MERRILL LYNCH
MUNICIPAL
INTERMEDIATE
TERM FUND
FUND LOGO
Annual Report
October 31, 1996
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.
Statements and other information herein are as dated and are subject
to change.
<PAGE>
Merrill Lynch Municipal
Intermediate Term Fund
Merrill Lynch Municipal
Series Trust
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
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
William R. Bock, Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Susan B. Baker, Secretary
<PAGE>
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
The Municipal Market Environment
The tax-exempt bond market continued to improve over the three
months ended October 31, 1996. As measured by the Bond Buyer Index,
yields on uninsured, long-term municipal revenue bonds declined an
additional 16 basis points (0.16%) to end the October 31, 1996
quarter at 5.94%. Current tax-exempt bond yields are at their lowest
levels in the last six months. The economic environment remained
little changed in recent months. Economic growth continued to be
moderate, with some recent signs of reduced growth. Inflation
remained well-contained, reducing recent fears of an imminent
interest rate increase by the Federal Reserve Board. This reduction
in investor concerns regarding increases in short-term interest
rates helped support significant declines in US Treasury bond
yields. During the past three months, the yield on the 30-year
Treasury bond fell 33 basis points to end the October 31, 1996
quarter at 6.64%.
Much of the tax-exempt bond market's strong technical position--one
of the primary reasons for the improvement in municipal bond yields
seen thus far in 1996--has remained intact. Just over $40 billion in
long-term tax-exempt bonds was issued during the October quarter, an
increase of less than 3% compared to the October 31, 1995 quarter.
The municipal bond market's recent underperformance relative to
Treasury issues was the result of a number of other factors. Among
other things, as tax-exempt bond yields declined to relatively low
levels, in the past some investors temporarily have lost interest in
the municipal bond market. As interest rates continue to decline, as
they did in 1994, investors adjusted to the new levels.
In addition, the Presidential and Congressional elections
resurrected some investor concerns regarding continued Federal
deficit reduction and potential legislative restrictions upon the
municipal bond market. This situation is similar to that at the
beginning of 1996 when tax-exempt bond yields were negatively
affected by fears that legislation reducing the tax advantages of
municipal bonds would be introduced to aid further deficit
reductions. Fears that the Democratic party could regain control of
both houses of Congress, as well as maintain the White House, caused
some investors to wait until after the upcoming elections before
allocating investment funds to the municipal bond market.
<PAGE>
Currently, the future direction of interest rates still remains
unclear. The Federal Reserve Board's decision to hold interest rates
steady in late September temporarily relieved mounting fears of
rising interest rates for the remainder of 1996. Should economic
growth slow further in the upcoming quarter, as expected by the
Federal Reserve Board, and inflation remain well-contained, interest
rates are poised to decline further. Under such a scenario,
municipal bond yields are also likely to decline. Given current
levels of expected future supply, the municipal bond market could
perform very well as both retail and institutional investors chase
an increasingly scarce commodity.
Fiscal Year in Review
Our portfolio strategy changed markedly over the course of the
fiscal year ended October 31, 1996. As we entered the last half of
the fiscal year, indications of stronger economic growth were
released, particularly strong employment reports. Investor fears of
inflationary pressures mounted, and municipal bond yields rose in
response. We adopted a more defensive portfolio strategy by adding
high-coupon issues and selling lower-coupon, performance-oriented
bonds. We also raised the cash reserve level of the Fund in order to
seek to protect principal.
We continued this strategy until the last two months of the October
quarter when we became constructive toward the market, because
current economic data indicated moderate growth and little
inflationary pressures. Therefore, we reduced our cash reserves
level and extended the average maturity of the Fund. This investment
strategy benefited the Fund's total returns for the fiscal year
ended October 31, 1996 as well as provided attractive yields for
shareholders during the 12 months ended October 31, 1996.
Looking ahead, we expect the municipal market to continue to
experience volatility within a narrow trading range with interest
rates trending lower. Therefore, our investment strategy will still
emphasize the purchase of current-coupon securities during periods
of market weakness.
In Conclusion
We thank you for your support of Merrill Lynch Municipal Intermed-
iate Term Fund, and we look forward to serving your investment needs
in the months and years ahead.
