MERRILL LYNCH
MUNICIPAL
INTERMEDIATE
TERM FUND
FUND LOGO
Quarterly Report
January 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
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
William R. Bock, 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
Although the partial shutdown of the US Government curtailed the
release of most economic data for the January quarter, it was
nonetheless apparent that gross domestic product (GDP) growth
continued to be lackluster. Consumer spending is barely growing, the
industrial sector is at a virtual standstill and, despite lower
mortgage rates, there is little or no pick-up in housing activity.
With inflationary pressures subdued, the Federal Reserve Board
responded to the slowing economy by modestly lowering short-term
interest rates in both December and January. Historically, it has
taken some time for shifts in monetary policy to have an impact on
economic growth. Therefore, the Federal Reserve Board's gradual
shift to lowering interest rates, which began early last year, may
not be reflected in a pick-up in real economic growth until later
this year.
The impasse between the Clinton Administration and Congress over the
Federal budget continues, although both sides have made concessions
since the debate began. It appears that investors are currently
focusing on the progress that has been made rather than on the
differences that remain. Initially, President Clinton proposed
deficits of about $190 billion annually through fiscal year 2002,
but now proposes balanced budgets, as do the Republicans. Current
indications are that a piecemeal budget accord is the most likely
outcome. Even without the proposed policy changes, it appears that
the US Federal budget deficit would remain stable at about 2% of GDP
for the rest of the decade. This would be far better than is the
case for most Group of Seven industrial nations, and for the United
States would represent a great improvement over the last 15 years.
Although this may fall short of investors' best expectations, it
appears that the Federal budget debate over the past year has
resulted in a trend toward a more conservative fiscal policy.
<PAGE>
The Municipal Market
The municipal bond market rallied strongly over the three months
ended January 31, 1996. Long-term, tax-exempt revenue bond yields,
as measured by the Bond Buyer Revenue Bond Index, declined over 55
basis points (0.55%) to end the January period at 5.69%. Continued
weak economic conditions coupled with low inflation fostered a very
positive environment for almost all fixed-income investments during
the last three months of 1995. Long-term US Treasury bond yields
declined approximately 35 basis points to 6.00% by January 31, 1996.
Both US Treasury and long-term tax-exempt bond yields are near their
lowest levels in the past two years.
The municipal bond market had to contend with a number of
difficulties for much of 1995. Various tax reform proposals have
made the future tax advantage of municipal bonds uncertain. This
has, at a minimum, reduced the overall demand for tax-exempt
securities. At the same time, as municipal bond yields declined, tax-
exempt authorities have rushed to issue debt at near historic low
yield levels. During the three-month period ended January 31, 1996,
approximately $50 billion in municipal securities were underwritten,
an increase of almost 50% compared to the same period last year.
However, as early 1995 issuance was significantly reduced, the last
12 months issuance of approximately $160 billion remained the same
as that issued a year earlier. Tax-exempt bond yields declined
throughout the three months ended January 31, 1996, despite investor
uncertainty and increased supply pressures.
It is likely that the municipal market will regain much of the
technical support it enjoyed earlier in 1995. 1995 issuance remained
significantly below levels underwritten in 1993, when over $290
billion in long-term tax-exempt securities were issued. Also,
municipal investors received over $25 billion in bond maturities,
coupon income and early redemptions on January 1, 1996. This $25
billion is almost twice the average monthly issuance for 1995. The
amount of outstanding municipal securities will continue to decline
throughout 1996 and into early 1997. As the uncertainties
surrounding proposed tax reforms are resolved in 1996, the tax-
exempt bond market's renewed technical position should provide
support to municipal bond prices.
<PAGE>
Many of the features that made tax-exempt products attractive to
investors last year are still in place. Long-term, A-rated municipal
revenue bonds continue to yield well over 90% of comparable US
Treasury bond yields. Historically, analysts have considered yields
in excess of 82% attractive for long-term investors. For example,
currently available tax-exempt bond yields generate taxable
equivalent yields in excess of 8.50% for an investor in the 36%
Federal income tax bracket. While the uncertainties regarding
potential changes in current tax law remain, it appears that, at
current price levels, bond investors have discounted at least some
of the uncertainty.
