MERRILL LYNCH
MUNICIPAL
INTERMEDIATE
TERM FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
October 31, 1998
<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
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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, 1998 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.
<PAGE>
Merrill Lynch Municipal Intermediate Term Fund, October 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the three months ended October 31, 1998, long-term bond yields declined
significantly. The near absence of any inflationary pressures in the United
States continued to support historic low interest rates. Additionally, foreign
economic factors have continued to outweigh US domestic fundamentals, as they
have for much of 1998. The economic crisis that began in Asia over a year ago
has spread both to Russia and South America. However, economic factors in these
countries have begun to negatively impact US growth. For example, employment in
the US manufacturing sector declined in recent months as a result of reduced
demand for export goods. Concern that the modest decline in US economic growth
seen thus far would spread and intensify led the Federal Reserve Board to lower
short-term interest rates in late September, in mid-October and in mid-November.
These actions were taken to offset the drag of foreign economies on future US
growth.
US Treasury bond yields continued to benefit from a strong "flight to quality"
as foreign investors were drawn to the relative safe haven of US Government
securities. Additionally, the sharp equity market correction, which began at the
end of August, triggered a further flight into US Treasury securities. Long-term
US Treasury bond yields fell over 75 basis points (0.75%) to approximately 5% by
the end of September. This is the lowest level since the US Treasury
reintroduced 30-year maturity bond auctions in 1977.
By early October, worldwide investor confidence began to rise, reducing the
demand for the safety and liquidity of US Treasury securities. Investor
confidence was restored by the belief that major world governments, as well as
the International Monetary Fund, would take the necessary action to support weak
domestic economies in Asia and Latin America. Additionally, rapid recovery in US
and world equity markets caused some investors to reallocate funds from US debt
instruments back to various world equity markets. US Treasury security yields
rose for the remainder of the month to end October at 5.15%. During the
three-month period ended October 31, 1998, long-term Treasury security yields
declined approximately 60 basis points.
During the past 12 months, the tax-exempt bond market has contended with
significant new-issue supply pressures. Over the past year, more than $277
billion in new long-term tax-exempt bonds were underwritten, an increase of
almost 30% compared to the same period a year ago. During the most recent
six-month period, approximately $140 billion in new long-term municipal bonds
were underwritten, representing an increase of more than 15% over the same
six-month period last year. This increased supply, coupled with the high returns
the US equity market generated for much of 1998, was one of the major reasons
municipal bond yields declined less than their taxable counterparts during the
period.
The continued increase in new bond issuance has required ever-lower tax-exempt
bond yields to generate the economic savings necessary for additional municipal
bond financings. Consequently, the pace of new bond issuance has slowed in
recent months. In fact, the trend may be reversing. During the three months
ended October 31, 1998, just over $60 billion in new long-term municipal bonds
were underwritten, a decline of 4% compared to the same quarter a year ago.
During the month of October, there were less than $20 billion in new municipal
bond securities issued, a decline of over 10% compared to October 1997. We will
monitor this trend closely in the coming months to determine if the supply
pressures exerted thus far in 1998 are abating and fostering a more balanced
supply/demand environment.
Throughout the three-month period ended October 31, 1998, municipal bond yields
followed a pattern that was similar to US Treasury securities, although the
yield declines were more muted. As measured by the unmanaged Bond Buyer Revenue
Bond Index, long-term, uninsured tax-exempt revenue bond yields declined over 25
basis points to 5.09% by the end of September, their lowest level since the
early 1970s. Municipal bond yields rose during October to end the period at
5.24%. Over the past three months, long-term tax-exempt bond yields declined
almost 10 basis points.
Although municipal bond yields declined during the three-month period, recent
supply pressures and the absence of the safe haven status enjoyed by US
securities caused municipal bond yields to rise relative to US Treasury bond
yields. At October 31, 1998, long-term tax-exempt bond yield spreads were
attractive relative to US Treasury securities of comparable maturities (over
100%), well in excess of their historic range of 85%-88%. Tax-exempt bond yield
ratios have rarely exceeded 90% in the 1980s and 1990s. Historically, yield
spreads have been wider than these levels when there have been potential changes
in Federal tax codes that would have adversely affected the tax-favored status
of municipal bonds.
