MERRILL LYNCH
MUNICIPAL
INTERMEDIATE
TERM FUND
FUND LOGO
Annual Report
October 31, 1995
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
<PAGE>
Merrill Lynch Municipal
Intermediate Term Fund
Merrill Lynch Municipal
Series Trust
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND
<PAGE>
Officers and
Trustees
Arthur Zeikel, President and Trustee
Ronald W. Forbes, Trustee
Cynthia A. Montgomery, Trustee
Charles C. Reilly, Trustee
Kevin A. Ryan, Trustee
Richard R. West, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Fredrick K. Stuebe, Vice President
Gerald M. Richard, Treasurer
Susan B. Baker, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
TO OUR SHAREHOLDERS
After losing momentum through the second calendar quarter of 1995,
it now appears that the US economic expansion has resumed. Gross
domestic product growth for the three months ended September 30 was
reported to be 4.2%, higher than generally expected. September
durable goods orders increased a surprisingly strong 3%, and
existing home sales rose to a near-record level. At the same time,
there is evidence that inflationary pressures remain subdued.
Reflecting the trend of renewed economic growth--and continued good
news on the inflation front--the Federal Reserve Board signaled no
near-term shift in monetary policy following its September meeting.
Thus, official interest rates may not be reduced further in the
immediate future.
One of the major developments during the October quarter was the
strengthening of the US dollar relative to the yen and the
Deutschemark. Improving interest rate differentials favoring the US
currency, combined with coordinated central bank intervention and
more positive investor sentiment, have helped to bolster the dollar
in foreign exchange markets. Other factors that appear to be
improving the US dollar's outlook in the near term are a pick-up in
capital flows to the United States and the prospect of increased
capital outflows from Japan. However, it remains to be seen if the
US dollar's strengthening trend can continue without significant
improvements in the US budget and trade deficits.
<PAGE>
In the weeks ahead, investor interest will continue to focus on US
economic activity. Clear signs of a moderate, noninflationary
expansion could further benefit the US stock and bond markets. In
addition, should the current Federal budget deficit reduction
efforts now underway in Washington prove successful, the
implications would likely be positive for the US financial markets.
The Municipal Market
Tax-exempt bond yields continued to decline during the three-month
period ended October 31, 1995. As measured by the Bond Buyer Revenue
Bond Index, the yield on uninsured, long-term municipal revenue
bonds fell 25 basis points (0.25%) to end the October period at
approximately 6.00%. While tax-exempt bond yields have declined
dramatically from their highs one year ago, municipal bond yields
have exhibited considerable yield volatility on a weekly basis. US
Treasury bond yields have displayed similar volatility, but the
extent of their decline has been greater. By the end of October,
long-term US Treasury bond yields had declined almost 50 basis
points to 6.33%. Proposed Federal tax restructuring continued to
weigh heavily on the tax-exempt bond market. Thus far in 1995, US
Treasury bond yields have declined approximately 150 basis points.
Municipal bond yields have fallen approximately 95 basis points as
the uncertainty surrounding any changes to the existing Federal
income tax structure has prevented the municipal bond market from
rallying as strongly as its taxable counterpart.
A general view of a moderately expanding domestic economy, supported
by a very favorable inflationary environment, allowed interest rates
to significantly decline from their recent highs in November 1994.
However, this decline was not a smooth downward curve. Conflicting
economic indicators were released during recent months that have
prevented a clear consensus regarding the near-term direction of
interest rates from being reached. The resultant uncertainty has
promoted more of a saw-toothed pattern as interest rate declines
were repeatedly interrupted by indications of stronger-than-expected
economic growth. As these concerns were overcome by subsequent
weaker economic releases, interest rate declines have resumed. These
periods of volatility are likely to continue for the remainder of
1995, or until proposed Federal budget deficit reduction packages
are resolved and any resultant responses by the Federal Reserve
Board have occurred.
<PAGE>
However, the municipal bond market's technical position remained
supportive throughout recent quarters. Approximately $38 billion in
long-term municipal securities were issued during the three months
ended October 31, 1995. While this issuance is virtually identical
to underwritings during the October 31, 1994 quarter, tax-exempt
bond issuance over the last 12 months remained approximately 25%
below comparable 1994 levels. The municipal bond market should
maintain this positive technical position well into 1996. Annual
issuance for 1995 is now projected to be approximately $140 billion,
significantly less than last year's already low level of $162
billion. Projected maturities and early redemptions for the
remainder of 1995 and throughout 1996 will lead to a continued
decline in the total outstanding municipal bond supply throughout
1996 and, perhaps, into 1998 should new bond issuance remain at
historically low levels.
Despite the municipal bond market's relative underperformance
compared to the US Treasury market thus far in 1995, the extent of
the tax-exempt bond market's rally was nonetheless quite impressive.
Municipal bond yields have fallen 135 basis points from their highs
reached in November 1994 and municipal bond prices rose accordingly.
Most tax-exempt products recouped almost all of the losses incurred
in 1994 and are well on their way to posting double-digit total
returns for all of 1995. This relative underperformance so far in
1995 provided long-term investors with the rare opportunity to
purchase tax-exempt securities at yield levels near those of taxable
securities.
Additionally, many of the factors that led to the relative
underperformance of the tax-exempt bond market thus far in 1995,
namely investor concern regarding Federal budget deficit reductions
and proposed changes in the Federal income tax structure, are
nearing resolution. The Federal budget reconciliation process has
already begun, and may be essentially completed by year-end. Recent
public opinion polls suggest that the majority of American taxpayers
prefer the existing Federal income tax system compared to proposed
changes, such as the flat tax or national sales tax. In an upcoming
election year, neither party is likely to advocate a clearly
unpopular position, particularly one that can be expected to
negatively impact the Federal budget deficit reduction program
through reduced tax revenues. As these factors are resolved, we
believe that much of the resistance that the municipal bond market
met this year should dissipate. This should allow municipal bond
yields to significantly decline from current levels in order to
return to more normal historic yield relationships.
