MERRILL LYNCH
CALIFORNIA
INSURED
MUNICIPAL
BOND FUND
FUND LOGO
Semi-Annual Report
February 28, 1995
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.
<PAGE>
Merrill Lynch
California Insured
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 is 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
During the February quarter, the market environment was extremely
volatile, although technical conditions provided the potential for
significant appreciation. As a result, we structured Merrill Lynch
California Insured Municipal Bond Fund's portfolio to combine low
cash equivalent reserves with above-average coupon municipal
securities. In response to market uncertainty early in the February
quarter, we overweighted the percentage of Fund assets committed to
AAA-rated enhanced paper. However, tight supply versus an improving
cash flow situation among the mutual fund groups and property and
casualty insurance companies provided a backdrop for the positive
price action we enjoyed in December and January. The Fund's fully
invested posture permitted us to participate in this price movement.
Looking forward, a more cautious approach to the fixed-income market
may be warranted. In a brief span of time, the municipal bond rally
has covered a lot of ground in terms of price appreciation. Retail
investors could reach a point where current levels, when compared to
taxable equivalent securities, lose some degree of attractiveness.
As such, we may begin to use the strength of the current market to
raise our cash position.
In Conclusion
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
<PAGE>
March 23, 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 and Class B Shares are
presented in the "Recent Performance Results," "Performance Summary"
and "Average Annual Total Return" tables below and on page 4. 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 4.
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.
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.
<PAGE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/94 -7.54% -11.23%
Inception (2/26/93)
through 12/31/94 -0.49 -2.67
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/94 -7.99% -11.48%
Inception (2/26/93)
through 12/31/94 -0.93 -2.40
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
Aggregate Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94)
through 12/31/94 -1.38% -2.36%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (10/21/94)
through 12/31/94 -1.16% -5.11%
<PAGE>
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
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%
1994 10.25 8.97 -- 0.518 -7.54
1/1/95--2/28/95 8.97 9.54 -- 0.072 +7.28
------
Total $1.040
Cumulative total return as of 2/28/95: +6.32%**
<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%
1994 10.26 8.98 -- 0.471 -7.99
1/1/95--2/28/95 8.98 9.54 -- 0.065 +7.09
------
Total $0.943
Cumulative total return as of 2/28/95: +5.26%**
<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
2/28/95 11/30/94 2/28/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $9.54 $8.76 $9.95 -4.12% + 8.90%
Class B Shares* 9.54 8.76 9.95 -4.12 + 8.90
Class C Shares* 9.53 8.75 9.19 +3.70 + 8.91
Class D Shares* 9.55 8.76 9.19 +3.92 + 9.02
Class A Shares--Total Return* +1.38(1) +10.47(2)
Class B Shares--Total Return* +0.87(3) +10.33(4)
Class C Shares--Total Return* +5.60(5) +10.31(6)
Class D Shares--Total Return* +6.02(7) +10.55(8)
Class A Shares--Standardized 30-day Yield 5.57%
Class B Shares--Standardized 30-day Yield 5.31%
Class C Shares--Standardized 30-day Yield 5.21%
Class D Shares--Standardized 30-day Yield 5.47%
<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 $0.520 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.132 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.472 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.120 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.154 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.118 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.171 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.129 per share ordinary
income dividends.
