MERRILL LYNCH
CALIFORNIA
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
August 31, 1995
Officers and Trustees
Arthur Zeikel, President and Trustee
James H. Bodurtha, 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, 12th Floor
New York, NY 10286
<PAGE>
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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, maybe worth more or less than their original cost.
Merrill Lynch California
Municipal Bond Fund
Merrill Lynch California
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
TO OUR SHAREHOLDERS
During the August quarter, US economic indicators continued to
suggest that economic growth is moderate and that the rate of
inflation remains low. Gross domestic product (GDP) growth for the
three months ended June 30 was revised to show that the economy
expanded at a 1.1% pace, rather than the 0.5% rate that was
originally reported. However, although the employment report for
August exceeded consensus expectations, most of the new jobs created
were in the service sector, reflecting the ongoing sluggishness in
manufacturing. In addition, total hours worked and hourly wages
declined in August. Other lackluster economic indicators included
disappointing durable goods orders in July and continued poor retail
sales results.
<PAGE>
After gaining ground in recent weeks, the US dollar has strengthened
relative to the yen and the Deutschemark. Improving interest rate
differentials favoring the US currency, combined with coordinated
central bank intervention and more positive investor sentiment, have
helped to bolster the dollar in foreign exchange markets. Other
factors that appear to be improving the US dollar's outlook in the
near term are a pick-up in capital flows to the United States and
the prospect of increased capital outflows from Japan. However, it
remains to be seen if the US dollar's strengthening trend can
continue without significant improvements in the US budget and trade
deficits.
In the weeks ahead, investor interest will continue to focus on US
economic activity. Clear signs of a moderate, noninflationary
expansion could further benefit the US stock and bond markets. In
addition, should the current Federal budget deficit reduction
efforts now underway in Washington prove successful, the
implications would likely be positive for the US financial markets.
The Municipal Market
Tax-exempt bond yields generally drifted upward throughout the three
months ended August 31, 1995. As measured by the Bond Buyer Revenue
Bond Index, yields on A-rated, uninsured tax-exempt revenue bonds
rose approximately 20 basis points (0.20%) to 6.26%. Market yields
have generally risen in response to investor concerns that the
domestic economy was regaining momentum and that the Federal Reserve
Board's action in July had been premature. Fears that an expanding
economy would have negative inflationary implications pushed
municipal bond yields higher to 6.44% by mid-August. Municipal bonds
yields rallied at the end of August as investors saw signs that
recent economic strength was diminishing and the inflationary
environment would remain benign. However, while displaying
considerable weekly volatility, US Treasury bond yields ended the
August quarter essentially unchanged at 6.65%.
Municipal bonds have underperformed US Treasury securities for a
number of reasons. The record highs of the US equity market have
continued to attract retail investors seeking further capital gains.
Investor demand has also been diminished in recent months by the
"sticker shock" effect that periodically affects the municipal bond
market. Investors who had become accustomed to purchasing tax-exempt
securities in the 6.50%--7.00% range six to seven months ago have
demonstrated understandable reluctance to purchase similar
securities at current levels. The strong fundamental structure of
the municipal bond market, however, suggests that such hesitancy may
prove costly.
<PAGE>
However, the major reason by far for the tax-exempt market's recent
underperformance has been concerns regarding the implication for
municipal bonds' tax advantage resulting from various proposed tax
law changes (for example, flat tax, value-added tax or national
sales tax) that have reduced investor demand for tax-exempt
products. Such concerns are likely to quickly recede as investors
realize that such, if any, changes are unlikely to be enacted before
late 1996 at the earliest. Long-term investors will also recall 1986
when similar tax proposals were made, municipal bond yields
initially rose, in some instances, to over 100% of taxable yields.
Tax-exempt bond yields quickly declined as investors' fears proved
to be unfounded.
The municipal bond market's strong technical position has diminished
somewhat in recent months. New-issue supply over the last six months
has totaled approximately $75 billion, or a decline of over 12%
compared to the corresponding period in 1994. Over the last three
months, however, municipalities issued approximately $42 billion in
new securities, which represents less than a 2% decline versus the
same period a year earlier. Investor demand has remained muted in
recent months despite significant funds available to investors. By
the end of August investors, both individual and institutional, are
expected to have received as much as $85 billion from tax-exempt
bond maturities, coupon payments and the proceeds of early bond
redemptions. Little new money has entered the municipal market in
recent months, largely in response to the factors mentioned above.
Consequently, much of the technical support the municipal market
enjoyed earlier this year has evaporated, causing municipal bond
yields to decline at a slower rate than their taxable counterparts.
However, the recent relative underperformance of municipal bonds has
made them particularly attractive to long-term investors. Tax-exempt
bonds currently yield well over 90% of US Treasury securities. In
some instances, A-rated, long-term revenue bonds have yielded almost
95% of US Treasury bonds. Analysts usually consider municipal bonds
yielding over 82% of US Treasury securities to be historically
attractive. With inflation-adjusted, "real" after-tax equivalent tax-
exempt yields of over 6.50%, municipal securities appear to
represent considerable value.
