MERRILL LYNCH
PENNSYLVANIA
MUNICIPAL
BOND FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
July 31, 1999
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1999, long-term bond yields rose
significantly. Steady US economic growth combined with improvement in foreign
economies, most notably Japan and Brazil, as well as an inflation scare in early
May put upward pressure on bond yields throughout the period. Continued strong
US employment growth, particularly the decline in the US unemployment rate to
4.2% in early June, was among the reasons the Federal Reserve Board cited for
raising short-term interest rates in late June. US Treasury bond yields reacted
by climbing above 6.15% by late June before improving somewhat to 6.10% by July
31, 1999. During the last six months, yields on long-term US Treasury securities
increased approximately 100 basis points (1.00%).
Long-term tax-exempt bond yields also rose during the last six months. Until
early May, the municipal bond market had been able to withstand much of the
upward pressure on bond yields. However, investor concerns regarding ongoing US
economic strength and the fear of additional moves by the Federal Reserve Board
eventually pushed municipal bond yields higher throughout June and July. During
the period, the yields on long-term tax-exempt revenue bonds rose almost 50
basis points to 5.65%, as measured by the Bond Buyer Revenue Bond Index.
The ability of the tax-exempt bond market to withstand much of the recent upward
pressure on long-term fixed-income bond yields has been a reflection of the
continued strong technical position the municipal bond market has enjoyed in
recent quarters. During the last six months, more than $120 billion in long-term
municipal bonds was underwritten, a decrease of more than 20% compared to the
same period a year ago. During the past three months, more than $60 billion in
municipal bonds was underwritten. This quarterly issuance represents a decline
of nearly 25% compared to the same three-month period in 1998.
Recently, the municipal supply position deteriorated even further. Total
issuance in July 1999 of $16.5 billion was more than 30% lower than July 1998
levels. Additionally, in June and July, investors received more than $40 billion
in coupon income and proceeds from bond maturities and early bond redemptions.
These proceeds have generated significant retail investor interest, easily
absorbing the recent diminished supply. This very favorable supply/demand
position allowed the tax-exempt bond market to outperform its taxable
counterpart in recent months.
However, the recent relative outperformance of the municipal bond market has
somewhat reduced the very attractive tax-exempt bond yield ratios that were
available at the end of 1998. In December 1998, long-term, uninsured municipal
bond yields were higher than those of their taxable counterparts. Historically,
long-term tax-exempt bond yields have been approximately 82%-85% of long-term US
Treasury bond yields. Municipal bond yields rose at a lower rate in recent
months than US Treasury bond yields, causing the yield ratio to decline. At July
31, 1999, long-term municipal bond yields were approximately 92% of their
taxable counterparts. Current ratios, while lower than those available at the
end of 1998, still represent historically attractive levels. We expect the
municipal bond market to maintain its strong technical position for the
remainder of 1999. Consequently, there appears to be little reason for the
tax-exempt bond market to underperform the taxable US Treasury bond market. This
suggests that the present bond yield ratio is likely to remain stable in the
coming months and a return to a ratio in excess of 100% of taxable Treasury
securities is improbable.
Looking ahead, it appears to us that long-term municipal bond yields will trade
in a relatively tight range near current levels. Strong US economic performance
is being balanced by nearly negligible inflation data, as well as improvements
in productivity in both manufacturing and service industries. Future moves by
the Federal Reserve Board have largely been discounted by bond markets and are
to a great extent reflected in present bond yields.
Any improvement in bond prices is likely to be contingent upon weakening in both
US employment growth and consumer spending. The 100 basis point rise in US
Treasury bond yields seen thus far this year is likely to negatively affect US
economic growth. The US housing market will be among the first sectors likely to
be affected, as some declines have already
1
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
been evidenced because of higher mortgage rates. We believe it is also
unrealistic to expect double-digit returns in US equity markets to continue
indefinitely. Much of the US consumer's wealth is tied to recent stock market
appreciation. Any slowing in these incredible growth rates is likely to reduce
consumer spending. These factors suggest that the worst of the recent increase
in bond yields has passed and stable, if not slightly improving, bond prices may
be expected.
Fiscal Year in Review
At the beginning of the fiscal year ended July 31, 1999, we had a positive
outlook toward the municipal bond market. This was based on our belief that
lower interest rates were imminent. Consequently, we remained fully invested
during the first half of the fiscal year.
During the second half of the fiscal year ended July 31, 1999, the municipal
market was relatively stable compared to other fixed-income markets, which were
relatively volatile. As we began the period, we had an aggressive investment
strategy designed to seek to take advantage of further declines in long-term
interest rates. We revised our strategy when these declines did not seem
probable as a result of the strong economic growth in the first quarter of 1999.
