<DOCUMENT>
<TYPE>EX-99.17K
<SEQUENCE>24
<FILENAME>dex9917k.txt
<DESCRIPTION>PROSPECTUS, DATED 11/14/01, OF ML TEXAS MUNI
<TEXT>
<PAGE>
EXHIBIT 17(K)
Prospectus
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Texas Municipal Bond Fund
of Merrill Lynch Multi-State Municipal Series Trust
November 14, 2001
This Prospectus contains information you should know before investing, including
information about risks. Please read it before you invest and keep it for future
reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
[ICON] KEY FACTS
-------------------------------------------------------------------------------
Merrill Lynch Texas Municipal Bond Fund at a Glance 3
---------------------------------------------------
Risk/Return Bar Chart 5
----------------------
Fees and Expenses 6
-----------------
[ICON] DETAILS ABOUT THE FUND
-------------------------------------------------------------------------------
How the Fund Invests 8
--------------------
Investment Risks 9
----------------
[ICON] YOUR ACCOUNT
-------------------------------------------------------------------------------
Merrill Lynch Select Pricing(SM) System 14
---------------------------------------
How to Buy, Sell, Transfer and Exchange Shares 20
-----------------------------------------------
Participation in Fee-Based Programs 24
-----------------------------------
[ICON] MANAGEMENT OF THE FUND
-------------------------------------------------------------------------------
Fund Asset Management 27
---------------------
Financial Highlights 28
--------------------
[ICON] FOR MORE INFORMATION
-------------------------------------------------------------------------------
Shareholder Reports Back Cover
--------------------
Statement of Additional Information Back Cover
-----------------------------------
</TABLE>
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
Key Facts [ICON]
In an effort to help you better understand the many concepts involved in making
an investment decision, we have defined the highlighted terms in this prospectus
in the sidebar.
Investment Grade -- any of the four highest debt obligation ratings by
recognized rating agencies, including Moody's Investors Service, Inc., Standard
& Poor's or Fitch, Inc.
Texas Municipal Bond-- a debt obligation issued by or on behalf of a
governmental entity in Texas or other qualifying issuer that pays interest
exempt from Federal income tax.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND AT A GLANCE
--------------------------------------------------------------------------------
What is the Fund's investment objective?
The investment objective of the Fund is to provide shareholders with income
exempt from Federal income tax.
What are the Fund's main investment strategies?
The Fund invests primarily in a portfolio of long term investment grade Texas
municipal bonds. These may be obligations of a variety of issuers including
governmental entities in Texas and issuers located in Puerto Rico, the U. S.
Virgin Islands and Guam. The Fund will invest at least 80% of its net assets in
Texas municipal bonds. The Fund may invest up to 20% of its assets in high yield
bonds (also known as "junk" bonds); however, the Fund will not invest in bonds
that are in default or that Fund management believes will be in default. The
Fund also may invest in certain types of derivative securities. When choosing
investments, Fund management considers various factors, including the credit
quality of issuers, yield analysis, maturity analysis and the call features of
the obligations. Under normal conditions, the Fund's weighted average maturity
will be more than ten years. The Fund cannot guarantee that it will achieve its
objective.
What are the main risks of investing in the Fund?
As with any mutual fund, the value of the Fund's investments -- and therefore
the value of Fund shares -- may fluctuate. These changes may occur in response
to interest rate changes or other developments that may affect the municipal
bond market generally or a particular issuer or obligation. Generally, when
interest rates go up, the value of debt instruments like municipal bonds goes
down. Also, Fund management may select securities that underperform the bond
market or other funds with similar investment objectives and investment
strategies. If the value of the Fund's investments goes down, you may lose
money. Prices of longer term securities generally change more in response to
interest rate changes than prices of shorter term securities.
The Fund is a non-diversified fund, which means that it may invest more of its
assets in obligations of a single issuer than if it were a diversified fund. For
this reason, developments affecting an individual issuer may have a greater
impact on the Fund's performance. In addition, since the Fund invests at least
80% of its net assets in Texas municipal bonds, it is more exposed to negative
political or economic factors in Texas than a fund that invests more widely.
Derivatives and high yield bonds may be volatile and subject to liquidity,
leverage and credit risks.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND 3
<PAGE>
[ICON] Key Facts
Who should invest?
The Fund may be an appropriate investment for you if you:
. Are looking for income that is exempt from Federal income tax
. want a professionally managed portfolio without the administrative burdens
of direct investments in municipal bonds
. Are looking for liquidity
. Can tolerate the risk of loss caused by negative political or economic
developments in Texas, changes in interest rates or adverse changes in the
price of bonds in general
4 MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
RISK/RETURN BAR CHART
--------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund's performance for
Class B shares for each complete calendar year since the Fund's inception. Sales
charges are not reflected in the bar chart. If these amounts were reflected,
returns would be less than those shown. The table compares the average annual
total returns for each class of the Fund's shares for the periods shown with
those of the Lehman Brothers Municipal Bond Index. How the Fund performed in the
past is not necessarily an indication of how the Fund will perform in the
future.
[CHART]
1992 10.14%
1993 13.24%
1994 -5.76%
1995 15.80%
1996 1.83%
1997 7.98%
1998 4.39%
1999 -6.72%
2000 11.05%
During the period shown in the bar chart, the highest return for a quarter was
4.94% (quarter ended June 30, 1992) and the lowest return for a quarter was-
5.83% (quarter ended March 31, 1994). The Fund's year-to-date return as of
September 30, 2001 was 4.01%.
<TABLE>
<CAPTION>
Average Annual Total Returns Past Past Since
(as of December 31, 2000) One Year Five Years Inception
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Merrill Lynch Texas Municipal Bond Fund* A 7.14% 3.20% 5.89%+
Lehman Brothers Municipal Bond Index** 11.68% 5.84% 7.07%++
----------------------------------------------------------------------------------------------
Merrill Lynch Texas Municipal Bond Fund* B 7.05% 3.52% 5.82%+
Lehman Brothers Municipal Bond Index** 11.68% 5.84% 7.07%++
----------------------------------------------------------------------------------------------
Merrill Lynch Texas Municipal Bond Fund* C 9.92% 3.41% 5.06%#
Lehman Brothers Municipal Bond Index** 11.68% 5.84% 7.54%##
----------------------------------------------------------------------------------------------
Merrill Lynch Texas Municipal Bond Fund* D 7.14% 3.10% 4.94%#
Lehman Brothers Municipal Bond Index** 11.68% 5.84% 7.54%##
----------------------------------------------------------------------------------------------
</TABLE>
* Includes all applicable fees and sales charges.
** This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds. Past performance is not
predictive of future performance.
+ Inception date is August 30, 1991.
++ Since August 31, 1991.
# Inception date is October 21, 1994.
## Since October 31, 1994.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND 5
<PAGE>
[ICON] Key Facts
UNDERSTANDING
EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which the Fund may charge:
Expenses paid directly by the shareholder:
Shareholder Fees -- these include sales charges which you may pay when you buy
or sell shares of the Fund.
Expenses paid indirectly by the shareholder:
Annual Fund Operating Expenses -- expenses that cover the costs of operating the
Fund.
Management Fee -- a fee paid to the Manager for managing the Fund.
