MERRILL LYNCH MULTI STATE LTD MATURITY MUN SERIES TRUST, 485BPOS, 1999-11-30

MERRILL LYNCH MULTI STATE LTD MATURITY MUN SERIES TRUST
485BPOS, 1999-11-30

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As filed with the Securities and Exchange Commission on November 30, 1999

Securities Act File No. 33-50417
Investment Company Act File No. 811-6282

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---------------

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 8 [X]
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 16 [X]
(Check appropriate box or boxes)

---------------

Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust
(Exact Name of Registrant as Specified in Charter)

800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Address of Principal Executive Offices)

(609) 282-2800
(Registrant's Telephone Number, including Area Code)

---------------

Terry K. Glenn
Merrill Lynch Multi-State Limited Maturity Municipal Series Trust
800 Scudders Mill Road, Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011, Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)

---------------

Copies to:

Counsel for the Trust Michael J. Hennewinkel, Esq.
BROWN & WOOD LLP MERRILL LYNCH
One World Trade Center ASSET MANAGEMENT
New York, New York 10048-0557 P.O. Box 9011
Attention: Thomas R. Smith, Jr., Esq. Princeton, New Jersey 08543-9011

---------------

It is proposed that this filing will become effective (check appropriate
box):

[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.

---------------

Title of Securities Being Registered: Shares of Beneficial Interest, par value
$.10 per share.

================================================================================

<PAGE>

Prospectus

[LOGO] Merrill Lynch

Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust

o Merrill Lynch California Limited Maturity Municipal Bond Fund

o Merrill Lynch Florida Limited Maturity Municipal Bond Fund

November 30, 1999

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

Page
[Clip Art] KEY FACTS
--------------------------------------------------------------------------------
Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust at a Glance ........................................ 3

Risk/Return Bar Charts for the Funds ........................................ 5

Fees and Expenses for each Fund ............................................. 7

[Clip Art] DETAILS ABOUT THE FUNDS
--------------------------------------------------------------------------------
How the Funds Invest ........................................................ 10

Investment Risks ............................................................ 11

[Clip Art] YOUR ACCOUNT
--------------------------------------------------------------------------------
Merrill Lynch Select Pricing(SM) System ..................................... 17

How to Buy, Sell, Transfer and Exchange Shares .............................. 22

Participation in Merrill Lynch Fee-Based Programs ........................... 26

[Clip Art] MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------
Fund Asset Management ....................................................... 29

Financial Highlights ........................................................ 30

[Clip Art] FOR MORE INFORMATION
--------------------------------------------------------------------------------
Shareholder Reports ................................................ Back Cover

Statement of Additional Information ................................ Back Cover

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

<PAGE>

Key Facts [Clip Art]

In an effort to help you better
understand the many concepts involved in
making an investment decision, we have
defined 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 IBCA, Inc.

California Municipal Bond -- a debt
obligation issued by or on behalf of the
state of California, a governmental
entity in California or other qualifying
issuer that pays interest exempt from
California income tax as well as from
Federal income tax.

Florida Municipal Bond -- a debt
obligation issued by or on behalf of the
state of Florida, a governmental entity
in Florida or other qualifying issuer
that is not subject to Florida
intangible personal property tax and
that pays interest exempt from Federal
income tax.

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL
SERIES TRUST AT A GLANCE
--------------------------------------------------------------------------------
What are the Funds' investment objectives?

The investment objective of the California Fund is to provide shareholders with
income exempt from Federal and California income taxes.

The investment objective of the Florida Fund is to provide shareholders with
income exempt from Federal income tax and the opportunity to own shares whose
value is exempt from Florida intangible personal property tax.

What are the Funds' main investment strategies?

The California Fund invests primarily in a portfolio of intermediate term
investment grade California municipal bonds. The Florida Fund invests primarily
in a portfolio of intermediate term investment grade Florida municipal bonds.
These bonds may be obligations of a variety of issuers, including the states of
California or Florida, governmental entities in California or Florida, and
issuers located in Puerto Rico, the U.S. Virgin Islands and Guam. The California
Fund will invest at least 65% of its assets in California municipal bonds and at
least 80% of its total assets in California municipal bonds and other bonds that
pay interest exempt from Federal income tax but not California income tax.

The Florida Fund will invest at least 65% of its assets in Florida municipal
bonds and at least 80% of its total assets in Florida municipal bonds and other
bonds that pay interest exempt from Federal income tax but that subject shares
of the Florida Fund to Florida intangible personal property tax.

In general, if at least 90% of the Florida Fund's net assets are invested in
assets that are exempt fromFlorida intangible personal property tax on the last
business day of any calendar year ("90% threshold"), shares of the Florida Fund
owned by Florida residents will be exempt from Florida intangible personal
property tax in the following year. If the Florida Fund does not meet the 90%
threshold, only that portion of the value of the Florida Fund's shares equal to
the portion of the Florida Fund's net assets invested in obligations of the U.S.
Government will be exempt from Florida intangible personal property tax. While
the Florida Fund will try to meet the 90% threshold, it may not always be
possible to do so.

Each Fund may invest up to 20% of its assets in high yield bonds (also known as
"junk" bonds), however, the Funds do not intend to purchase debt securities that
are in default or that Fund management believes will be in default. Each Fund
also may invest in certain types of derivative securities. When choosing
investments, management of the Funds considers various factors, including the
credit quality of issuers, yield analysis, maturity

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 3

<PAGE>

[Clip Art] Key Facts

State Municipal Bond -- either a
California Municipal Bond or a Florida
Municipal Bond.

analysis and the call features of the obligations. Each Fund will invest
primarily in municipal bonds with remaining maturities of between one and ten
years. As a result, it is expected that each Fund's weighted average maturity
will not be more than five years. Neither Fund can guarantee that it will
achieve its objective.

What are the main risks of investing in a Fund?

As with any fund, the value of each Fund's investments -- and therefore the
value of each Fund's shares -- may go up or down. These changes may occur in
response to interest rate changes or other factors that may affect a particular
issuer or obligation. Generally, when interest rates go up, the value of debt
instruments like municipal bonds goes down. If the value of a Fund's investments
goes down, you may lose money. Prices of shorter term debt instruments generally
change less in response to interest rate changes than prices of longer term debt
instruments.

Each Fund is a non-diversified fund, which means that each Fund may invest more
of its assets in obligations of a single issuer than if it were a diversified
fund. By concentrating in a smaller number of issuers, each Fund's risk is
increased because developments affecting an individual issuer may have a greater
impact on a Fund's performance. In addition, since each Fund invests at least
65% of its assets in its respective State municipal bonds, each Fund is more
exposed to negative political or economic factors in its respective state than a
fund that invests more widely. Derivatives and high yield bonds may be volatile
and subject to liquidity, leverage and credit risks.

Who should invest?

The California Fund may be an appropriate investment for you if you are looking
for income that is exempt from Federal and California income taxes.

The Florida Fund may be an appropriate investment for you if you are looking for
income that is exempt from Federal income taxes and the opportunity to own
shares that are not subject to Florida intangible personal property tax.

In addition, one of the Funds may be appropriate for you if you:

o Want a professionally managed portfolio without the administrative
burdens of direct investments in municipal bonds

o Are looking for liquidity

o Can tolerate the risk of loss caused by negative political or economic
developments in the relevant state, changes in interest rates or
adverse changes in the price of bonds in general

4 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

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RISK/RETURN BAR CHARTS
--------------------------------------------------------------------------------

The bar charts and tables shown below provide an indication of the risks of
investing in each Fund. The bar charts show changes in each Fund's performance
for Class B shares for each complete calendar year since the inception of the
respective Fund. Sales charges are not reflected in the bar charts. If these
amounts were reflected, returns would be less than those shown. The tables
compare the average annual total returns for each class of a Fund's shares for
the periods shown with those of the ML Municipals 1-3 years Index. How each Fund
performed in the past is not necessarily an indication of how that Fund will
perform in the future.

Merrill Lynch California Limited Maturity Municipal Bond Fund

[Graph depicted as a Bar Chart]

1994 1995 1996 1997 1998
---- ---- ---- ---- ----
-0.90% 9.73% 2.79% 4.56% 3.54%

During the period shown in the bar chart, the highest return for a quarter was
3.70% (quarter ended March 31, 1995) and the lowest return for a quarter was
-1.76% (quarter ended March 31, 1994). The California Fund's year-to-date
return as of September 30, 1999 was -3.75%.

<TABLE>
<CAPTION>
Average Annual Total Returns (as of the Past Past Since
calendar year ended) December 31, 1998 One Year Five Years Inception
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
ML CA Limited Maturity Municipal Bond Fund*-- Class A 2.88% 4.05% 4.15%+
ML Municipals 1-3 years Index** 5.01% 4.45% 4.53%++
---------------------------------------------------------------------------------------
ML CA Limited Maturity Municipal Bond Fund*-- Class B 2.54% 3.89% 3.99%+
ML Municipals 1-3 years Index** 5.01% 4.45% 4.53%++
---------------------------------------------------------------------------------------
ML CA Limited Maturity Municipal Bond Fund* -- Class C 2.74% N/A 4.86%#
ML Municipals 1-3 years Index** 5.01% N/A 5.01%##
---------------------------------------------------------------------------------------
ML CA Limited Maturity Municipal Bond Fund* -- Class D 2.77% N/A 4.73%#
ML Municipals 1-3 years Index** 5.01% N/A 5.01%##
---------------------------------------------------------------------------------------

</TABLE>

* Includes sales charge.
** This unmanaged index is comprised of AAA-rated bonds maturing within three
years. Past performance is not predictive of future performance.
+ Inception date is November 26, 1993.
++ Since November 26, 1993.
# Inception date is October 21, 1994.
## Since October 21, 1994.

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 5

<PAGE>

[Clip Art] Key Facts

RISK/RETURN BAR CHARTS
--------------------------------------------------------------------------------

Merrill Lynch Florida Limited Maturity Municipal Bond Fund

[Graph depicted as a Bar Chart]

1994 1995 1996 1997 1998
---- ---- ---- ---- ----
-0.37% 9.30% 2.33% 4.19% 3.70%

During the period shown in the bar chart, the highest return for a quarter was
3.48% (quarter ended March 31, 1995) and the lowest return for a quarter was
(1.46)% (quarter ended March 31, 1994). The Florida Fund's year-to-date return
as of September 30, 1999 was (0.55)%.

<TABLE>
<CAPTION>
Average Annual Total Returns (as of the Past Past Since
calendar year ended) December 31, 1998 One Year Five Years Inception
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ML FL Limited Maturity Municipal Bond Fund* -- Class A 3.03% 3.94% 3.98%+
ML Municipals 1-3 years Index** 5.01% 4.45% 4.53%++
-------------------------------------------------------------------------------------------
ML FL Limited Maturity Municipal Bond Fund* -- Class B 2.70% 3.78% 3.82%+
ML Municipals 1-3 years Index** 5.01% 4.45% 4.53%++
-------------------------------------------------------------------------------------------
ML FL Limited Maturity Municipal Bond Fund* -- Class C 2.52% N/A 4.26%#
ML Municipals 1-3 years Index** 5.01% N/A 5.01%##
-------------------------------------------------------------------------------------------
ML FL Limited Maturity Municipal Bond Fund* -- Class D 2.93% N/A 4.52%#
ML Municipals 1-3 years Index** 5.01% N/A 5.01%##
-------------------------------------------------------------------------------------------

</TABLE>

6 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

<PAGE>

UNDERSTANDING
EXPENSES

Fund investors pay various fees
and expenses, either directly or
indirectly. Listed below are some
of the main types of expenses,
which all mutual funds may
charge:

Expenses paid directly by the
shareholder:

Shareholder Fees -- these
include sales charges that you
may pay when you buy or sell
shares of a Fund.

Expenses paid indirectly by the
shareholder:

Annual Fund Operating
Expenses -- expenses that cover
the costs of operating a Fund.

Management Fee -- a fee paid
to the Manager for managing a
Fund.

Distribution Fees -- fees used to
support a Fund's marketing and
distribution efforts, such as
compensating Financial
Consultants, advertising and
promotion.

Service (Account Maintenance)
Fees -- fees used to compensate
securities dealers for account
maintenance activities.

FEES AND EXPENSES
--------------------------------------------------------------------------------

Each Fund offers four different classes of shares. Although your money will be
invested in a Fund 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 a Fund. Future expenses may be greater
or less than those indicated below.

Both Funds
Shareholder Fees (fees paid directly from -----------------------------------------
your investment)(a): Class A Class B(b Class C(c) Class D
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) imposed on
purchases (as a percentage of offering
price) 1.00%(d) None None 1.00%(d)
--------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase
price or redemption proceeds, whichever
is lower) None(e) 1.00%(d) 1.00%(d) None(e)
--------------------------------------------------------------------------------------
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):
--------------------------------------------------------------------------------------
California Fund
--------------------------------------------------------------------------------------
Management Fee(f) 0.35% 0.35% 0.35% 0.35%
--------------------------------------------------------------------------------------
Distribution and/or Service (12b-1)
Fees(g) None 0.35% 0.35% 0.10%
--------------------------------------------------------------------------------------
Other Expenses (including transfer
agency fees)(h) 1.44% 1.44% 1.26% 1.42%
--------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.79% 2.14% 1.96% 1.87%
--------------------------------------------------------------------------------------
Florida Fund
--------------------------------------------------------------------------------------
Management Fee(f) 0.35% 0.35% 0.35% 0.35%
Distribution and/or Service (12b-1) Fees(g) None 0.35% 0.35% 0.10%
--------------------------------------------------------------------------------------
Other Expenses (including transfer
agency fees)(h) 1.13% 1.14% 0.96% 1.12%
--------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.48% 1.84% 1.66% 1.57%
--------------------------------------------------------------------------------------

</TABLE>

(a) In addition, Merrill Lynch may charge clients a processing fee (currently
$5.35) when a client buys or redeems shares.
(b) Class B shares automatically convert to Class D shares about ten years after
you buy them. Then they will no longer be subject to distribution fees and
will pay lower account maintenance fees.
(c) Class C Shares are available only through the exchange privilege.
(d) Some investors may qualify for reductions in the sales charge (load).
(e) You may pay a deferred sales charge if you purchase $1 million or more and
you redeem within one year.
(f) Each Fund pays the Manager a fee at the annual rate of 0.35% of the average
daily net assets of the respective Fund. For the fiscal year ended July 31,
1999, the Manager waived $19,537 of the management fees due from the
California Fund. The Total Annual Fund Operating Expenses in the fee table
above have been restated for the California Fund to assume the absence of
any such waiver

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 7

<PAGE>

[Clip Art] Key Facts

(footnotes continued from previous page)

because the Manager may discontinue or reduce such waiver of fees at any
time without notice. The actual Total Fund Operating Expenses for the
California Fund, net of the waiver, is provided below for the fiscal year
ended July 31, 1999.

<TABLE>
<CAPTION>
Management Fees Waived Total Operating Expenses After Waiver
----------------------------- -----------------------------------------------
Class A Class B Class C Class D Class A Class B Class C Class D
------- ------- ------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California Fund .. 0.20% 0.20% 0.20% 0.20% 1.59% 1.94% 1.76% 1.67%
</TABLE>

(g) The Funds call the "Service Fee" an "Account Maintenance Fee." Account
Maintenance Fee is the term used elsewhere in this Prospectus and in all
other materials of the Funds. If you hold Class B or Class C shares for a
long 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 Class A or
Class D shares.

(h) Each Fund pays the Transfer Agent $11.00 for each Class A and Class D
shareholder account and $14.00 for each Class B and Class C shareholder
account and reimburses the Transfer Agent's out-of-pocket expenses. Each
Fund pays a 0.10% fee for certain accounts that participate in the Merrill
Lynch Mutual Fund Advisor program. Each Fund also pays a $0.20 monthly
closed account charge, which is assessed upon all accounts that close during
the year. This fee begins the month following the month the account is
closed and ends at the end of the calendar year. For the fiscal year ended
July 31, 1999, the California Fund paid the Transfer Agent fees totaling
$3,290 and the Florida Fund paid the Transfer Agent fees totaling $4,031.
The Manager provides accounting services to each Fund at its cost. For the
fiscal year ended July 31, 1999, the California Fund reimbursed the Manager
$36,246 and the Florida Fund reimbursed the Manager $42,391 for these
accounting services.

8 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

<PAGE>

Examples:

These examples are intended to help you compare the cost of investing in each
Fund with the cost of investing in other mutual funds.

These examples assume that you invest $10,000 in a 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 each 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:

California Fund
----------------

EXPENSES IF YOU DID REDEEM YOUR SHARES:
---

1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Class A $280 $658 $1,060 $2,184
--------------------------------------------------------------------------------
Class B $317 $670 $1,149 $2,472
--------------------------------------------------------------------------------
Class C $299 $615 $1,057 $2,285
--------------------------------------------------------------------------------
Class D $288 $682 $1,101 $2,268
--------------------------------------------------------------------------------

EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
-------

1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Class A $280 $658 $1,060 $2,184
--------------------------------------------------------------------------------
Class B $217 $670 $1,149 $2,472
--------------------------------------------------------------------------------
Class C $199 $615 $1,057 $2,285
--------------------------------------------------------------------------------
Class D $288 $682 $1,101 $2,268
--------------------------------------------------------------------------------

Florida Fund
----------------

EXPENSES IF YOU DID REDEEM YOUR SHARES:
---

1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Class A $249 $563 $900 $1,851
--------------------------------------------------------------------------------
Class B $287 $579 $995 $2,159
--------------------------------------------------------------------------------
Class C $269 $523 $902 $1,965
--------------------------------------------------------------------------------
Class D $258 $591 $947 $1,949
--------------------------------------------------------------------------------

EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
-------

1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Class A $249 $563 $900 $1,851
--------------------------------------------------------------------------------
Class B $187 $579 $995 $2,159
--------------------------------------------------------------------------------
Class C $169 $523 $902 $1,965
--------------------------------------------------------------------------------
Class D $258 $591 $947 $1,949
--------------------------------------------------------------------------------

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 9

<PAGE>

Details About the Funds [Clip Art]

ABOUT THE
PORTFOLIO MANAGER

Edward J. Andrews is the
portfolio manager of both Funds
and has been a Vice President of
Fund Asset Management and
Merrill Lynch Asset Management
since 1991.

About The Manager

Both Funds are managed by
Fund Asset Management.

HOW THE FUNDS INVEST
--------------------------------------------------------------------------------

The California Fund's main objective is to seek income that is exempt from
Federal and California income taxes. The Florida Fund's main objective is to
seek income exempt from Federal income tax and to offer shareholders the
opportunity to own shares whose value is exempt from Florida intangible personal
property tax. The California Fund invests primarily in intermediate term,
investment grade California municipal bonds while the Florida Fund invests
primarily in intermediate term, investment grade Florida municipal bonds. These
bonds may be obligations of a variety of issuers including governmental entities
or other qualifying issuers. Issuers may be located in California, in the case
of the California Fund, or in Florida, in the case of the Florida Fund. Issuers
also may be located in other qualifying jurisdictions such as Puerto Rico, the
U.S. Virgin Islands and Guam.

Each Fund may invest in either fixed rate or variable rate obligations. At least
80% of each Fund's total assets will be invested in investment grade securities.
Each Fund may invest up to 20% of its total assets in high yield ("junk") bonds.
These bonds are generally more speculative and involve greater price
fluctuations than investment grade securities.

Each Fund will invest at least 80% of its total assets in obligations that pay
interest exempt from Federal income tax and at least 65% of its total assets in
its respective State municipal bonds. Under normal conditions, each Fund's
weighted average maturity will not be more than five years. For temporary
periods, however, a Fund may invest up to 35% of its total assets in short term
tax exempt or taxable money market obligations, although each Fund will not
generally invest more than 20% of its net assets in taxable money market
obligations. As a temporary measure for defensive purposes, each Fund may invest
without limitation in short term tax exempt or taxable money market obligations.
These short term investments may limit the potential for each Fund to achieve
its objective.

In general, if at least 90% of the Florida Fund's net assets are invested in
assets that are exempt from Florida intangible personal property tax on the last
business day of any calendar year ("90% threshold"), shares of the Florida Fund
owned by Florida residents will be exempt from Florida intangible personal
property tax in the following year. If the Florida Fund does not meet the 90%
threshold, only that portion of the value of the Florida Fund's shares equal to
the portion of the Florida Fund's net assets that are invested in obligations of
the U.S. Government will be exempt from Florida intangible personal property
tax. While the Florida Fund will try to meet the 90% threshold, it may not
always be possible to do so.

10 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

<PAGE>

Each Fund may use derivatives including futures, options, indexed securities and
inverse securities. Derivatives are financial instruments whose value is derived
from another security or an index such as the Lehman Brothers Municipal Bond
Index.

Each Fund's investments may include private activity bonds that may subject
certain shareholders to a Federal alternative minimum tax.

California's economy is influenced by numerous factors, including developments
in technology, business services (such as computer software), construction,
computers and electronic components as well as the economies of Canada and Latin
America, California's largest trading partners. Florida's economy is also
affected by many factors, including its governmental structure, its dependence
on sales and use taxes, the disproportionate number of retirees living there and
tourism. The Manager believes that current economic conditions in both
California and Florida will enable each Fund to continue to invest in high
quality State municipal bonds.

Fund management considers a variety of factors when choosing investments, such
as:

o Credit Quality Of Issuers -- based on bond ratings and other factors
including economic and financial conditions.

o 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).

o Maturity Analysis -- the weighted average maturity of each portfolio
normally will not be more than five years. Factors considered to
determine the desired average maturity 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
each Fund. As with any mutual fund, there can be no guarantee that a Fund will
meet its goals or that a Fund's performance will be positive for any period of
time.

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 11

<PAGE>

[Clip Art] Details About the Funds

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 investments
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.

Interest Rate Risk -- Interest rate risk is the risk that prices of municipal
bonds generally decrease when interest rates increase. However, prices of
shorter term securities generally change less in response to interest rate
changes than prices on longer term securities.

State Specific Risk -- Each Fund will invest primarily in its respective State
municipal bonds. As a result, each Fund is more exposed to risks affecting
issuers in its respective state than is a municipal bond fund that invests more
widely. Management does not believe that the current economic and financial
conditions of either state will adversely affect the respective Fund's ability
to invest in high quality state municipal securities.

o California -- During the late 1990's, California's economy has been
recovering from a deep recession it suffered at the beginning of the
decade. California's financial condition improved markedly during the
fiscal years starting in 1995-96, with a combination of better than
expected revenues, slowdown in growth of social welfare programs, and
continued spending restraint based on actions taken in earlier years.
California's cash position also improved, and no external deficit
borrowing occurred over the end of the last four fiscal years. The last
borrowing to spread out the repayment of a budget deficit over the end of
a fiscal year was $4.0 billion of revenue anticipation warrants issued in
July, 1994 and which became due for payment in April, 1996. Moody's,
Standard &Poor's and Fitch currently rate the State of California's
general obligation bonds Aa3, AA-, and AA-, respectively.

o Florida -- Many different social, environmental and economic factors may
affect the financial condition ofFlorida and its political subdivisions.
From time to time, Florida and its political subdivisions have
encountered financial difficulties. Florida is highly dependent upon
sales and use taxes, which

12 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

<PAGE>

account for the majority of its General Fund revenues. The Florida
Constitution does not permit a state or local personal income tax. The
structure of personal income in Florida is also different from the rest
of the nation in that the State has a proportionally greater retirement
age population that is dependent upon transfer payments (social security,
pension benefits, etc.) that can be affected by Federal legislation.
Florida's economic growth is also highly dependent upon other factors
such as changes in population growth, tourism, interest rates and
hurricane activity. The Florida Constitution may limit the State's
ability to raise revenues and may have an adverse effect on the State's
finances and political subdivisions. As of October, 26, 1999, Florida's
general obligation bonds were rated Aaa by Moody's, AAA by S&P and AAA by
Fitch.

Call And Redemption Risk -- A bond's issuer may call a bond for redemption
before it matures. If this happens to a bond a Fund holds, that Fund may lose
income and may have to invest the proceeds in bonds with lower yields.

Borrowing And Leverage -- Each 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 a Fund interest expense and other fees. The costs of borrowing may reduce a
Fund's return. Certain securities that a Fund buys may create leverage
including, for example, when issued securities, forward commitments and options.

Risks associated with certain types of obligations in which each 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.

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

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 13

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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, a 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 a Fund may lose money.

Municipal Lease Obligations -- In a municipal lease obligation, the issuer
agrees to budget for and appropriate municipal funds to make payments due on the
lease obligation. However, this does not ensure that funds will actually be
appropriated in future years. The issuer does not pledge its unlimited taxing
power for payment of the lease obligation, but the leased property secures the
obligation. In addition, the proceeds of a sale may not cover a Fund's loss.

Insured Municipal Bonds -- Bonds purchased by a Fund may be covered by insurance
that guarantees timely interest payments and payment 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 Funds do 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 a 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 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 few or no assets available to repay junk bond holders.
Junk bonds may be subject to greater call and redemption risk than higher rated
debt securities.

14 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

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When Issued Securities, Delayed Delivery Securities and Forward Commitments --
When issued and delayed delivery securities and forward commitments involve the
risk that the security a Fund buys will lose value prior to its delivery to that
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 a 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, a Fund may
lose money.

Illiquid Investments -- Each Fund may invest up to 15% of its assets in illiquid
securities that it cannot easily resell within seven days at current value or
that have contractual or legal restrictions on resale. If a Fund buys illiquid
securities it may be unable to quickly resell them or may be able to sell them
only at a price below current value.

Derivatives -- Each 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.
Derivatives allow a 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 a 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.

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.

Each Fund may use derivatives for hedging purposes including anticipatory
hedges. Hedging is a strategy in which a Fund uses a derivative to offset the
risk that other Fund holdings may decrease in value. While hedging can

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 15

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reduce losses, it can also reduce or eliminate gains if the market moves in a
different manner than anticipated by a 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 a Fund, in which case any losses on the holdings being hedged may
not be reduced. There can be no assurance that a Fund's hedging strategy will
reduce risk or that hedging transactions will be either available or cost
effective. The Funds are not required to use hedging and may choose not to do
so.

Short Term Municipal Derivatives-- Short term municipal derivatives present
certain unresolved tax, legal, regulatory and accounting issues not presented by
investments in other short term municipal securities. These issues might be
resolved in a manner adverse to the Fund. For example, the Internal Revenue
Service has never ruled whether pass-through income paid to a Fund is
tax-exempt. Each Fund received an opinion of counsel that pass-through income is
tax-exempt for Federal income tax purposes, but that does not mean that the IRS
will never rule that pass-through income is taxable.

Indexed And Inverse Floating Rate Securities -- Each 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. Each 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 a 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 a 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.
Both 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 Trust and each Fund, including
how the Funds invest, please see the Statement of Additional Information.

16 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

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YOUR ACCOUNT [Clip Art]

MERRILL LYNCH SELECT PRICING(SM) SYSTEM
--------------------------------------------------------------------------------

Each 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 Consultant can help you determine which share class is best suited to
your personal financial goals.

For example, if you select Class A or 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.

If you select Class B or C shares, you will invest the full amount of your
purchase price, but you will be subject to a distribution fee of 0.20% and an
account maintenance fee of 0.15%. Because these fees are paid out of a Fund's
assets on an ongoing basis, over time these fees increase the cost of your
investment and may cost you more than paying an initial sales charge. In
addition, you may be subject to a deferred sales charge when you sell Class B or
C shares. You may acquire Class C shares only by exchanging Class C shares of
another Merrill Lynch mutual fund.

Each Fund's shares are distributed by Merrill Lynch Funds Distributor, a
division of Princeton Funds Distributor, Inc., an affiliate of Merrill Lynch.
Each Fund is a separate series of the Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust.

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 17

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[Clip Art] Your Account

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 available o Not available for Generally available
investors including: through Merrill Lynch. purchase. through Merrill Lynch.
o Current Class A Limited availability o Issued in exchange Limited availability
shareholders through other for Class C shares of through other
o Participants in securities dealers. other Merrill Lynch securities dealers.
certain Merrill Lynch- Mutual funds.
sponsored programs
o Certain affiliates of
Merrill Lynch.
------------------------------------------------------------------------------------------------------------------------------------
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 charges available shares of a Fund. shares of the Fund. sales charges available
for larger investments. for larger investments.
------------------------------------------------------------------------------------------------------------------------------------
Deferred Sales No. (May be charged Yes. Payable if you Yes. Payable if you No. (May be charged
Charge? for purchases over redeem within one redeem within one for purchases over
$1 million that are year of purchase. year of acquisition. $1 million that are
redeemed within redeemed within
one year.) one year.)
------------------------------------------------------------------------------------------------------------------------------------
Account No. 0.15% Account 0.15% Account 0.10% Account
Maintenance and Maintenance Fee Maintenance Fee Maintenance Fee.
Distribution Fees? 0.20% Distribution 0.20% Distribution No Distribution Fee.
Fee. Fee.
------------------------------------------------------------------------------------------------------------------------------------
Conversion to No. Yes, automatically No. No.
Class D shares? after approximately
ten years.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

18 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

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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 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.

<TABLE>
<CAPTION>
Discount to
Sales Load Sales Load as Selected Dealers
as Percentage* of Percentage* of the as Percentage*
Amount of Purchase Offering Price Net Amount Invested of the Offering Price
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 1.00% 1.01% .95%
-----------------------------------------------------------------------------------------
$100,000 but less
than $250,000 .75% .76% .70%
-----------------------------------------------------------------------------------------
$250,000 but less
than $500,000 .50% .50% .45%
-----------------------------------------------------------------------------------------
$500,000 but less
than $1,000,000 .30% .30% .27%
-----------------------------------------------------------------------------------------
$1,000,000 and over** .00% .00% .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. However, if you redeem your shares within one
year after purchase, you may be charged a deferred sales charge. This charge
is 0.20% 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:

o Purchases under a Right of Accumulation or Letter of Intent

o TMA(SM) Managed Trusts

o Certain Merrill Lynch investment or central asset accounts

o Purchases using proceeds from the sale of certain Merrill Lynch
closed-end funds under certain circumstances

o Certain investors, including directors or trustees of Merrill Lynch
mutual funds and Merrill Lynch employees

o Certain Merrill Lynch fee-based programs

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 19

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Only certain investors are eligible to buy Class A shares. Your Merrill Lynch
Financial Consultant 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 Consultant or the Funds' 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 acquisition. However, if you redeem your shares within one year
after acquisition, you may be required to pay a deferred sales charge. You will
also pay distribution fees of 0.20% and account maintenance fees of 0.15% each
year under distribution plans that each Fund has adopted under Rule 12b-1.
Because these fees are paid out of a Fund's assets on an ongoing basis, over
time these fees increase the cost of your investment and may cost you more than
paying an initial sales charge. 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 Consultant
or other securities dealer who assists you in purchasing Fund shares.

20 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

<PAGE>

If you redeem Class B shares or Class C shares within one year after
acquisition, you may be charged a deferred sales charge. The amount of the
charge is set forth in the following schedule:

Years Since Purchase Sales Charge*
----------------------------------------------------------
0 - 1 1.00%
----------------------------------------------------------
1 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.

Class B Shares

The deferred sales charge relating to Class B shares may be reduced or waived in
certain circumstances, such as:

o Redemption in connection with participation in certain Merrill Lynch
fee-based programs

o 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, or in
connection with involuntary termination of an account in which Fund
shares are held

o 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.

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

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 21

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shares of a Fund in an exchange from another fund with a shorter conversion
schedule, each Fund's ten year conversion schedule will apply. If you exchange
your Class B shares in a Fund for Class B shares of a fund with a shorter
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

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.

HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
--------------------------------------------------------------------------------

The chart below summarizes how to buy, sell, transfer and exchange shares
through Merrill Lynch or other securities dealers. You may also buy shares
through the Transfer Agent. To learn more about buying, selling 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
Consultant may help you with this decision.

22 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

<PAGE>

If You Want to Your Choices Information Important for You to Know
-----------------------------------------------------------------------------------------------------------------------------------
Buy Shares First, select the share class Refer to the Merrill Lynch Select Pricing table on page 19.
appropriate for you Be sure to read this prospectus carefully.
------------------------------------------------------------------------------------------------------------
Next, determine the amount of The minimum initial investment for the Fund is $1,000 for all
your investment accounts except that certain Merrill Lynch fee-based programs have
a $250 initial minimun 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 next calculation of net
Financial Consultant or asset value after your order is placed. Any purchase orders placed
securities dealer submit prior to the close of business on the New York Stock Exchange
your purchase order (generally 4:00 p.m Eastern time) will be priced at the net asset
value determined that day.

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. Merrill Lynch may charge a processing fee to confirm a
purchase. This fee is currently $5.35.
------------------------------------------------------------------------------------------------------------
Or contact the Transfer To purchase shares directly, call the Transfer Agent at
Agent 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 purchases is generally $50
Investment 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 reinvested without a sales
through the automatic charge.
dividend reinvestment plan
------------------------------------------------------------------------------------------------------------
Participate in the You may invest a specific amount on a periodic basis through
automatic investment plan certain Merrill Lynch investment or central asset accounts.
------------------------------------------------------------------------------------------------------------------------------------
Transfer Shares Transfer to a participating You may transfer your Fund shares only to another securities
to Another securities dealer dealer that has entered into an agreement with Merrill
Securities Dealer Lynch. Certain shareholder services may not be available for
the transferred shares. You 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 non-participating You must either:
securities dealer o Transfer your shares to an account with the Transfer
Agent; or
o Sell your shares, paying any applicable deferred sales
charge.
-----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 23

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<TABLE>
<CAPTION>
<S> <C> <C>
If You Want to Your Choices Information Important for You to Know
-----------------------------------------------------------------------------------------------------------------------------------

Sell Your Shares Have Your Merrill Lynch The price of your shares is based on the next calculation of
Financial Consultant or net asset value after your order is placed. For your
securities dealer submit redemption request to be priced at the net asset value on
your sales order the day of your request, you must submit your request to
your dealer prior to that day's close of business on the New
York Stock Exchange (generally 4:00 p.m. Eastern 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, 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 Transfer Agent You may sell shares held at the 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 and 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.

If you hold share certificates, they must be delivered to
the Transfer Agent before they can be converted. Check with
the Transfer Agent or your Merrill Lynch Financial
Consultant for details.
-----------------------------------------------------------------------------------------------------------------------------------
Sell Shares Participate in the Fund's You can choose to receive systematic payments from your Fund
Systematically Systematic Withdrawal Plan account either 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 C shares your total

-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

24 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

<PAGE>

Sell Shares Participate in the Fund's annual withdrawals cannot be more than 10% per year of the
Systematically Systematic Withdrawal Plan value of your shares at the time your plan is established. The
(continued) deferred sales charge is waived for systematic redemptions. Ask
your Merrill Lynch Financial Consultant for details.
-----------------------------------------------------------------------------------------------------------------------------------
Exchange Your Shares Select the fund into You can exchange your shares of the Fund for shares of many
which you want to other Merrill Lynch mutual funds. You must have held the
exchange. Be sure to shares used in the exchange for at least 15 calendar days
read that fund's before you can exchange to another fund.
prospectus
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 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 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 D shares for money
market fund shares, you will receive Class A shares of
Summit Cash Reserves Fund. Class B or C shares of the Fund
will be exchanged for Class B shares of Summit.

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.
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 25

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Net Asset Value -- the market
value of a 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. Each Fund calculates its net
asset value (generally by using market quotations) each day the New York Stock
Exchange is open after the close of business on the Exchange (the Exchange
generally closes at 4:00 p.m. Eastern time). The net asset value used in
determining your price is the next one calculated after your purchase or
redemption order is placed.

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. 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 MERRILL LYNCH FEE-BASED PROGRAMS
--------------------------------------------------------------------------------

If you participate in certain fee-based programs offered by Merrill Lynch, 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.

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.

26 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

<PAGE>

Dividends -- Exempt-interest,
ordinary income and capital gains
paid to shareholders. Dividends
may be reinvested in additional
Fund shares as they are paid.

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 Consultant.

DIVIDENDS AND TAXES
--------------------------------------------------------------------------------

Each Fund will distribute any net investment income monthly and any net realized
long or short term capital gains at least annually. Each Fund may also pay a
special distribution at the end of the calendar year to comply with Federal tax
requirements. If your account is with Merrill Lynch and you would like to
receive dividends in cash, contact your Merrill Lynch Financial Consultant. If
your account is with the Transfer Agent and you would like to receive dividends
in cash, contact the Transfer Agent.

Taxes

To the extent that the dividends distributed by a Fund are from municipal bond
interest income, they are exempt from Federal income tax but may be subject to
state or local income taxes. Certain investors may be subject to a Federal
alternative minimum tax on dividends received from a Fund. Interest income from
other investments may produce taxable dividends.

Generally, so long as at least 50% of the value of the California Fund's total
assets consists of California Municipal Bonds at the end of each quarter of the
California Fund's taxable year, the portion of dividends distributed by the
California Fund derived from California municipal bond interest income, will
also be exempt from California income taxes. While dividends paid by the Florida
Fund to individuals who are Florida residents are not subject to personal income
taxation, dividends of the Florida Fund will be subject to Florida corporate
income taxes. Dividends derived from capital gains realized by a Fund will be
subject to Federal income tax and, for investors subject to taxation in
California, generally will be subject to California income tax as well. If you
are subject to income tax in a state other than California or Florida, the
dividends derived from California or Florida municipal bonds, respectively, will
not be exempt from income tax in that state. In general, if at least 90% of the
Florida Fund's net assets are invested in assets that are exempt fromFlorida
intangible personal property tax on the last business

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 27

<PAGE>

[Clip Art] Your Account

"BUYING A DIVIDEND"

You may want to avoid buying
shares of a Fund 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.

day of any calendar year, shares of the Florida Fund owned by Florida residents
will be exempt from Florida intangible personal property tax in the following
year.

Generally, within 60 days after the end of each Fund's taxable year, the Trust
will tell you the amount of exempt-interest 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 a Fund is the same whether you choose to receive
dividends in cash or to have them reinvested in shares of a Fund.

