MERRILL
LYNCH
OREGON
MUNICIPAL
BOND FUND
Semi-Annual Report January 31, 1994
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.
Merrill Lynch Oregon
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, New Jersey
08543-9011
TO OUR SHAREHOLDERS
We are pleased to provide you with this first semi-annual report
for Merrill Lynch Oregon Municipal Bond Fund. In this and future
shareholders reports, we will highlight the Fund's investment
performance, describe recent investment activities, and examine
some of the important market developments that helped shape our
investment strategy during the period under review.
Merrill Lynch Oregon Municipal Bond Fund seeks to provide
shareholders with as high a level of income exempt from Federal
and Oregon income taxes as is consistent with prudent investment
management. The Fund invests primarily in a non-diversified
portfolio of long-term, investment grade obligations, the
interest on which is exempt from Federal and Oregon income taxes.
<PAGE>
The Environment
As 1993 drew to a close, the US economy showed signs of strong
improvement. The initial estimate for gross domestic product
(GDP) growth in the final quarter of 1993 was +5.9% in real
terms, the strongest quarterly performance since the fourth
quarter of 1987. GDP growth was led by interest rate-sensitive
sectors, such as housing, durable goods orders and business
investment in capital equipment. Consumer confidence also
improved after remaining lackluster throughout most of 1993.
While the exceptionally robust rate of growth may not be
sustainable in the first quarter of 1994 (especially considering
the harsh winter weather experienced by virtually half of the
country in January), this strong showing suggests that the US
economy may at last be gaining momentum. This was supported by the
December increase in the Index of Leading Economic Indicators,
the fifth monthly rise in this indicator of future economic
activity.
At the same time, the rate of inflation remains in check.
Nevertheless, concerns arose late in 1993 that the rate of
business activity might increase inflationary pressures, which
were reflected in an upturn of longer-term interest rates. In
January, Federal Reserve Board Chairman Alan Greenspan indicated
in Congressional testimony that continued strong expansion of
economic activity would lead the central bank to tighten monetary
policy in an effort to contain inflation. On February 4, 1994,
the central bank broke with tradition and publicly announced an
increase in short-term interest rates. In the weeks ahead,
investors will continue to gauge the pace of the economic
expansion and watch for signs of an overheating economy that
could prompt successive Federal Reserve Board actions to raise
short-term interest rates.
The Municipal Market
Yields on tax-exempt securities generally declined over the three
months ended January 31, 1994. Long-term revenue bond yields, as
measured by the Bond Buyer Revenue Bond Index, declined an
additional six basis points (0.06%) to end the quarter at 5.50%.
US Treasury bond yields, however, rose approximately 25 basis
points to end the period at approximately 6.20%. This
outperformance by municipal securities is likely to be the
dominant theme for much of 1994.
<PAGE>
During the January quarter, taxable yields remained volatile in
reaction to the inherent conflicts between the extremely strong
economic recovery seen during the last quarter of 1993 and
continued low inflationary pressures. Tax-exempt bond yields,
however, reflected very positive technical factors. During the 12
months ended January 31, 1994, municipalities issued more than
$288 billion in securities, an increase of more than 21% versus
one year ago. As we have discussed in earlier reports to
shareholders, much of this increase has been the result of
municipalities refinancing existing higher-couponed debt. At
current yield levels, few of these issues remain to be refunded.
This has led to estimates of municipal bond issuance declining to
approximately $175 billion for all of 1994. More than $290
billion in long-term tax-exempt securities was issued in 1993.
In addition to this dramatic decline in issuance, investor demand
is expected to increase in the coming year. Greater demand should
be generated by a number of factors, with the recent increases in
marginal Federal income tax rates the most important. Also, bond
calls and early redemptions are expected to increase significantly
in the coming quarters and last into early 1995, at least. The
combination of declining new-issue volume and increasing numbers
of bonds redeemed prior to their stated maturities will eventually
lead to a net decline in the number of bonds outstanding. In such
a scenario, investor demand rises as bondholders are forced to
continually purchase new municipal bonds to replace their previous
holdings.
The outlook for the municipal bond market is very favorable.
While the historic declines in yields seen over the last year are
unlikely to be repeated, the strong technical framework within
the tax-exempt market would support further modest declines in
tax-exempt yields. At the very least, should interest rates rise
in response to continued strong economic growth and a resurgence
in inflationary pressures, we believe that municipal bond price
deterioration will be minimal in comparison to taxable investment
alternatives.