Currently, municipal bond investors find themselves in a unique investment
environment. Previous opportunities to purchase tax-exempt bonds with yields
exceeding that of comparable US Treasury issues have been limited to relatively
brief episodes and then further limited to a few municipal credits undergoing
specific financial pressures. At present, almost the entire municipal bond
universe, across nearly all maturity and credit sectors, can be purchased at
yields greater than their taxable counterparts. However, the current opportunity
may quickly disappear should tax-exempt bond supply pressures diminish or the
safe-haven status of US Treasury securities become less desirable. Under these
conditions, municipal bond ratios should quickly revert to more normal historic
percentages, certainly well below their presently attractive levels.
Portfolio Strategy
We continued to maintain a constructive strategy during the three-month period
ended October 31, 1998. We believed that the robust economic growth seen in late
1997 and the first quarter of 1998 would be tempered by deteriorating Asian and
Latin American economies and an absence of inflation. Consequently, we expected
tax-exempt bond yields to trade in a relatively narrow range with a bias toward
lower bond yields as 1998 progressed. We maintained a fully invested position in
order to seek to enhance total return. Looking ahead, we expect to remain fully
invested over the coming months with little change to the Fund's present
structure.
Our outlook calls for a substantial slowdown in the growth of the economy in the
coming year as consumption growth slows along with capital spending and a
further trade drag. We believe that the Federal Reserve Board will respond with
an easier monetary policy, which is likely to cause interest rates on
intermediate-term and long-term municipal bonds to fall further.
Looking ahead, we expect to remain fully invested with little change to the
Fund's present structure in order to seek to enhance the Fund's dividend income
and total return. The strong domestic economy with high productivity offset by
equally favorable deflationary pressures from Asia suggest that interest rates
are likely to trend lower in the coming months. We will continue to monitor
economic data for any sign of inflationary pressures so that we can adopt a more
defensive position if the need arises.
Fiscal Year in Review
During the fiscal year ended October 31, 1998, we adopted a more aggressive
portfolio strategy in anticipation of a slowdown in economic growth and a
decline in interest rates. We had also expected consumer spending to slow in
response to declines in household net worth.
Our aggressive strategy was appropriate during late 1997 and early 1998 as
municipal yields declined from 5.15% as of December 31, 1997 to 4.96% by
mid-January 1998, as measured by the Bond Buyer 20 Bond Index. From mid-January
to mid-May, interest rates backed up as the economy continued to grow and the
stock market hit new highs. As the pace of the economy slowed in the second
quarter, municipal yields resumed their downward trend, which continued through
September and was further aided by turmoil in world capital markets. The Federal
Reserve Board cut interest rates twice during the Fund's fiscal year,
contributing to this scenario. Throughout the year ended October 31, 1998, the
Fund remained fully invested, with an extended duration that we adjusted to
accommodate a market aberration resulting from an increase in new-issue supply.
During the 12 months ended October 31, 1998, the Fund's Class A, Class B, Class
C and Class D Shares had total returns of +8.00%, +7.67%, +7.65% and +7.90%,
respectively, which exceeded the industry average of similar municipal
intermediate-term funds of +6.53%, as measured by Lipper Analytical Services,
Inc.
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, 1998
2 & 3
<PAGE>
Merrill Lynch Municipal Intermediate Term Fund, October 31, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers four pricing alternatives:
o 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.
o 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.)
o 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.
o 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 "Recent Performance Results" and "Average
Annual Total Return" 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.
Recent Performance Results*
<TABLE>
<CAPTION>
Ten Years/ Standardized
12 Month 3 Month Since Inception 30-day Yield
Total Return Total Return Total Return As of 10/31/98
========================================================================================================================
<S> <C> <C> <C> <C>
ML Municipal Intermediate Term Fund Class A Shares +8.00% +3.16% +93.73% 3.67%
- ------------------------------------------------------------------------------------------------------------------------
ML Municipal Intermediate Term Fund Class B Shares +7.67 +3.08 +87.63 3.39
- ------------------------------------------------------------------------------------------------------------------------
ML Municipal Intermediate Term Fund Class C Shares +7.65 +3.17 +30.26 3.38
- ------------------------------------------------------------------------------------------------------------------------
ML Municipal Intermediate Term Fund Class D Shares +7.90 +3.23 +31.44 3.57
========================================================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Total investment returns are
based on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the payable date. The Fund's ten-year/inception periods are Class
A Shares & Class B Shares, for the ten years ended 10/31/98 and Class C &
Class D Shares, from 10/21/94 to 10/31/98.
