MERRILL
LYNCH
CALIFORNIA
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report August 31, 1994
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.
Merrill Lynch California
Municipal Bond Fund
Merrill Lynch California
Municipal Series Trust
Box 9011
Princeton, New Jersey
08543-9011
<PAGE>
TO OUR SHAREHOLDERS
Concerns of increasing inflationary pressures continued to prompt
volatility in the US stock and bond markets during the June--August
period. In addition, the weakness of the US dollar in foreign
exchange markets prolonged stock and bond market declines during
July. While the immediate concerns regarding the US dollar had
diminished by late July, the possibility of continued tightening by
the Federal Reserve Board resurfaced after Chairman Alan Greenspan
gave his most recent Congressional testimony. However, a lower-than-
expected rate of growth reported for the US economy during the
second calendar quarter allayed inflationary concerns to some
degree, despite the fifth increase in short-term interest rates made
by the central bank in mid-August.
While the economic recovery is continuing, data suggest that it is
losing some momentum. Consumer spending is increasing, but at a
relatively slow pace, and existing home sales may have peaked. In
the industrial sector, capital goods spending is still on the rise,
but the gain for the second quarter was revised downward to 6.5%. On
balance, the growth in US industry is progressing at a steady,
modest rate.
Despite evidence of a moderating trend in the US economy, Chairman
Greenspan indicated in his July Humphrey-Hawkins testimony that the
central bank would prefer to err on the side of too much monetary
tightening rather than too little. In the weeks ahead, investors
will continue to assess economic data and inflationary trends in
order to gauge whether further increases in short-term interest
rates are imminent. Continued indications of moderate and
sustainable levels of economic growth would be positive for the US
capital markets.
The Municipal Market
Yields on long-term municipal revenue bonds ended the August quarter
with little changed. The Bond Buyer Revenue Bond Index rose five
basis points (0.05%) to end the quarter at 6.46%. However, weekly
volatility has remained high, with yields fluctuating as much as 15
basis points from week to week. US Treasury bond yields exhibited a
similar pattern during the August quarter. Over the last three
months, yields on the long-term US Treasury bond rose approximately
five basis points to end the quarter at approximately 7.47%.
<PAGE>
The continued volatility of the municipal bond market is largely a
reflection of the same lack of conviction regarding the direction of
interest rates that has been seen during most of 1994. Over the past
quarter, fixed-income markets have been unable to form a consensus
regarding the potential strength of the current economic recovery or
the resultant response by the Federal Reserve Board. However, in the
past month a number of economic indicators suggested that the pace
of the current economic expansion is slowing. Also, most analysts
believe that the Federal Reserve Board will now wait before acting
again in order to judge the overall impact of their actions on
economic growth and inflation. These factors have allowed the
municipal bond market to gain a measure of stability in recent
weeks.
The municipal bond market's technical position has remained
supportive. Approximately $40 billion in long-term securities were
issued during the three months ended August 31, 1994. This
represents a decline of over 50% versus the August quarter of one
year ago. As discussed in earlier reports, this reduction in new-
issue supply has minimized the selling pressure by larger institu-
tional investors who fear being unable to purchase sizable amounts
of securities in the future. Such a significant decline in issuance
would normally be expected to trigger a decline in yields as in-
vestors chase a commodity in scarce supply. Investor demand,
however, has also diminished somewhat in recent months as net flows
into long-term municipal bond funds have dramatically slowed, or in
some instances, reversed. Consequently, the supply/demand relation-
ship within the municipal bond marketplace has remained in balance,
promoting the overall stability in yield levels seen in the past
months.
With after-tax equivalent yields in excess of 10.50% (assuming the
highest Federal income tax bracket), long-term tax-exempt bonds
continue to represent considerable value relative to other taxable
investment alternatives. We continue to anticipate that municipal
bond yields will decline further in late 1994 and 1995. The economic
impact of the significant interest rate increases experienced since
early February have yet to be totally realized. The resultant drag
on the economy should provide the foundation for further interest
rate declines. Under such a scenario, current tax-exempt bond yields
may prove to represent considerable value.
<PAGE>
Fiscal Year in Review
Merrill Lynch California Municipal Bond Fund was consistently
postured throughout its fiscal year to generate as high a current
return to its shareholders as possible while concentrating the
majority of its assets in higher-rated California credits. We have
addressed these goals by maintaining minimal cash reserve positions,
focusing our commitments on above-industry average coupons. The
higher-coupon "cushion" bonds have allowed the Fund to distribute an
attractive level of current income while limiting to some degree the
impact of market volatility that resulted from this year's interest
rate environment. As a result of political gridlock within the
Californian state government and overall weaknesses in the State's
economic base, credit quality of the Fund's holdings has remained a
major focus. Therefore, at August 31, 1994, 70% of the Fund was
rated AA or better by the major rating agencies. This structure
permitted Merrill Lynch California Municipal Bond Fund to perform
competitively on a total return basis during a volatile period for
financial markets. We will continue to manage the Fund with a focus
on a time when more confidence for a general stabilization of
interest rates can be forecast. The technical background of the
California municipal marketplace is exceedingly positive, with
limited new issuance scheduled for the foreseeable future. As signs
of economic slowdown materialize, which would encourage interest
rate stability, we may alter the Fund's portfolio mix to become more
aggressive, enabling us to participate in any new upturn in fixed-
income security prices.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch California
Municipal Bond Fund, and we look forward to serving your investment
needs and objectives in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
September 21, 1994
<PAGE>
PERFORMANCE DATA
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
Class A and Class B Shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/25/88--12/31/88 $11.02 $10.99 -- $0.148 + 1.08%
1989 10.99 11.31 -- 0.761 +10.14
1990 11.31 11.22 -- 0.755 + 6.14
1991 11.22 11.61 $0.031 0.751 +10.79
1992 11.61 11.64 0.125 0.807 + 8.60
1993 11.64 12.13 0.158 0.808 +12.78
1/1/94--8/31/94 12.13 11.32 -- 0.422 - 3.02
------ ------
Total $0.314 Total $4.452
Cumulative total return as of 8/31/94: +55.52%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/94 - 0.94% - 4.90%
Five Years Ended 6/30/94 + 7.04 + 6.17
Inception (10/25/88)
through 6/30/94 + 7.62 + 6.85
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL: Item 1.