Distribution Fees-- fees used to support the Fund's marketing and distribution
efforts, such as compensating financial advisors, advertising and promotion.
Service (Account Maintenance) Fees -- fees used to compensate securities dealers
and other financial intermediaries for account maintenance activities.
FEES AND EXPENSES
--------------------------------------------------------------------------------
The Fund offers four different classes of shares. Although your money will be
invested the same way no matter which class of shares you buy, there are
differences among the fees and expenses associated with each class. Not everyone
is eligible to buy every class. After determining which classes you are eligible
to buy, decide which class best suits your needs. Your Merrill Lynch Financial
Consultant can help you with this decision.
This table shows the different fees and expenses that you may pay if you buy and
hold the different classes of shares of the Fund. Future expenses may be greater
or less than those indicated below.
<TABLE>
<CAPTION>
Shareholder Fees (fees paid directly from
your investment)(a): Class A Class B(b) Class C Class D
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) imposed on
purchases (as a percentage of offering price) 4.00%(c) None None 4.00%(c)
---------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or None(d) 4.0%(c) 1.0%(c) None(d)
redemption proceeds, whichever is lower)
---------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) imposed on
Dividend Reinvestments None None None None
---------------------------------------------------------------------------------------------------
Redemption Fee None None None None
---------------------------------------------------------------------------------------------------
Exchange Fee None None None None
---------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (expenses
that are deducted from Fund assets):
---------------------------------------------------------------------------------------------------
Management Fee(e) 0.55% 0.55% 0.55% 0.55%
---------------------------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees(f) None 0.50% 0.60% 0.10%
---------------------------------------------------------------------------------------------------
Other Expenses (including transfer
agency fees)(g) 0.58% 0.59% 0.60% 0.60%
---------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.13% 1.64% 1.75% 1.25%
---------------------------------------------------------------------------------------------------
</TABLE>
(a) In addition, Merrill Lynch may charge clients a processing fee (currently
$5.35) when a client buys or redeems shares. See "Your Account -- How to
Buy, Sell, Transfer and Exchange Shares."
(b) Class B shares automatically convert to Class D shares approximately ten
years after you buy them and will no longer be subject to distribution fees
and will pay lower account maintenance fees.
(c) Some investors may qualify for reductions in the sales charge (load).
(d) You may pay a deferred sales charge if you purchase $1 million or more and
you redeem within one year.
(e) The Fund pays the Manager a fee at the annual rate of 0.55% of the average
daily net assets of the Fund for the first $500 million; 0.525% of the
average daily net assets from $500 million to $1 billion; and 0.50% of the
average daily net assets above $1 billion. For the fiscal year ended July
31, 2001, the fee payable to the Manager from the Fund was equal to 0.55%.
(f) The Fund calls the "Service Fee" an "Account Maintenance Fee." Account
Maintenance Fee is the term used elsewhere in this Prospectus and in all
other Fund materials. If you hold Class B or Class C shares over time, it
may cost you more in distribution (12b-1) fees than the maximum sales
charge that you would have paid if you had bought one of the other classes.
(g) Financial Data Services, Inc., an affiliate of the Manager, provides
transfer agency services to the Fund. The Fund pays a fee for these
sevices. The Manager or its affiliates also provide certain accounting
services to the Fund and the Fund reimburses the Manager or its affiliates
for such services.
6 MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
Examples:
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
These examples assume that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year, that you pay the
sales charges, if any, that apply to the particular class and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate you
will receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in this example. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
EXPENSES IF YOU DID REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
Class A $511 $745 $ 997 $1,720
Class B $567 $717 $ 892 $1,944
Class C $278 $551 $ 949 $2,062
Class D $522 $781 $1,059 $1,851
EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
Class A $511 $745 $ 997 $1,720
Class B $167 $517 $ 892 $1,944
Class C $178 $551 $ 949 $2,062
Class D $522 $781 $1,059 $1,851
<PAGE>
Details About the Fund [ICON]
ABOUT THE PORTFOLIO MANAGER
Theodore R. Jaeckel, Jr. is the portfolio
manager of the Fund. Mr. Jaeckel has been a
Director (Tax Exempt Fund Management) of
Merrill Lynch Investment Managers since
1997 and was a Vice President of Merrill
Lynch Investment Managers from 1991 to 1997.
ABOUT THE MANAGER
The Fund is managed by Fund Asset
Management.
HOW THE FUND INVESTS
The Fund's main goal is to seek income that is exempt from Federal income tax.
The Fund invests primarily in long term, investment grade Texas municipal bonds.
These may be obligations of a variety of issuers including governmental entities
or other qualifying issuers. Issuers may be located in Texas or in other
qualifying jurisdictions such as Puerto Rico, the U.S. Virgin Islands and Guam.
The Fund may invest in either fixed rate or variable rate obligations. At least
80% of the Fund's assets will be invested in investment grade securities. The
Fund may invest up to 20% of its assets in high yield ("junk") bonds. These
bonds are generally more speculative and involve greater price fluctuations than
investment grade securities.
The Fund generally will invest at least 80% of its net assets in Texas municipal
bonds. Under normal conditions, the Fund's weighted average maturity will be
more than ten years. For temporary periods, however, the Fund may invest up to
35% of its assets in short term tax exempt or taxable money market obligations,
although the Fund will generally not invest more than 20% of its net assets in
taxable money market obligations. As a temporary measure for defensive purposes,
the Fund may invest without limitation in such short term tax exempt or taxable
money market obligations. These short term investments may limit the potential
for the Fund to achieve its objective.
The Fund may use derivatives including futures, options, indexed securities,
inverse securities and swap agreements. Derivatives are financial instruments
whose value is derived from another security or an index such as the Lehman
Brothers Municipal Bond Index.
The Fund's investments may include private activity bonds that may subject
certain shareholders to a Federal alternative minimum tax.
The State of Texas has sometimes encountered financial difficulties of a type
that could have an adverse effect on the performance of the Fund. Fund
management believes that current economic conditions in Texas will enable the
Fund to continue to invest in high quality Texas municipal bonds.
8 MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
Fund management considers a variety of factors when choosing investments, such
as:
. Credit Quality of Issuers -- based on bond ratings and other factors
including economic and financial conditions.
. Yield Analysis -- takes into account factors such as the different
yields available on different types of obligations and the shape of the
yield curve (longer term obligations typically have higher yields).
. Maturity Analysis-- the weighted average maturity of the portfolio will
be maintained within a desirable range as determined from time to time.
Factors considered include portfolio activity, maturity of the supply
of available bonds and the shape of the yield curve.
In addition, Fund management considers the availability of features that protect
against an early call of a bond by the issuer.
INVESTMENT RISKS
This section contains a summary discussion of the general risks of investing in
the Fund. As with any mutual fund, there can be no guarantee that the Fund will
meet its goals or that the Fund's performance will be positive for any period of
time.
Bond Market and Selection Risk -- Bond market risk is the risk that the bond
market will go down in value, including the possibility that the market will go
down sharply and unpredictably. Selection risk is the risk that the securities
that Fund management selects will underperform the market or other funds with
similar investment objectives and investment strategies.
