MERRILL LYNCH
MUNICIPAL
INTERMEDIATE
TERM FUND
FUND LOGO
Quarterly Report
July 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
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
During the three-months ended July 31, 1996, long-term municipal
bond yields posted significant declines. Yields on A-rated,
uninsured tax-exempt revenue bonds, as measured by the Bond Buyer
Revenue Bond Index, fell over 30 basis points (0.30%) to end the
July quarter at 6.02%. Municipal bond yields traded in a narrow
range through early July as the domestic economy continued to
demonstrate ongoing strength.
However, in early July the combination of the Federal Reserve Board
suggesting that growth was expected to slow later in 1996 and the
stock market's decline, allowed tax-exempt bond yields to fall as
investors scrambled to purchase relatively scarce securities. As in
recent quarters, the municipal bond market continued to outperform
its taxable counterpart. During the quarter ended July 31, 1996, US
Treasury bond yields rose somewhat to end the quarter at 6.97%, up 7
basis points.
The municipal bond market continued to enjoy the same strong
technical position during the quarter ended July 31, 1996 that it
has for much of 1996. However, the rate of increase in new bond
issuance recently slowed. Over the last six months, approximately
$90 billion in new long-term municipal securities were underwritten,
an increase of slightly more than 20% as compared to the same period
a year earlier. However, during the July quarter, approximately $43
billion in securities were issued, essentially unchanged from the
July 1995 quarter. In July 1996 less than $10 billion in new
municipal securities were underwritten. This is the lowest issuance
for the month of July since 1990. We expect this relative decline in
bond issuance to continue as bond issuance historically declines
during the summer months. Also, bond issuance dedicated toward
refinancing existing debt fell in response to higher bond yields.
<PAGE>
At the same time investor demand remained consistently strong. With
nominal new-issue yields above 6%, retail investor interest was
steady. Additionally, investors received over $50 billion this June
and July in assets derived from coupon income, bond maturities and
proceeds from early redemptions. Annual new bond issuance declined
in recent years and is expected to remain below levels seen in the
early 1990s. Consequently, as the higher-couponed bonds issued in
the early-to-mid 1980s were redeemed at their first optional call
dates, the total number of outstanding tax-exempt bonds declined.
This combination of a declining net supply and significant amounts
of assets helped maintain investor demand in recent months.
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance led to the yield
ratio between long-term taxable and tax-exempt securities falling
from in excess of 90% to approximately 85%. While historically still
very attractive, some institutional investors, particularly short-
term traders, began to view the tax-exempt bond market's recent
outperformance as an opportunity to sell a relatively expensive
asset. However, to the long-term investor, such a sale would
represent the loss of an attractively priced asset which may not be
easily replaced given the relative scarcity of municipal bonds under
present supply conditions.
Looking ahead, no clear consensus for the direction of interest
rates currently exists. Perhaps, the primary focus going forward
will be the extent to which the increase in interest rates seen thus
far in 1996 will negatively impact future economic growth. Should
growth slow in the interest rate sensitive sectors of the economy,
like housing, auto, and consumer spending, as many economists assert
is likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of the US Treasury bond market.
Portfolio Strategy
As we entered the quarter ended July 31, 1996, we expected the
municipal bond market to increase in volatility within a wide
trading range. Therefore our investment strategy was cautious. We
increased the Fund's cash reserve level, shortened the average life
to 8.5 years, and sold lower-coupon performance-oriented bonds.
During periods of market weakness, we selectively purchased high-
quality premium and current coupon securities. Looking ahead, we
expect to increase the average portfolio maturity of the Fund
modestly, because recent economic data indicated some moderation of
growth and little inflationary pressures. However, we continue to
stress premium and current coupon bonds, and consider this strategy
appropriate in light of the market's continued volatility.
<PAGE>
In Conclusion
We thank you for your support of the 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
(William R. Bock)
William R. Bock
Vice President and Portfolio Manager
August 26, 1996
PERFORMANCE DATA
About Fund
Performance
<PAGE>
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.)
* 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)
<TABLE>
Performance
Summary--
Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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--7/31/96 10.13 9.87 -- 0.265 + 0.19
------
Total $4.339
Cumulative total return as of 7/31/96: +63.63%**
<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**
<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
1995 9.52 10.13 -- 0.488 +11.79
1/1/96--7/31/96 10.13 9.87 -- 0.248 0.00
------
Total $5.169
Cumulative total return as of 7/31/96: +68.89%**
<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%
1995 9.52 10.13 -- 0.493 +11.84
1/1/96--7/31/96 10.13 9.87 -- 0.246 - 0.01
------
Total $0.832
Cumulative total return as of 7/31/96: +10.84%**
<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%
1995 9.52 10.13 -- 0.509 +12.02
1/1/96--7/31/96 10.13 9.87 -- 0.260 + 0.13
------
Total $0.869
Cumulative total return as of 7/31/96: +11.26%**
<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>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/96 +4.87% +3.82%
Five Years Ended 6/30/96 +6.58 +6.36
Inception (10/31/88) through 6/30/96 +6.49 +6.35
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/96 +4.43% +2.44%
Five Years Ended 6/30/96 +6.22 +6.23
Inception (11/26/86) through 6/30/96 +5.49 +5.50
[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 % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/96 +4.45% +3.45%
Inception (10/21/94) through 6/30/96 +5.59 +5.59
[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 6/30/96 +4.77% +3.72%
Inception (10/21/94) through 6/30/96 +5.88 +5.25
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
7/31/96 4/30/96 7/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $9.87 $9.83 $9.88 -0.10% +0.41%
Class B Shares* 9.87 9.83 9.88 -0.10 +0.41
Class C Shares* 9.87 9.83 9.87 0.00 +0.41
Class D Shares* 9.87 9.83 9.88 -0.10 +0.41
Class A Shares--Total Return* +4.88(1) +1.62(2)
Class B Shares--Total Return* +4.54(3) +1.54(4)
Class C Shares--Total Return* +4.66(5) +1.53(6)
Class D Shares--Total Return* +4.78(7) +1.59(8)
Class A Shares--Standardized 30-day Yield 4.34%
Class B Shares--Standardized 30-day Yield 4.07%
Class C Shares--Standardized 30-day Yield 4.04%
Class D Shares--Standardized 30-day Yield 4.24%
<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 $0.483 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.117 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.452 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.109 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.453 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.108 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.473 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.114 per share ordinary
income dividends.
</TABLE>
PORTFOLIO COMPOSITION
For the Quarter Ended July 31, 1996
Top Ten States*
California 13.58%
Illinois 8.47
New York 6.35
Washington 5.87
Massachusetts 5.12
Michigan 4.95
Louisiana 4.82
Texas 4.78
Virginia 4.15
Oregon 3.69
-------
Total Top Ten 61.78
Total Others 38.22
-------
Total Portfolio 100.00%
=======
Net assets as of July 31, 1996 were $220,565,563.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart depicting quality ratings of the fund's investments.
AAA/Aaa 57%
AA/Aa 11%
A/A 17%
BBB/BAA 5%
NR++ 1%
Other++++ 9%
[FN]
*Based on total market value of the portfolio as of July 31, 1996.
++Not Rated.
++++Temporary investments in short-term municipal securities.
<PAGE>
