MERRILL LYNCH
MUNICIPAL
INTERMEDIATE
TERM FUND
STRATEGIC
Performance
Annual Report
October 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.
Merrill Lynch Municipal
Intermediate Term Fund
Merrill Lynch Municipal
Series Trust
Box 9011
Princeton, NJ
08543-9011 #10437 -- 10/97
[RECYCLE LOGO] 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
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Merrill Lynch Municipal Intermediate Term Fund, October 31, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the three months ended October 31, 1997, long-term tax-exempt
bond yields, as measured by Municipal Market Data, rose slightly. On a
weekly basis, bond yields were buffeted by alternating strong and weak
economic indicators. The general financial environment has remained one
of solid economic growth with few or no inflationary pressures. However,
economic growth had remained strong enough to suggest that the Federal
Reserve Board (FRB) might soon be obligated to raise short-term interest
rates. Such action would be intended to slow economic growth and ensure
that any incipient inflationary pressures would be curtailed. Over the
last three months, long-term municipal bond yields have risen
approximately ten basis points (0.10%) to 5.60%.
Similarly, long-term US Treasury bond yields generally moved higher
during most of the October quarter. However, the turmoil in the world's
equity markets during the last week in October has resulted in a
significant rally in the Treasury bond market. The US Treasury bond
market was the beneficiary of a flight to quality mainly by foreign
investors whose own domestic markets have continued to be very volatile.
Prior to the initial decline in Asian equity markets, long-term US
Treasury bond yields were essentially unchanged. By the end of October,
five-year US Treasury bond yields declined nearly 15 basis points to
6.15%, their lowest level of 1997.
The tax-exempt bond market's continued underperformance as compared to
its taxable counterpart has been largely in response to its ongoing
weakening technical position. As municipal bond yields have declined,
municipalities have hurriedly rushed to refinance outstanding higher-
couponed debt with new issues financed at present low rates. During the
last six months, over $118 billion in new long-term tax-exempt issues
were underwritten, an increase of over 25% versus the comparable period
a year ago. As interest rates have continued to decline, these
refinancings have intensified municipal bond issuance. During the past
three months, approximately $60 billion in new long-term municipal
securities were underwritten, an increase of over 34% as compared to the
October 1996 quarter.
The recent trend toward larger and larger bond issues has also
continued. However, issues of such magnitude usually must be
attractively priced to ensure adequate investor interest. Obviously, the
yields of other municipal bond issues are impacted by the yield premiums
such large issuers have been required to pay. Much of the municipal bond
market's recent underperformance can be traced to market pressures that
these large issues have exerted.
In our opinion, the recent correction in world equity markets has
enhanced the near-term prospects for continued low, if not declining,
interest rates in the United States. It is likely that the recent
correction will result in slower US domestic growth in the coming
months. This decline should be generated in part by reduced US export
growth. Additionally, some decline in consumer spending also can be
expected in response to reduced consumer confidence. Perhaps more
importantly, it is likely that barring a dramatic and unexpected
resurgence in domestic growth, the FRB may be unwilling to raise
interest rates until the full impact of the equity market's corrections
can be established.
All of these factors suggest that for at least the near term, interest
rates, including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable that municipal bond yields will
remain under some pressure as a result of continued strong new-issue
supply. However, the recent pace of municipal bond issuance is likely
to be unsustainable. Continued increases in bond issuance will require
lower tax-exempt bond yields to generate the economic savings necessary
for additional municipal bond refinancing. With tax-exempt bond yields
at already attractive yield ratios relative to US Treasury bonds, any
further pressure on the municipal market may represent an attractive
investment opportunity.
Fiscal Year in Review
For the fiscal year ended October 31, 1997, Merrill Lynch Municipal
Intermediate Term Fund's positive performance can be attributed largely
to our fully invested position. This strategy enabled the Fund to
capture the positive price movement resulting from lower intermediate-
term interest rates. As a result, the Fund had a higher total return and
yield than the Lipper Analytical Intermediate Municipal Open End Funds
Average.