Looking ahead, it may be unreasonable to expect to duplicate the
double-digit returns produced by most tax-exempt issues in 1995,
given current municipal bond yields. Municipal bond yields would
have to decline to levels not seen since the 1960s in order to
generate such significant returns in the coming years. While the
current economic environment may still justify additional declines
in interest rates, it may be prudent to expect some period of
consolidation before the interest rate decline resumes. Tax-exempt
bond market performance in 1996 is likely to be generated more by
enhancing current income and limiting credit risk than by
significant interest rate declines.
Portfolio Strategy
During the quarter ended January 31, 1996, we continued to position
the Fund more aggressively. The reason for this emphasis is that we
remain optimistic that municipal interest rates will decline further
as a consequence of below-trend growth in the economy and further
cuts in short-term interest rates by the Federal Reserve Board. We
focused on the purchase of performance-oriented securities of high-
tax states. We believe that the Fund is positioned to perform
effectively in a falling interest rate environment. Looking ahead,
we still consider it prudent to maintain a balance between 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
<PAGE>
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(William R. Bock)
William R. Bock
Portfolio Manager
February 28, 1996
We are pleased to announce that William R. Bock is responsible for
the day-to-day management of Merrill Lynch Municipal Intermediate
Term Fund. Mr. Bock has been employed by Merrill Lynch Asset
Management, L.P. since 1989 as Vice President and Portfolio Manager.
Prior thereto, Mr. Bock was employed by Bear Stearns and E.F. Hutton
in the Tax-Exempt Bond Division from 1978 to 1989.
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.
<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.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/95 +12.13% +11.01%
Five Years Ended 12/31/95 + 7.56 + 7.34
Inception (10/31/88) through 12/31/95 + 7.08 + 6.93
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/95 +11.79% +10.79%
Five Years Ended 12/31/95 + 7.23 + 7.23
Inception (11/26/86) through 12/31/95 + 5.93 + 5.93
[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 % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/95 +11.84% +10.84%
Inception (10/21/94) through 12/31/95 + 9.00 + 9.00
[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 12/31/95 +12.02% +10.90%
Inception (10/21/94) through 12/31/95 + 9.22 + 8.31
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
1/31/96 10/31/95 1/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.17 $10.00 $9.65 + 5.39% +1.70%
Class B Shares* 10.16 10.00 9.65 + 5.28 +1.60
Class C Shares* 10.16 10.00 9.65 + 5.28 +1.60
Class D Shares* 10.17 10.00 9.65 + 5.39 +1.70
Class A Shares--Total Return* +11.00(1) +2.93(2)
Class B Shares--Total Return* +10.55(3) +2.75(4)
Class C Shares--Total Return* +10.60(5) +2.75(4)
Class D Shares--Total Return* +10.89(6) +2.91(7)
Class A Shares--Standardized 30-day Yield 4.06%
Class B Shares--Standardized 30-day Yield 3.78%
Class C Shares--Standardized 30-day Yield 3.76%
Class D Shares--Standardized 30-day Yield 3.96%
<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 $0.516 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.122 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.485 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.114 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.490 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.506 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.120 per share ordinary
income dividends.
</TABLE>
<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--1/31/96 10.13 10.17 -- 0.028 + 0.77
------
Total $4.102
Cumulative total return as of 1/31/96: +64.58%**
<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>
PERFORMANCE DATA (concluded)
<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--1/31/96 10.13 10.16 -- 0.026 + 0.65
------
Total $4.947
Cumulative total return as of 1/31/96: +69.99%**
<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.
<PAGE>
</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--1/31/96 10.13 10.16 -- 0.026 + 0.65
------
Total $0.612
Cumulative total return as of 1/31/96: +11.57%**
<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**
<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--1/31/96 10.13 10.17 -- 0.027 + 0.76
------
Total $0.636
Cumulative total return as of 1/31/96: +11.96%**
<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 COMPOSITION
For the Quarter Ended January 31, 1996
<PAGE>
Top Ten States*
California 17.32%
Illinois 10.98
Texas 7.39
Massachusetts 7.36
Colorado 6.90
Minnesota 4.43
Florida 4.16
Washington 3.08
Connecticut 2.87
Michigan 2.49
-------
Total Top Ten 66.98
Total Others 33.02
-------
Total Portfolio 100.00%
=======
Net assets as of January 31, 1996 were $236,965,481.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 56%
AA/Aa 19%
A/A 15%
NR+++ 1%
Other++ 9%
[FN]
*Based on total market value of the portfolio as of January 31,
1996.
++Temporary investments in short-term municipal securities.
+++Not Rated.
