MERRILL LYNCH
CALIFORNIA
MUNICIPAL
BOND FUND
FUND LOGO
Semi-Annual Report
February 28, 1995
Officers and Trustees
Arthur Zeikel, President and 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, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<PAGE>
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, NJ
08543-9011
TO OUR SHAREHOLDERS
The combination of heightened inflationary concerns, anticipation of
further tightening of monetary policy by the Federal Reserve Board,
the turmoil of the Mexican currency crisis and a weakening US dollar
all exerted negative influences on the US financial markets during
the February quarter. On the positive side, increasing signs that
the US economy may be losing momentum suggested that most of the
interest rate increases for this economic cycle may be behind us. As
a result of these economic crosscurrents, the US stock and bond
markets continued to be volatile during the period, even though the
Dow Jones Industrial Average did close above the 4000 level for the
first time.
The manufacturing sector proved to be the driving force behind the
US economy through the final weeks of 1994, making an important
contribution to the substantial increase in corporate earnings. US
companies have been successful at containing labor costs, which are
an important component of the inflation outlook. Growth in the
economy has not been translated into higher wages and benefits for
US workers. Consumer spending is growing at a slower pace than in
previous economic recoveries, and was unchanged for the month of
January. Another encouraging sign was the January increase in the
personal savings rate to the highest level in two years. However,
this is following an all-time annual low for the savings rate in
1994.
In the weeks ahead, investors will continue to assess economic data
and inflationary trends in order to gauge whether inflationary
pressures have been tempered and the economy is headed for moderate
growth (a "soft landing"), or if the lagged effect of interest rate
rises will result in a curtailment of economic growth. Investors
will also focus on the progress that the new Congress makes on both
reducing spending and the Federal budget deficit and passing tax
cuts that promote savings and investment. At this time, the recent
defeat of the balanced budget amendment in the Senate does not bode
well for the passage of sweeping fiscal reforms.
<PAGE>
The Municipal Market
The municipal bond market staged an impressive rally during the
three months ended February 28, 1995. Long-term municipal revenue
bond yields, as measured by the Bond Buyer Revenue Bond Index, fell
by 98 basis points (0.98%) to end the February quarter at 6.34%.
Long-term tax-exempt bond prices have more than recouped all of the
losses sustained during October and November 1994, and current
municipal bond yield levels have declined to six-month lows. Long-
term US Treasury bond yields exhibited a similar recovery during the
past quarter. During the February quarter, the yield on the 30-year
US Treasury bond fell approximately 60 basis points to finish the
quarter at 7.45%. The recent peak in interest rates last November
and their subsequent decline has coincided with an apparent change
in investor psychology. The series of interest rate increases
engineered by the Federal Reserve Board during 1994 ended with an
aggressive tightening of monetary policy in mid-November. This move
has, at least temporarily, restored the financial markets'
confidence in the central bank's resolve and ability to foster an
environment of moderate economic growth and minimal inflationary
pressures. Investors then turned their attention to potentially
weaker economic growth in 1995 and interest rates began to decline.
As indications of a slowing in economic growth were released in
early 1995, particularly in housing and employment, the bond market
rally intensified. The dramatic increase in bond yields seen in 1994
can now be viewed as an overreaction to excessive inflationary fears
in combination with expected strong economic growth continuing
throughout 1995. As these fears have yet to be realized, investors
viewed the yields available in late 1994 as particularly attractive
and bond prices rose accordingly.
The strong technical position of the municipal market has
intensified the recent market rally. New-issue supply during the six
months ended February 28, 1995 totaled approximately $60 billion, a
decrease of over 50% versus the comparable period a year earlier. In
recent months the pace of new issuance has slowed further. During
the February quarter, less than $25 billion in long-term securities
were issued, a decline of almost 60% versus year-ago levels. Both
January and February monthly issuance were less than $8 billion,
which represents the lowest monthly issuance levels since January
1988. Issuance thus far in 1995 has led some analysts to lower their
projections for 1995 annual issuance from the $150 billion range to
the $120 billion range. This would represent a further 20% reduction
in an already recent historically low issuance environment.