Credit Risk -- Credit risk is the risk that the issuer will be unable to pay the
interest or principal when due. The degree of credit risk depends on both the
financial condition of the issuer and the terms of the obligation.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND 9
<PAGE>
[ICON] Details About the Fund
Interest Rate Risk -- Interest rate risk is the risk that prices of municipal
bonds generally increase when interest rates decline and decrease when interest
rates increase. Prices of longer term securities generally change more in
response to interest rate changes than prices of shorter term securities.
State Specific Risk -- The Fund will invest primarily in Texas municipal bonds.
As a result, the Fund is more exposed to risks affecting issuers of Texas
municipal bonds than is a municipal bond fund that invests more widely.
The Texas economy is affected by developments in the oil and gas industry, the
construction and housing industry and agricultural production. In addition,
developments in the economy of Mexico, one of Texas' largest trading partners,
could adversely affect Texas' economy. Moody's, Standard & Poor's and Fitch
currently rate the State of Texas general obligation bonds Aa1, AA and AA+,
respectively.
Call and Redemption Risk -- A bond's issuer may call a bond for redemption
before it matures. If this happens to a bond the Fund holds, the Fund may lose
income and may have to invest the proceeds in bonds with lower yields.
Borrowing and Leverage -- The Fund may borrow for temporary emergency purposes
including to meet redemptions. Borrowing may exaggerate changes in the net asset
value of Fund shares and in the yield on the Fund's portfolio. Borrowing will
cost the Fund interest expense and other fees. The costs of borrowing may reduce
the Fund's return. Certain securities that the Fund buys may create leverage
including, for example, when issued securities, forward commitments and options.
Risks associated with certain types of obligations in which the Fund may invest
include:
General Obligation Bonds -- The faith, credit and taxing power of the issuer of
a general obligation bond secures payment of interest and repayment of
principal. Timely payments depend on the issuer's credit quality, ability to
raise tax revenues and ability to maintain an adequate tax base.
Revenue Bonds -- Payments of interest and principal on revenue bonds are made
only from the revenues generated by a particular facility, class of facilities
or the proceeds of a special tax or other revenue source. These payments depend
on the money earned by the particular facility or class of facilities.
Industrial development bonds are one type of revenue bond.
10 MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
Industrial Development Bonds -- Municipalities and other public authorities
issue industrial development bonds to finance development of industrial
facilities for use by a private enterprise. The private enterprise pays the
principal and interest on the bond, and the issuer does not pledge its faith,
credit and taxing power for repayment. If the private enterprise defaults on its
payments, the Fund may not receive any income or get its money back from the
investment.
Moral Obligation Bonds -- Moral obligation bonds are generally issued by special
purpose public authorities of a state or municipality. If the issuer is unable
to meet its obligations, repayment of these bonds becomes a moral commitment,
but not a legal obligation, of the state or municipality.
Municipal Notes -- Municipal notes are shorter term municipal debt obligations.
They may provide interim financing in anticipation of tax collection, bond sales
or revenue receipts. If there is a shortfall in the anticipated proceeds, the
notes may not be fully repaid and the Fund may lose money.
Municipal Lease Obligations -- In a municipal lease obligation, the issuer
agrees to make payments when due on the lease obligation. The issuer will
generally appropriate municipal funds for that purpose, but is not obligated to
do so. Although the issuer does not pledge its unlimited taxing power for
payment of the lease obligation, the lease obligation is secured by the leased
property. However, it may be difficult to sell the property and the proceeds of
a sale may not cover the Fund's loss.
Insured Municipal Bonds -- Bonds purchased by the Fund may be covered by
insurance that guarantees timely interest payments and repayment of principal on
maturity. If a bond's insurer fails to fulfill its obligations or loses its
credit rating, the value of the bond could drop. Insured bonds are subject to
market risk.
Junk Bonds -- Junk bonds are debt securities that are rated below investment
grade by the major rating agencies or are unrated securities that Fund
management believes are of comparable quality. The Fund does not intend to
purchase debt securities that are in default or that Fund management believes
will be in default. Although junk bonds generally pay higher rates of interest
than investment grade bonds, they are high risk investments that may cause
income and principal losses for the Fund. Junk bonds generally are less liquid
and experience more price volatility than higher rated debt securities. The
issuers of junk bonds may have a larger amount of outstanding debt relative to
their assets than issuers of investment
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND 11
<PAGE>
[ICON] Details About the Fund
grade bonds. In the event of an issuer's bankruptcy, claims of other creditors
may have priority over the claims of junk bond holders, leaving fewer assets
available to repay junk bond holders. Junk bonds may be subject to greater call
and redemption risk than higher rated debt securities.
When Issued Securities, Delayed Delivery Securities and Forward Commitments --
When issued and delayed delivery securities and forward commitments involve the
risk that the security the Fund buys will lose value prior to its delivery to
the Fund. There also is the risk that the security will not be issued or that
the other party will not meet its obligation, in which case the Fund loses the
investment opportunity of the assets it has set aside to pay for the security
and any gain in the security's price.
Variable Rate Demand Obligations -- Variable rate demand obligations (VRDOs) are
floating rate securities that combine an interest in a long term municipal bond
with a right to demand payment before maturity from a bank or other financial
institution. If the bank or financial institution is unable to pay, the Fund may
lose money.
Illiquid Securities -- The Fund may invest up to 15% of its assets in
illiquid securities that it cannot easily sell within seven days at current
value or that have contractual or legal restrictions on resale. If the Fund buys
illiquid securities it may be unable to quickly sell them or may be able to sell
them only at a price below current value.
Derivatives -- The Fund may use derivative instruments including indexed and
inverse securities, options on portfolio positions, options on securities or
other financial indices, financial futures and options on such futures and swap
agreements. Derivatives allow the Fund to increase or decrease its risk exposure
more quickly and efficiently than other types of instruments.
Derivatives are volatile and involve significant risks, including:
Credit Risk -- the risk that the counterparty (the party on the other
side of the transaction) on a derivative transaction will be unable to
honor its financial obligation to the Fund.
Leverage Risk -- the risk associated with certain types of investments
or trading strategies that relatively small market movements may result
in large changes in the value of an investment. Certain investments or
trading strategies that involve leverage can result in losses that
greatly exceed the amount originally invested.
12 MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
Liquidity Risk -- the risk that certain securities may be difficult or
impossible to sell at the time that the seller would like or at the
price that the seller believes the security is currently worth.
The Fund may use derivatives for hedging purposes including anticipatory
hedges. Hedging is a strategy in which the Fund uses a derivative to offset the
risks associated with other Fund holdings. While hedging can reduce losses, it
can also reduce or eliminate gains or cause losses if the market moves in a
different manner than anticipated by the Fund or if the cost of the derivative
outweighs the benefit of the hedge. Hedging also involves the risk that changes
in the value of the derivative will not match those of the holdings being hedged
as expected by the Fund, in which case any losses on the holdings being hedged
may not be reduced. There can be no assurance that the Fund's hedging strategy
will reduce risk or that hedging transactions will be either available or cost
effective. The Fund is not required to use hedging and may choose not to do so.