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
9/30/85--12/31/85 $10.00 $10.60 -- $0.175 + 8.00%
1986 10.60 11.63 $0.046 0.763 +17.80
1987 11.63 10.73 -- 0.745 - 1.45
1988 10.73 10.99 -- 0.707 + 9.28
1989 10.99 11.32 -- 0.705 + 9.69
1990 11.32 11.22 -- 0.698 + 5.51
1991 11.22 11.62 0.031 0.694 +10.33
1992 11.62 11.64 0.125 0.748 + 7.96
1993 11.64 12.13 0.158 0.747 +12.22
1/1/94--8/31/94 12.13 11.32 -- 0.385 - 3.41
------ ------
Total $0.360 Total $6.367
Cumulative total return as of 8/31/94: 104.74%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
Average Annual Total Return
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/94 - 1.51% - 5.15%
Five Years Ended 6/30/94 + 6.51 + 6.51
Inception (9/30/85)
through 6/30/94 + 8.25 + 8.25
<PAGE>
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL: Item 2.
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
8/31/94 5/31/94 8/31/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $11.32 $11.29 $12.38 -7.37%(1) +0.27%
Class B Shares* 11.32 11.30 12.38 -7.37(1) +0.18
Class A Shares--Total Return* -0.92(2) +1.84(3)
Class B Shares--Total Return* -1.50(4) +1.53(5)
Class A Shares--Standardized 30-day Yield 5.49%
Class B Shares--Standardized 30-day Yield 5.22%
<FN>
*Investment results shown do not reflect any sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.158 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.789 per share ordinary
income dividends and $0.158 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.166 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.730 per share ordinary
income dividends and $0.158 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.152 per share ordinary
income dividends.
</TABLE>
<PAGE>
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Kenneth S. Axelson, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, New York 10015
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch California Municipal Bond
Fund's portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list below and at right.
<PAGE>
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HFA Housing Finance Authority
IDR Industrial Development Revenue Bonds
INFLOS Inverse Floating Rate Municipal Bonds
M/F Multi-Family
RIB Residual Interest Bonds
RITES Residual Interest Tax-Exempt Securities
RITR Residual Interest-Trust Receipts
S/F Single-Family
TRAN Tax Revenue Anticipation Notes
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
California--96.8%
<S> <S> <C> <S> <C>
AAA Aaa $16,500 Anaheim, California, Public Financing Authority Revenue Bonds (Electric
Utility--San Juan), 2nd Series, 5.75% due 10/01/2022 (e) $ 15,517
AAA Aaa 3,000 Anaheim, California, Public Financing Authority, Tax Allocation Revenue
Bonds, RITES, 9.37% due 12/28/2018 (c)(j) 3,142
Antioch, California, Improvement Bonds (1915 Assessment District No.27 Lone
Tree), Series D:
NR NR 565 5.75% due 9/02/2000 569
NR NR 595 6% due 9/02/2001 597
NR NR 630 6.20% due 9/02/2002 635
NR NR 670 6.40% due 9/02/2003 679
NR NR 5,000 7.30% due 9/02/2013 5,155
Brea, California, Public Financing Authority, Tax Allocation Revenue Bonds
(Redevelopment Project), Series A (c):
AAA Aaa 3,145 6.75% due 8/01/2001 (a) 3,512
AAA Aaa 2,970 6.75% due 8/01/2022 3,096
AAA Aaa 5,155 Brea, California, Public Financing Authority, Water Revenue Bonds, Series B,
6.25% due 7/01/2021 (e) 5,167
Brea, California, Redevelopment Agency, Tax Allocation Revenue Refunding Bonds
(Redevelopment Project) (c):
AAA Aaa 15,000 6.125% due 8/01/2013 15,052
AAA Aaa 5,500 5.75% due 8/01/2023 5,169
AAA Aaa 2,025 Brentwood, California, Unified School District Revenue Bonds, 6.85% due
8/01/2016 (d) 2,111
<PAGE>
California Educational Facilities Authority Revenue Bonds:
AAA Aaa 18,430 (Stanford University), Series J, 6% due 11/01/2016 18,316
AA Aa 1,000 (University of Southern California Project), Series B, 6.75% due 10/01/2015 1,035
California Health Facilities Financing Authority Revenue Bonds, Series A:
BBB Baa1 5,150 (Health Dimensions), 7.50% due 5/01/2015 5,294
BBB Baa1 6,000 (Health Dimensions), 7% due 5/01/2020 5,950
AA Aa2 4,350 (Kaiser Permanente), 7% due 10/01/2018 4,605
AAA Aaa 4,000 (Scripps Memorial Hospital), 6.25% due 10/01/2013(c) 4,034
NR A 5,780 (Scripps Research Institute), 6.625% due 7/01/2014 5,763
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
California (continued)
<S> <S> <C> <S> <C>
California HFA, Home Mortgage Revenue Bonds:
A+ Aa $ 535 AMT, Series B, 8% due 8/01/2029 $ 550
A+ Aa 995 AMT, Series C, 7.45% due 8/01/2011 1,038
A+ Aa 900 AMT, Series G, 8.15% due 8/01/2019 927
A+ Aa 2,435 Series A, 8.125% due 8/01/2019 2,508
A+ Aa 3,085 Series D, 7.25% due 8/01/2017 3,154
AA Aa 145 California HFA, Home Ownership Mortgage Revenue Bonds, Series A, 9.20%
due 8/01/2015 (f) 150
California HFA, Revenue Bonds, AMT:
A+ Aa 4,300 RIB, 9.111% due 8/01/2023(j) 4,133
