MERRILL
LYNCH
CALIFORNIA
MUNICIPAL
BOND FUND
FUND LOGO
Quarterly Report May 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
TO OUR SHAREHOLDERS
Inflationary concerns persisted during the May quarter. The
Federal Reserve Board followed up its initial increase in the
Federal Funds rate with three subsequent monetary policy
tightening moves. At the same time, investors viewed signs of
economic strength as an indication that the rate of inflation
would soon accelerate. Among the most troublesome statistics
released was the mid-May rise in the Commodity Research Bureau's
inflation index. However, by quarter-end this index had declined
back to the levels at which it began the year.
<PAGE>
Despite an upward revision in gross domestic product growth to
3.0% for the first quarter of the year, later economic data
releases suggest a moderating trend. Disposable income fell 0.5%
in April, consumer spending dropped 0.4% after adjusting for
inflation, and sales of new homes also fell. Consumer confi-
dence declined for the first time in three months, reflected in
sluggish retail sales. However, employment data for May sent
somewhat conflicting signals. The unemployment rate dropped
sharply in May from 6.4% to 6.0%, but at the same time business
payrolls grew only modestly.
In the weeks ahead, investors are likely to continue to focus
their attention on the direction of the economy and inflationary
trends. Evidence of stable and moderate economic growth, combined
with subdued inflationary pressures, would be a positive develop-
ment for the financial markets. The absence of these trends, along
with continued monetary policy tightening by the central bank,
would likely lead to continued volatility in stock and bond prices
over the near term.
The Municipal Market
During the six months ended May 31, 1994, tax-exempt bond yields
exhibited considerable volatility as they rose to their highest
level in two years. As measured by the Bond Buyer Revenue Bond
Index, the yield on a newly issued municipal bond maturing in 30
years rose during the period by approximately 50 basis points
(0.50%) to 6.41% by the end of May. Yields on seasoned municipal
revenue issues rose by over 60 basis points in sympathy with the
even more dramatic rise in US Treasury bond yields. By the end of
May, yields on US Treasury securities had risen by over 60 basis
points to 7.42%.
Long-term tax-exempt interest rates gradually declined from the
end of November 1993 into early February. However, on a weekly
basis, municipal bond yields fluctuated by as much as 15 basis
points as investors were unable to reconcile the rapid economic
growth seen in the last quarter of 1993 and into early 1994 with
continued weak inflationary pressures. Following the Federal
Reserve Board's initial interest rate increase in early February,
municipal bond prices began to erode in concert with taxable bond
prices as investors began to sell securities in anticipation of
further interest rate increases. As the Federal Reserve Board
continued to raise short-term interest rates in subsequent
months, municipal bond yields rose further to a high of 6.60%
in mid-May before declining somewhat at May month-end.
<PAGE>
The magnitude of the rise in tax-exempt bond yields the past six
months has not been seen since 1987 when municipal bond yields
rose 250 basis points from March to October of that year. It is
very important to note that the municipal bond price declines
over the last six months, while certainly damaging, were essen-
tially much different than the 1987 episode. Recent price de-
clines have largely been the result of consistent and insistent
selling pressures over the last four months. In 1987, the tax-
exempt bond market was much more volatile and, at times, chaotic
as investors sought to liquidate positions without much concern
to fundamental value. The recent price deterioration, for the
most part, has been orderly and the municipal bond market's
liquidity and integrity have not been challenged or jeopardized.
To a large extent, the municipal bond market has continued to be
supported by its strong technical position. New-issue volume for
the last six months has been approximately $100 billion. This
represents a decline of approximately 40% versus the comparable
period a year earlier. This reduction has been even more pro-
nounced over the last three months when only $41 billion in
long-term securities were issued, representing over a 50% decline
in issuance from a year ago's level. This reduced issuance was
expected and has been discussed in earlier shareholder reports.
In addition, it has minimized potential selling pressures in re-
cent months as institutional investors have been wary of selling
appreciable amounts of securities that they may be unable to re-
place later this year at any price level. We expect this decline
in new bond issuance to continue this year and into 1995.
Despite recent price declines, tax-exempt securities remain among
the most attractive investment alternatives available. After the
recent yield increases, longer-term municipal securities yielded
approximately 85% of comparable US Treasury issues. Purchasers of
these municipal bonds also accrue substantial after-tax yield
advantages. For example, to investors in the 39% marginal Federal
income tax bracket, the purchase of a tax-exempt product yielding
6.35% represents an after-tax equivalent of 10.40%. With pre-
vailing estimates of 1994 inflation at no more than 3%--4%,
real after-tax rates in excess of 6.25% easily compensate longer-
term investors for much of the price volatility recently exper-
ienced.