At the same time, investor demand has slowly returned to the
municipal market. Both January and February saw net cash inflows
into tax-exempt mutual bond funds, a striking reversal of flows from
that which was experienced for much of late 1994. Much of the
increase in municipal bond yields in 1994 was in large part a
response to investor liquidation of municipal mutual funds in
anticipation of additional price declines associated with expected
increases in interest rates. As both bond yields and new bond
issuance have declined in recent months, both retail and
institutional investors have been hard pressed to repurchase
securities sold in late 1994. The relative scarcity of tax-exempt
bond products is expected to continue throughout 1995, and thus
expected scarcity has intensified the recent rise in municipal bond
prices.
<PAGE>
Despite this recent rise in tax-exempt bond prices, municipal bonds
have remained attractive relative to other investment alternatives,
especially on an after-tax basis. For example, to investors in the
39% Federal income tax bracket, long-term municipal bonds currently
yielding 6.35% represent an after-tax equivalent yield of over
10.375%. Looking forward, while it's likely that interest rate
volatility will remain a factor in 1995, the magnitude of the
increase in bond yields is very unlikely to be repeated. As the
supply of tax-exempt products is likely to remain very limited
throughout 1995, presently available bond yields should prove to be
attractive to long-term investors.
Portfolio Strategy
The February quarter witnessed extreme price volatility in the
municipal bond market, with the early part of the quarter
characterized by weak demand and declining values and the following
two months marked by a powerful rally. The relatively high level of
couponing possessed by Merrill Lynch California Municipal Bond Fund
permitted it to weather the negative price action witnessed in
November, since higher-coupon holdings tended to react less
drastically to market moves. However, as the yield spreads between
municipals and their taxable counterparts reached historically
inexpensive relationships, we began to introduce more performance-
oriented holdings, anticipating a possibility for better price
action should market sentiment change. We kept cash equivalent
reserves low to enable the Fund to participate in the rising
valuations that accompanied the December and January market
environment. Largely as a result of availability, we increased the
portfolio's insured assets to nearly 59%. A portion of new purchases
were financed through the sale of some shorter maturity prerefunded
holdings.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch California
Municipal Bond Fund, and we look forward to serving your investment
needs in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
<PAGE>
March 29, 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 the Fund's Class A Shares and Class B Shares
are presented in the "Performance Summary," "Recent Performance
Results" and "Average Annual Total Return" tables below and on pages
4 and 5. Data for Class C and Class D Shares are also presented in
the "Recent Performance Results" and "Aggregate Total Return" tables
below and on page 5.
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 February 28, 1995
and for Class C and Class D Shares for the since inception and 3-
month periods ended February 28, 1995. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
<PAGE>
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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/94 -7.08% -10.80%
