Exhibit 17(h)
MERRILL LYNCH
OREGON
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 2000
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 Oregon
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 2000, US domestic economic growth
remained robust. After growing at a 4.2% annual rate in 1999, US domestic
economic growth expanded at a 4.8% rate during the first quarter of 2000 and
at a 5.2% rate during the second quarter. However, despite these significant
growth rates, few price measure indicators have shown any meaningful signs of
future price pressures at the consumer level, despite the lowest unemployment
rates since 1970. With few signs of any economic slowdown, the Federal Reserve
Board continued to raise short-term interest rates in February, March and May
2000. The Federal Reserve Board cited both the continued growth of US
employment and the continued strength of US equity markets as reasons for
attempting to moderate US economic growth before inflationary price pressures
can occur.
However, since then fixed-income markets have largely ignored strong economic
fundamentals and concentrated upon very positive technical supply factors.
Declining bond issuance--both current, and more importantly, expected future
issuance--helped push bond yields lower into mid-April 2000. In late January
and early February 2000, the US Treasury announced its intention to reduce the
amounts to be auctioned in the quarterly Treasury note and bond auctions.
Furthermore, budgetary surpluses allowed the US Treasury to repurchase
outstanding, higher-couponed Treasury issues, primarily in the 15-year and
longer maturity sector. Both these actions resulted in significant reduction
in the outstanding supply of longer-dated maturity US Treasury debt. Domestic
and international investors quickly began to accumulate what was expected to
become a scarce commodity and bond prices quickly rose.
By mid-April 2000, US Treasury bond yields had declined more than 80 basis
points (0.80%) to 5.67%. During the remainder of the period, US Treasury bond
prices were volatile as strong economic reports and investors' concerns of
additional moves by the Federal Reserve Board occasionally overshadowed the
positive technical position of the long-term US Treasury bond market.
Recently, a number of economic indicators have begun to suggest that the
actions taken by the Federal Reserve Board in 1999 and early 2000 have started
to affect US economic growth. Both new home sales and consumer spending have
slowed, suggesting that economic growth may subside into a 4%--4.5% range by
late 2000. In our opinion, this range of growth was targeted by the Federal
Reserve Board as being sustainable, given current productivity measures,
without endangering the present benign inflationary environment.
By June, investor focus returned to the dwindling supply of long-term US
Treasury securities and bond prices generally rose for the remainder of the
period. The decline in long-term US Treasury bond yields resulted in an
inverted yield curve as short-term and intermediate-term interest rates did
not fall proportionately to long-term interest rates as the Federal Reserve
Board was expected to continue to raise short-term interest rates. The current
inversion has had as much to do with debt reduction and US Treasury buybacks
as with investor expectations of slower economic growth. During the last six
months, US Treasury bond yields have declined more than 70 basis points to end
the period at 5.78%, their lowest monthly closing level since May 1999.
Tax-exempt bond yields also have declined in recent months. The decline has
largely been in response to the rally in US Treasury securities, as well as a
continued positive technical supply environment. States such as California and
Maryland have announced that their large current and anticipated future budget
surpluses will permit the cancellation or postponement of expected bond
issuance. Additionally, some issuers have also initiated tenders to repurchase
existing debt, reducing the supply of tax-exempt bonds in the secondary market
as well. Given the decline in available long-term US Treasury securities,
some investors who need longer maturity investment vehicles have begun to
consider long-term municipal bonds as potential substitutes. This has further
strengthened the over-all positive technical position of the tax-exempt
market. During the last six months, long-term municipal revenue bond yields
have declined nearly 50 basis points to 5.85%, their lowest level since late
August 1999, as measured by the Bond Buyer Revenue Bond Index.
The relative underperformance of the municipal bond market in recent months
has been especially disappointing given the strong technical position the
tax-exempt bond market has enjoyed. The issuance of long-term tax-exempt
securities has dramatically declined. During the last year, almost $200
billion in new long-term municipal securities was issued, a decline of almost
20% compared to the same period a year earlier. For the six months ended July
31, 2000, approximately $100 billion in new tax-exempt bonds was underwritten,
a decline of 17% compared to the same period in 1999.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
Although investors received more than $45 billion in coupon payments, bond
maturities and the proceeds from early bond redemptions during June and July,
overall investor demand has diminished. Long-term municipal bond mutual funds
have seen consistent outflows in recent months as the yields of individual
securities have risen faster than those of larger, more diverse mutual funds.
