Merrill Lynch California Insured Municipal Bond Fund
Quarterly Report--November 30, 1993
To Our Shareholders:
The municipal bond market exhibited considerable volatility
during the quarter ended November 30, 1993. From September
through mid-October, municipal bond yields continued their
earlier decline. By mid-October, yields on tax-exempt revenue
bonds maturing in 30 years, as reflected by the Bond Buyer
Revenue Bond Index, had declined an additional 15 basis points
(0.15%) to another record low of 5.41%. However, the municipal
bond market then reacted sympathetically to a nervous US Treasury
bond market during the remainder of the quarter, and tax-exempt
bond yields rose to end the quarter at 5.47%. Despite the
increase in bond yields late in the quarter, it is important to
note that tax-exempt bond yields have declined approximately 70
basis points since the beginning of 1993.
The pace of new municipal bond issuance slowed during the
November quarter. More than $62 billion in tax-exempt securities
were issued over the last three months, an increase of more than
5% versus the November 1992 quarter's issuance. In recent
quarters, however, new bond issuance had been increasing at a
rate of approximately 25%. Even this relative decline in supply
was unable to provide any technical support for the municipal
bond market as investors became extremely concerned that economic
growth would dramatically accelerate during the last calendar
quarter of 1993 and continue into early 1994. This projected
growth and expected associated inflationary pressures combined to
cause yields to rise significantly in late October and November.
<PAGE>
Portfolio Strategy
The Fund benefited over the November quarter from an aggressive
investment strategy of low cash reserves and generally long-term
maturity holdings. As the total assets of the Fund have grown, we
have held a portion in a cash reserves position in anticipation
of sporadic pullbacks in bond prices. This position of
approximately 10% of total assets allows the Fund the liquidity
needed to take advantage of a seasonally heavy new-issue
calendar. We shortened the Fund's average maturity in order to
protect it from short-term weakness in bond prices. However, we
do anticipate using any significant market pullbacks to reinvest
cash reserves in more performance-oriented securities that will
benefit the Fund should the market again experience declining
interest rates into next year. Credit quality yield spreads have
widened in specific instances. With our Municipal Research group,
some work was done to uncover situations where lower-rated bonds
were purchased to enhance the Fund's current return, while still
meeting our credit standards. Currently 83% of the Fund's assets
are AAA-rated with bond insurance, with approximately 6.5% of the
non-insured basket being utilized to date and the balance in cash
reserves.
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
December 21, 1993
<PAGE>
Performance Data
None of the past results shown should be considered a
representation of future performance. Investment return and
principal value of Class A and Class B Shares will fluctuate so
that shares, when redeemed, may be worth more or less than their
original cost.
<TABLE>
Recent Performance Results*
<CAPTION>
Since Inception 3 Month
11/30/93 8/31/93 2/26/93** % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.06 $10.23 $10.00 +0.60% -1.66%
Class B Shares 10.06 10.23 10.00 +0.60 -1.66
Class A Shares--Total Return +4.33(1) -0.46(2)
Class B Shares--Total Return +3.94(3) -0.59(4)
Class A Shares--Standardized 30-day Yield 4.56%
Class B Shares--Standardized 30-day Yield 4.25%
<FN>
*Investment results shown for the 3-month and since inception periods are before the
deduction of any sales charges.
**Commencement of operations.
(1)Percent change includes reinvestment of $0.355 per share ordinary income dividends.
(2)Percent change includes reinvestment of $0.123 per share ordinary income dividends.
(3)Percent change includes reinvestment of $0.318 per share ordinary income dividends.
(4)Percent change includes reinvestment of $0.111 per share ordinary income dividends.
</TABLE>
Aggregate Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Inception (2/26/93)
through 9/30/93 +6.02% +1.78%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class B Shares*
Inception (2/26/93)
through 9/30/93 +5.72% +1.72%
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales
charge.
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.
