MERRILL
LYNCH
CALIFORNIA
INSURED
MUNICIPAL
BOND FUND
Annual Report August 31, 1994
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch California Insured
Municipal Bond Fund
Merrill Lynch California
Municipal Series Trust
Box 9011
Princeton, New Jersey
08543-9011
<PAGE>
TO OUR SHAREHOLDERS
Concerns of increasing inflationary pressures continued to prompt
volatility in the US stock and bond markets during the June--August
period. In addition, the weakness of the US dollar in foreign
exchange markets prolonged stock and bond market declines during
July. While the immediate concerns regarding the US dollar had
diminished by late July, the possibility of continued tightening by
the Federal Reserve Board resurfaced after Chairman Alan Greenspan
gave his most recent Congressional testimony. However, a lower-than-
expected rate of growth reported for the US economy during the
second calendar quarter allayed inflationary concerns to some
degree, despite the fifth increase in short-term interest rates made
by the central bank in mid-August.
While the economic recovery is continuing, data suggest that it is
losing some momentum. Consumer spending is increasing, but at a
relatively slow pace, and existing home sales may have peaked. In
the industrial sector, capital goods spending is still on the rise,
but the gain for the second quarter was revised downward to 6.5%. On
balance, the growth in US industry is progressing at a steady,
modest rate.
Despite evidence of a moderating trend in the US economy, Chairman
Greenspan indicated in his July Humphrey-Hawkins testimony that the
central bank would prefer to err on the side of too much monetary
tightening rather than too little. In the weeks ahead, investors
will continue to assess economic data and inflationary trends in
order to gauge whether further increases in short-term interest
rates are imminent. Continued indications of moderate and
sustainable levels of economic growth would be positive for the US
capital markets.
The Municipal Market
Yields on long-term municipal revenue bonds ended the August quarter
with little changed. The Bond Buyer Revenue Bond Index rose five
basis points (0.05%) to end the quarter at 6.46%. However, weekly
volatility has remained high, with yields fluctuating as much as 15
basis points from week to week. US Treasury bond yields exhibited a
similar pattern during the August quarter. Over the last three
months, yields on the long-term US Treasury bond rose approximately
five basis points to end the quarter at approximately 7.47%.
<PAGE>
The continued volatility of the municipal bond market is largely a
reflection of the same lack of conviction regarding the direction of
interest rates that has been seen during most of 1994. Over the past
quarter, fixed-income markets have been unable to form a consensus
regarding the potential strength of the current economic recovery or
the resultant response by the Federal Reserve Board. However, in the
past month a number of economic indicators suggested that the pace
of the current economic expansion is slowing. Also, most analysts
believe that the Federal Reserve Board will now wait before acting
again in order to judge the overall impact of their actions on
economic growth and inflation. These factors have allowed the
municipal bond market to gain a measure of stability in recent
weeks.
The municipal bond market's technical position has remained
supportive. Approximately $40 billion in long-term securities were
issued during the three months ended August 31, 1994. This
represents a decline of over 50% versus the August quarter of one
year ago. As discussed in earlier reports, this reduction in new-
issue supply has minimized the selling pressure by larger
institutional investors who fear being unable to purchase sizable
amounts of securities in the future. Such a significant decline in
issuance would normally be expected to trigger a decline in yields
as investors chase a commodity in scarce supply. Investor demand,
however, has also diminished somewhat in recent months as net flows
into long-term municipal bond funds have dramatically slowed, or in
some instances, reversed. Consequently, the supply/demand
relationship within the municipal bond marketplace has remained in
balance, promoting the overall stability in yield levels seen in the
past months.
With after-tax equivalent yields in excess of 10.50% (assuming the
highest Federal income tax bracket), long-term tax-exempt bonds
continue to represent considerable value relative to other taxable
investment alternatives. We continue to anticipate that municipal
bond yields will decline further in late 1994 and 1995. The economic
impact of the significant interest rate increases experienced since
early February have yet to be totally realized. The resultant drag
on the economy should provide the foundation for further interest
rate declines. Under such a scenario, current tax-exempt bond yields
may prove to represent considerable value.