Thus far this year, tax-exempt mutual funds have had net redemptions of more
than $12 billion.
However, the rate at which these redemptions have been occurring has slowed in
recent months. Recent US equity market volatility, especially in the NASDAQ,
has reduced some investor interest in the stock market. This investor
interest, especially earlier this year, had been siphoning away demand for
municipal bonds by retail investors. Also, the demand from property and
casualty companies is expected to increase in the coming months. These firms
are becoming more profitable after experiencing losses in the past few years
resulting from a series of weather-related natural disasters. Yet as positive
as the tax-exempt bond market's technical environment has been for much of
this year, investor response to the reduction in both current and future
supply of US Treasury bonds has been overwhelmingly positive and municipal
bond yields have underperformed their taxable counterparts.
Significantly lower municipal bond yields are still likely to require weaker
US employment growth and consumer spending. The actions taken in recent months
by the Federal Reserve Board should eventually slow US economic growth. Recent
declines in US new home sales are perhaps the first sign that consumer
spending is being slowed by higher interest rates. Until further signs
develop, it is likely that the municipal bond market's current favorable
technical position will dampen significant tax-exempt interest rate volatility
and provide a stable environment for eventual improvement in municipal bond
prices.
Fiscal Year in Review
For the year ended July 31, 2000, the Fund's Class A, Class B, Class C and
Class D Shares had total returns of +2.07%, +1.55%, +1.55% and +1.96%,
respectively. (Investment results shown do not reflect sales charges and would
be lower if sales charges were included. Complete performance information can
be found on pages 4 and 5 of this report to shareholders.) As a result of our
efforts this year, the Fund generated total returns for the 12-month period
ended July 31, 2000 that modestly underperformed the average return for all
Oregon municipal debt funds, as measured by Lipper Analytical Services, Inc.
With interest rates under pressure for much of the fiscal year ended July 31,
2000, our portfolio strategy has been focused on seeking to insulate the Fund
from volatility, while still maintaining an attractive dividend. As an asset
class, tax-exempt bonds faced tough competition from a surging equity market
as well as mounting pressures arising from an aggressive monetary policy
designed to curb economic growth and prevent inflation. Until recently,
investor appetite for tax-exempt products had waned, as demonstrated by the
consistent outflows throughout the mutual fund industry. This environment was
also characterized by declining year-over-year municipal issuance.
In our last letter to shareholders, we spoke of the various factors
contributing to the tax-exempt market's weak performance relative to the
Treasury market. At the same time, we noted the compelling value reflected in
the yields available on intermediate-term--long-term tax-exempt securities and
our growing level of comfort with evolving market fundamentals. Given this
investment outlook, we positioned the Fund to further benefit from both a
decline in interest rates and a renewed investor appetite for municipal bonds.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
Initially, portfolio activity consisted primarily of efforts to modestly
extend duration (a measure of sensitivity to interest rate fluctuations) as
well as to upgrade the average credit quality of our investments. Credit
spreads, having already widened appreciably throughout 1999, were still viewed
as susceptible to additional pressure and a potential drag on a fixed-income
portfolio in a declining interest rate environment. Our efforts, in
conjunction with maintaining minimal cash reserves, have resulted in improved
performance during the fourth quarter ended July 31, 2000. In an effort to
limit volatility, we shifted our portfolio strategy to achieve a more neutral
position. While market fundamentals remain positive, the extent of the recent
rally combined with the uncertain outcome of the November elections, suggests
a more cautious approach in the near term.
Oregon's economic recovery from the impact associated with the Asian financial
and economic turmoil of 1997 and 1998 continued apace, reflecting the ongoing
diversification of the state's economic base. Strengths include improving fund
balances, resulting from the receipt of greater-than-expected personal income
taxes and a manageable debt burden despite additional capital needs associated
with growth. In addition, overall revenues remain strong, largely offsetting
increased costs of funding education. Three separate ballot initiatives slated
for the upcoming November elections bear watching for the potential negative
revenue impact their approval would have on future funding requirements.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Oregon Municipal Bond
Fund, and we look forward to assisting you with your financial needs in the
months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Trustee
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Theodore R. Jaeckel Jr.)
