MERRILL
LYNCH
CALIFORNIA
INSURED
MUNICIPAL
BOND FUND
Semi-Annual Report February 28, 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
TO OUR SHAREHOLDERS
Inflationary expectations changed sharply during the February
quarter. Following better-than-expected economic results, Federal
Reserve Board Chairman Alan Greenspan indicated in Congressional
testimony in January that continued strong expansion of the
economy would lead the central bank to tighten monetary policy
in an effort to control inflation. On February 4, 1994, the
central bank broke with tradition and publicly announced a
modest increase in short-term interest rates.
Rather than view the Federal Reserve Board's action as a pre-
emptive strike against inflation, fixed-income investors focused
on Chairman Greenspan's implicit promise of further tightening
should the rate of inflation accelerate, and bond prices declined
sharply. The setback in the bond market was also reflected in
greater stock market volatility.
<PAGE>
In the weeks ahead, investors will continue to gauge the pace of
the economic expansion and watch for signs of an overheating
economy that could prompt successive Federal Reserve Board actions
to raise short-term interest rates. At this time, there is little
evidence that the rate of inflation will increase rapidly. Job
growth is sluggish, and new claims for unemployment insurance
have trended higher since the beginning of the year. Commodity
prices have risen somewhat, but in many cases these increases are
occurring from very depressed levels. Therefore, although the
secular long-term trend toward lower interest rates may be over,
it is not yet certain whether the pace of economic activity will
accelerate to the point where extensive Federal Reserve Board
tightening will be necessary to contain inflation.
The Municipal Market
Yields on long-term tax-exempt securities exhibited considerable
volatility during the three months ended February 28, 1994.
Initially, municipal bond yields resumed their earlier decline
and in mid-December reached 5.53% as measured by the Bond Buyer
Revenue Bond Index. Tax-exempt yields rose slightly for the
remainder of 1993 before increasing more substantially in 1994.
During the February quarter, long-term municipal bond yields
increased by approximately 15 basis points (0.15%) to 5.88%.
Over the same period, however, US Treasury bond yields rose
approximately 30 basis points to 6.70% at the end of February.
This outperformance by municipal bonds is likely to be the
dominant theme of much of 1994.
During recent months, taxable yields have become volatile in
reaction to the inherent conflicts between the strong economic
recovery seen in late 1993 and early 1994 and continued low
inflationary pressures. While tax-exempt yields have reacted to
these conflicts, the municipal bond market has also focused on
the very strong technical factors supporting lower municipal bond
yields. During the past 12 months, municipalities issued over
$284 billion in bonds, an increase of over 17% versus a year ago.
Much of this increase has been the result of municipalities
refinancing existing higher-couponed debt. At current yield
levels, few of these issues will remain to be refunded. This has
led to estimates of municipal bond issuance declining to approx-
imately $175 billion for all of 1994. Over $290 billion in long-
term tax-exempt bonds were issued during 1993. Thus far this
year, this expected decline in issuance has occurred. So far in
1994, new-issue supply has fallen approximately 20% compared to
the same period last year.
<PAGE>
In addition to this dramatic decline in issuance, investor demand
is expected to increase in the coming year. This demand should be
generated by a number of factors, with a recent increase in
marginal Federal income tax rates perhaps the immediate dominant
factor. Also, bond calls and early redemptions are expected to
increase significantly in the coming quarters and last at least
into early 1995. The combination of declining new-issue volume and
rising numbers of bonds being redeemed prior to their stated
maturities will eventually lead to a net decline in the number of
bonds outstanding. In such a scenario, investor demand rises as
bondholders are forced to continually purchase new municipal bonds
to replace their previous holdings.
The outlook for the municipal market is positive. While the his-
toric declines in yields seen last year are unlikely to be re-
peated, the strong technical structure within the tax-exempt
market would easily support the retracing of much of the recent
increase in bond yields. At the very least, should interest rates
continue to rise in response to continued strong economic growth
and a resurgence in inflationary pressures, municipal bond price
deterioration should continue to be minimal in comparison to
taxable investment alternatives.
