MERRILL LYNCH
MUNICIPAL
INTERMEDIATE
TERM FUND
FUND LOGO
Quarterly Report
July 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
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
<PAGE>
TO OUR SHAREHOLDERS
In the July quarter, economic data generally showed evidence of
slowing activity. Gross domestic product growth for the first three
months of 1995 was reported at 2.7%, the weakest showing in the past
18 months. Other signs of a sluggish economy included lackluster
durable goods orders, slowing growth in the manufacturing sector,
and three consecutive months of declines in the Index of Leading
Economic Indicators, an occurrence which has often (but not always)
forecast recessions. As a result, concerns arose that the economic
"soft landing" could turn into an actual recession. However, at the
same time there were also expectations that a few months of very
slow or zero growth would be followed by a pickup in economic
activity later in the year. This view was supported by the stronger-
than-expected employment data for June and an upward revision in
May's employment figures, as well as improving housing activity
measures and consumer confidence surveys.
Thus far in 1995, economic developments have been very positive for
the US stock and bond markets, and most US stock market averages
recently have attained record levels. In contrast, the US dollar has
been persistently weak, especially relative to the yen. Following
the Federal Reserve Board's cut in short-term interest rates in
early July, continued signs of a moderating expansion and well-
contained inflationary pressures could provide further assurance
that the peak in US interest rates is behind us, creating a stronger
foundation for higher stock and bond prices. On the other hand,
indications of reaccelerating growth and increasing inflationary
pressures would likely suggest that higher interest rates are on the
horizon, a negative development for the US financial markets. The
outcome of the current deliberations on reducing the Federal budget
deficit will also play a role in the investment outlook for the US
capital markets.
<PAGE>
The Municipal Market
Tax-exempt bond yields exhibited considerable volatility during the
three months ended July 31, 1995. Municipal bond yields initially
fell throughout May into early June as evidence of a slowing
domestic economy and moderate inflationary pressures accumulated. As
measured by the Bond Buyer Revenue Bond Index, yields of A-rated,
uninsured tax-exempt revenue bonds declined 35 basis points (0.35%)
to 5.94%. By late June, however, amid signs of a potentially
resurgent economy, particularly in the rebounding housing sector,
bond yields returned to their April quarter's levels of
approximately 6.30%. The lowering of short-term interest rates by
the Federal Reserve Board in early July temporarily restored
investor confidence and tax-exempt bond yields fell to 6.05%. As
additional economic indicators were released during July, investors
again saw signs that the economy was regaining momentum and that the
Federal Reserve Board action had been premature. Fears that an
expanding economy would have negative inflationary consequences
pushed municipal bond yields higher, ending the July 31, 1995
quarter essentially unchanged at 6.27%. US Treasury bond yields
exhibited a similar pattern of volatility during the July quarter.
However, US Treasury bond yields continued to decline, falling
approximately 50 basis points to 6.85%.
Municipal bonds have underperformed US Treasury securities for a
number of reasons. The record highs of the US equity market have
continued to attract retail investors seeking further capital gains.
Investor demand has also been diminished in recent months by the
"sticker shock" effect that periodically affects the municipal bond
market. Investors who had become accustomed to purchasing tax-exempt
securities in the 6.50%--7.00% range six to seven months ago have
demonstrated understandable reluctance to purchase similar
securities at current levels. The strong fundamental structure of
the municipal bond market, however, suggests that such hesitancy may
prove costly.
<PAGE>
However, the major reason by far for the tax-exempt market's recent
underperformance has been concerns regarding the implication for
municipal bonds' tax advantage resulting from various proposed tax
law changes (for example, flat tax, value-added tax or national
sales tax) that have reduced investor demand for tax-exempt
products. Such concerns are likely to quickly recede as investors
realize that such, if any, changes are unlikely to be enacted before
late 1996 at the earliest. Long-term investors will also recall 1986
when similar tax proposals were made, municipal bond yields
initially rose, in some instances, to over 100% of taxable yields.
Tax-exempt bond yields quickly declined as investors' fears proved
to be unfounded. The municipal bond market's strong technical
position has diminished somewhat in recent months. New-issue supply
over the last six months has totaled approximately $71 billion,
or a decline of over 20% compared to the corresponding period in
1994. In recent months, however, municipalities issued approximately
$41 billion in new securities, which represents only a 6% decline
versus the same period a year earlier. Investor demand has remained
muted in recent months despite significant funds available to
investors. By the end of July investors, both individual and
institutional, are expected to have received as much as $80 billion
from tax-exempt bond maturities, coupon payments and the proceeds
of early bond redemptions. Little new money has entered the municipal
market in recent months, largely in response to the factors mentioned
above. Consequently, much of the technical support the municipal
market enjoyed earlier this year has evaporated, causing municipal
bond yields to decline at a slower rate than their taxable counterparts.
