2,153,354
Automatic conversion
of shares 8,906 102,667
Shares issued to shareholders
in reinvestment of
dividends and distributions 12,713 146,502
---------- ----------
Total issued 207,398 2,402,523
Shares redeemed (28,185) (327,666)
---------- ----------
Net increase 179,213 $2,074,857
========== ==========
Class D Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 215,211 $2,406,083
Automatic conversion
of shares 52,734 595,361
Shares issued to shareholders
in reinvestment of
dividends and distributions 12,040 135,638
---------- ----------
Total issued 279,985 3,137,082
Shares redeemed (139,318) (1,559,028)
---------- ----------
Net increase 140,667 $1,578,054
========== ==========
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
William R. Bock, Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Robert E. Putney, III, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