During the last three months of the fiscal year ended October 31, 1997,
we maintained the strategy we had established in late July. This
strategy consisted of temporarily decreasing the Fund's duration and
increasing its cash reserve level in anticipation of a large addition of
new-issue supply coming to market, which would likely result in a
readjustment to higher yields in the intermediate-term range. We
essentially maintained this strategy until late September, when our
outlook became positive toward the market and we believed that risk was
biased toward lower rather than higher interest rates. At that time, we
adopted a more aggressive portfolio strategy by reducing the Fund's cash
reserve level and increasing the Fund's duration with the purchase of
higher-couponed issues with extended call protection in high tax states.
Looking ahead, we expect to remain fully invested into the January
quarter in order to seek to enhance the Fund's dividend yield and
performance. We believe that the turmoil in the world equity markets in
October makes it very unlikely that the FRB will raise interest rates
during the remainder of 1997 and early 1998.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Municipal
Intermediate Term Fund, and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/WILLIAM R. BOCK
William R. Bock
Vice President and Portfolio Manager
December 4, 1997
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] 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.
[bullet] 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.)
[bullet] 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.
[bullet] 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. Figures shown in the "Average Annual Total Return"
tables as well as the total returns and cumulative total returns in the
"Performance Summary" tables assume reinvestment of all dividends and
capital gains distributions at net asset value on the payable date.
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.
<TABLE>
<CAPTION>
Performance
Summary --
Class A Shares
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 -- 10/31/97 9.99 10.23 -- 0.362 + 6.23
Total $4.906
Cumulative total return as of 10/31/97: +79.38%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance
Summary --
Class B Shares
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 -- 10/31/97 9.99 10.23 -- 0.336 + 5.95
Total $5.695
Cumulative total return as of 10/31/97: +84.42%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance
Summary --
Class C Shares
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 -- 10/31/97 9.99 10.23 -- 0.335 + 5.93
Total $1.357
Cumulative total return as of 10/31/97: +21.00%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance
Summary --
Class D Shares
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 -- 10/31/97 9.99 10.23 -- 0.354 + 6.14
Total $1.423
Cumulative total return as of 10/31/97: +21.82%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
Class A and
Class B Shares
Total Return
Based on a
$10,000
Investment
[GRAPHIC OMITTED]
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** 10/97
ML Municipal Intermediate Term Fund+--
Class A Shares* $9,900 $17,760
Lehman Brothers Municipal
Bond Index++ $10,000 $20,288
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:
10/87 10/97
ML Municipal Intermediate Term Fund+--
Class B Shares* $10,000 $19,335
Lehman Brothers Municipal
Bond Index++ $10,000 $23,244
* 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 9/30/97 +8.47% +7.39%
Five Years Ended 9/30/97 +5.97 +5.76
Inception (10/31/88) through 9/30/97 +6.73 +6.61
* Maximum sales charge is 1%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/97 +8.13% +7.13%
Five Years Ended 9/30/97 +5.64 +5.64
Ten Years Ended 9/30/97 +6.83 +6.83
* 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
[GRAPHIC OMITTED]
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** 10/97
ML Municipal Intermediate Term Fund+--
Class C Shares* $10,000 $12,100
ML Municipal Intermediate Term Fund+--
Class D Shares* $9,900 $12,060
Lehman Brothers Municipal
Bond Index++ $10,000 $13,169
* 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 C and
Class D Shares
Average Annual
Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/97 +8.00% +7.00%
Inception (10/21/94) through 9/30/97 +6.53 +6.53
* 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 9/30/97 +8.36% +7.28%
Inception (10/21/94) through 9/30/97 +6.80 +6.44
* Maximum sales charge is 1%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Recent
Performance
Results
12 Month 3 Month
10/31/97 7/31/97 10/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.23 $10.32 $9.94 +2.92% -0.87%
Class B Shares* 10.23 10.32 9.93 +3.02 -0.87
Class C Shares* 10.23 10.31 9.93 +3.02 -0.78
Class D Shares* 10.23 10.31 9.94 +2.92 -0.78
Class A Shares -- Total Return* +7.59(1) +0.22(2)
Class B Shares -- Total Return* +7.35(3) +0.14(4)
Class C Shares -- Total Return* +7.34(5) +0.23(6)
Class D Shares -- Total Return* +7.48(7) +0.29(8)
Class A Shares -- Standardized 30-day Yield 4.08%
Class B Shares -- Standardized 30-day Yield 3.81%
Class C Shares -- Standardized 30-day Yield 3.79%
Class D Shares -- Standardized 30-day Yield 3.98%
* 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 $0.452 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.117 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.420 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.108 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.418 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.108 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.442 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.114 per share ordinary income dividends.