Indexed and Inverse Floating Rate Securities -- The Fund may invest in
securities whose potential returns are directly related to changes in an
underlying index or interest rate, known as indexed securities. The return on
indexed securities will rise when the underlying index or interest rate rises
and fall when the index or interest rate falls. The Fund may also invest in
securities whose return is inversely related to changes in an interest rate
(inverse floaters). In general, income on inverse floaters will decrease when
short term interest rates increase and increase when short term interest rates
decrease. Investments in inverse floaters may subject the Fund to the risks of
reduced or eliminated interest payments and losses of principal. In addition,
certain indexed securities and inverse floaters may increase or decrease in
value at a greater rate than the underlying interest rate, which effectively
leverages the Fund's investment. As a result, the market value of such
securities will generally be more volatile than that of fixed rate, tax exempt
securities. Indexed securities and inverse floaters are derivative securities
and can be considered speculative.
STATEMENT OF ADDITIONAL INFORMATION
If you would like further information about the Fund, including how it invests,
please see the Statement of Additional Information.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND 13
<PAGE>
Your Account [ICON]
MERRILL LYNCH SELECT PRICINGSM SYSTEM
The Fund offers four share classes, each with its own sales charge and
expense structure, allowing you to invest in the way that best suits your needs.
Each share class represents an ownership interest in the same investment
portfolio. When you choose your class of shares you should consider the size of
your investment and how long you plan to hold your shares. Your Merrill Lynch
Financial Advisor can help you determine which share class is best suited to
your personal financial goals.
For example, if you select Class A or Class D shares, you generally pay a sales
charge at the time of purchase. If you buy Class D shares, you also pay an
ongoing account maintenance fee of 0.10%. You may be eligible for a sales charge
reduction or waiver.
Certain financial intermediaries may charge additional fees in connection with
transactions in Fund shares. The Manager, the Distributor or their affiliates
may make payments out of their own resources to selected securities dealers and
other financial intermediaries for providing services intended to result in the
sale of Fund shares or for shareholder servicing activities.
If you select Class B or Class C shares, you will invest the full amount of your
purchase price, but you will be subject to a distribution fee of 0.25% on Class
B shares, or 0.35% on Class C shares and an account maintenance fee of 0.25% on
both classes. Because these fees are paid out of the Fund's assets on an ongoing
basis, over time these fees increase the cost of your investment and may cost
you more than paying other types of sales charges. In addition, you may be
subject to a deferred sales charge when you sell Class B or Class C shares.
The Fund's shares are distributed by FAM Distributors, Inc., an affiliate of
Merrill Lynch. The Fund is a series of the Merrill Lynch Multi-State Municipal
Series Trust.
14 MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
The table below summarizes key features of the Merrill Lynch Select Pricing(SM)
System.
<TABLE>
<CAPTION>
Class A Class B Class C Class D
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Availability Limited to certain Generally Generally Generally
investors including: available available available
. Current Class A through through through Merrill
shareholders Merrill Lynch. Merrill Lynch. Lynch. Limited
. Participants in Limited Limited availability
certain Merrill availability availability through
Lynch-sponsored through through selected
programs selected selected securities
. Certain affiliates of securities securities dealers and
Merrill Lynch, dealers and dealers and other financial
selected securities other financial other financial intermediaries.
dealers and other intermediaries intermediaries
financial
intermediaries.
--------------------------------------------------------------------------------------------------------------------------
Initial Sales Yes. Payable at time No. Entire purchase No. Entire purchase Yes. Payable at time
Charge? of purchase. Lower price is invested in price is invested in of purchase. Lower sales
sales charges available shares of the Fund. shares of the Fund. charges available for
for larger investments. larger investments.
--------------------------------------------------------------------------------------------------------------------------
Deferred Sales No. (May be charged for Yes. Payable if you Yes. Payable if No. (May be charged for
Sales Charge? purchases over $1 million redeem within four you redeem within one purchases over $1 million
that are redeemed within years of purchase. year of purchase. that are redeemed within one
one year.) year.)
--------------------------------------------------------------------------------------------------------------------------
Account No. 0.25% Account 0.25% Account 0.10% Account
Maintenance Maintenance Fee.0.25% Maintenance Fee. Maintenance Fee.
and Distribution Distribution Fee. 0.35% Distribution No Distribution Fee.
Fees? Fee.
--------------------------------------------------------------------------------------------------------------------------
Conversion No. Yes, automatically No. N/A
to Class D Shares after approximately
ten years.
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND 15
<PAGE>
[ICON] Your Account
Right of Accumulation -- permits you to pay the sales charge that would apply to
the cost or value (whichever is higher) of all shares you own in the Merrill
Lynch mutual funds that offer Select Pricing(SM) options.
Letter of Intent -- permits you to pay the sales charge that would be applicable
if you add up all shares of Merrill Lynch Select Pricing(SM) System funds that
you agree to buy within a 13 month period. Certain restrictions apply.
Class A and Class D Shares -- Initial Sales Charge Options
If you select Class A or Class D shares, you will pay a sales charge at the time
of purchase as shown in the following table.
<TABLE>
<CAPTION>
Dealer
Compensation
As a % of As a % of as a % of
Your Investment Offering Price Your Investment* Offering Price
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 4.00% 4.17% 3.75%
------------------------------------------------------------------------------------------
$25,000 but less
than $50,000 3.75% 3.90% 3.50%
------------------------------------------------------------------------------------------
$50,000 but less
than $100,000 3.25% 3.36% 3.00%
------------------------------------------------------------------------------------------
$100,000 but less
than $250,000 2.50% 2.56% 2.25%
------------------------------------------------------------------------------------------
$250,000 but less
than $1,000,000 1.50% 1.52% 1.25%
------------------------------------------------------------------------------------------
$1,000,000 and over** 0.00% 0.00% 0.00%
------------------------------------------------------------------------------------------
</TABLE>
* Rounded to the nearest one-hundredth percent.
** If you invest $1,000,000 or more in Class A or Class D shares, you may not
pay an initial sales charge. In that case, the Manager compensates the
selling dealer or other financial intermediary from its own funds. However,
if you redeem your shares within one year after purchase, you may be
charged a deferred sales charge. This charge is 1.00% of the lesser of the
original cost of the shares being redeemed or your redemption proceeds.
No initial sales charge applies to Class A or Class D shares that you buy
through reinvestment of dividends.
A reduced or waived sales charge on a purchase of Class A or Class D shares may
apply for:
. Purchases under a Right of Accumulation or Letter of Intent
. TMA(SM) Managed Trusts
. Certain Merrill Lynch investment or central asset accounts
. Purchases using proceeds from the sale of certain Merrill Lynch
closed-end funds under certain circumstances
. Certain investors, including directors or trustees of Merrill Lynch
mutual funds and Merrill Lynch employees
. Certain fee-based programs of Merrill Lynch and other financial
intermediaries that have agreements with the Distributor or its
affiliates.
16 MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
Only certain investors are eligible to buy Class A shares. Your Merrill Lynch
Financial Advisor can help you determine whether you are eligible to buy Class A
shares or to participate in any of these programs.
If you decide to buy shares under the initial sales charge alternative and you
are eligible to buy both Class A and Class D shares, you should buy Class A
since Class D shares are subject to a 0.10% account maintenance fee, while Class
A shares are not.
