UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-4802
Name of Fund: Merrill Lynch Municipal Intermediate Term Fund of Merrill Lynch
Municipal Series Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch
Municipal Intermediate Term Fund of Merrill Lynch Municipal Series
Trust, 800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing address:
P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 10/31/04
Date of reporting period: 11/01/03 - 04/30/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Municipal
Intermediate
Term Fund
Semi-Annual Report
April 30, 2004
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Municipal Intermediate Term Fund
Officers and Trustees
Terry K. Glenn, President and Trustee
Ronald W. Forbes, Trustee
Cynthia A. Montgomery, Trustee
Kevin A. Ryan, Trustee
Roscoe S. Suddarth, Trustee
Richard R. West, Trustee
Edward D. Zinbarg, Trustee
Kenneth A. Jacob, Senior Vice President
John M. Loffredo, Senior Vice President
William R. Bock, Vice President
Donald C. Burke, Vice President and Treasurer
Phillip S. Gillespie, Secretary
- --------------------------------------------------------------------------------
Charles C. Reilly, Trustee of Merrill Lynch Municipal Intermediate Term Fund,
has recently retired. The Fund's Board of Trustees wishes Mr. Reilly well in his
retirement.
- --------------------------------------------------------------------------------
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
2 MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004
A Letter From the President
Dear Shareholder
For the six-month and 12-month periods ended April 30, 2004, the Lehman Brothers
Municipal Bond Index posted returns of +1.19% and +2.68%, respectively. Its
taxable counterpart, the Lehman Brothers Aggregate Bond Index, had returns of
+1.25% and +1.82% for the same periods. Amid considerable month-to-month
volatility, tax-exempt bond yields rose over the past year, although not to the
same extent as 10-year U.S. Treasury yields. In all, tax-exempt securities
continued to be an attractive fixed income investment alternative.
As of April month-end, the Federal Reserve Board maintained its accommodative
policy stance, although a better-than-expected employment report for the month
of March prompted speculation that an interest rate increase could come sooner
than many had expected. On April 2, 2004, the good news on the employment front
- -- previously the one dim spot in an otherwise bright economic picture -- helped
prompt the yield on the 10-year Treasury bond to spike nearly 25 basis points
(.25%), from 3.91% to 4.15%. Market watchers continue to monitor the economic
data and Federal Reserve Board language for indications of interest rate
direction. If economic growth maintains its recent pace and employment figures
continue to improve, many believe it is just a matter of time before interest
rates move upward.
Equity markets, in the meantime, gleaned support from the improving economic
environment and provided attractive returns. For the six-month and 12-month
periods ended April 30, 2004, the Standard & Poor's 500 Index returned +6.27%
and +22.88%, respectively. Significant fiscal and monetary stimulus in 2003,
including low interest rates and tax cuts, has opened the door to consumer
spending, capital spending, increases in exports and long-awaited job growth. As
expected, these developments have led the way to improvements in corporate
earnings -- a positive for stock markets.
The events and efforts of the past year leave us with a much stronger economy
today. Of course, markets will always fluctuate, and there are many
uncertainties -- not the least of which are geopolitical in nature -- which can
translate into negative market movements. Keeping this in mind, we encourage you
to revisit your portfolio and your asset allocation strategy to ensure you are
well positioned to take advantage of the opportunities that lie ahead.
Importantly, your financial advisor can help you develop a strategy most
suitable for your circumstances through all types of market and economic cycles.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Trustee
MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
The intermediate portion of the municipal yield curve came under pressure
during the period as heavy supply forced the prices on these bonds below the
market average.
Describe the recent market environment relative to municipal bonds.
For much of the six-month period, a positive economic backdrop helped bond
prices to move higher as yields, which typically move opposite of prices,
declined. In early April, however, a surprisingly strong monthly employment
report triggered fears that the long-accommodative Federal Reserve Board might
raise interest rates sooner than many had expected. As a result, bond yields
rose (prices fell) sharply for the remainder of the period. At the end of April,
long-term U.S. Treasury bond yields had climbed to 5.13%, representing an
increase of approximately 15 basis points (.15%) over the past six months.
Ten-year U.S. Treasury note yields stood at 4.30% as of period-end, an increase
of more than 20 basis points.
Tax-exempt bond yields generally mimicked the movement of their taxable
counterparts, although volatility in the municipal market was more subdued.
Long-term revenue bond yields, as measured by the Bond Buyer Revenue Bond Index,
rose just four basis points over the past six months. For the same period,
yields on Aaa-rated issues maturing in 30 years rose approximately 10 basis
points to 4.93% while yields on 10-year, Aaa-rated issues increased more than 16
basis points to nearly 4%, according to Municipal Market Data. The more marked
increase in 10-year bond yields may be attributed to the fact that recent
issuance has been heavily concentrated in the 10-year - 20-year range. The
resulting supply imbalance prompted higher intermediate bond yields (and lower
prices). Longer-maturity and lower-rated issues continued to benefit from more
favorable supply/demand factors and, therefore, have seen less price
depreciation. For the six-month period as a whole, municipal bond supply
declined approximately 5% compared to the same period a year ago.