By law, each Fund must withhold 31% of your dividends and proceeds 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 shares of a Fund or exchange them for shares of another fund, any
gain on the transaction may be subject to Federal income tax.

This section summarizes some of the consequences of an investment in a Fund
under current Federal and California and Florida tax laws. It is not a
substitute for personal tax advice. Consult your personal tax adviser about the
potential tax consequences to you of an investment in a Fund under all
applicable tax laws.

28 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

<PAGE>

Management of the Funds [Clip Art]

FUND ASSET MANAGEMENT
--------------------------------------------------------------------------------

Fund Asset Management, the Fund's Manager, manages the Funds' investments and
their business operations under the overall supervision of the Trust's Board of
Trustees. The Manager has the responsibility for making all investment decisions
for each Fund. Each Fund pays the Manager a fee at the annual rate of 0.35% of
the average daily net assets of that Fund.

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 is part of the Asset Management Group of ML & Co. The
Asset Management Group had approximately $518 billion in investment company and
other portfolio assets under management as of October 1999. This amount includes
assets managed for Merrill Lynch affiliates.

A Note About Year 2000

Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). A Fund could be adversely affected
if the computer systems used by Fund management or other service providers to
that Fund do not properly address this problem before January 1, 2000. Fund
management expects to have addressed this problem before then and does not
anticipate that the services it provides will be adversely affected. The Funds'
other service providers have told Fund management that they also expect to
resolve the Year 2000 Problem, and Fund management will continue to monitor the
situation as the Year 2000 approaches. However, if the problem has not been
fully addressed, one or both Funds could be negatively affected. The Year 2000
Problem could also have a negative impact on the issuers of securities in which
a Fund invests, and this could hurt a Fund's investment returns.

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 29

<PAGE>

[Clip Art] Management of the Funds

FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The Financial Highlights tables are intended to help you understand each Fund's
financial performance for the periods shown. Certain information reflects
financial results for a single share of each of the Funds. The total returns in
the table represent the rate an investor would have earned on an investment in
each Fund (assuming reinvestment of all dividends). This information has been
audited by Deloitte & Touche llp, whose report, along with the Trust's financial
statements, is included in the Trust's annual report to shareholders, which is
available upon request.

California Fund
-----------------------------------------------------------------------------------------
Class A Class B
------------------------------------------ -----------------------------------------
For the Year Ended July 31, For the Year Ended July 31,
-----------------------------------------------------------------------------------------
Increase (Decrease) in
Net Asset Value: 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 10.13 $10.22 $10.05 $ 9.99 $ 9.88 $10.12 $10.21 $10.04 $ 9.99 $ 9.88
---------------------------------------------------------------------------------------------------------------------------------
Investment income -- net .32 .39 .38 .39 .42 .29 .35 .34 .36 .39
---------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on
investments-- net (.10) (.09) .17 .06 .11 (.09) (.09) .17 .05 .11
---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .22 .30 .55 .45 .53 .20 .26 .51 .41 .50
---------------------------------------------------------------------------------------------------------------------------------
Less dividends from
investment income -- net (.32) (.39) (.38) (.39) (.42) (.29) (.35) (.34) (.36) (.39)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 10.03 $10.13 $10.22 $10.05 $ 9.99 $10.03 $10.12 $10.21 $10.04 $ 9.99
---------------------------------------------------------------------------------------------------------------------------------
Total Investment Return:*
---------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share 2.20% 2.96% 5.57% 4.56% 5.60% 1.93% 2.59% 5.20% 4.08% 5.23%
---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
---------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement 1.59% 1.12% 1.08% .94% .40% 1.94% 1.51% 1.44% 1.30% .76%
---------------------------------------------------------------------------------------------------------------------------------
Expenses 1.79% 1.32% 1.28% 1.30% 1.44% 2.14% 1.71% 1.64% 1.66% 1.80%
---------------------------------------------------------------------------------------------------------------------------------
Investment income-- net 3.18% 3.82% 3.75% 3.89% 4.36% 2.83% 3.45% 3.39% 3.53% 4.00%
---------------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $ 1,294 $1,460 $3,152 $3,162 $3,527 $ 3,718 $4,812 $6,877 $9,919 $10,363
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 44.37% 24.65% 26.86% 11.09% 124.72% 44.37% 24.65% 26.86% 11.09% 124.72%
---------------------------------------------------------------------------------------------------------------------------------

</TABLE>

* Total investment returns exclude the effects of sales charges.

30 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

<PAGE>

FINANCIAL HIGHLIGHTS (continued)
--------------------------------------------------------------------------------

California Fund
-------------------------------------------------------------------------------------------
Class C Class D
--------------------------------- --------------------------------------------
For the For the
Period Period
For the Year Ended October For the Year Ended October
July 31, 21, 1994+ July 31, 21, 1994+
--------------------------------- to -------------------------------- to
Increase (Decrease) in July 31, July 31,
Net Asset Value: 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.12 $10.22 $10.05 $ 9.99 $ 9.76 $ 10.13 $10.22 $10.05 $ 9.99 $ 9.76
----------------------------------------------------------------------------------------------------------------------------------
Investment income-- net .31 .37 .36 .37 .31 .31 .38 .37 .38 .33
----------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss)
on investments-- net (.09) (.10) .17 .06 .23 (.09) (.09) .17 .06 .23
----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .22 .27 .53 .43 .54 .22 .29 .54 .44 .56
----------------------------------------------------------------------------------------------------------------------------------
Less dividends from
investment income -- net (.31) (.37) (.36) (.37) (.31) (.31) (.38) (.37) (.38) (.33)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.03 $10.12 $10.22 $10.05 $ 9.99 $ 10.04 $10.13 $10.22 $10.05 $ 9.99
----------------------------------------------------------------------------------------------------------------------------------
Total Investment Return:**
----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share 2.12% 2.68% 5.39% 4.35% 5.60%# 2.20% 2.86% 5.47% 4.46% 5.85%#
----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement 1.76% 1.36% 1.25% 1.14% .82%* 1.67% 1.25% 1.15% 1.06% .66%*
----------------------------------------------------------------------------------------------------------------------------------
Expenses 1.96% 1.56% 1.45% 1.50% 1.98%* 1.87% 1.45% 1.35% 1.40% 1.81%*
----------------------------------------------------------------------------------------------------------------------------------
Investment income-- net 3.00% 3.61% 3.58% 3.69% 4.04%* 3.09% 3.70% 3.69% 3.77% 4.28%*
----------------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 114 $ 95 $ 57 $ 55 $ 64 $3,136 $2,713 $4,043 $2,185 $1,771
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 44.37% 24.65% 26.86% 11.09% 124.72% 44.37% 24.65% 26.86% 11.09% 124.72%
----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

+ Commencement of operations.
* Annualized.
** Total investment returns exclude the effects of sales charges.
# Aggregate total investment return.

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 31

<PAGE>
[Clip Art] Management of the Funds

FINANCIAL HIGHLIGHTS (continued)
--------------------------------------------------------------------------------

Florida Fund
----------------------------------------------------------------------------------------
Class A Class B
----------------------------------------- ------------------------------------------
For the Year Ended July 31, For the Year Ended July 31,
----------------------------------------- ------------------------------------------
Increase (Decrease) in
Net Asset Value: 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $10.00 $10.07 $ 9.96 $10.02 $ 9.87 $ 10.00 $10.07 $ 9.96 $ 10.02 $ 9.88
----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net .33 .38 .40 .40 .43 .30 .35 .36 .37 .40
----------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on
investments -- net (.13) (.07) .11 (.06) .15 (.14) (.07) .11 (.06) .14
----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .20 .31 .51 .34 .58 .16 .28 .47 .31 .54
----------------------------------------------------------------------------------------------------------------------------------
Less dividends from
investment income -- net (.33) (.38) (.40) (.40) (.43) (.30) (.35) (.36) (.37) (.40)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 9.87 $10.00 $10.07 $ 9.96 $10.02 $ 9.86 $10.00 $ 10.07 $ 9.96 $ 10.02
----------------------------------------------------------------------------------------------------------------------------------
Total Investment Return:*
----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share 2.01% 3.17% 5.20% 3.45% 6.05% 1.54% 2.80% 4.83% 3.08% 5.57%
----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement 1.48% 1.19% 1.09% .89% .39% 1.84% 1.54% 1.45% 1.24% .75%
----------------------------------------------------------------------------------------------------------------------------------
Expenses 1.48% 1.19% 1.09% .97% 1.03% 1.84% 1.54% 1.45% 1.32% 1.38%
----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net 3.31% 3.81% 3.98% 4.01% 4.39% 2.95% 3.46% 3.63% 3.66% 4.05%
----------------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $4,055 $5,331 $6,376 $7,874 $9,849 $7,787 $8,014 $11,461 $13,690 $16,213
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 18.60% 39.52% 35.67% 39.90% 138.97% 18.60% 39.52% 35.67% 39.90% 138.97%
----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

* Total investment returns exclude the effects of sales charges.

32 MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

<PAGE>

FINANCIAL HIGHLIGHTS (concluded)
--------------------------------------------------------------------------------

Florida Fund
------------------------------------------------------------------------------------------
Class C Class D
----------------------------------------- -------------------------------------------
For the For the
Period Period
For the Year Ended October For the Year Ended October
July 31, 21, 1994+ July 31, 21, 1994+
-------------------------------- to -------------------------------- to
Increase (Decrease) in July 31, July 31,
Net Asset Value: 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.93 $10.00 $ 9.90 $ 10.01 $ 9.76 $10.00 $10.06 $ 9.95 $10.01 $ 9.76
----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net .30 .33 .38 .36 .29 .32 .37 .39 .39 .33
----------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on
investments -- net (.13) (.07) .10 (.11) .25 (.14) (.06) .11 (.06) .25
----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .17 .26 .48 .25 .54 .18 .31 .50 .33 .58
----------------------------------------------------------------------------------------------------------------------------------
Less dividends from
investment income -- net (.30) (.33) (.38) (.36) (.29) (.32) (.37) (.39) (.39) (.33)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.80 $ 9.93 $10.00 $ 9.90 $ 10.01 $ 9.86 $10.00 $10.06 $ 9.95 $ 10.01
----------------------------------------------------------------------------------------------------------------------------------
Total Investment Return:**
----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share 1.68% 2.65% 4.93% 2.48% 5.65%# 1.80% 3.17% 5.10% 3.35% 6.07%#
----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement 1.66% 1.29% 1.26% 1.21% 1.09%* 1.57% 1.29% 1.19% .99% .67%*
----------------------------------------------------------------------------------------------------------------------------------
Expenses 1.66% 1.29% 1.26% 1.23% 1.67%* 1.57% 1.29% 1.19% 1.07% 1.19%*
----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net 3.06% 3.78% 3.83% 3.75% 3.83%* 3.21% 3.71% 3.88% 3.91% 4.23%*
----------------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $64 $ 1 $ 60 $ 52 $ 1 $2,522 $5,362 $7,733 $6,406 $ 7,210
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 18.60% 39.52% 35.67% 39.90% 138.97% 18.60% 39.52% 35.67% 39.90% 138.97%
----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
# Aggregate total investment return.

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST 33

<PAGE>

(This page intentionally left blank)

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

<PAGE>

-----------------------------
POTENTIAL
INVESTORS
Open an account (two options)
-----------------------------

(1) (2)
`-------------------------- --------------------------------
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT Financial Data Services, Inc.
or SECURITIES DEALER
ADMINISTRATIVE OFFICES
Advises shareholders on 4800 Deer Lake Drive East
their Fund investments. Jacksonville, Florida 32246-6484
--------------------------
MAILING ADDRESS
P.O. Box 45289
Jacksonville, Florida 32232-5289

Performs recordkeeping and
reporting services.
--------------------------------

-----------------------------------------------
DISTRIBUTOR

Merrill Lynch Funds Distributor,
a division of Princeton Funds Distributor, Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081

Arranges for the sale of Fund shares.
-----------------------------------------------

------------------------------ --------------------------------
COUNSEL CUSTODIAN

Brown & Wood LLP State Street Bank
One World Trade Center and Trust Company
New York, New York 10048-0557 P.O. Box 351
Boston, Massachusetts 02101
Provides legal advice --------------
to the Fund. THE FUNDS Holds the Fund's assets
------------------------------ for safekeeping.
The Board of --------------------------------
Trustees
oversees the Fund.
------------------

----------------------------------- ------------------------------------
INDEPENDENT AUDITORS MANAGER

Deloitte & Touche LLP Fund Asset Management, L.P.
117 Campus Drive
Princeton, New Jersey 08540-6400 ADMINISTRATIVE OFFICES
800 Scudders Mill Road
Audits the financial Plainsboro, New Jersey 08536
statements of each Fund on behalf of
the shareholders. MAILING ADDRESS
----------------------------------- P.O. Box 9011
Princeton, New Jersey 08543-9011

TELEPHONE NUMBER
1-800-MER-FUND

Manages each Fund's
day-to-day activities.
------------------------------------

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

<PAGE>

For More Information [Clip Art]

Shareholder Reports

Additional information about each Fund's investments is available in the Trust's
annual and semi-annual reports to shareholders. In the Trust's annual report you
will find a discussion of the market conditions and investment strategies that
significantly affected each Fund's performance during its last fiscal year. You
may obtain these reports at no cost by calling 1-800-MER-FUND.

The Trust 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
Consultant 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 Consultant or the Transfer Agent at 1-800-MER-FUND.

Statement of Additional Information

The Trust's Statement of Additional Information contains further information
about each Fund and is incorporated by reference (legally considered to be part
of this prospectus). You may request a free copy by writing the Trust 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 Consultant or the Trust at the telephone
number or address indicated above if you have any questions.

Information about each Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-800-SEC-0330 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 writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.

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 #811-6282
Code #16925-11-99
(C)Fund Asset Management, L.P.

Prospectus

[LOGO] Merrill Lynch

Merrill Lynch Multi-State
Limited Maturity
Municipal Series Trust

o California

o Florida

November 30, 1999

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust
Merrill Lynch California Limited Maturity Municipal Bond Fund
Merrill Lynch Florida Limited Maturity Municipal Bond Fund
P.O. Box 9011, Princeton, New Jersey 08543-9011 o Phone No. (609) 282-2800

Merrill Lynch Multi-State Limited Maturity Municipal Series Trust (the
"Trust"), an open-end management investment company organized as a Massachusetts
business trust, consists of two separate series, Merrill Lynch California
Limited Maturity Municipal Bond Fund (the "California Fund") and Merrill Lynch
Florida Limited Maturity Municipal Bond Fund (the "Florida Fund"). Each series
of the Trust is referred to herein as a "Fund." The investment objective of the
California Fund is to provide shareholders with income exempt from Federal
income tax and California income tax. The Florida Fund seeks to provide
shareholders with income exempt from Federal income tax and also seeks to
offer shareholders the opportunity to own shares whose value is exempt from
Florida intangible personal property tax. Under normal market conditions, each
Fund invests primarily in a portfolio of intermediate-term investment grade
obligations of the designated state or its political subdivisions, agencies or
instrumentalities, or certain other jurisdictions, that pay interest exempt, in
the opinion of bond counsel to the issuer, from Federal income taxes and, in the
case of the California Fund, California income taxes or, in the case of the
Florida Fund, would not subject shareholders to Florida intangible personal
property taxes. There can be no assurance that the investment objective of
either Fund will be realized. For more information on the Funds' investment
objectives and policies, see "Investment Objective and Policies."

Pursuant to the Merrill Lynch Select Pricing(SM) System, each Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances. See
"Purchase of Shares."

------------------

This Statement of Additional Information of the Trust and each Fund is not
a prospectus and should be read in conjunction with the Prospectus of the Trust
and each Fund, dated November 30, 1999 (the "Prospectus"), which has been filed
with the Securities and Exchange Commission (the "Commission") and can be
obtained, without charge, by calling (800) MER-FUND or by writing the Trust at
the above address. The Prospectus is incorporated by reference into this
Statement of Additional Information, and this Statement of Additional
Information is incorporated by reference into the Prospectus. The Trust's
audited financial statements are incorporated in this Statement of Additional
Information by reference to its 1999 annual report to shareholders. You may
request a copy of the annual report at no charge by calling (800) 456-4587 ext.
789 between 8:00 a.m. and 8:00 p.m. on any business day.

------------------

Fund Asset Management -- Manager
Merrill Lynch Funds Distributor -- Distributor

The date of this Statement of Additional Information is November 30, 1999.

------------------

<PAGE>

TABLE OF CONTENTS
Page
----
Investment Objective and Policies ........................................ 2
Risk Factors and Special Considerations Relating to Municipal Bonds ... 3
Description of Municipal Bonds ........................................ 4
Financial Futures Transactions and Options ............................ 8
Description of Temporary Investments .................................. 11
Investment Restrictions ............................................... 13
Portfolio Turnover .................................................... 15
Management of the Trust .................................................. 15
Trustees and Officers ................................................. 15
Compensation of Trustees .............................................. 16
Management and Advisory Arrangements .................................. 17
Code of Ethics ........................................................ 18
Purchase of Shares ....................................................... 19
Initial Sales Charge Alternatives -- Class A and Class D Shares ....... 19
Reduced Initial Sales Charges ......................................... 21
Deferred Sales Charge Alternatives -- Class B and Class C Shares ...... 23
Distribution Plans .................................................... 25
Limitations on the Payment of Deferred Sales Charges .................. 27
Redemption of Shares ..................................................... 28
Redemption ............................................................ 29
Repurchase ............................................................ 29
Reinstatement Privilege -- Class A and Class D Shares ................. 30
Pricing of Shares ........................................................ 30
Determination of Net Asset Value ...................................... 30
Computation of Offering Price Per Share ............................... 31
Portfolio Transactions ................................................... 31
Transactions in Portfolio Securities .................................. 31
Shareholder Services ..................................................... 33
Investment Accounts ................................................... 33
Exchange Privilege .................................................... 33
Fee-Based Programs .................................................... 35
Automatic Investment Plans ............................................ 35
Automatic Dividend Reinvestment Plan .................................. 35
Systematic Withdrawal Plan ............................................ 36
Dividends and Taxes ...................................................... 37
Dividends ............................................................. 37
Federal Taxes ......................................................... 37
Tax Treatment of Options and Futures Transactions ..................... 39
State Taxes ........................................................... 40
Performance Data ......................................................... 41
General Information ...................................................... 44
Description of Shares ................................................. 44
Independent Auditors .................................................. 45
Custodian ............................................................. 45
Transfer Agent ........................................................ 45
Legal Counsel ......................................................... 45
Reports to Shareholders ............................................... 46
Shareholder Inquiries ................................................. 46
Additional Information ................................................ 46
Financial Statements ..................................................... 47
Appendix I -- Economic and Financial Conditions in California ............ I-1
Appendix II -- Economic and Financial Conditions in Florida .............. II-1
Appendix III -- Ratings of Municipal Bonds ............................... III-1

<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the California Fund is to provide shareholders
with income exempt from Federal and California income taxes. The investment
objective of the Florida Fund is to provide shareholders with income exempt from
Federal income tax and to offer shareholders the opportunity to own shares whose
value is exempt from Florida intangible personal property tax. Each Fund seeks
to achieve its objective by investing primarily in a portfolio of intermediate
term investment grade obligations issued by or on behalf of the designated state
or its political subdivisions, agencies or instrumentalities, and obligations of
other qualifying issuers, such as issuers located in Puerto Rico, the U.S.
Virgin Islands and Guam. Such obligations pay interest exempt, in the opinion of
bond counsel to the issuer, from Federal income tax, and, in the case of the
California Fund, California income tax or, in the case of the Florida Fund,
provide exemption of Florida Fund shares from Florida intangible personal
property tax. Obligations that pay interest exempt from Federal income tax are
referred to herein as "Municipal Bonds." "California Municipal Bonds" are
obligations that pay interest exempt from Federal and California income tax.
"Florida Municipal Bonds" are obligations that pay interest exempt from Federal
income tax and would not subject shareholders to Florida intangible personal
property taxes. California Municipal Bonds and Florida Municipal Bonds are
sometimes referred to herein as "State Municipal Bonds." Unless otherwise
indicated, references to Municipal Bonds shall be deemed to include State
Municipal Bonds. At times, a Fund may seek to hedge its portfolio through the
use of futures transactions to reduce volatility in the net asset value of Fund
shares. Reference is made to "Investment Objective and Policies" in the
Prospectus for a discussion of the investment objective and policies of each
Fund. The investment objectives as set forth in the first two sentences of this
paragraph are fundamental policies of the respective Funds and may not be
changed without a vote of a majority of the outstanding shares of that Fund.
Each Fund is classified as a non-diversified fund under the Investment Company
Act of 1940, as amended (the "InvestmentCompany Act").

Each Fund will invest primarily in Municipal Bonds with remaining
maturities of between one and ten years. It is anticipated that, depending on
market conditions, the dollar weighted average maturity of each Fund's portfolio
will not exceed five years. For purposes of these investment policies, an
obligation will be treated as having a maturity earlier than its stated maturity
date if such obligation has technical features that, in the judgment of Fund
Asset Management, L.P. (the "Manager" or "FAM"), will result in the obligation
being valued in the market as though it has such earlier maturity. Interest
rates on shorter-term Municipal Bonds may fluctuate more widely from time to
time than interest rates on longer-term Municipal Bonds. However, because of
their limited maturities, the market value of the Municipal Bonds held by each
Fund can be expected to fluctuate less than that of long-term Municipal Bonds as
a result of changes in interest rates. See "How the Funds Invest" in the
Prospectus for a general discussion of the Fund's goals, main investment
strategies and main risks.

Under normal circumstances, except when acceptable securities are
unavailable as determined by the Manager, except during temporary defensive
periods, each Fund will invest at least 65% of its total assets in its
respective State Municipal Bonds. The value of bonds and other fixed-income
obligations may fall when interest rates rise and rise when interest rates fall.
In general, bonds and other fixed-income obligations with longer maturities will
be subject to greater volatility resulting from interest rate fluctuations than
will similar obligations with shorter maturities. Under normal conditions, it is
generally anticipated that each Fund's weighted average maturity will not exceed
five years. For temporary periods or to provide liquidity, each Fund has the
authority to invest as much as 35% of its total assets in tax-exempt or taxable
money market obligations with a maturity of one year or less (such short-term
obligations being referred to herein as "Temporary Investments"), except that
taxable Temporary Investments shall not exceed 20% of a Fund's net assets.

The Funds may also invest in variable rate demand obligations ("VRDOs")
and VRDOs in the form of participation interests ("Participating VRDOs") in
variable rate tax-exempt obligations held by a financial institution. See
"Description of Temporary Investments." The Funds' hedging strategies, which are
described in more detail under "Financial Futures Transactions and Options," are
not fundamental policies and may be modified by the Trustees of the Trust
without the approval of a Fund's shareholders.

At least 80% of a Fund's total assets will be invested in Municipal Bonds
that are commonly referred to as "investment grade" securities, which are
obligations rated at the time of purchase within the four highest quality
ratings as determined by either Moody's Investors Service, Inc. ("Moody's")
(currently Aaa, Aa, A and Baa),

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Standard & Poor's ("S&P") (currently AAA, AA, A and BBB) or Fitch IBCA, Inc.
("Fitch") (currently AAA, AA, A and BBB). If unrated, such securities will
possess creditworthiness comparable, in the opinion of the Manager, to other
obligations in which the Fund may invest. Securities rated in the lowest
investment grade rating category may be considered to have speculative
characteristics.

A Fund may invest up to 20% of its total assets in Municipal Bonds that
are rated below Baa by Moody's or below BBB by S&P or Fitch or which, in the
Manager's judgment, possess similar credit characteristics. Such securities,
sometimes referred to as "high yield" or "junk" bonds, are predominantly
speculative with respect to the capacity to pay interest and repay principal in
accordance with the terms of the security and generally involve a greater
volatility of price than securities in higher rating categories. See
"Description of Municipal Bonds -- `High Yield' or `Junk' Bonds." The Funds do
not intend to purchase debt securities that are in default or that the Manager
believes will be in default.

Certain Municipal Bonds may be entitled to the benefits of letters of
credit or similar credit enhancements issued by financial institutions. In such
instances, the Trustees and the Manager will take into account in assessing the
quality of such bonds not only the creditworthiness of the issuer of such bonds
but also the creditworthiness of the financial institution that provides the
credit enhancement.

The Funds ordinarily do not intend to realize investment income not exempt
from Federal income tax and, for the California Fund, California income tax or,
in the case of the Florida Fund, to hold investments that would subject
shareholders to Florida intangible personal property tax. However, to the extent
that suitable State Municipal Bonds are not available for investment by a Fund,
a Fund may purchase Municipal Bonds issued by other states or their agencies or
instrumentalities, the interest income on which is exempt, in the opinion of
bond counsel to the issuer, from Federal income tax but that is not exempt from
California income tax or that could subject shareholders to Florida intangible
personal property tax, as the case may be. Each Fund also may invest in
securities not issued by or on behalf of a state or territory or by an agency or
instrumentality thereof, if the Fund nevertheless believes such securities to be
exempt from Federal income taxation ("Non-Municipal Tax-Exempt Securities").
Non-Municipal Tax-Exempt Securities could include trust certificates or other
instruments evidencing interest in one or more long-term State Municipal Bonds
or Municipal Bonds. Non-Municipal Tax-Exempt Securities also may include
securities issued by other investment companies that invest in State Municipal
Bonds or Municipal Bonds, to the extent such investments are permitted by the
Investment Company Act. Certain Non-Municipal Tax-Exempt Securities may be
characterized as derivative instruments. For purposes of the investment
objective of each Fund, Non-Municipal Tax-Exempt Securities that pay interest
that is exempt from Federal income tax will be considered "Municipal Bonds." For
purposes of the investment objective of the California Fund, Non-Municipal
Tax-Exempt Securities that pay interest that is exempt from Federal income tax
and California income tax will be considered "California Municipal Bonds." For
purposes of the investment objective of the Florida Fund, Non-Municipal
Tax-Exempt Securities that pay interest that is exempt from Federal income tax
and permit Florida Fund shares to be exempt from Florida intangible personal
property tax will be considered "Florida Municipal Bonds." Each Fund at all
times will have at least 80% of its net assets invested in securities the
interest on which is exempt from Federal taxation. However, interest received on
certain otherwise tax-exempt securities that are classified as "private activity
bonds" (in general, bonds that benefit non-governmental entities) may be subject
to a Federal alternative minimum tax. The percentage of a Fund's total assets
invested in "private activity bonds" will vary during the year. Federal tax
legislation has limited the types and volume of bonds the interest on which
qualifies for a Federal income tax exemption. As a result, this legislation and
legislation that may be enacted in the future may affect the availability of
Municipal Bonds for investment by the Funds. See "Dividends and Taxes -- Federal
Taxes."

Risk Factors and Special Considerations Relating to Municipal Bonds

The risks and special considerations involved in investment in Municipal
Bonds vary with the types of instruments being acquired. Investments in
Non-Municipal Tax-Exempt Securities may present similar risks, depending on the
particular product. Certain instruments in which each Fund may invest may be
characterized as derivative instruments. See "Investment Objective and Policies
-- Description of Municipal Bonds" and " -- Financial Futures Transactions and
Options."

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<PAGE>

Each Fund ordinarily will invest at least 65% of its assets in its
respective State Municipal Bonds, and therefore it is more susceptible to
factors adversely affecting issuers of State Municipal Bonds than is a municipal
bond fund that is not concentrated in issuers of State Municipal Bonds to this
degree.

The Manager does not believe that the current economic conditions in
California or Florida will have a significant adverse effect on either Fund's
ability to invest in high quality State Municipal Bonds. Because each Fund's
portfolio will be comprised primarily of investment grade securities, each Fund
is expected to be less subject to market and credit risks than a fund that
invests primarily in lower quality State Municipal Bonds. For a discussion of
economic, financial and other conditions in the State of California, see
Appendix I -- "Economic and Financial Conditions in California." For a
discussion of economic, financial and other conditions in the State of Florida,
see Appendix II -- "Economic and Financial Conditions in Florida."

The value of Municipal Bonds generally may be affected by uncertainties in
the municipal markets as a result of legislation or litigation changing the
taxation of Municipal Bonds or the rights of Municipal Bond holders in the event
of a bankruptcy. Municipal bankruptcies are rare and certain provisions of the
U.S. Bankruptcy Code governing such bankruptcies are unclear. Further, the
application of state law to Municipal Bond issuers could produce varying results
among the states or among Municipal Bond issuers within a state. These
uncertainties could have a significant impact on the prices of the Municipal
Bonds or the respective State Municipal Bonds in which the Funds invest.

Description of Municipal Bonds

Set forth below is a detailed description of the Municipal Bonds and
Temporary Investments in which the Funds may invest. Information with respect to
ratings assigned to tax-exempt obligations that the Funds may purchase is set
forth in Appendix III to this Statement of Additional Information.

Municipal Bonds include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities, refunding of outstanding obligations and obtaining funds for general
operating expenses and loans to other public institutions and facilities. In
addition, certain types of bonds are issued by or on behalf of public
authorities to finance various privately owned or operated facilities, including
certain facilities for the local furnishing of electric energy or gas, sewage
facilities, solid waste disposal facilities and other specialized facilities.
Such obligations are included within the term Municipal Bonds if the interest
paid thereon is excluded from gross income for Federal income tax purposes and,
in the case of California Municipal Bonds, exempt from California income taxes
or, in the case of Florida Municipal Bonds if such obligations are not subject
to the Florida intangible personal property tax. Other types of industrial
development bonds or private activity bonds, the proceeds of which are used for
the construction, equipment or improvement of privately operated industrial or
commercial facilities, may constitute Municipal Bonds, although the current
Federal tax laws place substantial limitations on the size of such issues. The
interest on Municipal Bonds may bear a fixed rate or be payable at a variable or
floating rate. The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" bonds, which latter category includes industrial
development bonds ("IDBs") and, for bonds issued after August 15, 1986, private
activity bonds.

General Obligation Bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. The taxing power of any governmental entity may be
limited, however, by provisions of its state constitution or laws, and an
entity's creditworthiness will depend on many factors, including potential
erosion of its tax base due to population declines, natural disasters, declines
in the state's industrial base or inability to attract new industries, economic
limits on the ability to tax without eroding the tax base, state legislative
proposals or voter initiatives to limit ad valorem real property taxes and the
extent to which the entity relies on Federal or state aid, access to capital
markets or other factors beyond the state's or entity's control. Accordingly,
the capacity of the issuer of a general obligation bond as to the timely payment
of interest and the repayment of principal when due is affected by the issuer's
maintenance of its tax base.

Revenue Bonds. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as
payments from the user of the facility being financed; accordingly the timely
payment of interest and the repayment of principal in accordance with the terms
of the revenue or special obligation bond is a function of the economic
viability of such facility or such revenue source.

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<PAGE>

IDBs and Private Activity Bonds. Each Fund may purchase IDBs and private
activity bonds. IDBs and private activity bonds are, in most cases, tax-exempt
securities issued by states, municipalities or public authorities to provide
funds, usually through a loan or lease arrangement, to a private entity for the
purpose of financing construction or improvement of a facility to be used by the
entity. Such bonds are secured primarily by revenues derived from loan
repayments or lease payments due from the entity which may or may not be
guaranteed by a parent company or otherwise secured. IDBs and private activity
bonds generally are not secured by a pledge of the taxing power of the issuer of
such bonds. Therefore, an investor should be aware that repayment of such bonds
generally depends on the revenues of a private entity and be aware of the risks
that such an investment may entail. Continued ability of an entity to generate
sufficient revenues for the payment of principal and interest on such bonds will
be affected by many factors including the size of the entity, capital structure,
demand for its products or services, competition, general economic conditions,
government regulation and the entity's dependence on revenues for the operation
of the particular facility being financed.

"Moral Obligation" Bonds. Each Fund also may invest in "moral obligation"
bonds, which are normally issued by special purpose public authorities. If an
issuer of moral obligation bonds is unable to meet its obligations, the
repayment of such bonds becomes a moral commitment but not a legal obligation of
the state or municipality in question.

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 note may not be fully repaid and a Fund may lose
money.

Municipal Commercial Paper. Municipal commercial paper is generally
unsecured and issued to meet short-term financing needs. The lack of security
presents some risk of loss to a Fund.

Municipal Lease Obligations. Also included within the general category of
Municipal Bonds are participation certificates issued by government authorities
or entities to finance the acquisition or construction of equipment, land and/or
facilities. The certificates represent participations in a lease, an installment
purchase contract or a conditional sales contract (hereinafter collectively
called "lease obligations") relating to such equipment, land or facilities.
Although lease obligations do not constitute general obligations of the issuer
for which the issuer's unlimited taxing power is pledged, a lease obligation is
frequently backed by the issuer's covenant to budget for, appropriate and make
the payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the issuer has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a type of financing that has not yet developed the
depth of marketability associated with more conventional securities. Certain
investments in lease obligations may be illiquid. Each Fund may not invest in
illiquid lease obligations if such investments, together with all other illiquid
investments, would exceed 15% of that Fund's net assets. Each Fund may, however,
invest without regard to such limitation in lease obligations which the Manager,
pursuant to guidelines which have been adopted by the Board of Trustees and
subject to the supervision of the Board, determines to be liquid. The Manager
will deem lease obligations to be liquid if they are publicly offered and have
received an investment grade rating of Baa or better by Moody's, or BBB or
better by S&P or Fitch. Unrated lease obligations, or those rated below
investment grade, will be considered liquid if the obligations come to the
market through an underwritten public offering and at least two dealers are
willing to give competitive bids. In reference to the latter, the Manager must,
among other things, also review the creditworthiness of the entity obligated to
make payment under the lease obligation and make certain specified
determinations based on such factors as the existence of a rating or credit
enhancement such as insurance, the frequency of trades or quotes for the
obligation and the willingness of dealers to make a market in the obligation.

Synthetic Short-Term Municipal Bonds. Each Fund may invest in a variety of
synthetic short-term municipal bonds ("Synthetic Bonds"). Synthetic Bonds are
typically structured by a bank, broker-dealer or other financial institution,
and generally consist of a trust or partnership through which a Fund holds an
interest in one or more long-term municipal bonds that are assets of the
applicable entity ("Underlying Bonds") coupled with a conditional right to sell
("put") that Fund's interest in the Underlying Bonds at par plus accrued
interest to a financial institution (a "Liquidity Provider"). Typically, a
Synthetic Bond is structured as a trust or partnership

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<PAGE>

that provides for pass-through tax-exempt income. There are currently three
principal types of Synthetic Bond structures: (1) "Tender Option Bonds," which
are instruments that grant the holder thereof the right to put an Underlying
Bond at par plus accrued interest at specified intervals to a Liquidity
Provider; (2) "Swap Products," in which the trust or partnership swaps the
payments due on an Underlying Bond with a swap counterparty who agrees to pay a
floating municipal money market interest rate; and (3) "Partnerships," which
allocate to the partners income, expenses, capital gains and losses in
accordance with a governing partnership agreement. Each of the Funds may also
invest in other forms of Synthetic Bonds.

Investments in Synthetic Bonds raise certain tax, legal, regulatory and
accounting issues that may not be presented by investments in other Municipal
Bonds. There is some risk that certain issues could be resolved in a manner that
could adversely impact the performance of the Funds. For example, the tax-exempt
treatment of the interest paid to holders of Synthetic Bonds is premised on the
legal conclusion that the holders of such Synthetic Bonds have an ownership
interest in the Underlying Bonds. While the Fund receives an opinion of legal
counsel to the effect that the income from each Synthetic Bond is tax-exempt to
the same extent as the Underlying Bond, the Internal Revenue Service (the "IRS")
has not issued a ruling on this subject. Were the IRS to issue an adverse
ruling, there is a risk that the interest paid on such Synthetic Bonds would be
deemed taxable. A Synthetic Bond with a put notice period exceeding seven days
will be subject to each Fund's restriction on illiquid investments unless, in
the judgment of the Trustees, such Synthetic Bond is liquid.

Indexed and Inverse Floating Obligations. Each Fund may invest in its
respective State Municipal Bonds and Municipal Bonds (and Non-Municipal
Tax-Exempt Securities) yielding a return based on a particular index of value or
interest rates. For example, each Fund may invest in its respective State
Municipal Bonds and Municipal Bonds that pay interest based on an index of
Municipal Bond interest rates. The principal amount payable upon maturity of
certain State Municipal Bonds and Municipal Bonds also may be based on the value
of the index. To the extent a Fund invests in these types of State Municipal
Bonds and Municipal Bonds, the Fund's return on such State Municipal Bonds and
Municipal Bonds will be subject to risk with respect to the value of the
particular index. Interest and principal payable on the State Municipal Bonds
and Municipal Bonds may also be based on relative changes among particular
indices. Also, each Fund may invest in so-called "inverse floating obligations"
or "residual interest bonds" on which the interest rates vary inversely with a
short-term floating rate (which may be reset periodically by a dutch auction, a
remarketing agent, or by reference to a short-term tax-exempt interest rate
index). Each Fund may purchase synthetically-created inverse floating rate bonds
evidenced by custodial or trust receipts. Generally, income on inverse floating
rate bonds will decrease when short-term interest rates increase, and will
increase when short-term interest rates decrease. Such securities have the
effect of providing a degree of investment leverage, since they may increase or
decrease in value in response to changes, as an illustration, in market interest
rates at a rate which is a multiple (typically two) of the rate at which
fixed-rate long-term tax-exempt securities increase or decrease in response to
such changes. As a result, the market values of such securities will generally
be more volatile than the market values of fixed-rate tax-exempt securities. To
seek to limit the volatility of these securities, each Fund may purchase inverse
floating obligations with shorter-term maturities or which contain limitations
on the extent to which the interest rate may vary. Certain investments in such
obligations may be illiquid. Each Fund may not invest in such illiquid
obligations if such investments, together with other illiquid investments, would
exceed 15% of that Fund's net assets. The Manager, however, believes that
indexed and inverse floating obligations represent flexible portfolio management
instruments for the Funds which allow the Funds to seek potential investment
rewards, hedge other portfolio positions or vary the degree of investment
leverage relatively efficiently under different market conditions.