Portfolio Strategy
Since the Fund commenced operations on August 27, 1993, our
investment outlook has remained constructive on municipal bonds
and interest rates in general. The main objective of the Fund is
to seek a high level of current income. Accordingly, we have
purchased investment-grade bonds with maturities of longer than
15 years. This strategy has benefited total return by providing a
competitive current yield and net asset value appreciation. Per
share net asset value for Class A and Class B Shares was $10.30
for each class as of January 31, 1994.
The Oregon municipal bond market has been strong as a result of
strong demand for Oregon tax-exempt bonds and low amounts of new
issuance. As Merrill Lynch Oregon Municipal Bond Fund continues
to receive new subscriptions, it seeks to purchase bonds with
yields matching those of bonds currently held. To date, this goal
has been achieved primarily by purchasing new issues with
maturities of longer than 15 years.
<PAGE>
We appreciate your ongoing interest in Merrill Lynch Oregon
Municipal Bond Fund, and we look forward to serving your
investment needs and objectives in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
March 8, 1994
PERFORMANCE DATA
None of the past results shown should be considered a
representation of future performance. Investment return
and principal value of Class A and Class B Shares will
fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
<TABLE>
<CAPTION>
Recent Performance Results* Since Inception 3 Month
1/31/94 10/31/93 8/27/93** % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.30 $10.14 $10.00 + 3.00% + 1.58%
Class B Shares 10.30 10.14 10.00 + 3.00 + 1.58
Class A Shares--Total Return + 5.31(1) + 2.92(2)
Class B Shares--Total Return + 5.09(3) + 2.79(4)
Class A Shares--Standardized 30-day Yield 4.60%
Class B Shares--Standardized 30-day Yield 4.30%
<FN>
*Investment results shown for the 3-month and since inception periods
are before the deduction of any sales charges.
**Commencement of Operations.
(1) Percent change includes reinvestment of $0.217 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.134 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.195 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.122 per share ordinary income dividends.
</TABLE>
<PAGE>
Aggregate Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Inception (8/27/93)
through 12/31/93 +4.89% +0.70%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Inception (8/27/93)
through 12/31/93 +4.70% +0.70%
[FN]
*Maximum contingent sales charge is 4% and
is reduced to 0% after 4 years.
**Assuming payment of applicable contingent
deferred sales charge.
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Kenneth S. Axelson, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
National Westminster Bank NJ
10 Exchange Place
Jersey City, New Jersey 07302
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
Oregon--99.9%
AAA Aaa $ 800 Albany, Oregon, Water Revenue Refunding Bonds, Second Lien, Series B,
5% due 8/01/2012 (a) $ 807
A+ A 1,140 Central Lincoln, Oregon, Peoples Utility District, Electric Revenue Refunding Bonds,
5.10% due 1/01/2011 1,168
NR Baa1 1,385 Clackamas County, Oregon, Hospital Facilities Authority, Revenue Refunding Bonds
(Gross Willamette Falls), 5.75% due 4/01/2015 1,386
A+ A 500 Clackamas County, Oregon, School District No. 12, Revenue Refunding Bonds (North
Clackamas), UT, 5% due 6/01/2011 504
AA A1 1,000 Eugene, Oregon, Electric Utility Revenue Bonds, 5% due 8/01/2017 989
A+ A 800 Gresham, Oregon, Water Revenue Refunding Bonds, Series B, 5.30% due 11/01/2015 814
BBB+ NR 1,000 Hillsboro, Oregon, Hospital Facilities Authority, Revenue Refunding Bonds (Quality