Given this robust economic environment, we shifted our focus to income-producing
securities rather than those issues with the potential for capital gains. We
believed that coupon income could be the more significant component of total
return for the Fund if the tax-exempt bond market performed as anticipated.
Keeping shareholder income in mind, Merrill Lynch Pennsylvania Municipal Bond
Fund remained essentially fully invested for most of the past several months,
and we expect to maintain this position going forward.
During the fiscal year ended July 31, 1999, our investment strategies benefited
the Fund's performance as the Fund had total returns of +1.38%, +0.78%, +0.68%
and +1.29% for Class A, Class B, Class C and Class D Shares, respectively.
(Complete performance information can be found on pages 3 and 4 of this report
to shareholders.)
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/ Terry K. Glenn
Terry K. Glenn
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ William R. Bock
William R. Bock
Vice President and Portfolio Manager
September 3, 1999
2
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select Pricing(SM) System, which offers four pricing alternatives:
o 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.
o 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.)
o Class C Shares are subject to a distribution fee of 0.35% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class 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 "Recent Performance Results" and
"Average Annual Total Return" 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.
Recent Performance Results*
<TABLE>
<CAPTION>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 7/31/99
====================================================================================================================================
<S> <C> <C> <C> <C>
ML Pennsylvania Municipal Bond Fund Class A Shares +1.38% - 2.12% +87.49% 4.22%
- ------------------------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class B Shares +0.78 - 2.24 +79.22 3.88
- ------------------------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class C Shares +0.68 - 2.27 +32.22 3.78
- ------------------------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class D Shares +1.29 - 2.05 +35.72 4.12
====================================================================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results would be
lower if a sales charge was included. Total investment returns are based
on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the payable date. The Fund's since inception periods are from
8/31/90 for Class A & Class B Shares and from 10/21/94 for Class C & Class
D Shares.
3
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment
[GRAPHIC OMITTED]
ML Pennsylvania Municipal Bond Fund's Class A and Class B Shares--Total Return
Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Portfolio's Class A
Shares and Class B Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
8/31/90** 7/99
ML Pennsylvania
Municipal Bond Fund+--
Class A Shares* $ 9,600 $17,998
ML Pennsylvania
Municipal Bond Fund+--
Class B Shares* $10,000 $17,922
Lehman Brothers Municipal
Bond Index++ $10,000 $19,237
Average Annual Total Return
[GRAPHIC OMITTED]
ML Pennsylvania Municipal Bond Fund's Class C and Class D Shares--Total Return
Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Portfolio's Class C
and Class D Shares compared to growth of an investment in the Lehman Brothers
Municipal Bond Index. Beginning and ending values are:
10/21/94** 7/99
ML Pennsylvania
Municipal Bond Fund+--
Class C Shares* $10,000 $13,222
ML Pennsylvania
Municipal Bond Fund+--
Class D Shares* $ 9,600 $13,028
Lehman Brothers Municipal
Bond Index++ $10,000 $14,235
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML Pennsylvania Municipal Bond Fund invests primarily in long-term,
investment-grade obligations issued by or on behalf of the Commonwealth of
Pennsylvania, its political subdivisions, agencies and instrumentalities
and obligations of other qualifying issuers.