When Issued Securities and Delayed Delivery Transactions. Each Fund may
purchase or sell securities that it is entitled to receive on a when issued
basis. Each Fund may also purchase or sell securities on a delayed delivery
basis.Each Fund may also purchase or sell securities through a forward
commitment. These transactions involve the purchase or sale of securities by a
Fund at an established price with payment and delivery taking place in the
future.A Fund enters into these transactions to obtain what is considered an
advantageous price to that Fund at the time of entering into the
transaction.Neither Fund has established any limit on the percentage of its
assets that may be committed in connection with these transactions. When a Fund
purchases securities in these transactions, it segregates liquid securities in
an amount equal to the amount of its purchase commitments.

There can be no assurance that a security purchased on a when issued basis
will be issued or that a security purchased or sold through a forward commitment
will be delivered. The value of securities in these transactions

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<PAGE>

on the delivery date may be more or less than a Fund's purchase price.Each Fund
bears the risk of a decline in the value of the security in these transactions
and may not benefit from an appreciation in the value of the security during the
commitment period.

Call and Redemption Risk. Each Fund may purchase a Municipal Bond issuer's
right to call all or a portion of such Municipal Bond for mandatory tender for
purchase (a "Call Right"). A holder of a Call Right may exercise such right to
require a mandatory tender for the purchase of related Municipal Bonds, subject
to certain conditions. A Call Right that is not exercised prior to maturity of
the related Municipal Bond will expire without value. The economic effect of
holding both the Call Right and the related Municipal Bond is identical to
holding a Municipal Bond as a non-callable security. Certain investments in such
obligations may be illiquid. Each Fund may not invest in such illiquid
obligations if such investments, together with other illiquid investments, would
exceed 15% of each Fund's net assets.

"High Yield" or "Junk" Bonds. Each Fund may invest up to 20% of its total
assets in Municipal Bonds that are rated below Baa by Moody's or below BBB by
S&P or Fitch or which, in the Manager's judgment, possess similar credit
characteristics. See Appendix III -"Ratings of Municipal Bonds" for additional
information regarding ratings of debt securities. 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.
Although junk bonds generally pay higher rates of interest than investment grade
bonds, they are higher risk investments that may cause income and principal
losses for a Fund.The major risks in junk bond investments include the
following:

Junk bonds may be issued by less creditworthy issuers. These securities
are vulnerable to adverse changes in the issuer's industry and to general
economic conditions. Issuers of junk bonds may be unable to meet their interest
or principal payment obligations because of an economic downturn, specific
issuer developments or the unavailability of additional financing.

The issuers of junk bonds may have a larger amount of outstanding debt
relative to their assets than issuers of investment grade bonds. If the issuer
experiences financial stress, it may be unable to meet its debt obligations. The
issuer's ability to pay its debt obligations also may be lessened by specific
issuer developments, or the unavailability of additional financing.

Junk bonds are frequently ranked junior to claims by other creditors. If
the issuer cannot meet its obligations, the senior obligations are generally
paid off before the junior obligations.

Junk bonds frequently have redemption features that permit an issuer to
repurchase the security from the Fund before it matures. If an issuer redeems
the junk bonds, a Fund may have to invest the proceeds in bonds with lower
yields and may lose income.

Prices of junk bonds are subject to extreme price fluctuations. Negative
economic developments may have a greater impact on the prices of junk bonds than
on other higher rated fixed income securities.

Junk bonds may be less liquid than higher rated fixed income securities
even under normal economic conditions. There are fewer dealers in the junk bond
market, and there may be significant differences in the prices quoted for junk
bonds by the dealers. Because they are less liquid, judgment may play a greater
role in valuing certain of a Fund's portfolio securities than in the case of
securities trading in a more liquid market.

Each Fund may incur expenses to the extent necessary to seek recovery upon
default or to negotiate new terms with a defaulting issuer.

Yields. Yields on Municipal Bonds are dependent on a variety of factors,
including the general condition of the money market and of the municipal bond
market, the size of a particular offering, the financial condition of the
issuer, the maturity of the obligation and the rating of the issue. The ability
of each Fund to achieve its respective investment objective is also dependent on
the continuing ability of the issuers of the securities in which each Fund
invests to meet their obligations for the payment of interest and principal when
due. There are variations in the risks involved in holding Municipal Bonds, both
within a particular classification and between classifications, depending on
numerous factors. Furthermore, the rights of owners of Municipal Bonds and the
obligations of the issuer of such Municipal Bonds may be subject to applicable
bankruptcy, insolvency and similar laws and court decisions affecting the rights
of creditors generally and to general equitable principles, which may limit the
enforcement of certain remedies.

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Financial Futures Transactions and Options

Each Fund may hedge all or a portion of its portfolio investments against
fluctuations in interest rates through the use of options and certain financial
futures contracts and options thereon. While a Fund's use of hedging strategies
is intended to reduce the volatility of the net asset value of the Fund's
shares, the net asset value of the Fund's shares will fluctuate. There can be no
assurance that either Fund's hedging transactions will be effective.
Furthermore, a Fund may only engage in hedging activities from time to time and
may not necessarily be engaging in hedging activities when movements in interest
rates occur. The Funds have no obligation to enter into hedging transactions and
may choose not to do so.

Each Fund is authorized to purchase and sell certain exchange traded
financial futures contracts ("financial futures contracts") solely for the
purpose of hedging its investments in Municipal Bonds against declines in value
and to hedge against increases in the cost of securities it intends to purchase.
However, any transactions involving financial futures or options (including puts
and calls associated therewith) will be in accordance with each Fund's
investment policies and limitations. A financial futures contract obligates the
seller of a contract to deliver and the purchaser of a contract to take delivery
of the type of financial instrument covered by the contract, or in the case of
index-based futures contracts to make and accept a cash settlement, at a
specific future time for a specified price. To hedge its portfolio, the Fund may
take an investment position in a futures contract which will move in the
opposite direction from the portfolio position being hedged. A sale of financial
futures contracts may provide a hedge against a decline in the value of
portfolio securities because such depreciation may be offset, in whole or in
part, by an increase in the value of the position in the financial futures
contracts. A purchase of financial futures contracts may provide a hedge against
an increase in the cost of securities intended to be purchased because such
appreciation may be offset, in whole or in part, by an increase in the value of
the position in the futures contracts.

Distributions, if any, of net long-term capital gains from certain
transactions in futures or options are taxable at long-term capital gains rates
for Federal income tax purposes. See "Dividends and Taxes -- Federal Taxes" and
"-- Tax Treatment of Options and Futures Transactions."

Futures Contracts. A futures contract is an agreement between two parties
to buy and sell a security or, in the case of an index-based futures contract,
to make and accept a cash settlement for a set price on a future date. A
majority of transactions in futures contracts, however, do not result in the
actual delivery of the underlying instrument or cash settlement, but are settled
through liquidation, (i.e., by entering into an offsetting transaction. Futures
contracts have been designed by boards of trade which have been designated
"contracts markets" by the Commodity Futures Trading Commission ("CFTC")).

The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is generally about 5% of the contract amount, must be
deposited with the broker. This amount is known as "initial margin" and
represents a "good faith" deposit assuring the performance of both the purchaser
and seller under the futures contract. Subsequent payments to and from the
broker, called "variation margin," are required to be made on a daily basis as
the price of the futures contract fluctuates making the long and short positions
in the futures contract more or less valuable, a process known as "marking to
the market." At any time prior to the settlement date of the futures contract,
the position may be closed out by taking an opposite position that will operate
to terminate the position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid to or
released by the broker and the purchaser realizes a loss or gain. In addition, a
nominal commission is paid on each completed sale transaction.

Each Fund deals in financial futures contracts based on a long-term
municipal bond index developed by the Chicago Board of Trade ("CBT") and The
Bond Buyer (the "Municipal Bond Index"). The Municipal Bond Index is comprised
of 40 tax-exempt municipal revenue and general obligation bonds. Each bond
included in the Municipal Bond Index must be rated A or higher by Moody's or S&P
and must have a remaining maturity of 19 years or more. Twice a month new issues
satisfying the eligibility requirements are added to, and an equal number of old
issues are deleted from, the Municipal Bond Index. The value of the Municipal
Bond Index is computed daily according to a formula based on the price of each
bond in the Municipal Bond Index, as evaluated by six dealer-to-dealer brokers.

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<PAGE>

The Municipal Bond Index futures contract is traded only on the CBT. Like
other contract markets, the CBT assures performance under futures contracts
through a clearing corporation, a nonprofit organization managed by the exchange
membership which is also responsible for handling daily accounting of deposits
or withdrawals of margin.

Each Fund may purchase and sell financial futures contracts on U.S.
Government securities as a hedge against adverse changes in interest rates as
described below. With respect to U.S. Government securities, currently there are
financial futures contracts based on long-term U.S. Treasury bonds, Treasury
notes, Government National Mortgage Association ("GNMA") Certificates and
three-month U.S. Treasury bills. Each Fund may purchase and write call and put
options on futures contracts on U.S. Government securities and purchase and sell
Municipal Bond index futures contracts in connection with its hedging
strategies.

Subject to policies adopted by the Trustees, each Fund also may engage in
other futures contracts transactions such as futures contracts on other
municipal bond indices that may become available if the Manager and the Trustees
of the Trust should determine that there is normally a sufficient correlation
between the prices of such futures contracts and the Municipal Bonds in which a
Fund invests to make such hedging appropriate.

Futures Strategies. Each Fund may sell a financial futures contract (i.e.,
assume a short position) in anticipation of a decline in the value of its
investments in Municipal Bonds resulting from an increase in interest rates or
otherwise. The risk of decline could be reduced without employing futures as a
hedge by selling such Municipal Bonds and either reinvesting the proceeds in
securities with shorter maturities or by holding assets in cash. This strategy,
however, entails increased transaction costs in the form of dealer spreads and
typically would reduce the average yield of a Fund's portfolio securities as a
result of the shortening of maturities. The sale of futures contracts provides
an alternative means of hedging against declines in the value of its investments
in Municipal Bonds. As such values decline, the value of a Fund's positions in
the futures contracts will tend to increase, thus offsetting all or a portion of
the depreciation in the market value of that Fund's Municipal Bond investments
that are being hedged. While a Fund will incur commission expenses in selling
and closing out futures positions, commissions on futures transactions are lower
than transaction costs incurred in the purchase and sale of Municipal Bonds. In
addition, the ability of a Fund to trade in the standardized contracts available
in the futures markets may offer a more effective defensive position than a
program to reduce the average maturity of the portfolio securities due to the
unique and varied credit and technical characteristics of the municipal debt
instruments available to that Fund. Employing futures as a hedge also may permit
a Fund to assume a defensive posture without reducing the yield on its
investments beyond any amounts required to engage in futures trading.

When a Fund intends to purchase Municipal Bonds, it may purchase futures
contracts as a hedge against any increase in the cost of such Municipal Bonds
resulting from a decrease in interest rates or otherwise, that may occur before
such purchases can be effected. Subject to the degree correlation between the
Municipal Bonds and the futures contracts, subsequent increases in the cost of
Municipal Bonds should be reflected in the value of the futures held by a Fund.
As such purchases are made, an equivalent amount of futures contracts will be
closed out. Due to changing market conditions and interest rate forecasts,
however, a futures position may be terminated without a corresponding purchase
of portfolio securities.

Call Options on Futures Contracts. Each Fund may also purchase and sell
exchange traded call and put options on financial futures contracts on U.S.
Government securities. The purchase of a call option on a futures contract is
analogous to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the futures contract upon which
it is based or the price of the underlying debt securities, it may or may not be
less risky than ownership of the futures contract or underlying debt securities.
Like the purchase of a futures contract, a Fund will purchase a call option on a
futures contract to hedge against a market advance when that Fund is not fully
invested.

The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities which are deliverable upon
exercise of the futures contract. If the futures price at expiration is below
the exercise price, a Fund will retain the full amount of the option premium
which provides a partial hedge against any decline that may have occurred in the
Fund's portfolio holdings.

Put Options on Futures Contracts. The purchase of a put option on a
futures contract is analogous to the purchase of a protective put option on
portfolio securities. A Fund will purchase a put option on a futures contract to
hedge that Fund's portfolio against the risk of rising interest rates.

9
<PAGE>

The writing of a put option on a futures contract constitutes a partial
hedge against increasing prices of the securities which are deliverable upon
exercise of the futures contract. If the futures price at expiration is higher
than the exercise price, a Fund will retain the full amount of the option
premium which provides a partial hedge against any increase in the price of
Municipal Bonds which that Fund intends to purchase.

The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an option
will be included in initial margin. The writing of an option on a futures
contract involves risks similar to those relating to futures contracts.

The Trust has received an order from the Commission exempting it from the
provisions of Section 17(f) and Section 18(f) of the Investment Company Act in
connection with its strategy of investing in futures contracts. Section 17(f)
relates to the custody of securities and other assets of an investment company
and may be deemed to prohibit certain arrangements between the Fund and
commodities brokers with respect to initial and variation margin. Section 18(f)
of the Investment Company Act prohibits an open-end investment company such as
the Trust from issuing a "senior security" other than a borrowing from a bank.
The staff of the Commission has in the past indicated that a futures contract
may be a "senior security" under the Investment Company Act.

Restrictions on Use of Futures Transactions. Regulations of the CFTC
applicable to each Fund require that all of the futures transactions of each
Fund constitute bona fide hedging transactions and that each Fund purchase and
sell futures contracts and options thereon (i) for bona fide hedging purposes,
and (ii) for non-hedging purposes, if the aggregate initial margin and premiums
required to establish positions in such contracts and options does not exceed 5%
of the liquidation value of a Fund's portfolio assets after taking into account
unrealized profits and unrealized losses on any such contracts and options.
(However, each Fund intends to engage in options and futures transactions only
for hedging purposes.) Margin deposits may consist of cash or securities
acceptable to the broker and the relevant contract market.

When a Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, it will maintain an amount of cash, cash
equivalents (e.g., high grade commercial paper and daily tender adjustable
notes) or liquid securities in a segregated account with that Fund's custodian,
so that the amount so segregated plus the amount of initial and variation margin
held in the account of its broker equals the market value of the futures
contracts, thereby ensuring that the use of such futures contract is
unleveraged. It is not anticipated that transactions in futures contracts will
have the effect of increasing portfolio turnover.

Risk Factors in Futures Transactions and Options. Investment in futures
contracts involves the risk of imperfect correlation between movements in the
price of the futures contract and the price of the security being hedged. The
hedge will not be fully effective when there is imperfect correlation between
the movements in the prices of two financial instruments. For example, if the
price of the futures contract moves more than the price of the hedged security,
a Fund will experience either a loss or gain on the futures contract which is
not completely offset by movements in the price of the hedged securities. To
compensate for imperfect correlations, each Fund may purchase or sell futures
contracts in a greater dollar amount than the hedged securities if the
volatility of the hedged securities is historically greater than the volatility
of the futures contracts. Conversely, each Fund may purchase or sell fewer
futures contracts if the volatility of the price of the hedged securities is
historically less than that of the futures contracts.

The particular municipal bonds comprising the index underlying the
Municipal Bond Index financial futures contract may vary from the bonds held by
each Fund. As a result, each Fund's ability to hedge effectively all or a
portion of the value of its Municipal Bonds through the use of such financial
futures contracts will depend in part on the degree to which price movements in
the index underlying the financial futures contract correlate with the price
movements of the Municipal Bonds held by the respective Fund. The correlation
may be affected by disparities in the average maturity, ratings, geographical
mix or structure of each Fund's investments as compared to those comprising the
Municipal Bond Index and general economic or political factors. In addition, the
correlation between movements in the value of the Municipal Bond Index may be
subject to change over time as additions to and deletions from the Municipal
Bond Index alter its structure. The correlation between futures contracts on
U.S. Government securities and the Municipal Bonds held by each Fund may be
adversely affected by similar factors and the risk of imperfect correlation
between movements in the prices of such futures contracts and the prices of
Municipal Bonds held by each Fund may be greater. Municipal Bond Index futures
contracts

10
<PAGE>

were approved for trading in 1986. Trading in such futures contracts may tend to
be less liquid than trading in other futures contracts. The trading of futures
contracts also is subject to certain market risks, such as inadequate trading
activity, which could at times make it difficult or impossible to liquidate
existing positions.

Each Fund expects to liquidate a majority of the futures contracts it
enters into through offsetting transactions on the applicable contract market.
There can be no assurance, however, that a liquid secondary market will exist
for any particular futures contract at any specific time. Thus, it may not be
possible to close out a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. In such situations, if a Fund has insufficient cash, it may be
required to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. The inability to
close out futures positions also could have an adverse impact on a Fund's
ability to hedge effectively its investments in Municipal Bonds. The liquidity
of a secondary market in a futures contract may be adversely affected by "daily
price fluctuation limits" established by commodity exchanges which limit the
amount of fluctuation in a futures contract price during a single trading day.
Once the daily limit has been reached in the contract, no trades may be entered
into at a price beyond the limit, thus preventing the liquidation of open
futures positions. Prices have in the past moved beyond the daily limit on a
number of consecutive trading days. A Fund will enter into a futures position
only if, in the judgment of the Manager, there appears to be an actively traded
secondary market for such futures contracts.

The successful use of transactions in futures and related options also
depends on the ability of the Manager to forecast correctly the direction and
extent of interest rate movements within a given time frame. To the extent
interest rates remain stable during the period in which a futures contract or
option is held by a Fund or such rates move in a direction opposite to that
anticipated, a Fund may realize a loss on the hedging transaction which is not
fully or partially offset by an increase in the value of portfolio securities.
As a result, a Fund's total return for such period may be less than if it had
not engaged in the hedging transaction.

Because of low initial margin deposits made upon the opening of a futures
position, futures transactions involve substantial leverage. As a result,
relatively small movements in the price of the futures contracts can result in
substantial unrealized gains or losses. There is also the risk of loss by a Fund
of margin deposits in the event of bankruptcy of a broker with whom that Fund
has an open position in a financial futures contract. Because each Fund will
engage in the purchase and sale of futures contracts solely for hedging
purposes, however, any losses incurred in connection therewith should, if the
hedging strategy is successful, be offset in whole or in part by increases in
the value of securities held by each Fund or decreases in the price of
securities each Fund intends to acquire.

The amount of risk a Fund assumes when it purchases an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option on
a futures contract also entails the risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
option purchased.

Description of Temporary Investments

Each Fund may invest in short-term tax-free and taxable securities subject
to the limitations set forth above and in the Prospectus under "How the Funds
Invest." The tax-exempt money market securities may include municipal notes,
municipal commercial paper, municipal bonds with a remaining maturity of less
than one year, variable rate demand notes and participations therein. Municipal
notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes and grant anticipation notes. Anticipation notes are sold as
interim financing in anticipation of tax collection, bond sales, government
grants or revenue receipts. Municipal commercial paper refers to short-term
unsecured promissory notes generally issued to finance short-term credit needs.
The taxable money market securities in which each Fund may invest as Temporary
Investments consist of U.S. Government securities, U.S. Government agency
securities, domestic bank or savings institution certificates of deposit and
bankers' acceptances, short-term corporate debt securities such as commercial
paper and repurchase agreements. These Temporary Investments must have a stated
maturity not in excess of one year from the date of purchase. Each Fund may not
invest in any security issued by a commercial bank or a savings institution
unless the bank or institution is organized and operating in the United States,
has total assets of at least one billion dollars and is a member of the Federal
Deposit Insurance Corporation ("FDIC"), except that up to

11
<PAGE>

10% of total assets may be invested in certificates of deposit of smaller
institutions if such certificates are fully insured by the FDIC.

VRDOs and Participating VRDOs. VRDOs are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and a right of
demand on the part of the holder thereof to receive payment of the unpaid
principal balance plus accrued interest upon a short notice period not to exceed
seven days. There is, however, the possibility that because of default or
insolvency the demand feature of VRDOs and Participating VRDOs may not be
honored. The interest rates are adjustable at intervals (ranging from daily to
up to one year) to some prevailing market rate for similar investments, such
adjustment formula being calculated to maintain the market value of the VRDOs,
at approximately the par value of the VRDOs on the adjustment date. The
adjustments typically are based upon the Public Securities Association Index or
some other appropriate interest rate adjustment index. Each Fund may invest in
all types of tax-exempt instruments currently outstanding or to be issued in the
future which satisfy the short-term maturity and quality standards of each Fund.

Participating VRDOs provide a Fund with a specified undivided interest (up
to 100%) of the underlying obligation and the right to demand payment of the
unpaid principal balance plus accrued interest on the Participating VRDOs from
the financial institution upon a specified number of days notice, not to exceed
seven days. In addition, the Participating VRDO is backed by an irrevocable
letter of credit or guaranty of the financial institution. A Fund would have an
undivided interest in the underlying obligation and thus participate on the same
basis as the financial institution in such obligation except that the financial
institution typically retains fees out of the interest paid on the obligation
for servicing the obligation, providing the letter of credit and issuing the
repurchase commitment. The Trust has been advised by its counsel that the Funds
should be entitled to treat the income received on Participating VRDOs as
interest from tax-exempt obligations.

VRDOs that contain a right of demand to receive payment of the unpaid
principal balance plus accrued interest on a notice period exceeding seven days
may be deemed to be illiquid securities. A VRDO with a demand notice period
exceeding seven days will therefore be subject to each Fund's restriction on
illiquid investments unless, in the judgment of the Trustees, such VRDO is
liquid. The Trustees may adopt guidelines and delegate to the Manager the daily
function of determining and monitoring liquidity of such VRDOs. The Trustees,
however, will retain sufficient oversight and will be ultimately responsible for
such determinations.

The Temporary Investments, VRDOs and Participating VRDOs in which each
Fund may invest will be in the following rating categories at the time of
purchase: MIG-1/VMIG-1 through MIG-3/VMIG-3 for notes and VRDOs and Prime-1
through Prime-3 for commercial paper (as determined by Moody's), SP-1 through
SP-2 for notes and A-1 through A-3 for VRDOs and commercial paper (as determined
by S&P), or F-1 through F-3 for notes, VRDOs and commercial paper (as determined
by Fitch). Temporary Investments, if not rated, must be of comparable quality in
the opinion of the Manager. In addition, each Fund reserves the right to invest
temporarily a greater portion of its assets in Temporary Investments for
defensive purposes, when, in the judgment of the Manager, market conditions
warrant.

Repurchase Agreements. Each Fund may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or primary dealer or an affiliate
thereof, in U.S. Government securities. Under such agreements, the bank or
primary dealer or an affiliate thereof agrees, upon entering into the contract,
to repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the term of the agreement. This results in a fixed
rate of return insulated from market fluctuations during such period. In
repurchase agreements, the prices at which the trades are conducted do not
reflect accrued interest on the underlying obligations. Such agreements usually
cover short periods, such as under one week. Repurchase agreements may be
construed to be collateralized loans by the purchaser to the seller secured by
the securities transferred to the purchaser. In a repurchase agreement, each
Fund will require the seller to provide additional collateral if the market
value of the securities falls below the repurchase price at any time during the
term of the repurchase agreement. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by a Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, a Fund may suffer
time delays and incur costs or possible losses in connection with the
disposition of the collateral. In the event of a default under such a repurchase
agreement, instead of the contractual fixed rate of return, the rate of return
to a Fund shall be dependent upon intervening fluctuations of the market value
of such security and the accrued interest on the security. In such event, a Fund
would have rights against the seller for breach of contract

12
<PAGE>

with respect to any losses arising from market fluctuations following the
failure of the seller to perform. Each Fund may not invest in repurchase
agreements maturing in more than seven days if such investments, together with
all other illiquid investments, would exceed 15% of that Fund's net assets.

In general, for Federal income tax purposes, repurchase agreements are
treated as collateralized loans secured by the securities "sold." Therefore,
amounts earned under such agreements will not be considered tax-exempt interest.
The treatment of purchase and sales contracts is less certain.

Suitability. The economic benefit of an investment in a Fund depends upon
many factors beyond the control of the Funds, the Manager and its
affiliates.Because of the emphasis of each Fund on its respective State
Municipal Bonds, each Fund should be considered a vehicle for diversification
and not as a balanced investment program. The suitability for any particular
investor of a purchase of shares in either Fund will depend upon, among other
things, such investor's tax situation, investment objectives and ability to
accept the risks associated with investing in Municipal Bonds and each Fund's
respective State Municipal Bonds. In addition, investors in the California Fund
must be prepared to accept the risk of loss of principal and the risk of
receiving income that is not exempt from Federal and California income taxes;
investors in the Florida Fund must be prepared to accept the risk of loss of
principal, the risk of receiving income that is not exempt from Federal income
tax and the risk that the value of Florida Fund shares will not be exempt from
Florida intangible personal property tax.

Investment Restrictions

The Trust has adopted a number of fundamental and non-fundamental
restrictions and policies relating to the investment of the assets of each Fund
and its activities. The fundamental policies of each Fund set forth below may
not be changed without the approval of the holders of a majority of such Fund's
outstanding voting securities (which for this purpose and under the Investment
Company Act means the lesser of (i) 67% of a Fund's shares present at a meeting
at which more than 50% of the outstanding shares of that Fund are represented or
(ii) more than 50% of such Fund's outstanding shares). Neither Fund may:

(1) Invest more than 25% of its assets, taken at market value, in
the securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities). For purposes of this
restriction, states, municipalities and their political subdivisions are
not considered part of any industry.

(2) Make investments for the purpose of exercising control or
management.

(3) Purchase or sell real estate, except that, to the extent
permitted by applicable law, a Fund may invest in securities directly or
indirectly secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.

(4) Make loans to other persons, except that the acquisition of
bonds, debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers' acceptances, repurchase agreements or
any similar instruments shall not be deemed to be the making of a loan,
and except further that a Fund may lend its portfolio securities, provided
that the lending of portfolio securities may be made only in accordance
with applicable law and the guidelines set forth in the Trust's Prospectus
and Statement of Additional Information, as they may be amended from time
to time.

(5) Issue senior securities to the extent such issuance would
violate applicable law.

(6) Borrow money, except that (i) a Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) a Fund may, to the
extent permitted by applicable law, borrow up to an additional 5% of its
total assets for temporary purposes, (iii) a Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and (iv) a Fund may purchase securities on
margin to the extent permitted by applicable law. A Fund may not pledge
its assets other than to secure such borrowings or, to the extent
permitted by the Trust's investment policies as set forth in its
Prospectus and Statement of Additional Information, as they may be amended
from time to time, in connection with hedging transactions, short sales,
when-issued and forward commitment transactions and similar investment
strategies.

(7) Underwrite securities of other issuers, except insofar as a Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended ("Securities Act"), in selling portfolio securities.

13
<PAGE>

(8) Purchase or sell commodities or contracts on commodities, except
to the extent that a Fund may do so in accordance with applicable law and
the Trust's Prospectus and Statement of Additional Information, as they
may be amended from time to time, and without registering as a commodity
pool operator under the Commodity Exchange Act.

Under the non-fundamental investment restrictions, which may be changed by
the Board of Trustees without shareholder approval, neither Fund may:

(a) Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. As a matter of
policy, however, a Fund will not purchase shares of any registered
open-end investment company or registered unit investment trust, in
reliance on Section 12(d)(1)(F) or (G) (the "fund of funds" provisions) of
the Investment Company Act, at any time the Fund's shares are owned by
another investment company that is part of the same group of investment
companies as the Fund.

(b) Make short sales of securities or maintain a short position,
except to the extent permitted by applicable law. Neither Fund currently
intends to engage in short sales, except short sales "against the box."

(c) Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Trustees of the Trust
has otherwise determined to be liquid pursuant to applicable law.

(d) Notwithstanding fundamental investment restriction (6) above,
borrow amounts in excess of 20% of its total assets taken at market value
(including the amount borrowed), and then only from banks as a temporary
measure for extraordinary or emergency purposes. In addition, neither Fund
will purchase securities while borrowings are outstanding.

Non-diversified Status. Each Fund is classified as non-diversified within
the meaning of the Investment Company Act, which means that each Fund is not
limited by such Act in the proportion of its assets that it may invest in
securities of a single issuer. Each Fund's investments are limited, however, in
order to allow each Fund to qualify as a "regulated investment company" under
the Code. See "Dividends and Taxes -- Federal Taxes." To qualify, each Fund
complies with certain requirements, including limiting its investments so that
at the close of each quarter of the taxable year (i) not more than 25% of the
market value of a Fund's total assets will be invested in the securities of a
single issuer and (ii) with respect to 50% of the market value of its total
assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer. For purposes
of this restriction, each Fund will regard each state and each political
subdivision, agency or instrumentality of such state and each multi-state agency
of which such state is a member and each public authority which issues
securities on behalf of a private entity as a separate issuer, except that if
the security is backed only by the assets and revenues of a non-government
entity then the entity with the ultimate responsibility for the payment of
interest and principal may be regarded as the sole issuer. These tax-related
limitations may be changed by the Trustees of the Trust to the extent necessary
to comply with changes to the Federal tax requirements. A fund that elects to be
classified as "diversified" under the Investment Company Act must satisfy the
foregoing 5% and 10% requirements with respect to 75% of its total assets. To
the extent that each Fund assumes large positions in the securities of a small
number of issuers, each Fund's net asset value may fluctuate to a greater extent
than that of a diversified company as a result of changes in the financial
condition or in the market's assessment of the issuers, and each Fund may be
more susceptible to any single economic, political or regulatory occurrence than
a diversified company.

Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Manager, each Fund is prohibited from
engaging in certain transactions involving Merrill Lynch or its affiliates
except pursuant to an exemptive order under the Investment Company Act. See
"Portfolio Transactions." Without such an exemptive order each Fund would be
prohibited from engaging in portfolio transactions with Merrill Lynch or any of
its affiliates acting as principal.

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<PAGE>

Portfolio Turnover

The Manager will effect portfolio transactions without regard to the time
the securities have been held, if, in its judgment, such transactions are
advisable in light of a change in circumstances of a particular issuer or in
general market, financial or economic conditions. As a result of its investment
policies, each Fund may engage in a substantial number of portfolio transactions
and a Fund's portfolio turnover rate may vary greatly from year to year or
during periods within a year.The portfolio turnover rate is calculated by
dividing the lesser of a Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
the securities in the portfolio during the year. A high portfolio turnover may
result in negative tax consequences, such as an increase in capital gain
dividends or in ordinary income dividends of accrued market discount. See
"Dividends and Taxes -- Taxes." High portfolio turnover may also involve
correspondingly greater transaction costs in the form of dealer spreads and
brokerage commissions, which are borne directly by each Fund.

MANAGEMENT OF THE TRUST

Trustees and Officers

The Trustees of the Trust consist of seven individuals, five of whom are
not "interested persons" of the Trust as defined in the Investment Company Act
(the "non-interested Trustees"). The Trustees are responsible for the overall
supervision of the operations of the Trust and perform the various duties
imposed on the directors or Trustees of investment companies by the Investment
Company Act. Information about the Trustees, executive officers of the Trust and
the portfolio manager of the Funds, including their ages and their principal
occupations for at least the last five years, is set forth below. Unless
otherwise noted, the address of each Trustee, executive officer and the
portfolio manager is P.O. Box 9011, Princeton, New Jersey 08543-9011.

TERRY K. GLENN (59) -- President and Trustee (1)(2) -- Executive Vice
President of the Manager and Merrill Lynch Asset Management, L.P. ("MLAM")
(which terms as used herein include their corporate predecessors) since 1983;
Executive Vice President and Director of Princeton Services, Inc. ("Princeton
Services") since 1993; President of Princeton Funds Distributor, Inc. ("PFD")
since 1986 and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.

JAMES H. BODURTHA (55) -- Trustee (2)(3) -- 36 Popponesset Road, Cotuit,
Massachusetts 02635. Director and Executive Vice President, The China Business
Group, Inc. since 1996; Chairman and Chief Executive Officer, China Enterprise
Management Corporation from 1993 to 1996; Chairman, Berkshire Corporation since
1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993.

HERBERT I. LONDON (60) -- Trustee (2)(3) -- 2 Washington Square Village,
New York, New York 10012. John M. Olin Professor of Humanities, New York
University since 1993 and Professor thereof since 1980; President, Hudson
Institute since 1997 and Trustee thereof since 1980; Dean, Gallatin Division of
New York University from 1976 to 1993; Distinguished Fellow, Herman Kahn Chair,
Hudson Institute from 1984 to 1985; Director, Damon Corporation from 1991 to
1995; Overseer, Center for Naval Analyses from 1983 to 1993; Limited Partner,
Hypertech LP since 1996.

ROBERT R. MARTIN (72) -- Trustee (2)(3) -- 513 Grand Hill, St. Paul,
Minnesota 55102. Chairman and Chief Executive Officer, Kinnard Investments, Inc.
from 1990 to 1993; Executive Vice President, Dain Bosworth from 1974 to 1989;
Director, Carnegie Capital Management from 1977 to 1985 and Chairman thereof in
1979; Director, Securities Industry Association from 1981 to 1982 and Public
Securities Association from 1979 to 1980; Chairman of the Board, WTC Industries
Inc. in 1994; Trustee, Northland College since 1992.

JOSEPH L. MAY (70) -- Trustee (2)(3) -- 424 Church Street, Suite 2000,
Nashville, Tennessee 37219. Attorney in private practice since 1984; President,
May and Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to
1983; Vice President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The
May Corporation (personal holding company) from 1972 to 1983; Director, Signal
Apparel Co. from 1972 to 1989.

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<PAGE>

ANDRE F. PEROLD (47) -- Trustee (2)(3) -- Morgan Hall, Soldiers Field,
Boston, Massachusetts 02163. Professor, Harvard Business School since 1989 and
Associate Professor from 1983 to 1989; Trustee, The Common Fund since 1989;
Director, Quantec Limited from 1991 to 1999 and Director TIBCO from 1994 to
1996; and Director, Genbel Securities Limited and Gensec Bank since 1999.

ARTHUR ZEIKEL (67) -- Trustee (1)(2) -- 300 Woodland Avenue, Westfield,
New Jersey 07090. Chairman of the Manager and MLAM from 1997 to 1999 and
President thereof from 1977 to 1997; Chairman of Princeton Services from 1997 to
1999, Director thereof from 1993 to 1999 and President thereof from 1993 to
1997; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") from
1990 to 1999.

VINCENT R. GIORDANO (55)-- Senior Vice President (1)(2)-- Senior Vice
President of the Manager and MLAM since 1984; Senior Vice President of Princeton
Services since 1993.

KENNETH A. JACOB (48) -- Vice President (1)(2) -- First Vice President of
MLAM since 1997; Vice President of MLAM from 1984 to 1997; Vice President of the
Manager since 1984.

EDWARD J. ANDREWS (39) -- Portfolio Manager and Vice President (1)(2) --
Vice President of the Manager and MLAM since 1991.

DONALD C. BURKE (39) -- Vice President and Treasurer (1)(2) -- Senior Vice
President and Treasurer of the Manager and MLAM since 1999; Senior Vice
President and Treasurer of Princeton Services since 1999; Vice President of PFD
since 1999; First Vice President of MLAM from 1997 to 1999; Vice President of
MLAM from 1990 to 1997; Director of Taxation of MLAM since 1990.

ALICE A. PELLEGRINO (39) -- Secretary (1)(2) -- Vice President of MLAM
since 1999; Attorney associated with MLAM since 1997; Associate with Kirkpatrick
& Lockhart LLP from 1992 to 1997.

---------

(1) Interested person, as defined in the Investment Company Act, of the Trust.
(2) Such Trustee or officer is a director, trustee or officer of certain other
investment companies for which the Manager or MLAM acts as the investment
adviser or manager.
(3) Member of the Trust's Audit and Nominating Committee, which is responsible
for the selection of the independent auditors and the selection and
nomination of non-interested Trustees.

As of November 1, 1999, the Trustees, officers of the Trust and officers
of the Funds as a group (12 persons) owned an aggregate of less than 1% of the
outstanding shares of the Funds. At such date, Mr. Zeikel, a Trustee of the
Trust, Mr. Glenn, a Trustee and officer of the Trust and the other officers of
the Trust and the Funds owned an aggregate of less than 1% of the outstanding
shares of common stock of ML & Co.

Compensation of Trustees

The Trust pays each non-interested Trustee a fee of $5,000 per year plus
$500 per Board meeting attended. The Trust also compensates members of its Audit
and Nominating Committee (the "Committee"), which consists of all the
non-interested Trustees, a fee of $1,000 per year plus $250 per Committee
meeting attended. The Trust reimburses each non-interested Trustee for his
out-of-pocket expenses relating to attendance at Board and Committee meetings.
The fees and expenses of the Trustees are allocated to the respective series of
the Trust on the basis of asset size.

The following table shows the compensation earned by the non-interested
Trustees for the fiscal year ended July 31, 1999 and the aggregate compensation
paid to them from all registered investment companies advised by the Manager and
its affiliate, MLAM ("MLAM/FAM-advised funds"), for the calendar year ended
December 31, 1998.

<TABLE>
<CAPTION>
Aggregate
Pension or Estimated Compensation from
Retirement Benefits Annual Trust and Other
Position with Compensation Accrued as Part of Benefits upon MLAM/FAM-
Name Trust from Trust Fund Expense Retirement Advised Funds(1)
----- ----------- ------------ ----------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
James H. Bodurtha ..... Trustee $9,000 None None $163,500
Herbert I. London ..... Trustee $9,000 None None $163,500
Robert R. Martin ...... Trustee $9,000 None None $163,500
Joseph L. May ......... Trustee $9,000 None None $163,500
Andre F. Perold ....... Trustee $9,000 None None $163,500
</TABLE>

---------
(1) The Trustees serve on the boards of MLAM/FAM-advised funds as follows: Mr.
Bodurtha (29 registered investment companies consisting of 47 portfolios);
Mr. London (29 registered investment companies consisting of 47
portfolios); Mr. Martin (29 registered investment companies consisting of
47 portfolios); Mr. May (29 registered investment companies consisting of
47 portfolios); and Mr. Perold (29 registered investment companies
consisting of 47 portfolios).