While investor enthusiasm for stocks has taken some attention away from fixed
income markets, overall demand for tax-exempt municipal bonds has remained
positive. Recent Federal Reserve Board statistics showed that U.S. household
holdings of municipal securities increased by more than $25 billion during the
fourth quarter of 2003 to approximately $680 billion. In addition, data from the
Investment Company Institute indicates that, in just the first three months of
2004, tax-exempt bond funds have seen net new cash flows of almost $640 million.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended April 30, 2004, Merrill Lynch Municipal
Intermediate Term Fund's Class A, Class B, Class C and Class I Shares had total
returns of +0.18%, +0.17%, +0.17% and +0.32%, respectively. (Fund results shown
do not reflect sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 6 and 7 of this report to
shareholders.) Fund returns lagged the +1.19% return of the unmanaged benchmark,
the Lehman Brothers Municipal Bond Index, and the +0.34% return of the Lipper
Intermediate Municipal Debt Funds category for the same six-month period. (Funds
in this Lipper category invest primarily in municipal debt issues with
dollar-weighted average maturities in the area of five years - ten years.)
The difference in returns relative to the Lehman Brothers Municipal Bond Index
is understandable given the Fund's more limited investment parameters. As an
intermediate-term product, the Fund's investment is concentrated on those bonds
maturing in approximately 10 years - 11 years while the Index covers the full
range of the municipal bond yield curve. As mentioned earlier, a heavy supply of
bonds in the intermediate maturity range served to push their prices lower,
causing this sector of the yield curve to underperform the broader market.
What changes were made to the portfolio during the period?
We remained focused on purchasing premium-coupon bonds in the 9-year - 10-year
maturity range, with a focus on enhancing dividend yield. In periods of heavy
interest rate volatility, our focus is on using the most prudent strategies to
balance risk and reward. To that end, we engaged in a number of bond swaps to
take advantage of market aberrations during the period. The swaps allowed us to
sell bonds that were purchased at yields lower than currently available in the
market and replace them with new, higher-yielding bonds that may vary in coupon,
maturity and/or issuer. We also engaged in tax-loss swaps, which enabled us to
offset capital gains realized in 2003. By the end of the six months, we had
increased the Fund's cash position to approximately
4 MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004
9% of total assets. The goal was to make the portfolio more defensive and,
thereby, less sensitive to rising interest rates.
How would you characterize the portfolio's position at the close of the period?
The economy is showing signs of real growth -- including job growth, which until
recently had been one of the last areas of weakness. With preliminary signs of
higher inflation on the horizon, investors already have begun to anticipate a
near-term change in the Federal Reserve Board's interest rate policy. Given this
scenario, we are looking for further flattening of the yield curve and
significant underperformance in the 10-year - 15-year range.
Against this backdrop, we plan to maintain our defensive market posture.
Specifically, we expect to focus on premium-coupon bonds with maturities of less
than 10 years -- unless the market overreacts and drops further than we believe
is warranted. Finally, we also plan to collapse the Fund's shorter-maturity
derivative holdings in an effort to provide the portfolio with additional
downside protection.
William R. Bock
Vice President and Portfolio Manager
May 17, 2004
MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple pricing
alternatives:
o Class A Shares incur a maximum initial sales charge of 1% and an account
maintenance fee of 0.10% (but no distribution fee).
o Class B Shares are subject to a maximum contingent deferred sales charge
of 1%, declining to 0% after three years. All Class B Shares purchased
prior to December 1, 2002 will maintain the one-year schedule. 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 A Shares after approximately ten 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 I Shares incur a maximum initial sales charge (front-end load) of 1%
and bear no ongoing distribution or account maintenance fees. Class I
Shares are available only to eligible investors.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain more current performance
information. Performance results do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund shares.
Figures shown in each of the following tables assume reinvestment of all
dividends and capital gain distributions, if any, at net asset value on the
payable date. The Fund's investment adviser reimbursed a portion of the Fund's
expenses. Without such reimbursement the Fund's performance would have been
lower. 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
10-Year/
6-Month 12-Month Since Inception Standardized
As of April 30, 2004 Total Return Total Return Total Return 30-Day Yield
=========================================================================================================================
ML Municipal Intermediate Term Fund Class A Shares* +0.18% +1.61% +67.47% 2.97%
- -------------------------------------------------------------------------------------------------------------------------
ML Municipal Intermediate Term Fund Class B Shares* +0.17 +1.49 +64.88 2.78
- -------------------------------------------------------------------------------------------------------------------------
ML Municipal Intermediate Term Fund Class C Shares* +0.17 +1.50 +64.16 2.79
- -------------------------------------------------------------------------------------------------------------------------
ML Municipal Intermediate Term Fund Class I Shares* +0.32 +1.81 +70.12 3.07
- -------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index** +1.19 +2.68 +87.06/+88.67 --
- -------------------------------------------------------------------------------------------------------------------------
* 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 10-year/since inception periods are
10 years for Class B & Class I Shares and from 10/21/94 for Class A &
Class C Shares.
** This unmanaged Index consists of revenue bonds, prerefunded bonds, general
obligation bonds and insured bonds. Ten-year/since inception total returns
are for 10 years and from 10/31/94.