<PAGE>
Fiscal Year in Review
Merrill Lynch California Insured Municipal Bond Fund has maintained
minimal cash reserves, in a range of 1%--10% of net assets depending
on market sentiment, in order to seek to take advantage of a
technically firm marketplace. New California primary issuance has
been at historically low levels, and the secondary market for such
securities has proved thin in times when interest rate stability has
encouraged retail buying. Maintaining low cash reserves enabled the
Fund to generate an attractive level of current income.
Concentrating the Fund's assets in relatively higher to current
coupon holdings contributed to the Fund's total return performance
by providing current yield while tempering price swings resulting
from market volatility. The Fund's portfolio mix was also influenced
by the recent condition of the State's budgetary financing process.
We have paid strict attention to credit quality and at August 31,
1994, 91% of the Fund was rated AAA with credit enhancement by the
major rating agencies. Tight credit quality yield spreads have
enabled us to underutilize the portion of the Fund's assets devoted
to non-insured items without significant forfeiture of current
return.
We appreciate your investment in Merrill Lynch California Insured
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
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
September 21, 1994
<PAGE>
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Kenneth S. Axelson, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
PERFORMANCE DATA
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
Class A and Class B Shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
2/26/93--12/31/93 $10.00 $10.25 -- $0.450 +7.18%
1/1/94--8/31/94 10.25 9.54 -- 0.328 -3.61
------
Total $0.778
Cumulative total return as of 8/31/94: +3.31%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<PAGE>
Average Annual Total Return--Class A Shares*
% Return Without % Return With
Sales Charge Sales Charge**
Year Ended 6/30/94 -0.87% -4.84%
Inception (2/26/93)
through 6/30/94 +0.46 -2.56
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL: Item 1:
PERFORMANCE DATA (concluded)
<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>
2/26/93--12/31/93 $10.00 $10.26 -- $0.407 +6.83%
1/1/94--8/31/94 10.26 9.54 -- 0.297 -4.02
------
Total $0.704
Cumulative total return as of 8/31/94: +2.54%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
Average Annual Total Return--Class B Shares*
<PAGE>
% Return Without % Return With
CDSC CDSC**
Year Ended 6/30/94 -1.37% -5.11%
Inception (2/26/93)
through 6/30/94 -0.03 -2.14
[FN]
*Maximum contingent sales charge is 4% and is reduced to 0% after 4
years.
**Assuming payment of maximum contingent deferred sales charge.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IAMGE MATERIAL: Item 2.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
8/31/94 5/31/94 8/31/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $9.54 $9.48 $10.23 -6.74% +0.63%
Class B Shares* 9.54 9.48 10.23 -6.74 +0.63
Class A Shares--Total Return* -1.44(1) +2.01(2)
Class B Shares--Total Return* -1.93(3) +1.88(4)
Class A Shares--Standardized 30-day Yield 5.61%
Class B Shares--Standardized 30-day Yield 5.32%
<FN>
*Investment results shown do not reflect any sales charges; results
would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.547 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.129 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.497 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.117 per share ordinary
income dividends.