<PAGE>
Fiscal Year in Review
During the 12-month period ended October 31, 1995, there were two
different municipal bond market environments. The Municipal Bond
Buyer Revenue Index went from 6.95% in October 1994 to a high of
7.27% in December 1994 and back to 6.02% in October 1995. During the
first six months of the Fund's fiscal year, we followed a more
cautious investment strategy. We sold a portion of the Fund's
performance-oriented deeply discounted securities and replaced them
with less volatile current and premium coupon securities. Throughout
the last six months of the Fund's fiscal year, our investment
strategy reflected our decidedly more optimistic view toward the
municipal bond market. As a consequence, we kept the Fund
essentially fully invested and cash reserves at a minimum. At the
beginning of August, we concentrated on the acquisition of more
performance-oriented securities of high tax states to better
position the portfolio to take advantage of our view of a falling
interest rate scenario. This partial emphasis toward performance-
oriented securities is still ongoing. This investment approach
resulted in the Fund benefiting from the municipal bond market
rebound that occurred during the last half of the year.
Looking forward, we plan to continue our strategy of concentrating
on maintaining an appealing level of tax-exempt income and total
return by continuing to emphasize the Fund's present coupon and high
credit quality structure. Our use of these strategies resulted in
positive returns and a competitive current yield for our
shareholders during the fiscal year.
In Conclusion
We thank you for your continued support of Merrill Lynch Municipal
Intermediate Term Fund, and we look forward to serving your
investment needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President and
Portfolio Manager
December 11, 1995
<PAGE>
PERFORMANCE DATA
About Fund
Performance
Since October 21, 1994, investors have been able to purchase
shares of the Fund through the Merrill Lynch Select Pricing SM
System, which offers four pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 1% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 1% if redeemed during the first year, decreasing 1%
thereafter to 0% after the first year. In addition, Class B Shares
are subject to a distribution fee of 0.10% and an account
maintenance fee of 0.20%. These shares automatically convert to
Class D Shares after approximately 10 years.
* Class C Shares are subject to a distribution fee of 0.10% and an
account maintenance fee of 0.20%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 1% and an
account maintenance fee of 0.10% (but no distribution fee).
Performance data for all of the Fund's Shares are presented in the
"Total Return Based on a $10,000 Investment" graphs and the "Recent
Performance Results" and "Performance Summary" tables below and on
pages 5-8. Data for Class A and Class B Shares are presented in the
"Average Annual Total Return" table on page 5. Data for Class C and
Class D Shares are also presented in the "Aggregate Total Return"
table on page 6.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for all of the Fund's
Shares for the 12-month and 3-month periods ended October 31, 1995.
All data in this table assume imposition of the actual total
expenses incurred by each class of shares during the relevant
period.
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<PAGE>
Total Return
Based on a
$10,000
Investment--
Class A Shares &
Class B Shares
A line graph depicting growth of an investment in the Fund's Class A
Shares compared to the growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
10/31/88** 10/95
ML Municipal Intermediate Term Fund++--
Class A Shares* $ 9,900 $15,829
Lehman Brothers Municipal Bond Index++++ $10,000 $17,691
A line graph depicting growth of an investment in the Fund's Class B
Shares compared to the growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
11/26/86** 10/95
ML Municipal Intermediated Term Fund++--
Class B Shares* $10,000 $16,544
Lehman Brothers Municipal Bond Index++++ $10,000 $19,709
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML Municipal Intermediate Term Fund invests primarily in a
diversified portfolio of investment-grade obligations whose interest
is exempt from Federal income taxes, with a dollar-weighted average
maturity of from five to twelve years.
++++This unmanaged Index consists of revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds.
<PAGE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/95 +7.06% +5.99%
Five Years Ended 9/30/95 +7.50 +7.28
Inception (10/31/88) through 9/30/95 +6.84 +6.68
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/95 +6.84% +5.84%
Five Years Ended 9/30/95 +7.17 +7.17
Inception (11/26/86) through 9/30/95 +5.72 +5.72
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
PERFORMANCE DATA (continued)
Total Return
Based on a
$10,000
Investment--
Class C Shares &
Class D Shares
<PAGE>
A line graph depicting growth of an investment in the Fund's Class C
Shares and Class D Shares compared to the growth of an investment in
the Lehman Brothers Municipal Bond Index. Beginning and ending
values are:
10/21/94** 10/95
ML Municipal Intermediate Term Fund++--
Class C Shares* $10,000 $10,858
ML Municipal Intermediate Term Fund++--
Class D Shares* $ 9,900 $10,771
Lehman Brothers Municipal Bond Index++++ $10,000 $11,484
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++ML Municipal Intermediate Term Fund invests primarily in a
diversified portfolio of investment-grade obligations whose interest
is exempt from Federal income taxes, with a dollar-weighted average
maturity of from five to twelve years.
++++This unmanaged Index consists of revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds.
Past performance is not predictive of future performance.
Aggregate
Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94) through 9/30/95 +7.22% +6.22%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (10/21/94) through 9/30/95 +7.53% +6.46%
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
10/31/95 7/31/95 10/31/94 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.00 $9.88 $9.62 +3.95% +1.21%
Class B Shares* 10.00 9.88 9.62 +3.95 +1.21
Class C Shares* 10.00 9.87 9.62 +3.95 +1.32
Class D Shares* 10.00 9.88 9.62 +3.95 +1.21
Class A Shares--Total Return* +9.68(1) +2.48(2)
Class B Shares--Total Return* +9.34(3) +2.40(4)
Class C Shares--Total Return* +9.36(5) +2.53(6)
Class D Shares--Total Return* +9.57(7) +2.46(8)
Class A Shares--Standardized 30-day Yield 4.33%
Class B Shares--Standardized 30-day Yield 4.05%
Class C Shares--Standardized 30-day Yield 4.13%
Class D Shares--Standardized 30-day Yield 4.23%
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.525 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.124 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.495 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.116 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.496 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.118 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.515 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.121 per share ordinary
income dividends.