Class A and Class B Shares
Total Return Based on a $10,000 Investment
Merrill Lynch Municipal Intermediate Term Fund's Class A and Class B
Shares--Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A Shares
& Class B Shares compared to growth of an investment in the Lehman Brothers
Municipal Bond Index. Beginning and ending values are:
10/88 10/98
----- -----
ML Municipal Intermediate Term Fund+--
Class A Shares* $ 9,900 $19,181
ML Municipal Intermediate Term Fund+--
Class B Shares* $10,000 $18,763
Lehman Brothers Municipal
Bond Index++ $10,000 $21,914
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ 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 9/30/98 +8.85% +7.76%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/98 +5.43 +5.22
- --------------------------------------------------------------------------------
Inception (10/31/88) through 9/30/98 +6.94 +6.83
- --------------------------------------------------------------------------------
* Maximum sales charge is 1%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 9/30/98 +8.51% +7.51%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/98 +5.10 +5.10
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/98 +6.73 +6.73
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
4 & 5
<PAGE>
Merrill Lynch Municipal Intermediate Term Fund, October 31, 1998
PERFORMANCE DATA (concluded)
Class C and Class D Shares
Total Return Based on a $10,000 Investment
Merrill Lynch Municipal Intermediate Term Fund's Class C and Class D
Shares--Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class C & Class
D Shares compared to growth of an investment in the Lehman Brothers Municipal
Bond Index. Beginning and ending values are:
10/21/94** 10/98
---------- -----
ML Municipal Intermediate Term Fund+--
Class C Shares* $10,000 $13,026
ML Municipal Intermediate Term Fund+--
Class D Shares* $ 9,900 $13,013
Lehman Brothers Municipal
Bond Index++ $10,000 $14,225
* 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. The starting date for the Index in the
Class C & Class D Shares graph is 10/31/94.
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 9/30/98 +8.51% +7.51%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 9/30/98 +7.03 +7.03
- --------------------------------------------------------------------------------
* 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 9/30/98 +8.64% +7.56%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 9/30/98 +7.27 +6.99
- --------------------------------------------------------------------------------
* Maximum sales charge is 1%.
** Assuming maximum sales charge.
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alaska--1.6% AAA Aaa $ 2,250 Alaska, Student Loan Revenue Bonds (Student Loan
Corp.), AMT, Series A,
5.65% due 7/01/2012 (c) $ 2,405
A1+ P1 900 Valdez, Alaska, Marine Terminal Revenue Refunding
Bonds (Exxon Pipeline Co. Project),
VRDN, Series C, 3.70% due 12/01/2033 (a) 900
- ----------------------------------------------------------------------------------------------------------------------
Arizona--1.1% NR* NR* 2,000 Mohave County, Arizona, IDA, IDR (North Star Steel
Co. Project), AMT, 6.70% due 3/01/2020 2,193
- ----------------------------------------------------------------------------------------------------------------------
California--18.7% California State, Public Works Board, Lease
Revenue Refunding Bonds:
A A1 5,000 (Department of Corrections), Series C, 5.25% due
11/01/2010 5,383
A A1 3,000 (Department of Justice Building), Series B, 5.25%
due 5/01/2011 3,225
AAA Aaa 5,000 California State Veterans, AMT, Series BH, 5.20%
due 12/01/2011 (f) 5,088
AAA Aaa 4,335 California Statewide Communities, Development
Authority, Revenue Refunding Bonds
(Sherman Oaks Project), Series A, 5.50% due
8/01/2009 (c) 4,771
AAA Aaa 3,755 Central Valley Financing Authority, California,
Cogeneration Project, Revenue Refunding Bonds
(Carson Ice--Generation Project), 5.25% due
7/01/2012 (d) 3,962
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 10,960
AAA Aaa 4,000 Oxnard, California, Financing Authority, Solid
Waste Revenue Bonds, AMT, 5.75% due 5/01/2010 (c) 4,368
- ----------------------------------------------------------------------------------------------------------------------
Colorado--4.0% A NR* 1,225 Denver, Colorado, Urban Renewal Authority, Tax
Increment Revenue Bonds (Downtown Denver),
AMT, Series A, 7.25% due 9/01/2017 1,347
AAA Aaa 5,000 Jefferson County, Colorado, School District No.