6 MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 4/30/04 +1.61% +0.59%
- --------------------------------------------------------------------------------
Five Years Ended 4/30/04 +4.77 +4.56
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 4/30/04 +5.56 +5.45
- --------------------------------------------------------------------------------
* Maximum sales charge is 1%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 4/30/04 +1.49% +0.51%
- --------------------------------------------------------------------------------
Five Years Ended 4/30/04 +4.56 +4.56
- --------------------------------------------------------------------------------
Ten Years Ended 4/30/04 +5.13 +5.13
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
three years.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 4/30/04 +1.50% +0.52%
- --------------------------------------------------------------------------------
Five Years Ended 4/30/04 +4.56 +4.56
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 4/30/04 +5.34 +5.34
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 4/30/04 +1.81% +0.79%
- --------------------------------------------------------------------------------
Five Years Ended 4/30/04 +4.87 +4.66
- --------------------------------------------------------------------------------
Ten Years Ended 4/30/04 +5.46 +5.35
- --------------------------------------------------------------------------------
* Maximum sales charge is 1%.
** Assuming maximum sales charge.
MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004 7
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (in Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
===================================================================================================================================
Alaska--1.4% AAA Aaa $2,250 Alaska Student Loan Corporation, Student Loan Revenue Bonds, AMT,
Series A, 5.65% due 7/01/2012 (a) $ 2,350
===================================================================================================================================
California--14.4% NR* NR* 875 Agua Caliente Band of Cahuilla Indians, California, Casino Revenue
Bonds, 5.60% due 7/01/2013 869
AAA Aaa 5,000 California Infrastructure and Economic Development Bank, Bay Area
Toll Bridges Revenue Bonds, First Lien, Series A, 5.25%
due 7/01/2014 (d) 5,451
BBB- Baa2 3,500 California State Public Works Board, Lease Revenue Bonds
(Department of Corrections), Series C, 5.50% due 6/01/2014 3,742
AAA Aaa 4,000 California State Public Works Board, Lease Revenue Refunding Bonds
(Department of Corrections), Series D, 5% due 12/01/2014 (b) 4,271
BBB- Baa2 2,500 Golden State Tobacco Securitization Corporation of California,
Tobacco Settlement Revenue Bonds, Series B, 5.375% due 6/01/2017 2,545
AAA Aaa 5,050 Long Beach, California, Harbor Revenue Bonds, AMT, Series B, 5.25%
due 5/15/2013 (b) 5,337
AAA Aaa 2,620 Rancho Cucamonga, California, Redevelopment Agency, Tax Allocation
Refunding Bonds (Rancho Redevelopment Project), 5% due 9/01/2014 (a) 2,805
===================================================================================================================================
Colorado--4.5% AAA Aaa 5,000 Denver, Colorado, City and County Airport Revenue Bonds, AMT,
Series D, 7.75% due 11/15/2013 (a) 6,087
A1+ VMIG1+ 1,800 Moffat County, Colorado, PCR, Refunding (Pacificorp Projects), VRDN,
1.10% due 5/01/2013 (a)(g) 1,800
===================================================================================================================================
Florida--1.7% NR* NR* 585 Double Branch Community, Florida, Development District, Special
Assessment Bonds, Series B-1, 5.60% due 5/01/2007 584
NR* NR* 830 Middle Village Community Development District, Florida, Special
Assessment Bonds, Series C, 5.125% due 5/01/2009 824
NR* NR* 600 Reunion East Community Development District, Florida, Special
Assessment, Series B, 5.90% due 11/01/2007 599
NR* NR* 1,000 Sterling Hill, Florida, Community Development District, Capital
Improvement Revenue Refunding Bonds, Series B, 5.50% due 11/01/2010 994
===================================================================================================================================
Georgia--2.4% NR* NR* 1,050 Fulton County, Georgia, Residential Care Facilities Revenue
Refunding Bonds (Canterbury Court Project), Series A, 5%
due 2/15/2014 1,023
BBB Baa2 3,000 Savannah, Georgia, EDA, PCR, Refunding (International Paper Company
Projects), Series A, 5.10% due 8/01/2014 3,109
===================================================================================================================================
Illinois--7.1% AAA NR* 5,000 Chicago, Illinois, O'Hare International Airport Revenue Refunding
Bonds, DRIVERS, AMT, Series 370, 9.07% due 7/01/2011 (c)(d) 5,529
NR* NR* 1,000 Chicago, Illinois, Tax Allocation Bonds (Kingsbury Redevelopment
Project), Series A, 6.57% due 2/15/2013 1,046
AA- A1 5,000 Illinois State Toll Highway Authority, Toll Highway Priority
Revenue Bonds, Series A, 6.30% due 1/01/2011 5,775
===================================================================================================================================
Indiana--3.3% AA- NR* 5,000 Franklin Township, Indiana, School Building Corporation, Marion
County, First Mortgage Revenue Bonds, 6.0% due 7/15/2010 (e) 5,832
===================================================================================================================================
Massachusetts--2.4% NR* Aa3 3,300 Massachusetts State Revenue Bonds, RIB, Series 420, 10.13%
due 12/15/2014 (c) 4,177
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 at right.