</TABLE>
<PAGE>
PORTFOLIO ABBREVIATIONS
To simplify the listing of Merrill Lynch California Insured
Municipal Bond Fund's portfolio holdings in the Schedule of
Investments, we have abbreviated the names of some of the securities
according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
PCR Pollution Control Revenue Bonds
RITES Residual Interest Tax-Exempt Securities
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note la)
California--97.0%
<S> <S> <C> <S> <C>
AAA Aaa $ 2,500 Anaheim, California, Public Financing Authority Revenue Bonds (Electric
Utility San Juan), 2nd Series, 5.75% due 10/01/2022 (c) $ 2,351
AAA Aaa 1,000 Anaheim, California, Public Financing Authority, Tax Allocation Revenue Bonds,
RITES, 9.65% due 12/28/2018 (d)(e) 1,047
Brea, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Redevelopment Project A--B) (d):
AAA Aaa 3,920 6.125% due 8/01/2013 3,934
AAA Aaa 2,000 5.75% due 8/01/2023 1,880
California Health Facilities Financing Authority Revenue Bonds:
AAA Aaa 1,750 (Adventist Health System-West), Series B, 6.25% due 3/01/2021 (d) 1,745
BBB Baal 2,000 (Health Dimensions), Series A, 7.50% due 5/01/2015 2,056
A1+ VMIG1 100 (Saint Joseph Health System), Refunding, VRDN, Series A, 3.05% due
7/01/2013 (a) 100
AAA Aaa 2,000 (Scripps Memorial Hospital), Series A, 6.375% due 10/01/2022 (d) 2,027
California Pollution Control Financing Authority, PCR, Refunding (Shell Oil
Company Project), VRDN (a):
A1+ VMIG1 500 Series A, 3.05% due 10/01/2009 500
A1+ VMIG1 1,000 Series C, 3.05% due 11/01/2000 1,000
<PAGE>
NR Aa3 1,600 California Pollution Control Financing Authority, Resource Recovery Revenue Bonds
(Honey Lake Power Project), AMT, VRDN, 3.25% due 9/01/2018 (a) 1,600
AAA Aaa 2,450 California State Department of Water Resources Revenue Bonds (Central Valley
Project), Series J, 6.125% due 12/01/2013 (d) 2,455
AAA Aaa 4,000 California State, Public Works Board, Lease Revenue Bonds (Various Universities of
California Projects), Series A, 6.40% due 12/01/2016 (b) 4,081
BBB Baa 1,935 Carson, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Redevelopment Project Area 2), 6% due 10/01/2013 1,805
AAA Aaa 2,360 Central Coast Water Authority, California, Revenue Bonds (State Water Project
Regional Facilities), 6.50% due 10/01/2014 (b) 2,430
AAA Aaa 2,000 Cerritos, California, Public Financing Authority, Revenue Refunding Bonds (Los
Coyotes Redevelopment Project Loan), Series A, 6.50% due 11/01/2023 (b) 2,101
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note la)
California (continued)
<S> <S> <C> <S> <C>
AAA Aaa $ 3,000 Coronado, California, Community Development Agency, Tax Allocation Revenue Bonds
(Coronado Community Development Project), 6.30% due 9/01/2022 (d) $ 3,022
AAA Aaa 1,200 Cucamonga County, California, Water District Facilities Refinancing Bonds,
COP, 6.50% due 9/01/2022 (c) 1,227
AAA Aaa 2,500 East Bay, California, Municipal Utility District Water System, Subordinated
Revenue Refunding Bonds, 6% due 6/01/2012 (d) 2,481
AAA Aaa 500 Eastern Municipal Water District, California, Water and Sewer Revenue Bonds, COP,
Series A, 6.50% due 7/01/2009 (c) 518
AAA Aaa 2,000 El Cajon, California, Redevelopment Agency, Tax Allocation Revenue Refunding
Bonds (El Cajon Redevelopment Project), 6.60% due 10/01/2022 (b) 2,065
AAA Aaa 2,235 Eureka, California, Public Financing Authority, Tax Allocation Revenue Refunding
Bonds (Eureka Redevelopment Projects), 6.25% due 11/01/2011 (f) 2,271