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
September 9, 2000
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
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:
* Class A Shares incur a maximum initial sales charge (front-end load) of 4%
and bear no ongoing distribution or account maintenance fees. Class A Shares
are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales charge of
4% if redeemed during the first year, decreasing 1% each year thereafter to 0%
after the fourth year. In addition, Class B Shares are subject to a
distribution fee of 0.25% and an account maintenance fee of 0.25%. These
shares automatically convert to Class D Shares after approximately 10 years.
(There is no initial sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.35% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an account
maintenance fee of 0.10% (but no distribution fee).
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. The
Fund's Investment Adviser voluntarily waived a portion of its management fee.
Without such waiver, the Fund's performance would have been lower.
Recent Performance Results*
6 Month 12 Month Since Inception Standardized
As of July 31, 2000 Total Return Total Return Total Return 30-Day Yield
ML Oregon Municipal Bond Fund Class A Shares +6.57% +2.07% +34.29% 3.86%
ML Oregon Municipal Bond Fund Class B Shares +6.30 +1.55 +29.64 3.52
ML Oregon Municipal Bond Fund Class C Shares +6.24 +1.55 +35.20 3.41
ML Oregon Municipal Bond Fund Class D Shares +6.40 +1.96 +39.15 3.77
*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 dates are from 8/27/93 for Class A & Class B
Shares and from 10/21/94 for Class C & Class D Shares.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of ML Oregon Municipal Bond Fund's Class A
and Class B Shares compared to the Lehman Brothers Municipal Bond Index++++.
Beginning and ending values are:
8/31/93** 7/00
ML Oregon Municipal
Bond Fund++--Class A Shares* $ 9,600 $12,891
ML Oregon Municipal
Bond Fund++--Class B Shares* $10,000 $12,964
Lehman Brothers Municipal
Bond Index++++ $10,000 $14,393
A line graph depicting the growth of ML Oregon Municipal Bond Fund's Class C
and Class D Shares compared to the Lehman Brothers Municipal Bond Index++++.
Beginning and ending values are:
10/31/94** 7/00
ML Oregon Municipal
Bond Fund++--Class C Shares* $10,000 $13,520
ML Oregon Municipal
Bond Fund++--Class D Shares* $ 9,600 $13,357
Lehman Brothers Municipal
Bond Index++++ $10,000 $14,849
*Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
**Commencement of operations.
++ML Oregon Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the state of Oregon,
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 A & Class B Shares' graph is from 8/31/93 and 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*
One Year Ended 6/30/00 +1.01% -3.03%
Five Years Ended 6/30/00 +5.05 +4.20
Inception (8/27/93) through 6/30/00 +4.17 +3.55
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 6/30/00 +0.50% -3.37%
Five Years Ended 6/30/00 +4.52 +4.52
Inception (8/27/93) through 6/30/00 +3.64 +3.64
*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*
One Year Ended 6/30/00 +0.40% -0.57%
Five Years Ended 6/30/00 +4.42 +4.42
Inception(10/21/94)through 6/30/00 +5.17 +5.17
*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*
One Year Ended 6/30/00 +0.91% -3.13%
Five Years Ended 6/30/00 +4.95 +4.09
Inception (10/21/94) through 6/30/00 +5.70 +4.94
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
Oregon--72.2%
AAA Aaa $ 500 Columbia County, Oregon, School District No. 502, GO,
5.05%** due 6/01/2018 (b)(d) $ 184
Forest Grove, Oregon, Campus Improvement Revenue Refunding Bonds
(Pacific University):
AA NR* 250 6% due 5/01/2015 259
AA NR* 250 6.20% due 5/01/2020 259
BBB+ NR* 900 Klamath Falls, Oregon, Intercommunity Hospital Authority Revenue Bonds
(Gross-Merle West Medical Center Project), 7.10% due 9/01/2024 916
AAA Aaa 600 Marion County, Oregon, Union High School District No. 007J (Silverton), GO,
7% due 6/01/2004 (b)(f) 656
AAA Aaa 600 Morrow County, Oregon, School District No. 001, GO, 6% due 6/01/2007 (a) 645
BBB+ NR* 450 Multnomah County, Oregon, Educational Facilities Revenue Bonds (University of
Portland Project), 6% due 4/01/2020 451
AAA Aaa 600 Northwest Regional Education Service District, Oregon, GO, 5% due 6/15/2019 (a) 566
AAA Aaa 1,920 Oregon Health Sciences University Revenue Refunding Bonds, Series A,
5.70%** due 7/01/2021 (a) 584
AAA Aaa 500 Oregon State Department of Administrative Services, COP, Series A,
6.25% due 5/01/2017 (c) 535
NR* VMIG1++ 500 Oregon State Health, Housing, Educational and Cultural Facilities
Authority Revenue Bonds (Guide Dogs for the Blind), VRDN, Series A,
4.30% due 7/01/2025 (g) 500
Oregon State Housing and Community Services