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--
Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/31/88--12/31/88 $ 9.45 $ 9.29 -- $0.117 - 0.45%
1989 9.29 9.41 -- 0.606 + 8.07
1990 9.41 9.31 -- 0.594 + 5.45
1991 9.31 9.73 -- 0.597 +11.28
1992 9.73 9.89 -- 0.582 + 7.88
1993 9.89 10.42 -- 0.538 +11.04
1994 10.42 9.52 -- 0.521 - 3.69
1/1/95--10/31/95 9.52 10.00 -- 0.424 + 9.78
------
Total $3.979
Cumulative total return as of 10/31/95: 59.88%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
PERFORMANCE DATA (concluded)
<PAGE>
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
11/26/86--12/31/86 $10.00 $ 9.94 -- $0.030 - 0.10%
1987 9.94 9.27 -- 0.579 - 1.09
1988 9.27 9.29 -- 0.564 + 6.43
1989 9.29 9.41 -- 0.577 + 7.74
1990 9.41 9.31 -- 0.566 + 5.14
1991 9.31 9.73 -- 0.568 +10.94
1992 9.73 9.89 -- 0.552 + 7.55
1993 9.89 10.42 -- 0.507 +10.71
1994 10.42 9.52 -- 0.490 - 3.99
1/1/95--10/31/95 9.52 10.00 -- 0.400 + 9.50
------
Total $4.833
Cumulative total return as of 10/31/95: +65.44%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.70 $ 9.52 -- $0.093 -0.89%
1/1/95--10/31/95 9.52 10.00 -- 0.404 +9.55
------
Total $0.497
Cumulative total return as of 10/31/95: +8.58%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--
Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.70 $ 9.52 -- $0.100 -0.81%
1/1/95--10/31/95 9.52 10.00 -- 0.416 +9.69
------
Total $0.516
Cumulative total return as of 10/31/95: +8.80%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
Portfolio Abbreviations
To simplify the listings of Merrill Lynch Municipal Intermediate
Term Fund's portfolio holdings in the Schedule of Investments, we
have abbreviated the names of many of the securities according to
the list at right.
ACES SM Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alaska--1.6% AAA Aaa $ 2,575 Alaska State Housing Finance Corporation, Series A, 5.30%
due 6/01/2007 (d) $ 2,556
AAA Aaa 1,000 Alaska Student Loan Corporation, Student Assisted Loan
Revenue Bonds, AMT, Series A, 5.90% due 7/01/2003 (c) 1,043
Arizona NR* NR* 2,000 Mohave County, Arizona, IDA, IDR (North Star Steel Co.
- --0.9% Project), AMT, 6.70% due 3/01/2020 2,139
California A A1 4,010 California State, GO, 5.25% due 10/01/2013 3,800
- --12.0% AAA Aaa 3,000 Los Angeles, California, GO, UT, Series A, 5.70% due 9/01/2008 (e) 3,089
AAA Aaa 3,575 Oakland, California, Redevelopment Agency, Sub-Tax Allocation
Redevelopment Bonds (Central District), 5.30% due 9/01/2009 (d) 3,561
AAA Aaa 4,000 Oxnard, California, Financing Authority, Solid Waste
Revenue Bonds, AMT, 5.75% due 5/01/2010 (c) 4,013
AAA Aaa 4,000 Southern California Public Power Authority, Power Project
Revenue Bonds (San Juan Unit 3), Series A, 5.375% due
1/01/2010 (d) 3,970
AAA Aaa 3,000 Southern California Rapid Transportation District Revenue
Bonds (Special Benefit Assessment District), Series A1,
5.50% due 9/01/2009 (c) 3,018
NR* Aa 1,750 University of California, COP (UCLA Central Chiller
Cogeneration), 10.75% due 11/01/1998 2,058
A- NR* 1,610 University of California, Research Facilities Revenue Bonds,
Series B, 6.50% due 9/01/2003 1,706
AAA Aaa 3,000 West & Central Basin, California, Financing Authority, Revenue
Refunding Bonds (West Basin Project), Series A, 5% due
8/01/2010 (c) 2,855
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Colorado--6.5% Arapahoe County, Colorado, Capital Improvement Trust Fund,
Highway Revenue Bonds, Series A (d):
AAA Aaa $ 1,315 5.65% due 8/31/2009 $ 1,351
AAA Aaa 1,390 5.75% due 8/31/2010 1,428
AAA Aaa 1,000 Colorado Springs, Colorado, Utilities Revenue Improvement
Bonds, Series A, 9.875% due 11/15/2000 (b) 1,253
Colorado Student Obligation Bond Authority, Student Loan
Revenue Bonds, AMT, Series C:
NR* A 1,000 6.80% due 9/01/2000 1,062
NR* A 1,300 6.90% due 9/01/2001 1,395
A+ A 2,000 Denver, Colorado, City and County Revenue Bonds, COP (School
District Number 001), UT, Series B, 10% due 12/01/1999 2,393
A NR* 1,225 Denver, Colorado, Urban Renewal Authority, Tax Increment
Revenue Bonds (Downtown Denver), AMT, Series A, 7.25% due
9/01/2017 1,314
NR* A 1,470 Larimer County, Colorado, COP (School District Number R-1),
10% due 12/01/2001 1,881
AAA NR* 3,000 Westminster, Colorado, M/F Revenue Refunding Bonds (Oasis
Wexford Apartments Project), 5.35% due 12/01/2025 (i) 3,005
Connecticut Connecticut State, Special Tax Obligation Revenue Bonds
- --3.0% (Transportation Infrastructure), Series B:
AAA Aaa 5,230 5.10% due 10/01/2008 (e) 5,187
AAA AAA 1,400 6.125% due 9/01/2012 (d) 1,494
Florida--3.9% AAA Aaa 3,500 Dade County, Florida, Educational Facilities Authority,
Exchangeable Revenue Bonds (University of Miami), 7.65%
due 4/01/2010 (d) 3,975
AAA Aaa 2,500 Florida HFA (Antigua Club Apartments), AMT, Series A-1,
6.875% due 8/01/2026 (c) 2,645
AAA Aaa 2,000 Florida State Municipal Power Agency Revenue Bonds
(Stanton II Project), 6.50% due 10/01/2002 (b) (c) 2,267
Georgia--3.2% A1 VMIG1++ 5,600 Berke County, Georgia, Development Authority, PCR (Georgia