We continue to look for municipal bond yields to decline later
this year and into 1995 as inflationary pressures remain low and
as the domestic economy is further slowed by the impact of higher
interest rates. As this scenario unfolds, currently available
tax-exempt products should generate attractive returns for long-
term investors.
<PAGE>
Portfolio Strategy
Merrill Lynch California Municipal Bond Fund's strategy is to
provide its shareholders with an attractive level of current
income. To this end we remain committed to keeping the Fund's
cash equivalent position to a minimum, although this strategy
does tend to subject the Fund's net asset valuations to market
volatility. We concentrated new purchases during the May quarter
in the relatively higher to current coupon sector. These posi-
tions are normally less sensitive to market volatility because
of consistent retail demand. The technical position of the muni-
cipal marketplace, and that of the California municipal market
in particular, remains positive. This will benefit the Fund
should interest rates stabilize, producing better bond prices
later in the year. Continuing tight credit quality spreads,
along with a general slowdown of primary issuance, has kept the
Fund in the position of overweighting the better-rated quality
sector. At May 31, 1994, approximately 70% of the Fund's net
assets were rated AA or better.
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
June 17, 1994
<PAGE>
PERFORMANCE DATA
None of the past results shown should be considered a repre-
sentation of future performance. Investment return and prin-
cipal 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--5/31/94 12.13 11.29 -- 0.256 - 4.77
------ ------
Total $0.314 Total $4.286
Cumulative total return as of 5/31/94: +52.71%**
<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>
<PAGE>
<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--5/31/94 12.13 11.30 -- 0.233 - 4.87
------ ------
Total $0.360 Total $6.215
Cumulative total return as of 5/31/94: +101.65%**
<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>
<PAGE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/94 +1.65% -2.41%
Five Years Ended 3/31/94 +8.07 +7.19
Inception (10/25/88)
through 3/31/94 +7.81 +7.01
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/94 +1.14% -2.59%
Five Years Ended 3/31/94 +7.53 +7.53
Inception (9/30/85)
through 3/31/94 +8.41 +8.41
[FN]
*Maximum contingent deferred sales charge is 4%
and is reduced to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
5/31/94 2/28/94 5/31/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $11.29 $11.84 $12.04 -5.01%(1) -4.65%
Class B Shares 11.30 11.84 12.04 -4.93(1) -4.56
Class A Shares--Total Return +1.44(2) -3.25(3)
Class B Shares--Total Return +1.03(4) -3.29(5)
Class A Shares--Standardized 30-day Yield 5.45%
Class B Shares--Standardized 30-day Yield 5.18%
<FN>
*Investment results shown for the 3-month and 12-month periods are before
the deduction of any sales charges.
(1)Percent change includes reinvestment of $0.158 per share capital gains distributions.
(2)Percent change includes reinvestment of $0.794 per share ordinary income dividends and
$0.158 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.164 per share ordinary income dividends.
(4)Percent change includes reinvestment of $0.734 per share ordinary income dividends and
$0.158 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.150 per share ordinary income dividends.
</TABLE>
<PAGE>
PORTFOLIO COMPOSITION
For the Quarter Ended May 31, 1994
Distribution by Market Sector*
Other Revenue Bonds 36.4%
General Obligations & Tax Revenue Bonds 33.4
Prerefunded Bonds** 19.2
Utility Revenue Bonds 11.0
------
Total 100.0%
======
Net assets as of May 31, 1994 were $799,436,977.
[FN]
*Based on total market value of the portfolio as of May 31, 1994.
**Backed by an escrow fund.
++Temporary investments in short-term municipal securities.
GRAPHIC MATERIAL APPEARS HERE.
SEE APPENDIX GRAPHIC AND IMAGE MATERIAL ITEM 1.
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
<PAGE>
Custodian
The Bank of New York
110 Washington Street
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
APPENDIX GRAPHIC AND IMAGE MATERIAL.
ITEM 1:
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 46%
AA/Aa 18%
A/A 13%
BBB/Baa 7%
Other++ 7%
NR 9%
[FN]
*Based on total market value of the portfolio as of May 31, 1994.
**Backed by an escrow fund.
++Temporary investments in short-term municipal securities.
