<PAGE>
MERRILL LYNCH
CALIFORNIA
INSURED
MUNICIPAL
BOND FUND
FUND LOGO
Semi-Annual Report
February 29, 1996
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.
Statements and other information herein are as dated and are subject
to change.
<PAGE>
Merrill Lynch
California Insured
Municipal Bond Fund
Merrill Lynch California
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
TO OUR SHAREHOLDERS
Throughout most of the six-month period ended February 29, 1996, it
appeared that the US economy was losing momentum. Consumer spending
was barely growing and the industrial sector was at a virtual
standstill. With inflationary pressures subdued, the Federal Reserve
Board responded to the slowing economy by continued modest monetary
policy easing. However, toward the end of the six-month period, a
series of economic releases began to suggest that economic activity
would not continue to be as sluggish as originally expected. A surge
in auto sales and factory orders, rising consumer confidence and
strong housing starts led some investors to believe that economic
activity was again accelerating and further easing by the Federal
Reserve Board unlikely. These concerns were highlighted in early
March with the report of a sharp increase in new jobs in February
and a drop in unemployment. In the weeks ahead, it is likely that
investors will continue to monitor economic data releases closely as
they attempt to gauge the US economy's progress.
<PAGE>
The impasse between the Clinton Administration and Congress over the
Federal budget continues. However, both sides have made concessions
since the debate began. It appears that investors are currently
focusing on the progress that has been made rather than on the
differences that remain. Initially, President Clinton proposed
deficits of about $190 billion annually through fiscal year 2002. He
now proposes balanced budgets, as do the Republicans. Furthermore,
even without policy changes, it appears that the US Federal budget
deficit could remain stable at about 2% of gross domestic product
for the rest of the decade. This is far better than is the case for
most Group of Seven industrial nations and a great improvement over
the last 15 years. Nevertheless, current indications are that a
piecemeal budget accord is the most likely outcome. Although this
may fall short of investors' best expectations, it appears that the
Federal budget debate over the past year has resulted in a trend
toward a more conservative fiscal policy.
The Municipal Market
Long-term tax-exempt revenue bond yields continued to decline during
the six months ended February 29, 1996. However, during that period
the municipal bond market reversed the trend seen throughout most of
1995 and significantly outperformed the US Treasury bond market.
Buoyed by investor expectations of continuing mild inflation and
weakening domestic economic growth, tax-exempt bond yields steadily
declined as 1995 ended. As measured by the Bond Buyer Revenue Bond
Index, A-rated municipal revenue bond yields declined over 60 basis
points (0.60%) to 5.63%. Economic indicators released in January and
February 1996 suggested earlier expectations of weaker economic
growth may have been overly optimistic. As investor confidence
waned, tax-exempt bond yields rose somewhat to 5.86% at February 29,
1996. US Treasury bond yields followed a similar, although more
volatile, pattern over the last six months. By the end of 1995, US
Treasury bond yields fell approximately 45 basis points to 6.00%.
Yields rose significantly for the remainder of the period to 6.45%.
For the six months ended February 29, 1996, long-term, tax-exempt
bond yields declined 40 basis points while US Treasury bond yields
fell approximately 20 basis points.
The municipal bond market's recent outperformance was largely the
result of two principal factors. First, and perhaps more
importantly, much of the earlier concern regarding proposed changes
in Federal income tax codes and their effect on the tax treatment of
tax-exempt bond income dissipated. As the negative revenue impact of
the various proposals such as the flat-tax became apparent, the
likelihood of immediate tax reform quickly diminished. When the Kemp
Commission dealing with Federal income tax reform released its
findings early in 1996, the obvious need for reform was highlighted.
However, no specific recommendations of a flat-tax, value-added tax
or any other specific reforms were made. Consequently, fears of
losing the favored tax treatment of municipal bond income declined
even further. As a percentage of Treasury bond yields, tax-exempt
bond yield ratios quickly declined from 95% to approximately 90%.
This allowed the municipal bond market to preserve much of the gains
it made in recent months.
<PAGE>
The second major factor leading to the municipal bond market's
recent improvement was the return of a more favorable technical
environment. Over the past six months approximately $86 billion in
municipal securities were underwritten, an increase of nearly 40%
versus the comparable period a year earlier. However, much of this
increase was biased by recent underwritings over the last three
months. Municipal issuers sought to refinance their existing higher-
couponed debt as tax-exempt bond yields have approached their recent
historic lows. Over the past three months such refundings have
contributed to total bond issuance of over $40 billion. However, at
the same time, investors continue to receive significant amounts of
assets derived from coupon income, bond maturities and proceeds from
early redemptions. During January and February 1996, investors
received approximately $35 billion in such assets, nearly equal to
the total amount of bonds issued during the previous three months.
