MERRILL LYNCH
MUNICIPAL
INTERMEDIATE
TERM FUND
FUND LOGO
Quarterly Report
July 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
Printed on post-consumer recycled paper
<PAGE>
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
TO OUR SHAREHOLDERS
The Municipal Market
Environment
During the three months ended July 31, 1997, a number of very
favorable factors combined to push both tax-exempt and taxable bond
yields to recent historic lows. A slowing domestic economy, a
continued benign, if not improving, inflationary environment, a
declining Federal budget deficit with resultant reduced Treasury
borrowing needs, and a successful Congressional budget accord all
resulted in significant declines in fixed-income yields. By the end
of July, 30-year US Treasury bond yields declined 65 basis points
(0.65%) to 6.30%, their lowest level in over a year. Similarly, as
measured by the Bond Buyer Revenue Bond Index, long-term municipal
revenue bond yields fell over 50 basis points to end the July 31,
1997 quarter at 5.49%, their lowest level since early 1994.
<PAGE>
The decline in tax-exempt bond yields in recent months was even more
impressive given that the municipal market lost much of the
technical support it enjoyed for over a year. In previous quarters,
new tax-exempt bond issuance was declining, or at least stable.
However, over the last three months, many municipal bond issuers
viewed the recent decline in bond yields as an opportunity to both
issue new debt as well as replace older, higher-couponed issues with
lower-yielding issues. Consequently, during the July 31, 1997
quarter, new tax-exempt bond issuance totaled over $54 billion, an
increase of over 15% compared to the July 31, 1996 quarter levels.
The decline in municipal bond yields also resulted in some reduction
in retail investor demand. In earlier episodes of rapidly declining
interest rates, individual investor demand initially fell until
investors become more acclimated to the current levels. If interest
rates stabilize, we expect investor demand to return to earlier
levels. In addition, this past June and July, municipal bond
investors received over $50 billion in assets from coupon income
payments, bond maturities, and the proceeds from early bond
redemptions. Despite the continued allure of the US equity market,
much of these assets should be reallocated to the municipal bond
market as investors adjust to the new investment environment.
Looking forward, given the extent of the recent bond market rally,
some retrenchment or at least a period of consolidation is likely.
However, the positive backdrop of modest economic growth and low
inflation suggests that any such adjustment is not likely to be
excessive. Despite recent increases in new bond issuance, supply for
all of 1997 is not expected to be materially different than earlier
estimates of approximately $175 billion. It is likely that the
recent increase in issuance was largely borrowed from issuance
originally scheduled for later this year. Additionally, any
significant increase in tax-exempt bond yields will prevent any
further bond refinancings reducing future supply. Unless the current
positive economic fundamentals undergo immediate and meaningful
deterioration, any increase in municipal bond yields is likely to be
viewed as an opportunity to purchase more attractively priced tax-
exempt securities.
Portfolio Strategy
During the three months ended July 31, 1997, we adopted a more
aggressive portfolio strategy because economic data indicated a
moderation in activity and benign inflation. In addition, an
agreement on a Federal budget accord appeared to be highly likely.
Also, at the beginning of the July quarter, yields in the
intermediate maturity range were near their highs for the year, so
we believed that it was an appropriate time to increase the duration
of the Fund by reducing the cash reserves. We continued to emphasize
the purchase of higher-coupon issues with extended call protection
in high-tax states whenever possible, since they offered the best
risk/reward relationship.
<PAGE>
Looking ahead, we expect to temporarily decrease the duration of the
Fund with the expectation that the intermediate maturity range may
see yields readjust higher in anticipation of an increase in new-
issue supply. We view this anticipated increase in yields as an
opportunity to purchase more attractively priced bonds.
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
August 28, 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. 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.