Five Years Ended 12/31/94 +6.00 + 5.14
Inception (10/25/88)
through 12/31/94 +6.66 + 5.96
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/94 -7.50% -10.99%
Five Years Ended 12/31/94 +5.46 + 5.46
Inception (9/30/85) through
12/31/94 +7.54 + 7.54
[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>
Aggregate Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94)
through 12/31/94 -1.76% -2.73%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (10/21/94)
through 12/31/94 -1.65% -5.58%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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
1994 12.13 10.62 -- 0.662 - 7.08
1/1/95--2/28/95 10.62 11.23 -- 0.089 + 6.69
------ ------
Total $0.314 Total $4.781
Cumulative total return as of 2/28/95: +58.98%**
<PAGE>
<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>
<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
1994 12.13 10.63 -- 0.606 - 7.50
1/1/95--2/28/95 10.63 11.24 -- 0.081 + 6.62
------ ------
Total $0.360 Total $6.669
Cumulative total return as of 2/28/95: +109.05%**
<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>
PERFORMANCE DATA (concluded)
<PAGE>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
2/28/95 11/30/94 2/28/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $11.23 $10.42 $11.84 -5.15% +7.77%
Class B Shares* 11.24 10.42 11.84 -5.07 +7.87
Class C Shares* 11.24 10.42 10.94 +2.74 +7.87
Class D Shares* 11.24 10.42 10.94 +2.74 +7.87
Class A Shares--Total Return* +0.71(1) +9.31(2)
Class B Shares--Total Return* +0.26(3) +9.27(4)
Class C Shares--Total Return* +4.73(5) +9.35(6)
Class D Shares--Total Return* +4.91(7) +9.38(8)
Class A Shares--Standardized 30-day Yield 5.44%
Class B Shares--Standardized 30-day Yield 5.16%
Class C Shares--Standardized 30-day Yield 5.05%
Class D Shares--Standardized 30-day Yield 5.34%
<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 $0.660 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.165 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.604 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.151 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.195 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.148 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.214 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.162 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.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Authority
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
SAVRS Select Auction Variable Rate Securities
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--93.0%
<S> <S> <C> <S> <C>
AAA Aaa $ 3,000 Anaheim, California, Public Financing Authority, Tax Allocation Revenue
Bonds, RITES, 8.37% due 12/28/2018 (c)(j) $ 3,184
Antioch, California, Improvement Bonds (1915 Assessment District No. 27
Lone Tree), Series D:
NR* NR* 595 6% due 9/02/2001 603
NR* NR* 630 6.20% due 9/02/2002 639
NR* NR* 670 6.40% due 9/02/2003 680
NR* NR* 4,995 7.30% due 9/02/2013 5,147
AAA Aaa 3,140 Brea, California, Public Financing Authority, Tax Allocation (Redevelop-
ment Project), Series A, 6.75% due 8/01/2022 (c) 3,292
AAA Aaa 5,155 Brea, California, Public Financing Authority, Water Revenue Bonds, Series B,
6.25% due 7/01/2021 (e) 5,188
AAA Aaa 1,080 Brea, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Redevelopment Project), 6.125% due 8/01/2013 (c) 1,094
<PAGE>
AAA Aaa 2,025 Brentwood, California, Unified School District , 6.85% due 8/01/2016 (d) 2,109
AAA Aaa 18,430 California Educational Facilities Authority Revenue Bonds (Stanford