++ This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds. The starting date for
the Index in the Class C & Class D Shares' graph is from 10/31/94.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 6/30/99 +1.62% -2.45
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 +6.40 +5.53
- --------------------------------------------------------------------------------
Inception (8/31/90)
through 6/30/99 +7.37 +6.88
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 6/30/99 +1.10% -2.68%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 +5.88 +5.88
- --------------------------------------------------------------------------------
Inception (8/31/90)
through 6/30/99 +6.83 +6.83
- --------------------------------------------------------------------------------
* 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 6/30/99 +1.00% +0.06%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/99 +6.13 +6.13
- --------------------------------------------------------------------------------
* 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 6/30/99 +1.52% -2.54%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/99 +6.70 +5.77
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
4
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania--99.0%
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR* Aaa $2,500 Allegheny County, Pennsylvania, COP, 5% due 12/01/2019 (a) $ 2,366
- ----------------------------------------------------------------------------------------------------------------------------
NR* A2 2,000 Allegheny County, Pennsylvania, Hospital Development Authority
Revenue Bonds (South Hills Health System), Series A, 6.50%
due 5/01/2014 2,127
- ----------------------------------------------------------------------------------------------------------------------------
Allegheny County, Pennsylvania, IDA, Revenue Refunding Bonds:
AAA Aaa 4,785 (Commercial Development--MPB Associates Project), 7.70% due 12/01/2013 (d) 5,805
BBB- Baa2 2,000 (Environmental Improvement--USX Corporation Project), 6.10% due 7/15/2020 2,047
BBB- Baa2 2,900 (Environmental Improvement--USX Corporation Project), 5.60% due 9/01/2030 2,759
- ----------------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,750 Allegheny County, Pennsylvania, Sanitation Authority, Sewer Revenue
Bonds, RITR, Series 20, 7.27% due 12/01/2024 (b)(h) 1,662
- ----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,050 Beaver County, Pennsylvania, GO, Series A, 5.90% due 10/01/2006 (b)(f) 1,131
- ----------------------------------------------------------------------------------------------------------------------------
NR* P1 200 Beaver County, Pennsylvania, IDA, Environmental Improvement
Recreation Revenue Bonds (BASF Corporation Project), VRDN, AMT, 3.45%
due 9/01/2032 (g) 200
- ----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,550 Cambria County, Pennsylvania, GO, Refunding, Series A, 6.625% due
8/15/2014 (c) 3,917
- ----------------------------------------------------------------------------------------------------------------------------
A1+ P1 1,900 Delaware County, Pennsylvania, IDA, PCR (BP Oil Inc. Project),
UPDATES, 3.30% due 12/01/2009 (g) 1,900
- ----------------------------------------------------------------------------------------------------------------------------
NR* Aaa 4,000 Delaware County, Pennsylvania, University Authority Revenue Bonds
(Villanova University), Series A, 5% due 12/01/2028 (b) 3,694
- ----------------------------------------------------------------------------------------------------------------------------
NR* NR* 920 Erie, Western Pennsylvania Port Authority, General Revenue Bonds,
6.875% due 6/15/2016 974
- ----------------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,200 Geisinger Authority, Pennsylvania, Health System Revenue Refunding
Bonds (Penn State--Geisinger Health), VRDN, Series B, 3.25% due 8/15/2028 (g) 1,200
- ----------------------------------------------------------------------------------------------------------------------------
NR* NR* 3,000 Gettysburg, Pennsylvania, Municipal Authority, College Revenue
Refunding Bonds, 6.60% due 2/15/2002 (f) 3,169
- ----------------------------------------------------------------------------------------------------------------------------
AAA NR* 1,750 Greater Johnstown, Pennsylvania, School District, GO, Refunding, 5%
due 2/01/2019 (b) 1,658
- ----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Lehigh County, Pennsylvania, General Purpose Authority Revenue Bonds
(Saint Lukes Hospital--Bethlehem), 6.25% due 7/01/2022 (a) 3,179
- ----------------------------------------------------------------------------------------------------------------------------
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 3,887
AAA Aaa 2,000 7% due 12/01/2017 (a) 2,218
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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)
COP Certificates of Participation
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
RITR Residual Interest Trust Receipts
S/F Single-Family
UPDATES Unit Priced Demand Adjustable Tax-Exempt Securities
VRDN Variable Rate Demand Notes
5
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania (continued)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA Aaa $2,500 Montgomery County, Pennsylvania, Higher Education and Health
Authority, Hospital Revenue Bonds (Abington Hospital),
MVRICS, Series A, 9.746% due 6/01/2011 (a)(h) $ 2,806
- ----------------------------------------------------------------------------------------------------------------------------
AAA NR* 2,835 Montgomery County, Pennsylvania, Higher Education and Health
Authority Revenue Bonds (Northwestern Corporation), 7% due 6/01/2003 (f) 3,124
- ----------------------------------------------------------------------------------------------------------------------------
A Baa1 2,665 Montgomery County, Pennsylvania, IDA, PCR, Refunding (Philadelphia