Current tax-exempt yield levels appear to be overcompensating for
any proposed changes in tax law that can reasonably be expected to
be enacted. As Congressional hearings on this matter would continue
into 1996, and the revenue losses resultant from such changes become
more apparent, the likelihood of any significant changes to tax
codes and the resultant decline of municipal bonds' inherent tax
advantage should decline. Under such a scenario, tax-exempt bond
yields would quickly decline and currently available municipal bond
yields would return to their normal historic relationship.
<PAGE>
Fiscal Year in Review
We began the fiscal year ended August 31, 1995 with a strategy
seeking to limit the negative impact that a bear phase in the bond
market had on the per share net asset valuations of Merrill Lynch
California Municipal Bond Fund. In a period of declining bond
prices, we took advantage of opportunities to raise the coupon
income of the Fund's holdings to seek to cushion the portfolio from
the negative price movements of the municipal market. To maintain a
high level of current yield, we did not raise the Fund's cash
reserve levels significantly. Instead, we chose to structure the
portfolio more defensively by altering coupon structure.
Toward the end of 1994, an improved outlook for fixed-income
securities was becoming apparent. The US economy was showing signs
of weakness and the Federal Reserve Board apparently basing its
monetary policy on the low rate of inflation. With this backdrop, we
postured the Fund more aggressively, anticipating the possibility of
a market rebound. Because this improvement in the market came to
fruition, the Fund had positive total returns for the fiscal year.
In Conclusion
We are constantly working in close cooperation with our municipal
research group to uncover special credit situations within the
California market to seek to enhance our current return. However,
credit quality of the Fund's portfolio mix remains a primary
concern. Currently, 70% of the Fund's total assets are rated AA or
better by at least one of the major rating agencies. We look at the
current marketplace as being relatively constructive for the
municipal bond market, with an extremely tight technical backdrop of
low new issuance and increased demand from insurance companies
giving the market a firm tone. However, we will be proceeding
cautiously from this point, since the significant gains of the past
year naturally have resulted in yields that have traditionally been
unappealing to new retail customers.
We appreciate your investment in Merrill Lynch California Municipal
Bond Fund, and we look forward to assisting you with your financial
needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
<PAGE>
(Vincent R. Giordano)
Vincent R. Giordano
Vice President
September 28, 1995
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been able to purchase shares
of the Fund through the Merrill Lynch Select Pricing SM System, which
offers four pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.25% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 10 years.
* Class C Shares are subject to a distribution fee of 0.35% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.10% (but no distribution fee).
Performance data for all of the Fund's shares are presented in the
"Total Return Based on a $10,000 Investment" graphs on page 4 and
the "Recent Performance Results" table on page 5. Data for the
Fund's Class A Shares and Class B Shares are presented in the
"Average Annual Total Return" tables on page 5. Data for Class C and
Class D Shares are also presented in the "Aggregate Total Return"
tables on page 5.
<PAGE>
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for Class A and Class B
Shares for the 12-month and 3-month periods ended August 31, 1995
and for Class C and Class D Shares for the since inception and 3-
month periods ended August 31, 1995. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
None of the past results shown should 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. 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.
PERFORMANCE DATA (continued)
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 the growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
10/25/88** 8/95
ML California Municipal Bond Fund++--
Class A Shares* $ 9,600 $15,937
Lehman Brothers Municipal Bond Index++++ $10,000 $17,327
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 the growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
<PAGE>
9/30/85** 8/95
ML California Municipal Bond Fund++--
Class B Shares* $10,000 $21,756
Lehman Brothers Municipal Bond Index++++ $10,000 $24,958
Total Return Based on a $10,000 Investment--Class C Shares and Class D
Shares
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to the growth of an
investment in the Lehaman Brothers Municipal Bond Index. Beginning
and ending values are:
10/21/94** 8/95
ML California Municipal Bond Fund++--
Class C Shares* $10,000 $10,796
ML California Municipal Bond Fund++--
Class D Shares* $ 9,600 $10,504
Lehman Brothers Municipal Bond Index++++ $10,000 $11,248
[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
investment-grade obligations issued by or on 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.
Past performance is not predictive of future performance.
PERFORMANCE DATA (concluded)
<PAGE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/95 +7.70% +3.39%
Five Years Ended 6/30/95 +7.41 +6.54
Inception (10/25/88)
through 6/30/95 +7.63 +6.97
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/95 +7.11% +3.11%
Five Years Ended 6/30/95 +6.86 +6.86
Inception (9/30/85) through 6/30/95 +8.13 +8.13
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
Aggregate Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94)
through 6/30/95 +7.36% +6.36%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (10/21/94)
through 6/30/95 +7.74% +3.43%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
8/31/95 5/31/95 8/31/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $11.40 $11.54 $11.32 +0.71% -1.21%
Class B Shares* 11.40 11.54 11.32 +0.71 -1.21
Class C Shares* 11.40 11.54 10.94 +4.20 -1.21
Class D Shares* 11.40 11.54 10.94 +4.20 -1.21
Class A Shares--Total Return* +6.77(1) +0.17(2)
Class B Shares--Total Return* +6.28(3) +0.13(4)
Class C Shares--Total Return* +8.96(5) +0.11(6)
Class D Shares--Total Return* +9.42(7) +0.14(8)
Class A Shares--Standardized 30-day Yield 5.17%
Class B Shares--Standardized 30-day Yield 4.89%
Class C Shares--Standardized 30-day Yield 4.78%
Class D Shares--Standardized 30-day Yield 5.08%
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
++Investment results shown for Class C and Class D Shares are since
inception (10/21/94).