Department, Mortgage Revenue Refunding Bonds (S/F
Mortgage Program), Series A:
NR* Aa2 355 6.40% due 7/01/2018 368
NR* Aa2 150 AMT, 6.20% due 7/01/2027 152
BBB+ Baa1 750 Oregon State Solid Waste Disposal Facilities, Economic Development Revenue
Bonds (USG Corporation Project), AMT, Series 192, 6.40% due 12/01/2029 751
AAA Aaa 950 Port of Portland, Oregon, Airport Revenue Refunding Bonds (Portland
International Airport), AMT, Series 7-B, 7.10% due 1/01/2012 (a)(f) 1,096
AAA Aaa 500 Salem-Keizer, Oregon, School District Number 24J, GO, Refunding,
4.80% due 6/01/2013 (b) 480
AAA Aaa 500 Tillamook County, Oregon, GO, 6.25% due 1/01/2005 (d)(f) 537
AAA Aaa 500 Washington County, Oregon, Unified Sewer Agency, Sewer Revenue Refunding Bonds,
Senior Lien, Series A, 5.75% due 10/01/2012 (d) 531
B NR* 500 Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint Corporation Project),
8% due 12/01/2003 516
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Oregon Municipal Bond Fund's
portfolio holdings in the Schedule of Investments, we have abbreviated the
names of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
PCR Pollution Control Revenue Bonds
S/F Single-Family
STRIPES Short-Term Inverse Payment Exempt Securities
VRDN Variable Rate Demand Notes
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
Puerto Rico--27.1%
AAA Aaa $2,720 Puerto Rico Commonwealth, GO, Refunding, 7% due 7/01/2010 (c) $ 3,209
A1+ VMIG1++ 100 Puerto Rico Commonwealth, Highway and Transportation Authority, Transportation
Revenue Refunding Bonds, VRDN, Series A, 3.85% due 7/01/2028 (c)(g) 100
AAA Aaa 400 Puerto Rico Electric Power Authority, Power Revenue Bonds, STRIPES, Series T,
7.449% due 7/01/2005 (b)(e) 439
Total Investments (Cost--$12,979)--99.3% 13,734
Other Assets Less Liabilities--0.7% 102
-------
Net Assets--100.0% $13,836
=======
(a)MBIA Insured.
(b)FSA Insured.
(c)AMBAC Insured.
(d)FGIC Insured.
(e)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, 2000.
(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, 2000.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
++Highest short-term rating by Moody's Investors Service, Inc. Ratings of issues
shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 2000
Assets: Investments, at value (identified cost--$12,979,105) $ 13,733,645
Cash 36,015
Receivables:
Interest $ 124,991
Securities sold 30,160 155,151
------------
Prepaid registration fees and other assets 1,284
------------
Total assets 13,926,095
------------
Liabilities: Payables:
Dividends to shareholders 10,661
Beneficial interest redeemed 4,990
Distributor 4,630
Investment adviser 2,197 22,478
------------
Accrued expenses and other liabilities 67,202
------------
Total liabilities 89,680
------------
Net Assets: Net assets $ 13,836,415
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 18,680
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 100,192
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 16,490
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 8,907
Paid-in capital in excess of par 15,480,987
Accumulated realized capital losses on investments--net (2,536,223)
Accumulated distributions in excess of realized capital gains on
investments--net (7,158)
Unrealized appreciation on investments--net 754,540
------------
Net assets $ 13,836,415
============
Net Asset Value: Class A--Based on net assets of $1,791,094 and 186,797 shares of
beneficial interest outstanding $ 9.59
============
Class B--Based on net assets of $9,608,456 and 1,001,916 shares of
beneficial interest outstanding $ 9.59
============
Class C--Based on net assets of $1,582,566 and 164,904 shares of
beneficial interest outstanding $ 9.60
============
Class D--Based on net assets of $854,299 and 89,069 shares of
beneficial interest outstanding $ 9.59
============
See Notes to Financial Statements.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Statement of Operations
For the Year Ended
July 31, 2000
Investment Interest and amortization of premium and discount earned $ 940,758
Income:
Expenses: Investment advisory fees $ 89,281
Professional fees 63,248
Printing and shareholder reports 62,107
Account maintenance and distribution fees--Class B 53,022
Accounting services 47,825
Account maintenance and distribution fees--Class C 12,484
Transfer agent fees--Class B 5,905
Trustees' fees and expenses 3,845
Custodian fees 3,470
Registration fees 3,120
Pricing fees 3,027
Account maintenance fees--Class D 1,140
Transfer agent fees--Class C 1,134
Transfer agent fees--Class A 1,090
Transfer agent fees--Class D 516
Other 3,748
------------
Total expenses before reimbursement 354,962
Reimbursement of expenses (56,815)
------------
Total expenses after reimbursement 298,147
------------
Investment income--net 642,611
