Exhibit 1


                             Annual Auditors' Report

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                     [LETTERHEAD OF DELOITTE & TOUCHE LLP]

                                                                       Exhibit 1


Independent Accountants' Report on Applying Agreed-Upon Procedures

June 30, 1998

To the Management of Merrill Lynch Municipal ABS, Inc.
World Financial Center
North Tower, 9th Floor
New York, New York 10281

Dear Sirs:

We have performed the procedures requested by you, as described below, with
respect to the Merrill Lynch Municipal ABS, Inc. (the "Company") annual report
on Form 10-K for the fiscal year ended March 31, 1998 ("Form 10-K"). This
engagement to apply agreed-upon procedures was performed in accordance with
standards established by the American Institute of Certified Public Accountants.
The sufficiency of the procedures is solely the responsibility of management of
the Company. Consequently, we make no representation regarding the sufficiency
of the procedures described below either for the purpose for which this report
has been requested or for any other purpose. The procedures that we performed
and our findings are summarized as follows:

1.    We inquired of the Company that the Trustee prepared and delivered the
      Statements to Holders of Merrill Lynch Municipal ABS, Inc. Prerefunded
      Municipal Certificates, Series 1, Series 2, and Series 3 Relating to the
      Distribution Dates of April 1, 1997 and October 1, 1997, statements (see
      Exhibit 3) setting forth, relating to the distribution dates, on a class
      by class basis the following information:

      (i)   The amount of interest, principal and premium received in connection
            with the distribution dates.

      (ii)  The amount of interest, principal and premium distributed to holders
            of each class of certificates.

      (iii) The amount of any Trustee's fee payable on the distribution dates.

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      (iv)  If the interest payments received by the Trustee with respect to the
            Prerefunded Bonds of an issue are insufficient to make the required
            interest distributions with respect to the certificates related
            thereto, the aggregate amount of all interest shortfalls on the
            distribution dates and the amount of interest shortfall allocated to
            each certificate class.

      (v)   If any loss is incurred with respect to the Prerefunded Bonds, the
            aggregate amount of all losses on the distribution dates and the
            allocation of the losses to each certificate class.

      (vi)  The aggregate amount of accrued interest remaining unpaid, if any,
            for each class of certificates and after giving the effect to the
            distributions made to each class on the distribution dates.

      (vii) The aggregate certificate amount of each class of certificates after
            giving effect to the distributions made on such distribution dates
            and to losses allocated on such distribution dates.

      We found no exceptions as a result of these procedures.

2.    We proved the arithmetic accuracy of the collection and distribution of
      payments received on the Prerefunded Bonds in the related Trust during the
      period ended March 31, 1998 and found no exceptions.

3.    We compared the information included in the Statements to Holders of
      Merrill Lynch Municipal ABS, Inc. delivered to holders of Certificates for
      the year ended March 31, 1998 to the requirements in the Agreement between
      the Company and Certificate Holders and found no exceptions.

4.    We proved the arithmetic accuracy of the dollar amounts, shown in the
      Statements to Holders of Merrill Lynch Municipal ABS, Inc. in the Form
      10-K and found no exceptions.

5.    We inquired of the Secretary whether there were any other significant
      events or actions taken during or subsequent to March 31, 1998 not
      reflected in the Form 10-K or the minutes and the agendas of the Company's
      Board of Directors and committees thereof. We were informed that no such
      events or actions had occurred.

We were not engaged to, and did not, perform an audit, the objective of which
would be the expression of an opinion on the specified amounts included in Form
10-K. Accordingly, we do not express such an opinion. Had we performed
additional procedures, other matters might have come to our attention that would
have been reported to you.

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This report is intended solely for the use of management and should not be used
by those who have not agreed to the procedures and taken responsibility for the
sufficiency of the procedures for their purposes. We are aware that this report
is to be filed with The Securities and Exchange Commission as part of the Form
10-K of Merrill Lynch Municipal ABS, Inc. for the fiscal year ended March 31,
1998 and therefore is a matter of public record.

Yours truly,

/s/ Deloitte & Touche LLP
New York, New York