AAA Aaa 1,000 Series A, 7.20% due 2/01/2026(c) 1,028
A+ Aa 115 California HFA, S/F Home Mortgage Revenue Bonds, Series B, 10.375% due 2/01/2002 117
California Pollution Control Financing Authority, Resource Recovery Revenue
Bonds, AMT, VRDN (b):
NR P1 2,100 (Delano Project), 3.25% due 8/1/2019 2,100
NR Aa3 300 Refunding (Honey Lake Power Project), 3.25% due 9/01/2018 300
NR P1 500 Refunding (Ultra Power Malaga), Series B, 3.30% due 4/01/2017 500
California State Department of Water Resources, Central Valley Project,
Revenue Refunding Bonds (Water Systems), Series L:
AA Aa 3,000 5.70% due 12/01/2016 2,789
AA Aa 6,000 5.75% due 12/01/2019 5,578
California State, GO, UT:
A A1 3,000 10.50% due 10/01/2000 3,840
A A1 2,000 10% due 2/01/2010 2,785
<PAGE>
AA A1 16,300 California State, GO, Veterans' Revenue Bonds, Series AW, AMT, UT, 7.70% due
4/01/2009 17,825
A- A 3,555 California State, Public Works Board, High Technology Facilities, Lease Revenue
Bonds (San Jose Facilities), Series A, 7.75% due 8/01/2006 3,995
California State, Public Works Board, Lease Revenue Bonds, Series A (d):
AAA Aaa 3,500 (Secretary of State), 6.60% due 12/01/2009 3,664
AAA Aaa 7,625 (Various Universities of California Projects), 6.40% due 12/01/2016 7,779
AAA Aaa 5,000 Central Coast, California, Water Authority Revenue Bonds (State Water Project
Regional Facilities), 6.60% due 10/01/2022 (d) 5,140
BBB NR 1,000 Contra Costa County, California, Public Financing Authority, Tax Allocation
Revenue Refunding Bonds, Series A, 7.10% due 8/01/2022 1,019
Corona, California, COP, Corona Community (a):
AAA Aaa 1,915 8% due 3/01/2009 2,318
AAA Aaa 2,065 8% due 3/01/2010 2,494
AAA Aaa 2,230 8% due 3/01/2011 2,690
AAA Aaa 2,410 8% due 3/01/2012 2,922
AAA Aaa 2,605 8% due 3/01/2013 3,176
AAA Aaa 2,810 8% due 3/01/2014 3,443
AAA Aaa 3,035 8% due 3/01/2015 (i) 3,725
AAA Aaa 3,000 Coronado, California, Community Development Agency, Tax Allocation Revenue
Bonds (Coronado Community Development Project), 6.30% due 9/01/2022 (c) 3,022
AAA Aaa 9,000 Culver City, California, Redevelopment Finance Authority, Revenue Refunding
Bonds (Tax Allocation), 5.50% due 11/01/2014(d) 8,353
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
California (continued)
<S> <S> <C> <S> <C>
NR Aaa $ 4,635 Cypress, California, S/F Residential Mortgage Revenue Refunding Bonds, Series
A, 7.10% due 1/01/2011 (i) $ 5,089
AA- A1 13,340 East Bay, California, Municipal Utilities District, Water System Subordinate
Revenue Refunding Bonds, 6% due 6/01/2012 13,082
AA- Aa 1,950 East Bay, California, Regional Park District, GO, Series B, UT, 6.30% due
9/01/2009 1,988
<PAGE>
AAA Aaa 5,000 El Cajon, California, Redevelopment Agency, Tax Allocation Revenue Bonds (El
Cajon Redevelopment Project), 6.60% due 10/01/2022 (d) 5,162
AAA Aaa 2,230 Irvine, California, GO, Unified School District, Special Tax Community
Facilities Bonds (District No. 86-1), Series A, 8.10% due 11/15/2013 (c) 2,532
A-1 VMIG1 700 Irvine, California, Improvement Board Act of 1915 Revenue Bonds (Assessment
District No 94-15), VRDN, 3.15% due 9/02/2020 (b) 700
Irvine Ranch, California, Water District Revenue Refunding Bonds, Series B (b):
A1 NR 1,600 DATES, 2.85% due 10/01/2004 1,600
SP1+ VMIG1 1,500 VRDN, 3.05% due 8/01/2009 1,500
NR NR 4,670 Lodi, California, Unified School District Revenue Bonds (Education Support
Center Project), 7.875% due 3/01/1999 (a) 5,320
Long Beach, California, Improvement Bonds (1915 Assessment District 90-2):
NR NR 465 7% due 9/02/2001 479
NR NR 495 7.05% due 9/02/2002 510
NR NR 530 7.10% due 9/02/2003 546
NR NR 570 7.15% due 9/02/2004 587
NR NR 610 7.20% due 9/02/2005 628
NR NR 655 7.25% due 9/02/2006 675
NR NR 4,065 7.50% due 9/02/2011 4,191
NR NR 5,695 Long Beach, California, M/F Redevelopment Agency Revenue Bonds (Housing-Pacific
Court Apartments), Issue B, AMT, 6.95% due 9/01/2023 5,632
NR NR 4,545 Long Beach, California, Special Tax Community Facilities District No.3-Pine
Avenue, 6.375% due 9/01/2023 4,200
AAA Aaa 5,225 Los Angeles, California, Community Redevelopment Agency, Housing Revenue
Refunding Bonds, Series A, 6.45% due 7/01/2017 (d) 5,306
Los Angeles, California, Community Redevelopment Agency, Tax Allocation Refunding
Bonds (Bunker Hill Project):
AAA Aaa 3,595 Series C, 9% due 12/01/2001 (c)(i) 4,418
AAA Aaa 5,150 Series H, 6.50% due 12/01/2016 (k) 5,305
AAA Aaa 17,050 Los Angeles, California, Convention and Exhibition Center Authority, COP, 9% due
12/01/2005 (a) 22,122
Los Angeles, California, Department of Water and Power, Electric Plant Revenue
Bonds:
AA Aa 5,000 Refunding, 5.75% due 9/01/2013 4,767
AA Aa 10,000 Registered RITR, 8.618% due 2/01/2020 (j) 10,037
AAA Aaa 5,000 Los Angeles, California, Department of Water and Power, Waterworks Revenue Bonds,
6.30% due 7/01/2024 (c) 5,037
AAA NR 14,300 Los Angeles, California, Harbor Department Revenue Bonds, 7.60% due 10/01/2018