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
COP Certificates of Participation
DRIVERS Derivative Inverse Tax-Exempt Receipts
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
TAN Tax Anticipation Notes
VRDN Variable Rate Demand Notes
8 MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
===================================================================================================================================
Michigan--2.5% AAA Aaa $4,000 Michigan Municipal Bond Authority, Clean Water Revenue Bonds
(State Revolving Fund), 5% due 10/01/2014 $ 4,313
===================================================================================================================================
New Jersey--4.8% AAA Aaa 2,230 New Jersey State, GO, 5.50% due 8/01/2013 (b) 2,494
NR* Aaa 5,000 Port Authority of New York and New Jersey Revenue Refunding
Bonds, RIB, AMT, Series 701-X, 10.15% due 10/15/2014 (b)(c) 5,800
===================================================================================================================================
New Mexico--3.2% BBB Baa2 2,000 Farmington, New Mexico, PCR, Refunding (Public Service Company
of New Mexico--San Juan), Series B, 6.30% due 12/01/2016 2,140
AA+ Aa2 3,000 New Mexico State Highway Commission, Tax Revenue Bonds, Senior
Sub-Lien, Series A, 6% due 6/15/2013 3,404
===================================================================================================================================
New York--2.9% A A2 2,000 New York State Urban Development Corporation Revenue Bonds,
Subordinate Lien, Corporation Purpose, Series A, 5.125%
due 7/01/2015 2,079
Schenectady, New York, GO:
NR* NR* 1,000 BAN, Series B, 3.75% due 5/28/2004 999
NR* NR* 1,000 TAN, 6.25% due 12/30/2004 997
NR* NR* 1,000 Westchester County, New York, IDA, Continuing Care Retirement
Mortgage Revenue Bonds (Kendal on the Hudson Project), Series A,
5.625% due 1/01/2013 1,008
===================================================================================================================================
North Carolina--1.9% AAA Aa1 3,000 North Carolina State, Public Improvement, GO, Series A, 5.25%
due 3/01/2015 3,292
===================================================================================================================================
Ohio--3.1% AAA Aaa 5,000 Cincinnati, Ohio, City School District, Classroom Facilities
Construction & Improvement, GO, 5.25% due 12/01/2014 (d) 5,464
===================================================================================================================================
Oregon--6.8% AAA Aaa 5,475 Oregon State Department of Administrative Services, COP, Series A,
5.75% due 5/01/2010 (a)(e) 6,256
AAA Aaa 5,000 Oregon State Department of Administrative Services, Lottery
Revenue Bonds, Series B, 5.75% due 4/01/2009 (d)(e) 5,653
===================================================================================================================================
Pennsylvania--3.1% AAA Aaa 4,940 Pennsylvania State Turnpike Commission, Oil Franchise Tax Revenue
Bonds, Senior Series A, 5.25% due 12/01/2014 (b) 5,399
===================================================================================================================================
Tennessee--2.6% NR* VMIG1+ 2,900 Blount County, Tennessee, Public Building Authority, Local
Government Public Improvement Revenue Bonds, VRDN, Series A3A,
1.11% due 6/01/2026 (a)(g) 2,900
AA Aa2 1,600 Tennessee HDA, Revenue Bonds (Homeownership Program), AMT,
Series 2-C, 5.85% due 7/01/2009 1,686
===================================================================================================================================
Texas--9.7% A1+ VMIG1+ 5,000 Bell County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Scott & White Memorial Hospital), VRDN,
Series 2001-2, 1.10% due 8/15/2031 (b)(g) 5,000
Brazos River Authority, Texas, PCR, Refunding, AMT:
BBB Baa2 2,000 (TXU Energy Company LLC Project), Series A, 6.75% due 4/01/2038 2,248
BBB Baa2 1,000 (Utilities Electric Company), Series B, 5.05% due 6/01/2030 1,036
BBB- NR* 2,000 Brazos River Authority, Texas, Revenue Refunding Bonds (Reliant
Energy Inc. Project), Series B, 7.75% due 12/01/2018 2,174
BBB- Baa3 1,000 Dallas-Fort Worth, Texas, International Airport Facility,
Improvement Corporation Revenue Bonds (Learjet Inc.), AMT,
Series 2001-A-1, 6.15% due 1/01/2016 1,000
AAA Aaa 5,000 Dallas-Fort Worth, Texas, International Airport Revenue Refunding
and Improvement Bonds, AMT, Series A, 5.75% due 11/01/2014 (f) 5,378
===================================================================================================================================
Washington--12.0% AAA Aaa 3,000 King County, Washington, GO (Harborview Medical Center), 5%
due 12/01/2012 (a) 3,225
NR* Aa1 4,860 Pierce County, Washington, School District Number 416, White
River, GO, 6% due 12/01/2012 5,488
A Aa3 5,000 Seattle, Washington, Municipal Light and Power Revenue Bonds, 6%
due 10/01/2012 5,535
BBB Baa3 1,000 Tobacco Settlement Authority, Washington, Tobacco Settlement
Revenue Bonds, 5.50% due 6/01/2012 957
AA Aa1 5,000 Washington State, GO, Series B, 6% due 1/01/2012 5,623
===================================================================================================================================
Puerto Rico--2.4% A- Baa1 4,000 Puerto Rico Commonwealth, GO, Refunding, Series A, 5% due 7/01/2030 4,218
-------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$155,427)--92.2% 160,515
=============================================================================================================
MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded) (in Thousands)
Shares
Held Mutual Funds Value
=============================================================================================================
244 BlackRock Insured Municipal 2008 Term Trust, Inc. $ 3,950
230 BlackRock Insured Municipal Term Trust, Inc. 2,465
344 BlackRock Municipal Target Term Trust Inc. 3,610
-------------------------------------------------------------------------------------------------------------
Total Mutual Funds (Cost--$10,563)--5.8% 10,025
=============================================================================================================
Short-Term Securities
=============================================================================================================
4,019 Merrill Lynch Institutional Tax-Exempt Fund (h) 4,019
-------------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$4,019)--2.3% 4,019
=============================================================================================================
Total Investments (Cost--$170,009)--100.3% 174,559
Liabilities in Excess of Other Assets--(0.3%) (542)
--------
Net Assets--100.0% $174,017
========
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
(a) AMBAC Insured.