Sincerely,
<PAGE>
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(William R. Bock)
William R. Bock
Vice President and Portfolio Manager
December 10, 1996
PERFORMANCE DATA
About Fund
Performance
Investors are 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. (There is no initial
sales charge for automatic share conversions.)
<PAGE>
* 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).
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.
PERFORMANCE DATA (continued)
Class A and
Class B Shares
Total Return
Based on a
$10,000
Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
10/31/88** 10/96
ML Municipal Intermediate Term Fund++--
Class A Shares* $ 9,900 $16,507
Lehman Brothers Municipal
Bond Index++++ $10,000 $18,700
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
<PAGE>
11/26/86** 10/96
ML Municipal Intermediate Term Fund++--
Class B Shares* $10,000 $17,178
Lehman Brothers Municipal
Bond Index++++ $10,000 $20,833
[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.
Class A and
Class B Shares
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/96 +4.28% +3.24%
Five Years Ended 9/30/96 +6.13 +5.92
Inception (10/31/88) through 9/30/96 +6.51 +6.37
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
<PAGE>
Year Ended 9/30/96 +3.95% +1.96%
Five Years Ended 9/30/96 +5.82 +5.82
Inception (11/26/86) through 9/30/96 +5.53 +5.53
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
Class C and
Class D Shares
Total Return
Based on a
$10,000
Investment
A line graph depicting the growth of an investment in the Fund's
Class C and Class D Shares compared to growth of an investment in
the Lehman Brothers Municipal Bond Index. Beginning and ending
values are:
10/21/94** 10/96
ML Municipal Intermediate Term Fund++--
Class C Shares* $10,000 $11,273
ML Municipal Intermediate Term Fund++--
Class D Shares* $ 9,900 $11,221
Lehman Brothers Municipal
Bond Index++++ $10,000 $12,139
[FN]
*Assuming maximum sales charege, 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.
Class C and
Class D Shares
<PAGE>
Average Annual
Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/96 +4.04% +3.05%
Inception (10/21/94) through 9/30/96 +5.77 +5.77
[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*
Year Ended 9/30/96 +4.17% +3.13%
Inception (10/21/94) through 9/30/96 +6.00 +5.45
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
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
1995 9.52 10.13 -- 0.519 +12.13
1/1/96--10/31/96 10.13 9.94 -- 0.380 + 2.09
------
Total $4.454
<PAGE>
Cumulative total return as of 10/31/96: +66.73%**
<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
1995 9.52 10.13 -- 0.488 +11.79
1/1/96--10/31/96 10.13 9.93 -- 0.355 + 1.72
------
Total $5.276
Cumulative total return as of 10/31/96: +71.78%**
<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**
<C> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.70 $ 9.52 -- $0.093 - 0.89%
1995 9.52 10.13 -- 0.493 +11.84
1/1/96--10/31/96 10.13 9.93 -- 0.353 + 1.70
------
Total $0.939
<PAGE>
Cumulative total return as of 10/31/96: +12.73%**
<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 D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.70 $ 9.52 -- $0.100 - 0.81%
1995 9.52 10.13 -- 0.509 +12.02
1/1/96--10/31/96 10.13 9.94 -- 0.372 + 2.00
------
Total $0.981
Cumulative total return as of 10/31/96: +13.34%**
<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>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
10/31/96 7/31/96 10/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $9.94 $9.87 $10.00 -0.60% +0.71%
Class B Shares* 9.93 9.87 10.00 -0.70 +0.61
Class C Shares* 9.93 9.87 10.00 -0.70 +0.61
Class D Shares* 9.94 9.87 10.00 -0.60 +0.71
Class A Shares--Total Return* +4.27(1) +1.90(2)
Class B Shares--Total Return* +3.84(3) +1.71(4)
Class C Shares--Total Return* +3.82(5) +1.71(6)
Class D Shares--Total Return* +4.17(7) +1.87(8)
Class A Shares--Standardized 30-day Yield 4.40%
Class B Shares--Standardized 30-day Yield 4.13%
Class C Shares--Standardized 30-day Yield 4.11%
Class D Shares--Standardized 30-day Yield 4.30%
<PAGE>
<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 $0.474 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.115 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.443 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.107 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.441 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.106 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.464 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.112 per share ordinary
income dividends.