R-001, UT, Series A, 5.50% due 12/15/2009 (e) 5,528
A1+ VMIG1+ 1,300 Moffat County, Colorado, PCR, Refunding
(Pacificorp Projects), VRDN, 3.75% due 5/01/2013
(a)(c) 1,300
- ----------------------------------------------------------------------------------------------------------------------
Connecticut--2.7% AA Aa3 5,000 Connecticut State, GO, Series C, 5.25% due
10/15/2011 5,359
- ----------------------------------------------------------------------------------------------------------------------
District of AAA Aaa 4,700 District of Columbia, Refunding, UT, Series A,
Columbia--2.5% 5.375% due 6/01/2010 (c) 5,015
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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)
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
UT Unlimited Tax
VRDN Variable Rate Demand Notes
6 & 7
<PAGE>
Merrill Lynch Municipal Intermediate Term Fund, October 31, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Florida--4.8% AAA Aaa $ 6,210 Florida State Board of Education, Capital Outlay
(Public Education), Series B, 5.25% due 6/01/2010 $ 6,691
AAA Aaa 2,820 Tallahassee, Florida, Energy System Revenue
Refunding Bonds, Series A, 5.25% due 10/01/2011 (f) 3,045
- ----------------------------------------------------------------------------------------------------------------------
Hawaii--2.8% AAA Aaa 5,000 Hawaii State Refunding, GO, 6% due 3/01/2009 (e) 5,681
- ----------------------------------------------------------------------------------------------------------------------
Illinois--0.3% NR* VMIG1+ 600 Illinois Health Facilities Authority Revenue Bonds
(Resurrection Health Care System), VRDN,
3.70% due 5/01/2011 (a) 600
- ----------------------------------------------------------------------------------------------------------------------
Kansas--2.7% AA+ Aa2 5,000 Kansas State Department of Transportation, Highway
Revenue Refunding Bonds,
5.50% due 9/01/2010 5,542
- ----------------------------------------------------------------------------------------------------------------------
Louisiana--0.1% A1+ P1 100 East Baton Rouge Parish, Louisiana, PCR, Refunding
(Exxon Project), VRDN,
3.70% due 3/01/2022 (a) 100
- ----------------------------------------------------------------------------------------------------------------------
Maine--1.4% NR* A 2,670 Maine Educational Loan Marketing Corporation,
Student Loan Revenue Refunding Bonds, AMT,
Series 1991, 6.90% due 11/01/2003 2,826
- ----------------------------------------------------------------------------------------------------------------------
Massachusetts--1.3% AAA Aaa 2,500 Massachusetts State Turnpike Authority, Western
Turnpike Revenue Bonds, Series A,
5.55% due 1/01/2017 (d) 2,566
- ----------------------------------------------------------------------------------------------------------------------
Michigan--0.5% NR* A 1,000 Michigan Higher Education, Student Loan Authority
Revenue Bonds, AMT, Series XIV-A,
6.75% due 10/01/2006 1,065
- ----------------------------------------------------------------------------------------------------------------------
Minnesota--4.4% AAA Aaa 8,475 Minneapolis & St. Paul, Minnesota, Metropolitan
Airports Commission, Airport Revenue Bonds,
AMT, Series B, 5.25% due 1/01/2011 (c) 8,926
- ----------------------------------------------------------------------------------------------------------------------
Mississippi--0.1% NR* P1 300 Jackson County, Mississippi, Port Facility Revenue
Refunding Bonds (Chevron USA, Incorporated
Project), VRDN, 3.70% due 6/01/2023 (a) 300
- ----------------------------------------------------------------------------------------------------------------------
Nebraska--5.2% AAA Aaa 10,000 Nebraska, Public Power District Revenue Bonds,
Series A, 5.25% due 1/01/2012 (d) 10,539
- ----------------------------------------------------------------------------------------------------------------------