</TABLE>
PORTFOLIO ABBREVIATIONS
<PAGE>
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 many
of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Cetificates of Participation
HFA Housing Finance Authority
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 1a)
California--98.2%
<S> <S> <C> <S> <C>
AAA Aaa $1,000 Anaheim, California, Public Financing Authority, Tax Allocation Revenue
Bonds, RITES, 8.432% due 12/28/2018 (d)(e) $ 1,061
AAA Aaa 3,920 Brea, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Redevelopment Project A-B), 6.125% due 8/01/2013 (d) 3,969
California Health Facilities Financing Authority Revenue Bonds, Series A:
BBB Baa1 2,000 Refunding (Health Dimensions), 7.50% due 5/01/2015 2,055
AAA Aaa 2,000 (Scripps Memorial Hospital), 6.375% due 10/01/2022 (d) 2,036
Aa+ VMIG1++ 200 (Sutter Health), VRDN, 3.70% due 3/01/2020 (a) 200
AA- Aa 2,000 California HFA, Home Mortgage Revenue Bonds, AMT, Series F1, 7% due 8/01/2026 2,059
NR* P1 900 California Pollution Control Financing Authority, Resource Recovery
Revenue Refunding Bonds (Ultra Power Malaga Project), VRDN, AMT, Series A,
3.95% due 4/01/2017 (a) 900
A1+ VMIG1++ 2,000 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 (a) 2,000
California State, Public Works Board, Lease Revenue Bonds, Series A:
A- A 2,000 (Department of Corrections--Monterey County), 7% due 11/01/2019 2,089
AAA Aaa 4,000 (Various University of California Projects), 6.40% due 12/01/2016 (b) 4,105
AAA Aaa 2,360 Central Coast Water Authority, California, Revenue Bonds (State Water
Project Regional Facilities), 6.50% due 10/01/2014 (b) 2,438
<PAGE>
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) 2,156
AAA Aaa 2,000 Contra Costa, California, Water Authority, Water Treatment Revenue Refunding
Bonds, Series A, 5.75% due 10/01/2020 (c) 1,915
AAA Aaa 3,000 Coronado, California, Community Development Agency, Tax Allocation Revenue
Bonds (Coronado Community Development Project), 6.30% due 9/01/2022 (d) 3,029
AAA Aaa 1,200 Cucamonga County, California, Water District Facilities Refinancing Bonds,
COP, 6.50% due 9/01/2022 (c) 1,233
AAA Aaa 4,000 El Cajon, California, Redevelopment Agency, Tax Allocation Revenue Bonds
(El Cajon Redevelopment Project), 6.60% due 10/01/2022 (b) 4,164
AAA Aaa 2,235 Eureka, California, Public Financing Authority, Tax Allocation Revenue
Refunding Bonds (Eureka Redevelopment Projects), 6.25% due 11/01/2011 (f) 2,287
AAA Aaa 2,500 Fresno, California, Sewer Revenue Bonds (Fowler Avenue Project), Series A,
6.25% due 8/01/2011 (b) 2,559
AAA Aaa 2,500 Industry, California, Urban Development Agency, Revenue Refunding Bonds
(Transportation District Industrial Redevelopment Project 2), 6.50% due
11/01/2016 (d) 2,602
AAA Aaa 2,500 Los Angeles, California, Convention and Exhibition Center Authority,
Lease Revenue Refunding Bonds, Series A, 6% due 8/15/2010 (d) 2,553
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
California (concluded)
<S> <S> <C> <S> <C>
AA Aa $2,000 Los Angeles, California, Department of Water and Power, Electric Plant
Revenue Bonds, Registered RITR, 7.229% due 2/01/2020 (e) $ 2,030
AAA Aaa 2,000 Los Angeles, California, Harbor Department Revenue Bonds, AMT, Series B,
6.625% due 8/01/2019 (b) 2,051
AAA Aaa 1,000 Los Angeles, California, Wastewater System Revenue Bonds, Series B, 6.25%
due 6/01/2012 (b) 1,023
AAA Aaa 2,000 Los Angeles County, California, COP (Correctional Facilities Project),
6.50% due 9/01/2013 (d) 2,061
<PAGE>
A1+ 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 (a)(d) 500
AAA Aaa 2,000 M-S-R Public Power Agency, California, Revenue Refunding Bonds (San
Juan Project), Series F, 6% due 7/01/2020 (b) 1,977
AAA Aaa 1,000 Mesa, California, Consolidated Water District, COP (Water Project),
6.375% due 3/15/2012 (c) 1,036
AAA Aaa 2,500 Mountain View, California, Capital Improvements Financing Authority
Revenue Bonds (City Hall Community Theatre), 6.50% due 8/01/2016 (d) 2,573
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) 3,579
NR* Baa 1,405 Pleasanton, California, Joint Powers Financing Authority, Revenue Reassessment
Bonds, Series A, 6.15% due 9/02/2012 1,357
Sacramento, California, Municipal Utility District, Electric Revenue Bonds (d):
AAA Aaa 1,500 Refunding, Series G, 6.50% due 9/01/2013 1,616