If you redeem Class A or Class D shares and within 30 days buy new shares of
the same class, you will not pay a sales charge on the new purchase amount. The
amount eligible for this "Reinstatement Privilege" may not exceed the amount of
your redemption proceeds. To exercise the privilege, contact your Merrill Lynch
Financial Advisor, selected securities dealer, other financial intermediary or
the Fund's Transfer Agent at 1-800-MER-FUND.
Class B and Class C Shares -- Deferred Sales Charge Options
If you select Class B or Class C shares, you do not pay an initial sales charge
at the time of purchase. However, if you redeem your Class B shares within four
years after purchase or your Class C shares within one year after purchase, you
may be required to pay a deferred sales charge. You will also pay distribution
fees of 0.25% for Class B shares and 0.35% for Class C shares and account
maintenance fees of 0.25% for Class B and Class C shares each year under
distribution plans that the Fund has adopted under Rule 12b-1. Because these
fees are paid out of the Fund's assets on an ongoing basis, over time these fees
increase the cost of your investment and may cost you more than paying other
types of sales charges. The Distributor uses the money that it receives from the
deferred sales charges and the distribution fees to cover the costs of
marketing, advertising and compensating the Merrill Lynch Financial Advisor,
selected securities dealer or other financial intermediary who assists you in
purchasing Fund shares.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND 17
<PAGE>
[ICON] Your Account
Class B Shares
If you redeem Class B shares within four years after purchase, you may be
charged a deferred sales charge. The amount of the charge gradually decreases as
you hold your shares over time, according to the following schedule:
Years Since Purchase Sales Charge*
---------------------------------------------------
0 - 1 4.00%
---------------------------------------------------
1 - 2 3.00%
---------------------------------------------------
2 - 3 2.00%
---------------------------------------------------
3 - 4 1.00%
---------------------------------------------------
4 and thereafter 0.00%
---------------------------------------------------
* The percentage charge will apply to the lesser of the original cost of the
shares being redeemed or the proceeds of your redemption. Shares acquired
through reinvestment of dividends are not subject to a deferred sales
charge. Not all Merrill Lynch funds have identical deferred sales charge
schedules. If you exchange your shares for shares of another fund, the
higher charge will apply.
The deferred sales charge relating to Class B shares may be reduced or waived in
certain circumstances, such as:
. Redemption in connection with participation in certain fee-based programs
of Merrill Lynch or other financial intermediaries that have agreements
with the Distributor or its affiliates, or in connection with involuntary
termination of an account in which Fund shares are held
. Withdrawals resulting from shareholder death or disability as long as the
waiver request is made within one year of death or disability or, if
later, reasonably promptly following completion of probate
. Withdrawal through the Merrill Lynch Systematic Withdrawal Plan of up to
10% per year of your Class B account value at the time the plan is
established
Your Class B shares convert automatically into Class D shares approximately ten
years after purchase. Any Class B shares received through reinvestment of
dividends paid on converting shares will also convert at that time. Class D
shares are subject to lower annual expenses than Class B shares. The conversion
of Class B to Class D shares is not a taxable event for Federal income tax
purposes.
18 MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
Different conversion schedules apply to Class B shares of different Merrill
Lynch mutual funds. For example, Class B shares of a fixed-income fund typically
convert approximately ten years after purchase compared to approximately eight
years for equity funds. If you acquire your Class B shares in an exchange from
another fund with a shorter conversion schedule, the Fund's ten year conversion
schedule will apply. If you exchange your Class B shares in the Fund for Class B
shares of a fund with a longer conversion schedule, the other fund's conversion
schedule will apply. The length of time that you hold both the original and
exchanged Class B shares in both funds will count toward the conversion
schedule. The conversion schedule may be modified in certain other cases as
well.
Class C Shares
If you redeem Class C shares within one year after purchase, you may be charged
a deferred sales charge of 1.00%. The charge will apply to the lesser of the
original cost of the shares being redeemed or the proceeds of your redemption.
You will not be charged a deferred sales charge when you redeem shares that you
acquire through reinvestment of Fund dividends. The deferred sales charge
relating to Class C shares may be reduced or waived in connection with
involuntary termination of an account in which Fund shares are held and
withdrawals through the Merrill Lynch Systematic Withdrawal Plan.
Class C shares do not offer a conversion privilege.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND 19
<PAGE>
[ICON] Your Account
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
----------------------------------------------
The chart on the following pages summarizes how to buy, sell, transfer and
exchange shares through Merrill Lynch, a selected securities dealer, broker,
investment adviser, service provider or other financial intermediary. You may
also buy shares through the Transfer Agent. To learn more about buying, selling,
transferring and exchanging shares through the Transfer Agent, call 1-800-MER-
FUND. Because the selection of a mutual fund involves many considerations, your
Merrill Lynch Financial Advisor may help you with this decision.
Because of the high costs of maintaining smaller shareholder accounts, the Fund
may redeem the shares in your account (without charging any deferred sales
charge) if the net asset value of your account falls below $500 due to
redemptions you have made. You will be notified that the value of your account
is less than $500 before the Fund makes an involuntary redemption. You will then
have 60 days to make an additional investment to bring the value of your account
to at least $500 before the Fund takes any action. This involuntary redemption
does not apply to retirement plans or Uniform Gifts or Transfers to Minors Act
accounts.
20 MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
<TABLE>
<S> <C> <C>
If You Want to Your Choices Information Important for You to Know
------------------------------------------------------------------------------------------
Buy Shares First, select the share Refer to the Merrill Lynch Select
class appropriate for you Pricing(SM) table on page 15. Be sure to
read this Prospectus carefully.
------------------------------------------------------------------------------------------
Next, determine the amount The minimum initial investment for the
of your investment Fund is $1,000 for all accounts except
that certain Merrill Lynch fee-based
programs have a $250 initial minimum
investment.
(The minimums for initial investments may
be waived under certain circumstances.)
------------------------------------------------------------------------------------------
Have your Merrill Lynch The price of your shares is based on the
Financial Advisor, selected next calculation of net asset value after
securities dealer or other your order is placed. Any purchase your
financial intermediary orders placed prior to the close of
submit purchase order business on the New York Stock Exchange
(generally 4:00 p.m. Eastern time) will
be priced at the net asset value
determined that day. Certain financial
intermediaries, however, may require
submission of orders prior to that time.
Purchase orders placed after that time
will be priced at the net asset value
determined on the next business day. The
Fund may reject any order to buy shares
and may suspend the sale of shares at any
time. Selected securities dealers or other
financial intermediaries, including Merrill
Lynch, may charge a processing fee to
confirm a purchase. Merrill Lynch currently
charges a fee of $5.35.
------------------------------------------------------------------------------------------
Or contact the Transfer To purchase shares directly, call the
Agent Transfer Agent at 1-800-MER-FUND and
request a purchase application. Mail the
completed purchase application to the
Transfer Agent at the address on the
inside back cover of this Prospectus.
------------------------------------------------------------------------------------------
Add to Your Purchase additional shares The minimum investment for additional
Investment purchases is generally $50 except that
certain programs, such as automatic
investment plans, may have higher
minimums.
------------------------------------------------------------------------------------------
(The minimum for additional purchases may
be waived under certain circumstances.)