University), Series J, 6% due 11/01/2016 18,428
A1+ VMIG1++ 16,500 California Health Facilities Financing Authority Revenue Bonds (Catholic
Health Care), VRDN, Series C, 3.85% due 7/01/2020 (b)(c) 16,500
California Health Facilities Financing Authority Revenue Bonds, Series A:
BBB Baal 5,150 (Health Dimensions), 7.50% due 5/01/2015 5,293
AAA Aaa 4,350 (Kaiser Permanente), 7% due 10/01/2018 (c) 4,623
AAA Aaa 4,000 (Scripps Memorial Hospital), 6.25% due 10/01/2013 (c) 4,061
NR* A 5,780 (Scripps Research Institute), 6.625% due 7/01/2014 5,837
California HFA, Home Mortgage Revenue Bonds:
AA- Aa 5,080 AMT, Series A, 7.70% due 8/01/2030 5,366
AA- Aa 535 AMT, Series B, 8% due 8/01/2029 566
AA- Aa 10,200 AMT, Series F-1, 7% due 8/01/2026 10,498
AA- Aa 900 AMT, Series G, 8.15% due 8/01/2019 952
AA- Aa 2,380 Series A, 8.125% due 8/01/2019 2,526
AA- Aa 3,085 Series D, 7.25% due 8/01/2017 3,245
</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, Revenue Bonds, AMT:
AA- Aa $ 4,300 RIB, 7.59% due 8/01/2023 (j) $ 4,198
AAA Aaa 980 Series A, 7.20% due 2/01/2026 (c) 1,028
A1+ VMIG1++ 6,400 California Pollution Control Financing Authority, Solid Waste Disposal
Revenue Bonds (Shell Oil Co.--Martinez Project), VRDN, AMT, Series A, 3.95
due 10/01/2024 (b) 6,400
AA Aa 10,000 California State Department of Water Resources, Central Valley Project
Revenue Bonds (Water Systems), Series M, 5% due 12/01/2019 8,524
A A1 2,000 California State, GO, UT, 10% due 2/01/2010 2,789
A+ A1 16,300 California State, GO, Veterans' Bonds, AMT, UT, Series AW, 7.70% due
4/01/2009 17,261
<PAGE>
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 4,004
California State, Public Works Board, Lease Revenue Bonds, Series A:
A- A 10,675 (Department of Corrections--Monterey County), 7% due 11/01/2019 11,150
AAA Aaa 7,625 (Various Universities of California Projects), 6.40% due 12/01/2016 (d) 7,824
California Statewide Community Development Authority Revenue Bonds, COP:
AAA Aaa 5,360 (Good Samaritan Health System), 6.50% due 5/01/2024 5,509
AA Aa 4,750 (Saint Joseph Health System Group), 6.625% due 7/01/2021 4,816
AAA Aaa 5,000 Central Coast, California, Water Authority Revenue Bonds (State Water
Project Regional Facilities), 6.60% due 10/01/2022 (d) 5,194
BBB NR* 1,000 Contra Costa County, California, Public Financing Authority, Tax
Allocation Revenue Refunding Bonds, Series A, 7.10% due 8/01/2022 1,018
Corona, California, COP, Corona Community (a):
AAA Aaa 1,915 8% due 3/01/2009 2,347
AAA Aaa 2,065 8% due 3/01/2010 2,540
AAA Aaa 2,230 8% due 3/01/2011 2,750
AAA Aaa 2,410 8% due 3/01/2012 2,978
AAA Aaa 2,605 8% due 3/01/2013 3,223
AAA Aaa 2,810 8% due 3/01/2014 3,479
AAA Aaa 3,035 8% due 3/01/2015 (i) 3,716
AAA Aaa 3,000 Coronado, California, Community Development Agency, Tax Allocation
(Coronado Community Development Project), 6.30% due 9/01/2022 (c) 3,029
NR* Aaa 4,635 Cypress, California, S/F Residential Mortgage Revenue Refunding Bonds,
Series A, 7.10% due 1/01/2011 (i) 4,993
AAA Aaa 12,340 East Bay, California, Municipal Utilities District, Water System
Subordinate Revenue Refunding Bonds, 6% due 6/01/2012 (c) 12,447
AAA Aaa 5,000 El Cajon, California, Redevelopment Agency, Tax Allocation (El Cajon
Redevelopment Project), 6.60% due 10/01/2022 (d) 5,204
BBB+ NR* 3,600 Fontana, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Jurupa Hills Redevelopment Project), Series A, 7.20% due 10/01/2024 3,656
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) 2,459
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<PAGE>
California (continued)