AAA Aaa 3,000 Series B, 6.375% due 8/15/2022 3,063
San Francisco, California, City and County Airport Commission, International
Airport, Revenue Refunding Bonds, Second Series:
AAA Aaa 2,000 First Issue, 6.30% due 5/01/2011 (b) 2,054
AAA Aaa 2,500 Second Issue, 6.75% due 5/01/2020 (d) 2,625
AAA Aaa 2,235 San Mateo County, California, Joint Powers Financing Authority, Lease
Revenue Refunding Bonds (Capital Projects Program), 6.50% due 7/01/2015 (d) 2,412
AAA Aaa 2,500 Stockton, California, COP, Revenue Bonds (Wastewater Treatment Plant
Expansion), Series A, 6.70% due 9/01/2014(c) 2,646
University of California Revenue Bonds (Multiple Purpose Projects):
AAA Aaa 2,500 Refunding, Series C, 5% due 9/01/2023 (b) 2,119
AAA Aaa 2,235 Series D, 6.30% due 9/01/2015 (d) 2,268
AAA Aaa 3,725 West Sacramento, California, Redevelopment Agency, Tax Allocation Bonds
(West Sacramento Redevelopment Project), 6.25% due 9/01/2021 (d) 3,752
-------
Total Investments (Cost--$86,084)--98.2% 86,152
Other Assets Less Liabilities--1.8% 1,619
-------
Net Assets--100.0% $87,771
=======
<PAGE>
<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, 1995.
(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 February 28, 1995.
(f)Capital Guaranty.
*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
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$86,083,818) (Note 1a) $86,152,273
Cash 12,214
Receivables:
Interest $ 1,482,230
Beneficial interest sold 535,730 2,017,960
-----------
Deferred organization expenses (Note 1e) 39,939
Prepaid expenses and other assets (Note 1e) 60,537
-----------
Total assets 88,282,923
-----------
Liabilities: Payables:
Beneficial interest redeemed 280,803
Dividends to shareholders (Note 1f) 85,802
Distributor (Note 2) 27,473
Investment adviser (Note 2) 9,970 404,048
-----------
Accrued expenses and other liabilities 107,659
-----------
Total liabilities 511,707
-----------
Net Assets: Net assets $87,771,216
===========
<PAGE>
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 154,640
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 760,210
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 2,670
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 2,741
Paid-in capital in excess of par 91,507,018
Accumulated realized capital losses--net (4,358,779)
Accumulated distributions in excess of realized capital gains--net (365,739)
Unrealized appreciation on investments--net 68,455
===========
Net assets $87,771,216
===========
Net Asset Value: Class A--Based on net assets of $14,748,079 and 1,546,397
shares of beneficial interest outstanding $ 9.54
===========
Class B--Based on net assets of $72,507,046 and 7,602,103
shares of beneficial interest outstanding $ 9.54
===========
Class C--Based on net assets of $254,463 and 26,704
shares of beneficial interest outstanding $ 9.53
===========
Class D--Based on net assets of $261,628 and 27,406
shares of beneficial interest outstanding $ 9.55
===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months
Ended February 28, 1995
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,616,442
(Note 1d):
<PAGE>
Expenses: Investment advisory fees (Note 2) $ 232,924
Distribution fees--Class B (Note 2) 173,812
Registration fees (Note 1e) 28,745
Professional fees 27,990
Accounting services (Note 2) 23,920
Transfer agent fees--Class B (Note 2) 16,372
Printing and shareholder reports 15,174
<PAGE> Custodian fees 6,725
Amortization of organization expenses (Note 1e) 5,418
Pricing fees 3,383
Transfer agent fees--Class A (Note 2) 2,864
Trustees' fees and expenses 2,412
Distribution fees--Class C (Note 2) 302
Account maintenance fees--Class D (Note 2) 168
Transfer agent fees--Class D (Note 2) 64
Transfer agent fees--Class C (Note 2) 25
Other 1,671
-----------
Total expenses before reimbursement 541,969
Reimbursement of expenses (Note 2) (176,090)
-----------
Total expenses after reimbursement 365,879
-----------
Investment income--net 2,250,563
-----------
Realized & Realized loss on investments--net (2,171,526)
Unrealized Change in unrealized appreciation/depreciation on investments--net 1,907,512
Gain (Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 1,986,549
(Notes 1b, 1d & 3): ===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the For the
Six Months Year