------------------------------------------------------------------------------------------
Acquire additional shares All dividends are automatically
through the automatic reinvested without a sales charge.
dividend reinvestment plan
------------------------------------------------------------------------------------------
Participate in the You may invest a specific amount on a
automatic investment plan periodic basis through certain Merrill
Lynch investment or central asset
accounts.
------------------------------------------------------------------------------------------
Transfer Shares Transfer to a You may transfer your Fund shares only to
to Another participating securities another securities dealer that has entered
Securities dealer or other financial into an agreement with the Distributor.
Dealer or Other intermediary Certain shareholder services may not be
Financial available for the transferred shares. You
Intermediary may only purchase additional shares of
funds previously owned before the transfer.
All future trading of these assets must be
coordinated by the receiving firm.
------------------------------------------------------------------------------------------
Transfer to a You must either:
non-participating . Transfer your shares to an account with
securities dealer or other the TransferAgent; or
financial intermediary . Sell your shares, paying any applicable
deferred sales charge.
------------------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND 21
<PAGE>
[ICON] Your Account
If You Want To Your Choices Information Important for You to Know
--------------------------------------------------------------------------------
Sell Your Have your Merrill The price of your shares is based on
Shares Lynch Financial the next calculation of net asset
Advisor, selected value after your order is placed. For
securities dealer your redemption request to be priced at
or other financial the net asset value on the day of your
intermediary submit request, you must submit your request
your sales order to your dealer or other financial
intermediary prior to that day's close
of business on the New York Stock
Exchange (generally 4:00 p.m. Eastern
time). Certain financial
intermediaries, however, may require
submission of orders prior to that
time. Any redemption request placed
after that time will be priced at the
net asset value at the close of
business on the next business day.
Securities dealers or other financial
intermediaries, including Merrill
Lynch, may charge a fee to process a
redemption of shares. Merrill Lynch
currently charges a fee of $5.35.
No processing fee is charged if you
redeem shares directly through the
Transfer Agent.
The Fund may reject an order to sell
shares under certain circumstances.
--------------------------------------------------------------------------------
Sell through the You may sell shares held at the
Transfer Agent Transfer Agent by writing to the
Transfer Agent at the address on the
inside back cover of this prospectus.
All shareholders on the account must
sign the letter. A signature guarantee
will generally be required but may be
waived in certain limited
circumstances. You can obtain a
signature guarantee from a bank,
securities dealer, securities broker,
credit union, savings association,
national securities exchange or
registered securities association. A
notary public seal will not be
acceptable. If you hold stock
certificates, return the certificates
with the letter. The Transfer Agent
will normally mail redemption proceeds
within seven days following receipt of
a properly completed request. If you
make a redemption request before the
Fund has collected payment for the
purchase of shares, the Fund or the
Transfer Agent may delay mailing your
proceeds. This delay will usually not
exceed ten days.
You may also sell shares held at the
Transfer Agent by telephone request if
the amount being sold is less than
$50,000 and if certain other conditions
are met. Contact the Transfer Agent at
1-800-MER-FUND for details.
--------------------------------------------------------------------------------
Sell Shares Participate in the You can choose to receive systematic
Systematically Fund's Systematic payments from your Fund account either
Withdrawal Plan by check or through direct deposit to
your bank account on a monthly or
quarterly basis. If you hold your Fund
shares in a Merrill Lynch CMA(R) or
CBA(R) Account you can arrange for
systematic redemptions of a fixed
dollar amount on a monthly, bi-monthly,
quarterly, semi-annual or annual basis,
subject to certain conditions. Under
either method you must have dividends
automatically reinvested. For Class B
and Class C shares your total annual
withdrawals cannot be more than 10% per
year of the value of your shares at the
time your plan is established. The
deferred sales charge is waived for
systematic redemptions. Ask your
Merrill Lynch Financial Advisor or
other financial intermediary for
details.
--------------------------------------------------------------------------------
22 MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
If You Want To Your Choices Information Important for You to Know
--------------------------------------------------------------------------------
Exchange Your Select the fund into You can exchange your shares of the
Shares which you want to Fund for shares of many other Merrill
exchange. Be sure to Lynch mutual funds. You must have
read that fund's held the shares used in the exchange
prospectus for at least 15 calendar days before
you can exchange to another fund.
Each class of Fund shares is generally
exchangeable for shares of the same
class of another fund. If you own
Class A shares and wish to exchange
into a fund in which you have no Class
A shares (and are not eligible to
purchase Class A shares), you will
exchange into Class D shares.
Some of the Merrill Lynch mutual funds
impose a different initial or deferred
sales charge schedule. If you exchange
Class A or Class D shares for shares
of a fund with a higher initial sales
charge than you originally paid, you
will be charged the difference at the
time of exchange. If you exchange
Class B shares for shares of a fund
with a different deferred sales charge
schedule, the higher schedule will
apply. The time you hold Class B or
Class C shares in both funds will
count when determining your holding
period for calculating a deferred
sales charge at redemption. If you
exchange Class A or Class D shares for
money market fund shares, you will
receive Class A shares of Summit Cash
Reserves Fund. Class B or Class C
shares of the Fund will be exchanged
for Class B shares of Summit.
To exercise the exchange privilege,
contact your Merrill Lynch Financial
Advisor or other financial
intermediary or call the Transfer
Agent and 1-800-MER-FUND.
Although there is currently no limit
on the number of exchanges that you
can make, the exchange privilege may
be modified or terminated at any time
in the future.
--------------------------------------------------------------------------------
Short-term or excessive trading into and out of the Fund may harm performance
by disrupting portfolio management strategies and by increasing expenses.
Accordingly, the Fund may reject any purchase orders, including exchanges,
particularly from market timers or investors who, in Fund management's opinion,
have a pattern of short term or excessive trading or whose trading has been or
may be disruptive to the Fund. For these purposes, Fund management may consider
an investor's trading history in that Fund or other Merrill Lynch funds and
accounts under common ownership or control.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND 23
<PAGE>
[ICON] Your Account
Net Asset Value -- the market value of the Fund's total assets after deducting
liabilities, divided by the number of shares outstanding.
HOW SHARES ARE PRICED
--------------------------------------------------------------------------------
When you buy shares, you pay the net asset value, plus any applicable sales
charge. This is the offering price. Shares are also redeemed at their net asset
value, minus any applicable deferred sales charge. The Fund calculates its net
asset value (generally by using market quotations) each day the New York Stock
Exchange is open, as of the close of business on the Exchange based on prices at
the time of closing. The Exchange generally closes at 4:00 p.m. Eastern time.
The net asset value used in determining your share price is the next one
calculated after your purchase or redemption order is placed.
The Fund may accept orders from certain authorized financial intermediaries or
their designees. The Fund will be deemed to receive an order when accepted by
the financial intermediary or designee and the order will receive the net asset
value next computed by the Fund after such acceptance. If the payment for a
purchase order is not made by a designated later time, the order will be
canceled and the financial intermediary could be held liable for any losses.
Generally, Class A shares will have the highest net asset value because that
class has the lowest expenses, and Class D shares will have a higher net asset
value than Class B or Class C shares. Class B shares will have a higher net
asset value than Class C shares because Class B shares have lower distribution
expenses than Class C shares. Also, dividends paid on Class A and Class D shares
will generally be higher than dividends paid on Class B and Class C shares
because Class A and Class D shares have lower expenses.