Power Co.--Plant Vogtle Project), VRDN, 3rd Series, 3.90%
due 7/01/2024 (a) 5,600
A+ A 1,250 Georgia Municipal Electric Authority, Special Obligation
Bonds, Fifth Crossover Series (Project One), 6.40% due 1/01/2009 1,351
A1 VMIG1++ 400 Monroe County, Georgia, Development Authority, PCR (Georgia
Power Co.--Scherer), VRDN, 1st Series, 4% due 7/01/2025 (a) 400
Hawaii--1.9% AAA Aaa 4,000 Hawaii Department of Budget and Finance, Special Purpose
Mortgage Revenue Bonds (Hawaiian Electric Company), AMT,
Series C, 7.375% due 12/01/2020 (d) 4,453
<PAGE>
Illinois AAA Aaa 2,000 Chicago, Illinois, O'Hare International Airport, Revenue
- --10.9% Refunding Bonds (General Airport), Second Lien, Series A,
6.375% due 1/01/2012 (d) 2,131
Cook County, Illinois, Revenue Bonds, COP (Community College
District No. 508), UT (e):
AAA Aaa 2,000 8.10% due 1/01/1999 2,216
AAA Aaa 1,000 8.50% due 1/01/2002 1,204
Illinois Health Facilities Authority Revenue Bonds, VRDN (a):
A1+ VMIG1++ 1,700 (Northwest Community Hospital), 4% due 7/01/2025 1,700
NR* VMIG1++ 1,200 (Resurrection Health Care System), 4.05% due 5/01/2011 1,200
AAA Aaa 2,500 Illinois Health Facilities Authority, Revenue Refunding Bonds
(Lutheran General Health), Series C, 7% due 4/01/2008 (h) 2,868
Illinois State GO:
AA- A1 2,000 6.60% due 6/01/2009 2,186
AA- A1 3,095 UT, 5.70% due 8/01/2008 3,193
A+ A1 2,500 Illinois Student Assistance Community, Student Loan
Revenue Bonds, AMT, Series M, 6.60% due 3/01/2007 2,676
AAA Aaa 3,000 Sangamon County, Illinois, School District No. 186, Revenue
Refunding Bonds (Springfield School), UT, 6.50% due 3/01/2008 (e) 3,342
AAA Aaa 2,045 University of Illinois, COP, Series A, 7.25% due 8/15/2000 (f) 2,240
Indiana--0.5% A+ NR* 1,000 Indianapolis, Indiana, Local Public Improvement Refunding
Bonds, Series D, 6.50% due 2/01/2006 1,087
Iowa--0.5% AAA Aaa 1,145 Woodbury County, Iowa, Health System Revenue Refunding
Bonds (Saint Luke's Obligation Group), Series A, 5.20%
due 9/01/2007 (d) 1,138
Kansas--1.8% AAA Aaa 4,000 Kansas City, Kansas, Improvement Bonds, UT, Series B, 5.625%
due 9/01/2009 (d) 4,098
Kentucky--0.1% A1+ VMIG1++ 200 Carroll County, Kentucky, Solid Waste Disposal Facilities
Revenue Bonds (Kentucky Utilities Co. Project), VRDN, AMT,
Series A, 4.05% due 11/01/2024 (a) 200
Louisiana-- A1+ P1 2,100 Louisiana State Offshore Terminal Authority, Deepwater
2.0% Port Revenue Refunding Bonds (Loop Inc.--First Stage),
ACES, 3.90% due 9/01/2006 (a) 2,100
AAA Aaa 2,190 New Orleans, Louisiana, Revenue Refunding Bonds, 6.25% due
10/01/2006 (c) 2,417
Maine--2.5% NR* A 3,080 Maine Educational Loan Marketing Corporation, Student Loan
Revenue Refunding Bonds, AMT, 6.90% due 11/01/2003 3,360
Maine State Turnpike Authority, Turnpike Revenue Bonds (d):
AAA Aaa 1,000 7.125% due 7/01/2008 1,177
AAA Aaa 1,000 7.50% due 7/01/2009 1,211
<PAGE>
Massachusetts BBB+ Aaa 1,745 Massachusetts Municipal Wholesale Electric Company, Power
- --8.6% Supply System Revenue Bonds, Series B, 6.75% due 7/01/2002 (b) 1,989
A+ A1 1,500 Massachusetts State GO, UT, Series B, 9.25% due 7/01/2000 1,795
AAA Aaa 1,575 Massachusetts State HFA, Revenue Refunding Bonds, Series A,
5.25% due 12/01/2006 (d) 1,575
AAA Aaa 2,060 Massachusetts State, Revenue Refunding Bonds (Lowell Building
Authority), Fifth Series A, 5.625% due 11/01/2008 (c) 2,130
A+ A1 5,000 Massachusetts State, Revenue Refunding Bonds, Series C, 5%
due 8/01/2007 4,934
AA- Aa 1,850 Massachusetts State Water Pollution Abatement Trust, Revenue
Secured Loan Program, Series A, 6.375% due 2/01/2015 1,933
AAA Aaa 5,000 Massachusetts State Water Resource Authority, Series A,
6.50% due 7/15/2002 (b) 5,632
Michigan--2.5% NR* A 1,000 Michigan Higher Education, Student Loan Authority Revenue
Bonds, AMT, Series XIV-A, 6.75% due 10/01/2006 1,093
Michigan State Hospital Finance Authority, Revenue
Refunding Bonds, Series A:
A A 1,000 (Detroit Medical Center Obligation Group), 6.375% due
8/15/2009 1,027
NR* A1 3,280 (McLaren Obligation Group), 5.75% due 10/15/2003 3,360
NR* P1 300 Michigan State Strategic Fund, PCR, Refunding (Consumers
Power Project), VRDN, Series A, 3.90% due 4/15/2018 (a) 300
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Minnesota- Minneapolis and St. Paul, Minnesota, Housing and Redevelopment
- -4.4% Authority, Health Care System, Revenue Refunding Bonds, Series A:
AAA Aaa $ 1,370 (Children's Healthcare), 5.45% due 8/15/2010 (f) $ 1,370
AAA Aaa 1,660 (Children's Healthcare), 5.55% due 8/15/2011 (f) 1,667
AAA Aaa 4,800 (Healthspan), 5% due 11/15/2006 (c) 4,772
AA+ Aa 2,250 Minnesota HFA, S/F Mortgage Revenue Bonds, Series E, 6.65%
due 7/01/2013 2,381
Mississippi NR* P1 1,300 Jackson County, Mississippi, PCR, Refunding (Chevron USA,
- --2.4% Inc. Project), VRDN, 3.90% due 12/01/2016 (a) 1,300
Mississippi Higher Education Assistance Corporation,
Student Loan Revenue Refunding Bonds, AMT, Series C:
A NR* 2,370 6.40% due 1/01/2003 2,469
A NR* 1,440 6.50% due 7/01/2004 1,500