(i) 16,124
<PAGE>
AAA NR 1,985 Los Angeles, California, M/F Housing Revenue Bonds (Mahal Apartments Project),
Series G, 9% due 3/20/2017 (f)(h) 2,084
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
California (continued)
<S> <S> <C> <S> <C>
A+ A1 $ 7,860 Los Angeles, California, Municipal Improvement Corporation, Lease Revenue
Refunding Bonds (Central Library Project), Series A, 6.35% due 6/01/2020 $ 7,761
AAA Aaa 7,890 Los Angeles, California, Wastewater System Revenue Bonds, Series D, 6.625% due
12/01/2012 (c) 8,190
NR NR 8,000 Los Angeles County, California, COP (Marina Del Rey), Series A, 6.50% due
7/01/2008 8,061
A1+ VMIG1 2,700 Los Angeles County, California, Metropolitan Transportation Authority, Sales
Tax Revenue Refunding Bonds (Proposition C-Second Senior), Series A, VRDN, 2.85%
due 7/01/2020 (b)(c) 2,700
AAA Aaa 5,000 Los Angeles County, California, Public Works Financing Authority, Lease Revenue
Bonds (Multiple Capital Facilities Project-IV), 5.25% due 12/01/2016 (c) 4,397
SPl+ MIG1++ 2,500 Los Angeles County, California, TRAN, UT, 4.50% due 6/30/1995 2,509
Los Angeles County, California, Transportation Commission, Sales Tax Revenue
Bonds, Series A:
AA- Aaa 5,400 6.90% due 7/01/2001 (a) 6,071
AAA Aaa 10,000 (Proposition C--Second Senior), 6% due 7/01/2023 (c) 9,719
AAA Aaa 4,750 Marysville, California, Hospital Revenue Bonds (Fremont-Rideout Health Group),
Series A, 6.30% due 1/01/2022 (d) 4,767
Metropolitan Water District, Southern California, Waterworks Revenue Bonds:
AA NR 4,650 6.75% due 7/01/2001 (a) 5,188
AA Aa 3,000 6.625% due 7/01/2012 3,121
AA Aa 5,000 RIB, 7.811% due 8/05/2022 (j) 4,500
A- A 6,970 Northern California Power Agency, Public Power Revenue Bonds (Hydroelectric
Project No.1), Series E, 7.15% due 7/01/2024 7,221
<PAGE>
Ontario, California, Redevelopment Financing Authority Revenue Bonds (Cimarron
Project No.1) (c):
AAA Aaa 3,000 6.25% due 8/01/2015 3,025
AAA Aaa 5,635 6.375% due 8/01/2020 5,708
AAA Aaa 7,485 Ontario, California, Redevelopment Financing Authority Revenue Bonds (Ontario
Redevelopment Project No. 1), 6% due 8/01/2015 (c) 7,371
Orange County, California, Community Facilities District No. 87-3, Special Tax
Revenue Bonds, Series A (a):
NR A 3,750 7.80% due 8/15/2000 4,337
NR A 2,485 (Mission Viejo), 8.125% due 8/15/1998 2,824
Orange County, California, Local Transportation Authority, Sales Tax Revenue
Bonds, RIB (j):
AA Aa 5,000 8.161% due 2/14/2011 5,081
AAA Aaa 10,150 Second Series, 8.111% due 2/14/2011 (e) 10,239
A+ A 2,000 Orange County, California, Public Facilities Corporation, COP (Solid Waste
Management), 7.875% due 12/01/2013 2,214
A Aaa 5,000 Palmdale, California, Civic Authority, Revenue Refunding Bonds (Merged
Redevelopment Project), Series A, 6.60% due 9/01/2034 5,173
A+ A1 8,000 Pasadena, California, COP, Refunding Bonds (Old Pasadena Parking Facility
Project), 6.25% due 1/01/2018 7,864
AA- Aa 3,090 Pasadena, California, Water Revenue Bonds, 6% due 7/01/2013 3,028
AAA Aaa 11,620 Pittsburg, California, Redevelopment Agency, Residential Mortgage Revenue
Bonds, 9.60% due 6/01/2016 (i) 16,644
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
California (continued)
<S> <S> <C> <S> <C>
NR NR $ 4,915 Pleasanton, California, Joint Powers Financing Authority, Revenue Reassessment
Bonds, Sub-series B, 6.75% due 9/02/2017 $ 4,858
AAA Aaa 2,000 Port Oakland, California, Port Revenue Bonds, AMT, Series E, 6.40% due
11/01/2022 (c) 2,030
AAA Aaa 3,450 Rancho, California, Water District Financing Authority Revenue Bonds, RITES,
9.724% due 8/15/2021 (a)(d)(j) 4,088
AAA Aaa 1,500 Redding, California, Electric System Revenue Bonds, COP, RIB, 9.125% due
7/01/2022 (c)(j) 1,584
<PAGE>
Redwood City, California, Public Financing Authority, Local Agency Revenue
Bonds:
AAA Aaa 1,500 Refunding, Series A, 6.50% due 7/15/2011 (d) 1,545
A- NR 2,500 Series B, 7.25% due 7/15/2011 2,651
NR Baa 1,000 Riverside, California, M/F Redevelopment Agency Revenue Bonds (First and
Market Project), Series A, AMT, 7.75% due 9/01/1994 (a) 1,000
Riverside, California, Water Revenue Bonds:
AA Aa 2,830 9% due 10/01/2001 3,492
AA Aa 3,100 9% due 10/01/2002 3,890
BBB NR 2,430 Riverside County, California, Redevelopment Agency Bonds (Tax Allocation
Redevelopment Project No. 4), Series A, 7.50% due 10/01/2026 2,535
AAA Aaa 3,000 Rohnert Park, California, Community Development Agency, Tax Allocation
Refunding Bonds (Rohnert Park Redevelopment Project), 6.50% due 8/01/2020 (d) 3,061
A+ Aaa 5,385 Sacramento, California, City Financing Authority Revenue Bonds, 6.80% due
11/01/2001 (a) 6,045
Sacramento, California, Municipal Utility District, Electric Revenue Bonds:
AAA Aaa 5,000 INFLOS, 9.224% due 8/15/2018 (e)(j) 5,056
AAA Aaa 14,025 Series B, 6.375% due 8/15/2022 (c) 14,257
A- A 10,000 Series E, 5.75% due 5/15/2022 9,209