</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 below and 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
RITES Residual Interest Tax-Exempt Securities
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--1.2% AAA Aaa $ 2,575 Alaska State Housing Financial Corporation, Refunding,
Series A, 5.30% due 6/01/2007 (d)(f)(i) $ 2,612
Arizona--1.0% NR* NR* 2,000 Mohave County, Arizona, IDA, IDR (North Star Steel Co.
Project), AMT, 6.70% due 3/01/2020 2,135
California--13.8% A+ A1 5,620 California State, GO, 5.20% due 6/01/2008 5,625
A A 2,000 California State Public Works Board, Lease Revenue Refunding
Bonds (Various Community College Project), Series C, 5.50%
due 9/01/2009 2,000
AAA Aaa 5,000 Modesto, California, Irrigation District Financing Authority,
Revenue Refunding Bonds, Series 96A, 5.55% due 10/01/2008 (d) 5,142
A- A 5,000 Northern California Power Agency, Public Power Revenue
Refunding Bonds (Geothermal Project No.3), Series A, 5.65%
due 7/01/2007 5,137
AAA Aaa 4,000 Oxnard, California, Finance Authority, Solid Waste Revenue Bonds,
AMT, 5.75% due 5/01/2010 (c) 4,047
AAA Aaa 6,000 University of California, Hospital Revenue Bonds (Davis
Medical Center), 5.60% due 7/01/2009 (c) 6,127
A NR* 1,610 University of California, Research Facilities Revenue Bonds,
Series B, 6.50% due 9/01/2003 1,750
Colorado--0.6% A NR* 1,225 Denver, Colorado, Urban Renewal Authority, Tax Increment
Revenue Bonds (Downtown Denver), AMT, Series A, 7.25% due
9/01/2017 1,331
Connecticut--0.9% Connecticut State, HFA, Housing Mortgage, AMT, Series B,
Subseries B-2:
AA Aa 915 5.75% due 5/15/2008 926
AA Aa 1,075 5.75% due 11/15/2008 1,088
Florida--5.5% AAA Aaa 3,500 Dade County, Florida, Educational Facilities Authority,
Exchangeable Revenue Bonds (University of Miami), 7.65% due
4/01/2010 (d) 3,894
AAA Aaa 2,500 Florida HFA (Antigua Club Apartments), AMT, Series A-1, 6.875%
due 8/01/2026 (c) 2,652
A1+ VMIG1++ 100 Jacksonville, Florida, PCR, Refunding (Florida Power and Light
Co. Project), VRDN, 3.50% due 5/01/2029 (a) 100
AAA Aaa 3,160 Orange County, Florida, Health Facilities Authority, Hospital
Revenue Bonds (Orlando Regional Heathcare), Series A, 6.25%
due 10/01/2007 (d) 3,439
AAA Aaa 1,940 Venice, Florida, Health Care Revenue Bonds (Secours Health
System Projects), 5.40% due 8/15/2008 (d) 1,953
<PAGE>
Georgia--0.1% A-1 VMIG1++ 300 Burke County, Georgia, Development Authority, PCR (Georgia
Power Company--Plant Vogtle Project), VRDN, Second Series,
3.60% due 4/01/2025 (a) 300
Hawaii--1.5% AAA Aaa 3,000 Honolulu, Hawaii, City and County, UT, Series A, 6% due
9/01/2007 (e) 3,225
Illinois--10.5% Cook County, Illinois, COP (Community College District No.