Healthcare), 5.75% due 10/01/2012 992
AAA Aaa 800 Jefferson County, Oregon, School District No. 509J, UT, 5.50% due 6/15/2013 (a) 842
A- NR 800 Keizer, Oregon, Urban Renewal Agency, Tax Increment Revenue Bonds (North River Road
Economic Development Area), AMT, 5.60% due 7/01/2013 802
AA Aa1 500 Lake Oswego, Oregon, GO, Revenue Refunding Bonds, UT, 5.125% due 2/01/2014 505
NR A 500 Lane and Douglas Counties, Oregon, School District No. 97, Series J, Revenue Refunding
Bonds, UT, 5.20% due 2/01/2011 515
NR Aa 4,500 Lane County, Oregon, School District No. 4J, Revenue Refunding Bonds (Eugene),
Series A, UT, 5.375% due 7/01/2013 4,594
A-1 VMIG1 700 Medford, Oregon, Hospital Facilities Authority Revenue Bonds (Rogue Valley Health
Services), VRDN, 2.35% due 10/01/2016 (c) 700
A- NR 500 Medford, Oregon, Urban Renewal Agency, Tax Revenue Bonds, Series B, 5.30% due 9/01/2011 496
A A 1,000 Metro, Oregon, General Revenue Refunding Bonds (Metro Regional Center Project),
Series A, 5.25% due 8/01/2022 1,017
</TABLE>
<PAGE>
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 some of the securities
according to the list at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
LT Limited Tax
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
Oregon (concluded)
AA- NR $ 800 Multnomah County, Oregon, School District No. 040, GO, UT, 5.625% due 6/01/2012 $ 858
A- NR 1,000 North Clackamas, Oregon, Parks and Recreation District, Recreational Facilities
Revenue Bonds, 5.70% due 4/01/2013 1,057
Oregon State Board Bank Revenue Bonds, Economic Development Department, LT:
NR A 500 Refunding, Series A, 5.50% due 1/01/2012 518
NR A 700 Series C, 5.375% due 1/01/2014 726
AA- Aa 500 Oregon State Board of Higher Education, Revenue Bonds, Series A, 5% due 8/01/2023 505
AA- Aa 1,250 Oregon State Elderly and Disabled Housing, Revenue Bonds, Series C, AMT, 5.65%
due 8/01/2026 1,279
NR A1 900 Oregon State Health, Housing, Educational and Cultural Facilities Authority
(Oregon Coast Aquarium Project), Series A, 5.25% due 10/01/2013 947
A+ A1 2,000 Oregon State Housing and Community Services Department, Housing Finance Revenue
Refunding Bonds (Assisted or Insured Multi Unit), Series A, 5.75% due 7/01/2012 2,056
NR Aa 2,000 Oregon State Housing and Community Services Department, Mortgage Revenue Bonds, S/F
Mortgage Program, Series A, 5.45% due 7/01/2024 (b) 2,034
AA- Aa 500 Oregon State, PCR, Series C, UT, 5.625% due 6/01/2013 536
AAA Aaa 800 Polk County, Oregon, School District No. 002, UT, 5.40% due 6/01/2012 (a) 832
<PAGE>
Port Saint Helens, Oregon, PCR (Portland General Electric Company Project), VRDN (c):
A-1 NR 200 Series A, AMT, 2.45% due 8/01/2014 200
A1+ VMIG1 200 Series B, 2.20% due 6/01/2010 200
A+ A1 800 Portland, Oregon, Sewer System Revenue Refunding Bonds, Series A, 5.25% due 3/01/2010 849
NR Aa 800 Portland, Oregon, Water System Revenue Bonds, 5.25% due 8/01/2013 816
A-1 VMIG1 300 Salem, Oregon, Hospital Facilities Authority Revenue Bonds (Capital Manor), VRDN, 2.50%
due 10/01/2017 (c) 300
NR A1 800 Washington and Clackamas Counties, Oregon, School District No. 23J, UT,
5.40% due 1/01/2010 829
AAA Aaa 800 Yamhill County, Oregon, School District No. 029J, UT, 5.50% due 6/01/2010 (a) 838
Puerto Rico--1.6%
NR Aaa 500 Puerto Rico Industrial, Medical and Environmental, Pollution Control Facilities,
Financing Authority Revenue Bonds, 5.10% due 12/01/2018 498
Total Investments (Cost--$31,350)--101.5% 32,009
Liabilities in Excess of Other Assets--(1.5%) (488)
---------
Net Assets--100.0% $ 31,521
=========
<FN>
(a)FSA Insured.
(b)GNMA Collateralized.
(c)The interest rate is subject to change periodically based upon prevailing market rates.
