MERRILL LYNCH
MUNICIPAL
INTERMEDIATE
TERM FUND
[FUND LOGO]
STRATEGIC
Performance
Quarterly Report
January 31, 1998
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 -- 1/98
[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, January 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the three months ended January 31, 1998, long-term bond yields
declined to recent historic lows. While the positive combination of
moderate economic growth and low inflation continued to support lower
interest rates, much of the recent decline in bond yields was driven
more by the continued turmoil in Asian equity markets than by
fundamental concerns. A significant "flight to quality" has benefited
the US Treasury bond market, particularly longer-maturity US Treasury
bonds, as foreign investors have sought safe haven in the relative
stability of US financial markets. Over the six months ended January
31, 1998, US Treasury bond yields declined approximately 50 basis
points (0.50%) to 5.81%.
Without the ability to benefit from the tax advantage inherent in
municipal bonds, foreign investors have not participated in the tax-
exempt market. Consequently, municipal bond yields have not declined
dramatically as have taxable US Treasury securities. Long-term
municipal revenue bond yields, as measured by the Bond Buyer Revenue
Index, declined only 15 basis points to end the six-month period ended
January 31, 1998 at 5.33%. Nevertheless, tax-exempt bond yields have
not reached these levels since the mid-1970s.
The increase in new municipal bond issuance over the past six months
has also prevented the tax-exempt bond market from more closely
mirroring the yield declines exhibited by its taxable counterpart.
During the last six months, over $120 billion in new long-term
municipal bonds were underwritten, an increase of over 30% compared to
the same six-month period one year ago. As interest rates have
continued to decline in recent months, new tax-exempt bond issuance
has remained strong. Over $60 million in new long-term municipal
securities were issued during the last three months, an increase of
over 20%, compared to the same three-month period ended January 31,
1997. During the past month, over $16 billion in new long-term
municipal securities were underwritten, representing an increase of
over 40% compared to the January 1997 level.
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 can also be
expected because of reduced consumer confidence. Perhaps more
importantly, it is likely that, barring a dramatic and unexpected
resurgence in domestic growth, the Federal Reserve Board will 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 over 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 relative pressure because 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 and lower tax-exempt bond yields to generate
the economic savings necessary for additional municipal bond
refinancings. Preliminary estimates of 1998 total municipal bond
issuance are presently in the $195 billion -- $220 billion range.
These estimates suggest that recent supply pressures are likely to
abate somewhat next year, or at least exert only minimal technical
pressure during 1998. Additionally, municipal bond investors received
approximately $23 billion in January coupon payments, bond maturities
and proceeds from early redemptions, which should serve to intensify
investor demand in the near future. With tax-exempt bond yields at
already attractive yield ratios relative to US Treasury bonds
(approximately 90% at the end of December 1997), any further pressure
on the municipal market may well represent an attractive investment
opportunity.
Portfolio Strategy
During the three months ended January 31, 1998, we continued to follow
the portfolio strategy that was adopted in the October 31, 1997
quarter. We essentially maintained our strategy of being fully
invested and concentrated on the purchase of premium coupon issues
with extended call protection in high-tax states. Over the quarter, we
took advantage of some market aberrations by selling some Baa-rated
and A-rated issues and buying Aaa-rated and Aa-rated securities
because the yield spread became too compressed between the ratings as
intermediate-term yields declined. We will continue to seek to exploit
these anomalies in the marketplace as opportunities present
themselves.
Looking ahead, we believe the outlook for the municipal market appears
favorable, with stable-to-lower economic growth and limited inflation.
Therefore, we anticipate maintaining our fully invested stance in the
upcoming months as we seek to enhance the Fund's dividend yield and
price appreciation potential.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Municipal
Intermediate Fund, and we look forward to serving your investment
needs in the months and years to come.
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
February 27, 1998
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.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/97 +8.65% +7.57%
Five Years Ended 12/31/97 +6.14 +5.93
Inception (10/31/88) through 12/31/97 +6.84 +6.73
* Maximum sales charge is 1%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/97 +8.31% +7.31%
Five Years Ended 12/31/97 +5.81 +5.81
Ten Years Ended 12/31/97 +6.67 +6.67
* 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 12/31/97 +8.29% +7.29%
Inception (10/21/94) through 12/31/97 +6.88 +6.88
* 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 12/31/97 +8.55% +7.46%
Inception (10/21/94) through 12/31/97 +7.12 +6.79
* Maximum sales charge is 1%.
** Assuming maximum sales charge.
<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
1997 9.99 10.39 -- 0.443 + 8.65
1/1/98 -- 1/31/98 10.39 10.44 -- 0.030 + 0.84
Total $5.017
Cumulative total return as of 1/31/98: +85.02%**
* 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
1997 9.99 10.39 -- 0.411 + 8.31
1/1/98 -- 1/31/98 10.39 10.44 -- 0.028 + 0.82
Total $5.798
Cumulative total return as of 1/31/98: +90.07%**
* 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
1997 9.99 10.39 -- 0.409 + 8.29
1/1/98 -- 1/31/98 10.39 10.43 -- 0.028 + 0.72
Total $1.459
Cumulative total return as of 1/31/98: +24.59%**
* 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
1997 9.99 10.39 -- 0.432 + 8.55
1/1/98 -- 1/31/98 10.39 10.44 -- 0.030 + 0.84
Total $1.531
Cumulative total return as of 1/31/98: +25.62%**
* 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>
Recent
Performance
Results
12 Month 3 Month
1/31/98 10/31/97 1/31/97 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.44 $10.23 $9.95 +4.92% +2.05%
Class B Shares* 10.44 10.23 9.95 +4.92 +2.05
Class C Shares* 10.43 10.23 9.95 +4.82 +1.96
Class D Shares* 10.44 10.23 9.95 +4.92 +2.05
Class A Shares -- Total Return* +9.57(1) +3.15(2)
Class B Shares -- Total Return* +9.23(3) +3.07(4)
Class C Shares -- Total Return* +9.11(5) +2.96(6)
Class D Shares -- Total Return* +9.46(7) +3.12(8)
Class A Shares -- Standardized 30-day Yield 3.87%
Class B Shares -- Standardized 30-day Yield 3.59%
Class C Shares -- Standardized 30-day Yield 3.58%
Class D Shares -- Standardized 30-day Yield 3.77%
* 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 $0.441 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.111 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.409 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.102 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.407 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.102 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.430 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.108 per share ordinary income dividends.
</TABLE>
PORTFOLIO COMPOSITION
For the Quarter Ended January 31, 1998
Top Ten States*
California 22.34%
Washington 15.39
New York 12.00
Ohio 6.03
Wisconsin 5.46
Alaska 4.94
New Jersey 3.24
Oregon 2.89
Utah 2.88
Michigan 2.88
-------
Total Top Ten 78.05
Total Others 21.95
-------
Total Portfolio 100.00%
=======
Net assets as of January 31, 1998 were $220,882,671.
[GRAPHIC OMITTED: PIE CHART OF QUALITY RATINGS*
(BASED ON NATIONALLY RECOGNIZED RATING SERVICES)]
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa -- 42%
AA/Aa -- 25%
A/A -- 17%
BBB/Baa -- 7%
NR+ -- 1%
Other++ -- 8%
* Based on total market value of the portfolio as of January 31, 1998.
+ Not Rated.
++ Temporary investments in short-term municipal securities.