Portfolio Strategy
During the quarter ended February 28, 1994, we decreased Merrill
Lynch California Insured Municipal Bond Fund's cash reserve po-
sition in order to boost current return to shareholders. We are
concentrating new purchases in the 15-year--20-year maturity sector
to take advantage of a general flattening of municipal yield curves
in the California marketplace. By reducing the Fund's exposure
to longer-term securities, we intend to build in a slight cushion-
ing effect in the event that price volatility returns to
the tax-exempt market.
Another characteristic of the current municipal bond marketplace
is abnormally tight credit market spreads. In response to this we
have raised the Fund's percentage of net assets committed to
insured municipal bonds to 88%, purposely underutilizing the
assets reserved for uninsured paper. In this way the Fund can
realize a certain current yield without any additional risk of
credit exposure.
The general decline in interest rates during the February quarter
has created an atmosphere in which issuers have called or
refunded some of their older, higher-paying debt. Merrill Lynch
California Insured Municipal Bond Fund has benefited from a
percentage of its holdings having been prerefunded. This
phenomena has added to the generally increased credit quality of
the Fund's positions.
We appreciate your ongoing interest in Merrill Lynch California
Insured Municipal Bond Fund, and we look forward to serving your
investment needs and objectives in the months and years to come.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
March 31, 1994
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.
Aggregate Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Inception (2/26/93)
through 12/31/93 +7.18% +2.89%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Inception (2/26/93)
through 12/31/93 +6.83% +2.83%
[FN]
*Maximum contingent deferred sales charge is 4% and is
reduced to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales
charge.
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
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--2/28/94 10.25 9.95 -- 0.070 -2.15
------
Total $0.520
Cumulative total return as of 2/28/94: +4.87%**
<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>
2/26/93--12/31/93 $10.00 $10.26 -- $0.407 +6.83%
1/1/94--2/28/94 10.26 9.95 -- 0.063 -2.32
------
Total $0.470
Cumulative total return as of 2/28/94: +4.35%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable date, and do not reflect deduction of any sales
charge; results would be lower if sales charge was deducted.
</TABLE>
<PAGE>
<TABLE>
Recent Performance Results*
<CAPTION>
12-Month 3-Month
2/28/94 11/30/93 2/28/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $9.95 $10.06 $10.01 -0.60% -1.09%
Class B Shares 9.95 10.06 10.01 -0.60 -1.09
Class A Shares--Total Return +4.77(1) +0.52(2)
Class B Shares--Total Return +4.25(3) +0.40(4)
Class A Shares--Standardized 30-day Yield 4.66%
Class B Shares--Standardized 30-day Yield 4.34%
<FN>
*Investment results shown for the 3-month and 12-month periods are before the deduction
of any sales charges.
(1)Percent change includes reinvestment of $0.521 per share ordinary income dividends.
(2)Percent change includes reinvestment of $0.166 per share ordinary income dividends.
(3)Percent change includes reinvestment of $0.470 per share ordinary income dividends.
(4)Percent change includes reinvestment of $0.153 per share ordinary income dividends.