Electric Company), AMT, Series A, 7.60% due 4/01/2021 2,821
- ----------------------------------------------------------------------------------------------------------------------------
NR* Baa1 1,400 New Wilmington, Pennsylvania, Municipal Authority, College Revenue
Bonds (Westminster College), 5.35% due 3/01/2028 1,303
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania Convention Center Authority, Revenue Refunding Bonds,
Series A:
BBB Baa 1,555 6.70% due 9/01/2014 1,689
BBB Baa 2,500 6.75% due 9/01/2019 2,715
- ----------------------------------------------------------------------------------------------------------------------------
BBB Baa2 4,000 Pennsylvania Economic Development Financing Authority, Wastewater
Treatment Revenue Bonds (Sun Company Inc.--R & M Project), AMT,
Series A, 7.60% due 12/01/2024 4,434
- ----------------------------------------------------------------------------------------------------------------------------
AA+ Aa2 1,000 Pennsylvania HFA, Revenue Refunding Bonds, RIB, AMT, 10.167% due
10/01/2023 (h) 1,104
- ----------------------------------------------------------------------------------------------------------------------------
AA+ Aa2 2,165 Pennsylvania HFA, S/F Mortgage Revenue Bonds, AMT, Series 40, 6.90%
due 4/01/2025 2,306
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania HFA, S/F Mortgage Revenue Refunding Bonds, AMT:
AA+ Aa2 1,500 Series 41B, 6.65% due 4/01/2025 1,584
AA+ Aa2 1,250 Series 59A, 5.80% due 10/01/2029 1,259
AA+ Aa2 1,865 Series 60A, 5.85% due 10/01/2027 1,899
AA+ Aa2 1,000 Series 62A, 5.50% due 10/01/2022 987
- ----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Pennsylvania Intergovernmental Co-Op Authority, Special Tax Revenue
Refunding Bonds (Philadelphia Funding Program), 5.25% due 6/15/2016 (c) 1,971
- ----------------------------------------------------------------------------------------------------------------------------
A NR* 2,000 Pennsylvania State Finance Authority, Revenue Refunding Bonds
(Municipal Capital Improvements Program), 6.60% due 11/01/2009 2,161
- ----------------------------------------------------------------------------------------------------------------------------
NR* NR* 1,030 Pennsylvania State Higher Educational Facilities Authority, College
and University Revenue Bonds (Pennsylvania College of Podiatric Medicine),
8.50% due 10/01/2014 1,049
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania State Higher Educational Facilities Authority, College
and University Revenue Refunding Bonds:
NR* Baa3 2,295 (Delaware Valley College of Science & Agriculture), 7% due 4/01/2004 (f) 2,569
BBB+ NR* 2,000 (Ursinus College), 5.90% due 1/01/2027 2,023
- ----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Pennsylvania State Higher Educational Facilities Authority Revenue
Bonds (UPMC Health System), Series A, 5% due 8/01/2029 (d) 1,816
- ----------------------------------------------------------------------------------------------------------------------------
AAA NR* 600 Pennsylvania State Higher Educational Facilities Authority, Revenue
Refunding Bonds, Series A, 6.625% due 8/15/2009 (b) 648
- ----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Philadelphia, Pennsylvania, Airport Revenue Bonds (Philadelphia
Airport System), AMT, Series B, 5.40% due 6/15/2027 (c) 1,433
- ----------------------------------------------------------------------------------------------------------------------------
NR* NR* 1,895 Philadelphia, Pennsylvania, Authority for IDR (National Board of
Medical Examiners Project), 6.75% due 5/01/2002 (f) 2,045
- ----------------------------------------------------------------------------------------------------------------------------
NR* Baa2 1,300 Philadelphia, Pennsylvania, Authority for IDR, Refunding (Franklin
Institute Project), 5.20% due 6/15/2026 1,180
- ----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Philadelphia, Pennsylvania, Authority for Industrial Development,
Airport Revenue Bonds (Philadelphia Airport System Project), AMT,
Series A, 5.125% due 7/01/2028 (c) 1,382
- ----------------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania, GO (d):
AAA Aaa 3,575 4.75% due 3/15/2018 3,234
AAA Aaa 5,000 5% due 3/15/2028 4,621
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania (concluded)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Philadelphia, Pennsylvania, Gas Works Revenue Bonds:
AAA Aaa $1,440 12th Series B, 7% due 5/15/2020 (b)(e) $ 1,685
AAA Aaa 2,000 First Series B, 5% due 7/01/2028 (d) 1,848
- ----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Philadelphia, Pennsylvania, Gas Works Revenue Refunding Bonds, First
Series A, 5% due 7/01/2018 (d) 3,771
- ----------------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania, Hospitals and Higher Education Facilities
Authority, Hospital Revenue Bonds (Children's Hospital of Philadelphia
Project), VRDN (g):
A1+ VMIG1+ 1,000 3.25% due 3/01/2027 1,000
A1+ VMIG1+ 1,900 Series A, 3.25% due 3/01/2027 1,900
- ----------------------------------------------------------------------------------------------------------------------------
AAA NR* 3,000 Philadelphia, Pennsylvania, Hospitals and Higher Education Facilities
Authority, Hospital Revenue Refunding Bonds (Presbyterian Medical Center),
6.65% due 12/01/2019 (e) 3,438
- ----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,200 Philadelphia, Pennsylvania, Parking Authority, Airport Parking
Revenue Bonds, 5.25% due 9/01/2022 (d) 1,154
- ----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,710 Philadelphia, Pennsylvania, Parking Authority, Parking Revenue
Refunding Bonds, 5% due 2/01/2027 (a) 3,434
- ----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,200 Philadelphia, Pennsylvania, School District, GO, Series A, 5.25% due
4/01/2017 (b) 3,131
- ----------------------------------------------------------------------------------------------------------------------------