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Municipal Intermediate Term Fund, October 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C> <C>
Alaska -- 3.6% AAA Aaa $4,000 Alaska, Industrial Development and Export Authority, Refunding
(Revolving Fund), AMT, Series A, 5.60% due 4/01/2009 (d) $4,147
Alaska, Student Loan Revenue Bonds (Student Loan Corp.), AMT,
Series A (c):
AAA Aaa 1,500 5.45% due 7/01/2009 1,540
AAA Aaa 2,250 5.65% due 7/01/2012 2,304
Arizona -- 1.0% NR* NR* 2,000 Mohave County, Arizona, IDA, IDR (North Star Steel Co. Project),
AMT, 6.70% due 3/01/2020 2,175
California -- 21.2% California State, GO:
A+ A1 7,855 6% due 10/01/2008 8,726
A+ A1 7,305 6% due 10/01/2009 8,114
A- Baa3 10,000 Northern California Power Agency, Public Power Revenue
Refunding Bonds (Geothermal Project No. 3), Series A,
5.65% due 7/01/2007 10,415
AAA Aaa 4,000 Oxnard, California, Financing Authority, Solid Waste Revenue
Bonds, AMT, 5.75% due 5/01/2010 (c) 4,243
BBB- Baa2 1,305 Riverside County, California, Public Financing Authority,
Tax Allocation Revenue Bonds (Redevelopment Project),
Series A, 5.20% due 10/01/2011 1,309
SP1+ VMIG1+ 7,500 Santa Clara County, California, TRAN, 4.75% due 10/01/1998 7,562
AAA Aaa 6,000 University of California, Hospital Revenue Bonds (Davis Medical
Center), 5.60% due 7/01/2009 (c) 6,389
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 1,348
District of A1+ VMIG1+ 5,200 District of Columbia, General Fund Recovery Bonds, VRDN, UT,
Columbia -- 4.6% Series B-3, 3.80% due 6/01/2003 (a) 5,200
AAA Aaa 4,700 District of Columbia, Refunding, UT, Series A, 5.375% due
6/01/2010 (c) 4,803
Florida -- 1.8% AAA Aaa 3,500 Dade County, Florida, Educational Facilities Authority,
Exchangeable Revenue Bonds (University of Miami), 7.65% due
4/01/2010 (d) 3,823
A1+ VMIG1+ 200 Martin County, Florida, PCR, Refunding (Florida Power &
Light Company Project), VRDN, 3.65% due 9/01/2024 (a) 200
Georgia -- 0.6% A1 NR* 1,400 Burke County, Georgia, Development Authority, PCR, Refunding
(Georgia Power Company -- Plant Vogtle Project), VRDN, 3.65%
due 9/01/2026 (a) 1,400
Hawaii -- 3.5% AAA Aaa 5,000 Hawaii State Refunding, GO, 6% due 3/01/2009 (e) 5,547
AAA Aaa 2,000 Honolulu, Hawaii, City and County Revenue Refunding Bonds, Series C,
5.50% due 11/01/2010 (e) 2,101
Illinois -- 3.8% Illinois Health Facilities Authority Revenue Bonds:
AAA Aaa 2,500 Refunding (Lutheran General Health), Series C, 7% due 4/01/2008 (f) 2,942
NR* VMIG1+ 3,900 (Resurrection Health Care System), VRDN, 3.75% due 5/01/2011 (a) 3,900
AAA Aaa 1,425 University of Illinois, COP, Series A, 7.25% due 8/15/2000 (f) 1,541
Indiana -- 3.8% AAA Aaa 4,175 Central High School Building Corp., Indiana, Refunding (First
Mortgage), 5.50% due 8/01/2010 (c) 4,340
AAA NR* 3,420 Indianapolis, Indiana, Gas Utility Revenue Bonds, Junior Lien,
7% due 6/01/2008 (h) 3,913
Maine -- 2.4% NR* A 2,670 Maine Educational Loan Marketing Corporation, Student Loan Revenue
Refunding Bonds, AMT, Series 1991, 6.90% due 11/01/2003 2,798
Maine State Turnpike Authority, Turnpike Revenue Bonds (d):