508--Chicago), UT (e):
AAA Aaa 2,000 8.10% due 1/01/1999 2,155
AAA Aaa 1,000 8.50% due 1/01/2002 1,168
Illinois Health Facilities Authority Revenue Bonds:
A1+ VMIG1++ 1,700 (Northwest Community Hospital), VRDN, 3.50% due
7/01/2025 (a) 1,700
A1+ VMIG1++ 1,100 (Northwestern Memorial Hospital), VRDN, 3.55% due
8/15/2025 (a) 1,100
AAA Aaa 2,500 Refunding (Lutheran General Health), Series C, 7% due
4/01/2008 (h) 2,860
NR* VMIG1++ 1,200 (Resurrection Health Care System), VRDN, 3.60% due
5/01/2011 (a) 1,200
AAA Aaa 10,000 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Refunding Bonds (McCormick Plant
Expansion Project), Series A, 6% due 6/15/2007 (c) 10,629
AAA Aaa 1,745 University of Illinois, COP, Series A, 7.25% due 8/15/2000 (h) 1,909
Indiana--2.7% NR* Baa 1,000 Indiana State, Educational Facility Authority Revenue Bonds
(University Evansville Project), 5.65% due 2/15/2011 963
AAA NR* 3,420 Indianapolis, Indiana, Gas Utility Revenue Bonds, 7% due
6/01/2008 (g) 3,800
A+ NR* 1,000 Indianapolis, Indiana, Local Public Improvement Bond Bank,
Refunding, Series D, 6.50% due 2/01/2006 1,089
Kentucky--0.1% A1+ VMIG1++ 200 Carroll County, Kentucky, Solid Waste Disposal Facilities
Revenue Bonds (Kentucky Utilities Co. Project), VRDN, AMT,
Series A, 3.65% due 11/01/2024 (a) 200
Louisiana--0.5% A1+ P1 1,000 Louisiana State Offshore Terminal Authority, Deepwater Port
Revenue Refunding Bonds (Loop Inc.-First Stage), ACES, 3.60%
due 9/01/2006 (a) 1,000
Maine--2.5% NR* A 2,815 Maine Educational Loan Marketing Corporation, Student Loan
Revenue Refunding Bonds, AMT, 6.90% due 11/01/2003 3,064
Maine State Turnpike Authority, Turnpike Revenue Bonds (d):
AAA Aaa 1,000 7.125% due 7/01/2008 1,171
AAA Aaa 1,000 7.50% due 7/01/2009 1,205
Massachusetts-- A+ A1 1,500 Massachusetts State Consolidated Loan, UT, Series B, 9.25%
1.8% due 7/01/2000 1,738
AAA Aaa 2,000 Massachusetts State Port Authority Revenue Bonds, AMT,
Series A, 7.375% due 7/01/2010 (e) 2,212
<PAGE>
Michigan--5.1% NR* A 1,000 Michigan Higher Education, Student Loan Authority Revenue
Bonds, AMT, Series XIV-A, 6.75% due 10/01/2006 1,055
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 1,040
NR* A1 3,280 (McLaren Obligation Group), 5.75% due 10/15/2003 3,384
NR* P1 300 Michigan State Strategic Fund, PCR, Refunding (Consumers
Power Project), VRDN, Series A, 3.55% due 4/15/2018 (a) 300
AAA Aaa 5,000 Michigan State Underground Storage Tank, Financial Assurance
Authority, Revenue Refunding Bonds, Series I, 6% due
5/01/2007 (c) 5,350
Minnesota--1.1% AA+ Aaa 2,230 Minnesota State, GO, 6% due 11/01/2006 2,422
Mississippi-- NR* P1 2,700 Jackson County, Mississippi, PCR, Refunding (Chevron USA, Inc.
3.1% Project), VRDN, 3.55% due 6/01/2023 (a) 2,700
Mississippi Higher Education Assistance Corporation, Student
Loan Revenue Refunding Bonds, AMT, Series C:
A NR* 2,370 6.40% due 1/01/2003 2,503
A NR* 1,440 6.50% due 7/01/2004 1,532
</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>
Nevada--2.5% AAA Aaa $ 5,000 Clark County, Nevada, School District, 6% due 6/15/2007 (e) $ 5,331
New Jersey--0.3% AAA Aaa 555 New Jersey State Housing and Mortgage Finance Agency Revenue
Bonds (Home Buyer), AMT, Series F, 7.80% due 10/01/2010 (d) 575
New Mexico--0.6% A1+ P1 400 Farmington, New Mexico, PCR, Refunding (Arizona Public
Service Co.), VRDN, Series B, 3.60% due 9/01/2024 (a) 400
A1+ P1 900 Hurley, New Mexico, PCR (Kennecott Santa Fe), VRDN, 3.60% due
12/01/2015 (a) 900
<PAGE>
New York--11.0% Battery Park City Authority, New York, Junior Revenue Bonds,
Series A (c):
AAA Aaa 1,190 5.20% due 11/01/2007 1,194
AAA Aaa 1,445 5.30% due 11/01/2008 1,451
AA Aa 5,000 New York City, New York, Housing Development Corporation, M/F
Housing Revenue Refunding Bonds, Series A, 5.50% due 11/01/2009 4,995
A1+ NR* 100 New York City, New York, IDA, IDR (Japan Airlines Company Ltd.