(b) MBIA Insured.
(c) 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 April 30, 2004.
(d) FSA Insured.
(e) Prerefunded.
(f) FGIC Insured.
(g) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at April 30,
2004.
(h) Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2 (a)(3) of the
Investment Company Act of 1940) are as follows:
(in Thousands)
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund (10,400) $62
--------------------------------------------------------------------------
Forward interest rate swaps entered into as of April 30, 2004 were as
follows:
(in Thousands)
--------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
--------------------------------------------------------------------------
Receive a variable rate equal to
7-Day Bond Market Association
Municipal Swap Index Rate at a
quarterly reset date and pay a fixed
rate of 3.804%
Broker, Morgan Stanley
Capital Services, Inc.
Expires July 2014 $23,000 $220
--------------------------------------------------------------------------
See Notes to Financial Statements.
10 MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004
Statement of Assets and Liabilities
As of April 30, 2004
============================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$165,989,914) ........................ $170,540,169
Investments in affiliated securities, at value
(identified cost--$4,019,241) .......................... 4,019,241
Cash .................................................... 352,691
Unrealized appreciation on forward interest rate swaps .. 219,857
Receivables:
Securities sold ...................................... $ 10,569,064
Interest ............................................. 2,460,991
Beneficial interest sold ............................. 499,935
Dividends (including $98 from affiliates) ............ 33,720 13,563,710
------------
Prepaid expenses ........................................ 39,816
------------
Total assets ............................................ 188,735,484
------------
============================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------
Payables:
Securities purchased ................................. 13,953,085
Beneficial interest redeemed ......................... 472,477
Dividends to shareholders ............................ 163,071
Investment adviser ................................... 89,008
Other affiliates ..................................... 20,272
Distributor .......................................... 19,740 14,717,653
------------
Accrued expenses ........................................ 411
------------
Total liabilities ....................................... 14,718,064
------------
============================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------
Net assets .............................................. $174,017,420
============
============================================================================================================
Net Assets Consist of
- ------------------------------------------------------------------------------------------------------------
Class A Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................. $ 519,445
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................. 232,915
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................. 304,742
Class I Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................. 597,491
Paid-in capital in excess of par ........................ 166,652,250
Undistributed investment income--net .................... $ 62,543
Undistributed realized capital gains on investments--net 877,922
Unrealized appreciation on investments--net ............. 4,770,112
------------
Total accumulated earnings--net ......................... 5,710,577
------------
Net Assets .............................................. $174,017,420
============
============================================================================================================
Net Asset Value
- ------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $54,618,482 and 5,194,445
shares of beneficial interest outstanding .............. $ 10.51
============
Class B--Based on net assets of $24,498,601 and 2,329,149
shares of beneficial interest outstanding .............. $ 10.52
============
Class C--Based on net assets of $32,044,502 and 3,047,424
shares of beneficial interest outstanding .............. $ 10.52
============
Class I--Based on net assets of $62,855,835 and 5,974,911
shares of beneficial interest outstanding .............. $ 10.52
============
See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004 11
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
For the Six Months Ended April 30, 2004
============================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------
Interest ................................................ $ 3,688,979
Dividends (including $61,533 from affiliates) ........... 124,698
------------
Total income ............................................ 3,813,677
------------
============================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------
Investment advisory fees ................................ $ 464,547
Accounting services ..................................... 48,831
Account maintenance and distribution fees--Class C ...... 47,440
Account maintenance and distribution fees--Class ........ 41,491
Professional fees ....................................... 32,178
Printing and shareholder reports ........................ 28,028
Registration fees ....................................... 27,607
Account maintenance fees--Class A ....................... 27,598
Transfer agent fees--Class A ............................ 17,516
Transfer agent fees--Class I ............................ 17,321
Transfer agent fees--Class C ............................ 10,989
Transfer agent fees--Class B ............................ 10,664
Trustees' fees and expenses ............................. 6,748
Custodian fees .......................................... 6,625
Pricing fees ............................................ 3,220
Other ................................................... 13,335
------------
Total expenses before reimbursement ..................... 804,138
Reimbursement of expenses ............................... (14,744)
------------
Total expenses after reimbursement ...................... 789,394
------------
Investment income--net .................................. 3,024,283
------------
============================================================================================================
Realized & Unrealized Gain (Loss) on Investments--Net
- ------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ....................... 884,289
Change in unrealized appreciation on investments--net ... (3,898,398)
------------
Total realized and unrealized loss on investments--net .. (3,014,109)
------------
Net Increase in Net Assets Resulting from Operations .... $ 10,174
============
See Notes to Financial Statements.