16
<PAGE>

Trustees of the Trust may purchase Class A shares of the Funds at net
asset value. See "Purchase of Shares -- Initial Sales Charge Alternatives --
Class A and ClassD Shares -- Reduced Initial Sales Charges -- Purchase Privilege
of Certain Persons."

Management and Advisory Arrangements

Management Services. The Manager provides each Fund with investment
advisory and management services. Subject to the supervision of the Trustees,
the Manager is responsible for the actual management of each Fund's portfolio
and constantly reviews each Fund's holdings in light of its own research
analysis and that from other relevant sources. The responsibility for making
decisions to buy, sell or hold a particular security rests with the Manager. The
Manager performs certain of the other administrative services and provides all
the office space, facilities, equipment and necessary personnel for management
of the Trust and each Fund.

Management Fee. The Trust has entered into separate management agreements
on behalf of each Fund with the Manager (the "Management Agreement"), pursuant
to which the Manager receives for its services to each Fund monthly compensation
at the annual rate of 0.35% of the average daily net assets of that Fund. The
table below sets forth information about the total management fees paid by each
Fund to the Manager and the amount of such fee, if any, voluntarily waived by
the Manager, for the fiscal years ended July 31 listed below.

Fund Management Fee Management Fee Waived
----- --------------- ----------------------
California Fund
1999 ................... $34,190 $19,537
1998 ................... $42,624 $24,356
1997 ................... $51,013 $29,150
Florida Fund
1999 ................... $64,562 $ 0
1998 ................... $79,912 $ 0
1997 ................... $90,513 $ 0

Payment of Fund Expenses. The Management Agreement obligates the Manager
to provide investment advisory services and to pay all compensation of and
furnish office space for officers and employees of the Trust connected with
investment and economic research, trading and investment management of the
Trust, as well as the fees of all Trustees of the Trust who are affiliated
persons of ML & Co. or any of its affiliates. Each Fund pays all other expenses
incurred in its operation and a portion of the Trust's general administrative
expenses allocated on the basis of the asset size of the respective series of
the Trust ("Series"), including the Funds and any additional Series added in the
future. Expenses that will be borne directly by the Series include redemption
expenses, expenses of portfolio transactions, expenses of registering the shares
under federal and state securities laws, pricing costs (including the daily
calculation of net asset value), expenses of printing shareholder reports,
prospectuses and statements of additional information, except to the extent paid
by Merrill Lynch Funds Distributor, a division of PFD (the "Distributor") as
described below, fees for legal and auditing services, Commission fees,
interest, certain taxes and other expenses attributable to a particular Series.
Expenses that will be allocated on the basis of asset size of the respective
Series include fees and expenses of non-interested Trustees, state franchise
taxes, costs of printing proxies and other expenses relating to shareholder
meetings and other expenses properly payable by the Trust. The organizational
expenses of the Trust were paid by the Trust, and as additional Series are added
to the Trust, the organizational expenses will be allocated among the Series in
a manner deemed equitable by the Trustees. Depending upon the nature of a
lawsuit, litigation costs may be assessed to the specific Series to which the
lawsuit relates or allocated on the basis of the asset size of the respective
Series. The Trustees have determined that this is an appropriate method of
allocation of expenses. Accounting services are provided to the Trust by the
Manager and the Trust reimburses the Manager for its costs in connection with
such services. As required by each Fund's distribution agreements, the
Distributor will pay the promotional expenses of that Fund incurred in
connection with the offering of shares of that Fund. Certain expenses in
connection with the account maintenance and distribution of Class B and Class C
shares will be financed by the Trust pursuant to the Distribution Plans in
compliance with Rule 12b-1 under the Investment Company Act. See "Purchase of
Shares -- Distribution Plans." Reference is made to "Management of the Funds" in
the Prospectus for certain information concerning the management and advisory
arrangements of the Trust.

17
<PAGE>

Organization of the Manager. The Manager is a limited partnership, the
partners of which are ML & Co., a financial services holding company and the
parent of Merrill Lynch, and Princeton Services. ML & Co. and Princeton Services
are "controlling persons" of the Manager as defined under the Investment Company
Act because of their ownership of its voting securities or their power to
exercise a controlling influence over its management or policies.

Duration and Termination. Unless earlier terminated as described herein,
the Management Agreement will remain in effect from year to year if approved
annually (a) by the Trustees of the Trust or by a majority of the outstanding
shares of each Fund and (b) by a majority of the Trustees who are not parties to
such contract or interested persons (as defined in the Investment Company Act)
of any such party. Such contracts are not assignable and may be terminated
without penalty on 60 days' written notice at the option of either party or by
vote of the shareholders of each Fund.

Transfer Agency Services. Financial Data Services, Inc. (the "Transfer
Agent"), a subsidiary of ML & Co., acts as the Trust's Transfer Agent pursuant
to a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer
Agency Agreement, the Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent receives
a fee of $11.00 per Class A or Class D account and $14.00 per Class B or Class C
account and is entitled to reimbursement for certain transaction charges and
out-of-pocket expenses incurred by the Transfer Agent under the Transfer Agency
Agreement. Additionally, a $.20 monthly closed account charge will be assessed
on all accounts which close during the calendar year. Application of this fee
will commence the month following the month the account is closed. At the end of
the calendar year, no further fees will be due. For purposes of the Transfer
Agency Agreement, the term "account" includes a shareholder account maintained
directly by the Transfer Agent and any other account representing the beneficial
interest of a person in the relevant share class on a recordkeeping system,
provided the recordkeeping system is maintained by a subsidiary of ML & Co.

Distribution Expenses. On behalf of each Fund, the Trust has entered into
a separate distribution agreement with the Distributor in connection with the
continuous offering of each class of shares of such Fund (the "Distribution
Agreements"). The Distribution Agreements obligate the Distributor to pay
certain expenses in connection with the offering of each class of shares of the
related Fund. After the prospectuses, statements of additional information and
periodic reports have been prepared, set in type and mailed to shareholders, the
Distributor pays for the printing and distribution of copies thereof used in
connection with the offering to dealers and investors. The Distributor also pays
for other supplementary sales literature and advertising costs. The Distribution
Agreements are subject to the same renewal requirements and termination
provisions as the Management Agreement described above.

Code of Ethics

The Board of Trustees of the Trust has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act that incorporates the Code of Ethics of the
Manager (together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Manager and, as described below,
impose additional, more onerous, restrictions on fund investment personnel.

The Codes require that all employees of the Manager pre-clear any personal
securities investment (with limited exceptions, such as government securities).
The pre-clearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Manager include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security that at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Manager.
Furthermore, the Codes provide for trading "blackout periods" which prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund in the same (or equivalent) security (15 or 30 days depending upon the
transaction).

18
<PAGE>

PURCHASE OF SHARES

Reference is made to "How to Buy, Sell, Transfer and Exchange Shares" in
the Prospectus.

The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives and shares of Class B are sold to
investors choosing the deferred sales charge alternatives. Class C shares of the
Funds are not available for purchase but will be issued only pursuant to the
exchange privilege to holders of Class C shares of other MLAM-advised mutual
funds who elect to exchange Class C shares of such other MLAM-advised mutual
fund for Class C shares of one of the Funds. Each Class A, Class B, Class C or
Class D share of each Fund represents an identical interest in the investment
portfolio of that Fund and has the same rights, except that Class B, Class C and
Class D shares bear the expenses of the ongoing account maintenance fees (also
known as service fees) and Class B and Class C shares bear the expenses of the
ongoing distribution fees of that Fund and the additional incremental transfer
agency costs resulting from the deferred sales charge arrangements. The
contingent deferred sales charges ("CDSCs"), distribution fees and account
maintenance fees that are imposed on Class B and Class C shares, as well as the
account maintenance fees that are imposed on Class D shares, are imposed
directly against those classes and not against all assets of that Fund and,
accordingly, such charges do not affect the net asset value of any other class
or have any impact on investors choosing another sales charge option. Dividends
paid by each Fund for each class of shares are calculated in the same manner at
the same time and differ only to the extent that account maintenance and
distribution fees and any incremental transfer agency costs relating to a
particular class are borne exclusively by that class. Each class has different
exchange privileges. See "Shareholder Services -- Exchange Privilege."

Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the CDSCs and distribution fees with respect to the Class B and Class C
shares in that the sales charges and distribution fees applicable to each class
provide for the financing of the distribution of the shares of each Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.

The Merrill Lynch Select Pricing(SM) System is used by more than 50
registered investment companies advised by MLAM or FAM. Funds advised by MLAM or
FAM that utilize the Merrill Lynch Select Pricing(SM) System are referred to
herein as "Select Pricing Funds."

The Trust or the Distributor may suspend the continuous offering of the
shares of the Funds of any class at any time in response to conditions in the
securities markets or otherwise and may thereafter resume such offering from
time to time. Any order may be rejected by a Fund or by the Distributor. Neither
the Distributor nor the dealers are permitted to withhold placing orders to
benefit themselves by a price change. Merrill Lynch may charge its customers a
processing fee (presently $5.35) to confirm a sale of shares to such customers.
Purchases made directly through the Transfer Agent are not subject to the
processing fee.

Initial Sales Charge Alternatives -- Class A and Class D Shares

Investors who prefer an initial sales charge alternative may elect to
purchase Class D shares or, if an eligible investor, Class A shares. Investors
choosing the initial sales charge alternative who are eligible to purchase Class
A shares should purchase Class A shares rather than Class D shares because there
is an account maintenance fee imposed on Class D shares. Investors qualifying
for significantly reduced initial sales charges may find the initial sales
charge alternative particularly attractive because similar sales charge
reductions are not available with respect to the deferred sales charges imposed
in connection with purchases of Class B or Class C shares. Investors not
qualifying for reduced initial sales charges who expect to maintain their
investment for an extended period of time also may elect to purchase Class A or
Class D shares, because over time the accumulated ongoing account maintenance
and distribution fees on Class B or Class C shares may exceed the initial sales
charges and, in the case of Class D shares, the account maintenance fee.
Although some investors who previously purchased Class A shares may no longer be
eligible to purchase Class A shares of other Select Pricing Funds, those
previously purchased Class A shares, together with Class B, Class C and Class D
share holdings, will count toward a right of accumulation which may qualify the
investor for a reduced initial sales charge on new initial sales charge
purchases. In addition, the ongoing Class B and Class C account maintenance and
distribution fees

19
<PAGE>

will cause Class B and Class C shares to have higher expense ratios, pay lower
dividends and have lower total returns than the initial sales charge shares. The
ongoing Class D account maintenance fees will cause Class D shares to have a
higher expense ratio, pay lower dividends and have a lower total return than
Class A shares.

The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of a Fund, refers to a single purchase by an individual or to concurrent
purchases, which in the aggregate are at least equal to the prescribed amounts,
by an individual, his or her spouse and their children under the age of 21 years
purchasing shares for his, her or their own account and to single purchases by a
trustee or other fiduciary purchasing shares for a single trust estate or single
fiduciary account although more than one beneficiary is involved. The term
"purchase" also includes purchases by any "company," as that term is defined in
the Investment Company Act, but does not include purchases by any such company
that has not been in existence for at least six months or which has no purpose
other than the purchase of shares of the Fund or shares of other registered
investment companies at a discount; provided, however, that it shall not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit cardholders of a company, policyholders of
an insurance company, customers of either a bank or broker-dealer or clients of
an investment adviser.

Eligible Class A Investors

Class A shares are offered to a limited group of investors and also will
be issued upon reinvestment of dividends on outstanding Class A shares.
Investors who currently own Class A shares in a shareholder account are entitled
to purchase additional Class A shares of each Fund in that account. Class A
shares are available at net asset value to corporate warranty insurance reserve
fund programs and U.S. branches of foreign banking institutions provided that
the program or bank has $3 million or more initially invested in Select Pricing
Funds. Also eligible to purchase Class A shares in a shareholder account at net
asset value are participants in certain investment programs including TMA(SM)
Managed Trusts to which Merrill Lynch Trust Company provides discretionary
trustee services, collective investment trusts for which Merrill Lynch Trust
Company serves as trustee and certain purchases made in connection with certain
fee-based programs. In addition, Class A shares are offered at net asset value
to ML & Co. and its subsidiaries and their directors and employees and to
members of the Boards of MLAM/FAM-advised investment companies. Certain persons
who acquired shares of certain MLAM/FAM-advised closed-end funds in their
initial offerings who wish to reinvest the net proceeds from a sale of their
closed-end fund shares of common stock in shares of each Fund also may purchase
Class A shares of the Fund if certain conditions are met. In addition, Class A
shares of each Fund and certain other Select Pricing Funds are offered at net
asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
and, if certain conditions are met, to shareholders of Merrill Lynch Municipal
Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. who
wish to reinvest the net proceeds from a sale of certain of their shares of
common stock pursuant to a tender offer conducted by such funds in shares of
each Fund and certain other Select Pricing Funds.

Class A and Class D Sales Charge Information

The gross sales charges, the amounts of such charges received by the
Distributor and Merrill Lynch for the sale of Class A and Class D shares, and
the CDSCs paid with respect to redemption within one year after purchase of
Class A and Class D shares purchased subject to a front-end sales charge waiver,
for each Fund for the periods indicated are set forth below:

<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------
Gross Sales Sales Charges Sales Charges CDSCs Received on
Charges Retained by Paid to Redemption of
Collected Distributor Merrill Lynch Load-Waived Shares
---------- ------------ ------------- ------------------
For the Year Ended July 31, 1999
<S> <C> <C> <C> <C>
California Fund ....................... $ 0 $ 0 $ 0 $ 0
Florida Fund .......................... $ 0 $ 0 $ 0 $ 0

For the Year Ended July 31, 1998
California Fund ....................... $ 0 $ 0 $ 0 $ 0
Florida Fund .......................... $1,050 $100 $950 $ 0
</TABLE>

20
<PAGE>

Class D
---------------------------------------------------------------
Gross Sales Sales Charges Sales Charges CDSCs Received on
Charges Retained by Paid to Redemption of
Collected Distributor Merrill Lynch Load-Waived Shares
---------- ------------ =------------- ------------------
<S> <C> <C> <C> <C>
For the Year Ended July 31, 1997
California Fund ....................... $ 0 $ 0 $ 0 $ 0
Florida Fund .......................... $ 631 $ 68 $ 563 $ 0
For the Year Ended July 31, 1999
California Fund ....................... $ 0 $ 0 $ 0 $2,000
Florida Fund .......................... $ 638 $ 41 $ 597 $ 0

For the Year Ended July 31, 1998
California Fund ....................... $ 242 $ 7 $ 235 $ 0
Florida Fund .......................... $ 337 $ 13 $ 324 $7,988

For the Year Ended July 31, 1997
California Fund ....................... $2,379 $224 $2,155 $ 0
Florida Fund .......................... $ 576 $ 55 $ 521 $ 0

</TABLE>

The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of each Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act.

Reduced Initial Sales Charges

Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
to obtain such investments.

Reinvested Dividends. No initial sales charges are imposed upon Class A
and Class D shares issued as a result of the automatic reinvestment of
dividends.

Right of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of a Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of a Fund and of any other Select Pricing Funds. For any such right of
accumulation to be made available, the Distributor must be provided at the time
of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.

Letter of Intent. Reduced sales charges are applicable to purchases
aggregating $100,000 or more of the Class A or Class D shares of a Fund or any
Select Pricing Funds made within a 13-month period starting with the first
purchase pursuant to a Letter of Intent. The Letter of Intent is available only
to investors whose accounts are established and maintained at the Trust's
Transfer Agent. The Letter of Intent is not available to employee benefit plans
for which Merrill Lynch provides plan participant recordkeeping services. The
Letter of Intent is not a binding obligation to purchase any amount of Class A
or Class D shares of any Fund; however, its execution will result in the
purchaser paying a lower sales charge at the appropriate quantity purchase
level. A purchase not originally made pursuant to a Letter of Intent may be
included under a subsequent Letter of Intent executed within 90 days of such
purchase if the Distributor is informed in writing of this intent within such
90-day period. The value of Class A and Class D shares of a Fund and of other
Select Pricing Funds presently held, at cost or maximum offering price
(whichever is higher), on the date of the first purchase under the Letter of
Intent, may be included as a credit toward the completion of such Letter, but
the reduced sales charge applicable to the amount covered by such Letter will be
applied only to new purchases. If the total amount of shares does not equal the
amount stated in the Letter of Intent (minimum of $100,000), the investor will
be notified and must pay,

21
<PAGE>

within 20 days of the expiration of such Letter, the difference between the
sales charge on the Class A or Class D shares purchased at the reduced rate and
the sales charge applicable to the shares of the Fund actually purchased through
the Letter. Class A or Class D shares equal to at least 5.0% of the intended
amount will be held in escrow during the 13-month period (while remaining
registered in the name of the purchaser) for this purpose. The first purchase
under the Letter of Intent must be at least 5.0% of the dollar amount of such
Letter. If a purchase during the term of such Letter would otherwise be subject
to a further reduced sales charge based on the right of accumulation, the
purchaser will be entitled on that purchase and subsequent purchases to the
further reduced percentage sales charge that would be applicable to a single
purchase equal to the total dollar value of the Class A or Class D shares then
being purchased under such Letter, but there will be no retroactive reduction of
the sales charge on any previous purchase.

The value of any shares redeemed or otherwise disposed of by the purchaser
prior to termination or completion of the Letter of Intent will be deducted from
the total purchases made under such Letter. An exchange from the Summit Cash
Reserves Fund into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intent from the Fund.

TMA(SM) Managed Trusts. Class A shares are offered at net asset value to
TMA(SM) Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services.

Employee Access(SM) Accounts. Provided applicable threshold requirements
are met, either Class A or Class D shares are offered at net asset value to
Employee Access(SM) Accounts available through authorized employers. The initial
minimum investment for such accounts is $500, except that the initial minimum
investment for shares purchased for such accounts pursuant to the Automatic
Investment Program is $50.

Purchase Privilege of Certain Persons. Trustees of the Trust, members of
the Boards of other MLAM/FAM-advised investment companies, ML & Co. and its
subsidiaries (the term "subsidiaries," when used herein with respect to ML &
Co., includes MLAM, FAM and certain other entities directly or indirectly wholly
owned and controlled by ML & Co.) and their directors and employees, and any
trust, pension, profit-sharing or other benefit plan for such persons, may
purchase Class A shares of a Fund at net asset value. The Funds realize
economies of scale and reduction of sales-related expenses by virtue of the
familiarity of these persons with the Funds. Employees and directors or trustees
wishing to purchase shares of a Fund must satisfy that Fund's suitability
standards.

Class D shares of each Fund are offered at net asset value, without a
sales charge, to an investor that has a business relationship with a Financial
Consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of
shares of a mutual fund that was sponsored by the Financial Consultant's
previous firm and was subject to a sales charge either at the time of purchase
or on a deferred basis; and, second, the investor must establish that such
redemption had been made within 60 days prior to the investment in the Fund and
the proceeds from the redemption had been maintained in the interim in cash or a
money market fund.

Class D shares of each Fund are also offered at net asset value, without a
sales charge, to an investor that has a business relationship with a Merrill
Lynch Financial Consultant and that has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice") if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and the shares of
such other fund were subject to a sales charge either at the time of purchase or
on a deferred basis; and, second, such purchase of Class D shares must be made
within 90 days after such notice.

Class D shares of each Fund are offered at net asset value, without a
sales charge, to an investor that has a business relationship with a Merrill
Lynch Financial Consultant and that has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: first, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Fund with proceeds from the redemption of shares
of such other mutual fund and that such shares have been outstanding for a
period of no less than six

22
<PAGE>

months; and, second, such purchase of Class D shares must be made within 60 days
after the redemption and the proceeds from the redemption must be maintained in
the interim in cash or a money market fund.

Closed-End Fund Investment Option. Class A shares of each Fund and certain
other Select Pricing Funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by FAM or MLAM who
purchased such closed-end fund shares prior to October 21, 1994 (the date the
Merrill Lynch Select Pricing(SM) System commenced operations) and wish to
reinvest the net proceeds from a sale of their closed-end fund shares of common
stock in Eligible Class A Shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased such shares
on or after October 21, 1994 and wish to reinvest the net proceeds from a sale
of their closed-end fund shares are offered Class A shares (if eligible to buy
Class A shares) or Class D shares of each Fund and other Select Pricing Funds
("Eligible Class D Shares"), if the following conditions are met. First, the
sale of closed-end fund shares must be made through Merrill Lynch, and the net
proceeds therefrom must be immediately reinvested in Eligible Class A or
Eligible Class D Shares. Second, the closed-end fund shares must either have
been acquired in the initial public offering or be shares representing dividends
from shares of common stock acquired in such offering. Third, the closed-end
fund shares must have been continuously maintained in a Merrill Lynch securities
account. Fourth, there must be a minimum purchase of $250 to be eligible for the
investment option.

Shareholders of certain MLAM/FAM-advised continuously offered closed-end
funds may reinvest at net asset value the net proceeds from a sale of certain
shares of common stock of such funds in shares of a Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Fund, except that shareholders already
owning Class A shares of the Fund will be eligible to purchase additional Class
A shares pursuant to this option, if such additional Class A shares will be held
in the same account as the existing Class A shares and the other requirements
pertaining to the reinvestment privilege are met. In order to exercise this
investment option, a shareholder of one of the above-referenced continuously
offered closed-end funds (an "eligible fund") must sell his or her shares of
common stock of the eligible fund (the "eligible shares") back to the eligible
fund in connection with a tender offer conducted by the eligible fund and
reinvest the proceeds immediately in the designated class of shares of the Fund.
This investment option is available only with respect to eligible shares as to
which no Early Withdrawal Charge or CDSC (each as defined in the eligible fund's
prospectus) is applicable. Purchase orders from eligible fund shareholders
wishing to exercise this investment option will be accepted only on the day that
the related tender offer terminates and will be effected at the net asset value
of the designated class of the Fund on such day.

Acquisition of Certain Investment Companies. Class D shares may be offered
at net asset value in connection with the acquisition of the assets of or merger
or consolidation with a personal holding company or a public or private
investment company by that Fund.

Deferred Sales Charge Alternatives -- Class B and Class C Shares

Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in Select Pricing Funds.

Because no initial sales charges are deducted at the time of acquisition,
Class B and Class C shares provide the benefit of putting all of the investor's
dollars to work from the time the investment is made. The deferred sales charge
alternatives may be particularly appealing to investors that do not qualify for
the reduction in initial sales charges. Class B and Class C shares of each Fund
are subject to ongoing account maintenance fees and distribution fees; however,
the ongoing account maintenance and distribution fees potentially may be offset
to the extent any return is realized on the additional funds initially invested
in Class B or Class C shares of each Fund. In addition, Class B shares will be
converted into Class D shares of a Fund after a conversion period of
approximately ten years, and thereafter investors will be subject to lower
ongoing fees.

The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. See "Pricing of Shares -- Determination of Net Asset Value" below.

23
<PAGE>

Contingent Deferred Sales Charges -- Class B Shares and Class C Shares

Class B shares and Class C shares of each Fund that are redeemed within
one year after acquisition may be subject to a CDSC at the rates set forth below
charged as a percentage of the dollar amount subject thereto. In determining
whether a CDSC is applicable to a redemption, the calculation will be determined
in the manner that results in the lowest applicable rate being charged. The
charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends. It will be assumed that the redemption is first of shares held for
over one year or shares acquired pursuant to reinvestment of dividends and then
of shares held longest during the one-year period. A transfer of shares from a
shareholder's account to another account will be assumed to be made in the same
order as a redemption.

The following table sets forth the Class B CDSC:

CDSC as a Percentage
of Dollar Amount
Year Since Purchase Payment Made Subject to Charge
------------------------------- ----------------
0-1 .......................................... 1.0%
1 and thereafter ............................. None

To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and during the first year after acquisition, the net
asset value per share is $12 and, during such time, the investor has acquired 10
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to a CDSC because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 1.0% (the
applicable rate during the first year after acquisition).

The Class B CDSC may be waived on redemptions of shares in certain
circumstances, including any partial or complete redemption following the death
or disability (as defined in the Internal Revenue Code of 1986, as amended (the
"Code")) of a Class B shareholder (including one who owns the Class B shares as
joint tenant with his or her spouse), provided the redemption is requested
within one year of the death or initial determination of disability or, if late,
reasonably, promptly, following completion of probate. The Class B CDSC may be
waived or its terms may be modified in connection with certain fee-based
programs. The Class B CDSC may also be waived in connection with involuntary
termination of an account in which Fund shares are held or for withdrawals
through the Merrill Lynch Systematic Withdrawal Plan. See "Shareholder Services
-- Fee-Based Programs" and "-- Systematic Withdrawal Plan."

Conversion of Class B Shares to Class D Shares. After approximately ten
years (the "Conversion Period"), Class B shares of a Fund will be converted
automatically into Class D shares of same Fund. Class D shares are subject to an
ongoing account maintenance fee of 0.10% of average daily net assets but are not
subject to the distribution fee that is borne by Class B shares. Automatic
conversion of Class B shares into Class D shares will occur at least once each
month (on the "Conversion Date") on the basis of the relative net asset value of
the shares of the two classes on the Conversion Date, without the imposition of
any sales load, fee or other charge. Conversion of Class B shares to Class D
shares will not be deemed a purchase or sale of the shares for Federal income
tax purposes.

In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at the Conversion Date the conversion of Class B shares of a
Fund to Class D shares of that Fund in a single account will result in less than
$50 worth of Class B shares being left in the account, all of the Class B shares
of the Fund held in the account on the Conversion Date will be converted to
Class D shares of that Fund.

In general, Class B shares of equity Select Pricing Funds will convert
approximately eight years after initial purchase and Class B shares of taxable
and tax-exempt fixed income Select Pricing Funds will convert approximately ten
years after initial purchase. If, during the Conversion Period, a shareholder
exchanges Class

24
<PAGE>

B shares with an eight-year Conversion Period for Class B shares with a ten-year
Conversion Period, or vice versa, the Conversion Period applicable to the Class
B shares acquired in the exchange will apply and the holding period for the
shares exchanged will be tacked on to the holding period for the shares
acquired. The Conversion Period also may be modified for investors that
participate in certain fee-based programs. See "Shareholder Services --
Fee-Based Programs."

Class B shareholders of a Fund exercising the exchange privilege described
under "Shareholder Services -- Exchange Privilege" will continue to be subject
to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule
relating to the Class B shares acquired as a result of the exchange.

Share certificates for Class B shares of a Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.

The Class C CDSC may be waived in connection with involuntary termination
of an account in which Fund shares are held and withdrawals through the Merrill
Lynch Systematic Withdrawal Plan. See "Shareholder Services -- Systematic
Withdrawal Plan."

Class B and Class C Sales Charge Information

Class B
-------------------------------------------------------------------
California Fund Florida Fund
-------------------------------- -------------------------------
For the Fiscal Year CDSCs Received CDSCs Paid to CDSCs Received CDSCs paid to
Ended July 31, by Distributor Merrill Lynch by Distributor Merrill Lynch
------------------ --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
1999 $4,119 $4,119 $2,089 $2,089
1998 $3,550 $3,550 $4,821 $4,821
1997 $6,780 $6,780 $7,396 $7,396
</TABLE>
---------
* Additional Class B CDSCs payable to the Distributor may have been waived
or converted to a contingent obligation in connection with a shareholder's
participation in certain fee-based programs.

<TABLE>
<CAPTION>
Class C
-------------------------------------------------------------------
California Fund Florida Fund
-------------------------------- -------------------------------
For the Fiscal Year CDSCs Received CDSCs Paid to CDSCs Received CDSCs paid to
Ended July 31, by Distributor Merrill Lynch by Distributor Merrill Lynch
------------------ --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
1999 $ 106 $ 106 $ 0 $ 0
1998 $ 63 $ 63 $ 0 $ 0
1997 $ 0 $ 0 $ 0 $ 0
</TABLE>

Merrill Lynch compensates its Financial Consultants for selling Class B
and Class C shares at the time of purchase from its own funds. Proceeds from the
CDSC and the distribution fee are paid to the Distributor and are used in whole
or in part by the Distributor to defray the expenses of dealers (including
Merrill Lynch) related to providing distribution-related services to each Fund
in connection with the sale of the Class B and Class C shares, such as the
payment of compensation to financial consultants for selling Class B and Class C
shares from the dealer's own funds. The combination of the CDSC and the ongoing
distribution fee facilitates the ability of the Fund to sell the Class B and
Class C shares without a sales charge being deducted at the time of purchase.
See "Distribution Plans" below. Imposition of the CDSC and the distribution fee
on Class B and Class C shares is limited by the National Association of
Securities Dealers, Inc. (the "NASD") asset-based sales charge rule. See
"Limitations on the Payment of Deferred Sales Charges" below.

Distribution Plans

Reference is made to "Fees and Expenses" in the Prospectus for certain
information with respect to the separate distribution plans for Class B, Class C
and Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each
a "Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Fund to the Distributor with respect to such
classes.

25
<PAGE>

The Distribution Plans for Class B, Class C and Class D shares each
provides that each Fund pays the Distributor an account maintenance fee relating
to the shares of the relevant class, accrued daily and paid monthly, at the
annual rates of 0.15%, 0.15% and 0.10%, respectively, of the average daily net
assets of each Fund attributable to shares of the relevant class in order to
compensate the Distributor and Merrill Lynch (pursuant to a sub-agreement) in
connection with account maintenance activities with respect to Class B, Class C
and Class D shares. Each of those classes has exclusive voting rights with
respect to the Distribution Plan adopted with respect to such class pursuant to
which account maintenance and/or distribution fees are paid (except that Class B
shareholders may vote upon any material changes to expenses charged under the
Class D Distribution Plan).

The Distribution Plans for Class B and Class C shares provides that each
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.20%, of
the average daily net assets of each Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services and bearing certain distribution-related expenses of each Fund,
including payments to financial consultants for selling Class B and Class C
shares of each Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares.

The Fund's Distribution Plans are subject to the provisions of Rule 12b-1
under the Investment Company Act. In their consideration of each Distribution
Plan, the Trustees must consider all factors they deem relevant, including
information as to the benefits of the Distribution Plan to each Fund and each
related class of shareholders. Each Distribution Plan further provides that, so
long as the Distribution Plan remains in effect, the selection and nomination of
non-interested Trustees shall be committed to the discretion of the
non-interested Trustees then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the non-interested Trustees concluded that there is
reasonable likelihood that each Distribution Plan will benefit the related Fund
and its related class of shareholders. Each Distribution Plan can be terminated
at any time, without penalty, by the vote of a majority of the non-interested
Trustees or by the vote of the holders of a majority of the outstanding related
class of voting securities of the related Fund. A Distribution Plan cannot be
amended to increase materially the amount to be spent by the related Fund
without the approval of the related class of shareholders and all material
amendments are required to be approved by the vote of Trustees, including a
majority of the non-interested Trustees who have no direct or indirect financial
interest in the Distribution Plan, cast in person at a meeting called for that
purpose. Rule 12b-1 further requires that the Trust preserve copies of the
Distribution Plan and any report made pursuant to such plan for a period of not
less than six years from the date of the Distribution Plan or such report, the
first two years in an easily accessible place.

Among other things, each Distribution Plan provides that the Distributor
shall provide and the Trustees shall review quarterly reports of the
disbursement of the account maintenance and/or distribution fees paid to the
Distributor. Payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares of each Fund regardless of
the amount of expenses incurred and, accordingly, distribution-related revenues
from the Distribution Plans may be more or less than distribution-related
expenses. Information with respect to the distribution-related revenues and
expenses is presented to the Trustees for their consideration in connection with
their deliberations as to the continuance of the Class B and Class C
Distribution Plans annually, as of December 31 of each year, on a "fully
allocated accrual" basis and quarterly on a "direct expense and revenue/cash"
basis. On the fully allocated accrual basis, revenues consist of the account
maintenance fees, distribution fees, the CDSCs and certain other related
revenues, and expenses consist of financial consultant compensation, branch
office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs
and the expenses consist of financial consultant compensation.

With respect to the California Fund, as of December 31, 1998, the last
date for which fully allocated accrual data is available, the fully allocated
accrual expenses of the Distributor and Merrill Lynch for the period since the
commencement of operations of Class B shares exceeded the fully allocated
accrual revenues by

26
<PAGE>

approximately $57,000 (1.20% of Class B net assets at that date). As of July 31,
1999, direct cash revenues for the period since the commencement of operations
of Class B shares exceeded direct cash expenses by $81,303 (2.19% of Class B net
assets at that date). Information regarding fully allocated accrual data for
Class C California Fund shares for the period October 21, 1994 (commencement of
operations) to December 31, 1998 is not presented because such revenues and
expenses are de minimis. As of July 31, 1999, direct cash revenues for the
period since the commencement of operations of Class C shares exceeded direct
cash expenses by $558 (0.49% of Class C net assets at that date).

For the fiscal year ended July 31, 1999, the California Fund paid the
Distributor $15,589 pursuant to the Class B Distribution Plan (based on average
daily net assets subject to such Class B Distribution Plan of approximately $4.5
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class B shares. For the fiscal year ended July 31, 1999, the California Fund
paid the Distributor $172 pursuant to the Class C Distribution Plan (based on
average daily net assets subject to such Class C Distribution Plan of
approximately $0.1 million), all of which was paid to Merrill Lynch for
providing account maintenance and distribution-related activities and services
in connection with Class C shares. For the fiscal year ended July 31, 1999, the
California Fund paid the Distributor $3,741 pursuant to the Class D Distribution
Plan (based on average daily net assets subject to such Class D Distribution
Plan of approximately $3.8 million), all of which was paid to Merrill Lynch for
providing account maintenance activities in connection with Class D shares.

With respect to the Florida Fund, as of December 31, 1998, the last date
for which fully allocated accrual data is available, the fully allocated accrual
expenses of the Distributor and Merrill Lynch for the period since the
commencement of operations of Class B shares exceeded the fully allocated
accrual revenues by approximately $129,000 (1.38% of Class B net assets at that
date). As of July 31, 1999, direct cash revenues for the period since the
commencement of operations of Class B shares exceeded direct cash expenses by
$351,146 (4.50% of Class B net assets at that date). Information regarding fully
allocated accrual data for Class C Florida Fund shares for the period October
21, 1994 (commencement of operations) to December 31, 1998 is not presented
because such revenues and EXPENSES ARE DE MINIMIS. As of July 31, 1999, direct
cash revenues for the period since the commencement of operations of Class C
shares exceeded direct cash expenses by $199 (0.31% of Class C net assets at
that date).

For the fiscal year ended July 31, 1999, the Florida Fund paid the
Distributor $29,430 pursuant to the Class B Distribution Plan (based on average
daily net assets subject to such Class B Distribution Plan of approximately $8.4
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class B shares. For the fiscal year ended July 31, 1999, the Florida Fund paid
the Distributor $85 pursuant to the Class C Distribution Plan (based on average
daily net assets subject to such Class C Distribution Plan of approximately $.06
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class C shares. For the fiscal year ended July 31, 1999, the Florida Fund paid
the Distributor $5,250 pursuant to the Class D Distribution Plan (based on
average daily net assets subject to such Class D Distribution Plan of
approximately $5.3 million), all of which was paid to Merrill Lynch for
providing account maintenance activities in connection with Class D shares.

Limitations on the Payment of Deferred Sales Charges

The maximum sales charge rule in the Conduct Rules of the NASD imposes a
limitation on certain asset-based sales charges such as the distribution fee and
the CDSC borne by each Fund's Class B shares but not the account maintenance
fee. The maximum sales charge rule is applied separately to each class. As
applicable to each Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by each Fund to (1) 6.25% of
eligible gross sales of Class B shares of that Fund, computed separately
(defined to exclude shares issued pursuant to dividend reinvestments and
exchanges), plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with each Fund's Class B shares,
the Distributor has voluntarily agreed to waive interest charges on

27
<PAGE>

the unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the
maximum amount payable to the Distributor (referred to as the "voluntary
maximum") in connection with the Class B shares of each Fund is 6.75% of
eligible gross sales. The Distributor retains the right to stop waiving the
interest charges at any time. To the extent payments would exceed the voluntary
maximum, each Fund will not make further payments of the distribution fee with
respect to Class B shares and any CDSCs will be paid to each Fund rather than to
the Distributor; however, the Fund will continue to make payments of the account
maintenance fee. In certain circumstances the amount payable pursuant to the
voluntary maximum may exceed the amount payable under the NASD formula. In such
circumstances payment in excess of the amount payable under the NASD formula
will not be made.

The following table sets forth comparative information as of July 31, 1999
with respect to each Fund's Class B shares indicating the maximum allowable
payments that can be made under the NASD maximum sales charge rule and the
Distributor's voluntary maximum. No information is presented for the Class C
shares of the Funds because Class C shares are not available for purchase but
will be issued only pursuant to the exchange privilege to holders of Class C
shares of other Select Pricing Funds who elect to exchange Class C shares of
such other Select Pricing Funds for Class C shares of one of the Funds.

<TABLE>
<CAPTION>
Data Calculated as of July 31, 1999
---------------------------------------------------------------------------------------
(in thousands)
Annual
Distribution
Allowable Amounts Fee at
Eligible Allowable Interest on Maximum Previously Aggregate Current Net
Gross Aggregate Unpaid Amount Paid to Unpaid Asset
Sales(1) Sales Charges Balance(2) Payable Distributor(3) Balance Level(4)
------- ------------ ----------- ------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
California Fund
-------------
Under NASD Rule as Adopted .. $15,439 $ 965 $486 $1,451 $124 $1,327 $ 8
Under Distributor's
Voluntary Waiver ........... $15,439 $ 965 $ 77 $1,042 $124 $ 918 $ 8

Florida Fund
-----------
Under NASD Rule as Adopted .. $24,966 $1,606 $738 $2,344 $407 $1,937 $16
Under Distributor's
Voluntary Waiver ........... $24,966 $1,606 $ 79 $1,685 $407 $1,278 $16
</TABLE>

---------
(1) Purchase price of all eligible Class B shares sold since November 26, 1993
(commencement of operations) other than shares acquired through dividend
reinvestment and the exchange privilege.