A1+ NR* 2,400 Schuylkill County, Pennsylvania, IDA, Resource Recovery Revenue
Refunding Bonds (Northeastern Power Company), VRDN,
Series A, 3.25% due 12/01/2022 (g) 2,400
- ----------------------------------------------------------------------------------------------------------------------------
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 1,837
- ----------------------------------------------------------------------------------------------------------------------------
AA Aa3 5,000 Upper Saint Clair Township School District, Pennsylvania, GO,
Refunding, 5.20% due 7/15/2027 4,732
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$125,116)--99.0% 128,386
Other Assets Less Liabilities--1.0% 1,302
--------
Net Assets--100.0% $129,688
========
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AMBAC Insured.
(b) MBIA Insured.
(c) FGIC Insured.
(d) FSA Insured.
(e) Escrowed to maturity.
(f) Prerefunded.
(g) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at July 31,
1999.
(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 July 31, 1999.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
7
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 1999
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$125,116,122)
(Note 1a).................................................... $128,386,475
Cash......................................................... 19,136
Receivables:
Interest................................................... $ 2,084,689
Beneficial interest sold................................... 23,261 2,107,950
-----------
Prepaid registration fees and other assets (Note 1e)......... 10,296
------------
Total assets................................................. 130,523,857
------------
- ----------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Beneficial interest redeemed............................... 497,277
Dividends to shareholders (Note 1f)........................ 95,982
Investment adviser (Note 2)................................ 63,345
Distributor (Note 2)....................................... 46,002 702,606
-----------
Accrued expenses and other liabilities....................... 133,219
------------
Total liabilities............................................ 835,825
------------
- ----------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets................................................... $129,688,032
============
- ----------------------------------------------------------------------------------------------------------------------
Net Assets Class A--Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized........................ $ 179,172
Class B--Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized........................ 854,427
Class C--Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized........................ 64,997
Class D--Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized........................ 90,701
Paid-in capital in excess of par............................. 126,304,725
Accumulated distributions in excess of realized capital
gains on investments--net (Note 1f).......................... (1,076,343)
Unrealized appreciation on investments--net.................. 3,270,353
------------
Net assets................................................... $129,688,032
============
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $19,536,479 and 1,791,715
shares of beneficial interest outstanding.................... $ 10.90
============
Class B--Based on net assets of $93,163,753 and 8,544,266
shares of beneficial interest outstanding.................... $ 10.90
============
Class C--Based on net assets of $7,087,592 and 649,970
shares of beneficial interest outstanding.................... $ 10.90
============
Class D--Based on net assets of $9,900,208 and 907,005
shares of beneficial interest outstanding.................... $ 10.92
============
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
For the Year Ended
July 31, 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned..... $ 7,821,511
(Note 1d):
- ----------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2)............................ $ 768,620
Account maintenance and distribution fees--Class B (Note 2).. 511,563
Professional fees............................................ 101,235
Printing and shareholder reports............................. 78,867
Accounting services (Note 2)................................. 72,372
Transfer agent fees--Class B(Note 2)......................... 47,788
Account maintenance and distribution fees--Class C (Note 2).. 42,712
Registration fees (Note 1e).................................. 16,002
Pricing fees................................................. 9,835
Account maintenance fees--Class D (Note 2)................... 9,598
Custodian fees............................................... 8,422
Trustees' fees and expenses.................................. 8,040
Transfer agent fees--Class A (Note 2)........................ 7,871
Transfer agent fees--Class D (Note 2)........................ 3,665
Transfer agent fees--Class C (Note 2)........................ 3,366
Other........................................................ 3,482
---------
Total expenses............................................... 1,693,438
-----------
Investment income--net ...................................... 6,128,073
-----------
- ----------------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments--net ........................... 1,616,946
Unrealized Change in unrealized appreciation on investments--net........ (6,270,761)
Gain (Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations......... $ 1,474,258
(Notes 1b, 1d ===========
& 3):
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year
Ended July 31,
----------------------------
Increase (Decrease) in Net Assets: 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ...................................... $ 6,128,073 $ 6,607,578
