MERRILL LYNCH
MUNICIPAL
INTERMEDIATE
TERM FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Quarterly Report
July 31, 1999
<PAGE>
MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND
Officers and Trustees
Terry K. Glenn, President and Trustee
Ronald W. Forbes, Trustee
Cynthia A. Montgomery, Trustee
Charles C. Reilly, Trustee
Kevin A. Ryan, Trustee
Richard R. West, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
William R. Bock, Vice President
Kenneth A. Jacob, Vice President
Donald C. Burke, Vice President and Treasurer
William E. Zitelli, 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
<PAGE>
Merrill Lynch Municipal Intermediate Term Fund, July 31, 1999
DEAR SHAREHOLDER
The Municipal Market Environment
During the three months ended July 31, 1999, long-term bond yields continued to
rise. Steady US economic growth combined with improvement in foreign economies,
most notably Japan and Brazil, as well as an inflation scare in early May put
upward pressure on bond yields throughout the period. Continued strong US
employment growth, particularly the decline in the US unemployment rate to 4.2%
in early June, was among the reasons the Federal Reserve Board cited for raising
short-term interest rates in late June. US Treasury bond yields reacted by
climbing above 6.15% by late June before improving somewhat to 6.10% by July 31,
1999. During the last three months, yields on long-term US Treasury securities
increased approximately 45 basis points (0.45%).
Long-term tax-exempt bond yields also rose during the last three months. Until
early May, the municipal bond market had been able to withstand much of the
upward pressure on bond yields. However, investor concerns regarding ongoing US
economic strength and the fear of additional moves by the Federal Reserve Board
eventually pushed municipal bond yields higher throughout June and July. During
the period, the yields on long-term tax-exempt revenue bonds rose over 35 basis
points to 5.65%, as measured by the Bond Buyer Revenue Bond Index.
The ability of the tax-exempt bond market to withstand much of the recent upward
pressure on long-term bond yields has been a reflection of the continued strong
technical position the municipal bond market has enjoyed in recent quarters.
During the last six months, more than $120 billion in long-term municipal bonds
was underwritten, a decrease of more than 20% compared to the same period a year
ago. During the past three months, more than $60 billion in municipal bonds was
issued by US municipalities. This quarterly issuance represents a decline of
nearly 25% compared to the same three-month period in 1998.
Recently, the municipal supply position deteriorated even further. Total
issuance in July 1999 of $16.5 billion was more than 30% lower than July 1998
levels. Additionally, in June and July, investors received more than $40 billion
in coupon income and proceeds from bond maturities and early bond redemptions.
These proceeds have generated significant retail investor interest, easily
absorbing the recent diminished supply. This very favorable supply/demand
position allowed the tax-exempt bond market to outperform its taxable
counterpart in recent months.
However, the recent relative outperformance of the municipal bond market has
somewhat reduced the very attractive tax-exempt bond yield ratios that were
available at the end of 1998. In December 1998, long-term, uninsured municipal
bond yields were higher than those of their taxable counterparts. Historically,
long-term tax-exempt bond yields have been approximately 82% - 85% of long-term
US Treasury bond yields. Municipal bond yields rose at a lower rate in recent
months than US Treasury bond yields, causing the yield ratio to decline. At July
31, 1999, long-term municipal bond yields were approximately 92% of their
taxable counterparts. Current ratios, while lower than those available at the
end of 1998, still represent historically attractive levels. We expect the
municipal bond market to maintain its strong technical position for the
remainder of 1999. Consequently, there appears to be little reason for the
tax-exempt bond market to underperform the taxable US Treasury bond market. This
suggests that the present bond yield ratio is likely to remain stable in the
coming months and that a return to a ratio in excess of 100% of taxable Treasury
securities is improbable.
Looking ahead, it appears to us that long-term municipal bond yields will trade
in a relatively tight range near current levels. Strong US economic performance
is being balanced by nearly negligible inflation data, as well as improvements
in productivity in both manufacturing and service industries. We believe that
future moves by the Federal Reserve Board have largely been discounted by bond
markets and are to a great extent reflected in present bond yields.