AAA Aaa 1,000 7.125% due 7/01/2008 1,200
AAA Aaa 1,000 7.50% due 7/01/2009 1,242
Massachusetts -- AAA Aaa 2,000 Massachusetts State Port Authority Revenue Bonds, AMT, Series A,
2.1% 7.375% due 7/01/2010 (e) 2,169
NR* Aaa 2,500 Massachusetts State Turnpike Authority, Western Turnpike Revenue
Bonds, Series A, 5.55% due 1/01/2017 (d) 2,549
Michigan -- 1.0% NR* A 1,000 Michigan Higher Education, Student Loan Authority Revenue Bonds,
AMT, Series XIV-A, 6.75% due 10/01/2006 1,075
A A2 1,000 Michigan State Hospital Finance Authority, Revenue Refunding
Bonds (Detroit Medical Center Obligation Group), Series A, 6.375%
due 8/15/2009 1,073
New York -- 18.4% NR* Aaa 2,995 Nassau County, New York, General Improvement, UT, Series X, 5.10%
due 11/01/2009 (c) 3,046
BBB+ Baa1 10,000 New York City, New York, GO, Series D, 5.40% due 8/01/2011 10,003
BBB+ Baa1 5,000 New York City, New York, Refunding, UT, Series D, 6.50% due
11/01/2009 5,599
New York State Dormority Authority, Revenue Refunding Bonds
(State University Educational Facilities):
A- A3 3,000 5.50% due 5/15/2009 3,125
A- A3 3,000 5% due 5/15/2012 2,924
AA- Aa3 8,000 New York State Thruway Authority, General Revenue Bonds, Series D,
5.40% due 1/01/2010 8,296
United Nations Development Corporation, New York, Revenue Refunding
Bonds, Series B:
NR* A2 1,000 5.30% due 7/01/2011 1,001
NR* A2 1,000 5.40% due 7/01/2014 1,000
AAA Aaa 5,000 Westchester County, New York, IDA, Resource Recovery Revenue Bonds
(Westchester Recovery Company Project), AMT, 6% due 7/01/2008 (c) 5,500
Ohio -- 3.1% AAA Aaa 2,000 Cleveland, Ohio, COP (Cleveland Stadium Project), 6% due
11/15/2008 (c) 2,213
AAA Aaa 4,435 Ohio State Turnpike Commission, Turnpike Revenue Bonds, Series A,
5.50% due 2/15/2010 (d) 4,640
Oregon -- 2.9% AAA Aaa 2,225 Multnomah County, Oregon, Educational Facilities Revenue
Refunding Bonds (University of Portland Project), 5.75% due
4/01/2010 (c) 2,388
AAA Aaa 3,790 Port of Portland, Oregon, International Airport Revenue Bonds
(Portland International Airport), AMT, Series 11, 5.40% due
7/01/2008 (e) 3,946
Pennsylvania -- 1.2% AAA Aaa 2,500 Allegheny County, Pennsylvania, Airport Revenue Refunding Bonds
(Pittsburgh International Airport), AMT, Series A, 5.75% due
1/01/2011 (d) 2,662
Tennessee -- 0.6% A+ A1 1,360 Tennessee HDA, Mortgage Finance, Refunding, Series A, 5.65% due
1/01/2007 1,406
Texas -- 1.0% NR* VMIG1+ 600 Gulf Coast, Texas, IDA, Solid Waste Disposal Revenue Bonds
(CITGO Petroleum Corp. Project), VRDN, AMT, 3.85% due 5/01/2025 (a) 600
A1+ NR* 500 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Methodist Hospital), VRDN, 3.70% due
12/01/2025 (a) 500
NR* VMIG1+ 1,000 Port of Arthur, Texas, Navigational District, PCR, Refunding
(Texaco Incorporated Project), VRDN, 3.75% due 10/01/2024 (a) 1,000
Virginia -- 1.3% Virginia State, HDA, Commonwealth Mortgage, Series J, Sub-Series J-2:
AA+ Aa1 1,365 6.45% due 1/01/2010 1,459
AA+ Aa1 1,300 6.50% due 1/01/2011 1,390
Washington -- 16.3% King and Snohomish Counties, Washington, School District No.