Realized gain on investments--net ........................... 1,616,946 2,705,180
Change in unrealized appreciation on investments--net........ (6,270,761) (1,580,034)
------------ ------------
Net increase in net assets resulting from operations......... 1,474,258 7,732,724
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Class A................................................... (993,621) (1,081,075)
Shareholders Class B................................................... (4,386,477) (4,877,251)
(Note 1f): Class C................................................... (297,989) (308,230)
Class D................................................... (449,986) (341,022)
Realized gain on investments--net:
Class A................................................... (289,120) (279,469)
Class B................................................... (1,456,487) (1,417,208)
Class C................................................... (98,612) (93,062)
Class D................................................... (136,597) (94,027)
In excess of realized gain on investments--net:
Class A................................................... (157,103) --
Class B................................................... (791,431) --
Class C................................................... (53,585) --
Class D................................................... (74,224) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders................................ (9,185,232) (8,491,344)
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------
Beneficial Net decrease in net assets derived from beneficial interest
Interest transactions................................................. (1,545,558) (2,038,370)
Transactions ------------ ------------
(Note 4):
- ----------------------------------------------------------------------------------------------------------------------
Net Assets: Total decrease in net assets................................. (9,256,532) (2,796,990)
Beginning of year ........................................... 138,944,564 141,741,554
------------ ------------
End of year.................................................. $129,688,032 $138,944,564
============ ============
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
Class A
The following per share data and ratios have been derived -------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
-------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ... $ 11.52 $ 11.59 $ 11.17 $ 11.07 $ 11.00
Operating ------- ------- ------- ------- -------
Performance: Investment income--net ............... .54 .59 .60 .61 .62
Realized and unrealized gain (loss) on
investments--net ..................... (.38) .08 .45 .10 .07
------- ------- ------- ------- -------
Total from investment operations ..... .16 .67 1.05 .71 .69
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net ............. (.54) (.59) (.60) (.61) (.62)
Realized gain on investments--net .. (.16) (.15) (.03) -- --
In excess of realized gain on
investments--net ................... (.08) -- -- -- --
------- ------- ------- ------- -------
Total dividends and distributions .... (.78) (.74) (.63) (.61) (.62)
------- ------- ------- ------- -------
Net asset value, end of year ......... $ 10.90 $ 11.52 $ 11.59 $ 11.17 $ 11.07
======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ... 1.38% 6.02% 9.72% 6.53% 6.54%
Return:* ======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ............................. .80% .73% .74% .76% .77%
Net Assets: ======= ======= ======= ======= =======
Investment income--net ............... 4.80% 5.12% 5.36% 5.41% 5.72%
======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) $19,536 $20,613 $21,179 $21,626 $23,040
Data: ======= ======= ======= ======= =======
Portfolio turnover ................... 43.18% 46.87% 49.82% 58.33% 59.17%
======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class B
The following per share data and ratios have been derived -------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
-------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ... $ 11.53 $ 11.59 $ 11.17 $ 11.07 $ 11.00
Operating ------- -------- -------- -------- --------
Performance: Investment income--net ............... .49 .53 .55 .55 .56
Realized and unrealized gain (loss) on
investments--net ..................... (.39) .09 .45 .10 .07
------- -------- -------- -------- --------
Total from investment operations ..... .10 .62 1.00 .65 .63
------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ............. (.49) (.53) (.55) (.55) (.56)
Realized gain on investments--net .. (.16) (.15) (.03) -- --
In excess of realized gain on
investments--net ................... (.08) -- -- -- --
------- -------- -------- -------- --------
Total dividends and distributions .... (.73) (.68) (.58) (.55) (.56)
------- -------- -------- -------- --------
Net asset value, end of year ......... $ 10.90 $ 11.53 $ 11.59 $ 11.17 $ 11.07
======= ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ... .78% 5.57% 9.17% 5.98% 6.00%
Return:* ======= ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses ............................. 1.31% 1.24% 1.25% 1.27% 1.28%
Average ======= ======== ======== ======== ========
Net Assets: Investment income--net ............... 4.29% 4.61% 4.85% 4.91% 5.21%
======= ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) $93,164 $103,261 $109,070 $120,565 $123,260
Data: ======= ======== ======== ======== ========
Portfolio turnover ................... 43.18% 46.87% 49.82% 58.33% 59.17%
======= ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C
-----------------------------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended July 31, 1994+ to
------------------------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period .... $11.53 $11.59 $11.17 $11.07 $10.68
Operating ------ ------ ------ ------ ------