(1)Percent change includes reinvestment of $0.644 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.158 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.588 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.144 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.475 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.141 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.522 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.154 per share ordinary
income dividends.
</TABLE>
<PAGE>
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.
ACES SM Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
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--98.5%
<S> <S> <C> <S> <C>
AAA Aaa $ 3,000 Anaheim, California, Public Financing Authority, Tax Allocation Revenue
Bonds, RITES, 8.745% due 12/28/2018 (c)(j) $ 3,244
Antioch, California, Improvement Bonds (1915 Assessment District No. 27--
Lone Tree):
NR* NR* 630 Series D, 6.20% due 9/02/2002 641
NR* NR* 670 Series D, 6.40% due 9/02/2003 686
NR* NR* 4,975 Series D, 7.30% due 9/02/2013 5,129
NR* NR* 4,000 Series E, 7.125% due 9/02/2016 4,086
AAA Aaa 3,140 Brea, California, Public Financing Authority, Tax Allocation Revenue Bonds
(Redevelopment Project), Series A, 6.75% due 8/01/2022 (c) 3,309
<PAGE>
AAA Aaa 2,025 Brentwood, California, Unified School District Revenue Bonds, 6.85%
due 8/01/2016 (d) 2,173
A1+ VMIG1++ 700 California Health Facilities Financing Authority Revenue Bonds (Catholic
Health Care), VRDN, Series C, 3.40% due 7/01/2020 (b)(c) 700
California Health Facilities Financing Authority Revenue Bonds, Series A:
AA Aa3 16,770 (Kaiser Permanente), 7% due 10/01/2018 17,851
AAA Aaa 4,350 (Kaiser Permanente), 7% due 10/01/2018 (c) 4,738
BB Ba 5,150 Refunding (Good Samaritan Health System), 7.50% due 5/01/2015 5,183
AAA Aaa 4,085 Refunding (San Diego Hospital Association), 6.20% due 8/01/2020 (c) 4,126
AAA Aaa 4,000 (Scripps Memorial Hospital), 6.25% due 10/01/2013 (c) 4,060
NR* A 5,780 (Scripps Research Institute), 6.625% due 7/01/2014 5,962
California HFA, Home Mortgage Revenue Bonds:
AA- Aa 5,080 AMT, Series A, 7.70% due 8/01/2030 5,381
AA- Aa 535 AMT, Series B, 8% due 8/01/2029 570
AA- Aa 10,200 AMT, Series F-1, 7% due 8/01/2026 10,639
AA- Aa 855 AMT, Series G, 8.15% due 8/01/2019 914
AA- Aa 2,205 Series A, 8.125% due 8/01/2019 2,373
AA- Aa 3,085 Series D, 7.25% due 8/01/2017 3,287
California HFA, Revenue Bonds, AMT:
AA- Aa 4,250 RIB, 8.777% due 8/01/2023 (j) 4,303
AAA Aaa 980 Series A, 7.20% due 2/01/2026 (c) 1,032
California Pollution Control Financing Authority, Solid Waste Disposal
Revenue Bonds (Shell Oil Co.--Martinez Project), VRDN, AMT (b):
A1+ VMIG1++ 700 Series A, 3.60% due 10/01/2024 700
A1+ VMIG1++ 300 Series B, 3.60% due 12/01/2024 300
</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 Aa $10,000 California State Department of Water Resources, Central Valley Project
Revenue Bonds (Water Systems), Series M, 5% due 12/01/2019 $ 8,707
A A1 2,000 California State, GO, UT, 10% due 2/01/2010 2,875
A A1 3,500 California State, GO, Various Purpose Bonds, UT, 5.90% due 4/01/2023 3,384
A+ A1 16,300 California State, GO, Veterans' Revenue Bonds, AMT, UT, Series AW, 7.70%
due 4/01/2009 17,698
<PAGE>
California State Public Works Board, Lease Revenue Bonds:
A- A 10,675 (Department of Corrections--Monterey County), Series A, 7% due
11/01/2019 11,421
A- A 3,555 High Technology Facilities (San Jose Facilities), Series A, 7.75%