Any improvement in bond prices is likely to be contingent upon weakening in both
US employment growth and consumer spending. The 100 basis point rise in US
Treasury bond yields seen thus far this year is likely to negatively affect US
economic growth. The US housing market will be among the first sectors likely to
be affected, as some declines have already been evidenced because of higher
mortgage rates. We believe it is also unrealistic to expect double-digit returns
in US equity markets to continue indefinitely. Much of the US consumer's wealth
is tied to recent stock market appreciation. Any slowing in these incredible
growth rates is likely to reduce consumer spending. These factors suggest that
the worst of the recent increase in bond yields has passed and stable, if not
slightly improving, bond prices may be expected.
Portfolio Strategy
During the quarter ended July 31, 1999, we maintained a lower duration than
Merrill Lynch Municipal Intermediate Term Fund's benchmark, the unmanaged Lehman
Brothers Municipal Bond Index. We believe this strategy was appropriate given
the interest rate volatility in the intermediate-term sector of the municipal
bond market. Additional factors, such as a strong economy and employment cost
pressures, gave rise to expectations that interest rates would be increasing. We
sought to enhance total return through income-producing high-coupon bonds, and
also concentrated on increasing our holdings of AAA-rated issues given the
narrow yield spread to lower-rated issues. As a short-term precaution, we also
increased the Fund's cash reserves somewhat in anticipation of re-entering the
market at higher interest rates.
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/ Terry K. Glenn
Terry K. Glenn
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ William R. Bock
William R. Bock
Vice President and
Portfolio Manager
September 3, 1999
2 & 3
<PAGE>
Merrill Lynch Municipal Intermediate Term Fund, July 31, 1999
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 7/31/99
====================================================================================================================
<S> <C> <C> <C> <C>
ML Municipal Intermediate Term Fund Class A Shares +2.14% -2.06% +81.86% 4.04%
- --------------------------------------------------------------------------------------------------------------------
ML Municipal Intermediate Term Fund Class B Shares +1.72 -2.14 +76.15 3.77
- --------------------------------------------------------------------------------------------------------------------
ML Municipal Intermediate Term Fund Class C Shares +1.80 -2.14 +28.53 3.75
- --------------------------------------------------------------------------------------------------------------------
ML Municipal Intermediate Term Fund Class D Shares +2.03 -2.09 +29.91 3.94
====================================================================================================================
</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/since inception periods are
for the ten years ended 7/31/99 for Class A & Class B Shares and from
10/21/94 for Class C & Class D Shares.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 6/30/99 +1.77% +0.76%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 +5.41 +5.20
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/99 +6.24 +6.13
- --------------------------------------------------------------------------------
* Maximum sales charge is 1%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 6/30/99 +1.35% +0.40%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 +5.06 +5.06
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/99 +5.90 +5.90
- --------------------------------------------------------------------------------
* 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 6/30/99 +1.44% +0.48%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 6/30/99 +5.38 +5.38
- --------------------------------------------------------------------------------
* 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 6/30/99 +1.67% +0.65%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 6/30/99 +5.62 +5.39
- --------------------------------------------------------------------------------
* Maximum sales charge is 1%.
** Assuming maximum sales charge.
4 & 5
<PAGE>
Merrill Lynch Municipal Intermediate Term Fund, July 31, 1999
PORTFOLIO COMPOSITION
For the Quarter Ended July 31, 1999
Top Ten States*
Washington ......................................................... 14.99%
New York ........................................................... 8.87
California ......................................................... 8.04
Florida ............................................................ 6.76
New Jersey ......................................................... 5.80
Ohio ............................................................... 5.73
Illinois ........................................................... 5.33
Massachusetts ...................................................... 4.12
Colorado ........................................................... 4.06
Pennsylvania ....................................................... 3.91
------
Total Top Ten ...................................................... 67.61
Total Others ....................................................... 32.39
------
Total Portfolio .................................................... 100.00%
======
Net assets as of July 31, 1999 were $173,237,806.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart depicting portfolio composition according to ratings for the
quarter ended July 31, 1999.
AAA/Aaa--54%
AA/Aa--26%
A/A--6%
BBB/Baa--3%
NR+--1%
Other++--10%
* Based on total market value of the portfolio as of July 31, 1999.
+ Not Rated.
++ Temporary investments in short-term municipal securities.
6
<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 -- 7/99
[RECYCLE LOGO] Printed on post-consumer recycled paper