AAA Aaa 2,500 Fresno, California, Sewer Revenue Bonds (Fowler Avenue Project), Series A,
6.25% due 8/01/2011 (b) 2,539
A1 P1 1,600 Irvine Ranch, California, Water Improvement District No. 182, VRDN, Series A,
2.85% due 11/15/2013 (a) 1,600
<PAGE>
AAA Aaa 2,500 Los Angeles, California, Convention and Exhibition Center Authority, Lease
Revenue Refunding Bonds, Series A, 6% due 8/15/2010 (d) 2,520
AA Aa 2,000 Los Angeles, California, Department of Water and Power, Electric Plant Revenue
Bonds, Registered RITR, 8.618% due 2/01/2020 2,007
AAA Aaa 1,000 Los Angeles, California, Wastewater System Revenue Bonds, Series B, 6.25% due
6/01/2012 (b) 1,014
AAA Aaa 3,000 Los Angeles County, California, Metropolitan Transportation Authority, Sales Tax
Revenue Refunding Bonds, Proposition A, Series A, 5.625% due 7/01/2018 (d) 2,776
AAA Aaa 1,000 Mesa, California, Consolidated Water District, COP (Water Project), 6.375% due
3/15/2012 (c) 1,027
AAA Aaa 2,000 Mountain View, California, Capital Improvements Financing Authority Revenue Bonds
(City Hall Community Theatre), 6.50% due 8/01/2016 (d) 2,051
AAA Aaa 3,500 Northern California Public Power Agency, Revenue Refunding Bonds (Hydroelectric
Project No. 1), Series A, 6.25% due 7/01/2012 (d) 3,556
AAA Aaa 1,000 Ontario, California, Redevelopment Financing Authority Revenue Bonds (Ontario
Redevelopment Project No. 1), 5.50% due 8/01/2018 (d) 911
A1 NR 200 Orange County, California, COP (Office and Courthouse Projects), VRDN, 3.10% due
12/01/2015 (a) 200
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note la)
California (concluded)
<S> <S> <C> <S> <C>
AAA Aaa $ 3,000 Palmdale, California, Civic Authority Revenue Refunding Bonds (Merged Redevelopment
Project No. 1), Series A, 5.50% due 7/01/2023 (d) $ 2,708
NR Baa 1,410 Pleasanton, California, Joint Powers Financing Authority, Revenue Reassessment
Bonds, Series A, 6.15% due 9/02/2012 1,351
AAA Aaa 1,300 Rancho Cucamonga, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Rancho Redevelopment Project), 5.50% due 9/01/2023 (d) 1,173
AAA Aaa 1,000 Redwood City, California, Public Financing Authority, Local Agency Revenue
Refunding Bonds, Series A, 6.50% due 7/15/2011 (b) 1,030
<PAGE>
Sacramento, California, Municipal Utility District, Electric Revenue Bonds (d):
AAA Aaa 1,500 Refunding, Series G, 6.50% due 9/01/2013 1,577
AAA Aaa 3,000 Series B, 6.375% due 8/15/2022 3,050
San Francisco, California, City and County Airport Commission, International
Airport, Revenue Refunding Bonds, Second Series:
AAA Aaa 4,000 First Issue, 6.30% due 5/01/2011 (b) 4,081
AAA Aaa 2,500 Second Issue, 6.75% due 5/01/2020 (d) 2,632
AAA Aaa 1,715 Santa Ana, California, Financing Authority, Lease Revenue Bonds (Police
Administration and Holding Facility), Series A, 6.25% due 7/01/2024 (d) 1,748
AAA Aaa 2,235 University of California Revenue Bonds (Multiple Purpose Projects), Series D,
6.30% due 9/01/2015 (d) 2,261
AAA Aaa 3,725 West Sacramento, California, Redevelopment Agency, Tax Allocation Bonds (West
Sacramento Redevelopment Project), 6.25% due 9/01/2021 (d) 3,735
Total Investments (Cost--$90,082)--97.0% 88,243
Other Assets Less Liabilities--3.0% 2,685
-------
Net Assets--100.0% $90,928
=======
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at August 31, 1994.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)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 August 31, 1994.
(f)Capital Guaranty.