due 8/01/2006 4,100
A- A 7,000 (Various Community College Projects), 7% due 3/01/2019 7,469
AAA Aaa 10,625 (Various University of California Projects), Series A, 6.40% due
12/01/2016 (d) 10,998
A- A1 1,475 (Various University of California Projects), Series B, 6.625% due
12/01/2019 1,533
California Statewide Community Development Authority Revenue Bonds, COP:
AAA Aaa 5,360 (Good Samaritan Health System), 6.50% due 5/01/2024 (k) 5,547
AA Aa 4,750 (Saint Joseph Health System Group), 6.625% due 7/01/2021 4,972
A1 VMIG1++ 1,700 (Sutter Health Obligation Group), VRDN, 3.30% due 7/01/2015 (b)(d) 1,700
AAA Aaa 5,000 Central Coast, California, Water Authority Revenue Bonds
(State Water Project Regional Facilities), 6.60% due 10/01/2022 (d) 5,250
BBB NR* 1,000 Contra Costa County, California, Public Financing Authority,
Tax Allocation Revenue Refunding Bonds, Series A, 7.10% due 8/01/2022 1,033
Corona, California, COP, Corona Community:
AAA Aaa 1,915 8% due 3/01/2009 (a) 2,418
AAA Aaa 2,065 8% due 3/01/2010 (a) 2,606
AAA Aaa 2,230 8% due 3/01/2011 (a) 2,828
AAA Aaa 2,410 8% due 3/01/2012 (a) 3,067
AAA Aaa 2,605 8% due 3/01/2013 (a) 3,324
AAA Aaa 2,810 8% due 3/01/2014 (a) 3,592
AAA Aaa 3,035 8% due 3/01/2015 (i) 3,918
NR* Aaa 4,635 Cypress, California, S/F Residential Mortgage Revenue Refunding Bonds,
Series A, 7.10% due 1/01/2011(i) 4,944
A1+ VMIG1++ 600 Eastern Municipal Water District, California, Water and Sewer Revenue
Refunding Bonds, VRDN, COP, Series B, 3.35% due 7/01/2020 (b)(e) 600
AAA Aaa 5,000 El Cajon, California, Redevelopment Agency, Tax Allocation
(El Cajon Redevelopment Project), 6.60% due 10/01/2022 (d) 5,252
BBB+ NR* 3,600 Fontana, California, Redevelopment Agency, Tax Allocation Refunding
Bonds (Jurupa Hills Redevelopment Project), Series A, 7.20% due 10/01/2024 3,773
AAA Aaa 2,230 Irvine, California, Unified School District, Special Tax Community
Facilities Bonds (District No. 86-1), Series A, 8.10% due 11/15/2013 (c) 2,536
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 4,202
</TABLE>
<PAGE>
<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* $ 5,695 Long Beach, California, M/F Redevelopment Agency Revenue Bonds
(Housing--Pacific Court Apartments), Issue B, AMT, 6.95% due 9/01/2023 $ 5,100
NR* NR* 4,545 Long Beach, California, Special Tax Community Facilities, District No.3--
Pine Avenue, 6.375% due 9/01/2023 4,235
AAA Aaa 5,225 Los Angeles, California, Community Redevelopment Agency,
Housing Revenue Refunding Bonds, Series A, 6.45% due 7/01/2017 (d) 5,393
AAA Aaa 5,150 Los Angeles, California, Community Redevelopment Agency,
Tax Allocation Refunding Bonds (Bunker Hill), Series H, 6.50% due 12/01/2016 (f) 5,344
AAA Aaa 17,050 Los Angeles, California, Convention and Exhibition Center Authority,
COP, 9% due 12/01/2005 (a) 22,693
AA- Aa 10,000 Los Angeles, California, Department of Water and Power, Electric Plant
Revenue Bonds, Registered RITR, 8.522% due 2/01/2020 (j) 10,375
AAA Aaa 5,000 Los Angeles, California, Department of Water and Power, Waterworks Revenue
Bonds, 6.30% due 7/01/2024 (c) 5,122
Los Angeles, California, Harbor Department Revenue Bonds:
AAA NR* 14,000 7.60% due 10/01/2018 (i) 15,772
AA Aa 1,965 Series B, AMT, 6.60% due 8/01/2014 2,045
Los Angeles, California, Wastewater System Revenue Bonds (c):
AAA Aaa 2,000 Refunding, Series A, 5.70% due 6/01/2020 1,918
AAA Aaa 7,890 Series D, 6.625% due 12/01/2012 8,346
AAA Aaa 13,500 Los Angeles County, California, COP (Correctional Facilities Project), 6.50%