Nevada--2.6% AA Aa2 5,000 Nevada State Capital Improvement, Series B, 5.25%
due 6/01/2012 5,249
- ----------------------------------------------------------------------------------------------------------------------
New Mexico--2.9% A1+ P1 5,800 Farmington, New Mexico, PCR, Refunding (Arizona
Public Service Company), VRDN, Series A,
3.70% due 5/01/2024 (a) 5,800
- ----------------------------------------------------------------------------------------------------------------------
New York--24.4% Long Island Power Authority, New York, Electric
System Revenue Bonds:
AAA Aaa 10,000 5.125% due 4/01/2011 (d) 10,502
A1+ VMIG1+ 14,400 VRDN, Sub-Series 5, 3.70% due 5/01/2033 (a) 14,400
A1+ VMIG1+ 8,200 New York City, New York, Municipal Water Financing
Authority, Water and Sewer System
Revenue Bonds, VRDN, Series G, 3.70% due 6/15/2024 (a)(e) 8,200
A A2 5,000 New York State, Refunding, Series F, 5.25% due 9/15/2011 5,328
AA- Aa3 5,000 New York State Thruway Authority, General Revenue
Bonds, Series D, 5.40% due 1/01/2010 5,418
AAA Aaa 5,000 Westchester County, New York, IDA, Resource
Recovery Revenue Bonds (Westchester Recovery
Company Project), AMT, 6% due 7/01/2008 (c) 5,607
- ----------------------------------------------------------------------------------------------------------------------
Oregon--8.6% 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) 4,089
AA- NR* 5,095 Salem, Oregon, Hospital Facility Authority Revenue
Bonds (Salem Hospital), 5% due 8/15/2010 5,312
AA Aa1 5,550 Washington County, Oregon, GO, Refunding (Criminal
Justice Facilities), UT, 5% due 12/01/2010 5,844
NR* Aa3 2,060 Washington, Multnomah and Yamhill Counties,
Oregon, School District No. 1-J, Refunding, UT,
5.25% due 11/01/2009 2,233
- ----------------------------------------------------------------------------------------------------------------------
Virginia--1.4% Virginia State, HDA, Commonwealth Mortgage Revenue
Bonds, Series J, Sub-Series J-2:
AA+ Aa1 1,365 6.45% due 1/01/2010 1,475
AA+ Aa1 1,300 6.50% due 1/01/2011 1,399
- ----------------------------------------------------------------------------------------------------------------------
Washington--13.9% AA+ Aa1 5,000 King County, Washington, GO, Series D, 5.70% due
12/01/2010 5,597
King County, Washington, School District No. 412
(Shoreline), GO, UT:
AA- Aa3 1,545 5.25% due 12/01/2010 1,666
AA- Aa3 1,370 5.50% due 12/01/2012 1,506
AAA Aaa 2,880 Port Seattle, Washington, Revenue Refunding Bonds,
Series A, 5.25% due 6/01/2011 (e) 3,055
AA+ Aa1 6,830 Washington State, GO, Series A, UT, 5.25% due 7/01/2011 7,233
Washington State Public Power Supply System,
Revenue Refunding Bonds
(Nuclear Project No. 3), Series A (c):
AAA Aaa 5,250 5.50% due 7/01/2007 5,721
AAA Aaa 3,015 5.60% due 7/01/2008 3,304
- ----------------------------------------------------------------------------------------------------------------------
Wisconsin--1.1% 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) 2,177
- ----------------------------------------------------------------------------------------------------------------------
Wyoming--7.0% Cheyenne, Wyoming, Refunding, GO, UT:
AA NR* 2,705 5.25% due 12/01/2009 2,907
AA NR* 2,850 5.25% due 12/01/2010 3,056
NR* P1 8,300 Uinta County, Wyoming, PCR, Refunding (Chevron USA
Inc. Project), VRDN, 3.70% due 8/15/2020 (a) 8,300
- ----------------------------------------------------------------------------------------------------------------------
Puerto Rico--2.2% A1+ Baa1 3,950 Puerto Rico Commonwealth, Highway and
Transportation Authority, Highway Revenue Bonds,
RITES, Series X, 5.806% due 7/01/2005 (g) 4,463
- ----------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$231,510)--118.3% 239,526
Liabilities in Excess of Other Assets--(18.3%) (37,084)
--------
Net Assets--100.0% $202,442
========
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(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,
1998.