Ended Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 2,250,563 $ 4,410,272
Realized loss on investments--net (2,171,526) (1,974,493)
Change in unrealized appreciation/depreciation on
investments--net 1,907,512 (4,299,648)
----------- -----------
Net increase (decrease) in net assets resulting from operations 1,986,549 (1,863,869)
----------- -----------
<PAGE>
Dividends Investment income--net:
& Distributions Class A (422,558) (874,505)
To Shareholders Class B (1,815,932) (3,535,767)
(Note 1f): Class C (2,596) --
Class D (9,477) --
In excess of 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 (2,250,563) (4,776,011)
----------- -----------
Beneficial Net increase (decrease) in net assets derived from
Interest beneficial interest transactions (2,892,932) 7,602,289
Transactions ----------- -----------
(Note 4):
Net Assets: Total increase (decrease) in net assets (3,156,946) 962,409
Beginning of period 90,928,162 89,965,753
----------- -----------
End of period $87,771,216 $90,928,162
=========== ===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A Class B
For the For the For the For the
Six For the Period Six For the Period
The following per share data and ratios have been derived Months Year Feb. 26, Months Year Feb. 26,
from information provided in the financial statements. Ended Ended 1993++ to Ended Ended 1993++ to
Feb. 28, Aug. 31, Aug. 31, Feb. 28, Aug. 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.54 $ 10.23 $ 10.00 $ 9.54 $ 10.23 $ 10.00
Operating ------- ------- ------- ------- ------- -------
Performance: Investment income--net .26 .51 .24 .25 .46 .22
Realized and unrealized (gain) loss
on investments--net -- (.65) .23 -- (.65) .23
------- ------- ------- ------- ------- -------
<PAGE> Total from investment operations .26 (.14) .47 .25 (.19) .45
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.26) (.51) (.24) (.25) (.46) (.22)
In excess of realized gain on
investments--net -- (.04) -- -- (.04) --
------- ------- ------- ------- ------- -------
Total dividends and distributions (.26) (.55) (.24) (.25) (.50) (.22)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 9.54 $ 9.54 $ 10.23 $ 9.54 $ 9.54 $ 10.23
======= ======= ======= ======= ======= =======
<PAGE>
Total Investment Based on net asset value per share 2.92%+++ (1.44%) 4.81%+++ 2.66%+++ (1.93%) 4.56%+++
Return:** ======= ======= ======= ======= ======= =======
Ratios to Expenses, excluding distribution fees
Average and net of reimbursement .45%* .33% .14%* .45%* .33% .14%*
Net Assets: ======= ======= ======= ======= ======= =======
Expenses, net of reimbursement .45%* .33% .14%* .95%* .83% .64%*
======= ======= ======= ======= ======= =======
Expenses .86%* .96% 1.06%* 1.37%* 1.46% 1.56%*
======= ======= ======= ======= ======= =======
Investment income--net 5.73%* 5.16% 4.80%* 5.22%* 4.67% 4.31%*
======= ======= ======= ======= ======= =======
Supplemental Net assets, end of period (in
Data: thousands) $14,748 $15,946 $17,105 $72,507 $74,982 $72,861
======= ======= ======= ======= ======= =======
Portfolio turnover 30.16% 93.04% 74.26% 30.16% 93.04% 74.26%
======= ======= ======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<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 $ 9.19 $ 9.19
Operating ----------- -----------
Performance: Investment income--net .16 .18
Realized and unrealized gain on investments--net .34 .36
----------- -----------
Total from investment operations .50 .54
----------- -----------
Less dividends from investment income--net (.16) (.18)
----------- -----------
Net asset value, end of period $ 9.53 $ 9.55
=========== ===========
Total Investment Based on net asset value per share 5.60%+++ 6.02%+++
Return:** =========== ===========
Ratios to Expenses, excluding account maintenance and distribution fees
Average and net of reimbursement .47%* .45%*
Net Assets: =========== ===========
Expenses, net of reimbursement 1.07%* .55%*
=========== ===========
Expenses 1.47%* .95%*
=========== ===========
Investment income--net 5.17%* 5.62%*
=========== ===========
Supplemental Net assets, end of period (in thousands) $ 254 $ 262
Data: =========== ===========
Portfolio turnover 30.16% 30.16%
=========== ===========
<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 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.