due 9/01/2013 (c) 13,975
NR* NR* 8,000 Los Angeles County, California, COP (Marina Del Rey), Series A, 6.50% due
7/01/2008 7,999
AAA Aaa 10,000 Los Angeles County, California, Metropolitan Transportation Authority,
Sales Tax Revenue Bonds (Proposition C--Second Senior), Series A, 5.50% due
7/01/2017 (d) 9,360
<PAGE>
AA- Aaa 18,105 Los Angeles County, California, Transportation Commission, Sales Tax Revenue
Bonds, Series A, 6.90% due 7/01/2001 (a) 20,641
AAA Aaa 4,750 Marysville, California, Hospital Revenue Bonds (Fremont--Rideout Health Group),
Series A, 6.30% due 1/01/2022 (d) 4,837
Metropolitan Water District, Southern California, Waterworks Revenue Bonds:
AA Aa 3,000 6.625% due 7/01/2012 3,187
AA+ Aa 4,880 Refunding, 6.75% due 6/01/2022 5,036
AAA Aaa 2,000 Modesto, California, Health Facilities Revenue Bonds (Memorial Hospital
Association), Series A, 6.875% due 6/01/2021 (c) 2,125
AAA Aaa 5,635 Ontario, California, Redevelopment Financing Authority Revenue Bonds
(Cimarron Project No.1), 6.375% due 8/01/2020 (c) 5,776
AAA Aaa 20,300 Orange County, California, Local Transportation Authority,
Sales Tax Revenue Bonds, Second Series, 6.10% due 2/14/2011 (e) 20,665
A NR* 5,000 Palmdale, California, Civic Authority, Revenue Refunding Bonds
(Merged Redevelopment Project), Series A, 6.60% due 9/01/2034 5,262
A+ A1 8,000 Pasadena, California, COP, Refunding Bonds (Old Pasadena Parking Facility
Project), 6.25% due 1/01/2018 8,253
AAA Aaa 11,620 Pittsburg, California, Redevelopment Agency, Residential Mortgage Revenue Bonds,
9.60% due 6/01/2016 (i) 17,223
</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* $ 4,890 Pleasanton, California, Joint Powers Financing Authority, Revenue Reassessment
Bonds, Sub-Series B, 6.75% due 9/02/2017 $ 4,925
AAA Aaa 1,000 Port Oakland, California, Port Revenue Bonds, AMT, Series E, 6.50% due
11/01/2016 (c) 1,030
Poway, California, Redevelopment Agency, Tax Allocation Revenue Refunding Bonds
(Paraguay Redevelopment Project) (e):
AAA Aaa 7,000 5.50% due 12/15/2023 6,499
AAA Aaa 3,800 5.75% due 12/15/2026 3,651
<PAGE>
AAA Aaa 3,450 Rancho, California, Water District Financing Authority Revenue Bonds,
RITES, 9.199% due 9/11/2001 (a)(d)(j) 4,261
AAA Aaa 1,500 Redding, California, Electric System Revenue Bonds, COP, RIB, 8.65% due
7/01/2022(c)(j) 1,644
Redwood City, California, Public Financing Authority, Local Agency Revenue Bonds:
AAA Aaa 1,500 Refunding, Series A, 6.50% due 7/15/2011 (d) 1,592
A- NR* 2,500 Series B, 7.25% due 7/15/2011 2,696
A1+ VMIG1++ 2,600 Riverside County, California, COP (Riverside County Public Facilities),
ACES, Series A, 3.45% due 12/01/2015 (b) 2,600
Riverside County, California, Redevelopment Agency Bonds (Tax Allocation
Redevelopment Project), Series A:
BBB NR* 2,430 7.50% due 10/01/2026 2,590
AAA Aaa 3,000 Refunding, 5.625% due 8/01/2023 (c) 2,852
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) 3,094
AAA Aaa 5,335 Sacramento, California, City Financing Authority Revenue Bonds, 6.70% due
11/01/2001 (a) 6,060
Sacramento, California, Municipal Utilities District, Electric
Revenue Bonds:
AAA Aaa 5,000 INFLOS, 8.565% due 8/15/2018 (e)(j) 5,131
AAA Aaa 5,000 Series B, 6.375% due 8/15/2022 (c) 5,132
AA Aa 2,500 San Bernardino, California, Health Care System Revenue Bonds (Sisters of Charity),
Series A, 7% due 7/01/2021 2,689
SP1+ NR* 5,000 San Diego, California, Area Local Government Bonds, COP, TRAN, 4.75% due 10/18/1996 5,030