(2) Includes amounts attributable to exchanges from Summit Cash Reserves Fund
("Summit") that are not reflected in Eligible Gross Sales. Shares of
Summit can only be purchased by exchange from another fund (the "redeemed
fund"). Upon such an exchange, the maximum allowable sales charge payment
to the redeemed fund is reduced in accordance with the amount of the
redemption. This amount is then added to the maximum allowable sales
charge payment with respect to Summit. Upon an exchange out of Summit, the
remaining balance of this amount is deducted from the maximum allowable
sales charge payment to Summit and added to the maximum allowable sales
charge payment to the fund into which the exchange is made.

(3) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0%, as permitted under the
NASD Rule.

(4) Consists of CDSC payments, distribution fee payments and accruals. See
"What are the Fund's fees and expenses?" in the Prospectus. This figure
may include CDSCs that were deferred when a shareholder redeemed shares
prior to the expiration of the applicable CDSC period and invested the
proceeds, without the imposition of a sales charge, in Class A shares in
conjunction with the shareholder's participation in the Merrill Lynch
Mutual Fund Advisor (Merrill Lynch MFA(SM)) Program (the "MFA Program").
The CDSC is booked as a contingent obligation that may be payable if the
shareholder terminates participation in the MFA Program.

(5) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any CDSC payments) is amortizing
the unpaid balance. No assurance can be given that payments of the
distribution fee will reach either the voluntary maximum (with respect to
Class B shares) or the NASD maximum (with respect to Class B and Class C
shares).

REDEMPTION OF SHARES

Reference is made to "How to Buy, Sell, Transfer and Exchange Shares" in
the Prospectus.

The Trust is required to redeem for cash all shares of any Fund upon
receipt of a written request in proper form. The redemption price is the net
asset value per share next determined after the initial receipt of proper notice
of redemption. Except for any CDSC that may be applicable, there will be no
charge for redemption if the redemption request is sent directly to the Transfer
Agent. Shareholders liquidating their holdings will receive upon redemption all
dividends reinvested through the date of redemption.

The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for any period during
which trading on the New York Stock Exchange (the "NYSE")

28
<PAGE>

is restricted as determined by the Commission or the NYSE is closed (other than
customary weekend and holiday closings), for any period during which an
emergency exists as defined by the Commission as a result of which disposal of
portfolio securities or determination of the net asset value of a Fund is not
reasonably practicable, and for such other periods as the Commission may by
order permit for the protection of shareholders of that Fund.

The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending in part on the market value of the securities held
by a Fund at such time.

Redemption

A shareholder wishing to redeem shares held with the Transfer Agent may do
so without charge by tendering the shares directly to the Transfer Agent at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484. Proper notice of redemption in the case of shares deposited with the
Transfer Agent may be accomplished by a written letter requesting redemption.
Proper notice of redemption in the case of shares for which certificates have
been issued may be accomplished by a written letter as noted above accompanied
by certificates for the shares to be redeemed. Redemption requests should not be
sent to the the Trust or any Fund. The redemption request in either event
requires the signature(s) of all persons in whose name(s) the shares are
registered, signed exactly as such name(s) appear(s) on the Transfer Agent's
register. The signature on the redemption request may require a guarantee by an
"eligible guarantor institution" as defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934 (the "Exchange Act"), the existence and validity of which
may be verified by the Transfer Agent through the use of industry publications.
In the event a signature guarantee is required, notarized signatures are not
sufficient. In general, signature guarantees are waived on redemptions of less
than $50,000 as long as the following requirements are met: (i) all requests
require the signature(s) of all persons in whose name(s) shares are recorded on
the Transfer Agent's register; (ii) all checks must be mailed to the stencil
address of record on the Transfer Agent's register and (iii) the stencil address
must not have changed within 30 days. Certain rules may apply regarding certain
account types such as but not limited to UGMA/UTMA accounts, Joint Tenancies
WithRights of Survivorship, contra broker transactions, and institutional
accounts. In certain instances, the Transfer Agent may require additional
documents such as, but not limited to, trust instruments, death certificates,
appointments as executor or administrator, or certificates of corporate
authority. For shareholders redeeming directly with the Transfer Agent, payments
will be mailed within seven days of receipt of a proper notice of redemption.

At various times the Trust may be requested to redeem shares of a Fund for
which it has not yet received good payment (e.g., cash, Federal funds or
certified check drawn on a U.S. bank). The Trust may delay or cause to be
delayed the mailing of a redemption check until such time as it has assured
itself that good payment (e.g., cash, Federal funds or certified check drawn on
a U.S. bank) has been collected for the purchase of such Fund shares, which will
usually not exceed 10 days.

Repurchase

The Trust also will repurchase shares of a Fund through a shareholder's
listed securities dealer. The Trust normally will accept orders to repurchase
Fund shares by wire or telephone from dealers for their customers at the net
asset value next computed after the order is placed. Shares will be priced at
the net asset value calculated on the day the request is received, provided that
the request for repurchase is submitted to the dealer prior to the close of
business on the NYSE (generally, the NYSE closes at 4:00 p.m., Eastern time) and
such request is received by a Fund from such dealer not later than 30 minutes
after the close of business on the NYSE on the same day. Dealers have the
responsibility of submitting such repurchase requests to the Fund not later than
30 minutes after the close of business on the NYSE, in order to obtain that
day's closing price.

The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Trust (other than any applicable
CDSC). Securities firms that do not have selected dealer agreements with the
Distributor, however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Trust. Merrill Lynch may charge its
customers a processing fee (presently $5.35) to confirm a repurchase of shares
to such customers. Repurchases made directly through a Fund's Transfer Agent are
not subject to the processing fee. The Trust reserves the right to reject any
order for repurchase, which right of

29
<PAGE>

rejection might adversely affect shareholders seeking redemption through the
repurchase procedure. However, a shareholder whose order for repurchase is
rejected by the Trust may redeem Fund shares as set forth above.

Reinstatement Privilege -- Class A and Class D Shares

Shareholders who have redeemed their Class A or Class D shares of a Fund
have a privilege to reinstate their accounts by purchasing Class A or Class D
shares of that Fund at net asset value without a sales charge up to the dollar
amount redeemed. The reinstatement privilege may be exercised by sending a
notice of exercise along with a check for the amount to be reinstated to the
Transfer Agent within 30 days after the date the request for redemption was
accepted by the Transfer Agent or the Distributor. Alternatively, the
reinstatement privilege may be exercised through the investor's Merrill Lynch
Financial Consultant within 30 days after the date the request for redemption
was accepted by the Transfer Agent or the Distributor. The reinstatement will be
made at the net asset value per share next determined after the notice of
reinstatement is received and cannot exceed the amount of the redemption
proceeds.

PRICING OF SHARES

Determination of Net Asset Value

Reference is made to "How Shares Are Priced" in the Prospectus.

The net asset value of the shares of all classes of each Fund is
determined by the Manager once daily Monday through Friday after the close of
business on the NYSE on each day the NYSE is open for trading. The NYSE
generally closes at 4:00 p.m., Eastern time. The NYSE is not open for trading on
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Net asset value is computed by dividing the value of the securities held
by a Fund plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued expenses)
by the total number of shares outstanding at such time, rounded to the nearest
cent. Expenses, including the fees payable to the Manager and Distributor, are
accrued daily.

The per share net asset value of Class B, Class C and Class D shares
generally will be lower than the per share net asset value of Class A shares,
reflecting the daily expense accruals of the account maintenance, distribution
and higher transfer agency fees applicable with respect to Class B and Class C
shares, and the daily expense accruals of the account maintenance fees
applicable with respect to the Class D shares; moreover, the per share net asset
value of the Class B and Class C shares generally will be lower than the per
share net asset value of Class D shares reflecting the daily expense accruals of
the distribution fees and higher transfer agency fees applicable with respect to
Class B and Class C shares of the Fund. It is expected, however, that the per
share net asset value of the four classes of shares will tend to converge
(although not necessarily meet) immediately after the payment of dividends,
which will differ by approximately the amount of the expense accrual
differentials between the classes.

The State Municipal Bonds and Municipal Bonds and other portfolio
securities in which the Funds invest are traded primarily in over-the-counter
("OTC") municipal bond and money markets and are valued at the last available
bid price for long positions and at the last available ask price for short
positions in the OTC market or on the basis of yield equivalents as obtained
from one or more dealers that make markets in the securities. One bond is the
"yield equivalent" of another bond when, taking into account market price,
maturity, coupon rate, credit rating and ultimate return of principal, both
bonds will theoretically produce an equivalent return to the bondholder.
Financial futures contracts and options thereon, which are traded on exchanges,
are valued at their settlement prices as of the close of such exchanges.
Short-term investments with a remaining maturity of 60 days or less are valued
on an amortized cost basis which approximates market value. Securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Trustees of
the Trust, including valuations furnished by a pricing service retained by the
Trust, which may use 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.

30
<PAGE>

Computation of Offering Price Per Share

An illustration of the computation of the offering price for Class A,
Class B, Class C and Class D shares of the California Fund and the Florida Fund
based on that Fund's net assets and number of shares outstanding on July 31,
1999 is set forth below.

<TABLE>
<CAPTION>
Class A Class B Class C Class D
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>

California Fund
Net Assets ................................. $1,293,476 $3,718,473 $114,007 $3,135,788
========== ========== ======== ==========
Number of Shares Outstanding ............... 128,904 370,754 11,366 312,389
========== ========== ======== ==========
Net Asset Value Per Share (net assets
divided by number of shares
outstanding) ............................. $ 10.03 $ 10.03 $ 10.03 $ 10.04
Sales Charge (for Class A and Class D
shares: 1.00% of offering price; 1.01%
of net asset value per share)* ........... .10 ** ** .10
========== ========== ======== ==========
Offering Price ............................. $ 10.13 $ 10.03 $ 10.03 $ 10.14
========== ========== ======== ==========

Class A Class B Class C Class D
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Florida Fund
Net Assets ................................. $4,055,471 $7,786,646 $ 63,739 $2,522,360
========== ========== ======== ==========
Number of Shares Outstanding ............... 411,071 789,328 6,506 255,863
========== ========== ======== ==========
Net Asset Value Per Share (net assets
divided by number of shares
outstanding) ............................. $ 9.87 $ 9.86 $ 9.80 $ 9.86
Sales Charge (for Class A and Class D
shares: 1.00% of offering price; 1.01%
of net asset value per share)* ........... .10 ** ** .10
========== ========== ======== ==========
Offering Price ............................. $ 9.97 $ 9.86 $ 9.80 $ 9.96
========== ========== ======== ==========

</TABLE>
---------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption of shares within one year of
purchase. See "Purchase of Shares -- Deferred Sales Charge Alternatives --
Class B and Class C Shares" -- Contingent Deferred Sales Charges -- Class
B Shares and Class C Shares" herein.

PORTFOLIO TRANSACTIONS

Transactions in Portfolio Securities

Subject to policies established by the Trustees, the Manager is primarily
responsible for the execution of each Fund's portfolio transactions. The Trust
has no obligation to deal with any dealer or group of dealers in the execution
of transactions in portfolio securities of a Fund. Where possible, the Trust
deals directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. It is the policy of the Trust to obtain the best results in
conducting portfolio transactions for a Fund, taking into account such factors
as price (including the applicable dealer spread or commission), the size, type
and difficulty of the transaction involved, the firm's general execution and
operations facilities and the firm's risk in positioning the securities
involved. The portfolio securities of each Fund generally are traded on a
principal basis and normally do not involve either brokerage commissions or
transfer taxes. The cost of portfolio securities transactions of each Fund
primarily consists of dealer or underwriter spreads. While reasonable
competitive spreads or commissions are sought, a Fund will not necessarily be
paying the lowest spread or commission available. Transactions with respect to
the securities of small and emerging growth companies in which a Fund may invest
may involve specialized services on the part of the broker or dealer and thereby
entail higher commissions or spreads than would be the case with transactions
involving more widely traded securities.

31
<PAGE>

Subject to obtaining the best net results, dealers who provide
supplemental investment research (such as information concerning tax-exempt
securities, economic data and market forecasts) to the Manager may receive
orders for transactions by a Fund. Information so received will be in addition
to and not in lieu of the services required to be performed by the Manager under
its Management Agreement and the expense of the Manager will not necessarily be
reduced as a result of the receipt of such supplemental information.
Supplemental investment research obtained from such dealers might be used by the
Manager in servicing all of its accounts and all such research might not be used
by the Manager in connection with a Fund. Consistent with the Conduct Rules of
the NASD and policies established by the Trustees of the Trust, the Manager may
consider sales of shares of the Fund as a factor in the selection of brokers or
dealers to execute portfolio transactions for a Fund.

Because of the affiliation of Merrill Lynch with the Manager, each Fund is
prohibited from engaging in certain transactions involving such firm or its
affiliates except pursuant to an exemptive order under the Investment Company
Act. Included among such restricted transactions are purchases from or sales to
Merrill Lynch of securities in transactions in which it acts as principal. Under
an exemptive order, the Trust may effect principal transactions with Merrill
Lynch in high quality, short-term, tax-exempt securities subject to conditions
set forth in such order. Information regarding transactions executed pursuant to
the exemptive order is set forth in the following table:

For the Year Ended For the Year Ended For the Year Ended
July 31, 1999 July 31, 1998 July 31, 1997
----------------------- ----------------------- -----------------------
Aggregate Aggregate Aggregate
Number of Dollar Number of Dollar Number of Dollar
Fund Transactions Amount Transactions Amount Transactions Amount
----- ------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
California Fund ..... 0 $ 0 1 $200,000 0 $ 0
Florida Fund ........ 0 $ 0 0 $ 0 4 $600,000
</TABLE>

An affiliated person of the Trust may serve as broker for a Fund in OTC
transactions conducted on an agency basis. Certain court decisions have raised
questions as to the extent to which investment companies should seek exemptions
under the Investment Company Act in order to seek to recapture underwriting and
dealer spreads from affiliated entities. The Trustees have considered all
factors deemed relevant and have made a determination not to seek such recapture
at this time. The Trustees will reconsider this matter from time to time.

Neither Fund may purchase securities, including Municipal Bonds, during
the existence of any underwriting syndicate of which Merrill Lynch is a member
or in a private placement in which Merrill Lynch serves as placement agent
except pursuant to procedures approved by the Trustees of the Trust which either
comply with rules adopted by the Commission or with interpretations of the
Commission staff. Rule 10f-3 under the Investment Company Act sets forth
conditions under which a Fund may purchase Municipal Bonds from an underwriting
syndicate of which Merrill Lynch is a member. The rule sets forth requirements
relating to, among other things, the terms of an issue of Municipal Bonds
purchased by a Fund, the amount of Municipal Bonds that may be purchased in any
one issue and the assets of a Fund that may be invested in a particular issue.

Section 11(a) of the Exchange Act generally prohibits members of the U.S.
national securities exchanges from executing exchange transactions for their
affiliates and institutional accounts that they manage unless the member (i) has
obtained prior express authorization from the account to effect such
transactions, (ii) at least annually furnishes the account with a statement
setting forth the aggregate compensation received by the member in effecting
such transactions, and (iii) complies with any rules the Commission has
prescribed with respect to the requirements of clauses (i) and (ii). To the
extent Section 11(a) would apply to Merrill Lynch acting as a broker for a Fund
in any of its portfolio transactions executed on any such securities exchange of
which it is a member, appropriate consents have been obtained from each Fund and
annual statements as to aggregate compensation will be provided to each Fund.
Securities may be held by, or be appropriate investments for, each Fund as well
as other funds or investment advisory clients of the Manager or MLAM.

Because of different objectives or other factors, a particular security may
be bought for one or more clients of the Manager or an affiliate when one or
more clients of the Manager or an affiliate are selling the same security. If
purchases or sales of securities arise for consideration at or about the same
time that would involve a Fund or other clients or funds for which the Manager
or an affiliate acts as manager transactions in such securities will be made,
insofar as feasible, for the respective funds and clients in a manner deemed
equitable to all. To the extent that transactions on behalf of more than one
client of the Manager or an affiliate during the same period may increase the
demand for securities being purchased or the supply of securities being sold,
there may be an adverse effect on price.

32
<PAGE>

SHAREHOLDER SERVICES

The Trust offers a number of shareholder services and investment plans
described below that are designed to facilitate investment in shares of the
Funds. Full details as to each of such services, copies of the various plans and
instructions as to how to participate in the various services or plans, or how
to change options with respect thereto, can be obtained from the Trust, by
calling the telephone number on the cover page hereof, or from the Distributor
or Merrill Lynch. Certain of these services are available only to U.S.
investors.

Investment Accounts

Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of dividends. The statements
will also show any other activity in the account since the preceding statement.
Shareholders will also receive separate confirmations for each purchase or sale
transaction other than automatic investment purchases and the reinvestment of
dividends. A shareholder with an account held at the Transfer Agent may make
additions to his or her Investment Account at any time by mailing a check
directly to the Transfer Agent. A shareholder may also maintain an account
through Merrill Lynch. Upon the transfer of shares out of a Merrill Lynch
brokerage account, an Investment Account in the transferring shareholder's name
may be opened automatically at the Transfer Agent.

Share certificates are issued only for full shares and only upon the
specific request of a shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an Investment
Account may be requested by a shareholder directly from the Transfer Agent.

Shareholders may transfer their Fund shares from Merrill Lynch to another
securities dealer that has entered into a selected dealer agreement with Merrill
Lynch. Certain shareholder services may not be available for the transferred
shares. After the transfer, the shareholder may purchase additional shares of
funds owned before the transfer and all future trading of these assets must be
coordinated by the new firm. If a shareholder wishes to transfer his or her
shares to a securities dealer that has not entered into a selected dealer
agreement with Merrill Lynch, the shareholder must either (i) redeem his or her
shares, paying any applicable CDSC or (ii) continue to maintain an Investment
Account at the Transfer Agent for those shares. The shareholder may also request
the new securities dealer to maintain the shares in an account at the Transfer
Agent registered in the name of the securities dealer for the benefit of the
shareholder whether the securities dealer has entered into a selected dealer
agreement or not.

Exchange Privilege

U.S. shareholders of each class of shares of each Fund have an exchange
privilege with certain other Select Pricing Funds and Summit Cash Reserves Fund
("Summit"), a series of Financial Institutions Series Trust, which is a Merrill
Lynch-sponsored money market mutual fund specifically designated for exchange by
holders of Class A, Class B, Class C and Class D shares of Select Pricing Funds.
Shares with a net asset value of at least $100 are required to qualify for the
exchange privilege and any shares utilized in an exchange must have been held by
the shareholder for at least 15 days. Before effecting an exchange, shareholders
should obtain a currently effective prospectus of the fund into which the
exchange is to be made. Exercise of the exchange privilege is treated as a sale
of the exchanged shares and a purchase of the acquired shares for Federal income
tax purposes.

Exchanges of Class A and Class D Shares. Class A shareholders may exchange
Class A shares of a Fund for Class A shares of a second Select Pricing Fund if
the shareholder holds any Class A shares of the second fund in the account in
which the exchange is made at the time of the exchange or is otherwise eligible
to purchase Class A shares of the second fund. If the Class A shareholder wants
to exchange Class A shares of a Fund for shares of a second Select Pricing Fund,
but does not hold Class A shares of the second fund in his or her account at the
time of the exchange and is not otherwise eligible to acquire Class A shares of
the second fund, the shareholder will receive Class D shares of the second fund
as a result of the exchange. Class D shares of a Fund also may be exchanged for
Class A shares of a second Select Pricing Fund at any time as long as, at the
time of the exchange, the shareholder holds Class A shares of the second fund in
the account in which the exchange is made or is otherwise eligible to purchase
Class A shares of the second fund. Class D shares of a Fund are exchangeable
with shares of the same class of other Select Pricing Funds.

33
<PAGE>

Exchanges of Class A or Class D shares outstanding ("outstanding Class A
or Class D shares") for Class A or Class D shares of other Select Pricing Funds
or for Class A shares of Summit ("new Class A or Class D shares") are transacted
on the basis of relative net asset value per Class A or Class D share,
respectively, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A or Class D shares and the
sales charge payable at the time of the exchange on the new Class A or Class D
shares. With respect to outstanding Class A or Class D shares as to which
previous exchanges have taken place, the "sales charge previously paid" shall
include the aggregate of the sales charges paid with respect to such Class A or
Class D shares in the initial purchase and any subsequent exchange. Class A or
Class D shares issued pursuant to dividend reinvestment are sold on a no-load
basis in each of the funds offering Class A or Class D shares. For purposes of
the exchange privilege, Class A or Class D shares acquired through dividend
reinvestment shall be deemed to have been sold with a sales charge equal to the
sales charge previously paid on the Class A or Class D shares on which the
dividend was paid. Based on this formula, Class A and Class D shares generally
may be exchanged into the Class A or Class D shares, respectively, of the other
funds with a reduced sales charge or without a sales charge.

Exchanges of Class B and Class C Shares. Certain Select Pricing Funds with
Class B or Class C shares outstanding ("outstanding Class B or Class C shares")
offer to exchange their Class B or Class C shares for Class B or Class C shares,
respectively, of certain other Select Pricing Funds or for Class B shares of
Summit ("new Class B or Class C shares") on the basis of relative net asset
value per Class B or Class C share, without the payment of any CDSC that might
otherwise be due on redemption of the outstanding shares. Class B shareholders
of a Fund exercising the exchange privilege will continue to be subject to that
Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating
to the new Class B shares acquired through use of the exchange privilege. In
addition, Class B shares of a Fund acquired through use of the exchange
privilege will be subject to that Fund's CDSC schedule if such schedule is
higher than the CDSC schedule relating to the Class B shares of the fund from
which the exchange has been made. For purposes of computing the CDSC that may be
payable on a disposition of the new Class B or Class C shares, the holding
period for the outstanding Class B or Class C shares is "tacked" to the holding
period of the new Class B or Class C shares. For example, an investor may
exchange Class B shares of a Fund for those of Merrill Lynch Special Value Fund,
Inc. ("Special Value Fund") after having held that Fund's Class B shares for two
and a half years. The 2% CDSC that generally would apply to a redemption would
not apply to the exchange. Three years later the investor may decide to redeem
the Class B shares of Special Value Fund and receive cash. There will be no CDSC
due on this redemption, since by "tacking" the two and a half year holding
period of Fund Class B shares to the three-year holding period for the Special
Value Fund Class B shares, the investor will be deemed to have held the Special
Value Fund Class B shares for more than five years.

Exchanges for Shares of a Money Market Fund. Class A and Class D shares
are exchangeable for Class A shares of Summit and Class B and Class C shares are
exchangeable for Class B shares of Summit. Class A shares of Summit have an
exchange privilege back into Class A or Class D shares of Select Pricing Funds;
Class B shares of Summit have an exchange privilege back into Class B or Class C
shares of Select Pricing Funds and, in the event of such an exchange, the period
of time that Class B shares of Summit are held will count toward satisfaction of
the holding period requirement for purposes of reducing any CDSC and toward
satisfaction of any Conversion Period with respect to Class B shares. Class B
shares of Summit will be subject to a distribution fee at an annual rate of
0.75% of average daily net assets of such Class B shares. This exchange
privilege does not apply with respect to certain Merrill Lynch fee-based
programs for which alternative exchange arrangements may exist. Please see your
Merrill Lynch Financial Consultant for further information.

Prior to October 12, 1998, exchanges from the Funds and other Select
Pricing Funds into a money market fund were directed to certain Merrill
Lynch-sponsored money market funds other than Summit. Shareholders who exchanged
Select Pricing Fund shares for shares of such other money market funds and
subsequently wish to exchange those money market fund shares for shares of a
Fund will be subject to the CDSC schedule applicable to such Fund shares, if
any. The holding period for those money market fund shares will not count toward
satisfaction of the holding period requirement for reduction of the CDSC imposed
on such shares, if any, and, with respect to Class B shares, toward satisfaction
of the Conversion Period. However, the holding period for Class B or Class C
shares of a Fund received in exchange for such money market fund shares will be
aggregated with the holding period for the fund shares originally exchanged for
such money market fund shares for purposes of reducing the CDSC or satisfying
the Conversion Period.

34
<PAGE>

Exchanges by Participants in the MFA Program. The Fund's exchange
privilege is also modified with respect to purchases of Class A and Class D
shares by investors under the MFA Program. First, the initial allocation of
assets is made under the MFA Program. Then any subsequent exchange under the MFA
Program of Class A or Class D shares of a Select Pricing Fund for Class A or
Class D shares of the Fund will be made solely on the basis of the relative net
asset values of the shares being exchanged. Therefore, there will not be a
charge for any difference between the sales charge previously paid on the shares
of the other Select Pricing Fund and the sales charge payable on the shares of
the Fund being acquired in the exchange under the MFA Program.

Exercise of the Exchange Privilege. To exercise the exchange privilege, a
shareholder should contact his or her Merrill Lynch Financial Consultant, who
will advise the respective Fund of the exchange. Shareholders of the Funds, and
shareholders of the other Select Pricing Funds with shares for which
certificates have not been issued, may exercise the exchange privilege by wire
through their securities dealers. Each Fund reserves the right to require a
properly completed Exchange Application. This exchange privilege may be modified
or terminated in accordance with the rules of the Commission. Each Fund reserves
the right to limit the number of times an investor may exercise the exchange
privilege. Certain funds may suspend the continuous offering of their shares to
the general public at any time and may thereafter resume such offering from time
to time. The exchange privilege is available only to U.S. shareholders in states
where the exchange legally may be made. It is contemplated that the exchange
privilege may be applicable to other new mutual funds whose shares may be
distributed by the Distributor.

Fee-Based Programs

Certain Merrill Lynch fee-based programs, including pricing alternatives
for securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares of a Fund at net asset value. Under
specified circumstances, participants in certain Programs may deposit other
classes of shares which will be exchanged for Class A shares. Initial or
deferred sales charges otherwise due in connection with such exchanges may be
waived or modified, as may the Conversion Period applicable to the deposited
shares. Termination of participation in a Program may result in the redemption
of shares held therein or the automatic exchange thereof to another class at net
asset value, which may be shares of a money market fund. In addition, upon
termination of participation in a Program, shares that have been held for less
than specified periods within such Program may be subject to a fee based upon
the current value of such shares. These Programs also generally prohibit such
shares from being transferred to another account at Merrill Lynch, to another
broker-dealer or to the Transfer Agent. Except in limited circumstances (which
may also involve an exchange as described above), such shares must be redeemed
and another class of shares purchased (which may involve the imposition of
initial or deferred sales charges and distribution and account maintenance fees)
in order for the investment not to be subject to Program fees. Additional
information regarding a specific Program (including charges and limitations on
transferability applicable to shares that may be held in such Program) is
available in such Program's client agreement and from the Transfer Agent at
1-800-MER-FUND or 1-800-637-3863.

Automatic Investment Plans

A shareholder of a Fund may make additions to an Investment Account at any
time by purchasing Class A shares (if he or she is an eligible Class A investor)
or Class B or Class D shares at the applicable public offering price. These
purchases may be made either through the shareholder's securities dealer, or by
mail directly to the Transfer Agent, acting as agent for such securities dealer.
Voluntary accumulation also can be made through a service known as a Fund's
Automatic Investment Plan. Each Fund would be authorized, on a regular basis, to
provide systematic additions to the Investment Account of such shareholder
through charges of $50 or more to the regular bank account of the shareholder by
either pre-authorized checks or automated clearing house debits. An investor
whose shares of a Fund are held within a CMA(R) or CBA(R) Account may arrange to
have periodic investments made in that Fund in amounts of $100 or more through
the CMA(R) or CBA(R) Automatic Investment Program.

Automatic Dividend Reinvestment Plan

Unless specific instructions are given as to the method of payment,
dividends will be automatically reinvested, without sales charge, in additional
full and fractional shares of the respective Fund. Such reinvestment will be at
the net asset value of shares of the respective Fund as determined after the
close of business on the

35
<PAGE>

NYSE on the monthly payment date for such dividends. No CDSC will be imposed
upon redemption of shares issued as a result of the automatic reinvestment of
dividends.

Shareholders may, at any time, by written notification to Merrill Lynch if
their account is maintained with Merrill Lynch, or by written notification or by
telephone (1-800-MER-FUND) to the Transfer Agent, if their account is maintained
with the Transfer Agent, elect to have subsequent dividends, paid in cash,
rather than reinvested in shares of the respective Fund or vice versa (provided
that, in the event that a payment on an account maintained at the Transfer Agent
would amount to $10.00 or less, a shareholder will not receive such payment in
cash and such payment will automatically be reinvested in additional shares).
Commencing ten days after the receipt by the Transfer Agent of such notice,
those instructions will be effected. The Funds are not responsible for any
failure of delivery to the shareholder's address of record and no interest will
accrue on amounts represented by uncashed dividend checks. Cash payments can
also be directly deposited to the shareholder's bank account.

Systematic Withdrawal Plan

A shareholder may elect to receive systematic withdrawals from his or her
Investment Account by check or through automatic payment by direct deposit to
his or her bank account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders that have acquired
shares of a Fund having a value, based on cost or the current offering price, of
$5,000 or more, and monthly withdrawals are available for shareholders with
shares having a value of $10,000 or more.

At the time of each withdrawal payment, sufficient shares are redeemed
from those on deposit in the shareholder's account to provide the withdrawal
payment specified by the shareholder. The shareholder may specify the dollar
amount and the class of shares to be redeemed. Redemptions will be made at net
asset value as determined after the close of business on the NYSE (generally,
the NYSE closes at 4:00 p.m., Eastern time) on the 24th day of each month or the
24th day of the last month of each quarter, whichever is applicable. If the NYSE
is not open for business on such date, the shares will be redeemed at the net
asset value determined after the close of business on the NYSE on the following
business day. The check for the withdrawal payment will be mailed, or the direct
deposit of the withdrawal payment will be made, on the next business day
following redemption. When a shareholder is making systematic withdrawals,
dividends on all shares in the Investment Account are automatically reinvested
in the respective Fund's shares. A shareholder's Systematic Withdrawal Plan may
be terminated at any time, without charge or penalty, by the shareholder, the
Trust, the Transfer Agent or the Distributor.

With respect to redemptions of Class B or Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares that
can be redeemed from an account annually shall not exceed 10% of the value of
shares of such class in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that otherwise might be due on
such redemption of Class B or Class C shares will be waived. Shares redeemed
pursuant to a systematic withdrawal plan will be redeemed in the same order as
Class B or Class C shares are otherwise redeemed. See "Purchase of Shares --
Deferred Sales Charge Alternatives -- Class B and Class C Shares." Where the
systematic withdrawal plan is applied to Class B shares, upon conversion of the
last Class B shares in an account to Class D shares, the systematic withdrawal
plan will be applied thereafter to Class D shares if the shareholder so elects.
If an investor wishes to change the amount being withdrawn in a systematic
withdrawal plan the investor should contact his or her Merrill Lynch Financial
Consultant.

Withdrawal payments should not be considered as dividends. Each withdrawal
is a taxable event. If periodic withdrawals continuously exceed reinvested
dividends, the shareholder's original investment may be reduced correspondingly.
Purchases of additional shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and tax liabilities.
The Trust will not knowingly accept purchase orders for shares of a Fund from
investors that maintain a Systematic Withdrawal Plan unless such purchase is
equal to at least one year's scheduled withdrawals or $1,200, whichever is
greater. Automatic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.

Alternatively, a shareholder whose shares are held within a CMA(R) or
CBA(R) Account may elect to have shares redeemed on a monthly, bimonthly,
quarterly, semiannual or annual basis through the CMA(R) or CBA(R) Systematic
Redemption Program. The minimum fixed dollar amount redeemable is $50. The
proceeds of systematic redemptions will be posted to the shareholder's account
three business days after the date the shares

36
<PAGE>

are redeemed. All redemptions are made at net asset value. A shareholder may
elect to have his or her shares redeemed on the first, second, third or fourth
Monday of each month, in the case of monthly redemptions, or of every other
month, in the case of bimonthly redemptions. For quarterly, semiannual or annual
redemptions, the shareholder may select the month in which the shares are to be
redeemed and may designate whether the redemption is to be made on the first,
second, third or fourth Monday of the month. If the Monday selected is not a
business day, the redemption will be processed at net asset value on the next
business day. The CMA(R) or CBA(R) Systematic Redemption Program is not
available if shares of a Fund are being purchased within the account pursuant to
the Automatic Investment Program. For more information on the CMA(R) or CBA(R)
Systematic Redemption Program, eligible shareholders should contact their
Merrill Lynch Financial Consultant.

DIVIDENDS AND TAXES
Dividends

The net investment income of each Fund is declared as dividends daily
prior to the determination of the net asset value which is calculated after the
close of business on the NYSE (generally, the NYSE closes at 4:00 p.m., Eastern
time) on that day. The net investment income of a Fund for dividend purposes
consists of interest earned on portfolio securities, less expenses, in each case
computed since the most recent determination of net asset value. Expenses of a
Fund, including the management fees and the account maintenance and distribution
fees, are accrued daily. Dividends of net investment income are declared daily
and reinvested monthly in the form of additional full and fractional shares of a
Fund at net asset value as of the close of business on the "payment date" unless
the shareholder elects to receive such dividends in cash. Shares will accrue
dividends as long as they are issued and outstanding. Shares are issued and
outstanding from the settlement date of a purchase order to the day prior to
settlement date of a redemption order.

All net realized capital gains of a Fund, if any, are declared and
distributed to each Fund's shareholders at least annually. Capital gain
dividends will be reinvested automatically in shares of a Fund unless the
shareholder elects to receive such dividends in cash.

The per share dividends on each class of shares will be reduced as a
result of any account maintenance, distribution and transfer agency fees
applicable to that class. See "Pricing of Shares -- Determination of Net Asset
Value."

See "Shareholder Services" for information as to how to elect either
dividend reinvestment or cash payments. Portions of dividends which are taxable
to shareholders as described below are subject to income tax whether they are
reinvested in shares of a Fund or received in cash.

Federal Taxes

The Trust intends to continue to qualify each Fund for the special tax
treatment afforded regulated investment companies ("RICs") under the Code. As
long as it so qualifies, a Fund (but not its shareholders) will not be subject
to Federal income tax to the extent that it distributes its net investment
income and net realized capital gains. The Trust intends to cause each Fund to
distribute substantially all of such income.

As discussed in "General Information -- Description of Shares," the Trust
has established different series, each referred to as a Fund. Each Fund is
treated as a separate corporation for Federal income tax purposes. Each Fund,
therefore, is considered to be a separate entity in determining its treatment
under the rules for RICs. Losses in one Fund do not offset gains in another
Fund, and the requirements (other than certain organizational requirements) for
qualifying for RIC status will be determined at the Fund level rather than at
the Trust level.

The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. The required distributions, however, are based only
on the taxable income of a RIC. The excise tax, therefore, generally will not
apply to the tax-exempt income of a RIC, such as each Fund, that pays
exempt-interest dividends.

The Trust intends to qualify each Fund to pay "exempt-interest dividends"
as defined in Section 852(b)(5) of the Code. Under such section if, at the close
of each quarter of a Fund's taxable year, at least 50% of the value of such
Fund's total assets consists of obligations exempt from Federal income tax
("tax-exempt obligations")

37
<PAGE>

under Section 103(a) of the Code (relating generally to obligations of a state
or local governmental unit), that Fund shall be qualified to pay exempt-interest
dividends to its Class A, Class B, Class C and Class D shareholders (together
the "shareholders"). Exempt-interest dividends are dividends or any part thereof
paid by a Fund that are attributable to interest on tax-exempt obligations and
designated by the Trust as exempt-interest dividends in a written notice mailed
to the Fund's shareholders within 60 days after the close of such Fund's taxable
year. Each Fund will allocate interest from tax-exempt obligations (as well as
ordinary income, capital gains and tax preference items discussed below) among
the Class A, Class B, Class C and Class D shareholders according to a method
(which it believes is consistent with the Commission rule permitting the
issuance and sale of multiple classes of shares) that is based upon the gross
income that is allocable to the Class A, Class B, Class C and Class D
shareholders during the taxable year, or such other method as the Internal
Revenue Service may prescribe. The California Fund will allocate exempt-interest
dividends among shareholders for state income tax purposes in a similar manner.

Exempt-interest dividends will be excludable from a shareholder's gross
income for Federal income tax purposes. Exempt-interest dividends are included,
however, in determining the portion, if any, of a person's social security and
railroad retirement benefits subject to Federal income taxes. Interest on
indebtedness incurred or continued to purchase or carry shares of a RIC paying
exempt-interest dividends, such as the Fund, will not be deductible by the
investor for Federal income tax purposes to the extent attributable to
exempt-interest dividends. Shareholders are advised to consult their tax
advisors with respect to whether exempt-interest dividends retain the exclusion
under Code Section 103(a) if a shareholder would be treated as a "substantial
user" or "related person" under Code Section 147(a) with respect to property
financed with the proceeds of an issue of "industrial development bonds" or
"private activity bonds," if any, held by a Fund.

To the extent a Fund's distributions are derived from interest on its
taxable investments or from an excess of net short-term capital gains over net
long-term capital losses ("ordinary income dividends"), such distributions are
considered ordinary income for Federal income tax purposes. Distributions, if
any, from an excess of net long-term capital gains over net short-term capital
losses derived from the sale of securities or from certain transactions in
futures or options ("capital gain dividends") are taxable as long-term capital
gains for Federal income tax purposes, regardless of the length of time the
shareholder has owned Fund shares. Certain categories of capital gains are
taxable at different rates for Federal income tax purposes. Generally not later
than 60 days after the close of each Fund's taxable year, the Trust will provide
shareholders with a written notice designating the amounts of any
exempt-interest dividends and capital gain dividends, as well as any amount of
capital gain dividends in the different categories of capital gain referred to
above. Distributions by a Fund, whether from exempt-interest income, ordinary
income or capital gains, will not be eligible for the dividends received
deduction allowed to corporations under the Code.