<S> <S> <C> <S> <C>
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 4,189
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 5,266
NR* NR* 4,545 Long Beach, California, Special Tax Community Facilities District No. 3--
Pine Avenue, 6.375% due 9/01/2023 4,191
AAA Aaa 5,225 Los Angeles, California, Community Redevelopment Agency, Housing Revenue
Refunding Bonds, Series A, 6.45% due 7/01/2017 (d) 5,304
AAA Aaa 5,150 Los Angeles, California, Community Redevelopment Agency, Tax Allocation
Refunding Bonds (Bunker Hill Project), Series H, 6.50% due 12/01/2016 (f) 5,318
AAA Aaa 17,050 Los Angeles, California, Convention and Exhibition Center Authority, COP,
9% due 12/01/2005 (a) 22,170
Los Angeles, California, Department of Water and Power, Electric Plant
Revenue Bonds:
AA Aa 2,000 Refunding, 5.375% due 9/01/2023 1,773
AA Aa 10,000 Registered RITR, 7.229% due 2/01/2020 (j) 10,150
AAA Aaa 5,000 Los Angeles, California, Department of Water and Power, Waterworks Revenue
Bonds, 6.30% due 7/01/2024 (c) 5,060
AAA NR* 14,000 Los Angeles, California, Harbor Department Revenue Bonds, 7.60% due
10/01/2018 (i) 15,675
AA Aa 1,965 Los Angeles, California, Harbor Department Revenue Bonds, AMT, Series B,
6.60% due 8/01/2014 2,023
AAA Aaa 7,890 Los Angeles, California, Wastewater System Revenue Bonds, Series D, 6.625%
due 12/01/2012 (c) 8,221
AAA Aaa 10,000 Los Angeles County, California, COP (Correctional Facilities Project),
6.50% due 9/01/2013 (c) 10,305
NR* NR* 8,000 Los Angeles County, California, COP (Marina Del Rey), Series A, 6.50%
due 7/01/2008 7,901
<PAGE>
Al+ VMIG1++ 500 Los Angeles County, California, Metropolitan Transportation Authority,
Sales Tax Revenue Refunding Bonds (Proposition C-Second Senior), VRDN,
Series A, 3.90% due 7/01/2020 (b)(c) 500
SP1+ MIG1++ 9,500 Los Angeles County, California, TRAN, UT, 4.50% due 6/30/1995 9,504
AAA Aaa 4,750 Marysville, California, Hospital Revenue Bonds (Fremont-Rideout Health
Group), Series A, 6.30% due 1/01/2022 (d) 4,801
Metropolitan Water District, Southern California, Waterworks Revenue Bonds:
AA Aa 3,000 6.625% due 7/01/2012 3,109
AA Aa 2,250 6% due 7/01/2021 2,213
AA Aa 10,000 Linked SAVRS and RIB, 5.806% due 8/05/2022 9,672
AAA Aaa 10,000 Northern California Power Agency, Public Power Revenue Refunding Bonds
(Hydroelectric Project No. l), Series A, 6.30% due 7/01/2018 (c) 10,515
Ontario, California, Redevelopment Financing Authority Revenue Bonds (c):
AAA Aaa 5,635 (Cimarron Project No. 1), 6.375% due 8/01/2020 5,730
AAA Aaa 7,485 (Ontario Redevelopment Project No. 1), 6% due 8/01/2015 7,458
</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>
Orange County, California, Local Transportation Authority, Sales Tax
Revenue Bonds, Linked SAVRS and RIB:
AAA Aaa $10,000 6.20% due 2/14/2011 (d) $ 10,151
AAA Aaa 20,300 Second Series, 6.10% due 2/14/2011 (e) 20,471
A NR* 6,000 Palmdale, California, Civic Authority, Revenue Refunding Bonds (Merged
Redevelopment Project), Series A, 6.60% due 9/01/2034 5,860
A+ A1 8,000 Pasadena, California, COP, Refunding Bonds (Old Pasadena Parking Facility
Project), 6.25% due 1/01/2018 7,980
AAA Aaa 11,620 Pittsburg, California, Redevelopment Agency, Residential Mortgage Revenue
Bonds, 9.60% due 6/01/2016 (i) 16,382
NR* NR* 4,905 Pleasanton, California, Joint Powers Financing Authority, Revenue
Reassessment Bonds, Sub-series B, 6.75% due 9/02/2017 4,789
AAA Aaa 3,450 Rancho, California, Water District Financing Authority Revenue Bonds,
RITES, 8.374% due 8/15/2021 (a)(d)(j) 4,019
<PAGE>
AAA Aaa 1,500 Redding, California, Electric System Revenue Bonds, COP, RIB, 8.649% due