(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, 1998.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
8 & 9
<PAGE>
Merrill Lynch Municipal Intermediate Term Fund, October 31, 1998
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of October 31, 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$231,509,569)
(Note 1a) ................................................... $239,526,161
Cash ........................................................ 55,288
Receivables:
Interest .................................................. $ 3,087,659
Beneficial interest sold .................................. 245,175 3,332,834
-----------
Prepaid registration fees and other assets (Note 1e) ........ 65,457
------------
Total assets ................................................ 242,979,740
------------
- -----------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ...................................... 39,670,886
Beneficial interest redeemed .............................. 504,777
Dividends to shareholders (Note 1f) ....................... 120,968
Investment adviser (Note 2) ............................... 98,234
Distributor (Note 2) ...................................... 25,586 40,420,451
-----------
Accrued expenses and other liabilities ...................... 117,233
------------
Total liabilities ........................................... 40,537,684
------------
- -----------------------------------------------------------------------------------------------------------------
Net Assets: Net assets .................................................. $202,442,056
============
- -----------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized ....................... $ 695,692
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized ....................... 713,881
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized ....................... 48,281
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized ....................... 451,605
Paid-in capital in excess of par ............................ 188,471,756
Undistributed realized capital gains on investments--net .... 4,044,249
Unrealized appreciation on investments--net ................. 8,016,592
------------
Net assets .................................................. $202,442,056
============
- -----------------------------------------------------------------------------------------------------------------
Net Asset Class A--Based on net assets of $73,768,818 and 6,956,915
Value: shares of beneficial interest outstanding ................... $ 10.60
============
Class B--Based on net assets of $75,687,648 and 7,138,813
shares of beneficial interest outstanding ................... $ 10.60
============
Class C--Based on net assets of $5,116,397 and 482,812
shares of beneficial interest outstanding ................... $ 10.60
============
Class D--Based on net assets of $47,869,193 and 4,516,048
shares of beneficial interest outstanding ................... $ 10.60
============
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended October 31, 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned .... $ 10,503,388
Income (Note 1d):
- -----------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ........................... $ 1,174,988
Account maintenance and distribution fees--Class B (Note 2) . 253,305
Professional fees ........................................... 77,622
Printing and shareholder reports ............................ 71,538
Transfer agent fees--Class B (Note 2) ....................... 66,880
Registration fees (Note 1e) ................................. 50,554
Transfer agent fees--Class A (Note 2) ....................... 48,454
Account maintenance fees--Class D (Note 2) .................. 47,291
Accounting services (Note 2) ................................ 44,826
Transfer agent fees--Class D (Note 2) ....................... 30,173
Account maintenance and distribution fees--Class C (Note 2) . 17,596
Custodian fees .............................................. 12,281
Trustees' fees and expenses ................................. 8,795
Pricing fees ................................................ 8,241
Transfer agent fees--Class C (Note 2) ....................... 5,212
Other ....................................................... 6,456
-----------
Total expenses .............................................. 1,924,212
------------
Investment income--net ...................................... 8,579,176
------------
- -----------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments--net ........................... 6,515,794
Unrealized Change in unrealized appreciation on investments--net ....... 1,008,301
Gain on ------------
Investments-- Net Increase in Net Assets Resulting from Operations ........ $ 16,103,271
Net (Notes 1b, ============
1d & 3):
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
Merrill Lynch Municipal Intermediate Term Fund, October 31, 1998
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year
Ended October 31,
------------------------------
Increase (Decrease) in Net Assets: 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net .............................. $ 8,579,176 $ 9,080,729
Realized gain on investments--net ................... 6,515,794 4,147,015
Change in unrealized appreciation on investments--net 1,008,301 2,357,789
------------- -------------
Net increase in net assets resulting from operations 16,103,271 15,585,533
------------- -------------
- ----------------------------------------------------------------------------------------------------------
Dividends to Investment income--net:
Shareholders Class A ........................................... (3,169,968) (2,263,578)
(Note 1f): Class B ........................................... (3,258,706) (4,858,261)
Class C ........................................... (225,677) (278,427)
Class D ........................................... (1,924,825) (1,680,463)
------------- -------------
Net decrease in net assets resulting from dividends
to shareholders ..................................... (8,579,176) (9,080,729)
------------- -------------
- ----------------------------------------------------------------------------------------------------------
Beneficial Net decrease in net assets derived from beneficial
Interest interest transactions ............................... (25,237,007) (2,831,837)
Transactions ------------- -------------
(Note 4):
- ----------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets ............. (17,712,912) 3,672,967
Beginning of year ................................... 220,154,968 216,482,001