All or a portion of a Fund's gains from the sale or redemption of
tax-exempt obligations purchased at a market discount will be treated as
ordinary income rather than capital gain. This rule may increase the amount of
ordinary income dividends received by shareholders. Distributions in excess of a
Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming the shares are held as a
capital asset). Any loss upon the sale or exchange of Fund shares held for six
months or less will be disallowed to the extent of any exempt-interest dividends
received by the shareholder. In addition, any such loss that is not disallowed
under the rule stated above will be treated as long-term capital loss to the
extent of any capital gain dividends received by the shareholder. If a Fund pays
a dividend in January which was declared in the previous October, November or
December to shareholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by that Fund
and received by its shareholders on December 31 of the year in which such
dividend was declared.

The Code subjects interest received on certain otherwise tax-exempt
securities to a Federal alternative minimum tax. The alternative minimum tax
applies to interest received on certain "private activity bonds" issued after
August 7, 1986. Private activity bonds are bonds which, although tax-exempt, are
used for purposes other than those generally performed by governmental units and
which benefit non-governmental entities (e.g., bonds used for industrial
development or housing purposes). Income received on such bonds is classified as
an item of "tax preference," which could subject certain investors in such
bonds, including shareholders of a Fund, to a Federal alternative minimum tax.
Each Fund will purchase such "private activity bonds," and the Trust will report
to shareholders within 60 days after calendar year-end the portion of that
Fund's dividends declared during the

38
<PAGE>

year which constitute an item of tax preference for alternative minimum tax
purposes. The Code further provides that corporations are subject to a Federal
alternative minimum tax based, in part, on certain differences between taxable
income as adjusted for other tax preferences and the corporation's "adjusted
current earnings," which more closely reflect a corporation's economic income.
Because an exempt-interest dividend paid by a Fund will be included in adjusted
current earnings, a corporate shareholder may be required to pay Federal
alternative minimum tax on exempt-interest dividends paid by a Fund.

The Funds may invest in high yield securities, as described in "Investment
Objective and Policies -- Description of Municipal Bonds." Furthermore, the
Funds may also invest in instruments the return on which includes
non-traditional features such as indexed principal or interest payments
("non-traditional instruments"). These instruments may be subject to special tax
rules under which the Funds may be required to accrue and distribute income
before amounts due under the obligations are paid. In addition, it is possible
that all or a portion of the interest payments on such high yield securities
and/or non-traditional instruments could be recharacterized as taxable ordinary
income.

No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis on
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.

If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to a Fund reduces any sales charge the shareholder would have owed upon
purchase of the new shares in the absence of the exchange privilege. Instead,
such sales charge will be treated as an amount paid for the new shares.

A loss realized on a sale or exchange of shares of a Fund will be
disallowed if other fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.

Ordinary income dividends paid to shareholders that are nonresident aliens
or foreign entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult their
own tax advisors concerning the applicability of the United States withholding
tax.

Under certain provisions of the Code, some shareholders may be subject to
a 31% withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Trust or who, to the Trust's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty or perjury that such number is correct and
that such shareholder is not otherwise subject to backup withholding.

The Code provides that every person required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including the Funds) during the taxable
year.

Tax Treatment of Options and Futures Transactions

Each Fund may purchase and sell municipal bond index futures contracts and
interest rate futures contracts on U.S. Government securities ("financial
futures contracts"). Each Fund may also purchase and write call and put options
on such financial futures contracts. In general, unless an election is available
to the Fund or an exception applies, such options and futures contracts that are
"Section 1256 contracts" will be "marked to market" for Federal income tax
purposes at the end of each taxable year (i.e., each such option or financial
futures contract will be treated as sold for its fair market value on the last
day of the taxable year), and any gain or loss attributable to Section 1256
contracts will be 60% long-term and 40% short-term capital gain or loss.
Application of these rules to Section 1256 contracts held by a Fund may alter
the timing and character of distributions to shareholders. The mark-to-market
rules outlined above, however, will not apply to certain

39
<PAGE>

transactions entered into by a Fund solely to reduce the risk of changes in
price or interest rates with respect to its investments.

Code Section 1092, which applies to certain "straddles," may affect the
taxation of a Fund's sales of securities and transactions in financial futures
contracts and related options. Under Section 1092, a Fund may be required to
postpone recognition for tax purposes of losses incurred in certain sales of
securities and certain closing transactions in financial futures contracts or
the related options.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations. For the complete provisions,
reference should be made to the pertinent Code sections and the Treasury
regulations promulgated thereunder. The Code and the Treasury regulations are
subject to change by legislative, judicial or administrative action either
prospectively or retroactively.

State Taxes

California. So long as, at the close of each quarter of the California
Fund's taxable year, at least 50% of the value of the Fund's total assets
consists of California Municipal Bonds, the portion of exempt-interest dividends
paid from interest received by the Fund from California Municipal Bonds will not
be subject to California income taxes. However, exempt-interest dividends paid
to a corporate shareholder subject to California state corporate franchise tax
will be taxable as ordinary income. Distributions of long-term capital gains
will be treated as capital gains which are taxed at ordinary income rates for
California state income tax purposes. Interest on indebtedness incurred to
purchase or carry shares of the California Fund is not deductible to the extent
attributable to exempt-interest income. Shareholders subject to income taxation
by states other than California may realize a lower after-tax rate of return
than California shareholders since the dividends distributed by the California
Fund may not be exempt, to any significant degree, from income taxation by such
other states.

Florida. Prior to July 1, 1999, shares similar to shares in the Florida
Fund were exempt from Florida intangible personal property tax if the fund's
portfolio consisted solely of assets exempt from the Florida intangible personal
property tax. Under this provision, the Florida Fund has previously received a
ruling from the Florida Department of Revenue that if, on the last business day
of any calendar year, the Florida Fund's assets consist solely of assets exempt
from Florida intangible personal property tax, shares of the Florida Fund will
be exempt from Florida intangible personal property tax in the following year.
Effective July 1, 1999, the Florida Legislature revised this requirement so that
the Florida Fund's shares will be exempt if at least 90% of the net asset value
of the portfolio of assets corresponding to the shares in the Florida Fund is
invested in assets that are exempt from the Florida intangible personal property
tax. The Florida Fund has applied for a ruling from the Florida Department of
Revenue that if, on the last business day of any calendar year, at least 90% of
the net asset value of the portfolio of assets corresponding to shares in the
Florida Fund is invested in assets that are exempt from the tax, shares of the
Florida Fund owned by Florida residents will be exempt from the Florida
intangible personal property tax in the following year. Although there is no
assurance that the Florida Department of Revenue will issue a favorable ruling
on this issue, the Florida Department of Revenue has previously issued similar
rulings. The Florida Department of Revenue has the authority to revoke or modify
a previously issued ruling; however, if a ruling is revoked or modified, the
revocation or modification is prospective only. Prior to the receipt of the
ruling from the Florida Department of Revenue, the Florida Fund will rely on an
opinion of Florida counsel for the Florida Fund, Holland & Knight LLP, stating
that Florida Fund shares will be exempt from Florida intangible personal
property tax if the revised asset requirement is met. This opinion is based on
existing Florida law and interpretive authority which could be changed at any
time retroactively. While the opinion represents the best judgment of Holland &
Knight LLP, there is no guarantee that the legal conclusions will not be
challenged by the Florida Department of Revenue or in judicial or administrative
proceedings. Thus, under Florida counsel's opinion or if a favorable ruling is
issued, and if the revised requirement is met, shares of the Florida Fund owned
by Florida residents will be exempt from Florida intangible personal property
tax. Assets exempt from Florida intangible personal property tax include
obligations of the State of Florida and its political subdivisions; obligations
of the United States Government or its agencies; and cash. If shares of the
Florida Fund are subject to Florida intangible personal property tax because
less than 90% of the net asset value of the Florida Fund's assets on the last
business day of the previous calendar year consisted of assets exempt from
Florida intangible personal property tax, only that portion of the value of
Florida Fund shares equal to the portion of the net asset value of the Florida
Fund that is attributable to obligations of the U.S. Government will be exempt
from taxation. The Florida Fund anticipates that on the last business day of
each calendar year at least 90% of the net

40
<PAGE>

asset value of the Florida Fund's assets will consist of assets exempt from
Florida intangible personal property tax.

Dividends paid by the Florida Fund to individuals who are Florida
residents are not subject to personal income taxation by Florida, because
Florida does not impose a personal income tax. Distributions of investment
income and capital gains by the Florida Fund will be subject to Florida
corporate income tax, state taxes in states other than Florida and may be
subject to local taxes.

If the Florida Fund does not have a taxable nexus to Florida, such as
through the location within the state of the Trust's or the Florida Fund's
activities or those of the Manager, under present Florida law, the Florida Fund
is not subject to Florida corporate income taxation. Additionally, if the
Florida Fund's assets do not have a taxable situs in Florida as of January 1 of
each calendar year, the Florida Fund will not be subject to Florida intangible
personal property tax. If the Florida Fund has a taxable nexus to Florida or the
Florida Fund's assets have a taxable situs in Florida on January 1 of any year,
the Florida Fund will be subject to Florida taxation. The Florida Fund does not
believe its current operations create a taxable nexus with Florida.

The above discussion is a general and abbreviated summary of the relevant
state and local tax provisions presently in effect. Shareholders are urged to
consult their tax advisers regarding specific questions as to state or local
taxes.

PERFORMANCE DATA

From time to time each Fund may include its average annual total return
and other total return data, as well as yield and tax-equivalent yield, in
advertisements or information furnished to present or prospective shareholders.
Total return, yield and tax-equivalent yield figures are based on a Fund's
historical performance and are not intended to indicate future performance.
Average annual total return, yield and tax-equivalent yield are determined
separately for Class A, Class B, Class C and Class D shares in accordance with
formulas specified by the Commission.

Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.

Yield quotations will be computed based on a 30-day period by dividing (a)
the net income based on the yield of each security earned during the period by
(b) the average daily number of shares outstanding during the period that were
entitled to receive dividends multiplied by the maximum offering price per share
on the last day of the period. Tax equivalent yield quotations will be computed
by dividing (a) the part of a Fund's yield that is tax-exempt by (b) one minus a
stated tax rate and (c) adding the result to that part, if any, of a Fund's
yield that is not tax-exempt.

Each Fund also may quote annual, average annual and annualized total
return and aggregate total return performance data, both as a percentage and as
a dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and
(2) the maximum applicable sales charges will not be included with respect to
annual or annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum applicable
sales charges, actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates of return
reflect compounding of return; aggregate total return data generally will be
higher than average annual total return data since the aggregate rates of return
reflect compounding over a longer period of time.

Set forth below is total return, yield and tax-equivalent yield
information for the Class A, Class B, Class C and Class D shares of each of the
Funds for the periods indicated.

41
<PAGE>

CALIFORNIA FUND

<TABLE>
<CAPTION>
Class A Shares Class B Shares
----------------------------------- -----------------------------------
Expressed as Redeemable Value Expressed as Redeemable Value
a percentage of a hypothetical a percentage of a hypothetical
based on a $1,000 investment based on a $1,000 investment
hypothetical at the end of hypothetical at the end of
Period $1,000 investment the period $1,000 investment the period
------ ----------------- ----------------- ----------------- ----------------
Average Annual Total Return
(including maximum applicable sales charge)
<S> <C> <C> <C> <C>
One Year Ended July 31, 1999 ........ 1.17% $1,011.70 0.94% $1,009.40
Five Years Ended July 31, 1999 ...... 3.96% $1,214.30 3.80% $1,204.90
Inception (November 26, 1993) to
July 31, 1999 .................... 3.70% $1,229.30 3.52% $1,216.90

Annual Total Return
(excluding maximum applicable sales charge)
Year ended July 31,

1999 ................................ 2.20% $1,022.00 1.93% $1,019.30
1998 ................................ 2.96% $1,029.60 2.59% $1,025.90
1997 ................................ 5.57% $1,055.70 5.20% $1,052.00
1996 ................................ 4.56% $1,045.60 4.08% $1,040.80
1995 ................................ 5.60% $1,056.00 5.23% $1,052.30
Inception (November 26, 1993) to
July 31, 1994 .................... 1.23% $1,012.30 0.99% $1,009.90

Aggregate Total Return
(including maximum applicable sales charge)
Inception (November 26, 1993) to
July 31, 1999 .................... 22.93% $1,229.30 21.69% $1,216.90

Yield
30 days ended July 31, 1999 ......... 2.41% -- 2.08% --

Tax Equivalent Yield*
30 days ended July 31, 1999 ......... 3.35% -- 2.89% --

---------
* Based on a Federal income tax rate of 28%.

Class C Shares Class D Shares
----------------------------------- -----------------------------------
Expressed as Redeemable Value Expressed as Redeemable Value
a percentage of a hypothetical a percentage of a hypothetical
based on a $1,000 investment based on a $1,000 investment
hypothetical at the end of hypothetical at the end of
Period $1,000 investment the period $1,000 investment the period
------ ----------------- ----------------- ----------------- ----------------
Average Annual Total Return
(including maximum applicable sales charge)
One Year Ended July 31, 1999 ........ 1.13% $1,011.30 1.17% $1,011.70
Inception (October 21, 1994) to
July 31, 1999 .................... 4.21% $1,217.90 4.14% $1,213.60

Annual Total Return
(excluding maximum applicable sales charge)
Year ended July 31,
1999 ................................ 2.12% $1,021.20 2.20% $1,022.00
1998 ................................ 2.68% $1,026.80 2.86% $1,028.60
1997 ................................ 5.39% $1,053.90 5.47% $1,054.70
1996 ................................ 4.35% $1,043.50 4.46% $1,044.60

Inception (October 21, 1994) to
July 31, 1995 .................... 5.60% $1,056.00 5.85% $1,058.50

Aggregate Total Return
(including maximum applicable sales charge)
Inception (October 21, 1994) to
July 31, 1999 .................... 21.79% $1,217.90 21.36% $1,213.60

Yield
30 days ended July 31, 1999 ......... 2.27% -- 2.31% --

Tax Equivalent Yield*
30 days ended July 31, 1999 ......... 3.15% -- 3.21% --
</TABLE>

---------
* Based on a Federal income tax rate of 28%.

42
<PAGE>

FLORIDA FUND

<TABLE>
<CAPTION>
Class A Shares Class B Shares
----------------------------------- -----------------------------------
Expressed as Redeemable Value Expressed as Redeemable Value
a percentage of a hypothetical a percentage of a hypothetical
based on a $1,000 investment based on a $1,000 investment
hypothetical at the end of hypothetical at the end of
Period $1,000 investment the period $1,000 investment the period
------ ----------------- ----------------- ----------------- ----------------
Average Annual Total Return
(including maximum applicable sales charge)
<S> <C> <C> <C> <C>
One Year Ended July 31, 1999 ........ 0.99% $1,009.90 0.56% $1,005.60
Five Years Ended July 31, 1999 ...... 3.76% $1,202.50 3.55% $1,190.80
Inception (November 26, 1993) to
July 31, 1999 .................... 3.51% $1,216.10 3.30% $1,202.60

Annual Total Return
(excluding maximum applicable sales charge)
Year ended July 31,
1999 ................................ 2.01% $1,020.10 1.54% $1,015.40
1998 ................................ 3.17% $1,031.70 2.80% $1,028.00
1997 ................................ 5.20% $1,052.00 4.83% $1,048.30
1996 ................................ 3.45% $1,034.50 3.08% $1,030.80
1995 ................................ 6.05% $1,060.50 5.57% $1,055.70
Inception (November 26, 1993) to
July 31, 1994 .................... 1.12% $1,011.20 0.99% $1,009.90

Aggregate Total Return
(including maximum applicable sales charge)
Inception (November 26, 1993) to
July 31, 1999 .................... 21.61% $1,216.10 20.26% $1,202.60
Yield
30 days ended July 31, 1999 ......... 2.68% -- 2.36% --

Tax Equivalent Yield*
30 days ended July 31, 1999 ......... 3.72% -- 3.28% --

---------
* Based on a Federal income tax rate of 28%.

Class C Shares Class D Shares
----------------------------------- -----------------------------------
Expressed as Redeemable Value Expressed as Redeemable Value
a percentage of a hypothetical a percentage of a hypothetical
based on a $1,000 investment based on a $1,000 investment
hypothetical at the end of hypothetical at the end of
Period $1,000 investment the period $1,000 investment the period
------ ----------------- ----------------- ----------------- ----------------
Average Annual Total Return
(including maximum applicable sales charge)
ONE YEAR ENDED JULY 31, 1999 0.70% $1,007.00 0.78% $1,007.80
Inception (October 21, 1994) to
July 31, 1999 3.63% $1,185.80 3.85% $1,197.90

Annual Total Return
(excluding maximum applicable sales charge)
Year ended July 31,
1999 1.68% $1,016.80 1.80% $1,018.00
1998 2.65% $1,026.50 3.17% $1,031.70
1997 4.93% $1,049.30 5.10% $1,051.00
1996 2.48% $1,024.80 3.35% $1,033.50
Inception (October 21, 1994) to
July 31, 1995 5.65% $1,056.50 6.07% $1,060.70

Aggregate Total Return
(including maximum applicable sales charge)
Inception (October 21, 1994) to
July 31, 1999 18.58% $1,185.80 19.79% $1,197.90
Yield
30 days ended July 31, 1999 2.55% -- 2.59% --

Tax Equivalent Yield*
30 days ended July 31, 1999 3.54% -- 3.60% --
</TABLE>

---------
* Based on a Federal income tax rate of 28%.

43
<PAGE>

In order to reflect the reduced sales charges in the case of Class A or
Class D shares, or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
the total return data quoted by a Fund in advertisements directed to such
investors may take into account the reduced, and not the maximum, sales charge
or may not take into account the CDSC, and, therefore, may reflect greater total
return since, due to the reduced sales charges or the waiver of CDSCs, a lower
amount of expenses may be deducted.

On occasion, a Fund may compare its performance to the ML Municipals 1-3
Year Index or other market indices or to performance data published by Lipper
Analytical Services, Inc., Morningstar Publications, Inc. ("Morningstar"), CDA
Investment Technology, Inc., Money Magazine, U.S. News & World Report, Business
Week, Forbes Magazine, Fortune Magazine or other industry publications. When
comparing its performance to a market index, a Fund may refer to various
statistical measures derived from the historic performance of that Fund and the
index such as standard deviation and beta. In addition, from time to time a Fund
may include its Morningstar risk-adjusted performance ratings in advertisements
or supplemental sales literature. As with other performance data, performance
comparisons should not be considered indicative of the Fund's relative
performance for any future period.

Total return figures are based on a Fund's historical performance and are
not intended to indicate future performance. Each Fund's total return, yield and
tax-equivalent yield will vary depending on market conditions, the securities
comprising a Fund's portfolio, a Fund's operating expenses and the amount of
realized and unrealized net capital gains or losses during the period. The value
of an investment in each Fund will fluctuate and an investor's shares, when
redeemed, may be worth more or less than their original cost.

GENERAL INFORMATION
Description of Shares

The Declaration of Trust, dated February 14, 1991, of the Trust, as
amended (the "Declaration"), provides that the Trust shall be comprised of
separate Series, each of which will consist of a separate portfolio which will
issue separate shares. The Trust is presently comprised of the California Fund
and the Florida Fund. The Trustees are authorized to create an unlimited number
of Series and, with respect to each Series, to issue an unlimited number of full
and fractional shares of beneficial interest, par value $.10 per share, of
different classes and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interests
in the Series. Shareholder approval is not necessary for the authorization of
additional Series or classes of a Series of the Trust.

As of the date of this Statement of Additional Information, the shares of
each Fund are divided into Class A, Class B, Class C and Class D shares. Class
A, Class B, Class C and Class D shares represent interests in the same assets of
a Fund and are identical in all respects except that Class B, Class C and Class
D shares bear certain expenses relating to the account maintenance associated
with such shares and Class B and Class C shares bear certain expenses relating
to the distribution of such shares. All shares of the Trust have equal voting
rights. Each class has exclusive voting rights with respect to matters relating
to distribution and/or account maintenance expenditures, as applicable (except
that Class B shareholders may vote upon any material changes to expenses charged
under the Class D Distribution Plan). See "Purchase of Shares." The Trustees of
the Trust may classify and reclassify the shares of any Series into additional
or other classes at a future date.

Each issued and outstanding share of a Series is entitled to one vote and
to participate equally in dividends and distributions with respect to that
Series and, upon liquidation or dissolution of the Series, in the net assets of
such Series remaining after satisfaction of outstanding liabilities except that,
as noted above, expenses relating to distribution and/or account maintenance of
the Class B, Class C and Class D shares are borne solely by the respective
class. There normally will be no meetings of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Shareholders may, in accordance with the terms of the Declaration,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Also, the Trust will be required to call a special meeting
of shareholders in

44
<PAGE>

accordance with the requirements of the Investment Company Act to seek approval
of new management and advisory arrangements, of a material increase in
distribution fees or a change in the fundamental policies, objectives or
restrictions of a Series.

The obligations and liabilities of a particular Series are restricted to
the assets of that Series and do not extend to the assets of the Trust
generally. The shares of each Series, when issued, will be fully paid and
nonassessable, have no preference, preemptive, or similar rights and will be
freely transferable. Redemption and conversion rights are as set forth elsewhere
herein and in the Prospectus. Shares do not have cumulative voting rights and
the holders of more than 50% of the shares of the Trust voting for the election
of Trustees can elect all of the Trustees if they choose to do so and in such
event the holders of the remaining shares would not be able to elect any
Trustees. No amendments may be made to the Declaration, other than amendments
necessary to conform the Declaration to certain laws or regulations, to change
the name of the Trust, or to make certain non-material changes, without the
affirmative vote of a majority of the outstanding shares of the Trust, or of the
affected Series or class, as applicable.

The Declaration, a copy of which is on file in the office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Merrill Lynch
Multi-State Limited Maturity Municipal Series Trust" refers to the Trustees
under the Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent of the Trust
shall be held to any personal liability; nor shall resort be had to any such
person's private property for the satisfaction of any obligation or claim of the
Trust, but the "Trust Property" only shall be liable. Under Massachusetts law,
shareholders of a business trust may, under certain circumstances, be held
personally liable as partners for the trust's obligations. However, the risk of
a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
trust itself was unable to meet its obligations.

The Manager provided the initial capital for each Fund by purchasing
10,000 shares of each Fund for $100,000. Such shares were acquired for
investment and can only be disposed of by redemption. If additional Series are
added to the Trust, the organization expenses will be allocated among the Series
in a manner deemed equitable by the Trustees.

Independent Auditors

Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400,
has been selected as the independent auditors of the Trust. The selection of
independent auditors is subject to approval by the non-interested Trustees of
the Trust. The independent auditors are responsible for auditing the annual
financial statements of each Fund.

Custodian

State Street Bank and Trust Company (the "Custodian"), P. O. Box 351,
Boston, Massachusetts 02101, acts as the custodian of each Fund's assets. The
Custodian is responsible for safeguarding and controlling each Fund's cash and
securities, handling the receipt and delivery of securities and collecting
interest on each Fund's investments.

Transfer Agent

Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, acts as the Trust's Transfer Agent. The Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the opening,
maintenance and servicing of shareholder accounts. See "How to Buy, Sell,
Transfer and Exchange Shares" in the Prospectus.

Legal Counsel

Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557, is
counsel for the Trust.

45
<PAGE>

Reports to Shareholders

The fiscal year of each Fund ends on July 31 of each year. The Trust sends
to each Fund's shareholders, at least semi-annually, reports showing each Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each year.
After the end of each year, shareholders will receive Federal income tax
information regarding dividends and capital gains distributions.

Shareholder Inquiries

Shareholder inquiries may be addressed to either Fund at the address or
telephone number set forth on the cover page of this Statement of Additional
Information.

Additional Information

The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Trust has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act and the Investment
Company Act, to which reference is hereby made.

Under a separate agreement, ML & Co. has granted the Trust the right to
use the "Merrill Lynch" name and has reserved the right to withdraw its consent
to the use of such name by the Trust at any time or to grant the use of such
name to any other company, and the Trust has granted ML & Co. under certain
conditions, the use of any other name it might assume in the future, with
respect to any corporation organized by ML & Co.

To the knowledge of the Trust, the following persons or entities owned
beneficially 5% or more of any class of a Fund's shares as of November 1, 1999:

Name Address Percent of Class
------ ------- ----------------

<S> <C> <C>
California Fund .. Priscilla A. Ahern, Trustee 1310 East Balboa Blvd. 20% Class A
Priscilla Allen Ahern Trust Newport Beach, CA 92661

Ann K. Hunter-Welborn and 524 Meadowmist Court 13% Class A
David A. Welborn, Trustees Oliverhain, CA 92024
By Welborn Family Trust

Norman A. Meager, Trustee 74743 Arroyo Drive 9% Class A
for the Meager Family Trust Indian Wells, CA 92210

Cynthia R. Wallace and 1809 John Street 5.9% Class A
Kirk Wallace, JTWROS Manhattan Beach, CA 90266

Barbara H. Stebbins, Trustee 601 Laurel Avenue #203 6.8% Class B
San Mateo, CA 94401

B.W. Duncan and Carol Duncan, 28780 Gleneagle Court 6.7% Class B
JTWROS Tehachapi, CA 93561

Ben Trainer 121 Oak Drive 5.9% Class B
San Rafael, CA 94901

Florence B. Joseph, Trustee 8132 Camino Del Sol #E 5.5% Class B
The Florence B. Joseph Trust La Jolla, CA 92037

Esmaralda Das, M.D. and 19351 Saratoga Los Gatos Road 56% Class C
Paul Sas Saratoga, CA 95070
JTWROS

Mrs. Alison Simmons and 930 North Wetherly Drive 20% Class C
Mr. Christopher Simmons, Los Angeles, CA 90069
JTWROS

Walter Vincenti, Trustee 13200 East Sunset Drive 12% Class C
Joyce Vincenti, Trustee Los Altos Hills, CA 94022

Dr. Polly Williams 5707 E. Craat De Ville Drive 5% Class C
Orange, CA 92867

John L. Love, Trustee UAD P.O. Box 305 76% Class D
Pebble Beach, CA 93953

William J. Hume, 600 Montgomery Street #2800 16% Class D
Trustee San Francisco, CA 94111

</TABLE>

46
<PAGE>

Name Address Percent of Class
---- ------- ----------------
<S> <C> <C>
Florida Fund ..... Merrill Lynch Trust Company P.O. Box 30531 5.7% Class A
of America, Custodian New Brunswick, NJ 08989
Bloom, James
Attn: Robert Bartl

Edgewater View Ltd. Partnership 8801 Leesburg Pike 7.4% Class B
Attn: Dr. Patrick Palumbo Vienna, VA 22182

Molly E. Pigadis, Trustee 401 East Linton Blvd. 5.5% Class B
UAD 5/15/89 Delray Beach, FL 33483

Mark S. Angle and 533 S. Howard Ave. 91.1% Class C
Mercedes Angle JTWROS Tampa, FL 33606

Fund Asset Management, L.P. P.O. Box 9011 8% Class C
Attn: Donald C. Burke, Treasurer Princeton, NJ 08543-9011

Merrill Lynch Trust Company P.O. Box 30532 10% Class D
New Brunswick, NJ 08989
</TABLE>

FINANCIAL STATEMENTS

The Trust's audited financial statements are incorporated in this
Statement of Additional Information by reference to its 1999 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.

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<PAGE>

APPENDIX I

ECONOMIC AND FINANCIAL CONDITIONS IN CALIFORNIA

The following information is a brief summary of factors affecting the
economy of the State of California and does not purport to be a complete
description of such factors. Other factors will affect issuers. The summary is
based primarily upon one or more of the most recent publicly available offering
statements on debt offerings of California issuers, however, it has not been
updated. The Funds have not independently verified the information.

General Economic Conditions

The economy of the State of California (sometimes referred to herein as the
"State") is the largest among the 50 states and one of the largest in the world.
This diversified economy has major components in high technology, trade,
entertainment, agriculture, manufacturing, tourism, construction and services.
Since 1994, California's economy has been performing strongly after suffering a
deep recession.

California's July 1, 1998 population of over 33.4 million represented over
12% of the total United States population. As of July 1, 1990, the population of
29,944,000 represented an increase of over 6 million persons, or 26% during the
decade of the 1980's.

California's population is concentrated in metropolitan areas. As of the
April 1, 1990 census, 96% of the State's population resided in the 23
Metropolitan Statistical Areas in the State. As of July 1, 1997, the five-county
Los Angeles area accounted for 49% of the State's population, with over 16.0
million residents. The 10-county San Francisco Bay Area represented 21%, with a
population of over 7.0 million.

In the Governor's Budget released on May 14, 1999, the Department of Finance
projected that the California economy will show strong growth in 1999, but slow
down in 2000. The economic expansion has been marked by strong growth in high
technology business services (including computer software), construction,
computer and electronic components manufacturing, and tourism related
industries. The Asian economic crisis, which began in 1997, has had some
dampening effects on the State's economy, particularly in high technology
manufacturing. However, improving economic conditions in Asia, ongoing strength
in NAFTA partners, and growth in Europe, combined with ongoing strength in stock
markets, have improved the short-term outlook.

1995-96 through 1998-99 Fiscal Years

The California economy grew strongly during the 1995-96 to 1998-99 fiscal
years, and as a result, the General Fund (the principal operating fund that
holds most major revenue sources for the State) took in substantially greater
tax revenues (around $2.2 billion in 1995-96, $1.6 billion in 1996-97, $2.4
billion in 1997-98 and $1.0 billion in 1998-99) than were initially planned when
the budgets were enacted. These additional funds were largely directed to school
spending as mandated by Proposition 98 to make up shortfalls from reduced
federal health and welfare aid in 1995-96 and 1996-97, and in 1998-99 to fund
new program incentives. The accumulated budget deficit from the recession years
was finally eliminated. The Department of Finance estimates that the State's
budget reserve (the Special Fund for Economic Uncertainties or SFEU) totaled
$639.8 million as of June 30, 1997 and $1,782 billion as of June 30, 1998. In
the 1999 Budget Act, signed by the Governor on June 29, 1999, the Department of
Finance projects the budget reserve had a balance of about $1.932 billion at
June 30, 1999 and will have a balance of $880 million at June 30, 2000.

The following were major features of the 1998 Budget Act and certain
additional fiscal bills enacted before the end of the legislative session:

1. The most significant feature of the 1998-99 budget was agreement on a
total of $1.4 billion of tax cuts. The central element was a bill that
provided for a phased-in reduction of the Vehicle License Fee ("VLF"). Since
the VLF is transferred to cities and counties under existing law, the bill
provided for the General Fund to replace the lost revenues. Starting on
January 1, 1999, the VLF has been reduced by 25 percent, at a cost to the
General Fund of approximately $500 million in the 1998-99 fiscal year and
about $1 billion annually thereafter.

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<PAGE>

In addition to the cut in VLF, the 1998-99 budget included both
temporary and permanent increases in the personal income tax dependent
credit ($612 million General Fund cost in 1998-99, but less in future
years), a nonrefundable renters' tax credit ($133 million), and various
targeted business tax credits ($106 million).

2. On November 8, 1998, voters of the State approved Proposition 98, a
combined initiative constitutional amendment and statute called the
"Classroom Instructional Improvement and Accountability Act." Proposition 98
changed State funding of public education below the university level,
primarily by guaranteeing local school and community college ("K-14")
schools a minimum share of General Fund revenues. Proposition 98 funding for
K-14 schools was increased by $1.7 billion in General Fund moneys over
revised 1997-98 levels, over $300 million higher than the minimum
Proposition 98 guarantee. Of the 1998-99 funds, major new programs included
money for instructional and library materials, deferred maintenance, support
for increasing the school year to 180 days and reduction of the class sizes
in Grade 9. The Budget also included $250 million as repayment of prior
years' loans to schools, as part of the settlement of the California
Teachers' Association v. Gould lawsuit. That lawsuit, filed in 1992,
requires that the State and K-14 schools share in repayment of prior years'
emergency loans to schools.

3. Funding for higher education increased substantially above the actual
1997-98 level. General Fund support was increased by $340 million (15.6%)
for the University of California and $267 million (14.1%) for the California
State University system. In addition, Community Colleges funding increased
by $300 million (6.6%).

4. The Budget included increased funding for health, welfare and social
services program. A 4.9% grant increase was included in the basic welfare
grants, the first increase in those grants in 9 years.

5. Funding for the judiciary and criminal justice programs increased by
about 11% over 1997-98, primarily to reflect increased State support for
local trial courts and a rising prison population.

6. Major legislation enacted after the 1998 Budget Act included new
funding for resources projects, a share of the purchase of the Headwaters
Forest, funding for the Infrastructure and Economic Development Bank ($50
million) and funding for the construction of local jails. The State realized
savings of $433 million from a reduction in the State's contribution to the
State Teacher's Retirement System in 1998-99.

The May Revision to the 1999-2000 Governor's Budget (hereafter shortened to
"1999-00"), released on May 14, 1999 (the "1999 May Revision"), reported that
stronger than expected economic conditions in the State for the latter part of
1998 and into 1999 would produce total 1998-99 General Fund revenues of about
$57.9 billion, almost $1.0 billion above the 1998 Budget Act estimates and $1.6
billion above the initial estimates in the January 1999-00 Governor's Budget.
The 1999 May Revision projects 1999-00 General Fund expenditures of $58.6
billion, about $400 million higher than the January 1999-00 Governor's budget
estimate. Some of this additional revenue will be directed to K-14 schools under
Proposition 98.

Federal Welfare Reform. Congress passed and the President signed (on August
22, 1996) the Personal Responsibility and work Opportunity Act of 1996 (the
"Law") making a fundamental reform of the current welfare system. Among many
provisions, the Law includes: (i) a change of Aid to Families with Dependent
Children from an entitlement program to a block grant titled Temporary
Assistance for Needy Families ("TANF"), with lifetime time limits on TANF
recipients, work requirements and other changes; (ii) provisions denying certain
federal welfare and public benefits to legal noncitizens (this provision has
been amended by subsequent federal law), allowing states to elect to deny
additional benefits (including TANF) to legal noncitizens, and generally denying
almost all benefits to illegal immigrants; and (iii) changes in the Food Stamp
program, including reducing maximum benefits and imposing work requirements.

As part of the 1997-98 Budget Act legislative package, the State Legislature
and Governor agreed on a comprehensive reform of the State's public assistance
programs to implement the new federal Law. The new basic State welfare program
is called California Work Opportunity and Responsibility to Kids Act
("CalWORKs"), which replaces the former Aid to Families with Dependent Children
(AFDC) and Greater Avenues to Independence (GAIN) programs effective January 1,
1998. As required by the federal Law, CalWORKs contains new time limits on
receipt of welfare aid, both lifetime as well as for any current time on

I-2
<PAGE>

aid. Administration of new Welfare-to-Work programs will be largely at the
county level, and counties are given financial incentives for success in this
program.

The long-term impact of the new federal Law and CalWORKs cannot be
determined until there has been more experience and until an independent
evaluation of the CalWORKs program is completed. In the short-term, the CalWORKs
program shows a continued trend of declining welfare caseloads. The CalWORKs
caseload trend is projected to be 646,000 in 1998-99 and 602,000 in 1999-00,
down from a high of 921,000 cases in 1994-95.

The 1999 Budget Act proposes expenditures that will continue to meet, but
not exceed, the federally-required $2.9 billion combined State and county
maintenance-of-effort (MOE) requirement. Total CalWORKs-related expenditures are
estimated to be $7.3 billion for 1998-99 and $7.3 billion for 1999-00, including
child care transfer amounts for the Department of Education.

Tobacco Litigation. In late 1998, the State signed a settlement agreement
with the four major cigarette manufacturers, which was later ratified by a State
court judge having jurisdiction over a pending lawsuit brought by the State
against these companies. Under the settlement, the companies will pay California
governments a total of approximately $25 billion over a period of 25 years. In
addition, payments of approximately $1 billion per year will continue in
perpetuity. Under the State's settlement, half of these moneys will be paid to
the State, and half to local governments (cities and counties). The State's
1999-00 budget includes receipt of about $560 million of these settlement moneys
to the General Fund by June 30, 2000.

The specific amount to be received by the State and local governments, is
however, subject to adjustment for a number of reasons. Various details in the
settlement allow reduction of the companies' payments because of events such as
certain federal government actions, or reductions in cigarette sales. In the
event that any of the companies goes into bankruptcy, the State could seek to
terminate the agreement with respect to those companies filing bankruptcy
actions thereby reinstating all claims against those companies. The State may
then pursue those claims in the bankruptcy litigation, or as otherwise provided
by law. Additionally, several parties have brought a lawsuit challenging the
settlement and seeking damages; see "Pending Litigation" below.

1999-00 Fiscal Year Budget. On January 8, 1999, Governor Davis released his
proposed budget for fiscal year 1999-00 (the "January Governor's Budget"). The
January Governor's Budget generally reported that General Fund revenues for
fiscal year 1998-99 and fiscal year 1999-00 would be lower than earlier
projections (primarily due to weaker overseas economic conditions perceived in
late 1998), while some welfare caseloads would be higher than earlier
projections. The January Governor's Budget proposed $60.6 billion of General
Fund expenditures in fiscal year 1999-00, with a $415 million SFEU reserve or
budget reserve at June 30, 2000.

The 1999 May Revision showed an additional $4.3 billion of revenues for
combined fiscal years 1998-99 and 1999-00. The Legislature enacted the 1999
Budget Act in a timely fashion, meeting the Constitutional deadline for budget
enactment for only the second time in the 1990's.