7/01/2022 (c)(j) 1,616
Redwood City, California, Public Financing Authority, Local Agency
Revenue Bonds:
AAA Aaa 1,500 Refunding, Series A, 6.50% due 7/15/2011 (d) 1,558
A- NR* 2,500 Series B, 7.25% due 7/15/2011 2,659
BBB NR* 2,430 Riverside County, California, Redevelopment Agency Bonds (Tax Allocation
Redevelopment Project No. 4), Series A, 7.50% due 10/01/2026 2,503
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) 3,081
Sacramento, California, Municipal Utility District, Electric Revenue Bonds:
AAA Aaa 5,000 INFLOS, 8.311% due 8/15/2018 (e)(j) 5,069
AAA Aaa 14,025 Series B, 6.375% due 8/15/2022 (c) 14,319
AA Aa 2,500 San Bernardino, California, Health Care System Revenue Bonds (Sisters
of Charity), Series A, 7% due 7/01/2021 2,578
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 3,304
AAA Aaa 8,000 AMT, Issue 6, 6.60% due 5/01/2020 8,228
AAA Aaa 8,500 Refunding, Issue 1, 6.30% due 5/01/2011 8,731
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 1,357
AAA Aaa 5,500 San Jose, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Merged Area Redevelopment Project), 6% due 8/01/2015 (c) 5,538
AAA Aaa 4,150 Santa Clara, California, Electric Revenue Bonds, Series A, 6.50%
due 7/01/2021 (c) 4,262
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) 10,554
AA A1 1,000 Santa Clara County, California, Transportation District, Sales Tax
Revenue Bonds, Series A, 6.75% due 6/01/2011 1,045
AAA Aaa 2,000 Santa Fe Springs, California, Redevelopment Agency, Tax Allocation
(Construction Redevelopment Project), Series A, 6.40% due 9/01/2022 (c) 2,049
</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>
Southern California Home Financing Authority, S/F Mortgage Revenue
Bonds, AMT (h):
AAA NR* $ 4,290 Series A, 7.625% due 10/01/2023 $ 4,565
AAA NR* 2,450 Series A, 7.35% due 9/01/2024 (g) 2,572
AAA NR* 1,040 Series B, 7.75% due 3/01/2024 (g) 1,092
AA- Aa 11,470 Southern California Public Power Authority, Transmission Project, Revenue
Refunding Bonds (Southern Transmission Project), 6.125% due 7/01/2018 11,419
BBB+ NR* 21,930 Stanislaus, California, Waste-to-Energy Financing Agency, Solid Waste
Facility Revenue Refunding Bonds (Ogden Martin System Inc. Project), COP,
7.625% due 1/01/2010 22,961
AAA Aaa 4,000 Stockton, California, Revenue Bonds (Wastewater Treatment Plant Expansion),
COP, Series A, 6.80% due 9/01/2024 (e) 4,243
AAA Aaa 4,000 Tri-City, California, Hospital District Revenue Bonds (Tri-City Hos-
pital), 7.50% due 2/01/2017 (c) 4,410
University of California, Revenue Bonds (Multiple-Purpose Projects):
A- NR* 14,700 Refunding, Series A, 6.875% due 9/01/2002 (a) 16,463
AAA Aaa 8,000 Series D, 6.25% due 9/01/2012 (c) 8,161
AAA Aaa 11,375 Series D, 6.375% due 9/01/2024 (c) 11,532
AAA Aaa 8,465 West and Central Basin, California, Financing Authority Revenue Bonds,
6.125% due 8/01/2022 (d) 8,492
West Covina, California, COP (Queen of the Valley Hospital), GO:
A A 3,810 6.50% due 8/15/2019 3,741
A A 5,000 6.95% due 8/15/2023 5,107
AAA Aaa 6,000 West Sacramento, California, Redevelopment Agency, Tax Allocation
Revenue Bonds (West Sacramento Redevelopment Project), 6.25% due 9/01/2010 (c) 6,159
Puerto Rico--2.4%
A Baa1 6,580 Puerto Rico Commonwealth, GO, UT, 6.45% due 7/01/2017 6,739
A Baa1 9,465 Puerto Rico Commonwealth, Highway and Transportation Authority,
Highway Revenue Bonds, Series T, 6.625% due 7/01/2018 9,759
<PAGE>
Total Investments (Cost--$646,371)--95.4% 672,358
Other Assets Less Liabilities--4.6% 32,650
--------
Net Assets--100.0% $705,008
========
<FN>
(a)Prerefunded.