417 (Northshore), Refunding, UT (e):
AAA Aaa 2,720 5.25% due 12/01/2008 2,823
AAA Aaa 2,765 5.25% due 12/01/2009 2,848
AA+ Aa1 5,000 King County, Washington, GO, Series D, 5.70% due 12/01/2010 5,373
King County, Washington, School District No. 216 (Enumclaw) (e):
AAA Aaa 1,000 6.25% due 12/01/2008 1,133
AAA Aaa 1,550 6.25% due 12/01/2009 1,747
AA+ Aa1 4,000 Port of Seattle, Washington, GO, AMT, 5.80% due 5/01/2009 4,244
AA Aa 5,395 Seattle, Washington, Municipal Light and Power Revenue Bonds,
Series A, 5.75% due 8/01/2008 5,700
AAA Aaa 1,025 Washington State Health Care Facilities Authority, Revenue
Refunding Bonds (Kadlec Medical Center -- Richland), 5.75% due
12/01/2005 (c) 1,100
Washington State Public Power Supply System, Revenue Refunding Bonds:
AA- Aa1 2,200 (Nuclear Project No. 2), Series B, 5.20% due 7/01/2011 2,197
AAA Aaa 5,250 (Nuclear Project No. 3), Series A, 5.50% due 7/01/2007 (c) 5,539
AAA Aaa 3,015 (Nuclear Project No. 3), Series A, 5.60% due 7/01/2008 (c) 3,194
West Virginia -- 2.5% AAA Aaa 5,000 West Virginia, School Building Authority, Revenue Refunding
Bonds (Capital Improvement), 6% due 7/01/2008 (c) 5,544
Wisconsin -- 4.4% A+ A1 7,500 Kenosha, Wisconsin, Waterworks Revenue Bonds, BAN, 4.70% due
12/01/2001 7,528
AA Aa2 2,000 Wisconsin State Housing and Economic Development Authority,
Home Ownership Revenue Bonds, AMT, Series F, 7.40% due 7/01/2013 (b) 2,163
Puerto Rico -- 1.9% A1+ Baa1 3,950 Puerto Rico Commonwealth, Highway and Transportation Authority,
Highway Revenue Bonds, RITES, Series X, 6.135% due 7/01/2005 (g) 4,231
--------
Total Investments (Cost -- $221,142) -- 103.6% 228,150
Liabilities in Excess of Other Assets -- (3.6%) (7,995)
--------
Net Assets -- 100.0% $220,155
========
(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, 1997.
(b) FHA Insured.
(c) AMBAC Insured.
(d) MBIA Insured.
(e) FGIC Insured.
(f) FSA Insured.
(g) 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, 1997.
(h) Escrowed to maturity.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
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.