The final 1999 Budget Act estimated General Fund revenues and transfers of
$63.0 billion and contained expenditures totaling $63.7 billion after the
Governor used his line-item veto to reduce the legislative Budget Bill
expenditures by $581 million (both General Fund and special fund). The 1999
Budget Act also contained expenditures of $16.1 billion from special funds and
$1.5 billion from bond funds. The Administration estimated that the budget
reserve would have a balance at June 30, 2000, of about $880 million. Not
included in this amount was an additional $300 million that (after the
Governor's vetoes) was "set aside" to provide funds for employee salary
increases (to be negotiated in bargaining with employee unions), and for
litigation reserves. The 1999 Budget Act anticipates normal cash flow borrowing
during the fiscal year.

The principal features of the 1999 Budget Act include the following:

1. Proposition 98 funding for K-12 schools was increased by $1.6 billion
in General Fund moneys over revised 1998-99 levels, $108.6 million higher
than the minimum Proposition 98 guarantee. For the 1999-00 funds, major new
programs included money for reading improvement, new textbooks, school
safety, improving teacher quality, funding teacher bonuses, providing
greater accountability for school performance, increasing preschool and
after school care programs and funding deferred maintenance of school
facilities. The budget also includes $310 million as repayment of prior
years' loans to schools, as part of the settlement of the California
Teacher's Association v. Gould lawsuit.

I-3
<PAGE>

2. Funding for higher education increased substantially above the actual
1998-99 level. General Fund support was increased by $184 million (7.3%) for
the University of California ("UC") and $126 million (5.9%) for the
California State University ("CSU") system. In addition, Community Colleges
funding increased by $324.3 million (6.6%). As a result, undergraduate fees
at UC and CSU will be reduced for the second consecutive year, and the
per-unit charge at Community Colleges will be reduced by $1.

3. The Budget included increased funding of nearly $600 million for
health and human services.

4. About $800 million from the General Fund will be directed toward
infrastructure costs, including $425 million in additional funding for the
Infrastructure Bank, initial planning costs for a new prison in the Central
Valley, additional equipment for train and ferry service, and payment of
deferred maintenance for state parks.

5. The Legislature enacted a one-year additional reduction of 10% of the
Vehicle License Fee for calendar year 2000, at a General Fund cost of about
$250 million in each of fiscal year 1999-00 and 2000-01 to make up lost
funding to local governments. Conversion of this one-time reduction to a
permanent cut will remain subject to the revenue tests in the legislation
adopted last year. Several other targeted tax cuts, primarily for
businesses, were also approved, at a cost of $54 million in 1999-00.

6. A one-time appropriation of $150 million, to be split between cities
and counties, was made to offset property tax shifts during the early
1990's. Additionally, an ongoing $50 million will be given to cities for
jail booking or processing fees charged by counties when an individual
arrested by city personnel is taken to a county detention facility.

Local Governments

The primary units of local government in California are the counties,
ranging in population from 1,200 (Alpine) to over 9,600,000 (Los Angeles).
Counties are responsible for providing many basic services, including indigent
healthcare, welfare, courts, jails and public safety in unincorporated areas.
There are also about 470 incorporated cities and thousands of special districts
formed for education, utility and other services. The fiscal condition of local
governments has been constrained since the enactment of "Proposition 13" in
1978, which reduced and limited the future growth of property taxes and limited
the ability of local governments to impose "special taxes" (those devoted to a
specific purpose) without two-thirds voter approval. Counties, in particular,
have had fewer options to raise revenues than many other local governmental
entities, and have been required to maintain many services.

In the aftermath of Proposition 13, the State provided aid from the General
Fund to make up some of the loss of property tax moneys, including taking over
the principal responsibility for funding local K-12 schools and community
colleges. During the recession, the Legislature eliminated remnants of this
post-Proposition 13 aid to entities other than K-14 education districts by
requiring cities and counties to transfer some of their property tax revenues to
school districts. However, the Legislature also has provided additional funding
sources (such as sales taxes) and reduced requirements for local services.

Since then the State has also provided additional funding to counties and
cities through such programs as health and welfare realignment, welfare reform,
trial court restructuring, an annual program supporting local public safety
departments, and various other measures.

The 1999 Budget Act includes a $150 million one-time grant of money
from the General Fund to local agencies for relief from the 1992 and 1993
property tax shifts. Legislation has been passed, subject to voter approval at
the election in November, 2000, to provide a more permanent payment to local
governments to offset the property tax shift. In addition, legislation was
enacted in 1999 to provide annually up to $50 million relief to cities based on
1997-98 costs of jail booking and processing fees paid to counties.

The entire statewide welfare system has been changed in response to the
change in federal welfare law enacted in 1996 (see "Federal Welfare Reform"
above). Under the CalWORKs program, counties are given flexibility to develop
their own plans, consistent with State law, to implement Welfare-to-Work and to
administer many of its elements and their costs for administrative and support
services are capped at 1996-97 levels. Counties are also given financial
incentives if, at the individual county level or statewide, the CalWORKs program
produces savings associated with specified Welfare-to-Work outcomes; counties
may also suffer

I-4
<PAGE>

penalties for failing to meet federal standards. Under CalWORKs, counties will
still be required to provide "general assistance" aid to certain persons who
cannot obtain welfare from other programs.

Historically, funding for the State's trial court system was divided between
the State and the counties. However, Chapter 850, Statutes of 1997, restructured
the State's trial court funding system. Funding for the courts, with the
exception of costs for facilities, local judicial benefits, and revenue
collection, was consolidated at the State level. County contribution for both
their general fund and fine and penalty amounts is capped at the 1994-95 level
and becomes part of the Trial Court Trust Fund, which supports all trial court
operations. The State assumed responsibility for future growth in trial court
funding. The consolidation of funding is intended to streamline the operation of
the courts, provide a dedicated revenue source, and relieve fiscal pressure on
the counties. Beginning in 1998-99, the county general fund contribution for
court operations is reduced by $300 million, and cities will retain $62 million
in fine and penalty revenue previously remitted to the State. The General Fund
reimbursed the $362 million revenue loss to the Trial Court Trust Fund. The 1999
Budget Act includes funds to further reduce the county general fund contribution
by an additional $96 million by reducing by 100% the contributions of the next
18 smallest counties and by 10 percent the general fund contribution of the
remaining 21 counties.

On November 5, 1996, voters approved Proposition 218, called the "Right to
Vote on Taxes Act," which adds new Articles XIIIC and XIIID into the California
Constitution. These new provisions enact limits on the ability of local
government agencies to impose or raise various taxes, fees, charges and
assessments without voter approval. Certain "general taxes" imposed after
January 1, 1995 must be approved by voters in order to remain in effect. In
addition, Article XIIIC clarifies the right of local voters to reduce taxes,
fees, assessments, or charges through local initiatives. There are a number of
ambiguities concerning the Proposition and its impact on local governments and
their bonded debt that will require interpretation by the courts or the State
Legislature. The State Legislative Analyst estimated that enactment of
Proposition 218 would reduce local government revenues statewide by over $100
million a year and that over time revenues to local government would be reduced
by several hundred million dollars. Proposition 218 does not affect the State or
its ability to levy or collect taxes.

On December 23, 1997, a consortium of California counties filed a test claim
with the Commission on State Mandates (the "Commission") asking the Commission
to determine whether the property tax shift from counties to the Educational
Revenue Augmentation Fund, which is a funding source for schools, is a
reimbursable state mandated cost. On August 11, 1998, the State Department of
Justice, on behalf of the State Department of Finance, filed a rebuttal in
opposition to the counties' claim. The test claim was heard on October 29, 1998,
and the Commission found in favor of the State. In March, 1999, Sonoma County
filed suit in the Superior court to overturn the Commission's decision. In
October 1999, a Sonoma County Superior Court judge ruled in favor of the County.
The State will continue to contest this lawsuit. Should the courts find in favor
of the counties, the impact to the State General Fund could be as high as $10.0
billion with an annual Proposition 98 General Fund cost of at least $3.75
billion. This cost would grow in accordance with the annual assessed value
growth rate.

Constitutional and Statutory Limitations; Recent and Pending Initiatives;
Pending Litigation

Constitutional and Statutory Limitations. Article XIIIA of the California
Constitution (which resulted from the voter-approved Proposition 13 in 1978)
limits the taxing powers of California public agencies. Article XIIIA provides
that the maximum ad valorem tax on real property cannot exceed 1% of the "full
cash value" of the property and effectively prohibits the levying of any other
ad valorem tax on real property for general purposes. However, on May 3, 1986,
Proposition 46, an amendment to Article XIIIA was approved by the voters of the
State of California, creating a new exemption under Article XIIIA permitting an
increase in ad valorem taxes on real property in excess of 1% for bonded
indebtedness approved by two-thirds of the voters voting on the proposed
indebtedness. "Full cash value" is defined as "the County Assessor's valuation
of real property as shown on the 1975-76 tax bill under 'full cash value' or,
thereafter, the appraised value of real property when purchased, newly
constructed, or a change in ownership has occurred after the 1975 assessment."
The "full cash value" is subject to annual adjustment to reflect increases (not
to exceed 2%) or decreases in the consumer price index or comparable local data,
or to reflect reductions in property value caused by damage, destruction or
other factors.

I-5
<PAGE>

Article XIIIB of the California Constitution limits the amount of
appropriations of the State and of the local governments to the amount of
appropriations of the entity for the prior year, adjusted for changes in the
cost of living, population and the services that local government has financial
responsibility for providing. To the extent that the revenues of the State
and/or local government exceed its appropriations, the excess revenues must be
rebated to the public either directly or through a tax decrease. Expenditures
for voter-approved debt services are not included in the appropriations limit.

At the November 8, 1988 general election, California voters approved in
initiative known as Proposition 98. Proposition 98 changed State funding of
public education below the university level and the operation of the State
Appropriations Limit, primarily by guaranteeing K-14 schools a minimum share of
General Fund revenues. Under Proposition 98 (as modified by Proposition 111,
which was enacted on June 5, 1990), K-14 schools are guaranteed the greater of
(a) in general, a fixed percent of General Fund revenues ("Test 1"), (b) the
amount appropriated to K-14 schools in the prior year, adjusted for changes in
the cost of living (measured as in Article XIIIB by reference to State per
capita personal income) and enrollment ("Test 2"), or (c) a third test, which
would replace Test 2 in any year when the percentage growth in per capital
General fun revenues from the prior year plus one half of one percent is less
than the percentage growth in State per capita personal income ("Test 3"). Under
Test 3, schools would receive the amount appropriated in the prior year adjusted
for changes in enrollment and per capita General Fund revenues, plus an
additional small adjustment factor. If Test 3 is used in any year, the
difference between Test 3 and Test 2 would become a "credit" to schools that
would be the basis of payments in future years when per capita General Fund
revenue growth exceeds per capita personal income growth. Legislation adopted
prior to the end of the 1998-99 fiscal year, implementing Proposition 98,
determined the K-14 schools' funding guarantee under Test 1 to be 40.3 percent
of General Fund tax revenues, based on 1986-87 appropriations. However, that
percentage has been adjusted to approximately 35% to account for a subsequent
redirection of local property taxes, since such redirection directly affects the
share of General Fund revenues to schools.

Proposition 98 permits the Legislature by two-thirds vote of both houses,
with the Governor's concurrence, to suspend the K-14 schools' minimum funding
formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIIIB limit to
K-14 schools.

During the recession in the early 1990's, General Fund revenues for several
years were less than originally projected, so that the original Proposition 98
appropriations turned out to be higher than the minimum percentage provided in
the law. The Legislature responded to these developments by designating the
"extra" Proposition 98 payments in one year as a "loan" from future years'
Proposition 98 entitlements and also intended that the "extra" payments would
not be included in the Proposition 98 "base" for calculating future years'
entitlements. By implementing these actions, per-pupil funding from Proposition
98 sources stayed almost constant at approximately $4,220 from the 1991-92
fiscal year to the 1993-94 fiscal year.

In 1992 a lawsuit was filed, called California Teachers' Association v.
Gould, which challenged the validity of these off-budget loans. The settlement
of this case, finalized in July, 1996, provides, among other things, that both
the State and K-14 schools share in the repayment of prior years' emergency
loans to schools. Of the total $1.76 billion in loans, the State will repay $935
million by forgiveness of the amount owed, while schools will repay $825
million. The State share of the repayment will be reflected as an appropriation
above the current Proposition 98 base calculation. The schools' share of the
repayment will count either as appropriations that count toward satisfying the
Proposition 98 guarantee, or as appropriations from "below" the current base.
Repayments are spread over the eight-year period of the 1994-95 fiscal year
through the 2001-02 fiscal year to reduce any adverse fiscal impact.

Substantially increased General Fund revenues, above initial budget
projections, in the 1994-95 to 1998-99 fiscal years have resulted in retroactive
increases in Proposition 98 appropriations from subsequent fiscal years'
budgets. Because of the State's increasing revenues, per-pupil funding at the
K-12 level has increased by about 44 percent from the level in place from
1991-92 through 1993-94, and is estimated at about $6,025 per the average daily
attendance rate of students in 1999-00. A significant amount of the "extra"
Proposition 98 moneys in the last few years has been allocated to special
programs, most particularly an initiative to allow each classroom from grades
K-3 to have no more than 20 pupils by the end of the 1997-98 school year.
Furthermore, since General Fund revenue growth is expected to continue in
1999-00, there are also new initiatives to increase

I-6
<PAGE>

school safety, improve schools' accountability for pupil performance, provide
additional textbooks to schools, fund deferred maintenance projects, increase
beginning teachers' salaries, and provide performance incentives to teachers.

On November 8, 1994, the voters approved Proposition 187, an initiative
statute ("Proposition 187"). Proposition 187 specifically prohibits funding by
the State of social services, health care services and public school education
for the benefit of any person not verified as either a United States citizen or
a person legally admitted to the United States. Among the provisions in
Proposition 187 pertaining to public school education, the measure requires,
commencing January 1, 1995, that every school district in the State verify the
legal status of every child enrolling in the district for the first time. By
January 1, 1996, each school district must also verify the legal status of
children already enrolled in the district and of all parents or guardian of all
students. If the district "reasonably suspects" that a student, parent or
guardian is not legally in the United States, that district must report the
student to the United States Immigration and Naturalization Service and certain
other parties. The measure also prohibits a school district from providing
education to a student it does not verify as either a United States citizen or a
person legally admitted to the United States.

Opponents of Proposition 187 filed at least eight lawsuits (which were
subsequently consolidated) challenging the constitutionality and validity of the
measure. On March 18, 1998, a United States District Court judge entered a final
judgment in the case, holding key portions of the measure unconstitutional and
permanently enjoining the State from implementing those sections that would have
required law enforcement, teachers and social services and health care workers
to verify a person's immigration status and subsequently report illegal
immigrants to authorities and deny them social services, health care, and
education benefits. An appeal by the State Attorney General was filed with the
Ninth Circuit Court of Appeal on March 25, 1998. Governor Gray Davis
subsequently asked the United States Ninth Circuit Court of Appeal to serve as
mediator on the issue. On April 26, 1999, the Ninth Circuit Court of Appeal
granted Governor Davis' request for mediation of the controversy. In response,
David E. Lombardi, Chief Mediator for the Ninth Circuit Mediation Office ordered
a stay until June 18, 1999 of all appellate proceedings in connection with the
six cases then pending before the Court of Appeal involving Proposition 187
challenges. On June 1, 1999, the Howard Jarvis Taxpayers' Association sued
Governor Davis in the California Supreme Court challenging Governor Davis' right
to submit Proposition 187 to mediation, which the plaintiff claims undermines
the public's right of initiative. On June 30, 1999, the California Supreme Court
declined to hear the case. Since that time, Governor Davis had the State's
appeal withdrawn, letting stand the District Court rulings.

At the November 1998 elections, voters approved Proposition 2. This
proposition requires the General Fund to repay loans made from certain
transportation special accounts (such as the State Highway Account) at least
once per fiscal year, or up to 30 days after adoption of the annual budget act.
Since the General Fund may reborrow from the transportation accounts soon after
the annual repayment is made, the proposition is not expected to have any
adverse impact on the State's cash flow.

State Appropriations Limit. The State is subject to an annual appropriations
limit imposed by Article XIIIB of the State Constitution (the "Appropriations
Limit"). The Appropriations Limit does not restrict appropriations to pay debt
service on voter-authorized bonds.

Article XIIIB prohibits the State from spending "appropriations subject to
limitation" in excess of the Appropriations Limit. "Appropriations subject to
limitation," for the State, are authorizations to spend "proceeds of taxes,"
which consist of tax revenues, and certain other funds, including proceeds from
regulatory licenses, user charges or other fees to the extent that such proceeds
exceed "the cost reasonably borne by that entity in providing the regulation,
product or service," but "proceeds of taxes'" exclude most State aid to local
governments, tax refunds and some benefit payments such as unemployment
insurance. No limit is imposed on appropriations of funds that are not "proceeds
of taxes," such as reasonable user charges or fees and certain other non-tax
funds.

Not included in the Appropriations Limit are appropriations for the debt
service costs of bonds existing or authorized by January 1, 1979, or
subsequently authorized by the voters, appropriations required to comply with
mandates of courts or the federal government, appropriations for qualified
capital outlay projects, appropriations of revenues derived from any increase in
gasoline taxes or motor vehicle weight fees above January 1, 1990

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<PAGE>

levels and appropriation of certain special taxes imposed by initiative (e.g.,
cigarette and tobacco taxes). The Appropriations Limit may also be exceeded in
cases of emergency.

The State's Appropriations Limit in each year is based on the limit for the
prior year, adjusted annually for changes in State per capita personal income
and changes in population, and adjusted, when applicable, for any transfer of
financial responsibility of providing services to or from another unit of
government or any transfer of the financial source for the provision of services
from tax proceeds to non-tax proceeds. The measurement of change in population
is a blended average of statewide overall population growth, and change in
attendance at K-14 districts. The Appropriations Limit is tested over
consecutive two-year periods. Any excess of the aggregate "proceeds of taxes"
received over such two-year period above the combined Appropriations Limits for
those two years is divided equally between transfers to K-14 districts and
refunds to taxpayers.

The Legislature has enacted legislation to implement Article XIIIB that
defines certain terms used in Article XIIIB and sets forth the methods for
determining the Appropriations Limit. California Government Code Section 7912
requires an estimate of the Appropriations Limit to be included in the
Governor's Budget and thereafter to be subject to the budget process and
established in the Budget Act.

The following table shows the State Appropriations Limit for the past four
fiscal years and the current fiscal year. As of the enactment of the 1999-00
Budget, the Department of Finance projects the State's Appropriations subject to
limitations will be $6.1 billion under the State's Appropriations Limit in
fiscal year 1999-00.

State's Appropriations Limit
(Millions)
<TABLE>
<CAPTION>

Fiscal Years
------------------------------------------------------------
1995-96 1996-97 1997-98 1998-99* 1999-00*
---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>

State Appropriations Limit................ $ 39,309 $ 42,002 $ 44,778 $ 47,573 $ 50,673
Appropriations Subject to Limit........... (33,186) (35,103) (40,743) (42,674) (44,528)
---------- ---------- --------- ---------- ---------
Amount (Over)/Under Limit................. $ 5,123 $ 6,899 $ 4,035 $ 4,899 $ 6,145
========== ========== ========= ========== =========
</TABLE>

---------------
* Estimated/Projected
SOURCE: State of California, Department of Finance

Pending Litigation. The State is a party to numerous legal proceedings, many
of which normally occur in governmental operations. Some of the more significant
lawsuits pending against the State are described herein.

The State is involved in a lawsuit, Thomas Hayes v. Commission on State
Mandates, related to the State-mandated costs. The action involves an appeal by
the Director of Finance from a 1984 decision by the State Board of Control (now
succeeded by the Commission on State Mandates). The Board of Control decided in
favor of local school districts' claims for reimbursement for special education
programs for handicapped students. The case was then brought to the trial court
by the State and later remanded to the Commission on State Mandates (the
"Commission") for redetermination. The Commission expanded the claim to include
supplemental claims filed by several other educational institutions and
determined that part, but not all, of the claims should have been paid by the
State. To date, the Legislature has not appropriated funds. The liability to the
State, if all potentially eligible school districts pursue timely claims, has
been estimated by the Department of Finance at more than $1 billion. The
Commission issued a decision in December 1998 determining that a small number of
components of the State's special education program are State mandated local
costs. The administrative proceeding is in the "parameters and guidelines" stage
where the Commission is considering whether and to what extent the costs
associated with the State mandated components of the special education program
are offset by funds that the State already allocates to that program. The
State's position is that all costs are offset by existing funding. The State has
the option to seek judicial review of the mandate funding.

The State is involved in a lawsuit related to contamination at the
Stringfellow toxic waste site. In United States, People of the State of
California v. J.B. Stringfellow, Jr., et al., the State is seeking recovery for
past costs of cleanup of the site, a declaration that the defendants are each
fully liable for future costs, and an order that the cleanup be completed.
However, the defendants have filed a counterclaim against the State for alleged
negligent acts, resulting in significant findings of liability against the State
as owner, operator and generator of the wastes taken to the site. The State has
appealed. Present estimates of the cleanup range from $400 million to $600
million. Potential State liability falls within this same range. However, all or
a portion of any judgment against

I-8
<PAGE>

the State could be satisfied by recoveries from the State's insurance carriers.
The State has filed a suit against certain of these carriers and trial is
currently set for January 16, 2001.

The State is a defendant in a coordinated action involving 3,000 plaintiffs
seeking recovery for damages caused by the Yuba River flood of February 1986.
The appellate court affirmed the trial court finding of liability in inverse
condemnation and awarded damages of $500,000 to 12 sample plaintiffs. Potential
liability to the remaining 300 plaintiffs, from claims filed, ranges from $800
million to $1.5 billion. In 1992, the State and plaintiffs filed appeals. In
August 1999, the court of appeal issued a decision reversing the trial court's
judgment against the State and remanding the case for retrial on the inverse
condemnation cause of action. Plaintiffs have petitioned the California Supreme
Court for review.

In Just Say No To Tobacco Dough Campaign v. State of California, the
petitioners challenge the appropriation of approximately $166 million of
Proposition 99 funds in the Cigarette and Tobacco Products Surtax Fund for the
years ended June 30, 1990, through June 30, 1995 for programs that were
allegedly not health education or tobacco-related disease research. The Supreme
Court has granted the State's demurrer and the plaintiffs have asked the court
to reconsider its ruling. In July, 1999, the court again sustained the State's
demurrer to the amended complaint, and issued a judgment dismissing the case.
Plaintiffs appealed. The matter will be briefed and will be scheduled for oral
argument before the court. If the State loses, the General Fund and funds from
other sources would be used to reimburse the $166 million.

On June 24, 1998, plaintiffs in Howard Jarvis Taxpayers Association et al.
v. Connell filed a complaint for certain declaratory and injunctive relief
challenging the authority of the State Controller to make payments from the
State Treasury in the absence of a State budget. On July 21, 1998, the trial
court issued a preliminary injunction prohibiting the State Controller from
paying moneys from the State Treasury for fiscal year 1998-99, with certain
limited exceptions, in the absence of a State budget. The preliminary
injunction, among other things, prohibited the State Controller from making any
payments pursuant to any continuing appropriation. On July 22 and 27, 1998,
various employee unions that had intervened in the case appealed the trial
court's preliminary injunction and asked the Court of Appeal to stay the
preliminary injunction. On July 28, 1998, the Court of Appeal granted the
unions' requests and stayed the preliminary injunction pending the Court of
Appeal's decision on the merits of the appeal. On August 5, 1998, the Court of
Appeal denied the plaintiffs' request to reconsider the stay. Also on July 22,
1998, the State Controller asked the California Supreme Court to immediately
stay the trial court's preliminary injunction and to overrule the order granting
the preliminary injunction on the merits. On July 29, 1998, the Supreme Court
transferred the State Controller's request to the Court of Appeal. The matters
are now pending before the Court of Appeal. No date has been set for oral
argument.

A judgment was entered for the plaintiff in August 1998 in the case of
Ceridian Corporation v. Franchise Tax Board, a suit that challenged the validity
of two sections of the California tax laws. The first related to deduction from
corporate taxes for dividends received from insurance companies to the extent
the insurance companies have California activities. The second related to
corporate deduction of dividends to the extent the earnings of the
dividend-paying corporation have already been included in the measure of their
California tax. On August 13, 1998, the court issued a judgment against the
Franchise Tax Board on both issues. The Franchise Tax Board has appealed the
judgment. Briefing is underway. If both sections of the California tax law are
ultimately invalidated, and all dividends become deductible, then the General
Fund may become liable for approximately $200 to $250 million annually.

In Professional Engineers in California Government v. Wilson, the Superior
Court has ruled that $30.7 million of the $258.2 million transferred from the
State Highway Account to the General Fund violated the California Constitution.
The court also invalidated $130.9 million transferred from the Motor Vehicle
Account to the General Fund. On April 30, 1999, the court found that the $130
million transfer from the State Highway Account to the Motor Vehicle Account
also violated the California Constitution. The State decided not to appeal this
case and reversed the challenged transfers pursuant to the court's decision.

In Capitola Land v. Anderson and other related State and federal cases,
plaintiffs sought payments from the State under the AFDC-Foster Care program.
Judgment was rendered against the State in Capitola, which the State appealed
and lost. The State then filed a state plan amendment with the federal
Department of Health and

I-9
<PAGE>

Human Services ("DHHS") to enable the State to comply with the Capitola ruling
and receive federal funding. The DHHS denied the state plan amendment, and the
State has filed suit against DHHS. The Legislature also enacted a statute that
required federal funding (50% contribution) in order to comply with the Capitola
judgment. The State then refused to implement the Capitola judgment based on the
new statute. Certain plaintiffs moved for an order of contempt against the
State, which was granted by the trial court, but was stayed and annulled by the
Court of Appeal. The plaintiffs' petition for review was denied by the
California Supreme Court. If, as a result of this litigation, compliance with
the Capitola judgment is required and the judgment is applied retroactively,
liability to the State could exceed $200 million.

In January of 1997, California experienced major flooding in six different
areas with preliminary estimates of property damage of approximately $1.6 to
$2.0 billion. A substantial number of plaintiffs have joined an existing suit
against the State, local agencies, and private companies and contractors seeking
compensation for the damages they suffered as a result of the 1997 flooding.
Property damages have been estimated up to $2 billion. The State is defending
the action.

Plaintiffs in County of San Bernardino v. Barlow Respiratory Hospital and
related actions seek mandamus relief requiring the State to retroactively
increase out-patient Medi-Cal reimbursement rates. Plaintiffs have estimated the
damages to be several hundred million dollars. The State is defending these
cases, as well as related federal cases addressing the calculation of Medi-Cal
reimbursement rates in the future.

The State is involved in two refund actions, Cigarettes Cheaper!, et al. v.
Board of Equalization, et al. and California Assn. of Retail Tobacconists
(CART), et al. v. Board of Equalization, et al., that challenge the
constitutionality of Proposition 10, approved by the voters in 1998. Plaintiffs
allege that Proposition 10, which increases the excise tax on tobacco products,
violates eleven sections of the California Constitution and related provisions
of law. Plaintiffs Cigarettes Cheaper! seek declaratory and injunctive relief
and a refund of over $4 million. The CART case filed by retail tobacconists in
San Diego seeks a refund of $5 million. The State is contesting these cases. If
the statute is declared unconstitutional, exposure may include the entire $750
million collected annually with interest.

Hunt-Weston, Inc. v. Franchise Tax Board was tried in February, 1997 with
judgment for the taxpayer. The judgment was reversed on appeal and plaintiff's
petition for review in the California Supreme Court was denied. On September 28,
1999, the United States Supreme Court granted the taxpayer's petition for writ
of certiorari. The Franchise Tax Board estimates that if the interest-offset
provisions are declared unconstitutional, the result would involve potential
reduction of State revenues in the $90 million range annually, with past year
collection and interest exposure of $500 million.

Guy F. Atkinson Company of California v. Franchise Tax Board is a
corporation tax refund action involving the solar energy system tax credit
provided for under the Revenue & Taxation Code. The case went to trial in May
1998 and the trial court entered judgment in favor of the Franchise Tax Board.
The taxpayer has filed an appeal to the California Court of Appeal and briefing
is due to be completed in October 1999. The Franchise Tax Board estimates that
the cost would be $150 million annually if the plaintiff prevails. Allowing
refunds for all open years would entail a refund of at least $500 million.

Jordan, et al. v. Department of Motor Vehicles, et al. and Josephs v. Zolin,
et al. challenge the validity of the Vehicle Smog Impact Fee, a $300 fee that is
collected by the Department of Motor Vehicles from vehicle registrants when a
vehicle without a California new-vehicle certification is first registered in
California. The Jordan plaintiffs contend that the fee violates the interstate
commerce and equal protection clauses of the United States Constitution as well
as Article XIX of the State Constitution. The Josephs case is a class action
civil rights case brought against the current and former directors of the
Department of Motor Vehicles in their individual capacities claiming the
collection of the Vehicle Smog Impact Fee violates the interstate commerce,
equal protection and privileges and immunities clauses of the United States
Constitution. The trial court gave a judgment for the plaintiffs in the Jordan
case, and additionally ordered the State to file refund claims on behalf of all
payers of the fees since three years prior to the filing of the complaint. In
October, 1999, the Court of Appeals upheld the trial court judgment and the
State has declined to appeal further. In Josephs, the Court of Appeal ruled that
the taxpayer had an adequate remedy and thus the civil rights action could not
proceed. A further appeal is possible. Although refunds through the court
actions could be limited by a three-year statute of

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<PAGE>

limitations, with a potential liability of about $350 million, the Governor has
proposed refunding fees collected back to the initiation of these fees in 1990.
The exposure to the State if the fees are refunded in full could be up to $800
million.

Craig Brown, et al. v. Department of Health and Human Services, et al. is a
federal mandate proceeding. In fiscal years 1991-92 and 1992-93, the State used
credits from three Public Employees Retirement System (PERS) accounts in place
of General Fund employer pension contributions. The federal Department of Health
and Human Services (DHHS) has determined that federally funded programs were
overcharged in these fiscal years because they did not receive the pension
credits the State programs received and that California owes the federal
government $120 million for overpayments plus an additional $80 million in
interest through mid-1999. The DHHS Grant Appeals Board upheld this
determination. The present case is aimed at overturning the DHHS determination.
On June 6, 1999, the court ruled against the State. The State has appealed to
the Ninth Circuit. The estimated potential loss is over $220 million, which
would be payable from the General Fund or, possibly, recovered by the federal
government through offsets against current grant payments to the State.

PTI, Inc., et al. v. Phillip Morris, et al. was filed by five distributors
in the cigarette import-/re-entry business, seeking to overturn the tobacco
Master Settlement Agreement ("MSA") entered between 46 states and the tobacco
industry in November, 1998. See "Tobacco Litigation" above. The primary focus of
the complaint is the provision of the MSA encouraging participating states to
adopt a statute requiring nonparticipating manufacturers to either become
participating manufacturers and share the financial obligations under the MSA or
pay money into an escrow account. Plaintiffs seek compensatory and punitive
damages against the State and State officials and an order placing tobacco
settlement funds into a trust to be administered by the court for the treatment
of medical expenses of persons injured by tobacco products. A motion to dismiss
the complaint is currently scheduled for hearing in February, 2000. The
potential fiscal impact of an adverse ruling is largely unknown, but could
exceed the full amount of the settlement (estimated to be $1 billion annually,
of which 50% will go directly to the State's General Fund and the other 50%
directly to the State's 58 counties and 4 largest cities).

Arnett v. California Public Employees Retirement System, et al. was filed by
seven former employees of the State of California and local agencies, seeking
back wages, damages and injunctive relief. Plaintiffs are former public safety
members who began employment after the age of 40 and are recipients of
Industrial Disability Retirement ("IDR") benefits. Plaintiffs contend that the
formula that determines the amount of IDR benefits violates the federal Age
Discrimination in Employment Act of 1967. Plaintiffs contend that, but for their
ages at hire, they would receive increased monthly IDR benefits similar to their
younger counterparts who began employment before the age of 40. On August 17,
1999, the Ninth Circuit Court of Appeal reversed the District Court's dismissal
of the complaint for failure to state a claim. The State may seek further review
in the United States Supreme Court. However, the case has now been remanded back
to the District Court and trial will most likely occur in December 2000. In the
event of an unfavorable result, the California Public Employees' Retirement
System has estimated the liability to the State as approximately $315.5 million.

I-11

<PAGE>

APPENDIX II
ECONOMIC AND FINANCIAL CONDITIONS IN FLORIDA

The following information is a brief summary of factors affecting the
economy of the State of Florida (the "State") and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based upon one or more publicly available offering statements
relating to debt offerings of the State, however, it has not been updated. The
Florida Fund has not independently verified the information.

In the early 1990s, the State's unemployment rate generally tracked above
that of the nation. Beginning in 1995, the State's unemployment rate has
generally tracked below the national average. The State's unemployment rate is
projected to be 4.2% in calendar year 1999 and 4.4% in calendar year 2000. (The
projections set forth in this Appendix were obtained from a report, prepared by
the Revenue and Economic Analysis Unit of the Executive Office of the Governor
for the State of Florida, contained within a recent official statement, dated
October 26, 1999, for a State of Florida debt offering ("State of Florida
Report").

During calendar years 1992 through 1998, the State's per capita income is
projected to have expanded approximately 29.0%, while the national per capita
income increased by approximately 30.3%. The structure of Florida's income
differs from that of the nation and the Southeast. Because Florida has a
proportionally greater retirement age population, property income (dividends,
interest, and rent) and transfer payments (social security and pension benefits,
among other sources of income) are relatively more important sources of income.
For example, Florida's employment income in calendar year 1998 represented 62.0%
of total personal income, while the nation's share of total personal income in
the form of wages and salaries and other labor benefits was 72.2%. Florida's
income is dependent upon transfer payments controlled by the federal government.

The State's strong population growth is one fundamental reason why its
economy has typically performed better than the nation as a whole. In census
year 1980, the State was ranked seventh among the 50 states with a population of
9.7 million people. The State has grown dramatically since then and as of April
1, 1998 ranked fourth with an estimated population of 15.0 million. Since census
year 1990, the State's estimated average annual rate of population increase has
been approximately 1.8% as compared to an approximately 1.9% for the nation as a
whole. While annual growth in the State's population is expected to decline
somewhat, it is expected to have grown by over 200,000 new residents per year
throughout the 1990s.

Tourism is one of the State's most important industries. An estimated 48.7
million people visited the State in calendar year 1998, according to the Florida
Department of Commerce. Tourism arrivals are expected to increase by 2.0% in
fiscal year 1998-99 and 1.7% the following fiscal year. In fiscal year 1998-99,
tourist arrivals are projected to approximate 49.7 million. In fiscal year
1999-2000, tourist arrivals are projected to reach 50.6 million. Florida tourism
appears to be recovering from the effects of negative publicity regarding crime
against tourists in the state. Factors such as "product maturity" of a Florida
vacation package, higher prices, and more aggressive marketing by competing
vacation destinations, could contribute to a tourism slowdown. The State's
fiscal year begins July 1 and ends June 30.

Florida's dependency on the highly cyclical construction and
construction-related manufacturing sectors has declined. Total contract
construction employment as a share of total non-farm employment declined from
7.5% in the late 1980's to approximately 5.3% in calendar year 1998. Florida,
nevertheless, has an important construction industry, with single and
multi-family housing starts in fiscal year 1998-99 projected to reach a combined
level of 144,000 in fiscal year 1998-99 and 143,000 in fiscal year 1999-2000.
Multi-family starts have been slow to recover from the early 1990's recession,
but are showing stronger growth now and are expected to approximate 46,500 in
fiscal year 1998-99 and 46,300 in fiscal year 1999-2000. Total construction
expenditures in fiscal years 1998-99 and 1999-2000 are forecasted to increase
8.6% and 2.5%, respectively. A driving force behind the State's construction
industry is its rapid population growth. Net migration to the State is
forecasted to slow, although the State's population is expected to have grown by
over 200,000 persons a year during the 1990's.

Financial operations of the State covering all receipts and expenditures
are maintained through the use of four funds -- the General Revenue Fund, Trust
Funds, the Working Capital Fund, and the Budget Stabilization Fund. In fiscal
year 1996-97, the State derived approximately 67% of its total direct revenues
to these funds from State taxes and fees. Federal funds and other special
revenues accounted for the remaining revenues. Major

II-1
<PAGE>

sources of tax revenues to the General Revenue Fund are the sales and use tax,
corporate income tax, intangible personal property tax, beverage tax, and estate
tax which amounted to 68%, 8%, 4%, 3% and 3%, respectively, of total General
Revenue Funds available. State expenditures are categorized for budget and
appropriation purposes by type of fund and spending unit, which are further
subdivided by line item. In fiscal year 1996-97, expenditures from the General
Revenue Fund for education, health and welfare, and public safety amounted to
approximately 53%, 26% and 14%, respectively, of total General Revenues.

The Sales and Use Tax is the greatest single source of tax receipts in the
State. For fiscal year ended 1996-97, receipts from this source were $12,089
million, an increase of 5.5% from fiscal year 1995-96. The second largest source
of State tax receipts is the Motor Fuel Tax. The collections from this source
during the fiscal year 1996-97 were $2,012 million, although these revenues are
almost entirely dedicated trust funds for specific purposes and are not included
in the General Revenue Fund. Alcoholic beverage tax revenues totalled $447.2
million for fiscal year 1996-97, an increase of $5.7 million from the previous
fiscal year. The receipts of corporate income tax for the fiscal year were
$1,362.3 million, an increase of 17.2% from fiscal year 1995-96. Documentary
stamp tax collections totalled $844.2 million during fiscal year 1996-97,
posting an 8.9% increase from the previous fiscal year. Gross receipt utility
tax collections for fiscal year 1996-97 totalled $575.7 million, an increase of
6.0% over the previous fiscal year. The intangible personal property tax is a
tax on stocks, bonds, notes, governmental leaseholds, certain limited
partnership interests, mortgages and other obligations secured by liens on
Florida realty, and other intangible personal property. Total collections from
intangible personal property taxes were $952.4 million during fiscal year
1996-97, a 6.3% increase from the previous fiscal year. Recent reductions in the
intangible personal property tax rate and expansions in the exclusions from that
tax are estimated to reduce intangible personal property tax revenues by $265.3
million in fiscal year 1999-2000. A significant portion of these tax proceeds
are unavailable to the General Revenue Fund. The State's estate tax on resident
decedents' estates is generally equal to the amount allowable as a credit
against federal estate tax for state death taxes paid, and does not increase the
estate's total federal estate tax liability. For fiscal year 1996-97, estate tax
receipts were $546.9 million, an increase of 30% from the prior fiscal year. In
fiscal year 1996-97 State-operated lotteries produced gross revenues of $2.09
billion. State law requires allocating State lottery revenues 50% to prizes, at
least 38% to public education, and no more than 12% to lottery administrative
costs. In fiscal year 1996-97, education received approximately $792.3 million
of these revenues. In addition to the foregoing information, the State of
Florida Report contains the following General Revenue information for fiscal
year 1997-1998 in tabular form.