AAA Aaa 7,250 San Diego, California, IDR, Refunding (San Diego Gas & Electric),
Series C, 5.90% due 9/01/2018 (d) 7,107
San Francisco, California, City and County Airport Commission,
International Airport Revenue Bonds, Second Series (d):
AAA Aaa 3,240 AMT, Issue 6, 6.50% due 5/01/2018 3,371
AAA Aaa 8,000 AMT, Issue 6, 6.60% due 5/01/2020 8,412
AAA Aaa 8,500 Refunding, Issue 1, 6.30% due 5/01/2011 8,821
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 1,390
AAA Aaa 6,195 San Francisco, California, City and County Sewer Revenue Refunding Bonds,
5.375% due 10/01/2016 (e) 5,784
AAA Aaa 4,150 Santa Clara County, California, Electric Revenue Bonds, Series A, 6.50% due
7/01/2021 (c) 4,293
AAA Aaa 10,000 Santa Clara County, California, Financing Authority, Lease Revenue Bonds
(VMC Facility Replacement Project), Series A, 6.75% due 11/15/2020 (d) 10,705
</TABLE>
<PAGE>
<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>
AA A1 $ 1,000 Santa Clara County, California, Transportation District, Sales Tax Revenue Bonds,
Series A, 6.75% due 6/01/2011 $ 1,059
AAA Aaa 2,000 Santa Fe Springs, California, Redevelopment Agency, Tax Allocation
(Consolidated Redevelopment Project), Series A, 6.40% due 9/01/2022 (c) 2,065
Southern California Home Financing Authority, S/F Mortgage Revenue Bonds, AMT (h):
AAA NR* 4,175 Series A, 7.625% due 10/01/2023 4,445
AAA NR* 2,450 Series A, 7.35% due 9/01/2024 (g) 2,597
AAA NR* 1,040 Series B, 7.75% due 3/01/2024 (g) 1,101
AAA Aaa 5,000 Southern California Public Power Authority, Power Project Revenue Bonds (San
Juan Unit 3), Series A, 5% due 1/01/2020 (c) 4,352
AA+ VMIG1++ 4,100 Southern California Public Power Authority, Transmission Project, Revenue
Refunding Bonds (Southern Transmission Project), VRDN, 3.15% due 7/01/2019 (b)(d) 4,100
BBB+ NR* 21,930 Stanislaus, California, Waste-to-Energy Financing Agency, Solid Waste Facility
Revenue Refunding Bonds (Ogden Martin System, Inc. Project), 7.625% due 1/01/2010 23,401
AAA Aaa 4,000 Stockton, California, Revenue Bonds (Wastewater Treatment Plant Expansion),
COP, Series A, 6.80% due 9/01/2024 (e) 4,258
AAA Aaa 4,000 Tri-City, California, Hospital District Revenue Bonds (Tri-City Hospital), 7.50%
due 2/01/2017 (c) 4,526
University of California Revenue Bonds (Multiple Purpose Projects):
A- NR* 14,700 Refunding, Series A, 6.875% due 9/01/2002 (a) 16,858
AAA Aaa 8,000 Series D, 6.25% due 9/01/2012 (c) 8,238
AAA Aaa 6,000 Series D, 6.375% due 9/01/2019 (c) 6,159
AAA Aaa 11,845 Series D, 6.375% due 9/01/2024 (c) 12,126
West Covina, California, COP (Queen of the Valley Hospital):
A A 2,810 6.50% due 8/15/2019 2,803
A A 6,000 6.95% due 8/15/2023 6,310
AAA Aaa 6,000 West Sacramento, California, Redevelopment Agency, Tax Allocation Revenue Bonds
(West Sacramento Redevelopment Project), 6.25% due 9/01/2010 (c) 6,206
Puerto Rico--2.4%
A Baa1 5,000 Puerto Rico Commonwealth, GO, UT, 6.45% due 7/01/2017 5,169
A Baa1 10,465 Puerto Rico Commonwealth, Highway and Transportation Authority,
Highway Revenue Bonds, Series T, 6.625% due 7/01/2018 10,915
Total Investments (Cost--$638,499 )--100.9% 673,288
Liabilities in Excess of Other Assets--(0.9%) (5,884)
--------
Net Assets--100.0% $667,404
========
<PAGE>
<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, 1995.
(c)MBIA Insured.
(d)AMBAC Insured.
(e)FGIC Insured.
(f)FSA Insured.
(g)FNMA Collateralized.
(h)GNMA Collateralized.
(i)Escrowed to Maturity.
(j)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 August 31, 1995.