------------- -------------
End of year ......................................... $ 202,442,056 $ 220,154,968
============= =============
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios Class A
have been derived from information --------------------------------------------------------
provided in the financial statements. For the Year Ended October 31,
--------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ....... $ 10.23 $ 9.94 $ 10.00 $ 9.62 $ 10.39
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ................... .43 .45 .48 .53 .52
Realized and unrealized gain (loss) on
investments--net ......................... .37 .29 (.06) .38 (.77)
-------- -------- -------- -------- --------
Total from investment operations ......... .80 .74 .42 .91 (.25)
-------- -------- -------- -------- --------
Less dividends from investment income--net (.43) (.45) (.48) (.53) (.52)
-------- -------- -------- -------- --------
Net asset value, end of year ............. $ 10.60 $ 10.23 $ 9.94 $ 10.00 $ 9.62
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ....... 8.00% 7.59% 4.27% 9.69% (2.49%)
Return:* ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ................................. .74% .79% .81% .81% .76%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ................... 4.17% 4.40% 4.79% 5.36% 5.19%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) ... $ 73,769 $ 71,684 $ 30,353 $ 34,970 $ 27,653
Data: ======== ======== ======== ======== ========
Portfolio turnover ....................... 174.64% 167.41% 146.82% 115.78% 52.56%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
The following per share data and ratios Class B
have been derived from information --------------------------------------------------------
provided in the financial statements. For the Year Ended October 31,
--------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ....... $ 10.23 $ 9.93 $ 10.00 $ 9.62 $ 10.39
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ................... .40 .41 .44 .50 .49
Realized and unrealized gain (loss) on
investments--net ......................... .37 .30 (.07) .38 (.77)
-------- -------- -------- -------- --------
Total from investment operations ......... .77 .71 .37 .88 (.28)
-------- -------- -------- -------- --------
Less dividends from investment income--net (.40) (.41) (.44) (.50) (.49)
-------- -------- -------- -------- --------
Net asset value, end of year ............. $ 10.60 $ 10.23 $ 9.93 $ 10.00 $ 9.62
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ....... 7.67% 7.35% 3.84% 9.34% (2.79%)
Return:* ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ................................. 1.06% 1.11% 1.13% 1.13% 1.07%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ................... 3.86% 4.13% 4.47% 5.05% 4.87%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) ... $ 75,688 $ 94,552 $169,441 $181,640 $142,152
Data: ======== ======== ======== ======== ========
Portfolio turnover ....................... 174.64% 167.41% 146.82% 115.78% 52.56%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales
loads.
See Notes to Financial Statements.
12 & 13
<PAGE>
Merrill Lynch Municipal Intermediate Term Fund, October 31, 1998
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
Class C
--------------------------------------------------------
For the
The following per share data and ratios Period
have been derived from information Oct. 21,
provided in the financial statements. For the Year Ended October 31, 1994+ to
-------------------------------------------- Oct. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ..... $ 10.23 $ 9.93 $ 10.00 $ 9.62 $ 9.70
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ................... .40 .41 .44 .50 .01
Realized and unrealized gain (loss) on
investments--net ......................... .37 .30 (.07) .38 (.08)
-------- -------- -------- -------- --------
Total from investment operations ......... .77 .71 .37 .88 (.07)
-------- -------- -------- -------- --------
Less dividends from investment income--net (.40) (.41) (.44) (.50) (.01)
-------- -------- -------- -------- --------
Net asset value, end of period ........... $ 10.60 $ 10.23 $ 9.93 $ 10.00 $ 9.62
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ....... 7.65% 7.34% 3.82% 9.36% (.71%)++
Return:** ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ................................. 1.07% 1.13% 1.15% 1.01% 1.18%*
Net Assets: ======== ======== ======== ======== ========
Investment income--net ................... 3.85% 4.10% 4.44% 4.76% 4.92%*
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) . $ 5,116 $ 6,110 $ 8,313 $ 6,485 $ 1
Data: ======== ======== ======== ======== ========
Portfolio turnover ....................... 174.64% 167.41% 146.82% 115.78% 52.56%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class D
--------------------------------------------------------
For the
The following per share data and ratios Period
have been derived from information Oct. 21,
provided in the financial statements. For the Year Ended October 31, 1994+ to
-------------------------------------------- Oct. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ..... $ 10.23 $ 9.94 $ 10.00 $ 9.62 $ 9.70
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ................... .42 .44 .47 .52 .01
Realized and unrealized gain (loss) on
investments--net ......................... .37 .29 (.06) .38 (.08)
-------- -------- -------- -------- --------
Total from investment operations ......... .79 .73 .41 .90 (.07)
-------- -------- -------- -------- --------
Less dividends from investment income--net (.42) (.44) (.47) (.52) (.01)
-------- -------- -------- -------- --------
Net asset value, end of period ........... $ 10.60 $ 10.23 $ 9.94 $ 10.00 $ 9.62
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ....... 7.90% 7.48% 4.17% 9.58% (.71%)++
Return:** ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ................................. .84% .89% .91% .90% .97%*
Net Assets: ======== ======== ======== ======== ========
Investment income--net ................... 4.07% 4.31% 4.68% 5.12% 5.20%*
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) . $ 47,869 $ 47,809 $ 8,375 $ 7,000 $ 70
Data: ======== ======== ======== ======== ========
Portfolio turnover ....................... 174.64% 167.41% 146.82% 115.78% 52.56%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
14 & 15
<PAGE>
Merrill Lynch Municipal Intermediate Term Fund, October 31, 1998
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 Pricing(SM) 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.