Project), VRDN, AMT, 3.75% due 11/01/2015 (a)(h) 100
A1+ VMIG1++ 1,200 New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, VRDN, Series G, 3.60%
due 6/15/2024 (a)(e) 1,200
New York City, New York, Refunding, UT:
BBB+ Baa1 2,500 Series A, 7% due 8/01/2006 2,742
BBB+ Baa1 2,000 Series E, 6.50% due 2/15/2005 2,115
BBB+ Baa1 2,000 Series I, 6.50% due 3/15/2006 2,116
BBB- Baa1 3,000 New York State Dormitory Authority Revenue Bonds (Upstate
Community Colleges), Series A, 5.375% due 7/01/2007 2,983
AAA Aaa 4,840 New York State Urban Development Corporation Revenue Bonds
(Sports Facility Assistance Programs), Series A, 5.50% due
4/01/2010 (d) 4,840
North Carolina-- AAA Aaa 4,000 North Carolina, Municipal Power Agency, Revenue Refunding
2.2% Bonds (No. 1 Catawba Electric), 8% due 1/01/2006 (c) 4,834
North Dakota-- NR* Aa 1,000 North Dakota State Student Loan Revenue Refunding Bonds, Series
0.5% A, 5.90% due 7/01/1998 1,025
Ohio--1.2% AAA Aaa 2,490 Cleveland, Ohio, Parking Facilities Revenue Refunding Bonds,
6% due 9/15/2007 (d) 2,677
Oregon--1.8% AAA Aaa 3,790 Port of Portland, Oregon, International Airport Revenue Bonds
(Portland International Airport), AMT, Series II, 5.40% due
7/01/2008 (e) 3,805
South Carolina-- NR* P1 700 Charleston County, South Carolina, Industrial Revenue Refunding
2.4% Bonds (Massey Coal 2.4% Terminal Corp.), VRDN, 3.60% due
1/01/2007 (a) 700
Piedmont Municipal Power Agency, South Carolina, Electric
Revenue Refunding Bonds, Series B:
AAA Aaa 1,000 6% due 1/01/2007 (d) 1,061
AAA Aaa 3,400 5.25% due 1/01/2008 (e) 3,377
South Dakota-- AAA Aaa 5,000 South Dakota, State Building Authority, Lease Revenue
2.4% Refunding Bonds, Series A, 5.75% 2.4% due 12/01/2006 (c) 5,233
Tennessee--1.4% A+ A1 2,960 Tennessee HDA, Mortgage Finance, Refunding, Series A, 5.65%
due 1/01/2007 3,014
Texas--3.9% NR* A 660 Brazos, Texas, Higher Education Authority Inc., Student Loan
Revenue Refunding Bonds, AMT, Series A, 6.70% due 9/01/2001 704
NR* VMIG1++ 1,000 Gulf Coast, Texas, IDA, Solid Waste Disposal Revenue Bonds
(CITGO Petroleum Corp. Project), VRDN, AMT, 3.70% due
5/01/2025 (a) 1,000
A1+ NR* 2,500 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Methodist Hospital), VRDN, 3.60% due
12/01/2025 (a) 2,500
AAA Aaa 3,545 University of Texas, Refunding (Permanent University Fund),
9.50% due 7/01/2000 4,138
<PAGE>
Vermont--1.8% AAA Aaa 3,700 Vermont Municipal Bond Bank, Series I, 5.60% due 12/01/2008 (c) 3,827
Virginia--2.5% Virginia State, HDA, Commonwealth Mortgage:
AA+ Aa1 2,585 Series H, 6.50% due 7/01/2007 2,714
AA+ Aa1 1,365 Series J, Sub-Series J-2, 6.45% due 1/01/2010 1,420
AA+ Aa1 1,300 Series J, Sub-Series J-2, 6.50% due 1/01/2011 1,362
Washington--12.3% AA+ Aa1 4,000 Port of Seattle, Washington, GO, AMT, 5.80% due 5/01/2009 4,087
AAA Aaa 1,280 Sammammish Plateau, Washington, Water and Sewer District
Revenue Refunding Bonds, 6% due 12/01/2007 (d) 1,373
AA+ Aa1 2,000 Seattle, Washington, GO, Series A, 5.40% due 1/15/2007 2,031
AA Aa 5,395 Seattle, Washington, Municipal Light and Power Revenue Bonds,
Series A, 5.75% due 8/01/2008 5,540
AAA Aaa 2,370 Snohomish County, Washington, School District No. 103, UT,
6.25% due 12/01/2007 (e) 2,582
AAA Aaa 1,025 Washington State Health Care Facilities Authority, Revenue
Refunding Bonds (Kadlec Medical Center--Richland), 5.75% due
12/01/2005 (c) 1,065
Washington State Public Power Supply System, Revenue Refunding
Bonds (Nuclear Project No. 3):
AAA Aaa 5,250 Series A, 5.50% due 7/01/2007 (c) 5,300
AAA Aaa 3,015 Series A, 5.60% due 7/01/2008 (c) 3,043
AA- Aa1 1,500 Series B, 7.375% due 7/01/2004 1,647
Wisconsin--1.0% AA Aa 2,000 Wisconsin State Housing and Economic Development Authority,
Home Ownership Revenue Bonds, AMT, Series F, 7.40% due
7/01/2013 (b) 2,164
Puerto Rico--1.8% A1+ Baa1 3,950 Puerto Rico Commonwealth, Highway and Transportation Authority,
Highway Revenue Bonds, RITES, Series X, 5.982% due 7/01/2005 (j) 3,925
Total Investments (Cost--$215,371)--101.6% 220,022