<PAGE>
Nevada--0.5% AAA Aaa 1,000 Clark County, Nevada, School District Revenue
Bonds, Series A, 9.75% due 6/01/2000 (d) 1,213
New AAA Aaa 1,570 New Jersey State Housing and Mortgage Finance Agency
Jersey--0.7% Revenue Bonds, AMT, Series F, 7.80% due 10/01/2010 (d) 1,673
New Mexico AAA Aaa 4,210 Las Cruces, New Mexico, Revenue Bonds, AMT, 5.35%
- --1.8% due 12/01/2007 (d) 4,240
New York A- Baa1 2,000 New York City, New York, GO, UT, Series A, 8% due
- --2.9% 11/01/1998 (g) 2,213
A1+ NR* 200 New York City, New York, IDA, IDR (Japan Airlines
Company Ltd. Project), VRDN, AMT, 4% due 11/01/2015 (a) 200
AAA VMIG1++ 500 New York City, New York, Municipal Water Finance
Authority, Water and Sewer System Revenue Bonds, VRDN,
Series A, 4% due 6/15/2025 (a)(e) 500
BBB+ Baa1 3,825 New York City, New York, Revenue Refunding Bonds,
Series E, 5.40% due 2/15/2003 3,791
North A1+ NR* 5,100 Raleigh-Durham, North Carolina, Airport Authority, Special
Carolina--2.2% Facility Revenue Bonds, VRDN, Series A, 3.85% due
11/01/2015 (a) 5,100
North NR* Aa 1,000 North Dakota State, Student Loan Revenue Refunding Bonds,
Dakota--0.4% Series A, 5.90% due 7/01/1998 1,032
Ohio--1.4% AAA Aaa 1,000 Lakota, Ohio, Local School District Revenue Bonds, UT,
7% due 12/01/2007 (c) 1,171
AA Aa 1,860 Ohio State Infrastructure Improvement Revenue Bonds, GO,
UT, 6.20% due 8/01/2012 1,986
Pennsylvania AAA NR* 2,500 Pennsylvania State Higher Education Assistance Agency, Student
- --1.1% Loan Revenue Bonds, Series A, 4.625% due 12/01/2000 2,500
South Carolina NR* P1 100 Charleston County, South Carolina, Industrial Revenue
- --0.9% Refunding Bonds (Massey Coal Terminal Corp.), VRDN,
3.95% due 1/01/2007 (a) 100
AAA Aaa 2,020 Greenville County, South Carolina, Public Facilities Corp.,
COP (Courthouse and Detention Center Project), 5.25% due
4/01/2007 (c) 2,032
<PAGE>
Tennessee--1.3% A+ A1 2,960 Tennessee HDA, Mortgage Financing Revenue Refunding Bonds,
Series A, 5.65% due 1/01/2007 2,988
Texas--10.6% NR* A 690 Brazos, Texas, Higher Education Authority, Student Loan
Revenue Refunding Bonds, AMT, Series A, 6.70% due 9/01/2001 735
NR* A 2,455 Central Texas, Higher Education Authority, Student Loan
Revenue Refunding Bonds, AMT, Sub-Series B, 5.50% due
12/01/2005 2,462
AAA Aaa 3,000 Houston, Texas, Hotel Occupancy Tax Revenue Refunding
Bonds (Senior Lien), 5.25% due 7/01/2008 (h) 2,983
AAA Aaa 3,645 Irving, Texas, Hospital Authority, Hospital Revenue Bonds
(Irving Healthcare System), Series B, 5.75% due 7/01/2005 (f) 3,838
AAA Aaa 3,000 Lower Colorado River Authority, Texas, Revenue Refunding
Bonds (Junior Lien), 5.40% due 1/01/2007 (h) 3,047
AA Aa 1,375 San Antonio, Texas, GO, Improvement Bonds, 8.625% due 8/01/1999 1,573
AA Aa 2,700 Texas State Public Financing Authority Revenue Bonds,
Series C, 9% due 10/01/1999 3,144
AAA Aaa 1,950 Trinity River Authority, Texas, Regional Wastewater System
Revenue Bonds, 5.30% due 8/01/2007 (c) 1,980
AA+ Aaa 3,545 University of Texas, Revenue Refunding Bonds (Permanent
University Fund), 9.50% due 7/01/2000 4,277
Vermont--2.1% AAA Aaa 4,385 Vermont Municipal Bond Bank, Revenue Refunding Bonds,
Series 2, 6% due 12/01/2006 (c) 4,758
Virginia--2.4% Virginia State HDA, Commonwealth Mortgage Revenue Bonds:
AA+ Aa1 2,585 Series H, 6.50% due 7/01/2007 2,732
AA+ Aa1 1,365 Series J, Sub-Series J-2, 6.45% due 1/01/2010 1,419
AA+ Aa1 1,300 Series J, Sub-Series J-2, 6.50% due 1/01/2011 1,357
Washington AAA Aaa 1,000 King and Snohomish Counties, Washington, School District
- --3.6% No. 417 (Northshore), 5.30% due 12/01/2008 (e) 1,007
AAA Aaa 1,500 Snohomish County, Washington, Public Utilities Electric
Revenue Bonds (District No. 001), Series B, 9.75% due
1/01/1999 (e) 1,732
AAA Aaa 1,000 Snohomish County, Washington, School District No. 006,
Revenue Refunding Bonds (Mukilteo), UT, 5.50% due
12/01/2006 (e) 1,043
AA Aa 2,400 Washington State, GO, Series A, 6.70% due 2/01/2006 2,732
AA Aa 1,500 Washington State Public Power Supply System, Revenue
Refunding Bonds (Nuclear Project No. 3), Series B, 7.375%
due 7/01/2004 1,666
<PAGE>
Wisconsin AAA Aaa 3,130 Wisconsin State Health & Educational Facilities Authority
- --2.2% Revenue Bonds (Waukesha Memorial Hospital), Series A, 5.25%
due 8/15/2012 (c) 2,969
AA Aa 2,000 Wisconsin State Housing and Economic Development Authority,
Home Ownership Revenue Bonds, AMT, Series F, 7.40% due
7/01/2013 (j) 2,149
Total Investments (Cost--$231,221)--103.3% 237,575
Liabilities in Excess of Other Assets--(3.3%) (7,479)
--------
Net Assets--100.0% $230,096
========
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at October 31, 1995.
(b)Prerefunded.
(c)AMBAC Insured.
(d)MBIA Insured.
(e)FGIC Insured.
(f)CGIC Insured.
(g)Escrowed to Maturity.
(h)FSA Insured.
(i)FNMA Collateralized.
(j)FHA Insured.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of October 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$231,220,561)(Note 1a) $237,574,569
Cash 108,063
Receivables:
Securities sold $ 12,141,879
Interest 3,568,459
Beneficial interest sold 311,590 16,021,928
------------
Prepaid registration fees and other assets (Note 1e) 78,731
------------
Total assets 253,783,291
------------
<PAGE>
Liabilities: Payables:
Securities purchased 22,813,645
Beneficial interest redeemed 422,736
Dividends to shareholders (Note 1f) 234,174
Investment adviser (Note 2) 103,130
Distributor (Note 2) 46,039 23,619,724
------------
Accrued expenses and other liabilities 67,706
------------
Total liabilities 23,687,430
------------
Net Assets: Net assets $230,095,861
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 349,647
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 1,816,396
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 64,865
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 69,988
Paid-in capital in excess of par 235,195,764
Accumulated realized capital losses on investments--net
(Note 5) (13,754,807)
Unrealized appreciation on investments--net 6,354,008
------------
Net assets $230,095,861
============
Net Asset Class A--Based on net assets of $34,970,380 and 3,496,473
Value: shares of beneficial interest outstanding $ 10.00
============
Class B--Based on net assets of $181,640,125 and 18,163,962
shares of beneficial interest outstanding $ 10.00
============
Class C--Based on net assets of $6,484,942 and 648,645 shares
of beneficial interest outstanding $ 10.00
============
Class D--Based on net assets of $7,000,414 and 699,877
shares of beneficial interest outstanding $ 10.00
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended October 31, 1995
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 10,711,523
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 955,580
Account maintenance and distribution fees--Class B (Note 2) 421,981
Transfer agent fees--Class B (Note 2) 97,308
Professional fees 97,080
Printing and shareholder reports 94,458
Registration fees (Note 1e) 77,498
Accounting services (Note 2) 45,626
Transfer agent fees--Class A (Note 2) 16,008
Trustees' fees and expenses 15,897
Pricing fees 10,090
Custodian fees 8,874
Account maintenance fees--Class D (Note 2) 3,486
Account maintenance and distribution fees--Class C (Note 2) 2,943
Transfer agent fees--Class D (Note 2) 1,898
Transfer agent fees--Class C (Note 2) 1,286
Other 8,940
------------
Total expenses 1,858,953
------------
Investment income--net 8,852,570
------------
Realized & Realized loss on investments--net (5,179,687)
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net 11,774,800
(Loss) on ------------
Investments Net Increase in Net Assets Resulting from Operations $ 15,447,683
- --Net (Notes 1b, ============
1d & 3):
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 8,852,570 $ 8,954,704
Realized gain (loss) on investments--net (5,179,687) 1,875,751
Change in unrealized appreciation/depreciation on
investments--net 11,774,800 (15,766,315)
------------ ------------
Net increase (decrease) in net assets resulting from
operations 15,447,683 (4,935,860)
------------ ------------
Dividends to Investment income--net:
Shareholders Class A (1,507,705) (1,583,774)
(Note 1f): Class B (7,096,365) (7,370,849)
Class C (70,020) (1)
Class D (178,480) (80)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (8,852,570) (8,954,704)
------------ ------------
Beneficial Net increase in net assets derived from beneficial interest
Interest transactions 53,625,113 1,531,744
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase (decrease) in net assets 60,220,226 (12,358,820)
Beginning of year 169,875,635 182,234,455
------------ ------------
End of year $230,095,861 $169,875,635
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have
been derived from information provided in the
financial statements. Class A
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 9.62 $ 10.39 $ 9.70 $ 9.61 $ 9.24
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .53 .52 .54 .59 .60
Realized and unrealized gain (loss) on
investments--net .38 (.77) .69 .09 .37
-------- -------- -------- -------- --------
Total from investment operations .91 (.25) 1.23 .68 .97
-------- -------- -------- -------- --------
Less dividends from investment
income--net (.53) (.52) (.54) (.59) (.60)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.00 $ 9.62 $ 10.39 $ 9.70 $ 9.61
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 9.68% (2.49%) 13.01% 7.16% 10.90%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses .81% .76% .75% .86% .85%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 5.36% 5.19% 5.35% 5.97% 6.34%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 34,970 $ 27,653 $ 24,173 $ 14,068 $ 6,546
Data: ======== ======== ======== ======== ========
Portfolio turnover 115.78% 52.56% 83.66% 74.20% 129.85%
======== ======== ======== ======== ========
<CAPTION>
The following per share data and ratios have
been derived from information provided in the
financial statements. Class B