o Financial futures contracts--The Fund may purchase or sell financial 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 ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is 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, 1998, 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 ............................ $ 48 $ 723
Class D ............................ $ 147 $2,713
- --------------------------------------------------------------------------------
For the year ended October 31, 1998, MLPF&S received contingent deferred sales
charges of $80,336 and $252 relating to transactions in Class B and Class C
Shares, respectively.
Financial Data Services, Inc. ("FDS"), 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, PFD, FDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 1998 were $356,226,455 and $367,532,576, respectively.
Net realized gains for the year ended October 31, 1998 and net unrealized gains
as of October 31, 1998, were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .................... $ 6,513,766 $ 8,016,592
Short-term investments ................... 2,028 --
------------ ------------
Total .................................... $ 6,515,794 $ 8,016,592
============ ============
- --------------------------------------------------------------------------------
As of October 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $8,016,592, of which $8,056,934 related to appreciated
securities and $40,342 related to depreciated securities. The aggregate cost of
investments at October 31, 1998 for Federal income tax purposes was
$231,509,569.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$25,237,007 and $2,831,837 for the years ended October 31, 1998 and October 31,
1997, respectively.
16 & 17
<PAGE>
Merrill Lynch Municipal Intermediate Term Fund, October 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
Transactions in shares of beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended October 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 2,776,863 $ 28,912,420
Shares issued to shareholders
in reinvestment of dividends ............. 203,200 2,117,109
------------ ------------
Total issued ............................. 2,980,063 31,029,529
Shares redeemed .......................... (3,027,631) (31,692,253)
------------ ------------
Net decrease ............................. (47,568) $ (662,724)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 B Shares for the Year Dollar
Ended October 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 1,191,436 $ 12,448,339
Shares issued to shareholders
in reinvestment of dividends ............. 197,353 2,054,034
------------ ------------
Total issued ............................. 1,388,789 14,502,373
Automatic conversion of shares ........... (412,931) (4,284,457)
Shares redeemed .......................... (3,077,028) (31,991,532)
------------ ------------
Net decrease ............................. (2,101,170) $(21,773,616)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 C Shares for the Year Dollar
Ended October 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 314,557 $ 3,282,954
Shares issued to shareholders
in reinvestment of dividends ............. 16,813 174,929
------------ ------------
Total issued ............................. 331,370 3,457,883
Shares redeemed .......................... (445,964) (4,636,065)
------------ ------------
Net decrease ............................. (114,594) $ (1,178,182)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 D Shares for the Year Dollar
Ended October 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 250,935 $ 2,642,596
Shares issued to shareholders
in reinvestment of dividends ............. 88,066 916,938
Automatic conversion of shares ........... 412,978 4,284,457
------------ ------------
Total issued ............................. 751,979 7,843,991
Shares redeemed .......................... (909,048) (9,466,476)
------------ ------------
Net decrease ............................. (157,069) $ (1,622,485)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
============ ============
- --------------------------------------------------------------------------------
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, 1998, 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, 1998 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, 1998, 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 9, 1998
18 & 19
<PAGE>
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--10/98
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