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<PAGE>

State of Florida
Budget Summary
Fiscal Years 1997-98
(in millions of dollars)
1997-98
-------
Actual
------
General Revenue Fund:
Sales Tax-GR.............................................. $11,828.7
Beverage Tax & Licenses................................... 550.1
Corporate Income Tax...................................... 1,395.7
Documentary Stamp Tax..................................... 429.6
Cigarette Tax............................................. 142.1
Insurance Premium Tax..................................... 295.5
Pari-Mutuels Tax.......................................... 25.6
Intangibles Tax........................................... 756.0
Estate Tax................................................ 595.0
Interest Earnings......................................... 217.9
Public Safety Licenses.................................... 61.2
Medical & Hospital Fees................................... 99.8
Motor Vehicle Charges..................................... 41.3
Auto Title & Lien Fees.................................... 24.0
Severance Taxes........................................... 35.4
Service Charges........................................... 383.8
Other Taxes, Licenses & Fees.............................. 262.5
Less: Refunds............................................. (204.6)
-----
Net General Revenue:...................................... $16,939.4

Executive Office of the Governor
Revenue and Economic Analysis
March 8, 1999

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<PAGE>

Those tables also disclose the State Fuel Tax Trust Fund Revenues for fiscal
year 1997-1998 were $1,175.7 million.

For fiscal year 1998-99 the estimated General Revenue plus Working Capital
and Budget Stabilization funds available total $19,481.8 million, a 5.2%
increase over 1997-98. The $17,779.5 million in the Estimated Revenues component
of the fiscal year 1998-99 total represent a 5.0% increase over the analogous
figure in 1997-98. With combined General Revenue, Working Capital Fund and
Budget Stabilization Fund appropriations at $18,222.0 million, unencumbered
reserves at the end of 1998-99 are estimated at $1,360.7 million. For fiscal
year 1999-2000, the estimated total of General Revenue plus Working Capital and
Budget Stabilization funds available are $20,133.9 million, a 3.3% increase over
the total estimated for fiscal year 1998-99. The $18,555.2 million in the
Estimated Revenues component of the estimated 1999-2000 total represent a 4.4%
increase over the analogous figure for fiscal year 1998-99.

The State Constitution does not permit a state or local personal income
tax. An amendment to the State Constitution by the electors of the State would
be required in order to impose a personal income tax in the State.

Property valuations for homestead property are subject to a growth cap.
Growth in the just (market) value of property qualifying for the homestead
exemption is limited to 3% or the change in the Consumer Price Index, whichever
is less. If the property changes ownership or homestead status, it is to be
re-valued at full just value on the next tax roll. Although the impact of the
growth cap cannot be determined, it may have the effect of causing local
government units in the State to rely more on non-ad valorem tax revenues to
meet operating expenses and other requirements normally funded with ad valorem
tax revenues.

The State Constitution provides that State revenues collected for any
fiscal year shall be limited to State revenues allowed under that provision for
the prior fiscal year plus an adjustment for growth. Growth is defined as an
amount equal to the average annual rate of growth in State personal income over
the most recent twenty quarters times the State revenues allowed under that
provision for the prior fiscal year. State revenues collected for any fiscal
year in excess of this limitation are required to be transferred to the Budget
Stabilization Fund until the fund reaches the maximum balance specified in
Section 19(g) of Article III of the State Constitution, and thereafter is
required to be refunded to taxpayers as provided by general law. The limitation
on State revenues may be increased by the Legislature, by a two-thirds vote of
each house.

"State revenues" are defined as taxes, fees, licenses, and charges for
services imposed by the Legislature on individuals, businesses, or agencies
outside State government. However, the term "State revenues" does not include:
(i) revenues that are necessary to meet the requirements set forth in documents
authorizing the issuance of Bonds by the State; (ii) revenues that are used to
provide matching funds for the federal Medicaid program with the exception of
the revenues used to support the Public Medical Assistance Trust Fund or its
successor program and with the exception of State matching funds used to fund
elective expansions made after July 1, 1994; (iii) proceeds from the State
lottery returned as prizes; (iv) receipts of the Florida Hurricane Catastrophe
Fund; (v) balances carried forward from prior fiscal years; (vi) taxes,
licenses, fees and charges for services imposed by local, regional, or school
district governing bodies; or (vii) revenue from taxes, licenses, fees and
charges for services required to be imposed by any amendment or revision to the
State Constitution after July 1, 1994.

It should be noted that many of these provisions, which were adopted by
constitutional amendment in 1994, are ambiguous, and likely will not be
clarified until State courts have ruled on their meanings. Further, it is
unclear how the Legislature will implement the provisions and whether such
implementing legislation will itself be the subject of court interpretation.

The Florida Fund cannot predict the impact of these provisions on State
finances. To the extent local governments traditionally receive revenues from
the State which are subject to, and limited by, these provisions, the future
distribution of such State revenues may be adversely affected.

Hurricanes continue to endanger the coastal and interior portions of
Florida. Substantial damage resulted from tropical storms and hurricanes in the
1992, 1995, 1998 and 1999 hurricane seasons. The hurricane season runs from June
1 through November 30. The Florida Fund cannot predict the economic impact, if
any, of future hurricanes and storms.

II-4
<PAGE>

As of October 26, 1999, the State had a high bond rating from Moody's
Investors Service, Inc. (Aaa), Standard & Poor's (AAA) and Fitch IBCA, Inc.
(AAA) on all of its general obligation bonds. Outstanding general obligation
bonds at June 30, 1998 totalled almost $8.7 billion and were issued to finance
capital outlay for educational projects of both local school districts,
community colleges and state universities, environmental protection and highway
construction. The State has issued over $787 million of general obligation bonds
since July 1, 1998.

In May 1999, as supplemented in June 1999, the Florida Auditor General
notified the Governor's Office that it identified, as of September 30, 1997,
forty local government entities as meeting one or more of the financial
emergency conditions prescribed by State statute. The Auditor General's
notification indicated that ten of those local government entities (including
the City of Miami) were on September 30, 1997 in a state of financial emergency.
Stating that a statutorily defined financial emergency is not necessarily
indicative of a local governmental entity's solvency or ability to pay its
current financial obligations, the Auditor General's notification indicated that
the remaining thirty local government entities were not facing a true financial
crisis and/or the financial emergency was due to accounting practices. For these
purposes, a state of emergency is considered two consecutive years of budget
deficits. Municipalities or special districts that may be in a state of
financial emergency are those that the Auditor General was unable to conclude
had sufficient revenues to cover their deficits. The operations of all these
entities mentioned in the Auditor General's notification may be adversely
affected by their financial condition.

II-5
<PAGE>

APPENDIX III

RATINGS OF MUNICIPAL BONDS

Description of Moody's Investors Service, Inc.'s ("Moody's") Long-Term Debt
Ratings

Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.

Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appears somewhat larger than
in Aaa securities.

A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

Baa Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payment and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.

Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.

Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.

C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.

Short Term Notes: The three ratings of Moody's for short-term notes are MIG
1/VMIG 1, MIG 2/VMIG 2 and MIG 3/VMIG 3; MIG 1/VMIG 1 denotes "best quality
strong protection from established cash flows"; MIG 2/VMIG 2 denotes "high
quality" with "ample margins of protection"; MIG 3/VMIG 3 instruments are of
"favorable quality but lacking the undeniable strength of the preceding grades."

Description of Moody's Commercial Paper Ratings

Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:

III-1
<PAGE>

Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of short-term promissory obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics: leading market
positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well established access to a
range of financial markets and assured sources of alternate liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes to the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

Description of Standard & Poor's, a Division of The McGraw-Hill Companies, Inc.
("Standard & Poor's"), Municipal Debt Ratings

A Standard & Poor's municipal debt rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations or a specific program. It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation.

The debt rating is not a recommendation to purchase, sell or hold a
financial obligation, inasmuch as it does not comment as to market price or
suitability for a particular investor.

The ratings are based on current information furnished by the obligors or
obtained by Standard & Poor's from other sources Standard & Poor's considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or based on circumstances.

The ratings are based, in varying degrees, on the following considerations:

I. Likelihood of payment -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;

II. Nature of and provisions of the obligation;

III. Protection afforded to, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.

AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to meet its financial commitment on the obligation is extremely
strong.

AA Debt rated "AA" differs from the highest rated issues only in small
degree. The Obligor's capacity to meet its financial commitment on the
obligation is very strong.

A Debt rated "A" is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.

BBB Debt rated "BBB" exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

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<PAGE>

BB Debt rated "BB," "B," "CCC," "CC" and "C" are regarded as having
B significant speculative characteristics. "BB" indicates the least degree
CCC of speculation and "C" the highest degree of speculation.While such debt
CC will likely have some quality and protective characteristics, these may
C be outweighed by large uncertainties or major risk exposures to adverse
conditions.

D Debt rated "D" is in payment default. The "D" rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The
"D" rating also will be used upon the filing of a bankruptcy petition or
the taking of similar action if payments on an obligation are
jeopardized.

Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

Description of Standard & Poor's Commercial Paper Ratings

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into several categories, ranging from "A-1" for the
highest-quality obligations to "D" for the lowest. These categories are as
follows:

A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."

A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.

B Issues rated "B" are regarded as having only speculative capacity for
timely payment.

C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired unless Standard
& Poor's believes that such payments will be made during such grace
period.

A commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.

A Standard & Poor's note rating reflects the liquidity factors and market
access risks unique to notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment.

-- Amortization schedule -- the larger the final maturity relative to other
maturities, the more likely it will be treated as a note.

-- Source of payment -- the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note.

Note rating symbols are as follows:

SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.

SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term of
the notes.

SP-3 Speculative capacity to pay principal and interest.

III-3
<PAGE>

c The "c" subscript is used to provide additional information to investors
that the bank may terminate its obligation to purchase tendered bonds if
the long-term credit rating of the issuer is below an investment-grade
level and/or the issuer's bonds are deemed taxable.

p The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project financed by the
debt being rated and indicates that payment of debt service requirements
is largely or entirely dependent upon the successful, timely completion
of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the
likelihood of or the risk of default upon failure of such completion. The
investor should exercise his own judgment with respect to such likelihood
and risk.

* Continuance of the ratings is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.

r The "r" highlights derivative, hybrid, and certain other obligations that
Standard & Poor's believes may experience high volatility or high
variability in expected returns as a result of noncredit risks. Examples
of such obligations are securities with principal or interest return
indexed to equities, commodities, or currencies; certain swaps and
options, and interest-only and principal-only mortgage securities. The
absence of an "r" symbol should not be taken as an indication that an
obligation will exhibit no volatility or variability in total return.

Description of Fitch IBCA, Inc.'s ("Fitch") Investment Grade Bond Ratings

Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.

The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.

Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.

Bonds carrying the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.

Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.

AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.

AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in
the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."

A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.

III-4
<PAGE>

BBB Bonds considered to be investment grade and of satisfactory-credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.

Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.

NR Indicates that Fitch does not rate the specific issue.

Conditional A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.

Suspended A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.

Withdrawn A rating will be withdrawn when an issue matures or is called or
refinanced and, at Fitch's discretion, when an issuer fails to
furnish proper and timely information.

FitchAlert Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the
likely direction of such change. These are designated as
"Positive," indicating a potential upgrade, "Negative," for
potential downgrade, or "Evolving," where ratings may be raised or
lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.

Ratings Outlook: An outlook is used to describe the most likely direction
of any rating change over the intermediate term. It is described as "Positive"
or "Negative." The absence of a designation indicates a stable outlook.

Description of Fitch's Speculative Grade Bond Ratings

Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or liquidation.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.

BB Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.

B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.

CCC Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.

CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probably over time.

C Bonds are in imminent default in payment of interest or principal.

III-5
<PAGE>

DDD Bonds are in default on interest and/or principal payments. Such bonds are
DD extremely speculative and should be valued on the basis of their
D ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and
"D" represents the lowest potential for recovery.

Description of Fitch's Short-Term Ratings

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.

The short-term ratings place greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.

Fitch short-term ratings are as follows:

F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."

F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned "F-1+" and "F-1" ratings.

F-3 Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate;
however, near-term adverse changes could cause these securities to be
rated below investment grade.

F-S Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and economic
conditions.

D Default. Issues assigned this rating are in actual or imminent payment
default.

LOC The symbol "LOC" indicates that the rating is based on a letter of credit
issued by a commercial bank.

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<PAGE>

Code # 16926-11-99

<PAGE>

PART C. OTHER INFORMATION
ITEM 23. Exhibits

Exhibit
Number Description
------- ----------
1(a) (1) -- Amended and Restated Declaration of Trust of the Registrant,
dated November 15, 1993.(d)
(a) (2) -- Certificate of Amendment to Declaration of Trust and
Establishment and Designation of Classes, dated October 17,
1994.(g)
(b) (1) -- Instrument establishing Merrill Lynch California Limited
Maturity Municipal Bond Fund (the "California Fund") as a
Series of the Registrant.(a)
(b) (2) -- Instrument establishing Merrill Lynch Florida Limited Maturity
Municipal Bond Fund (the "Florida Fund") as a Series of
the Registrant.(a)
(c) (1) -- Instrument establishing Class A shares and Class B shares of
beneficial interest of the California Fund.(a)

1(d) -- Certificate of Termination of Series of Merrill Lynch Multi-
State Limited Maturity Municipal Series Trust.

2 -- By-Laws of the Registrant.(d)
3 -- Portions of the Declaration of Trust, Certificate of
Establishment and Designation and By-Laws of the Registrant
defining the rights of holders of the Fund as a series of the
Registrant.(b)
4(a) -- Form of Management Agreement between the Registrant and Fund
Asset Management, L.P.("FAM")(a)
(b) -- Supplement to Management Agreement between the Registrant and
FAM.(f)
5(a) -- Form of Revised Class A Distribution Agreement between the
Registrant and Merrill Lynch Funds Distributor, Inc. (now known
as Princeton Funds Distributor, Inc.) (the "Distributor")
(including Form of Selected Dealers Agreement).(f)
(b) -- Form of Class B Distribution Agreement between the Registrant
and the Distributor (including Form of Selected Dealers
Agreement).(a)
(c) -- Form of Class C Distribution Agreement between the Registrant
and the Distributor (including Form of Selected Dealers
Agreement).(f)
(d) -- Form of Class D Distribution Agreement between the Registrant
and the Distributor (including Form of Selected Dealers
Agreement).(f)
(e) -- Letter Agreement between the Fund and the Distributor, dated
September 15, 1993, in connection with the Merrill Lynch Mutual
Fund Advisor Program.(c)
6 -- None.
7 -- Form of Custody Agreement between the Registrant and The Bank of
New York.(d)
8 -- Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between the Registrant
and Merrill Lynch Financial Data Services, Inc. (now known as
Financial Data Services, Inc.)(a)

9 -- Opinion and consent of Brown & Wood LLP, counsel for the
Registrant.(j)

10 -- Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.

11 -- None.
12(a) -- Certificate of FAM with respect to the California Fund.(d)
(b) -- Certificate of FAM with respect to the Florida Fund.(d)
13(a) -- Class B Distribution Plan of the Registrant and Class B
Distribution Plan Sub-Agreement.(c)
(b) -- Form of Class C Distribution Plan of the Registrant and Class C
Distribution Plan Sub-Agreement.(f)
(c) -- Class D Distribution Plan of the Registrant and Class D
Distribution Plan Sub-Agreement.(f)

14 -- Merrill Lynch Select Pricing(SM) System Plan pursuant to Rule
18f-3.(h)

---------
(a) Filed on September 28, 1993 as an Exhibit to the Registration Statement on
Form N-1A (File No. 33-50417) under the Securities Act of 1933, as amended,
of the Registrant (the "Registration Statement").

(b) Reference is made to Article II, Section 2.3 and Articles V, VI, VIII, IX,
X and XI of the Registrant's amended and restated Declaration of Trust, as
amended, filed as Exhibits 1(a) (1) and 1(a)(2) to the Registration

C-1
<PAGE>

Statement; to the Certificates of Establishment and Designation
establishing each series of the Registrant and establishing Class A and
Class B shares of beneficial interest of each series of the Registrant
filed as Exhibits 1(b) (1), 1(b)(2) and 1(c), respectively, to the
Registration Statement; and to Articles I, V and VI of the Registrant's
By-Laws, filed as Exhibit 2 to the Registration Statement.

(d) Filed on November 17, 1993 as an Exhibit to Pre-Effective Amendment No. 2
to the Registration Statement.

(e) Filed on May 17, 1994 as an Exhibit to Post-Effective Amendment No. 1 to
the Registration Statement.

(f) Filed on October 14, 1994 as an Exhibit to Post-Effective Amendment No. 2
to the Registration Statement.

(g) Filed on November 21, 1995 as an Exhibit to Post-Effective Amendment No. 3
to the Registration Statement.

(h) Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A under the Securities Act of
1933, as amended, filed on January 25, 1996, relating to shares of Merrill
Lynch New York Municipal Bond Fund series of Merrill Lynch Multi-State
Municipal Series Trust (File No. 2-99473).

(i) Filed on November 17, 1993 as an Exhibit to Pre-Effective Amendment No. 2
to the Registration Statement. Re-filed with this Post-Effective Amendment
No. 8 to the Registration Statement pursuant to Electronic Data Gathering,
Analysis and Retrieval (EDGAR) requirements.

Item 24. Persons Controlled by or Under Common Control with Registrant

The Registrant is not controlled by or under common control with any other
person.

Item 25. Indemnification

Section 5.3 of the Registrant's Declaration of Trust provides as follows:

"The Trust shall indemnify each of its Trustees, officers, employees and
agents (including persons who serve at its request as directors, officers or
trustees of another organization in which it has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses (including amounts
paid in satisfaction of judgments, in compromise, as fines and penalties and as
counsel fees) reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which he may be involved or with which he may be threatened, while in office
or thereafter, by reason of his being or having been such a trustee, officer,
employee or agent, except with respect to any matter as to which he shall have
been adjudicated to have acted in bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties; provided, however, that as to
any matter disposed of by a compromise payment by such person, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless the Trust shall have received a
written opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence or
reckless disregard of duty, or the matter of good faith and reasonable belief as
to the best interests of the Trust, had been adjudicated, it would have been
adjudicated in favor of such person. The rights accruing to any Person under
these provisions shall not exclude any other right to which he or she may be
lawfully entitled; provided that no Person may satisfy any right of indemnity or
reimbursement granted herein or in Section 5.1 or to which he or she may be
otherwise entitled except out of the property of the Trust, and no Shareholder
shall be personally liable to any Person with respect to any claim for indemnity
or reimbursement or otherwise. The Trustees may make advance payments in
connection with indemnification under this Section 5.3, provided that the
indemnified person shall have given a written undertaking to reimburse the Trust
in the event it is subsequently determined that he is not entitled to such
indemnification."

Insofar as the conditional advancing of indemnification moneys for actions
based upon the Investment Company Act of 1940 may be concerned, such payments
will be made only on the following conditions: (i) the advances must be limited
to amounts used, or to be used, for the preparation or presentation of a defense
to the action, including costs connected with the preparation of a settlement;
(ii) advances may be made only upon receipt of a written promise by, or on
behalf of, the recipient to repay that amount of the advance which exceeds the
amount which it is ultimately determined that he or she is entitled to receive
from the Registrant by reason of indemnification; and (iii)(a) such promise must
be secured by a surety bond, other suitable insurance or an

C-2
<PAGE>

equivalent form of security which assures that any repayments may be obtained by
the Registrant without delay or litigation, which bond, insurance or other form
of security must be provided by the recipient of the advance, or (b) a majority
of a quorum of the Registrant's disinterested, non-party Trustees, or an
independent legal counsel in a written opinion, shall determine, based upon a
review of readily available facts that the recipient of the advance ultimately
will be found entitled to indemnification.

In Section 9 of the Class A, Class B, Class C and Class D Shares
Distribution Agreements relating to the securities being offered hereby, the
Registrant agrees to indemnify the Distributor and each person, if any, who
controls the Distributor within the meaning of the Securities Act of 1933, as
amended ("1933 Act"), against certain types of civil liabilities arising in
connection with the Registration Statement or Prospectus and Statement of
Additional Information.

Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to Trustees, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer, or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.

Item 26. Business and Other Connections of Investment Adviser

Fund Asset Management, L.P. (the "Manager" or "FAM") acts as the investment
adviser for the following open-end registered investment companies: CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc., Financial Institutions Series Trust, Merrill Lynch
Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill
Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income
Fund, Inc., and The Municipal Fund Accumulation Program, Inc.; and for the
following closed-end registered investment companies: Apex Municipal Fund, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate
High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II,
Inc., Debt Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund,
Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc.,
MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings California Insured Fund IV, Inc., MuniHoldings
California Insured Fund V, Inc., MuniHoldings Florida Insured Fund, MuniHoldings
Florida Insured Fund II, MuniHoldings Florida Insured Fund III, MuniHoldings
Florida Insured Fund IV, MuniHoldings Florida Insured Fund V, MuniHoldings
Insured Fund, Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings Insured
Fund III, Inc., MuniHoldings Insured Fund IV, Inc., MuniHoldings Michigan
Insured Fund, Inc., MuniHoldings Michigan Insured FundII,Inc., MuniHoldings New
Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund II, Inc.,
MuniHoldings New Jersey Insured Fund III, Inc., MuniHoldings New Jersey Insured
Fund IV, Inc., MuniHoldings New York Fund, Inc., MuniHoldings New York Insured
Fund, Inc., MuniHoldings New York Insured Fund II, Inc., MuniHoldings New York
Insured Fund III, Inc., MuniHoldings New York Insured Fund IV, Inc.,
MuniHoldings Pennsylvania Insured Fund, MuniInsured Fund, Inc., MuniVest Fund,
Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan Insured
Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund,
MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield
California Insured Fund, Inc., MuniYield California Insured Fund II, Inc.,
MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc.,
MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan
Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey
Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York
Insured Fund II, Inc., MuniYield

C-3
<PAGE>

Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc. and Worldwide DollarVest Fund, Inc.

Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of the Manager,
acts as the investment adviser for the following open-end registered investment
companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill
Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Disciplined Equity Fund,
Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Growth Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch
Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch
Global Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill
Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch Index Funds, Inc., Merrill Lynch
Intermediate Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc., Merrill
Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series
Funds, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a
division of MLAM); and for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Senior Floating Rate Fund, Inc. and Merrill Lynch Senior Floating Rate Fund II,
Inc. MLAM also acts as sub-adviser to Merrill Lynch World Strategy Portfolio and
Merrill Lynch Basic Value Equity Portfolio, two investment portfolios of EQ
Advisors Trust.

The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The
address of the Manager, MLAM, Princeton Services, Inc. ("Princeton Services")
and Princeton Administrators, L.P. ("Princeton Administrators") is also P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of Princeton Funds
Distributor, Inc., ("PFD") and of Merrill Lynch Funds Distributor ("MLFD") is
P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co.,
Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281-1201. The address of the Fund's transfer agent, Financial
Data Services, Inc. ("FDS"), is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.

Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
August 1, 1997 for his, her or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Glenn is President and Mr. Burke
is Vice President and Treasurer of all or substantially all of the investment
companies described in the first two paragraphs of this Item 26, and Messrs.
Doll, Giordano, and Monagle are officers of one or more of such companies.

Princeton Services......... General Partner General Partner of MLAM

Jeffrey M. Peek............ President President of MLAM; President and Director of Princeton
Services; Executive Vice President of ML & Co.;
Managing Director and Co-Head of the Investment
Banking Division of Merrill Lynch in 1997
</TABLE>

C-4
<PAGE>

Position(s) with the Other Substantial Business,
Name Investment Adviser Profession, Vocation or Employment
----- ------------------ --------------------------------
<S> <C> <C>
Terry K. Glenn.............. Executive Vice Executive Vice President of MLAM; Executive Vice
President President and Director of Princeton Services; President
and Director of PFD; Director of FDS; President of
Princeton Administrators

Gregory A. Bundy............ Chief Operating Chief Operating Officer and Managing Director of MLAM;
Officer and Chief Operating Officer and Managing Director of
Managing Director Princeton Services; Co-CEO of Merrill Lynch Australia
from 1997 to 1999

Donald C. Burke............. Senior Vice President Senior Vice President, Treasurer and Director of Taxation
and Treasurer of MLAM; Senior Vice President and Treasurer of
Princeton Services; Vice President of PFD; First Vice
President of MLAM from 1997 to 1999; Vice President of
MLAM from 1990 to 1997

Michael G. Clark............ Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services; Treasurer and Director of PFD; First
Vice President of MLAM from 1997 to 1999; Vice
President of MLAM from 1996 to 1997

Robert C. Doll.............. Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services; Chief Investment Officer of
Oppenheimer Funds, Inc. in 1999 and Executive Vice
President thereof from 1991 to 1999

Linda L. Federici........... Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services

Vincent R. Giordano......... Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services

Michael J. Hennewinkel...... Senior Vice President, Senior Vice President, Secretary and General Counsel of
Secretary and General MLAM; Senior Vice President of Princeton Services
Counsel

Philip L. Kirstein.......... Senior Vice President Senior Vice President of MLAM; Senior Vice President,
Secretary and Director of Princeton Services

Debra W. Landsman-Yaros..... Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services; Vice President of PFDS

Stephen M. M. Miller........ Senior Vice President Executive Vice President of Princeton Administrators;
Senior Vice President of Princeton Services

Joseph T. Monagle, Jr. ..... Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services

Brian A. Murdock............ Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services

Gregory D. Upah............. Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
</TABLE>

Item 27. Principal Underwriters

(a) MLFD, a division of PFD, acts as the principal underwriter for the
Registrant and for each of the open-end registered investment companies referred
to in the first two paragraphs of Item 26 except CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA
Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program,
Inc. The Municipal Fund Accumulation Program, Inc. MLFD also acts as the
principal underwriter for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Municipal Strategy Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund II, Inc. A separate division of PFD acts
as the principal underwriter of a number of other investment companies.

C-5
<PAGE>

(b) Set forth below is information concerning each director and officer of
PFD. The principal business address of each such person is P.O. Box 9081,
Princeton, New Jersey 08543-9081, except that the address of Messrs. Breen,
Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.

Position(s) and Office(s) Position(s) and Office(s) with
Name with PFD Registrant
----- ------------------------- ---------------------------------
<S> <C> <C>
Terry K. Glenn............................... President and Director President and Trustee
Michael G. Clark............................. Treasurer and Director None
Thomas J. Verage............................. Director None
Robert W. Crook.............................. Senior Vice President None
Michael J. Brady............................. Vice President None
William M. Breen............................. Vice President None
Donald C. Burke.............................. Vice President Vice President and Treasurer
James T. Fatseas............................. Vice President None
Debra W. Landsman-Yaros...................... Vice President None
Michelle T. Lau.............................. Vice President None
Salvatore Venezia............................ Vice President None
William Wasel................................ Vice President None
Robert Harris................................ Secretary None
</TABLE>

Item 28. Location of Accounts and Records

All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules thereunder are maintained at the
offices of the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey
08536), and its transfer agent, Financial Data Services, Inc. (4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484).

Item 29. Management Services

Other than as set forth under the caption "Management of the Funds -- Fund
Asset Management" in the Prospectus constituting Part A of the Registration
Statement and under "Management of the Trust -- Management and Advisory
Arrangements" in the Statement of Additional Information constituting Part B of
the Registration Statement, the Registrant is not a party to any
management-related service contract.

Item 30. Undertakings.

Not applicable.

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<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Registrant certifies that it meets all of the requirements for
effectiveness of this Registration Statement under Rule 485(b) under the
Securities Act and has duly caused this Registration Statement to be signed on
its behalf by the undersigned, duly authorized, in the Township of Plainsboro,
and the State of New Jersey, on the 30th day of November, 1999.

MERRILL LYNCH MULTI-STATE LIMITED MATURITY
MUNICIPAL SERIES TRUST
(Registrant)

By: /s/ DONALD C. BURKE
-------------------------------------------------
(Donald C. Burke, Vice President and Treasurer)

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the date(s) indicated.

Signature Title Date
--------- ---- ----
<S> <C> <C>

TERRY K. GLENN* President and Trustee
---------------------------------------------- (Principal Executive Officer)
(Terry K. Glenn)

DONALD C. BURKE* Vice President and Treasurer
---------------------------------------------- (Principal Financial and
(Donald C. Burke) Accounting Officer)

JAMES H. BODURTHA* Trustee
----------------------------------------------
(James H. Bodurtha)

HERBERT I. LONDON* Trustee
----------------------------------------------
(Herbert I. London)

ROBERT R. MARTIN* Trustee
----------------------------------------------
(Robert R. Martin)

JOSEPH L. MAY* Trustee
----------------------------------------------
(Joseph L. May)

ANDRE F. PEROLD* Trustee
----------------------------------------------
(Andre F. Perold)

ARTHUR ZEIKEL* Trustee
----------------------------------------------
(Arthur Zeikel)

*By: /s/DONALD C. BURKE November 30, 1999
----------------------------------------------
(Donald C. Burke, Attorney-in-Fact)

</TABLE>

C-7
<PAGE>

POWER OF ATTORNEY

The undersigned Directors/Trustees and officers of each of the registered
investment companies listed below hereby authorize Terry K. Glenn, Donald C.
Burke and Joseph T. Monagle, Jr., or any of them, as attorney-in-fact, to sign
on his or her behalf in the capacities indicated any Registration Statement or
amendment thereto (including post-effective amendments) for each of the
following registered investment companies and to file the same, with all
exhibits thereto, with the Securities and Exchange Commission: Merrill Lynch
California Municipal Series Trust, Merrill Lynch Multi-State Municipal Series
Trust, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust,
Merrill Lynch Convertible Fund, Inc., Merrill Lynch Consults International
Portfolio, Merrill Lynch Growth Fund, Merrill Lynch World Income Fund, Inc.,
MuniEnhanced Fund, Inc., MuniHoldings California Insured Fund II, Inc.,
MuniHoldings Florida Insured Fund III, MuniHoldings Michigan Insured Fund, Inc.,
MuniHoldings New York Fund, Inc., MuniHoldings New York Insured Fund II, Inc.,
MuniHoldings New York Insured Fund III, Inc., MuniHoldings Pennsylvania Insured
Fund, MuniVest Pennsylvania Insured Fund, MuniYield Fund, Inc., MuniYield
Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield California
Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield
Florida Fund, MuniYield Michigan Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc.,
MuniYield Quality Fund, Inc. and MuniYield Quality Fund II, Inc.

Dated: April 7, 1999

<TABLE>
<CAPTION>
<S> <C> <C>
/s/ TERRY K. GLENN /s/ JOSEPH L. MAY
--------------------------------------------------------- ---------------------------------------------------------
Terry K. Glenn Joseph L. May
(President/Principal Executive Officer/Director/Trustee) (Director/Trustee)

/s/ JAMES H. BODURTHA /s/ ANDRE F. PEROLD
--------------------------------------------------------- ---------------------------------------------------------
James H. Bodurtha Andre F. Perold
(Director/Trustee) (Director/Trustee)

/s/ HERBERT I. LONDON /s/ ARTHUR ZEIKEL
--------------------------------------------------------- ---------------------------------------------------------
Herbert I. London Arthur Zeikel
(Director/Trustee) (Director/Trustee)

/s/ ROBERT R. MARTIN /s/ DONALD C. BURKE
--------------------------------------------------------- ---------------------------------------------------------
Robert R. Martin Donald C. Burke
(Director/Trustee) (Vice President/Treasurer/Principal Financial and
Accounting Officer)

</TABLE>

C-8
<PAGE>

EXHIBIT INDEX

Exhibit
Numbers Description
-------- ----------

1(d) -- Certificate of Termination of Series of Merrill Lynch Multi-
State Limited Maturity Municipal Series Trust
9 -- Opinion and Consent of Brown & Wood LLP, counsel for the
Registrant

10 -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant

EXHIBIT 1(d)

CERTIFICATE OF TERMINATION OF SERIES

MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST

The undersigned, constituting all of the Trustees of Merrill Lynch
Multi-State Limited Maturity Municipal Series Trust (the "Trust"), acting
pursuant to Section 11.2(b) of the Trust's Amended and Restated Declaration of
Trust (the "Declaration of Trust"), do hereby affirm that the following series
have been terminated in accordance with Section 11.2(a) of the Declaration of
Trust:

(i) Merrill Lynch Massachusetts Limited Maturity Municipal Bond Fund;

(ii) Merrill Lynch New Jersey Limited Maturity Municipal Bond Fund; and

(iii) Merrill Lynch Pennsylvania Limited Maturity Municipal Bond Fund.

IN WITNESS WHEREOF, the undersigned have caused the Certificate to be
signed as of the 9th day of April 1998.

/S/ ARTHUR ZEIKEL /S/ JAMES H. BODURTHA
------------------------------ ------------------------------
Arthur Zeikel James H. Bodurtha

/S/ HERBERT I. LONDON /S/ ROBERT R. MARTIN
------------------------------ ------------------------------
Herbert I. London Robert R. Martin

/S/ JOSEPH L. MAY /S/ ANDRE F. PEROLD
------------------------------ ------------------------------
Joseph L. May Andre F. Perold

EXHIBIT 9

BROWN & WOOD

ONE WORLD TRADE CENTER
NEW YORK, N.Y. 10048-0557

TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599

555 CALIFORNIA STREET 815 CONNECTICUT AVENUE, N.W.
SAN FRANCISCO, CA. 94104-1715 WASHINGTON, D.C. 20006-4004
TELEPHONE: 415-398-3909 TELEPHONE: 292-973-0600
FACSIMILE: 415-397-4621 FACSIMILE: 202-223-0485

10900 WILSHIRE BOULEVARD 172 WEST STATE STREET
LOS ANGELES, CA. 90024-3959 TRENTON, N.J. 08608-1104
TELEPHONE: 310-443-0200 TELEPHONE: 609-393-0303
FACSIMILE: 310-208-5740 FACSIMILE: 609-393-1990

SHIROYAMA JT MORI BUILDING, 15TH FLOOR BLACKWELL HOUSE
I, TORANOMON 4-CHOME, MINATO-KU GUILDHALL YARD
TOKYO 105, JAPAN LONDON EC2V 5AB
TELEPHONE: 03-5472-5360 TELEPHONE: 071-606-1888
FACSIMILE: 03-5472-5058 FACSIMILE: 071-796-1807

November 17, 1993

Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust
800 Scudders Mill Road
Princeton, NJ 08536

Dear Sir or Madam:

This opinion is furnished in connection with the registration by Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust, a Massachusetts
business trust (the "Trust"), of an indefinite number of Class A shares of
beneficial interest, par value $0.10 per share, and Class B shares of beneficial
interest, par value $.10 per share (together, the "Shares"), under the
Securities Act of 1933 pursuant to a registration statement on Form N-1A (File
No. 33-50417), as amended (the "Registration Statement"). The Shares all relate
to the series designated Merrill Lynch Arizona Limited Maturity Municipal Bond
Fund, Merrill Lynch California Limited Maturity Municipal Bond Fund, Merrill
Lynch Florida Limited Maturity Municipal Bond Fund, Merrill Lynch Massachusetts
Limited Maturity Municipal Bond Fund, Merrill Lynch Michigan Limited Maturity
Municipal Bond Fund, Merrill Lynch New Jersey Limited Maturity Municipal Bond
Fund, Merrill Lynch New York Limited Maturity Municipal Bond Fund, Merrill Lynch
Ohio Limited Maturity Municipal Bond Fund and Merrill Lynch Pennsylvania Limited
Maturity Municipal Bond Fund (collectively, the "Funds").

As counsel for the Trust, we are familiar with the proceedings taken by it
in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Amended and Restated
Declaration of Trust of the Trust, the By-laws of the Trust, as amended, the
instruments establishing each of the Funds as series of the Trust, the
instruments designating the Class A and Class B Shares of each of the Funds, and
such other documents as we have deemed relevant to the matters referred to in
this opinion.

Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement for
consideration not less than the par value thereof, will be legally issued, fully
paid and non-assessable shares of beneficial interest, except that shareholders
of the Trust under certain circumstances may be held personally liable for the
Trust's obligations.

In rendering this opinion, we have relied as to matters of Massachusetts
law upon an opinion of Bingham Dana LLP rendered to the Trust.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus and
Statement of Additional Information constituting parts thereof.

/s/ Brown & Wood

EXHIBIT 10

INDEPENDENT AUDITORS' CONSENT

Merrill Lynch Multi-State Limited Maturity Municipal Series Trust:

We consent to the incorporation by reference in this Post-Effective Amendment
No. 8 to Registration Statement No. 33-50417 of our report dated September 10,
1999 appearing in the annual report to shareholders of the Merrill Lynch Limited
Maturity Municipal Bond Funds for California and Florida of Merrill Lynch
Multi-State Limited Maturity Municipal Series Trust for the year ended July 31,
1999, and to the reference to us under the caption "Financial Highlights" in the
Prospectus, which is a part of such Registration Statement.

/s/ Deloitte & Touche LLP
---------------------
Deloitte & Touche LLP
Princeton, New Jersey
November 29, 1999