AA Aa 2,500 San Bernardino, California, Health Care System Revenue Bonds (Sisters of
Charity), Series A, 7% due 7/01/2021 2,638
A+ Aa3 5,000 San Diego, California, IDR, Refunding (San Diego Gas & Electric), Series C,
5.90% due 9/01/2018 4,736
AAA Aaa 7,550 San Diego, California, Sewer Revenue Bonds, Series A, 5.25% due 5/15/2020 (d) 6,521
AAA Aaa 1,200 San Diego County, California, COP, RITES, 9.446% due 11/18/2019 (c)(j) 1,218
AAA Aaa 8,500 San Francisco, California, City and County Airport Commission, International
Airport Revenue Refunding Bonds, Second Series, Issue 1, 6.30% due 5/01/2011 (d) 8,672
AA- A1 1,000 San Francisco, California, City and County Public Safety Improvement Project,
UT, Series F, 6.50% due 6/15/2011 1,025
NR NR 1,280 San Francisco, California, City and County Redevelopment Agency, Community
Facilities District, Special Tax No. 1 Revenue Bonds (South Beach), 8.20%
due 8/01/2013 1,394
A A 5,000 San Francisco, California, City and County Redevelopment Financing Authority, Tax
Allocation Revenue Bonds (Redevelopment Project), Series C, 5.40% due 8/01/2021 4,391
<PAGE>
San Joaquin Hills, California, Transportation Corridor Agency, Toll Road
Revenue Bonds (Senior Lien):
NR NR 2,965 7% due 1/01/2030 2,969
NR NR 15,000 6.75% due 1/01/2032 14,523
AAA Aaa 4,150 Santa Clara, California, Electric Revenue Bonds, Series A, 6.50% due 7/01/2021
(c) 4,244
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
California (continued)
<S> <S> <C> <S> <C>
AA A1 $ 1,000 Santa Clara County, California, Transportation District, Sales Tax Revenue
Bonds, Series A, 6.75% due 6/01/2011 $ 1,047
SP1+ NR 1,000 Santa Cruz County, California, TRAN, 4.50% due 8/01/1995 999
AAA Aaa 2,000 Santa Fe Springs, California, Redevelopment Agency, Tax Allocation Revenue Bonds
(Construction Redevelopment Project), Series A, 6.40% due 9/01/2022 (c) 2,037
AAA Aaa 2,750 South Coast Air Quality Management, District Building Corporation, California,
Institutional Sale Revenue Bonds, Series B, 9.75% due 8/01/l999 (d)(i) 3,324
Southern California Home Financing Authority, S/F Mortgage Revenue Bonds,
AMT (h):
AAA NR 4,380 Series A, 7.625% due 10/01/2023 4,549
AAA NR 2,450 Series A, 7.35% due 9/01/2024 (g) 2,539
AAA NR 1,195 Series B, 7.75% due 3/01/2024 (g) 1,240
AA Aa 5,415 Southern California Public Power Authority, Power Project Revenue Refunding Bonds,
Series A, 5.50% due 7/01/2012 5,003
Southern California Public Power Authority, Transmission Project, Revenue
Refunding Bonds:
AA- Aa 10,300 RIB, 8.012% due 7/01/2012(j) 9,759
AA- Aa 11,470 (Southern Transmission Project), 6.125% due 7/01/2018 11,292
BBB+ NR 21,800 Stanislaus, California, Waste-to-Energy Financing Agency, Solid Waste Facility
Revenue Refunding Bonds (Ogden Martin System Inc. Project), 7.625% due 1/01/2010 23,086
AAA Aaa 10,000 Stockton, California, East Water District Revenue Refunding Bonds, COP (1990
Project), Series A, 6.40% due 4/01/2022 (d) 10,122
<PAGE>
AAA Aaa 4,000 Tri-City, California, Hospital District Revenue Bonds (Tri-City Hospital),
7.50% due 2/01/2017 (c) 4,465
BBB NR 3,600 Turlock, California, COP, Health Facility Revenue Refunding Bonds (Emanuel
Medical Center Inc.), 5.625% due 10/15/2013 3,113
BBB Baa1 4,790 Ukiah, California, Unified School District, COP, Refunding Bonds (Capital
Projects), Series A, 6% due 9/01/2010 4,518
A+ NR 50 University of California, Facility Mortgage Revenue Bonds, 1985 Series, 9.20%
due 1/01/2018 51
University of California, Revenue Bonds (Multiple-Purpose Projects):
A- A 14,700 Refunding, Series A, 6.875% due 9/01/2002 (a) 16,614
AAA Aaa 8,000 Series D, 6.25% due 9/01/2012 (c) 8,101
AAA Aaa 10,375 Series D, 6.375% due 9/01/2024 (c) 10,516
AAA Aaa 2,000 Vacaville, California, Public Financing Authority, Tax Allocation Revenue
Refunding Bonds (Vacaville Redevelopment Projects), 6.35% due 9/01/2022 (c) 2,020
AAA Aaa 8,465 West and Central Basin, California, Financing Authority Revenue Bonds,
6.125% due 8/01/2022 (d) 8,370
West Covina, California, COP, GO (Queen of the Valley Hospital):
A A 4,310 6.50% due 8/15/2019 4,237
A A 5,000 6.95% due 8/15/2023 5,143
AAA Aaa 6,000 West Sacramento, California, Redevelopment Agency, Tax Allocation Revenue
Bonds (West Sacramento Redevelopment Project), 6.25% due 9/01/2010 (c) 6,107
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
California (concluded)
<S> <S> <C> <S> <C>
Westminster, California, Redevelopment Agency, Tax Allocation Revenue Bonds
(Commercial Redevelopment Project No. 1):
BBB+ Baa1 $ 4,380 6.20% due 8/01/2023 $ 4,034
BBB+ Baa1 4,000 Refunding, Series A, 7.30% due 8/01/2021 4,170
NR Aaa 1,850 Whittier, California, Educational Facilities Revenue Bonds (Whittier
College), Series A, 7% due 12/01/1996 (a) 1,885
Puerto Rico--2.0%
<PAGE>
A Baa1 6,580 Puerto Rico Commonwealth, GO, UT, 6.45% due 7/01/2017 6,727
A Baa1 8,465 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway
Revenue Bonds, Series T, 6.625% due 7/01/2018 8,802
Total Investments (Cost--$760,026)--98.8% 777,296
Other Assets Less Liabilities--1.2% 9,609
--------
Net Assets--100.0% $786,905
========
<FN>
(a)Prerefunded.
(b)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at August 31, 1994.
(c)MBIA Insured.
(d)AMBAC Insured.
(e)FGIC Insured.
(f)FHA Insured.
(g)FNMA Collateralized.
(h)GNMA Collateralized.
(i)Escrowed to Maturity.
(j)The interest rate is subject to change periodically and inversely
to prevailing market rates. The interest rate shown is the rate in
effect at August 31, 1994.
(k)FSA Insured.
++Highest short-term rating by Moody's Investors Service, Inc.
NR--Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche
LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of August 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$760,025,870)(Note 1a) $777,295,775
Receivables:
Interest $ 13,088,370
Beneficial interest sold 915,352 14,003,722
------------
Prepaid registration fees and other assets (Note 1e) 129,727
------------
Total assets 791,429,224
------------
<PAGE>
Liabilities: Payables:
Beneficial interest redeemed 1,467,284
Dividends to shareholders (Note 1f) 1,038,074
Investment adviser (Note 2) 361,973
Distributor (Note 2) 309,068 3,176,399
------------
Accrued expenses and other liabilities 1,347,725
------------
Total liabilities 4,524,124
------------
Net Assets: Net assets $786,905,100
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 530,388
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 6,421,789
Paid-in capital in excess of par 769,254,869
Accumulated distributions in excess of realized capital
gains--net (6,571,851)
Unrealized appreciation on investments--net 17,269,905
------------
Net assets $786,905,100
============
Net Asset Value: Class A--Based on net assets of $60,017,051 and 5,303,875 shares
of beneficial interest outstanding $ 11.32
============
Class B--Based on net assets of $726,888,049 and 64,217,894
shares of beneficial interest outstanding $ 11.32
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended August 31, 1994
<S> <S> <C>
Investment Interest and amortization of premium and discount earned $ 53,118,732
Income
(Note 1d):
<PAGE>
Expenses: Investment advisory fees (Note 2) 4,567,938
Distribution fees--Class B (Note 2) 3,910,887
Transfer agent fees--Class B (Note 2) 247,303
Printing and shareholder reports 102,012
Accounting services (Note 2) 101,015
Custodian fees 82,314
Professional fees 58,354
Registration fees (Note 1e) 44,460
Trustees' fees and expenses 42,928
Pricing fees 23,698
Transfer agent fees--Class A (Note 2) 17,551
Amortization of organization expenses (Note 1e) 1,342
Other 10,930
------------
Total expenses 9,210,732
------------
Investment income--net 43,908,000
------------
Realized & Realized gain on investments--net 4,109,882
Unrealized Change in unrealized appreciation on investments--net (61,534,369)
Gain (Loss) on ------------
Investments-- Net Decrease in Net Assets Resulting from Operations $(13,516,487)
Net (Notes ============
1d & 3)
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended August 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 43,908,000 $ 43,990,556
Realized gain on investments--net 4,109,882 16,936,508
Change in unrealized appreciation on investments--net (61,534,369) 37,162,803
------------ ------------
Net increase (decrease) in net assets resulting from operations (13,516,487) 98,089,867
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (3,624,918) (3,035,522)
Shareholders Class B (40,283,082) (40,955,034)
(Note 1f): Realized gain on investments--net:
Class A (1,039,120) (770,830)
Class B (12,643,710) (12,593,158)
In excess of realized gain on investments--net:
Class A (499,088) --
Class B (6,072,763) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (64,162,681) (57,354,544)
------------ ------------
<PAGE>
Beneficial Net increase (decrease) in net assets derived from beneficial
Interest interest transactions (21,161,878) 68,885,437
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (98,841,046) 109,620,760
Beginning of year 885,746,146 776,125,386
------------ ------------
End of year $786,905,100 $885,746,146
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 12.38 $ 11.80 $ 11.44 $ 11.03 $ 11.22
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .68 .70 .72 .74 .77
Realized and unrealized gain (loss)
on investments--net (.78) .78 .41 .41 (.19)
--------- --------- --------- --------- ---------
Total from investment operations (.10) 1.48 1.13 1.15 .58
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.68) (.70) (.72) (.74) (.77)
Realized gain on investments--net (.19) (.20) (.05) -- --
In excess of realized gain on
investments--net (.09) -- -- -- --
--------- --------- --------- --------- ---------