(k)CAPMAC Insured.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
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, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$638,499,362)(Note 1a) $673,287,854
Cash 99,976
Receivables:
Securities sold $ 20,724,278
Interest 12,184,525
Beneficial interest sold 229,241 33,138,044
------------
Prepaid registration fees and other assets (Note 1e) 128,247
------------
Total assets 706,654,121
------------
<PAGE>
Liabilities: Payables:
Securities purchased 36,423,400
Beneficial interest redeemed 1,146,312
Dividends to shareholders (Note 1f) 949,895
Investment adviser (Note 2) 307,096
Distributor (Note 2) 262,489 39,089,192
------------
Accrued expenses and other liabilities 160,746
------------
Total liabilities 39,249,938
------------
Net Assets: Net assets $667,404,183
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 388,100
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 5,405,555
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 27,471
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 33,747
Paid-in capital in excess of par 650,305,824
Accumulated realized capital losses on investments--net (Note 5) (16,973,155)
Accumulated distributions in excess of realized capital gains--net (6,571,851)
Unrealized appreciation on investments--net 34,788,492
------------
Net assets $667,404,183
============
Net Asset Value: Class A--Based on net assets of $44,228,256 and 3,880,999
shares of beneficial interest outstanding $ 11.40
============
Class B--Based on net assets of $616,198,905 and 54,055,554
shares of beneficial interest outstanding $ 11.40
============
Class C--Based on net assets of $3,130,524 and 274,709 shares of
beneficial interest outstanding $ 11.40
============
Class D--Based on net assets of $3,846,498 and 337,469 shares of
beneficial interest outstanding $ 11.40
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
August 31, 1995
<S> <S> <C>
Investment Income Interest and amortization of premium and discount earned $ 45,693,141
(Note 1d):
Expenses: Investment advisory fees (Note 2) 3,828,093
Account maintenance and distribution fees--Class B (Note 2) 3,249,016
Transfer agent fees--Class B (Note 2) 292,378
Printing and shareholder reports 125,242
Professional fees 83,636
Registration fees (Note 1e) 78,769
Custodian fees 66,614
Accounting services (Note 2) 64,518
Trustees' fees and expenses 40,349
Transfer agent fees--Class A (Note 2) 19,780
Pricing fees 17,934
Account maintenance and distribution fees--Class C (Note 2) 8,263
Account maintenance fees--Class D (Note 2) 2,131
Transfer agent fees--Class D (Note 2) 847
Transfer agent fees--Class C (Note 2) 727
Other 14,609
------------
Total expenses 7,892,906
------------
Investment income--net 37,800,235
------------
Realized & Realized loss on investments--net (16,973,155)
Unrealized Gain Change in unrealized appreciation on investments--net 17,518,587
(Loss) on ------------
Investments Net Increase in Net Assets Resulting from Operations $ 38,345,667
- --Net (Notes 1b, ============
1d & 3):
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended August 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 37,800,235 $ 43,908,000
Realized gain (loss) on investments--net (16,973,155) 4,109,882
Change in unrealized appreciation on investments--net 17,518,587 (61,534,369)
------------ ------------
Net increase (decrease) in net assets resulting from operations 38,345,667 (13,516,487)
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (3,035,857) (3,624,918)
Shareholders Class B (34,575,842) (40,283,082)
(Note 1f): Class C (69,364) --
Class D (119,172) --
Realized gain on investments--net:
Class A -- (1,039,120)
Class B -- (12,643,710)
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 (37,800,235) (64,162,681)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial interest
Interest transactions (120,046,349) (21,161,878)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (119,500,917) (98,841,046)
Beginning of year 786,905,100 885,746,146
------------ ------------
End of year $667,404,183 $786,905,100
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.32 $ 12.38 $ 11.80 $ 11.44 $ 11.03
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .64 .68 .70 .72 .74
Realized and unrealized gain (loss) on
investments--net .08 (.78) .78 .41 .41
-------- -------- -------- -------- --------
Total from investment operations .72 (.10) 1.48 1.13 1.15
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.64) (.68) (.70) (.72) (.74)
Realized gain on investments--net -- (.19) (.20) (.05) --
In excess of realized gain on
investments--net -- (.09) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.64) (.96) (.90) (.77) (.74)
-------- -------- -------- -------- --------
Net asset value, end of year $ 11.40 $ 11.32 $ 12.38 $ 11.80 $ 11.44
======== ======== ======== ======== ========
Total Based on net asset value per share 6.77% (.92%) 13.19% 10.23% 10.73%
Investment ======== ======== ======== ======== ========
Return:*
Ratios to Expenses .65% .62% .63% .63% .64%
Average ======== ======== ======== ======== ========
Net Assets: Investment income--net 5.83% 5.65% 5.87% 6.26% 6.57%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 44,228 $ 60,017 $ 64,526 $ 46,556 $ 37,499
Data: ======== ======== ======== ======== ========
Portfolio turnover 53.40% 75.66% 61.24% 52.31% 116.09%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effect of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class B
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.32 $ 12.38 $ 11.80 $ 11.44 $ 11.03
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .59 .61 .64 .67 .68
Realized and unrealized gain (loss) on
investments--net .08 (.78) .78 .41 .41
-------- -------- -------- -------- --------
Total from investment operations .67 (.17) 1.42 1.08 1.09
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.59) (.61) (.64) (.67) (.68)
Realized gain on investments--net -- (.19) (.20) (.05) --
In excess of realized gain on
investments--net -- (.09) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.59) (.89) (.84) (.72) (.68)
-------- -------- -------- -------- --------
Net asset value, end of year $ 11.40 $ 11.32 $ 12.38 $ 11.80 $ 11.44
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 6.28% (1.50%) 12.62% 9.68% 10.18%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding account maintenance
Net Assets: and distribution fees .66% .63% .63% .63% .65%
======== ======== ======== ======== ========
Expenses 1.16% 1.13% 1.13% 1.13% 1.15%
======== ======== ======== ======== ========
Investment income--net 5.32% 5.15% 5.38% 5.76% 6.07%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $616,199 $726,888 $821,220 $729,569 $690,885
Data: ======== ======== ======== ======== ========
Portfolio turnover 53.40% 75.66% 61.24% 52.31% 116.09%
======== ======== ======== ======== ========
<PAGE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period Oct. 21, 1994++
to Aug. 31, 1995
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.94 $ 10.94
Operating ------------ ------------
Performance: Investment income--net .49 .54
Realized and unrealized gain on investments--net .46 .46
------------ ------------
Total from investment operations .95 1.00
------------ ------------
Less dividends from investment income--net (.49) (.54)
------------ ------------
Net asset value, end of period $ 11.40 $ 11.40
============ ============
Total Investment Based on net asset value per share 8.96%+++ 9.42%+++
Return:** ============ ============
Ratios to Expenses, excluding account maintenance and distribution fees .67%* .66%*
Average ============ ============
Net Assets: Expenses 1.27%* .76%*
============ ============
Investment income--net 5.04%* 5.59%*
============ ============
Supplemental Net assets, end of period (in thousands) $ 3,131 $ 3,846
Data: ============ ============
Portfolio turnover 53.40% 53.40%
============ ============
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
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
four classes of shares under the Merrill Lynch Select Pricing SM
System. Shares of Class A and Class D 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 B, Class C and Class D
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. 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.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
<PAGE>
* 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 securities 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 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.