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
COP Certificates of Participation
GO General Obligation Bonds
HDA Housing Development Authority
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
RITES Residual Interest Tax-Exempt Securities
TRAN Tax Revenue Anticipation Notes
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C> <C> <C>
As of October 31, 1997
Assets: Investments, at value (identified cost -- $221,141,878) (Note 1a) $228,150,169
Cash 59,751
Receivables:
Securities sold $10,645,688
Interest 3,241,146
Beneficial interest sold 312,184 14,199,018
-----------
Prepaid registration fees and other assets (Note 1e) 69,539
------------
Total assets 242,478,477
------------
Liabilities: Payables:
Securities purchased 21,637,680
Beneficial interest redeemed 241,502
Dividends to shareholders (Note 1f) 148,899
Investment adviser (Note 2) 109,255
Distributor (Note 2) 31,828 22,169,164
-----------
Accrued expenses and other liabilities 154,345
------------
Total liabilities 22,323,509
------------
Net Assets: Net assets $220,154,968
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $700,448
Consist of: Class B Shares of beneficial interest, $.10 par value, unlimited number of shares authorized 923,998
Class C Shares of beneficial interest, $.10 par value, unlimited number of shares authorized 59,741
Class D Shares of beneficial interest, $.10 par value, unlimited number of shares authorized 467,312
Paid-in capital in excess of par 213,466,723
Accumulated realized capital losses on investments -- net (Note 5) (2,471,545)
Unrealized appreciation on investments -- net 7,008,291
------------
Net assets $220,154,968
============
Net Asset Class A -- Based on net assets of $71,683,923 and 7,004,483 shares of beneficial
Value: interest outstanding $10.23
============
Class B -- Based on net assets of $94,551,670 and 9,239,983 shares of beneficial
interest outstanding $10.23
============
Class C -- Based on net assets of $6,110,349 and 597,406 shares of beneficial
interest outstanding $10.23
============
Class D -- Based on net assets of $47,809,026 and 4,673,117 shares of beneficial
interest outstanding $10.23
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C> <C> <C>
For the Year Ended October 31, 1997
Investment Interest and amortization of premium and discount earned $11,223,721
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $1,182,951
Account maintenance and distribution fees -- Class B (Note 2) 353,316
Transfer agent fees -- Class B (Note 2) 129,568
Registration fees (Note 1e) 104,098
Printing and shareholder reports 74,178
Accounting services (Note 2) 55,190
Professional fees 48,913
Transfer agent fees -- Class A (Note 2) 46,471
Account maintenance fees -- Class D (Note 2) 39,032
Transfer agent fee -- Class D (Note 2) 35,575
Account maintenance and distribution fees -- Class C (Note 2) 20,384
Trustees' fees and expenses 14,861
Custodian fees 12,852
Pricing fees 9,597
Transfer agent fees -- Class C (Note 2) 8,599
Other 7,407
----------
Total expenses 2,142,992
-----------
Investment income -- net 9,080,729
-----------
Realized & Realized gain on investments -- net 4,147,015
Unrealized Gain on Change in unrealized appreciation on investments -- net 2,357,789
Investments -- Net -----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $15,585,533
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $9,080,729 $10,224,192
Realized gain on investments -- net 4,147,015 154,528
Change in unrealized appreciation/depreciation on investments -- net 2,357,789 (1,703,506)
------------ ------------
Net increase in net assets resulting from operations 15,585,533 8,675,214
------------ ------------
Dividends to Investment income -- net:
Shareholders Class A (2,263,578) (1,611,220)
(Note 1f): Class B (4,858,261) (7,875,619)
Class C (278,427) (341,198)
Class D (1,680,463) (396,155)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (9,080,729) (10,224,192)
------------ ------------
Beneficial Interest Net decrease in net assets derived from beneficial interest transactions (2,831,837) (12,064,882)
Transactions (Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets 3,672,967 (13,613,860)
Beginning of year 216,482,001 230,095,861
------------ ------------
End of year $220,154,968 $216,482,001
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
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: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $9.94 $10.00 $9.62 $10.39 $9.70
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net .45 .48 .53 .52 .54
Realized and unrealized gain (loss) on investments -- net .29 (.06) .38 (.77) .69
------- ------- ------- ------- -------