PARTICIPATION IN FEE-BASED PROGRAMS
--------------------------------------------------------------------------------
If you participate in certain fee-based programs offered by Merrill Lynch or
other financial intermediaries, you may be able to buy Class A shares at net
asset value, including by exchanges from other share classes. Sales charges on
the shares being exchanged may be reduced or waived under certain circumstances.
You generally cannot transfer shares held through a fee-based program into
another account. Instead, you will have to redeem your shares held through the
program and purchase shares of another class, which may be subject to
distribution and account maintenance fees. This may be a taxable event and you
will pay any applicable sales charges.
24 MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
Dividends -- exempt interest, ordinary income and capital gains paid to
shareholders. Dividends may be reinvested in additional Fund shares as they are
paid.
If you leave one of these programs, your shares may be redeemed or automatically
exchanged into another class of Fund shares or into a money market fund. The
class you receive may be the class you originally owned when you entered the
program, or in certain cases, a different class. If the exchange is into Class B
shares, the period before conversion to Class D shares may be modified. Any
redemption or exchange will be at net asset value. However, if you participate
in the program for less than a specified period, you may be charged a fee in
accordance with the terms of the program.
Details about these features and the relevant charges are included in the client
agreement for each fee-based program and are available from your Merrill Lynch
Financial Advisor, selected securities dealer or other financial intermediary.
DIVIDENDS AND TAXES
--------------------------------------------------------------------------------
The Fund will distribute net investment income monthly and net realized capital
gains at least annually. The Fund may also pay a special distribution at the end
of the calendar year to comply with Federal tax requirements. If you would like
to receive dividends in cash, contact your Merrill Lynch Financial Advisor,
selected securities dealer or other financial intermediary or the Transfer
Agent.
To the extent that the dividends distributed by the Fund are from municipal bond
interest income, they are exempt from Federal income tax. However, certain
investors may be subject to Federal alternative minimum tax on dividends
received from the Fund. Interest income from other investments may produce
taxable distributions. Dividends paid by the Fund to individual Texas residents
are not subject to taxation by Texas because Texas does not impose a personal
income tax. Consequently, individual Texas residents enjoy no special state
income tax benefits by investing in the Fund. Dividends derived from capital
gains realized by the Fund will be subject to Federal tax. If you are subject to
income tax in a state other than Texas, the dividends derived from Texas
municipal bonds generally will not be exempt from income tax in that state.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND 25
<PAGE>
[ICON] Your Account
"BUYING A DIVIDEND"
You may want to avoid buying shares shortly before the Fund pays a dividend,
although the impact on you will be significantly less than if you were invested
in a fund paying fully taxable dividends. The reason? If you buy shares when a
fund has realized but not yet distributed taxable ordinary income (if any) or
capital gains, you will pay the full price for the shares and then receive a
portion of the price back in the form of a taxable dividend. Before investing
you may want to consult your tax adviser.
Generally, within 60 days after the end of the Fund's taxable year, you will be
informed of the amount of exempt-interest dividends, ordinary income dividends
and capital gain dividends you received that year. Capital gain dividends are
taxable as long term capital gains to you, regardless of how long you have held
your shares. The tax treatment of dividends from the Fund is the same whether
you choose to receive dividends in cash or to have them reinvested in shares of
the Fund.
By law, your dividends and redemption proceeds will be subject to a withholding
tax if you have not provided a taxpayer identification number or social security
number or if the number you have provided is incorrect.
If you redeem Fund shares or exchange them for shares of another fund, you
generally will be treated as having sold your shares and any gain on the
transaction may be subject to tax. Capital gains are generally taxed at
different rates than ordinary income dividends.
This section summarizes some of the consequences of an investment in the Fund
under current Federal and Texas tax laws. It is not a substitute for personal
tax advice. You should consult your personal tax adviser about the potential tax
consequences to you of an investment in the Fund under all applicable tax laws.
26 MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
Management of the Fund [ICON]
FUND ASSET MANAGEMENT
--------------------------------------------------------------------------------
Fund Asset Management, the Fund's Manager, manages the Fund's investments and
its business operations under the overall supervision of the Trust's Board of
Trustees. The Manager has the responsibility for making all investment decisions
for the Fund. The Fund pays the Manager a fee at the annual rate of 0.55% of the
average daily net assets of the Fund for the first $500 million; 0.525% of the
average daily net assets from $500 million to $1 billion; and 0.50% of the
average daily net assets above $1 billion. For the fiscal year ended July 31,
2001 the Manager received a fee equal to 0.55% of the Fund's average daily net
assets.
Fund Asset Management was organized as an investment adviser in 1977 and offers
investment advisory services to more than 50 registered investment companies.
Fund Asset Management and its affiliates had approximately $506 billion in
investment company and other portfolio assets under management as of September
2001.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND 27
<PAGE>
[ICON] Management of the Fund
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The Financial Highlights table is intended to help you understand the Fund's
financial performance for the years shown. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate an investor would have earned or lost on an investment in the
Fund (assuming reinvestment of all dividends). The information has been audited
by Deloitte & Touche LLP, whose report, along with the Fund's financial
statements, is included in the Fund's Annual Report, which is available upon
request.
<TABLE>
<CAPTION>
Class A Class B
------------------------------------------- --------------------------------------------
For the Year Ended July 31, For the Year Ended July 31,
------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase
(Decrease) in
Net Asset Value: 2001 2000 1999 1998 1997 2001 2000 1999 1998 1997
--------------------------------------------------------------------------------------------------------------
Per Share Operating
Performance:
--------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of year $ 9.74 $10.45 $10.90 $10.96 $10.57 $ 9.74 $10.45 $10.90 $10.96 $10.57
--------------------------------------------------------------------------------------------------------------
Investment income--
net .48 .50 .51 .58 .57 .43 .45 .45 .52 .52
--------------------------------------------------------------------------------------------------------------
Realized and
unrealized gain
(loss) on
investments-- net .47 (.41) (.45) (.06) .39 .47 (.41) (.45) (.06) .39
--------------------------------------------------------------------------------------------------------------
Total from
investment
operations .95 .09 .06 .52 .96 .90 .04 -- .46 .91
--------------------------------------------------------------------------------------------------------------
Less dividends and
distributions:
Investment income--
net (.48) (.50) (.51) (.58) (.57) (.43) (.45) (.45) (.52) (.52)
--------------------------------------------------------------------------------------------------------------
In excess of
realized gain on
investments-- net -- (.30) -- -- -- -- (.30) -- -- --
--------------------------------------------------------------------------------------------------------------
Total dividends and
distributions (.48) (.80) (.51) (.58) (.57) (.43) (.75) (.45) (.52) (.52)
--------------------------------------------------------------------------------------------------------------
Net asset value,
end of year $10.21 $ 9.74 $10.45 $10.90 $10.96 $10.21 $ 9.74 $10.45 $10.90 $10.96
--------------------------------------------------------------------------------------------------------------
Total Investment
Return:*
--------------------------------------------------------------------------------------------------------------
Based on net asset
value per
share 9.98% 1.19% .43% 4.83% 9.39% 9.43% .68% (.08)% 4.30% 8.84%
--------------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
--------------------------------------------------------------------------------------------------------------
Expenses 1.13% .96% .98% .87% .83% 1.64% 1.47% 1.49% 1.38% 1.34%
--------------------------------------------------------------------------------------------------------------
Investment income--
net 4.83% 5.12% 4.67% 5.25% 5.37% 4.31% 4.61% 4.15% 4.74% 4.86%
--------------------------------------------------------------------------------------------------------------
Supplemental Data:
--------------------------------------------------------------------------------------------------------------
Net assets, end of
year (in thousands) $4,316 $5,924 $8,545 $9,842 $10,707 $26,642 $30,090 $44,502 $48,887 $56,115
--------------------------------------------------------------------------------------------------------------
Portfolio turnover 26.93% 97.91% 129.23% 24.61% 47.83% 26.93% 97.91% 129.23% 24.61% 47.83%
--------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales charges.