------------
Realized & Realized loss on investments--net (445,099)
Unrealized Change in unrealized appreciation on investments--net (111,352)
Loss on ------------
Investments--Net: Net Increase in Net Assets Resulting from Operations $ 86,160
============
See Notes to Financial Statements.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 2000 1999
Operations: Investment income--net $ 642,611 $ 849,360
Realized gain (loss) on investments--net (445,099) 442,353
Change in unrealized appreciation on investments--net (111,352) (1,085,454)
------------ ------------
Net increase in net assets resulting from operations 86,160 206,259
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (105,200) (131,116)
Shareholders: Class B (410,494) (537,290)
Class C (78,272) (110,267)
Class D (48,645) (70,687)
In excess of realized gain on investments--net:
Class A (1,173) --
Class B (4,537) --
Class C (915) --
Class D (533) --
------------ ------------
Net decrease in net assets resulting from
dividends and distributions to shareholders (649,769) (849,360)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial
Interest interest transactions (5,526,600) (853,320)
Transactions: ------------ ------------
Net Assets: Total decrease in net assets (6,090,209) (1,496,421)
Beginning of year 19,926,624 21,423,045
------------ ------------
End of year $ 13,836,415 $ 19,926,624
============ ============
See Notes to Financial Statements.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights
The following per share data and ratios have been derived Class A
from information provided in the financial statements. For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
Per Share Net asset value, beginning of year $ 9.82 $ 10.11 $ 10.00 $ 9.52 $ 9.40
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .41 .43 .47 .47 .48
Realized and unrealized gain (loss) on
investments--net (.23) (.29) .11 .48 .12
-------- -------- -------- -------- --------
Total from investment operations .18 .14 .58 .95 .60
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.41) (.43) (.47) (.47) (.48)
In excess of realized gain on
investments--net --++ -- --++ -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.41) (.43) (.47) (.47) (.48)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.59 $ 9.82 $ 10.11 $ 10.00 $ 9.52
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 2.07% 1.33% 5.93% 10.27% 6.52%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.41% 1.16% .89% .78% .53%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.76% 1.51% 1.24% 1.22% 1.17%
======== ======== ======== ======== ========
Investment income--net 4.36% 4.25% 4.62% 4.88% 5.06%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 1,791 $ 3,031 $ 3,103 $ 3,232 $ 3,904
Data: ======== ======== ======== ======== ========
Portfolio turnover 64.56% 60.26% 36.31% 40.62% 103.61%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
The following per share data and ratios have been derived Class B
from information provided in the financial statements. For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
Per Share Net asset value, beginning of year $ 9.82 $ 10.11 $ 10.00 $ 9.52 $ 9.40
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .36 .38 .42 .42 .44
Realized and unrealized gain (loss) on
investments--net (.23) (.29) .11 .48 .12
-------- -------- -------- -------- --------
Total from investment operations .13 .09 .53 .90 .56
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.36) (.38) (.42) (.42) (.44)
In excess of realized gain on
investments--net --++ -- --++ -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.36) (.38) (.42) (.42) (.44)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.59 $ 9.82 $ 10.11 $ 10.00 $ 9.52
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 1.55% .82% 5.39% 9.72% 5.97%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.93% 1.67% 1.40% 1.29% 1.04%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.27% 2.02% 1.75% 1.73% 1.68%
======== ======== ======== ======== ========
Investment income--net 3.86% 3.75% 4.11% 4.37% 4.55%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 9,608 $ 12,421 $ 14,965 $ 17,888 $ 21,542
Data: ======== ======== ======== ======== ========
Portfolio turnover 64.56% 60.26% 36.31% 40.62% 103.61%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
The following per share data and ratios have been derived Class C
from information provided in the financial statements. For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
Per Share Net asset value, beginning of year $ 9.82 $ 10.12 $ 10.00 $ 9.53 $ 9.40
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .36 .37 .41 .41 .43
Realized and unrealized gain (loss) on
investments--net (.22) (.30) .12 .47 .13
-------- -------- -------- -------- --------