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 9.62 $ 10.39 $ 9.69 $ 9.61 $ 9.24
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .50 .49 .51 .56 .57
Realized and unrealized gain (loss) on
investments--net .38 (.77) .70 .08 .37
-------- -------- -------- -------- --------
Total from investment operations .88 (.28) 1.21 .64 .94
-------- -------- -------- -------- --------
Less dividends from investment income--net (.50) (.49) (.51) (.56) (.57)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.00 $ 9.62 $ 10.39 $ 9.69 $ 9.61
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 9.34% (2.79%) 12.78% 6.72% 10.56%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding account maintenance
Net Assets: and distribution fees .83% .77% .76% .86% .88%
======== ======== ======== ======== ========
Expenses 1.13% 1.07% 1.06% 1.16% 1.18%
======== ======== ======== ======== ========
Investment income--net 5.05% 4.87% 5.07% 5.68% 6.05%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $181,640 $142,152 $158,061 $124,802 $ 97,998
Data: ======== ======== ======== ======== ========
Portfolio turnover 115.78% 52.56% 83.66% 74.20% 129.85%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effect of sales loads.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class C Class D
For the For the
The following per share data and ratios have been For the Period For the Period
derived from information provided in the financial Year Oct. 21, Year Oct. 21,
statements. Ended 1994++ to Ended 1994++ to
Oct. 31, Oct. 31, Oct. 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.62 $ 9.70 $ 9.62 $ 9.70
Operating -------- ------- -------- --------
Performance: Investment income--net .50 .01 .52 .01
Realized and unrealized gain (loss) on
investments--net .38 (.08) .38 (.08)
-------- ------- -------- --------
Total from investment operations .88 (.07) .90 (.07)
-------- ------- -------- --------
Less dividends from investment income--net (.50) (.01) (.52) (.01)
-------- ------- -------- --------
Net asset value, end of period $ 10.00 $ 9.62 $ 10.00 $ 9.62
======== ======= ======== ========
<PAGE>
Total Investment Based on net asset value per share 9.36% (.71%)+++ 9.57% (.71%)+++
Return:** ======== ======= ======== ========
Ratios to Expenses, excluding account maintenance and
Average distribution fees .81% .88%* .80% .87%*
Net Assets: ======== ======= ======== ========
Expenses 1.01% 1.18%* .90% .97%*
======== ======= ======== ========
Investment income--net 4.76% 4.92%* 5.12% 5.20%*
======== ======= ======== ========
Supplemental Net assets, end of period (in thousands) $ 6,485 $ 1 $ 7,000 $ 70
Data: ======== ======= ======== ========
Portfolio turnover 115.78% 52.56% 115.78% 52.56%
======== ======= ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Municipal Intermediate Term Fund (the "Fund") is
presently the only series of Merrill Lynch Municipal Series Trust
(the "Trust"). The Fund is registered under the Investment Company
Act of 1940 as a diversified, open-end management investment
company. The Fund offers four classes of shares under the Merrill
Lynch Select Pricing SM System. Shares of Class A and Class D are
sold with a front-end sales charge. Shares of Class B and Class C
may be subject to a contingent deferred sales charge. All classes of
shares have identical voting, dividend, liquidation and other rights
and the same terms and conditions, except that Class B, Class C and
Class D Shares bear certain expenses related to the account
maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The
following is a summary of significant accounting policies followed
by the Fund.
<PAGE>
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained by the Fund's pricing
service from one or more dealers that make markets in the
securities. Financial futures contracts, which are traded on
exchanges, are valued at their last sale price as of the close of
such exchanges. Options on financial futures contracts on US
Government securities, which are traded on exchanges, are valued at
their last bid price in the case of options purchased and their last
asked price in the case of options written. Short-term investments
with a remaining maturity of sixty days or less are valued at
amortized cost, which approximates market value. Securities and
assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the
direction of the Board of Trustees of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may
utilize a matrix system for valuations. The procedures of the
pricing service and its valuations are reviewed by the officers of
the Fund under the general supervision of the Board of Trustees.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
<PAGE>
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
NOTES TO FINANCIAL STATEMENTS (continued)
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions
of capital gains are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee of 0.55% on the average daily
value of the Fund's net assets.