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings 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
GO General Obligation Bonds
RITES Residual Interest Tax-Exempt Securities
TRAN Tax Revenue Anticipation Notes
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
California--98.4%
AAA Aaa $1,000 Anaheim, California, Public Financing Authority, Tax Allocation Revenue Bonds,
RITES,10.27% due 12/28/2018 (d)(f) $ 1,169
A--1+ VMIG1 300 Anaheim, California, Refunding, COP, VRDN, 2.25% due 8/01/2019 (a)(b) 300
AAA Aaa 2,920 Brea, California, Redevelopment Agency, Tax Allocation Revenue Refunding Bonds
(Redevelopment Project A--B), 6.125% due 8/01/2013 (d) 3,078
<PAGE>
California Health Facilities Financing Authority Revenue Bonds:
A--1+ VMIG1 200 (Catholic Healthcare), Series B, VRDN, 2.30% due 7/01/2016 (a)(d) 200
A--1+ VMIG1 300 (Saint Joseph Health System), Refunding, VRDN, Series A, 2.20% due 7/01/2013 (a) 300
AAA Aaa 2,000 (Scripps Memorial Hospital), Series A, 6.375% due 10/01/2022 (d) 2,103
California Pollution Control Financing Authority, Resource Recovery Revenue
Refunding Bonds (Honey Lake Power Project), AMT, VRDN (a):
NR Aa1 500 2.25% due 9/01/2018 500
NR P1 300 2.25% due 9/01/2018 300
AAA Aaa 2,450 California State Department of Water Resources Revenue Bonds (Central Valley
Project), Series J, 6.125% due 12/01/2013 (d) 2,565
California State Public Works Board, Lease Revenue Bonds, Series A (b):
AAA Aaa 2,000 (Various Community College Projects), 6% due 12/01/2017 2,046
AAA Aaa 1,000 (Various University of California Projects), 6.40% due 12/01/2016 1,075
AAA Aaa 2,000 California State, Various Purpose Bonds, GO, 6% due 10/01/2021 (d) 2,045
AAA Aaa 2,500 California Statewide Communities Development Authority, COP, Revenue Refunding
Bonds (Children's Hospital), 4.75% due 6/01/2021 (d) 2,182
BBB Baa 1,935 Carson, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Redevelopment Project Area 2), 6% due 10/01/2013 1,928
AAA Aaa 2,360 Central Coast Water Authority, California, Revenue Bonds (State Water Project
Regional Facilities), 6.50% due 10/01/2014 (b) 2,563
AAA Aaa 3,000 Coronado, California, Community Development Agency, Tax Allocation Revenue Bonds
(Coronado Community Development Project), 6.30% due 9/01/2022 (d) 3,147
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
California (continued)
AAA Aaa $5,000 East Bay, California, Municipal Utility District Water System, Subordinated
Revenue Refunding Bonds, 6% due 6/01/2012 (d) $ 5,209
AAA Aaa 500 Eastern Municipal Water District, California, Water and Sewer Revenue Refunding
Bonds, COP, Series A, 6.50% due 7/01/2009 (c) 544
AAA Aaa 2,235 Eureka, California, Public Financing Authority, Tax Allocation Revenue Refunding
Bonds (Eureka Redevelopment Projects), 6.25% due 11/01/2011 (g) 2,372
<PAGE>
AAA Aaa 2,500 Fresno, California, Sewer Revenue Bonds (Fowler Avenue Project), Series A, 6.25%
due 8/01/2011 (b) 2,646
Los Angeles, California, Wastewater System Revenue Bonds:
AAA Aaa 2,825 Refunding, Series A, 6% due 12/01/2018 (c) 2,898
AAA Aaa 1,250 Refunding, Series D, 4.70% due 11/01/2017 (c) 1,093
AAA Aaa 1,000 Series B, 6.25% due 6/01/2012 (b) 1,056
NR NR 1,000 Los Angeles County, California, COP (Marina Del Rey), Series A, 6.25% due 7/01/2003 1,028
AAA Aaa 2,000 Los Angeles County, California, Public Works Financing Authority, Lease Revenue
Bonds (Multiple Capital Facilities Project IV), 4.75% due 12/01/2013 (d) 1,803
SP1+ MIG1++ 400 Los Angeles County, California, TRAN, Series A, 3% due 6/30/1994 400
Los Angeles County, California, Transportation Commission Sales Tax Revenue Bonds,
Proposition C, Second Series, Series A (d):
AAA Aaa 2,775 6% due 7/01/2023 2,837
AAA Aaa 1,000 6.25% due 7/01/2013 1,054
AAA Aaa 1,000 Moulton-Niguel, California, Water District Revenue Bonds, COP, 4.80% due
9/01/2017 (b) 888
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) 3,688
A--1+ VMIG1 900 Orange County, California, Water District Revenue Bonds (Project B), COP, VRDN,
2.05% due 8/15/2015 (a) 900
NR Baa 4,000 Pleasanton, California, Joint Powers Financing Authority, Revenue Reassessment
Bonds, Series A, 6.15% due 9/02/2012 4,039
Sacramento, California, Municipal Utility District, Electric Revenue Bonds (d):
AAA Aaa 1,230 Refunding, Series A, 5.75% due 8/15/2013 1,238
AAA Aaa 1,100 Refunding, Series G, 4.75% due 9/01/2021 960
AAA Aaa 2,000 Series B, 6.375% due 8/15/2022 2,104
AAA Aaa 2,500 Series Y, 6.75% due 9/01/2019 (e) 2,865