However, the recent relative underperformance of municipal bonds has
made them particularly attractive to long-term investors. Tax-exempt
bonds currently yield well over 90% of US Treasury securities. In
some instances, A-rated, long-term revenue bonds have yielded almost
95% of US Treasury bonds. Analysts usually consider municipal bonds
yielding over 82% of US Treasury securities to be historically
attractive. With inflation-adjusted, "real" after-tax equivalent tax-
exempt yields of over 6.50%, municipal securities appear to
represent considerable value. Current tax-exempt yield levels that
appear to be overcompensating for any proposed changes in tax law
can reasonably be expected to be enacted. As Congressional hearings
on this matter would continue into 1996, and the revenue losses
resultant from such changes become more apparent, the likelihood of
any significant changes to tax codes and the resultant decline of
municipal bonds' inherent tax advantage should decline. Under such a
scenario, tax-exempt bond yields would quickly decline and currently
available municipal bond yields would return to their normal
historic relationship.
<PAGE>
Portfolio Strategy
During the first half of the quarter ended July 31, 1995, we
maintained a relatively aggressive investment posture against a
backdrop of weaker economic statistics and falling interest rates.
This was accomplished through the purchase of discounted securities
which reduced our cash reserve position to almost 1% of net assets
and extended our average portfolio maturity to approximately 12
years. This strategy allowed the Fund to participate in the massive
bond market rally which occurred for the first half of 1995.
Midway through the July quarter we adopted a somewhat more neutral
stance on the market by modestly altering the composition of the
portfolio. We focused on the sale of deeply discounted securities
that were purchased to enhance the performance of the portfolio when
our view was more sanguine on lower interest rates. We replaced them
with current coupon and premium income-oriented securities which
should perform relatively well in the current market environment.
During the month of July, the Fund had an influx of over $50 million
in new assets that we needed to invest or risk a dramatic reduction
in the Fund's dividend rate. Our strategy was to aggressively
purchase high-quality current-coupon securities in the intermediate
maturities 2002--2007 that we believe to be particularly attractive
relative to the market as a whole and should perform well in any
municipal bond market rebound. Looking forward, we anticipate
maintaining our strategy in concentrating on sustaining an appealing
level of tax-exempt income and total return.
In Conclusion
We thank you for your 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
August 29, 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 the Fund's Class A and Class B Shares are
presented in the "Average Annual Total Return," "Recent Performance
Results" and "Performance Summary" tables below and on pages 5 and
6. Data for Class C and Class D Shares are also presented in the
"Aggregate Total Return" and "Recent Performance Results" tables on
page 5.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for Class A and Class B
Shares for the 12-month and 3-month periods ended July 31, 1995 and
for Class C and Class D Shares for the since inception and 3-month
periods ended July 31, 1995. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
<PAGE>
None of the past results shown should be considered a rep-
resentation 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.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/95 +5.37% +4.31%
Five Years Ended 6/30/95 +7.00 +6.79
Inception (10/31/88) through 6/30/95 +6.74 +6.58
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/95 +5.04% +4.04%
Five Years Ended 6/30/95 +6.68 +6.68
Inception (11/26/86) through 6/30/95 +5.62 +5.62
[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>
Aggregate
Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94) through 6/30/95 +4.97% +3.97%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (10/21/94) through 6/30/95 +5.14% +4.09%
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
7/31/95 4/30/95 7/31/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $9.88 $9.76 $9.93 -0.50% +1.23%
Class B Shares* 9.88 9.75 9.93 -0.50 +1.33
Class C Shares* 9.87 9.75 9.70 +1.75 +1.23
Class D Shares* 9.88 9.75 9.70 +1.86 +1.33
Class A Shares--Total Return* +5.05(1) +2.59(2)
Class B Shares--Total Return* +4.73(3) +2.61(4)
Class C Shares--Total Return* +5.91(5) +2.53(6)
Class D Shares--Total Return* +6.19(7) +2.67(8)
Class A Shares--Standardized 30-day Yield 4.43%
Class B Shares--Standardized 30-day Yield 4.16%
Class C Shares--Standardized 30-day Yield 4.24%
Class D Shares--Standardized 30-day Yield 4.33%
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
++Investment results shown for Class C and Class D Shares are since
inception (10/21/94).
(1)Percent change includes reinvestment of $0.529 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.132 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.499 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.124 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.380 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.126 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.396 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.129 per share ordinary
income dividends.
</TABLE>
PERFORMANCE DATA (concluded)
<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--7/31/95 9.52 9.88 -- 0.301 + 7.12
------
Total $3.856
Cumulative total return as of 7/31/95: +56.01%**
<PAGE>
<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>
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <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--7/31/95 9.52 9.88 -- 0.284 + 6.93
------
Total $4.717
Cumulative total return as of 7/31/95: +61.55%**
<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>
PORTFOLIO COMPOSITION
For the Quarter Ended July 31, 1995
Top Ten States*
Texas 10.69%
Michigan 10.02
Illinois 9.34
California 7.07
New York 6.98
Massachusetts 6.75
Florida 4.57
New Jersey 4.51
Colorado 3.94
Washington 3.92
-------
Total Top Ten 67.79
Total Others 32.21
-------
Total Portfolio 100.00%
=======
Net assets as of July 31, 1995 were $210,697,136.
<PAGE>
QualityRatings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 50%
AA/Aa 17%
A/A 18%
BBB/Baa` 2%
Other++ 12%
[FN]
*Based on total market value of the portfolio as of July 31, 1995.
++Temporary investments in short-term municipal securities.
+++Not Rated.