The interest rate shown is the rate in effect at January 31, 1994.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets and Liabilities as of January 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$31,349,964) (Note 1a) $32,009,010
Cash 79,986
Receivables:
Beneficial interest sold $ 583,338
Interest 288,640
Investment adviser (Note 2) 90,738 962,716
------------
Deferred organization expenses (Note 1e) 47,600
------------
Total assets 33,099,312
------------
<PAGE>
Liabilities: Payables:
Securities purchased 1,480,403
Dividends to shareholders (Note 1f) 27,771
Distributor (Note 2) 9,189
Beneficial interest redeemed 154 1,517,517
------------
Accrued expenses and other liabilities 60,860
------------
Total liabilities 1,578,377
------------
Net Assets: Net assets $ 31,520,935
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $ 68,165
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 237,806
Paid-in capital in excess of par 30,540,217
Undistributed realized capital gains--net 15,701
Unrealized appreciation on investments--net 659,046
------------
Net assets $ 31,520,935
============
Net Asset Value: Class A--Based on net assets of $7,022,123 and 681,649 shares of
beneficial interest outstanding $ 10.30
============
Class B--Based on net assets of $24,498,812 and 2,378,065 shares of
beneficial interest outstanding $ 10.30
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Period
August 27, 1993++ to
January 31, 1994
<S> <S> <C>
Investment Income Interest and amortization of premium and discount earned $ 520,911
(Note 1d):
Expenses: Investment advisory fees (Note 2) 57,376
Distribution and account maintenance fees--Class B (Note 2) 41,090
Printing and shareholder reports 32,403
Accounting services (Note 2) 17,240
Professional fees 13,184
Registration fees (Note 1e) 12,295
Transfer agent fees--Class B (Note 2) 4,318
Amortization of organization expenses (Note 1e) 4,056
Custodian fees 3,230
Pricing fees 1,561
Transfer agent fees--Class A (Note 2) 1,008
Trustees' fees and expenses 454
Other 989
------------
Total expenses before reimbursement 189,204
Reimbursement of expenses (Note 2) (148,114)
------------
Total expenses after reimbursement 41,090
------------
Investment income--net 479,821
------------
Realized & Realized gain on investments--net 34,132
Unrealized Unrealized appreciation on investments--net 659,046
Gain on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 1,172,999
(Notes 1d & 3): ============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
For the Period Aug. 27, 1993++
Increase (Decrease) in Net Assets: to Jan. 31, 1994
<S> <S> <C>
Operations: Investment income--net $ 479,821
Realized gain on investments--net 34,132
Unrealized appreciation on investments--net 659,046
------------
Net increase in net assets resulting from operations 1,172,999
------------
Dividends & Investment income--net:
Distributions to Class A (110,566)
Shareholders Class B (369,255)
(Note 1f): Realized gain on investments--net:
Class A (3,927)
Class B (14,504)
------------
Net decrease in net assets resulting from dividends and distributions to shareholders (498,252)
------------
Beneficial Interest Net increase in net assets derived from beneficial interest transactions 30,746,188
Transactions ------------
(Note 4):
Net Assets: Total increase in net assets 31,420,935
Beginning of period 100,000
------------
End of period $ 31,520,935
============
</TABLE>
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period Aug. 27, 1993++
to Jan. 31, 1994
Increase (Decrease) in Net Asset Value: Class A Class B
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00
Operating --------- ---------
Performance: Investment income--net .22 .20
Realized and unrealized gain on investments--net .31 .31
--------- ---------
Total from investment operations .53 .51
--------- ---------
Less dividends and distributions:
Investment income--net (.22) (.20)
Realized gain on investments--net (.01) (.01)
--------- ---------
Total dividends and distributions (.23) (.21)
--------- ---------
Net asset value, end of period $ 10.30 $ 10.30
========= =========
Total Investment Based on net asset value per share 5.31%+++ 5.09%+++
Return:** ========= =========
Ratios to Expenses, net of reimbursement and excluding distribution fees .00% .00%
Average ========= =========
Net Assets: Expenses, net of reimbursement .00% .50%*
========= =========
Expenses 1.42%* 1.92%*
========= =========
Investment income--net 4.99%* 4.49%*
========= =========
Supplemental Net assets, end of period (in thousands) $ 7,022 $ 24,499
Data: ========= =========
Portfolio turnover 8.78% 8.78%
========= =========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
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.
Prior to commencement of operations on August 27, 1993, the Fund
had no operations other than those relating to organizational
matters and the issuance of 5,000 Class A Shares of beneficial
interest and 5,000 Class B Shares of beneficial interest of the
Fund to Fund Asset Management, L.P. ("FAM") for $100,000. The
Fund offers both Class A and Class B Shares. Class A Shares are
sold with a front-end sales charge. Class B Shares may be subject
to a contingent deferred sales charge. Both classes of shares
have identical voting, dividend, liquidation and other rights and
the same terms and conditions, except that Class B Shares bear
certain expenses related to the distribution of such shares and
have exclusive voting rights with respect to matters relating to
such 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. Options, which are traded on exchanges, are valued at
their last sale price as of the close of such exchanges or,
lacking any sales, at the last available bid price. 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) Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures
contracts are contracts for delayed delivery of securities at a
specific future date and at a specific price or yield. Upon
entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on
which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract.
Such receipts or payments are known as variation margin and are
recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
<PAGE>
(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. Original issue discounts and market premiums
are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost
basis.