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) 4,237
AAA Aaa 2,500 Second Issue, 6.75% due 5/01/2020 (d) 2,782
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
California (concluded)
AAA Aaa $1,000 San Joaquin County, California, COP, Refunding Bonds (Capital
Facilities Project), 4.75% due 11/15/2019 (d) $ 876
AAA Aaa 5,000 San Jose, California, Redevelopment Agency, Tax Allocation Revenue
Bonds (Merged Area Redevelopment Project), Series A, 6.20% due 8/01/2011 (d)(e) 5,477
AAA VMIG1 300 Southern California, Public Power Authority, Subordinated Revenue Refunding Bonds
(Transmission Project), VRDN, 2.25% due 7/01/2019 (a)(b) 300
AAA Aaa 3,890 Suisun City, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Suisun City Redevelopment Project), 6% due 10/01/2018 (d) 3,981
University of California, Revenue Refunding Bonds (Multiple Purpose Projects),
Series B (d):
AAA Aaa 2,000 6% due 9/01/2013 2,081
AAA Aaa 2,670 4.75% due 9/01/2021 2,330
Walnut Creek, California, COP, Refunding Bonds (John Muir Medical Center) (d):
AAA Aaa 2,000 5% due 2/15/2016 1,838
AAA Aaa 1,000 5% due 2/15/2020 906
AAA Aaa 3,725 West Sacramento, California, Redevelopment Agency, Tax Allocation Bonds (West
Sacramento Redevelopment Project), 6.25% due 9/01/2021 (d) 3,879
Total Investments (Cost--$94,226)--98.4% 93,810
Variation Margin on Futures Contracts--(0.1%)* (85)
Other Assets Less Liabilities--1.7% 1,639
-------
Net Assets--100.0% $95,364
=======
<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 February 28,
1994.
(b) AMBAC Insured.
(c) FGIC Insured.
(d) MBIA Insured.
(e) Prerefunded.
(f) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in effect
at February 28, 1994.
(g) Capital Guaranty.
++Highest short-term rating by Moody's Investors Service, Inc.
*Financial futures contracts sold as of February 28, 1994 were as follows:
<PAGE>
Number of Expiration Value
Contracts Issue Date (Note 1a)
300 US Treasury Bonds June 1994 $(32,723,437)
Total Financial Futures Contracts Sold
(Total Contract Price--$32,871,875) $(32,723,437)
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets and Liabilities as of February 28, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$94,225,715) (Note 1a) $93,809,565
Cash 31,809
Receivables:
Interest $ 1,593,258
Beneficial interest sold 644,370
Investment adviser (Note 2) 54,875 2,292,503
-----------
Deferred organization expenses (Note 1e) 51,382
Prepaid registration fees and other assets (Note 1e) 25,430
-----------
Total assets 96,210,689
-----------
Liabilities: Payables:
Beneficial interest redeemed 510,323
Variation margin (Note 1b) 84,375
Dividends to shareholders (Note 1f) 77,294
Distributor (Note 2) 29,179 701,171
-----------
Accrued expenses and other liabilities 145,301
-----------
Total liabilities 846,472
-----------
Net Assets: Net assets $95,364,217
===========
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 177,958
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 780,617
Paid-in capital in excess of par 94,840,258
Accumulated realized capital losses--net (Note 5) (166,904)
Unrealized depreciation on investments--net (267,712)
-----------
Net assets $95,364,217
===========
<PAGE>
Net Asset Value: Class A--Based on net assets of $17,703,551 and 1,779,584 shares of
beneficial interest outstanding $ 9.95
===========
Class B--Based on net assets of $77,660,666 and 7,806,174 shares of
beneficial interest outstanding $ 9.95
===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six
Months Ended
February 28, 1994
<S> <S> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,439,809
(Note 1d):
Expenses: Investment advisory fees (Note 2) 257,921
Distribution fees--Class B (Note 2) 190,984
Printing and shareholder reports 68,994
Professional fees 37,631
Registration fees (Note 1e) 31,865
Accounting services (Note 2) 16,554
Transfer agent fees--Class B (Note 2) 14,832
Custodian fees 7,456
Pricing fees 3,553
Transfer agent fees--Class A (Note 2) 2,919
Trustees' fees and expenses 1,915
Amortization of organization expenses (Note 1e) 482
Other 5,551
-----------
Total expenses before reimbursement 640,657
Reimbursement of expenses (Note 2) (299,610)
-----------
Total expenses after reimbursement 341,047
-----------
Investment income--net 2,098,762
-----------
Realized & Realized gain on investments--net 411,594
Unrealized Change in unrealized appreciation/depreciation on investments--net (2,728,303)
Gain (Loss) on -----------