Performance: Investment income--net .................. .48 .52 .53 .54 .43
Realized and unrealized gain (loss) on
investments--net ........................ (.39) .09 .45 .10 .39
------ ------ ------ ------ ------
Total from investment operations ........ .09 .61 .98 .64 .82
------ ------ ------ ------ ------
Less dividends and distributions:
Investment income--net ................ (.48) (.52) (.53) (.54) (.43)
Realized gain on investments--net ..... (.16) (.15) (.03) -- --
In excess of realized gain on
investments--net ...................... (.08) -- -- -- --
------ ------ ------ ------ ------
Total dividends and distributions ....... (.72) (.67) (.56) (.54) (.43)
------ ------ ------ ------ ------
Net asset value, end of period .......... $10.90 $11.53 $11.59 $11.17 $11.07
====== ====== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ...... .68% 5.47% 9.06% 5.87% 7.83%++
Return:** ====== ====== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses ................................ 1.41% 1.34% 1.35% 1.37% 1.38%*
Average ====== ====== ====== ====== ======
Net Assets: Investment income--net .................. 4.19% 4.51% 4.75% 4.80% 5.05%*
====== ====== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $7,088 $6,928 $6,145 $4,722 $1,868
Data: ====== ====== ====== ====== ======
Portfolio turnover ...................... 43.18% 46.87% 49.82% 58.33% 59.17%
====== ====== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
Class D
-----------------------------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended July 31, 1994+ to
------------------------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period .... $11.54 $11.60 $11.18 $11.08 $10.68
Operating ------ ------ ------ ------ ------
Performance: Investment income--net .................. .53 .58 .59 .60 .47
Realized and unrealized gain (loss) on
investments--net ........................ (.38) .09 .45 .10 .40
------ ------ ------ ------ ------
Total from investment operations ........ .15 .67 1.04 .70 .87
------ ------ ------ ------ ------
Less dividends and distributions:
Investment income--net ................ (.53) (.58) (.59) (.60) (.47)
Realized gain on investments--net ..... (.16) (.15) (.03) -- --
In excess of realized gain on
investments--net ...................... (.08) -- -- -- --
------ ------ ------ ------ ------
Total dividends and distributions ....... (.77) (.73) (.62) (.60) (.47)
------ ------ ------ ------ ------
Net asset value, end of period .......... $10.92 $11.54 $11.60 $11.18 $11.08
====== ====== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ...... 1.29% 6.00% 9.61% 6.42% 8.36%++
Return:** ====== ====== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ................................ .90% .83% .84% .86% .87%*
Net Assets: ====== ====== ====== ====== ======
Investment income--net .................. 4.69% 5.01% 5.26% 5.31% 5.65%*
====== ====== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $9,900 $8,143 $5,348 $3,583 $2,630
Data: ====== ====== ====== ====== ======
Portfolio turnover ...................... 43.18% 46.87% 49.82% 58.33% 59.17%
====== ====== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
14
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
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. The Fund's financial statements are prepared in
accordance with generally accepted accounting principles, which may require the
use of management accruals and estimates. The Fund offers four classes of shares
under the Merrill Lynch Select Pricing(SM) 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.
o Financial futures contracts--The Fund may purchase or sell financial 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. Distributions in excess of realized capital gains are due
primarily to differing tax treatments for futures transactions and post-October
losses.
15
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
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 ("MLFD" or the "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), 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.
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 ...................................... 25% .25%
Class C ...................................... 25% .35%
Class D ...................................... 10% --
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class 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 year ended July 31, 1999, MLFD earned underwriting discounts and direct
commissions 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 ...................................... $ 390 $ 3,442
Class D ...................................... $2,334 $44,230
- --------------------------------------------------------------------------------
For the year ended July 31, 1999, MLPF&S received contingent deferred sales
charges of $84,414 and $1,300 relating to transactions in Class B and Class C
Shares, respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
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, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 1999 were $57,737,904 and $69,599,572, respectively.
Net realized gains for the year ended July 31, 1999 and net unrealized gains as
of July 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .............. $1,616,946 $3,270,353
---------- ----------
Total .............................. $1,616,946 $3,270,353
========== ==========
- --------------------------------------------------------------------------------
As of July 31, 1999, net unrealized appreciation for Federal income tax purposes
aggregated $3,270,353, of which $5,133,889 related to appreciated securities and
$1,863,536 related to depreciated securities. The aggregate cost of investments
at July 31, 1999 for Federal income tax purposes was $125,116,122.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$1,545,558 and $2,038,370 for the years ended July 31, 1999 and July 31, 1998,
respectively.
