MERRILL LYNCH
MUNICIPAL
INTERMEDIATE
TERM FUND
FUND LOGO
Quarterly Report
January 31, 1997
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
Long-term fixed-income bond yields generally rose during the three
months ended January 31, 1997. Initially, US Treasury bond yields
fell approximately 20 basis points (0.20%) to 6.45% by late November
as low employment growth and continued low inflation combined to
support lower bond yields. Concurrently, long-term municipal revenue
bond yields, as measured by the Bond Buyer Revenue Bond Index,
declined almost 15 points to approximately 5.80%. However, signs of
increased economic activity and renewed inflation fears pushed bond
yields up for the remainder of the period. By the end of January, US
Treasury bond yields had risen over 35 basis points to end the
quarter at approximately 6.80%. Similarly, long-term municipal
revenue bond yields rose approximately 20 basis points from their
lows in late November to approximately 6.00%. During the three
months ended January 31, 1997, US Treasury bond yields rose
approximately 15 basis points, while tax-exempt bond yields rose
only 8 basis points.
The tax-exempt bond market performed well over the January quarter
largely as a result of continued strong supply position. Over the
six months ended January 31, 1997, over $88 billion in long-term tax-
exempt bonds was underwritten, essentially unchanged from issuance a
year ago. Approximately $50 billion in new municipal bonds was
issued over the three-month period ended January 31, 1997,
representing a decline of over 5% compared to the same period in
1996. This declining trend in bond issuance was even more apparent
recently. Slightly more than $10 billion in long-term bonds was
issued during January 1997, a decrease of over 15% compared to
January 1996 issuance.
<PAGE>
However, a number of other factors prevented the municipal bond
market from enjoying even stronger performance. The historic
strength of the US equity market has attracted significant investor
interest. Additionally, as tax-exempt bond yields declined again
below 6%, some investors temporarily lost interest in the municipal
bond market. If interest rates continue to decline, as they did at
the end of 1994 and throughout 1995, investors, in general, will
quickly adjust to the new levels. The tax-advantages generated by
municipal bonds quickly outweigh low nominal yields and investor
demand increases.
The Presidential and Congressional elections this past November
resurrected some investor concerns regarding continued Federal
deficit reduction and potential legislative restrictions upon the
municipal bond market. This situation was similar to that at the
beginning of 1996 when tax-exempt bond yields were negatively
impacted by fears that legislation reducing the tax advantage of
municipal bonds would be introduced to aid further deficit
reductions.
However, the US Treasury bond market's recent relatively strong
performance resulted in municipal bonds becoming a particularly
attractive investment alternative. At current levels, long-term tax-
exempt revenue bonds yield over 88% of comparable US Treasury bond
yields. Current levels make tax-advantaged products more attractive
than they were mid-year when yield ratios declined to approximately
85%. For example, to an investor in the 36% Federal income tax
bracket, a current tax-exempt bond yield of 6% represents a taxable
equivalent yield of approximately 9.37%.
Looking forward, the supply of new bond issuance for 1997 is
expected to be very similar to that of 1996, with most annual
estimates falling in the $170 billion--$175 billion range. Investor
demand is also expected to regain its former strength, with 1997
total municipal redemptions (refundings, maturities and coupon
payments) in the $175 billion--$185 billion range. This overall
balance suggests that the positive technical backdrop the municipal
bond market enjoyed in 1996 could continue in 1997. However, it is
likely that seasonal factors may temporarily distort this overall
balanced technical scenario. During periods of reduced bond
issuance, the ease and ability to purchase tax-advantaged products
at their current attractive levels may be greatly restricted.
Portfolio Strategy
During the three-month period ended January 31, 1997, we maintained
our portfolio strategy of increasing the maturity duration of the
Fund. We continued to focus on the purchase of current coupon
securities with extended call protection in high-tax states. At the
same time, we sold near-term callable bonds.
<PAGE>
Looking ahead, we anticipate that the municipal market's volatility
will persist inside a narrow trading range. Therefore, our
investment strategy will continue to emphasize the purchase of
additional current coupon securities with extended call protection.
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
(William R. Bock)
William R. Bock
Vice President and Portfolio Manager
March 3, 1997
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
1996 10.13 9.99 -- 0.470 + 3.39
1/1/97--1/31/97 9.99 9.95 -- 0.032 0.00
------
Total $4.576
<PAGE>
Cumulative total return as of 1/31/97: +68.86%**
<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
1996 10.13 9.99 -- 0.438 + 3.07
1/1/97--1/31/97 9.99 9.95 -- 0.030 - 0.03
------
Total $5.389
Cumulative total return as of 1/31/97: +74.01%**
<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
1996 10.13 9.99 -- 0.436 + 3.04
1/1/97--1/31/97 9.99 9.95 -- 0.030 - 0.03
------
Total $1.052
<PAGE>
Cumulative total return as of 1/31/97: +14.19%**
<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
1996 10.13 9.99 -- 0.460 + 3.29
1/1/97--1/31/97 9.99 9.95 -- 0.032 - 0.01
------
Total $1.101
Cumulative total return as of 1/31/97: +14.76%**
<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 12/31/96 +3.39% +2.36%
Five Years Ended 12/31/96 +5.99 +5.78
Inception (10/31/88) through 12/31/96 +6.62 +6.49
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +3.07% +2.08%
Five Years Ended 12/31/96 +5.66 +5.66
Ten Years Ended 12/31/96 +5.71 +5.71
[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 12/31/96 +3.04% +2.06%
Inception (10/21/94) through 12/31/96 +6.25 +6.25
[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 12/31/96 +3.29% +2.26%
Inception (10/21/94) through 12/31/96 +6.48 +5.99
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
<PAGE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
1/31/97 10/31/96 1/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $9.95 $9.94 $10.17 -2.16% +0.10%
Class B Shares* 9.95 9.93 10.16 -2.07 +0.20
Class C Shares* 9.95 9.93 10.16 -2.07 +0.20
Class D Shares* 9.95 9.94 10.17 -2.16 +0.10
Class A Shares--Total Return* +2.58(1) +1.28(2)
Class B Shares--Total Return* +2.36(3) +1.30(4)
Class C Shares--Total Return* +2.33(5) +1.29(6)
Class D Shares--Total Return* +2.48(7) +1.25(8)
Class A Shares--Standardized 30-day Yield 4.35%
Class B Shares--Standardized 30-day Yield 4.08%
Class C Shares--Standardized 30-day Yield 4.05%
Class D Shares--Standardized 30-day Yield 4.25%
<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 $0.122 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.442 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.114 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.440 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.113 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.464 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.120 per share ordinary
income dividends.
</TABLE>
PORTFOLIO COMPOSITION
For the Quarter Ended January 31, 1997
<PAGE>
Top Ten States*
New York 19.05%
Washington 13.28
California 12.40
Illinois 5.30
Florida 4.67
Wisconsin 4.47
Oregon 3.84
West Virginia 3.68
Virginia 3.42
New Mexico 3.22
-------
Total Top Ten 73.33
Total Others 26.67
-------
Total Portfolio 100.00%
=======
Net assets as of January 31, 1997 were $209,455,582.
A pie chart depicting quality ratings of the fund's investments.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
AAA/Aaa 50%
AA/Aa 15%
A/A 20%
BBB/Baa 4%
NR++ 1%
Other++++ 10%
[FN]
*Based on total market value of the portfolio as of January 31,
1997.
++Not Rated.
++++Temporary investments in short-term municipal securities.