Investments--Net Net Decrease in Net Assets Resulting from Operations $ (217,947)
(Notes 1d & 3): ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the
For the Period
Six Months Feb. 26,
Ended 1993++ to
Feb. 28, Aug. 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 2,098,762 $ 1,708,071
Realized gain (loss) on investments--net 411,594 (212,759)
Change in unrealized appreciation/depreciation on investments--net (2,728,303) 2,460,591
----------- -----------
Net increase (decrease) in net assets resulting from operations (217,947) 3,955,903
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (424,702) (366,882)
Shareholders Class B (1,674,060) (1,341,189)
(Note 1f): Realized gain on investments--net:
Class A (67,794) --
Class B (297,945) --
----------- -----------
Net decrease in net assets resulting from dividends and distributions
to shareholders (2,464,501) (1,708,071)
----------- -----------
Beneficial Interest Net increase in net assets derived from beneficial interest
Transactions transactions 8,080,912 87,617,921
(Note 4): ----------- -----------
Net Assets: Total increase in net assets 5,398,464 89,865,753
Beginning of period 89,965,753 100,000
----------- -----------
End of period $95,364,217 $89,965,753
=========== ===========
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
------------------------
For the
For the Six Period
The following per share data and ratios have been derived Months Feb. 26,
from information provided in the financial statements. Ended 1993+
Feb. 28, to Aug. 31,
Increase (Decrease) in Net Asset Value: 1994 1993
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.23 $ 10.00
Operating ----------- ----------
Performance: Investment income--net .25 .24
Realized and unrealized gain (loss) on investments--net (.24) .23
----------- ----------
Total from investment operations .01 .47
----------- ----------
Less dividends and distributions:
Investment income--net (.25) (.24)
Realized gain on investments--net (.04) --
----------- ----------
Total dividends and distributions (.29) (.24)
----------- ----------
Net asset value, end of period $ 9.95 $ 10.23
=========== ==========
Total Investment Based on net asset value per share 0.06%+++ 4.81%+++
Return:* =========== ==========
Ratios to Expenses, net of reimbursement .32% .14%
Average =========== ==========
Net Assets:** Expenses .95% 1.06%
=========== ==========
Investment income--net 4.88% 4.80%
=========== ==========
Supplemental Net assets, end of period (in thousands) $ 17,704 $ 17,105
Data: =========== ==========
Portfolio turnover 36.02% 74.26%
=========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
**Annualized.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class B
For the
For the Six Period
The following per share data and ratios have been derived Months Feb. 26,
from information provided in the financial statements. Ended 1993+
Feb. 28, to Aug. 31,
Increase (Decrease) in Net Asset Value: 1994 1993
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.23 $ 10.00
Operating ----------- ----------
Performance: Investment income--net .22 .22
Realized and unrealized gain (loss) on investments--net (.24) .23
----------- ----------
Total from investment operations (.02) .45
----------- ----------
Less dividends and distributions:
Investment income--net (.22) (.22)
Realized gain on investments--net (.04) --
----------- ----------
Total dividends and distributions (.26) (.22)
----------- ----------
Net asset value, end of period $ 9.95 $ 10.23
=========== ==========
Total Investment Based on net asset value per share (0.20%)+++ 4.56%+++
Return:* =========== ==========
Ratios to Expenses, net of reimbursement and excluding distribution fees .32% .14%
Average =========== ==========
Net Assets:** Expenses, net of reimbursement .82% .64%
=========== ==========
Expenses 1.46% 1.56%
=========== ==========
Investment income--net 4.38% 4.31%
=========== ==========
Supplemental Net assets, end of period (in thousands) $ 77,661 $ 72,861
Data: =========== ==========
Portfolio turnover 36.02% 74.26%
=========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
**Annualized.
++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 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. 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. 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 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) 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.