NR--Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<PAGE>
<TABLE>
Statement of Assets and Liabilities as of August 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$90,081,701) (Note 1a) $88,242,644
Cash 1,211,093
Receivables:
Interest $ 1,497,883
Beneficial interest sold 284,087
Investment adviser (Note 2) 75,465 1,857,435
-----------
Deferred organization expenses (Note 1e) 39,939
Prepaid expenses and other assets (Note 1e) 60,537
-----------
Total assets 91,411,648
-----------
Liabilities: Payables:
Beneficial interest redeemed 157,725
Dividends to shareholders (Note 1f) 103,682
Distributor (Note 2) 31,647 293,054
-----------
Accrued expenses and other liabilities 190,432
-----------
Total liabilities 483,486
-----------
Net Assets: Net assets $90,928,162
===========
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 167,154
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 785,956
Paid-in capital in excess of par 94,367,101
Accumulated realized capital losses--net (2,187,253)
Accumulated distributions in excess of realized capital
gains--net (365,739)
Unrealized depreciation on investments--net (1,839,057)
-----------
Net assets $90,928,162
===========
Net Asset Value: Class A--Based on net assets of $15,945,665 and 1,671,544
shares of beneficial interest outstanding $ 9.54
===========
Class B--Based on net assets of $74,982,497 and 7,859,558
shares of beneficial interest outstanding $ 9.54
===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
August 31, 1994
<S> <S> <C>
Investment Interest and amortization of premium and discount earned $ 5,093,898
Income
(Note 1d):
Expenses: Investment advisory fees (Note 2) 509,552
Distribution fees--Class B (Note 2) 378,612
Printing and shareholder reports 137,839
Professional fees 82,667
Registration fees (Note 1e) 46,118
Accounting services (Note 2) 39,696
Transfer agent fees--Class B (Note 2) 28,420
Custodian fees 15,462
Amortization of organization expenses (Note 1e) 11,443
Pricing fees 6,369
Transfer agent fees--Class A (Note 2) 5,451
Trustees' fees and expenses 4,548
Other 2,466
-----------
Total expenses before reimbursement 1,268,643
Reimbursement of expenses (Note 2) (585,017)
-----------
Total expenses after reimbursement 683,626
-----------
Investment income--net 4,410,272
-----------
Realized & Realized loss on investments--net (1,974,493)
Unrealized Loss Change in unrealized appreciation on investments--net (4,299,648)
on Investments -----------
- --Net (Notes 1d Net Decrease in Net Assets Resulting from Operations $(1,863,869)
& 3): ===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
For the
Period
For the February 26,
Year Ended 1993++ to
August 31, August 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 4,410,272 $ 1,708,071
Realized loss on investments--net (1,974,493) (212,759)
Change in unrealized appreciation on investments--net (4,299,648) 2,460,591
----------- -----------
Net increase (decrease) in net assets resulting from
operations (1,863,869) 3,955,903
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (874,505) (366,882)
Shareholders Class B (3,535,767) (1,341,189)
(Note 1f): In excess of realized gains on investments--net:
Class A (67,794) --
Class B (297,945) --
----------- -----------
Net decrease in net assets resulting from dividends and
distributions to shareholders (4,776,011) (1,708,071)
----------- -----------
Beneficial Net increase in net assets derived from beneficial interest
Interest transactions 7,602,289 87,617,921
Transactions ----------- -----------
(Note 4):
Net Assets: Total increase in net assets 962,409 89,865,753
Beginning of period 89,965,753 100,000
----------- -----------
End of period $90,928,162 $89,965,753
=========== ===========
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
Class A Class B
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Feb. 26, Year Feb. 26,
from information provided in the financial statements. Ended 1993++ to Ended 1993++ to
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1994 1993
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.23 $ 10.00 $ 10.23 $ 10.00
Operating --------- --------- --------- ---------
Performance: Investment income--net .51 .24 .46 .22
Realized and unrealized gain (loss) on
investments--net (.65) .23 (.65) .23
--------- --------- --------- ---------
Total from investment operations (.14) .47 (.19) .45
--------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.51) (.24) (.46) (.22)
In excess of realized gain on investments--net (.04) -- (.04) --
--------- --------- --------- ---------
Total dividends and distributions (.55) (.24) (.50) (.22)
--------- --------- --------- ---------
Net asset value, end of period $ 9.54 $ 10.23 $ 9.54 $ 10.23
========= ========= ========= =========
Total Investment Based on net asset value per share (1.44%) 4.81%+++ (1.93%) 4.56%+++
Return:** ========= ========= ========= =========
Ratios to Expenses, net of reimbursement excluding
Average distribution fees .33% .14%* .33% .14%*
Net Assets: ========= ========= ========= =========
Expenses, net of reimbursement .33% .14%* .83% .64%*
========= ========= ========= =========
Expenses .96% 1.06%* 1.46% 1.56%*
========= ========= ========= =========
Investment income--net 5.16% 4.80%* 4.67% 4.31%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $ 15,946 $ 17,105 $ 74,982 $ 72,861
Data: ========= ========= ========= =========
Portfolio turnover 93.04% 74.26% 93.04% 74.26%
========= ========= ========= =========
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
<PAGE>
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch California Insured 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 non-diversified, open-end management investment company.