The Investment Advisory Agreement obligates MLAM to reimburse the
Fund to the extent that expenses (excluding interest, taxes,
distribution fees, brokerage fees and commissions, and extraordinary
items) exceed 2.5% of the Fund's first $30 million of average daily
net assets, 2.0% of the Fund's next $70 million of average daily net
assets and 1.5% of the average daily net assets in excess thereof.
MLAM's obligation to reimburse the Fund is limited to the amount of
the management fee. No fee payment will be made to MLAM during any
fiscal year which will cause such expenses to exceed the expense
limitation applicable at the time of such payment.
<PAGE>
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The Distributor
voluntarily did not collect any Class C distribution fees for the
year ended October 31, 1995. The fees are accrued daily and paid
monthly at annual rates based upon the average daily net assets of
the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.20% 0.10%
Class C 0.20% 0.10%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended October 31, 1995, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $216 $3,039
Class D $655 $9,069
For the year ended October 31, 1995, MLPF&S received contingent
deferred sales charges of $219,856 and $1,574 relating to
transactions in Class B and Class C Shares, respectively.
<PAGE>
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of MLAM, PSI, MLFD, MLFDS, MLPF&S, and/or
ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1995 were $249,072,917 and
$192,376,387, respectively.
Net realized and unrealized gains (losses) as of October 31, 1995,
were as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (3,446,639) $ 6,354,008
Short-term investments (50,054) --
Financial futures contracts (1,682,994) --
------------ -----------
Total $ (5,179,687) $ 6,354,008
============ ===========
As of October 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $6,354,008, of which $6,756,179
related to appreciated securities and $402,171 related to
depreciated securities. The aggregate cost of investments at October
31, 1995 for Federal income tax purposes was $231,220,561.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $53,625,113 and $1,531,744 for the years ended
October 31, 1995 and October 31, 1994, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
<PAGE>
Class A Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 1,647,907 $ 16,236,414
Shares issued to shareholders
in reinvestment of dividends 77,636 757,875
------------ ------------
Total issued 1,725,543 16,994,289
Shares redeemed (1,103,835) (10,743,665)
------------ ------------
Net increase 621,708 $ 6,250,624
============ ============
Class A Shares for the Year Dollar
Ended October 31, 1994 Shares Amount
Shares sold 1,950,875 $ 19,905,075
Shares issued to shareholders
in reinvestment of dividends 84,928 849,553
------------ ------------
Total issued 2,035,803 20,754,628
Shares redeemed (1,486,841) (14,764,667)
------------ ------------
Net increase 548,962 $ 5,989,961
============ ============
Class B Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 7,623,095 $ 75,241,383
Shares issued to shareholders
in reinvestment of dividends 351,003 3,428,515
------------ ------------
Total issued 7,974,098 78,669,898
Shares redeemed (4,590,100) (44,465,318)
------------ ------------
Net increase 3,383,998 $ 34,204,580
============ ============
Class B Shares for the Year Dollar
Ended October 31, 1994 Shares Amount
Shares sold 4,312,670 $ 43,164,248
Shares issued to shareholders
in reinvestment of dividends 355,440 3,565,166
------------ ------------
Total issued 4,668,110 46,729,414
Shares redeemed (5,098,388) (51,259,175)
------------ ------------
Net decrease (430,278) $ (4,529,761)
============ ============
<PAGE>
Class C Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 692,677 $ 6,861,453
Shares issued to shareholders
in reinvestment of dividends 5,294 52,387
------------ ------------
Total issued . 697,971 6,913,840
Shares redeemed (49,436) (489,048)
------------ ------------
Net increase 648,535 $ 6,424,792
============ ============
Class C Shares for the Period
October 21, 1994++ to Dollar
October 31, 1994 Shares Amount
Shares sold 110 $ 1,067
------------ ------------
Total issued 110 $ 1,067
============ ============
[FN]
++Commencement of Operations.
Class D Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 1,260,691 $ 12,362,696
Shares issued to shareholders
in reinvestment of dividends 9,765 95,915
------------ ------------
Total issued 1,270,456 12,458,611
Shares redeemed (577,845) (5,713,494)
------------ ------------
Net increase 692,611 $ 6,745,117
============ ============
<PAGE>
Class D Shares for the Period
October 21, 1994++ to Dollar
October 31, 1994 Shares Amount
Shares sold 7,265 $ 70,467
Shares issued to shareholders in
reinvestment of dividends 1 10
------------ ------------
Total issued 7,266 $ 70,477
============ ============
[FN]
++Commencement of Operations.
5. Capital Loss Carryforward:
At October 31, 1995, the Fund had a net capital loss carryforward of
approximately $11,887,000, of which $6,982,000 expires in 1996,
$456,000 expires in 1997, $795,000 expires in 1998, and $3,654,000
expires in 2003. This amount will be available to offset like
amounts of any future taxable gains. Expired capital loss
carryforward in the amount of $1,037,858 has been reclassified to
paid-in capital in excess of par.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Municipal Intermediate Term Fund of
Merrill Lynch Municipal Series Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Municipal Intermediate Term Fund of Merrill Lynch Municipal Series
Trust as of October 31, 1995, the related statements of operations
for the year then ended and changes in net assets for each of the
years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended.
These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and the financial
highlights based on our audits.
<PAGE>
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at October
31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Municipal Intermediate Term Fund of Merrill Lynch
Municipal Series Trust as of October 31, 1995, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 11, 1995
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
Merrill Lynch Municipal Intermediate Term Fund of the Merrill Lynch
Municipal Series Trust during its taxable year ended October 31,
1995, qualify as tax-exempt interest dividends for Federal income
tax purposes. Additionally, there were no capital gains distributed
by the Fund during the year.
Please retain this information for your records.