<PAGE>
(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.
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 and Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), 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 six months ended
February 28, 1994, FAM earned fees of $257,921, all of which were
voluntarily waived. FAM also voluntarily reimbursed the Fund for
additional expenses of $41,689.
<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 the Distributor an ongoing
account maintenance fee and distribution fee relating to Class B
Shares 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 the Distributor, Merrill Lynch also provides
account maintenance and distribution services to the Fund. This
fee is to compensate the Distributor for services provided and
the expenses borne by the Distributor under the Distribution
Agreement. As authorized by the Plan, the Distributor has
entered into an agreement with Merrill Lynch, Pierce, Fenner &
Smith Inc. ("MLPF&S"), an affiliate of MLIM, which provides for
the compensation of MLPF&S for providing distribution-related
services to the Fund.
For the six months ended February 28, 1994, MLFD earned under-
writing discounts of $1,286, and MLPF&S earned dealer concessions
of $12,105 on sales of the Fund's Class A Shares.
MLPF&S also received contingent deferred sales charges of $92,458
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, MLIM, MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 28, 1994 were $41,721,170 and
$31,779,234, respectively.
Net realized and unrealized gains (losses) as of February 28, 1994
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ 623,988 $ (342,832)
Short-term investments (6,300) (73,318)
Financial futures contracts (206,094) 148,438
---------- -----------
Total $ 411,594 $ (267,712)
========== ===========
NOTE TO FINANCIAL STATEMENTS (concluded)
<PAGE>
As of February 28, 1994, net unrealized depreciation for Federal
income tax purposes aggregated $416,150, of which $588,367 related
to appreciated securities and $1,004,517 related to depreciated
securities. The aggregate cost of investments at February 28,
1994 for Federal income tax purposes was $94,225,715.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $8,080,912 and $87,617,921 for the six months
ended February 28, 1994 and the period ended August 31, 1993,
respectively.
Class A Shares for the Six Months Dollar
Ended February 28, 1994 Shares Amount
Shares sold 199,041 $ 2,029,229
Shares issued to shareholders
in reinvestment of dividends
and distributions 20,793 212,063
---------- -----------
Total issued 219,834 2,241,292
Shares redeemed (113,113) (1,157,317)
---------- -----------
Net increase 106,721 $ 1,083,975
========== ===========
Class A Shares for the Period
February 26, 1993++ to
August 31, 1993
Dollar
Shares Amount
Shares sold 1,916,382 $19,071,665
Shares issued to shareholders
in reinvestment of dividends 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 FAM for $50,000.
<PAGE>
Class B Shares for the Six Months Dollar
Ended February 28, 1994 Shares Amount
Shares sold 1,150,210 $11,784,912
Shares issued to shareholders
in reinvestment of dividends
and distributions 102,215 1,042,717
---------- -----------
Total issued 1,252,425 12,827,629
Shares redeemed (571,613) (5,830,692)
---------- -----------
Net increase 680,812 $ 6,996,937
========== ===========
Class B Shares for the Period
February 26, 1993++ to
August 31, 1993
Dollar
Shares Amount
Shares sold 7,568,355 $75,475,197
Shares issued to shareholders
in reinvestment of dividends 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 FAM for $50,000.
5. Capital Loss Carryforward:
As of August 31, 1993, the Fund had a net capital loss carry-
forward of approximately $61,000, all of which expires in 2001.
This amount will be available to offset like amounts of any
future taxable gains.
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, Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
<PAGE>
Custodian
The Bank of New York
110 Washington Street
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