(e) Deferred organization expenses and prepaid registration
fees--Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of
capital gains are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
FAM. Effective January 1, 1994, the investment advisory business
of FAM was reorganized from a corporation to a limited
partnership. Both prior to and after the reorganization, ultimate
control of FAM was vested with Merrill Lynch & Co., Inc. ("ML &
Co."). The general partner of FAM is Princeton Services, Inc., an
indirect wholly-owned subsidiary of ML & Co. The limited partners
are ML & Co. and Merrill Lynch Investment Management, Inc.
("MLIM"), which is also an indirect wholly-owned subsidiary of ML
& Co. The Fund has also entered into Distribution Agreements and
a Distribution Plan with Merrill Lynch Funds Distributor, Inc.
("MLFD" or "Distributor"), a wholly-owned subsidiary of MLIM.
<PAGE>
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets at the following
annual rates: 0.55% of the Fund's average daily net assets not
exceeding $500 million; 0.525% of average daily net assets in
excess of $500 million but not exceeding $1 billion; and 0.50% of
average daily net assets in excess of $1 billion. The Investment
Advisory Agreement obligates FAM to reimburse the Fund to the
extent the Fund's expenses (excluding interest, taxes,
distribution fees, brokerage fees and commissions, and
extraordinary items) exceed 2.5% of the Fund's first $30 million
of average daily net assets, 2.0% of the next $70 million of
average daily net assets and 1.5% of the average daily net assets
in excess thereof. FAM's obligation to reimburse the Fund is
limited to the amount of the management fee. No fee payment will
be made to the Investment Adviser during any fiscal year which
will cause such expenses to exceed expense limitation at the time
of such payment. For the period August 27, 1993 to January 31,
1994, FAM earned fees of $57,376, all of which was voluntarily
waived. FAM also reimbursed the Fund additional expenses of
$90,738.
Pursuant to a distribution plan (the "Distribution Plan") adopted
by the Fund in accordance with Rule 12b-1 under the Investment
Company Act of 1940, the Fund pays the Distributor an ongoing
account maintenance fee and distribution fee relating to Class B
Shares, which are accrued daily and paid monthly at the annual
rates 0.25% and 0.25%, respectively, of the average daily net
assets of the Class B Shares of the Fund. Pursuant to a sub-
agreement with the Distributor, Merrill Lynch also provides
account maintenance and distribution services to the Fund. As
authorized by the Plan, the Distributor has entered into an
agreement with Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), an affiliate of FAM, which provides for the
compensation of MLPF&S for providing distribution-related
services to the Fund. For the period August 27, 1993 to January
31, 1994, MLFD earned underwriting discounts of $3,979, and
MLPF&S earned dealer concessions of $106,271 on sales of the
Fund's Class A Shares.
MLPF&S also received contingent deferred sales charges of $2,961
relating to Class B Share transactions during the period.
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, MLIM, MLFD, FDS, MLPF&S, and/or ML & Co.
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the period ended January 31, 1994 were
$31,892,621 and $1,960,316, respectively.
Net realized and unrealized gains as of January 31, 1994 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 34,132 $ 659,046
----------- -----------
Total $ 34,132 $ 659,046
=========== ===========
As of January 31, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $659,046, all of which related to
appreciated securities. The aggregate cost of investments at
January 31, 1994 for Federal income tax purposes was $31,349,964.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $30,746,188 for the period ended January 31,
1994.
Transactions in shares of beneficial interest for Class A and
Class B Shares were as follows:
Class A Shares for the Period
August 27, 1993++ to Dollar
January 31, 1994 Shares Amount
Shares sold 714,118 $ 7,207,187
Shares issued to shareholders
in reinvestment of dividends
and distributions 6,746 68,805
----------- -----------
Total issued 720,864 7,275,992
Shares redeemed (44,215) (448,270)
----------- -----------
Net increase 676,649 $ 6,827,722
=========== ===========
[FN]
++Prior to August 27, 1993 (commencement of operations), the
Fund issued 5,000 shares to FAM for $50,000.
<PAGE>
Class B Shares for the Period
August 27, 1993++ to Dollar
January 31, 1994 Shares Amount
Shares sold 2,405,998 $24,252,783
Shares issued to shareholders
in reinvestment of dividends
and distributions 19,915 203,226
----------- -----------
Total issued 2,425,913 24,456,009
Shares redeemed (52,848) (537,543)
----------- -----------
Net increase 2,373,065 $23,918,466
=========== ===========
[FN]
++Prior to August 27, 1993 (commencement of operations), the
Fund issued 5,000 shares to FAM for $50,000.