(b)The interest rate is subject to change periodically based upon
the prevailing market rates. The interest rate shown is the rate in
effect at February 28, 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 to the prevailing market rates. The interest rate shown is
the rate in effect at February 28, 1995.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 28, 1995
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$646,370,680) (Note 1a) $672,357,806
Cash 17,341,299
Receivables:
Interest $ 11,043,603
Securities sold 10,590,271
Beneficial interest sold 1,058,774 22,692,648
------------
Prepaid registration fees and other assets (Note 1e) 129,997
------------
Total assets 712,521,750
------------
<PAGE>
Liabilities: Payables:
Securities purchased 3,791,994
Beneficial interest redeemed 2,322,371
Dividends to shareholders (Note 1f) 707,201
Investment adviser (Note 2) 292,169
Distributor (Note 2) 248,608 7,362,343
------------
Accrued expenses and other liabilities 151,667
------------
Total liabilities 7,514,010
------------
Net Assets: Net assets $705,007,740
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 466,403
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 5,778,077
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 10,269
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 19,150
Paid-in capital in excess of par 697,524,067
Accumulated realized capital losses--net (24,777,352)
Unrealized appreciation on investments--net 25,987,126
------------
Net assets $705,007,740
============
Net Asset Value: Class A--Based on net assets of $52,395,103 and 4,664,032 shares of
beneficial interest outstanding $ 11.23
============
Class B--Based on net assets of $649,307,031 and 57,780,770 shares of
beneficial interest outstanding $ 11.24
============
Class C--Based on net assets of $1,153,920 and 102,695 shares of
beneficial interest outstanding $ 11.24
============
Class D--Based on net assets of $2,151,686 and 191,496 shares of
beneficial interest outstanding $ 11.24
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
February 28, 1995
<S> <S> <C>
Investment Income Interest and amortization of premium and discount earned $ 23,847,241
(Note 1d):
Expenses: Investment advisory fees (Note 2) 1,926,540
Distribution fees--Class B (Note 2) 1,637,480
Transfer agent fees--Class B (Note 2) 142,478
Printing and shareholder reports 61,265
Custodian fees 36,376
Professional fees 32,509
Registration fees (Note 1e) 31,437
Accounting services (Note 2) 30,288
Trustees' fees and expenses 19,911
Pricing fees 11,487
Transfer agent fees--Class A (Note 2) 9,798
Distribution fees--Class C (Note 2) 1,242
Account maintenance fees--Class D (Note 2) 536
Transfer agent fees--Class D (Note 2) 206
Transfer agent fees--Class C (Note 2) 107
Other 7,046
------------
Total expenses 3,948,706
------------
Investment income--net 19,898,535
------------
Realized & Realized loss on investments--net (18,205,501)
Unrealized Gain Change in unrealized appreciation on investments--net 8,717,221
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 10,410,255
(Notes 1b, 1d ============
& 3):
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Year
Months Ended Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 19,898,535 $ 43,908,000
Realized gain (loss) on investments--net (18,205,501) 4,109,882
Change in unrealized appreciation/depreciation on
investments--net 8,717,221 (61,534,369)
------------ ------------
Net increase (decrease) in net assets resulting from
operations 10,410,255 (13,516,487)
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (1,633,918) (3,624,918)
Shareholders Class B (18,221,350) (40,283,082)
(Note 1f): Class C (11,229) --
Class D (32,038) --
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 (19,898,535) (64,162,681)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial
Interest interest transactions (72,409,080) (21,161,878)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (81,897,360) (98,841,046)
Beginning of period 786,905,100 885,746,146
------------ ------------
End of period $705,007,740 $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 For the Six
from information provided in the financial statements. Months Ended,
February 28, 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 period $ 11.32 $ 12.38 $ 11.80 $ 11.44 $ 11.03
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .33 .68 .70 .72 .74
Realized and unrealized gain (loss) on
investments--net (.09) (.78) .78 .41 .41
-------- -------- -------- -------- --------
Total from investment operations .24 (.10) 1.48 1.13 1.15
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.33) (.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 (.33) (.96) (.90) (.77) (.74)
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.23 $ 11.32 $ 12.38 $ 11.80 $ 11.44
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 2.22%+++ (.92%) 13.21% 10.23% 10.73%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses .64%* .62% .63% .63% .64%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 6.07%* 5.65% 5.87% 6.26% 6.57%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 52,395 $ 60,017 $ 64,526 $ 46,556 $ 37,499
Data: ======== ======== ======== ======== ========
Portfolio turnover 21.58% 75.66% 61.24% 52.31% 116.09%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
February 28, 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 period $ 11.32 $ 12.38 $ 11.80 $ 11.44 $ 11.03
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .30 .61 .64 .67 .68
Realized and unrealized gain (loss) on
investments--net (.08) (.78) .78 .41 .41
-------- -------- -------- -------- --------
Total from investment operations .22 (.17) 1.42 1.08 1.09
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.30) (.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 (.30) (.89) (.84) (.72) (.68)
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.24 $ 11.32 $ 12.38 $ 11.80 $ 11.44
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 2.11%+++ (1.50%) 12.64% 9.68% 10.18%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, excluding distribution fees .65%* .63% .63% .63% .65%
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.15%* 1.13% 1.13% 1.13% 1.15%
======== ======== ======== ======== ========
Investment income--net 5.56%* 5.15% 5.38% 5.76% 6.07%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $649,307 $726,888 $821,220 $729,569 $690,885
Data: ======== ======== ======== ======== ========
Portfolio turnover 21.58% 75.66% 61.24% 52.31% 116.09%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++ to
February 28, 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 .21 .23
Realized and unrealized gain on investments--net .30 .30
------------ ------------
Total from investment operations .51 .53
------------ ------------
Less dividends from investment income--net (.21) (.23)
------------ ------------
Net asset value, end of period $ 11.24 $ 11.24
============ ============
Total Investment Based on net asset value per share 4.73%+++ 4.91%+++
Return:** ============ ============
Ratios to Expenses, excluding account maintenance and distribution fees .66%* .65%*
Average ============ ============
Net Assets: Expenses 1.26%* .75%*
============ ============
Investment income--net 5.42%* 5.98%*
============ ============
Supplemental Net assets, end of period (in thousands) $ 1,154 $ 2,152
Data: ============ ============
Portfolio turnover 21.58% 21.58%
============ ============
<FN>
*Annualized.