Total dividends and distributions (.96) (.90) (.77) (.74) (.77)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 11.32 $ 12.38 $ 11.80 $ 11.44 $ 11.03
========= ========= ========= ========= =========
Total Investment Based on net asset value per share (.92%) 13.21% 10.23% 10.73% 5.21%
Return:* ========= ========= ========= ========= =========
Ratios to Expenses .62% .63% .63% .64% .65%
Average Net ========= ========= ========= ========= =========
Assets: Investment income--net 5.65% 5.87% 6.26% 6.57% 6.77%
========= ========= ========= ========= =========
<PAGE>
Supplemental Net assets, end of year (in thousands) $ 60,017 $ 64,526 $ 46,556 $ 37,499 $ 29,558
Data: ========= ========= ========= ========= =========
Portfolio turnover 75.66% 61.24% 52.31% 116.09% 119.66%
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 12.38 $ 11.80 $ 11.44 $ 11.03 $ 11.23
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .61 .64 .67 .68 .71
Realized and unrealized gain (loss)
on investments--net (.78) .78 .41 .41 (.20)
--------- --------- --------- --------- ---------
Total from investment operations (.17) 1.42 1.08 1.09 .51
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.61) (.64) (.67) (.68) (.71)
Realized gain on investments--net (.19) (.20) (.05) -- --
In excess of realized gain on
investments--net (.09) -- -- -- --
--------- --------- --------- --------- ---------
Total dividends and distributions (.89) (.84) (.72) (.68) (.71)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 11.32 $ 12.38 $ 11.80 $ 11.44 $ 11.03
========= ========= ========= ========= =========
Total Investment Based on net asset value per share (1.50%) 12.64% 9.68% 10.18% 4.58%
Return:* ========= ========= ========= ========= =========
Ratios to Average Expenses, excluding distribution fees
Net Assets: and net of reimbursement . .63% .63% .63% .65% .65%
========= ========= ========= ========= =========
Expenses 1.13% 1.13% 1.13% 1.15% 1.15%
========= ========= ========= ========= =========
Investment income--net 5.15% 5.38% 5.76% 6.07% 6.27%
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $ 726,888 $ 821,220 $ 729,569 $ 690,885 $ 663,551
Data: ========= ========= ========= ========= =========
Portfolio turnover 75.66% 61.24% 52.31% 116.09% 119.66%
========= ========= ========= ========= =========
<FN>
*Total investment returns exclude the effects of sales loads.
<PAGE>
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch California Municipal Bond Fund (the "Fund") is part of
Merrill Lynch California Municipal Series Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The Fund offers
both Class A and Class B Shares. Class A Shares are sold with a
front-end sales charge. Class B Shares may be subject to a
contingent deferred sales charge. Both classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B Shares bear certain
expenses related to the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures. On September 27, 1994, shareholders
approved the implementation of the Merrill Lynch Select PricingSM
System, which will offer two new classes of shares, Class C and
Class D. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained 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
settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities 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 Trust, including
valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Trust under the general supervision of the Trustees.
<PAGE>
(b) Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as re-
quired by the exchange on which the transaction is effected.
Pursuant to the contract, the Fund agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in value
of the contract. Such receipts or payments are known as variation
margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. 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. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions and post October losses.
<PAGE>
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). Effective January 1, 1994, the
investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Fund
Asset Management, Inc. ("FAMI"), which is also an indirect wholly-
owned subsidiary of ML & Co.
FAM 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 based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion. The Investment Advisory Agreement obligates
FAM to reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets, and 1.5% of the remaining
average net assets. FAM's obligation to reimburse the Fund is
limited to the amount of the management fee. No fee payment will be
made during any fiscal year which will cause such expenses to exceed
expense limitations at the time of such payment.
The Fund has entered into a Distribution Agreement and Distribution
Plan with Merrill Lynch Funds Distribution, Inc. ("MLFD"), an
indirect wholly-owned subsidiary of ML & Co.