The Fund offers both Class A and Class B Shares. Class A Shares are
sold with a front-end sales charge. Class B Shares may be subject to
a contingent deferred sales charge. Both classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B Shares bear certain
expenses related to the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures. On September 27, 1994, shareholders
approved the implementation of the Merrill Lynch Select Pricing SM
System, which will offer two new classes of shares, Class C and
Class D. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term
investments with a remaining maturity of sixty days or less are
valued on an amortized cost basis, which approximates market value.
Options, which are traded on exchanges, are valued at their last
sale price as of the close of such exchanges or, lacking any sales,
at the last available bid price. 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
Trustees of the Trust, including valuations furnished by a pricing
service retained by the Trust, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Trust under the general
supervision of the Trustees.
<PAGE>
(b) Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
portfolio holdings 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) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions in excess
of realized gains are due primarily to differing tax treatments for
futures transactions and post-October losses.
<PAGE>
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). Effective January 1, 1994, the
investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Fund
Asset Management, Inc. ("FAMI"), which is also an indirect wholly-
owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion. The Management 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 average daily net assets in excess
thereof. FAM's obligation to reimburse the Fund is limited to the
amount of the management fee. No fee payment will be made to FAM
during any fiscal year which will cause such expenses to exceed
expense limitations at the time of such payment.
For the year ended August 31, 1994, FAM earned fees of $509,552, all
of which was voluntarily waived. FAM also voluntarily reimbursed the
Fund for additional expenses of $75,465.
The Fund has entered into a Distribution Agreement and Distribution
Plan with Merrill Lynch Funds Distributor, Inc. ("MLFD"), an
indirect wholly-owned subsidiary of M L& Co.
<PAGE>
Pursuant to a distribution plan (the "Distribution Plan") adopted by
the Fund in accordance with Rule 12B-1 under the Investment Company
Act of 1940, the Fund pays MLFD an ongoing account maintenance fee
and a distribution fee, which are accrued daily and paid monthly at
the annual rates of 0.25% and 0.25%, respectively, of the average
daily net assets of the Class B Shares of the Fund. Pursuant to a
sub-agreement with MLFD, Merrill Lynch, Pierce, Fenner and Smith
Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing
account maintenance fee compensates MLFD and MLPF&S for providing
account maintenance services to Class B shareholders. The ongoing
distribution fee compensates MLFD and MLPF&S for providing
shareholder and distribution services and bearing certain
distribution-related expenses of the Fund.
For the year ended August 31, 1994, MLFD earned underwriting
discounts of $2,428, and MLPF&S earned dealer concessions of $21,386
on sales of the Fund's Class A Shares.
MLPF&S also received contingent deferred sales charges of $177,779
relating to Class B Share transactions during the period.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, FAMI, PSI, MLFD, MLPF&S, and/or ML & Co.
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1994 were $85,395,237 and $80,395,482,
respectively.
Net realized and unrealized losses as of August 31, 1994 were as
follows:
Realized
Gains Unrealized
(Losses) Losses
Long-term investments $(2,401,726) $(1,839,057)
Short-term investment (6,430) --
Financial futures contracts 433,663 --
----------- -----------
Total $(1,974,493) $(1,839,057)
=========== ===========
As of August 31, 1994, net unrealized depreciation for Federal
income tax purposes aggregated $1,839,057, of which $437,286 related
to appreciated securities and $2,276,343 related to depreciated
securities. The aggregate cost of investments at August 31, 1994 for
Federal income tax purposes was $90,081,701.