**Total investment returns exclude the effects 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. These unaudited
financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a
normal recurring nature. The Fund offers 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.
NOTES TO FINANCIAL STATEMENTS (concluded)
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 six-months ended February 28, 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 $1,628 $23,082
Class D $ 981 $12,349
MLPF&S received contingent deferred sales charges of $574,398
relating to transactions in Class B Shares of beneficial interest
and $82 relating to transactions in Class C Shares of beneficial
interest for the six months ended February 28, 1995.
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, PSI, MLPF&S, FDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 28, 1995 were $149,868,181 and
$278,495,323, respectively.
Net realized and unrealized gains (losses) as of February 28, 1995
were as follows:
Realized Unrealized
Losses Gains
Long-term investments $(12,673,603) $25,987,126
Short-term investments (2,402,461) --
Financial futures contracts (3,129,437) --
------------ -----------
Total $(18,205,501) $25,987,126
============ ===========
As of February 28, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $25,987,126, of which $28,467,422
related to appreciated securities and $2,480,296 related to
depreciated securities. The aggregate cost of investments at
February 28, 1995 for Federal income tax purposes was $646,370,680.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $(72,409,080) and $(21,161,878) for the six months
ended February 28, 1995 and the year ended August 31, 1994,
respectively.
<PAGE>
Transactions in shares of beneficial interest for each class were
as follows:
Class A Shares for the Six Months Dollar
Ended February 28, 1995 Shares Amount
Shares sold 273,759 $ 3,014,639
Shares issued to shareholders
in reinvestment of dividends 62,826 677,626
------------ -----------
Total issued 336,585 3,692,265
Shares redeemed (976,428) (10,417,795)
------------ -----------
Net decrease (639,843) $(6,725,530)
============ ===========
Class A Shares for the Year Dollar
Ended August 31, 1994 Shares Amount
Shares sold 1,162,525 $13,965,656
Shares issued to shareholders
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
============ ===========
Class B Shares for the
Six Months Ended Dollar
February 28, 1995 Shares Amount
Shares sold 2,399,755 $ 25,955,157
Shares issued to share-
holders in reinvestment
of dividends 745,981 8,047,632
------------ ------------
Total issued 3,145,736 34,002,789
Shares redeemed (9,582,860) (102,793,516)
------------ ------------
Net decrease (6,437,124) $(68,790,727)
============ ============
<PAGE>
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
February 28, 1995 Shares Amount
Shares sold 109,697 $ 1,175,342
Shares issued to share-
holders in reinvestment
of dividends 444 4,809
------------ -----------
Total issued 110,141 1,180,151
Shares redeemed (7,446) (79,219)
------------ -----------
Net increase 102,695 $ 1,100,932
============ ===========
[FN]
++Commencement of Operations.
Class D Shares for the
Period October 21, 1994++ to Dollar
February 28, 1995 Shares Amount
Shares sold 214,411 $ 2,250,749
Shares issued to share-
holders in reinvestment of
dividends 2,255 24,354
------------ -----------
Total issued 216,666 2,275,103
Shares redeemed (25,170) (268,858)
------------ -----------
Net increase 191,496 $ 2,006,245
============ ===========
[FN]
++Commencement of Operations.