16
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
Transactions in shares of beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ........................... 267,829 $ 3,057,374
Shares issued to share-
holders in reinvestment of
dividends and distributions ........... 74,279 844,684
-------- -----------
Total issued .......................... 342,108 3,902,058
Shares redeemed ....................... (338,910) (3,837,226)
-------- -----------
Net increase .......................... 3,198 $ 64,832
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ........................... 205,752 $ 2,366,424
Shares issued to share-
holders in reinvestment of
dividends and distributions ........... 65,441 753,214
-------- -----------
Total issued .......................... 271,193 3,119,638
Shares redeemed ....................... (310,567) (3,574,837)
-------- -----------
Net decrease .......................... (39,374) $ (455,199)
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 1,336,166 $ 15,320,856
Shares issued to share-
holders in reinvestment of
dividends and distributions .......... 303,934 3,456,996
---------- ------------
Total issued ......................... 1,640,100 18,777,852
Automatic conversion
of shares ............................ (19,073) (214,664)
Shares redeemed ...................... (2,036,509) (23,074,098)
---------- ------------
Net decrease ......................... (415,482) $ (4,510,910)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 1,121,392 $ 12,914,084
Shares issued to share-
holders in reinvestment of
dividends and distributions .......... 271,927 3,129,770
---------- ------------
Total issued ......................... 1,393,319 16,043,854
Automatic conversion
of shares ............................ (19,883) (228,884)
Shares redeemed ...................... (1,827,238) (21,046,434)
---------- ------------
Net decrease ......................... (453,802) $ (5,231,464)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ........................... 172,331 $ 1,969,269
Shares issued to share-
holders in reinvestment of
dividends and distributions ........... 27,609 313,913
-------- -----------
Total issued .......................... 199,940 2,283,182
Shares redeemed ....................... (151,043) (1,724,514)
-------- -----------
Net increase .......................... 48,897 $ 558,668
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ........................... 219,943 $ 2,533,243
Shares issued to share-
holders in reinvestment of
dividends and distributions ........... 24,274 279,417
-------- -----------
Total issued .......................... 244,217 2,812,660
Shares redeemed ....................... (173,447) (1,996,625)
-------- -----------
Net increase .......................... 70,770 $ 816,035
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ........................... 351,096 $ 4,056,147
Automatic conversion
of shares ............................. 19,052 214,664
Shares issued to share-
holders in reinvestment of
dividends and distributions ........... 37,233 423,537
-------- -----------
Total issued .......................... 407,381 4,694,348
Shares redeemed ....................... (206,168) (2,352,496)
-------- -----------
Net increase .......................... 201,213 $ 2,341,852
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ........................... 296,604 $ 3,431,592
Automatic conversion
of shares ............................. 19,864 228,884
Shares issued to share-
holders in reinvestment of
dividends and distributions ........... 22,549 259,885
------- -----------
Total issued .......................... 339,017 3,920,361
Shares redeemed ....................... (94,310) (1,088,103)
------- -----------
Net increase .......................... 244,707 $ 2,832,258
======= ===========
- --------------------------------------------------------------------------------
17
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Pennsylvania Municipal Bond Fund
of Merrill Lynch Multi-State Municipal
Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Pennsylvania Municipal Bond Fund
of Merrill Lynch Multi-State Municipal Series Trust as of July 31, 1999, the
related statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at July 31,
1999 by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Pennsylvania Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series
Trust as of July 31, 1999, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 9, 1999
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by Merrill Lynch
Pennsylvania Municipal Bond Fund during its taxable year ended July 31, 1999
qualify as tax-exempt interest dividends for Federal income tax purposes.
Additionally, the following table summarizes the taxable ordinary income and
capital gains distributions paid by the Fund during the year:
- --------------------------------------------------------------------------------
Record Payable Ordinary Long-Term
Date Date Income Capital Gains
- --------------------------------------------------------------------------------
12/21/98 12/31/98 $.000413 $.244518*
- --------------------------------------------------------------------------------
* The entire distribution is subject to the 20% tax rate.
Please retain this information for your records.
18
<PAGE>
Merrill Lynch Pennsylvania Municipal Bond Fund July 31, 1999
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
William M. Bock, Vice President
Kenneth A. Jacob, Vice President
Donald C. Burke, Vice President and Treasurer
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
19
<PAGE>
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--7/99
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