(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) 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. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions and post-October losses.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM 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 Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
<PAGE>
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.
Pursuant to the distribution plans ("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 B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, 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 the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D 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 year ended August 31, 1995, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
<PAGE>
MLFD MLPF&S
Class A $2,220 $28,775
Class D $1,704 $20,537
For the year ended August 31, 1995, MLPF&S received contingent
deferred sales charges of $866,830 and $3,844 relating to
transactions in Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1995 were $360,260,804 and
$455,808,554, respectively.
Net realized and unrealized gains (losses) as of August 31, 1995
were as follows:
Realized Unrealized
Losses Gains
Long-term investments $(12,697,427) $ 34,788,492
Short-term investments (1,146,290) --
Financial futures
contracts (3,129,438) --
------------ -------------
Total $(16,973,155) $ 34,788,492
============ =============
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
As of August 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $34,788,492 of which $35,965,265
related to appreciated securities and $1,176,773 related to depre-
ciated securities. The aggregate cost of investments at August 31,
1995 for Federal income tax purposes was $638,499,362.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $(120,046,349) and $(21,161,878) for the years
ended August 31, 1995 and August 31, 1994, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended August 31, 1995 Shares Amount
Shares sold 356,036 $ 3,948,528
Shares issued to share-
holders in reinvestment of
dividends 110,995 1,224,562
----------- -------------
Total issued 467,031 5,173,090
Shares redeemed (1,889,907) (20,801,528)
----------- -------------
Net decrease (1,422,876) $ (15,628,438)
=========== =============
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 & 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
=========== =============
<PAGE>
Class B Shares for the Year Dollar
Ended August 31, 1995 Shares Amount
Shares sold 4,055,625 $ 44,759,130
Shares issued to share-
holders in reinvestment
of dividends 1,364,078 15,067,056
----------- -------------
Total issued 5,419,703 59,826,186
Shares redeemed (15,559,912) (170,703,755)
Automatic conversion
of shares (22,131) (248,360)
----------- -------------
Net decrease (10,162,340) $(111,125,929)
=========== =============
Class B Shares for the Year Dollar
Ended August 31, 1994 Shares Amount
Shares sold 7,118,622 $ 84,446,664
Shares issued to shareholders
in reinvestment of dividends
& 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)
=========== =============
Class C Shares for the Period
October 21, 1994++ to Dollar
August 31, 1995 Shares Amount
Shares sold 343,686 $ 3,830,307
Shares issued to share-
holders in reinvestment
of dividends 3,078 34,747
----------- -------------
Total issued 346,764 3,865,054
Shares redeemed (72,055) (813,364)
----------- -------------
Net increase 274,709 $ 3,051,690
=========== =============
[FN]
++Commencement of Operations.
<PAGE>
Class D Shares for the Period
October 21, 1994++ to Dollar
August 31, 1995 Shares Amount
Shares sold 383,812 $ 4,170,592
Automatic conversion
of shares 22,131 248,360
Shares issued to share-
holders in reinvestment of
dividends 7,710 86,300
----------- -------------
Total issued 413,653 4,505,252
Shares redeemed (76,184) (848,924)
----------- -------------
Net increase 337,469 $ 3,656,328
=========== =============
[FN]
++Commencement of Operations.
5. Capital Loss Carryforward:
At August 31, 1995, the Fund had a net capital loss carryforward of
approximately $9,806,000, all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable
gains.
<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
liabilities, including the schedule of investments, of Merrill Lynch
California Municipal Bond Fund of Merrill Lynch California Municipal
Series Trust as of August 31, 1995, 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.
<PAGE>
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
misstatement. 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, 1995 by correspondence with the custodian and brokers. 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.
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, 1995, 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, 1995
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
Merrill Lynch California Municipal Bond Fund of Merrill Lynch
California Municipal Series Trust during the taxable year ended
August 31, 1995 qualify as tax-exempt interest dividends for Federal
income tax purposes.
Additionally, there were no capital gains distributed during the
year.
Please retain this information for your records.