Total from investment operations .14 .07 .53 .88 .56
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.36) (.37) (.41) (.41) (.43)
In excess of realized gain on
investments--net --++ -- --++ -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.36) (.37) (.41) (.41) (.43)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.60 $ 9.82 $ 10.12 $ 10.00 $ 9.53
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 1.55% .63% 5.39% 9.50% 5.97%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.02% 1.77% 1.50% 1.39% 1.16%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.37% 2.12% 1.85% 1.83% 1.79%
======== ======== ======== ======== ========
Investment income--net 3.75% 3.64% 4.01% 4.28% 4.45%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 1,583 $ 2,705 $ 2,549 $ 2,063 $ 1,555
Data: ======== ======== ======== ======== ========
Portfolio turnover 64.56% 60.26% 36.31% 40.62% 103.61%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
The following per share data and ratios have been derived Class D
from information provided in the financial statements. For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
Per Share Net asset value, beginning of year $ 9.82 $ 10.11 $ 10.00 $ 9.52 $ 9.39
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .40 .42 .46 .46 .47
Realized and unrealized gain (loss) on
investments--net (.23) (.29) .11 .48 .13
-------- -------- -------- -------- --------
Total from investment operations .17 .13 .57 .94 .60
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.40) (.42) (.46) (.46) (.47)
In excess of realized gain on
investments--net --++ -- --++ -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.40) (.42) (.46) (.46) (.47)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.59 $ 9.82 $ 10.11 $ 10.00 $ 9.52
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 1.96% 1.23% 5.82% 10.17% 6.52%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.51% 1.27% .99% .90% .63%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.86% 1.62% 1.34% 1.32% 1.28%
======== ======== ======== ======== ========
Investment income--net 4.25% 4.15% 4.52% 4.76% 4.97%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 854 $ 1,770 $ 806 $ 399 $ 173
Data: ======== ======== ======== ======== ========
Portfolio turnover 64.56% 60.26% 36.31% 40.62% 103.61%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Oregon 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 accounting principles generally accepted in the United States of America,
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
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types
of instruments. Losses may arise due to changes in the value of the contract
or if the counterparty does not perform under the contract.
* 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 the treatment for futures transactions and
post-October losses.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
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 FAM Distributors, Inc. ("FAMD"
or the "Distributor"), which is a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, the Fund pays a
monthly fee based upon the average daily value of the Fund's net assets at the
following annual rates: .55% of the Fund's average daily net assets not
exceeding $500 million; .525% of average daily net assets in excess of $500
million but not exceeding $1 billion; and .50% of average daily net assets in
excess of $1 billion. For the year ended July 31, 2000, FAM earned fees of
$89,281, of which $56,815 was voluntarily waived.
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, 2000, FAMD earned underwriting discounts and
MLPF&S earned dealer concessions on sales of the Fund's Class D Shares as
follows:
FAMD MLPF&S
Class D $11 $150
For the year ended July 31, 2000, MLPF&S received contingent deferred sales
charges of $22,935 and $1,186 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, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 2000 were $10,116,566 and $16,097,560, respectively.
Net realized gains (losses) for the year ended July 31, 2000 and net
unrealized gains as of July 31, 2000 were as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ (464,102) $ 754,540
Financial futures contracts 19,003 --
---------- ----------
Total $ (445,099) $ 754,540
========== ==========
As of July 31, 2000, net unrealized appreciation for Federal income tax
purposes aggregated $754,540, of which $816,825 related to appreciated
securities and $62,285 related to depreciated securities. The aggregate cost
of investments at July 31, 2000 for Federal income tax purposes was
$12,979,105.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$5,526,600 and $853,320 for the years ended July 31, 2000 and July 31, 1999,
respectively.