Total from investment operations .74 .42 .91 (.25) 1.23
------- ------- ------- ------- -------
Less dividends from investment income -- net (.45) (.48) (.53) (.52) (.54)
------- ------- ------- ------- -------
Net asset value, end of year $10.23 $9.94 $10.00 $9.62 $10.39
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 7.59% 4.27% 9.69% (2.49%) 13.01%
Return:* ======= ======= ======= ======= =======
Ratios to Average Expenses .79% .81% .81% .76% .75%
Net Assets: ======= ======= ======= ======= =======
Investment income -- net 4.40% 4.79% 5.36% 5.19% 5.35%
======= ======= ======= ======= =======
Supplemental Net assets, end of year (in thousands) $71,684 $30,353 $34,970 $27,653 $24,173
Data: ======= ======= ======= ======= =======
Portfolio turnover 167.41% 146.82% 115.78% 52.56% 83.66%
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements. For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $9.93 $10.00 $9.62 $10.39 $9.69
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net .41 .44 .50 .49 .51
Realized and unrealized gain (loss) on investments -- net .30 (.07) .38 (.77) .70
------- ------- ------- ------- -------
Total from investment operations .71 .37 .88 (.28) 1.21
------- ------- ------- ------- -------
Less dividends from investment income -- net (.41) (.44) (.50) (.49) (.51)
------- ------- ------- ------- -------
Net asset value, end of year $10.23 $9.93 $10.00 $9.62 $10.39
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 7.35% 3.84% 9.34% (2.79%) 12.78%
Return:* ======= ======= ======= ======= =======
Ratios to Average Expenses 1.11% 1.13% 1.13% 1.07% 1.06%
Net Assets: ======= ======= ======= ======= =======
Investment income -- net 4.13% 4.47% 5.05% 4.87% 5.07%
======= ======= ======= ======= =======
Supplemental Net assets, end of year (in thousands) $94,552 $169,441 $181,640 $142,152 $158,061
Data: ======= ======= ======= ======= =======
Portfolio turnover 167.41% 146.82% 115.78% 52.56% 83.66%
======= ======= ======= ======= =======
* Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class C
For the
The following per share data and ratios have been derived Period
from information provided in the financial statements. For the Year Oct. 21, 1994+
Ended October 31, to Oct. 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.93 $10.00 $9.62 $9.70
Operating ------- ------- ------- -------
Performance: Investment income -- net .41 .44 .50 .01
Realized and unrealized gain (loss) on investments -- net .30 (.07) .38 (.08)
------- ------- ------- -------
Total from investment operations .71 .37 .88 (.07)
------- ------- ------- -------
Less dividends from investment income -- net (.41) (.44) (.50) (.01)
------- ------- ------- -------
Net asset value, end of period $10.23 $9.93 $10.00 $9.62
======= ======= ======= =======
Total Investment Based on net asset value per share 7.34% 3.82% 9.36% (.71%)++++
Return:** ======= ======= ======= =======
Ratios to Average Expenses 1.13% 1.15% 1.01% 1.18%*
Net Assets: ======= ======= ======= =======
Investment income -- net 4.10% 4.44% 4.76% 4.92%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $6,110 $8,313 $6,485 $1
Data: ======= ======= ======= =======
Portfolio turnover 167.41% 146.82% 115.78% 52.56%
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Class D
For the
The following per share data and ratios have been derived Period
from information provided in the financial statements. For the Year Oct. 21, 1994+
Ended October 31, to Oct. 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.94 $10.00 $9.62 $9.70
Operating ------- ------- ------- -------
Performance: Investment income -- net .44 .47 .52 .01
Realized and unrealized gain (loss) on
investments -- net .29 (.06) .38 (.08)
------- ------- ------- -------
Total from investment operations .73 .41 .90 (.07)
------- ------- ------- -------
Less dividends from investment income -- net (.44) (.47) (.52) (.01)
------- ------- ------- -------
Net asset value, end of period $10.23 $9.94 $10.00 $9.62
======= ======= ======= =======
Total Investment Based on net asset value per share 7.48% 4.17% 9.58% (.71%)++++
Return:** ======= ======= ======= =======
Ratios to Average Expenses .89% .91% .90% .97%*
Net Assets: ======= ======= ======= =======
Investment income -- net 4.31% 4.68% 5.12% 5.20%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $47,809 $8,375 $7,000 $70
Data: ======= ======= ======= =======
Portfolio turnover 167.41% 146.82% 115.78% 52.56%
======= ======= ======= =======
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Municipal Intermediate Term Fund, October 31, 1997
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 PricingSM 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.