<PAGE>
Pursuant to a distribution plan (the "Distribution Plan") adopted by
the Fund in accordance with Rule 12b-1 under the Investment Company
Act of 1940, the Fund pays MLFD an ongoing account maintenance fee
and distribution fee, which are accrued daily and paid monthly at
the annual rates of 0.25% and 0.25%, respectively, of the average
daily net assets of the Class B Shares of the Fund. Pursuant to a
sub-agreement with MLFD, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing
account maintenance fee compensates MLFD and MLPF&S for providing
account maintenance services to Class B shareholders. The ongoing
distribution fee compensates MLFD and MLPF&S for providing
shareholder and distribution services and bearing certain distri-
bution-related expenses for the Fund.
For the year ended July 31, 1994, MLFD earned underwriting discounts
of $13,053, and MLPF&S earned dealer concessions of $119,611 on
sales of the Fund's Class A Shares.
MLPF&S also received contingent deferred sales charges of $704,845
relating to Class B Share transactions during the year.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, FAMI, PSI, MLFD, MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1994 were $621,159,504 and
$631,284,706, respectively.
Net realized and unrealized gains (losses) as of August 31, 1994
were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ 700,995 $ 17,269,905
Short-term investments (1,250,285) --
Financial futures contracts 4,659,172 --
------------ -------------
Total $ 4,109,882 $ 17,269,905
============ =============
NOTES TO FINANCIAL STATEMENTS (concluded)
As of August 31, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $17,255,943, of which $27,459,906
related to appreciated securities and $10,203,963 related to
depreciated securities. The aggregate cost of investments at August
31, 1994 for Federal income tax purposes was $760,039,832.
<PAGE>
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial
interest transactions was $(21,161,878) and $68,885,437 for the year
ended August 31, 1994 and August 31, 1993, respectively.
Transactions in shares of beneficial interest for Class A and Class
B Shares were as follows:
Class A Shares for the Year Dollar
Ended August 31, 1994 Shares Amount
Shares sold 1,162,525 $ 13,965,656
Shares issued to share-
holders in reinvestment of
dividends and distributions 216,094 2,566,392
------------ -------------
Total issued 1,378,619 16,532,048
Shares redeemed (1,287,071) (15,074,976)
------------ -------------
Net increase 91,548 $ 1,457,072
============ =============
Class A Shares for the Year Dollar
Ended August 31, 1993 Shares Amount
Shares sold 2,240,788 $ 26,776,133
Shares issued to share-
holders in reinvestment of
dividends and distributions 157,460 1,866,087
------------ -------------
Total issued 2,398,248 28,642,220
Shares redeemed (1,132,321) (13,376,681)
------------ -------------
Net increase 1,265,927 $ 15,265,539
============ =============
Class B Shares for the Year Dollar
Ended August 31, 1994 Shares Amount
Shares sold 7,118,622 $ 84,446,664
Shares issued to share-
holders in reinvestment of
dividends and distributions 2,212,118 26,273,099
------------ -------------
Total issued 9,330,740 110,719,763
Shares redeemed (11,430,290) (133,338,713)
------------ -------------
Net decrease (2,099,550) $ (22,618,950)
============ =============
<PAGE>
Class B Shares for the Year Dollar
Ended August 31, 1993 Shares Amount
Shares sold 10,100,868 $ 120,680,105
Shares issued to share-
holders in reinvestment of
dividends and distributions 2,063,845 24,426,884
------------ -------------
Total issued 12,164,713 145,106,989
Shares redeemed (7,672,695) (91,487,091)
------------ -------------
Net increase 4,492,018 $ 53,619,898
============ =============
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch California Municipal Bond Fund of
Merrill Lynch California Municipal Series Trust:
We have audited the accompanying statement of assets and liabil-
ities, including the schedule of investments, of Merrill Lynch
California Municipal Bond Fund of Merrill Lynch California Municipal
Series Trust as of August 31, 1994, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material mis-
statement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at August
31, 1994 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
<PAGE>
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch California Municipal Bond Fund of Merrill Lynch
California Municipal Series Trust as of August 31, 1994, the results
of its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 29, 1994
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by
Merrill Lynch California Municipal Bond Fund (the "Fund") of Merrill
Lynch California Municipal Series Trust during its taxable year
ended August 31, 1994 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, the Fund distributed short-term capital gains of
$0.123739 per share and long-term capital gains of $0.157551 per
share to shareholders of record on December 22, 1993.
Please retain this information for your records.
APPENDIX GRAPHIC AND IMAGE MATERIAL.
ITEM 1:
Total Return Based on a $10,000 Investment--Class A Shares*
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
10/25/88** 8/94
ML California Municipal Bond Fund++ $9,600 $14,930
Lehman Brothers
Municipal Bond Index++++ $10,000 $15,916
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML California Municipal Bond Fund invests primarily in long-
term obligations issued by or on the behalf of the
State of California, its political subdivisions, agencies and
instrumentalities and obligations of other qualifying issuers.
++++This unmanaged Index consists of long-term revenue bonds,
prerefunded bonds, general obligation bonds and insured bonds.
<PAGE>
ITEM 2:
Total Return Based on a $10,000 Investment--Class B Shares*
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
9/30/85 8/94
ML California Municipal Bond Fund++ $10,000 $20,474
Lehman Brothers
Municipal Bond Index++++ $10,000 $22,929
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML California Municipal Bond Fund invests primarily in long-
term obligations issued by or on the behalf of the
State of California, its political subdivisions, agencies and
instrumentalities and obligations of other qualifying issuers.
++++This unmanaged Index consists of long-term revenue bonds,
prerefunded bonds, general obligation bonds and insured bonds.