PERFORMANCE DATA (continued)
<TABLE>
Performance
Summary--
Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/31/88--12/31/88 $ 9.45 $ 9.29 -- $0.117 - 0.45%
1989 9.29 9.41 -- 0.606 + 8.07
1990 9.41 9.31 -- 0.594 + 5.45
1991 9.31 9.73 -- 0.597 +11.28
1992 9.73 9.89 -- 0.582 + 7.88
1993 9.89 10.42 -- 0.538 +11.04
1994 10.42 9.52 -- 0.521 - 3.69
1995 9.52 10.13 -- 0.519 +12.13
1996 10.13 9.99 -- 0.470 + 3.39
1/1/97--7/31/97 9.99 10.32 -- 0.246 + 5.99
------
Total $4.790
<PAGE>
Cumulative total return as of 7/31/97: +78.98%**
<FN>
*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>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
11/26/86--12/31/86 $10.00 $ 9.94 -- $0.030 - 0.10%
1987 9.94 9.27 -- 0.579 - 1.09
1988 9.27 9.29 -- 0.564 + 6.43
1989 9.29 9.41 -- 0.577 + 7.74
1990 9.41 9.31 -- 0.566 + 5.14
1991 9.31 9.73 -- 0.568 +10.94
1992 9.73 9.89 -- 0.552 + 7.55
1993 9.89 10.42 -- 0.507 +10.71
1994 10.42 9.52 -- 0.490 - 3.99
1995 9.52 10.13 -- 0.488 +11.79
1996 10.13 9.99 -- 0.438 + 3.07
1/1/97--7/31/97 9.99 10.32 -- 0.228 + 5.80
------
Total $5.587
Cumulative total return as of 7/31/97: +84.16%**
<FN>
*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>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.70 $ 9.52 -- $0.093 - 0.89%
1995 9.52 10.13 -- 0.493 +11.84
1996 10.13 9.99 -- 0.436 + 3.04
1/1/97--7/31/97 9.99 10.31 -- 0.227 + 5.69
------
Total $1.249
Cumulative total return as of 7/31/97: +20.72%**
<PAGE>
<FN>
*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>
Performance
Summary--
Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.70 $ 9.52 -- $0.100 - 0.81%
1995 9.52 10.13 -- 0.509 +12.02
1996 10.13 9.99 -- 0.460 + 3.29
1/1/97--7/31/97 9.99 10.31 -- 0.240 + 5.83
------
Total $1.309
Cumulative total return as of 7/31/97: +21.46%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures 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 6/30/97 +7.22% +6.14%
Five Years Ended 6/30/97 +5.91 +5.70
Inception (10/31/88) through 6/30/97 +6.58 +6.46
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +6.99% +5.99%
Five Years Ended 6/30/97 +5.58 +5.58
Ten Years Ended 6/30/97 +6.21 +6.21
[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 6/30/97 +6.96% +5.96%
Inception (10/21/94) through 6/30/97 +6.10 +6.10
[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 6/30/97 +7.11% +6.04%
Inception (10/21/94) through 6/30/97 +6.34 +5.94
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
<PAGE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
7/31/97 4/30/97 7/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.32 $9.87 $9.87 +4.56% +4.56%
Class B Shares* 10.32 9.87 9.87 +4.56 +4.56
Class C Shares* 10.31 9.87 9.87 +4.46 +4.46
Class D Shares* 10.31 9.87 9.87 +4.46 +4.46
Class A Shares--Total Return* +9.39(1) +5.72(2)
Class B Shares--Total Return* +9.04(3) +5.63(4)
Class C Shares--Total Return* +8.91(5) +5.53(4)
Class D Shares--Total Return* +9.17(6) +5.59(7)
Class A Shares--Standardized 30-day Yield 4.25%
Class B Shares--Standardized 30-day Yield 3.98%
Class C Shares--Standardized 30-day Yield 3.97%
Class D Shares--Standardized 30-day Yield 4.15%
<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 $0.451 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.111 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.419 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.103 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.417 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.441 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.108 per share ordinary
income dividends.
</TABLE>
<PAGE>
PORTFOLIO COMPOSITION
For the Quarter Ended July 31, 1997
Top Ten States*
California 15.67%
New York 14.99
Washington 12.20
Illinois 5.25
Ohio 4.49
Wisconsin 4.24
West Virginia 3.59
Utah 3.54
Alaska 3.51
Louisiana 3.13
-------
Total Top Ten 70.61
Total Others 29.39
-------
Total Portfolio 100.00%
=======
Net assets as of July 31, 1997 were $225,742,789.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart depicting quality ratings of the fund's investments.
AAA/Aaa 52%
AA/Aa 16%
A/A 17%
BBB/Baa 5%
NR++ 2%
Other++++ 8%
[FN]
*Based on total market value of the portfolio as of July 31, 1997.
++Not Rated.
++++Temporary investments in short-term municipal securities.