Liabilities in Excess of Other Assets--(1.6%) (3,540)
--------
Net Assets--100.0% $216,482
========
<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, 1996.
(b)FHA Insured.
(c)AMBAC Insured.
(d)MBIA Insured.
(e)FGIC Insured.
(f)GNMA Collateralized.
(g)Escrowed to maturity.
(h)FSA Insured.
(i)FNMA Collateralized.
(j)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at October 31, 1996.
*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>
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of October 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$215,371,494) (Note 1a) $220,021,996
Cash 53,968
Receivables:
Securities sold $ 10,296,445
Interest 3,117,151
Beneficial interest sold 132,257 13,545,853
------------
Prepaid registration fees and other assets (Note 1e) 121,428
------------
Total assets 233,743,245
------------
Liabilities: Payables:
Securities purchased 16,446,930
Beneficial interest redeemed 267,076
Dividends to shareholders (Note 1f) 261,784
Investment adviser (Note 2) 101,162
Distributor (Note 2) 45,823 17,122,775
------------
Accrued expenses and other liabilities 138,469
------------
Total liabilities 17,261,244
------------
Net Assets: Net assets $216,482,001
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 305,513
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 1,705,705
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 83,704
Class D Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 84,288
Paid-in capital in excess of par 216,270,849
Accumulated realized capital losses on investments--net (Note 5) (6,618,560)
Unrealized appreciation on investments--net 4,650,502
------------
Net assets $216,482,001
============
<PAGE>
Net Asset Class A--Based on net assets of $30,353,584 and 3,055,124 shares
Value: of beneficial interest outstanding $ 9.94
============
Class B--Based on net assets of $169,440,708 and 17,057,050 shares
of beneficial interest outstanding $ 9.93
============
Class C--Based on net assets of $8,312,980 and 837,041 shares
of beneficial interest outstanding $ 9.93
============
Class D--Based on net assets of $8,374,729 and 842,881 shares
of beneficial interest outstanding $ 9.94
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended October 31, 1996
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 12,653,366
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,240,092
Account maintenance and distribution fees--Class B (Note 2) 527,411
Transfer agent fees--Class B (Note 2) 209,227
Printing and shareholder reports 99,175
Registration fees (Note 1e) 86,200
Professional fees 79,179
Accounting services (Note 2) 51,101
Transfer agent fees--Class A (Note 2) 33,977
Account maintenance and distribution fees--Class C (Note 2) 22,681
Trustees' fees and expenses 16,194
Custodian fees 14,661
Pricing fees 13,687
Transfer agent fees--Class C (Note 2) 10,735
Transfer agent fees--Class D (Note 2) 8,569
Account maintenance fees--Class D (Note 2) 8,434
Other 7,851
------------
Total expenses 2,429,174
------------
Investment income--net 10,224,192
------------
<PAGE>
Realized & Realized gain on investments--net 154,528
Unrealized Gain Change in unrealized appreciation on investments--net (1,703,506)
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 8,675,214
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 10,224,192 $ 8,852,570
Realized gain (loss) on investments--net 154,528 (5,179,687)
Change in unrealized appreciation/depreciation on investments--net (1,703,506) 11,774,800
------------ ------------
Net increase in net assets resulting from operations 8,675,214 15,447,683
------------ ------------
Dividends to Investment income--net:
Shareholders Class A (1,611,220) (1,507,705)
(Note 1f): Class B (7,875,619) (7,096,365)
Class C (341,198) (70,020)
Class D (396,155) (178,480)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (10,224,192) (8,852,570)
------------ ------------
Beneficial Interest Net increase (decrease) in net assets derived from beneficial