12 MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 2004 2003
============================================================================================================
Operations
- ------------------------------------------------------------------------------------------------------------
Investment income--net .................................. $ 3,024,283 $ 4,982,627
Realized gain on investments--net ....................... 884,289 303,948
Change in unrealized appreciation on investments--net ... (3,898,398) 773,222
----------------------------
Net increase in net assets resulting from operations .... 10,174 6,059,797
----------------------------
============================================================================================================
Dividends & Distributions to Shareholders
- ------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A .............................................. (999,508) (1,809,005)
Class B .............................................. (471,910) (1,195,772)
Class C .............................................. (539,915) (652,966)
Class I .............................................. (1,011,230) (1,314,527)
Realized gain on investments--net:
Class A .............................................. (142,656) (316,356)
Class B .............................................. (75,712) (249,900)
Class C .............................................. (80,956) (85,807)
Class I .............................................. (132,414) (217,583)
----------------------------
Net decrease in net assets resulting from dividends and
distributions to shareholders .......................... (3,454,301) (5,841,916)
----------------------------
============================================================================================================
Beneficial Interest Transactions
- ------------------------------------------------------------------------------------------------------------
Net increase in net assets derived from beneficial
interest transactions .................................. 23,651,373 26,532,366
----------------------------
============================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------
Total increase in net assets ............................ 20,207,246 26,750,247
Beginning of period ..................................... 153,810,174 127,059,927
----------------------------
End of period* .......................................... $174,017,420 $153,810,174
----------------------------
* Undistributed investment income--net ............... $ 62,543 $ 60,823
============================
See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004 13
[LOGO] Merrill Lynch Investment Managers
Financial Highlights
Class A
-----------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the
from information provided in the financial statements. Months Ended Year Ended October 31,***
April 30, ----------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 10.71 $ 10.69 $ 10.60 $ 10.04 $ 9.74
--------------------------------------------------------------------
Investment income--net ................. .20+ .40+ .39 .42 .43
Realized and unrealized gain (loss)
on investments--net ................... (.17) .09 .13 .56 .30
--------------------------------------------------------------------
Total from investment operations ....... .03 .49 .52 .98 .73
--------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.20) (.40) (.39) (.42) (.43)
Realized gain on investments--net ... (.03) (.07) (.04) -- --
--------------------------------------------------------------------
Total dividends and distributions ...... (.23) (.47) (.43) (.42) (.43)
--------------------------------------------------------------------
Net asset value, end of period ......... $ 10.51 $ 10.71 $ 10.69 $ 10.60 $ 10.04
====================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... .18%@ 4.68% 5.05% 9.98% 7.69%
====================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ......... .89%* .95% .99% 1.01% .90%
====================================================================
Expenses ............................... .91%* .97% 1.00% 1.01% .90%
====================================================================
Investment income--net ................. 3.62%* 3.70% 3.73% 4.10% 4.37%
====================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $54,618 $51,786 $45,563 $40,269 $34,930
====================================================================
Portfolio turnover ..................... 101.97% 214.92% 201.37% 169.70% 210.04%
====================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
+ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
14 MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004
Financial Highlights (continued)
Class B
----------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the
from information provided in the financial statements. Months Ended Year Ended October 31,
April 30, ----------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 10.71 $ 10.69 $ 10.60 $ 10.04 $ 9.75
--------------------------------------------------------------------
Investment income--net ................. .18+ .38+ .37 .40 .41
Realized and unrealized gain (loss)
on investments--net ................... (.16) .09 .13 .56 .29
--------------------------------------------------------------------
Total from investment operations ....... .02 .47 .50 .96 .70
--------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.18) (.38) (.37) (.40) (.41)
Realized gain on investments--net ... (.03) (.07) (.04) -- --
--------------------------------------------------------------------
Total dividends and distributions ...... (.21) (.45) (.41) (.40) (.41)
--------------------------------------------------------------------
Net asset value, end of period ......... $ 10.52 $ 10.71 $ 10.69 $ 10.60 $ 10.04
====================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... .17%@ 4.46% 4.83% 9.75% 7.35%
====================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ......... 1.10%* 1.17% 1.21% 1.22% 1.12%
====================================================================
Expenses ............................... 1.12%* 1.18% 1.21% 1.22% 1.12%
====================================================================
Investment income--net ................. 3.41%* 3.48% 3.53% 3.89% 4.16%
====================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $24,499 $28,678 $37,155 $37,875 $46,571
====================================================================
Portfolio turnover ..................... 101.97% 214.92% 201.37% 169.70% 210.04%
====================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004 15
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued)
Class C
----------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the
from information provided in the financial statements. Months Ended Year Ended October 31,
April 30, ----------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 10.71 $ 10.69 $ 10.59 $ 10.04 $ 9.74
--------------------------------------------------------------------
Investment income--net ................. .18+ .38+ .37 .40 .41
Realized and unrealized gain (loss)
on investments--net ................... (.16) .09 .14 .55 .30
--------------------------------------------------------------------
Total from investment operations ....... .02 .47 .51 .95 .71
--------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.18) (.38) (.37) (.40) (.41)
Realized gain on investments--net ... (.03) (.07) (.04) -- --
--------------------------------------------------------------------
Total dividends and distributions ...... (.21) (.45) (.41) (.40) (.41)
--------------------------------------------------------------------
Net asset value, end of period ......... $ 10.52 $ 10.71 $ 10.69 $ 10.59 $ 10.04
====================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... .17%@ 4.46% 4.93% 9.64% 7.45%