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 on an amortized cost basis, 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 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) 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 capital gains are due primarily to differing tax
treatments for futures transactions and post-October losses.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
<PAGE>
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion. The Investment Advisory Agreement obligates
FAM to reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets, and 1.5% of the 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, 1995, FAM earned fees of $232,924, of
which $176,090 was voluntarily waived.
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 $884 $11,046
Class D $251 $ 3,393
MLPF&S received contingent deferred sales charges of $208,640
relating to transactions in Class B 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.
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 28, 1995 were $24,955,336 and
$25,576,164, respectively.
Net realized and unrealized gains (losses) as of February 28, 1995
were as follows:
Realized Unrealized
Losses Gains
Long-term investments $(1,888,564) $ 68,455
Financial futures contracts (282,962) --
----------- -----------
Total $(2,171,526) $ 68,455
=========== ===========
As of February 28, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $68,455, of which $1,490,975 related
to appreciated securities and $1,422,520 related to depreciated
securities. The aggregate cost of investments at February 28, 1995
for Federal income tax purposes was $86,083,818.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial
interest transactions was $(2,892,932) and $7,602,289 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 Dollar
Months Ended Feb. 28, 1995 Shares Amount
Shares sold 134,485 $ 1,218,841
Shares issued to shareholders
in reinvestment of dividends 18,210 165,342
----------- -----------
Total issued 152,695 1,384,183
Shares redeemed (277,842) (2,499,698)
----------- -----------
Net decrease (125,147) $(1,115,515)
=========== ===========
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 B Shares for the
Six Months Ended Dollar
February 28, 1995 Shares Amount
Shares sold 1,087,048 $ 9,879,838
Shares issued to share-
holders in reinvestment of
dividends 95,159 864,896
----------- -----------
Total issued 1,182,207 10,744,734
Shares redeemed (1,439,662) (12,980,933)
----------- -----------
Net decrease (257,455) $(2,236,199)
=========== ===========
<PAGE>
Class B Shares for the
Year Ended Dollar
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
=========== ===========
Class C Shares for the
Period October 21, 1994++ to Dollar
February 28, 1995 Shares Amount
Shares sold 33,762 $ 305,453
Shares issued to share-
holders in reinvestment of
dividends 25 232
----------- -----------
Total issued 33,787 305,685
Shares redeemed (7,083) (60,640)
----------- -----------
Net increase 26,704 $ 245,045
=========== ===========
[FN]
++Commencement of Operations.
Class D Shares for the
Period October 21, 1994++ to Dollar
February 28, 1995 Shares Amount
Shares sold 132,703 $ 1,187,888
Shares issued to share-
holders in reinvestment of
dividends 56 516
----------- -----------
Total issued 132,759 1,188,404
Shares redeemed (105,353) (974,667)
----------- -----------
Net increase 27,406 $ 213,737
=========== ===========
<PAGE>
[FN]
++Commencement of Operations.
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, New York 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