28 MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
Class C Class D
--------------------------------------------- -----------------------------------------------
For the Year Ended July 31, For the Year Ended July 31,
--------------------------------------------- -----------------------------------------------
Increase (Decrease) in
Net Asset Value: 2001 2000 1999 1998 1997 2001 2000 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
---------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of year $ 9.75 $10.46 $ 10.91 $ 10.97 $10.58 $9.75 $10.46 $ 10.92 $ 10.98 $ 10.58
---------------------------------------------------------------------------------------------------------------------
Investment income--
net .42 .44 .44 .51 .51 .47 .49 .50 .57 .56
---------------------------------------------------------------------------------------------------------------------
Realized and
unrealized gain
(loss) on investments
--net .47 (.41) (.45) (.06) .39 .48 (.41) (.46) (.06) .40
---------------------------------------------------------------------------------------------------------------------
Total from investment
operations .89 .03 (.01) .45 .90 .95 .08 .04 .51 .96
---------------------------------------------------------------------------------------------------------------------
Less dividends and
distributions:
Investment income--
net (.42) (.44) (.44) (.51) (.51) (.47) (.49) (.50) (.57) (.56)
In excess of realized
gain on
investments-- net -- (.30) -- -- -- -- (.30) -- -- --
---------------------------------------------------------------------------------------------------------------------
Total dividends and
distributions (.42) (.74) (.44) (.51) (.51) (.47) (.79) (.50) (.57) (.56)
---------------------------------------------------------------------------------------------------------------------
Net asset value, end
of year $10.22 $ 9.75 $ 10.46 $ 10.91 $10.97 $10.23 $ 9.75 $ 10.46 $ 10.92 $ 10.98
---------------------------------------------------------------------------------------------------------------------
Total Investment
Return:*
---------------------------------------------------------------------------------------------------------------------
Based on net asset
value per share 9.30% .58% (.18)% 4.18% 8.71% 9.97% 1.10% .24% 4.72% 9.38%
---------------------------------------------------------------------------------------------------------------------
Ratios To Average Net
Assets:
---------------------------------------------------------------------------------------------------------------------
Expenses 1.75% 1.58% 1.59% 1.48% 1.45% 1.25% 1.06% 1.11% .97% .93%
---------------------------------------------------------------------------------------------------------------------
Investment income--
net 4.20% 4.51% 4.06% 4.63% 4.75% 4.71% 5.03% 4.49% 5.15% 5.27%
---------------------------------------------------------------------------------------------------------------------
Supplemental Data:
---------------------------------------------------------------------------------------------------------------------
Net assets, end of
year (in thousands) $ 705 $ 733 $ 836 $ 1,304 $ 917 $ 1,396 $ 944 $ 1,166 $ 338 $ 335
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover 26.93% 97.91% 129.23% 24.61% 47.83% 26.93% 97.91% 129.23% 24.61% 47.83%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales charges.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND 29
<PAGE>
POTENTIAL
INVESTORS
[1] [2]
Open an account (two
options)
MERRILL LYNCH TRANSFER AGENT
FINANCIAL ADVISOR
OR SECURITIES DEALER Financial Data Services, Inc.
ADMINISTRATIVE OFFICES
4800 Deer Lake Drive East
Jacksonville, Florida
32246-6484
Advises shareholders on their MAILING ADDRESS
Fund investments. P.O. Box 45289
Jacksonville, Florida
32232-5289
Performs recordkeeping
and reporting services.
DISTRIBUTOR
FAM Distributors, Inc.
P.O. Box 9081
Princeton, New Jersey
08543-9081
Arranges for the sale of
Fund shares.
COUNSEL THE FUND CUSTODIAN
Sidley Austin Brown The Board of Trustees State Street Bank
& Wood LLP oversees the Fund. and Trust Company
875 Third Avenue P.O. Box 351
New York, New York 10022 Boston, Massachusetts 02101
Provides legal advice to the Holds the Fund's assets for
Fund. safekeeping.
INDEPENDENT ACCOUNTING MANAGER
AUDITORS SERVICES PROVIDER
Fund Asset Management, L.P.
Deloitte & Touche LLP State Street Bank
Two World Financial Center and Trust Company ADMINISTRATIVE OFFICES
New York, New York 10281-1008 500 College Road East 800 Scudders Mill Road
Princeton, New Jersey Plainsboro, New Jersey 08536
08540
Audits the financial Provides certain MAILING ADDRESS
statements of the accounting P.O. Box 9011
Fund on behalf of services to the Princeton, New Jersey
the shareholders. Fund. 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Fund's day-to-day
activities.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND
<PAGE>
For More Information [ICON]
Shareholder Reports
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. You may obtain these reports at no cost by calling 1-800-MER-FUND.
The Fund will send you one copy of each shareholder report and certain other
mailings, regardless of the number of Fund accounts you have. To receive
separate shareholder reports for each account, call your Merrill Lynch Financial
Advisor or other financial intermediary or write to the Transfer Agent at its
mailing address. Include your name, address, tax identification number and
Merrill Lynch brokerage or mutual fund account number. If you have any
questions, please call your Merrill Lynch Financial Advisor or other financial
intermediary or call the Transfer Agent at 1-800-MER-FUND.
Statement of Additional Information
The Fund's Statement of Additional Information contains further information
about the Fund and is incorporated by reference (legally considered to be part
of this prospectus). You may request a free copy by writing the Fund at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289
or by calling 1-800-MER-FUND.
Contact your Merrill Lynch Financial Advisor or other financial intermediary
or contact the Fund at the telephone number or address indicated above if you
have any questions.
Information about the Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-202-942-8090 for information on the operation of the public
reference room. This information is also available on the SEC's Internet site at
http://www.sec.gov and copies may be obtained upon payment of a duplicating fee
by electronic request at the following e-mail address:
publicinfo@sec.gov, or by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-0102.
You should rely only on the information contained in this prospectus. No one is
authorized to provide you with information that is different from information
contained in this Prospectus.
Investment Company Act file #811-4375 Code #13968-11-01 (C) Fund Asset
Management, L.P.
Prospectus
[LOGO] Merrill Lynch
Investment Managers
Merrill Lynch Texas
Municipal Bond Fund
of Merrill Lynch Multi-State
Municipal Series Trust
November 14, 2001
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