<PAGE>
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $7,602,289 and $87,617,921 for the periods ended
August 31, 1994 and August 31, 1993, respectively.
Class A Shares for the Year Dollar
Ended August 31, 1994 Shares Amount
Shares sold 301,766 $ 3,002,096
Shares issued to shareholders
in reinvestment of dividends
and distributions 39,457 389,777
----------- -----------
Total issued 341,223 3,391,873
Shares redeemed (342,542) (3,318,587)
----------- -----------
Net increase (decrease) (1,319) $ 73,286
=========== ===========
Class A Shares for the Period Dollar
Feb. 26, 1993++ to Aug. 31, 1993 Shares Amount
Shares sold 1,916,382 $19,071,665
Shares issued to shareholders
in reinvestment of dividends
and distributions 14,668 145,493
----------- -----------
Total issued 1,931,050 19,217,158
Shares redeemed (263,187) (2,604,981)
----------- -----------
Net increase 1,667,863 $16,612,177
=========== ===========
[FN]
++Prior to February 26, 1993 (commencement of operations), the Fund
issued 5,000 shares to FAMI for $50,000.
Class B Shares for the Year Dollar
Ended August 31, 1994 Shares Amount
Shares sold 1,864,973 $18,580,245
Shares issued to shareholders
in reinvestment of dividends
and distributions 198,811 1,962,586
----------- -----------
Total issued 2,063,784 20,542,831
Shares redeemed (1,329,588) (13,013,828)
----------- -----------
Net increase 734,196 $ 7,529,003
=========== ===========
<PAGE>
Class B Shares for the Period Dollar
Feb. 26, 1993++ to Aug. 31, 1993 Shares Amount
Shares sold 7,568,355 $75,475,197
Shares issued to shareholders
in reinvestment of dividends
and distributions 65,946 654,140
----------- -----------
Total issued 7,634,301 76,129,337
Shares redeemed (513,939) (5,123,593)
----------- -----------
Net increase 7,120,362 $71,005,744
=========== ===========
[FN]
++Prior to February 26, 1993 (commencement of operations), the Fund
issued 5,000 shares to FAMI for $50,000.
NOTES TO FINANCIAL STATEMENTS (concluded)
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders, Merrill Lynch California
Insured 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 Insured Municipal Bond Fund of Merrill Lynch California
Municipal Series Trust as of August 31, 1994, the related statements
of operations for the year then ended and changes in net assets and
the financial highlights for the year then ended and for the period
February 26, 1993 (commencement of operations) to August 31, 1993.
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, 1994 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch California Insured Municipal Bond Fund of Merrill
Lynch California Municipal Series Trust as of August 31, 1994, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 29, 1994
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by
Merrill Lynch California Insured Municipal Bond Fund ("the Fund") of
Merrill Lynch California Municipal Series Trust during its taxable
year ended August 31, 1994 qualify as tax-exempt interest dividends
for Federal income tax purposes.
Additionally, the Fund distributed short-term capital gains of
$.039033 per share to shareholders of record on December 22, 1993.
There were no long-term capital gains distributed during the year.
Please retain this information for your records.
<PAGE>
APPENDIX: GRAPHIC AND IAMGE MATERIAL.
Item 1:
Total Return Based on a $10,000 Investment--Class A Shares*
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to the growth of an investment in the
Shearson Lehman Muni Bond Index. Beginning and ending values are:
2/26/93** 8/94
ML California Insured Municipal
Bond Fund++ $ 9,600 $ 9,917
Shearson Lehman Muni
Bond Index++++ $10,000 $10,459
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML California Insured Municipal Bond Fund invests primarily in long-
term 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.
Item 2:
Total Return Based on a $10,000 Investment--Class B Shares*
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to the growth of an investment in the
Shearson Lehman Muni Bond Index. Beginning and ending values are:
<PAGE>
2/26/93** 8/94
ML California insured Municipal
Bond Fund++ $10,000 $ 9,968
Shearson Lehman Muni
Bond Index++++ $10,000 $10,459
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML California Insured Municipal Bond Fund invests primarily in long-
term 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.