Transactions interest transactions (12,064,882) 53,625,113
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (13,613,860) 60,220,226
Beginning of year 230,095,861 169,875,635
------------ ------------
End of year $216,482,001 $230,095,861
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements.
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.00 $ 9.62 $ 10.39 $ 9.70 $ 9.61
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .48 .53 .52 .54 .59
Realized and unrealized gain (loss) on
investments--net (.06) .38 (.77) .69 .09
-------- -------- -------- -------- --------
Total from investment operations .42 .91 (.25) 1.23 .68
-------- -------- -------- -------- --------
Less dividends from investment income--net (.48) (.53) (.52) (.54) (.59)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.94 $ 10.00 $ 9.62 $ 10.39 $ 9.70
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 4.27% 9.69% (2.49%) 13.01% 7.16%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses .81% .81% .76% .75% .86%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 4.79% 5.36% 5.19% 5.35% 5.97%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 30,353 $ 34,970 $ 27,653 $ 24,173 $ 14,068
Data: ======== ======== ======== ======== ========
Portfolio turnover 146.82% 115.78% 52.56% 83.66% 74.20%
======== ======== ======== ======== ========
<CAPTION>
The following per share data and ratios have
been derived from information provided in Class B
the financial statements.
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.00 $ 9.62 $ 10.39 $ 9.69 $ 9.61
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .44 .50 .49 .51 .56
Realized and unrealized gain (loss) on
investments--net (.07) .38 (.77) .70 .08
-------- -------- -------- -------- --------
Total from investment operations .37 .88 (.28) 1.21 .64
-------- -------- -------- -------- --------
Less dividends from investment income--net (.44) (.50) (.49) (.51) (.56)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.93 $ 10.00 $ 9.62 $ 10.39 $ 9.69
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 3.84% 9.34% (2.79%) 12.78% 6.72%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.13% 1.13% 1.07% 1.06% 1.16%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 4.47% 5.05% 4.87% 5.07% 5.68%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $169,441 $181,640 $142,152 $158,061 $124,802
Data: ======== ======== ======== ======== ========
Portfolio turnover 146.82% 115.78% 52.56% 83.66% 74.20%
======== ======== ======== ======== ========
<CAPTION>
Class C Class D
The following per share data and ratios For the For the
have been derived from information Period Period
provided in the financial statements. For the Year Oct. 21, 1994++ For the Year Oct. 21, 1994++
Ended Oct. 31, to Oct. 31, Ended Oct. 31, to Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 9.62 $ 9.70 $ 10.00 $ 9.62 $ 9.70
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income--net .44 .50 .01 .47 .52 .01
Realized and unrealized gain (loss)
on investments--net (.07) .38 (.08) (.06) .38 (.08)
-------- -------- -------- -------- -------- --------
Total from investment operations .37 .88 (.07) .41 .90 (.07)
-------- -------- -------- -------- -------- --------
Less dividends from investment
income--net (.44) (.50) (.01) (.47) (.52) (.01)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 9.93 $ 10.00 $ 9.62 $ 9.94 $ 10.00 $ 9.62
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 3.82% 9.36% (.71%)+++ 4.17% 9.57% (.71%)+++
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses 1.15% 1.01% 1.18%* .91% .90% .97%*
======== ======== ======== ======== ======== ========
Net Assets: Investment income--net 4.44% 4.76% 4.92%* 4.68% 5.12% 5.20%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 8,313 $ 6,485 $ 1 $ 8,375 $ 7,000 $ 70
======== ======== ======== ======== ======== ========
Portfolio turnover 146.82% 115.78% 52.56% 146.82% 115.78% 52.56%
======== ======== ======== ======== ======== ========
<PAGE>
<FN>
*Annualized.