(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.
[bullet] 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.
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 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, 1997, 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 $104 $1,427
Class D $308 $3,677
For the year ended October 31, 1997, MLPF&S received contingent deferred
sales charges of $397,577 and $2,041 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.
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, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
year ended October 31, 1997 were $333,231,913 and $336,225,039,
respectively.
Net realized and unrealized gains as of October 31, 1997, were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $4,147,015 $6,999,164
Short-term investments -- 9,127
----------- ----------
Total $4,147,015 $7,008,291
=========== ==========
As of October 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $7,008,291, of which $7,045,622 related to
appreciated securities and $37,331 related to depreciated securities.
The aggregate cost of investments at October 31, 1997 for Federal income
tax purposes was $221,141,878.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions
was $2,831,837 and $12,064,882 for the years ended October 31, 1997 and
October 31, 1996, respectively.
Transactions in shares of beneficial interest for each class were
as follows:
Class A Shares for the Year Dollar
Ended October 31, 1997 Shares Amount
Shares sold 6,709,488 $67,140,511
Shares issued to shareholders
in reinvestment of dividends 131,599 1,326,752
---------- -----------
Total issued 6,841,087 68,467,263
Shares redeemed (2,891,728) (28,944,364)
---------- -----------
Net increase 3,949,359 $39,522,899
========== ===========
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)
========== ===========
Class B Shares for the Year Dollar
Ended October 31, 1997 Shares Amount
Shares sold 2,459,944 $24,587,970
Shares issued to shareholders
in reinvestment of dividends 298,447 2,996,372
---------- -----------
Total issued 2,758,391 27,584,342
Automatic conversion of shares. (4,335,272) (43,314,661)
Shares redeemed (6,240,186) (62,481,421)
---------- -----------
Net decrease (7,817,067) $(78,211,740)
========== ===========
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
Automatic conversion of shares. (68,180) (673,631)
Shares redeemed (4,149,275) (41,273,703)
---------- -----------
Net decrease (1,106,912) $(11,019,863)
========== ===========
Class C Shares for the Year Dollar
Ended October 31, 1997 Shares Amount
Shares sold 263,377 $2,624,458
Shares issued to shareholders
in reinvestment of dividends 22,330 224,277
---------- -----------
Total issued 285,707 2,848,735
Shares redeemed (525,342) (5,253,237)
---------- -----------
Net decrease (239,635) $(2,404,502)
========== ===========
Class C Shares for the Year Dollar
Ended October 31, 1996 Shares Amount
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 D Shares for the Year Dollar
Ended October 31, 1997 Shares Amount
Shares sold 339,568 $3,413,939
Shares issued to shareholders
in reinvestment of dividends 76,475 769,028
Automatic conversion of shares 4,335,272 43,314,661
---------- -----------
Total issued 4,751,315 47,497,628
Shares redeemed. (921,079) (9,236,122)
---------- -----------
Net increase 3,830,236 $38,261,506
========== ===========
Class D Shares for the Year Dollar
Ended October 31, 1996 Shares Amount
Shares sold 390,259 $3,907,908
Shares issued to shareholders
in reinvestment of dividends 21,768 216,202
Automatic conversion of shares 68,171 673,631
---------- -----------
Total issued 480,198 4,797,741
Shares redeemed (337,194) (3,358,288)
---------- -----------
Net increase 143,004 $1,439,453
========== ===========
5. Capital Loss Carryforward:
At October 31, 1997, the Fund had a net capital loss carryforward of
approximately $1,703,000, of which $1,434,000 expires in 2003 and
$269,000 expires in 2004. This amount will be available to offset like
amounts of any future taxable gains.
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 liabilities,
including the schedule of investments, of Merrill Lynch Municipal
Intermediate Term Fund of Merrill Lynch Municipal Series Trust as of
October 31, 1997, 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, 1997 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, 1997, 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.
Deloitte & Touche llp
Princeton, New Jersey
December 5, 1997
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, 1997 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.