====================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ......... 1.10%* 1.15% 1.20% 1.22% 1.12%
====================================================================
Expenses ............................... 1.11%* 1.17% 1.20% 1.22% 1.12%
====================================================================
Investment income--net ................. 3.41%* 3.50% 3.47% 3.89% 4.16%
====================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $32,045 $28,974 $10,276 $ 2,462 $ 3,744
====================================================================
Portfolio turnover ..................... 101.97% 214.92% 201.37% 169.70% 210.04%
====================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
16 MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004
Financial Highlights (concluded)
Class I
----------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the
from information provided in the financial statements. Months Ended Year Ended October 31,***
April 30, ----------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 10.71 $ 10.69 $ 10.60 $ 10.05 $ 9.75
--------------------------------------------------------------------
Investment income--net ................. .20+ .40+ .40 .43 .44
Realized and unrealized gain (loss)
on investments--net ................... (.16) .10 .13 .55 .30
--------------------------------------------------------------------
Total from investment operations ....... .04 .50 .53 .98 .74
--------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.20) (.41) (.40) (.43) (.44)
Realized gain on investments--net ... (.03) (.07) (.04) -- --
--------------------------------------------------------------------
Total dividends and distributions ...... (.23) (.48) (.44) (.43) (.44)
--------------------------------------------------------------------
Net asset value, end of period ......... $ 10.52 $ 10.71 $ 10.69 $ 10.60 $ 10.05
====================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... .32%@ 4.77% 5.16% 9.98% 7.80%
====================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ......... .79%* .85% .89% .90% .80%
====================================================================
Expenses ............................... .81%* .87% .90% .90% .80%
====================================================================
Investment income--net ................. 3.71%* 3.80% 3.84% 4.21% 4.47%
====================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $62,856 $44,372 $34,066 $35,538 $51,675
====================================================================
Portfolio turnover ..................... 101.97% 214.92% 201.37% 169.70% 210.04%
====================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
+ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004 17
[LOGO] Merrill Lynch Investment Managers
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 amended, as a
diversified, open-end management investment company. The Fund's financial
statements are prepared in conformity with accounting principles generally
accepted in the United States of America, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. These unaudited financial statements reflect all adjustments, which
are, in the opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a normal,
recurring nature. The Fund offers multiple classes of shares. Shares of Class A
and Class I 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 A, Class B and Class C 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. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses on investments are allocated daily to each class
based on its relative net assets. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter 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 and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of such exchanges.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. In the case of options traded in the over-the-counter
market, valuation is the last asked price (options written) or the last bid
price (options purchased). Swap agreements are valued by quoted fair values
received daily by the Fund from the counterparty. 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
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
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. 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.
o Forward interest rate swaps -- The Fund may enter into forward interest
rate swaps. In a forward interest rate swap, the Fund and the counterparty
agree to make periodic net payments on a specified notional contract
amount, commencing on a specified future effective date, unless terminated
earlier. When the agreement is closed, the Fund records a realized gain or
loss in an amount equal to the value of the agreement.
18 MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004
Notes to Financial Statements (continued)
(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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(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
Investment Managers, L.P. ("MLIM"). The general partner of MLIM 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 FAM Distributors, Inc.
("FAMD" or the "Distributor"), which is a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
MLIM 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
..55% on the average daily value of the Fund's net assets. For the six months
ended April 30, 2004, MLIM reimbursed the Fund in the amount of $14,744.
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 A .................................. .10% --
Class B .................................. .20% .10%
Class C .................................. .20% .10%
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("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 A, Class B and Class C 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 six months ended April 30, 2004, FAMD earned underwriting discounts and
MLPF&S earned dealer concessions on sales of the Fund's Class A and Class I
Shares as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A .............................. $ 234 $7,082
Class I .............................. $ 42 $ 936
- --------------------------------------------------------------------------------
For the six months ended April 30, 2004, MLPF&S received contingent deferred
sales charges of $8,614 and $5,839 relating to transactions in Class B and Class
C Shares, respectively.
In addition, MLPF&S received $15,312 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended April 30,
2004.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
For the six months ended April 30, 2004, the Fund reimbursed MLIM $1,696 for
certain accounting services.
Certain officers and/or trustees of the Fund are officers and/or directors of
MLIM, PSI, FAMD, FDS, and/or ML & Co.
MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004 19
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended April 30, 2004 were $167,442,383 and $153,940,612, respectively.
Net realized gains (losses) for the six months ended April 30, 2004 and net
unrealized appreciation as of April 30, 2004, were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Appreciation
- --------------------------------------------------------------------------------
Long-term investments .................. $ 1,132,640 $ 4,550,255
Forward interest rate swaps ............ (248,351) 219,857
--------------------------------
Total .................................. $ 884,289 $ 4,770,112
================================
As of April 30, 2004, net unrealized appreciation for Federal income tax
purposes aggregated $4,553,284, of which $6,497,338 related to appreciated
securities and $1,944,054 related to depreciated securities. The aggregate cost
of investments at April 30, 2004 for Federal income tax purposes was
$170,006,126.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest transactions was
$23,651,373 and $26,532,366 for the six months ended April 30, 2004 and the year
ended October 31, 2003, respectively.