**Total investment returns exclude the effects 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.
(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.
<PAGE>
(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.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. 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.
<PAGE>
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.
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 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, 1996, 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 $285 $3,601
Class D $263 $4,865
For the year ended October 31, 1996, MLPF&S received contingent
deferred sales charges of $163,849 and $2,718 relating to
transactions in Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
<PAGE>
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, 1996 were $306,030,864 and
$330,828,102, respectively.
Net realized and unrealized gains (losses) as of October 31, 1996,
were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ 282,515 $ 4,650,502
Financial futures contracts (127,987) --
----------- -----------
Total $ 154,528 $ 4,650,502
=========== ===========
As of October 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $4,650,502, of which $5,118,085
related to appreciated securities and $467,583 related to
depreciated securities. The aggregate cost of investments at October
31, 1996 for Federal income tax purposes was $215,371,494.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial
interest transactions was $(12,064,882) and $53,625,113 for the
years ended October 31, 1996 and October 31, 1995, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended October 31, 1996 Shares Amount
Shares sold 716,582 $ 7,149,811
Shares issued to shareholders
in reinvestment of dividends 83,630 831,199
----------- -----------
Total issued 800,212 7,981,010
Shares redeemed (1,241,561) (12,339,524)
----------- -----------
Net decrease (441,349) $(4,358,514)
=========== ===========
<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
=========== ===========
NOTES TO FINANCIAL STATEMENTS (concluded)
Class B Shares for the Year Dollar
Ended October 31, 1996 Shares Amount
Shares sold 2,647,311 $ 26,325,018
Shares issued to shareholders
in reinvestment of dividends 463,232 4,602,453
----------- ------------
Total issued 3,110,543 30,927,471
Shares redeemed (4,149,275) (41,273,703)
Automatic conversion of shares (68,180) (673,631)
----------- ------------
Net decrease (1,106,912) $(11,019,863)
============= ============
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 C Shares for the Year Dollar
Ended October 31, 1996 Shares Amount
<PAGE>
Shares sold 404,511 $ 4,024,375
Shares issued to shareholders
in reinvestment of dividends 27,533 273,233
----------- -----------
Total issued 432,044 4,297,608
Shares redeemed (243,648) (2,423,566)
----------- -----------
Net increase 188,396 $ 1,874,042
=========== ===========
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 D Shares for the Year Dollar
Ended October 31, 1996 Shares Amount
Shares sold 390,259 $ 3,907,908
Automatic conversion of shares 68,171 673,631
Shares issued to shareholders
in reinvestment of dividends 21,768 216,202
----------- -----------
Total issued 480,198 4,797,741
Shares redeemed (337,194) (3,358,288)
----------- -----------
Net increase 143,004 $ 1,439,453
=========== ===========
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>
5. Capital Loss Carryforward:
At October 31, 1996, the Fund had a net capital loss carryforward of
approximately $5,174,000, of which $456,000 expires in 1997,
$795,000 expires in 1998, $3,654,000 expires in 2003, and $269,000
expires in 2004. This amount will be available to offset like
amounts of any future taxable gains. Expired capital loss
carryforward in the amount of $6,981,719 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 lia-
bilities, including the schedule of investments, of Merrill Lynch
Municipal Intermediate Term Fund of Merrill Lynch Municipal Series
Trust as of October 31, 1996, 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.
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, 1996 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, 1996, 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.
<PAGE>
Deloitte & Touche LLP
Princeton, New Jersey
December 10, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by Merrill Lynch
Municipal Intermediate Term Fund of the Merrill Lynch Municipal
Series Trust during its taxable year ended October 31, 1996 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.