Transactions in shares of beneficial interest for each class were as follows:
Class A Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
Shares sold 21,449 $ 202,474
Shares issued to shareholders
in reinvestment of dividends
and distributions 7,254 68,376
---------- ----------
Total issued 28,703 270,850
Shares redeemed (150,728) (1,407,319)
---------- ----------
Net decrease (122,025) $(1,136,469)
========== ==========
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
Class A Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 48,530 $ 498,190
Shares issued to shareholders
in reinvestment of dividends 8,458 85,918
---------- ----------
Total issued 56,988 584,108
Shares redeemed (54,976) (557,027)
---------- ----------
Net increase 2,012 $ 27,081
========== ==========
Class B Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
Shares sold 69,165 $ 650,319
Shares issued to shareholders
in reinvestment of dividends
and distributions 15,618 147,204
---------- ----------
Total issued 84,783 797,523
Automatic conversion of shares (3,392) (32,156)
Shares redeemed (344,753) (3,251,686)
---------- ----------
Net decrease (263,362) $(2,486,319)
========== ==========
Class B Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 247,050 $ 2,528,521
Shares issued to shareholders
in reinvestment of dividends 20,295 206,486
---------- ----------
Total issued 267,345 2,735,007
Automatic conversion of shares (2,706) (27,775)
Shares redeemed (479,089) (4,873,473)
---------- ----------
Net decrease (214,450) $(2,166,241)
========== ==========
Class C Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
Shares sold 8,109 $ 76,536
Shares issued to shareholders
in reinvestment of dividends
and distributions 4,561 43,070
---------- ----------
Total issued 12,670 119,606
Shares redeemed (123,064) (1,162,380)
---------- ----------
Net decrease (110,394) $(1,042,774)
========== ==========
Class C Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 115,073 $ 1,177,617
Shares issued to shareholders
in reinvestment of dividends 6,629 67,435
---------- ----------
Total issued 121,702 1,245,052
Shares redeemed (98,227) (987,740)
---------- ----------
Net increase 23,475 $ 257,312
========== ==========
Class D Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
Shares sold 8,652 $ 82,867
Automatic conversion of shares 3,392 32,156
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,245 11,763
---------- ----------
Total issued 13,289 126,786
Shares redeemed (104,499) (987,824)
---------- ----------
Net decrease (91,210) $ (861,038)
========== ==========
Class D Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 108,087 $ 1,105,169
Automatic conversion of shares 2,706 27,775
Shares issued to shareholders
in reinvestment of dividends 2,096 21,304
---------- ----------
Total issued 112,889 1,154,248
Shares redeemed (12,343) (125,720)
---------- ----------
Net increase 100,546 $ 1,028,528
========== ==========
5. Short-Term Borrowings:
On December 3, 1999, the Fund, along with certain other funds managed by FAM
and its affiliates, entered into a one-year, unsecured $1,000,000,000 credit
agreement with The Bank of New York and other lenders. The funds may borrow
money for temporary or emergency purposes to meet shareholder redemptions.
Each fund may borrow up to the maximum amount allowable under the fund's
current prospectus and statement of additional information, subject to various
other legal, regulatory or contractual limits. The funds collectively pay a
commitment fee of .09% per annum on the available portion of the facility.
Amounts borrowed under the facility bear interest at the Federal Funds rate
plus .50%. The Fund did not borrow from the facility during the year ended
July 31, 2000.
6. Capital Loss Carryforward:
At July 31, 2000, the Fund had a net capital loss carryforward of
approximately $1,983,000, of which $679,000 expires in 2003, $1,233,000
expires in 2004 and $71,000 expires in 2008. This amount will be available to
offset like amounts of any future taxable gains.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders, Merrill Lynch Oregon 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 Oregon Municipal Bond
Fund of Merrill Lynch Multi-State Municipal Series Trust as of July 31, 2000,
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 auditing standards generally
accepted in the United States of America. 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, 2000 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
Oregon Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series
Trust as of July 31, 2000, the results of its operations, the changes in its
net assets, and the financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the United States
of America.
Deloitte & Touche LLP
Princeton, New Jersey
September 11, 2000
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by Merrill Lynch
Oregon Municipal Bond Fund during its taxable year ended July 31, 2000 qualify
as tax-exempt interest dividends for Federal income tax purposes.
Additionally, the following taxable ordinary income dividend was paid by the
Fund during the year:
Record Payable Ordinary
Date Date Income
12/20/99 12/31/99 $.003925
There were no capital gains distributions paid by the Fund during the year.
Please retain this information for your records.
Merrill Lynch Oregon Municipal Bond Fund
July 31, 2000
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Theodore R. Jaeckel Jr., 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