Transactions in shares of beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Dollar
Months Ended April 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 634,086 $ 6,853,253
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 63,101 684,042
Automatic conversion of shares ......... 240,202 2,611,261
--------------------------------
Total issued ........................... 937,389 10,148,556
Shares redeemed ........................ (578,766) (6,264,847)
--------------------------------
Net increase ........................... 358,623 $ 3,883,709
================================
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended October 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 941,647 $ 10,053,844
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 117,720 1,260,630
Automatic conversion of shares ......... 514,940 5,505,804
--------------------------------
Total issued ........................... 1,574,307 16,820,278
Shares redeemed ........................ (1,002,408) (10,683,694)
--------------------------------
Net increase ........................... 571,899 $ 6,136,584
================================
- --------------------------------------------------------------------------------
Class B Shares for the Six Dollar
Months Ended April 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 216,832 $ 2,345,734
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 30,246 327,972
--------------------------------
Total issued ........................... 247,078 2,673,706
Automatic conversion of shares ......... (240,078) (2,611,261)
Shares redeemed ........................ (354,947) (3,864,294)
--------------------------------
Net decrease ........................... (347,947) $ (3,801,849)
================================
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended October 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 708,218 $ 7,598,941
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 84,893 909,367
--------------------------------
Total issued ........................... 793,111 8,508,308
Automatic conversion of shares ......... (514,786) (5,505,804)
Shares redeemed ........................ (1,077,205) (11,550,698)
--------------------------------
Net decrease ........................... (798,880) $ (8,548,194)
================================
- --------------------------------------------------------------------------------
Class C Shares for the Six Dollar
Months Ended April 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 715,025 $ 7,754,565
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 33,510 363,280
--------------------------------
Total issued ........................... 748,535 8,117,845
Shares redeemed ........................ (406,519) (4,417,115)
--------------------------------
Net increase ........................... 342,016 $ 3,700,730
================================
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended October 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 2,103,435 $ 22,573,791
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 42,072 450,697
--------------------------------
Total issued ........................... 2,145,507 23,024,488
Shares redeemed ........................ (401,742) (4,294,871)
--------------------------------
Net increase ........................... 1,743,765 $ 18,729,617
================================
20 MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004
Notes to Financial Statements (concluded)
- --------------------------------------------------------------------------------
Class I Shares for the Six Dollar
Months Ended April 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 2,488,557 $ 26,988,074
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 40,715 441,559
--------------------------------
Total issued ........................... 2,529,272 27,429,633
Shares redeemed ........................ (695,942) (7,560,850)
--------------------------------
Net increase ........................... 1,833,330 $ 19,868,783
================================
- --------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended October 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 2,057,821 $ 22,041,935
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 85,313 913,926
--------------------------------
Total issued ........................... 2,143,134 22,955,861
Shares redeemed ........................ (1,188,025) (12,741,502)
--------------------------------
Net increase ........................... 955,109 $ 10,214,359
================================
5. Short-Term Borrowings:
The Fund, along with certain other funds managed by MLIM and its affiliates, is
a party to a $500,000,000 credit agreement with Bank One, N.A. and certain other
lenders. The Fund may borrow under the credit agreement to fund shareholder
redemptions and for other lawful purposes other than for leverage. The Fund may
borrow up to the maximum amount allowable under the Fund's current prospectus
and statement of additional information, subject to various other legal,
regulatory or contractual limits. The Fund pays a commitment fee of .09% per
annum based on the Fund's pro rata share of the unused portion of the facility.
Amounts borrowed under the credit agreement bear interest at a rate equal to, at
each fund's election, the Federal Funds rate plus .50% or a base rate as
determined by Bank One, N.A. On November 28, 2003, the credit agreement was
renewed for one year under the same terms. The Fund did not borrow under the
credit agreement during the six months ended April 30, 2004.
6. Subsequent Event:
At the request of the Fund's Board of Trustees, management has agreed to
contractually waive 5 basis points of the investment advisory fee effective June
1, 2004.
MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004 21
[LOGO] Merrill Lynch Investment Managers
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this website
http://www.icsdelivery.com/live and follow the instructions. When you visit this
site, you will obtain a personal identification number (PIN). You will need this
PIN should you wish to update your e-mail address, choose to discontinue this
service and/or make any other changes to the service. This service is not
available for certain retirement accounts at this time.
22 MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM FUND APRIL 30, 2004
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
website at http://www.sec.gov.
Merrill Lynch Municipal Intermediate Term Fund
of Merrill Lynch Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
#10437 -- 4/04
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
10(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the last fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Merrill Lynch Municipal Intermediate Term Fund of Merrill Lynch
Municipal Series Trust
By: /s/ Terry K. Glenn
-------------------------------
Terry K. Glenn,
President of
Merrill Lynch Municipal Intermediate Term Fund of Merrill Lynch
Municipal Series Trust
Date: June 18, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Terry K. Glenn
-------------------------------
Terry K. Glenn,
President of
Merrill Lynch Municipal Intermediate Term Fund of Merrill Lynch
Municipal Series Trust
Date: June 18, 2004
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Municipal Intermediate Term Fund of Merrill Lynch
Municipal Series Trust
Date: June 18, 2004