These cash flows helped maintain individual retail investor demand
during recent months. Additionally, major institutional investors,
including certain insurance companies whose underwriting profits
were cyclically high, demonstrated significant ongoing interest in
the tax-exempt bond market, particularly on higher-quality
securities. Individual and institutional investor demand was strong
enough during the six-month period ended February 29, 1996 to absorb
the relative increase in bond issuance and still allow tax-exempt
bond yields to decline further.
Looking ahead, the municipal bond market is likely to continue to
outperform the US Treasury bond market. Investor demand should
remain adequate enough to absorb new bond issuance. It is unlikely
that the rapid pace of issuance seen thus far in 1996 will be
maintained. The recent rise in yields has made further bond
refinancings economically unfeasible. Since these refinancings were
the driving force of recent bond issuance, as the amount of these
refundings decline, overall issuance should decline. This should
allow the current demand/supply balance to be easily maintained.
Additionally, as a percentage of US Treasury bond yields, long-term
municipal bond yields remain historically attractive. With long-
term, tax-exempt revenue bonds yielding approximately 90% of their
taxable counterparts, should taxable interest rates resume their
decline, municipal bond yields are poised to decline further.
Portfolio Strategy
Throughout the six-month period ended February 29, 1996, we
maintained the Fund's essentially neutral to defensive posture which
we adopted last August. Our strategy largely is to maintain that
stance and to continue to seek to enhance coupon income. However,
should interest rates continue to rise in the coming months, we may
increase the Fund's holdings of more interest rate-sensitive issues
in anticipation of the next decline in interest rates. We believe
that, given the absence of inflationary pressures, any significant
increase in interest rates will place material pressures on the
current economic recovery. Such pressures could cause the quick
resumption of the economic slowdown seen in early 1995. Any material
increase in interest rates in 1996 will also be viewed as an
opportunity to add higher-quality issues to the Fund at yield levels
not seen since 1994.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Walter C. O'Connor)
Walter C. O'Connor
Portfolio Manager
March 28, 1996
We are pleased to announce that Walter C. O'Connor is responsible
for the day-to-day management of Merrill Lynch California Insured
Municipal Bond Fund. Mr. O'Connor has been employed by Merrill Lynch
Asset Management, L.P. (an affiliate of the Fund's investment
adviser) since 1993 as Vice President, and was Assistant Vice
President from 1991 to 1993. Prior thereto, he was Assistant Vice
President with Prudential Securities from 1984 to 1991.
<PAGE>
PERFORMANCE DATA
About Fund Performance
Investors are 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).
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.
<TABLE>
Recent Performance Results
<CAPTION>
<PAGE>
12 Month 3 Month
2/29/96 11/30/95 2/28/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.05 $10.01 $9.54 + 5.35% +0.40%
Class B Shares* 10.05 10.01 9.54 + 5.35 +0.40
Class C Shares* 10.05 10.00 9.53 + 5.46 +0.50
Class D Shares* 10.06 10.02 9.55 + 5.34 +0.40
Class A Shares--Total Return* +11.01(1) +1.71(2)
Class B Shares--Total Return* +10.45(3) +1.58(4)
Class C Shares--Total Return* +10.46(5) +1.66(6)
Class D Shares--Total Return* +10.90(7) +1.68(8)
Class A Shares--Standardized 30-day Yield 4.71%
Class B Shares--Standardized 30-day Yield 4.40%
Class C Shares--Standardized 30-day Yield 4.29%
Class D Shares--Standardized 30-day Yield 4.61%
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.513 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.131 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.464 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.118 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.454 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.116 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.504 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.129 per share ordinary
income dividends.
</TABLE>
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
2/26/93--12/31/93 $10.00 $10.25 -- $0.450 + 7.18%
1994 10.25 8.97 -- 0.518 - 7.54
1995 8.97 10.10 -- 0.514 +18.73
1/1/96--2/29/96 10.10 10.05 -- 0.071 + 0.31
------
Total $1.553
Cumulative total return as of 2/29/96: +18.03%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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
1995 8.98 10.11 -- 0.465 +18.12
1/1/96--2/29/96 10.11 10.05 -- 0.064 + 0.14
------
Total $1.407
Cumulative total return as of 2/29/96: +16.26%**
<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>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.19 $ 8.97 -- $0.091 - 1.38%
1995 8.97 10.09 -- 0.455 +17.90
1/1/96--2/29/96 10.09 10.05 -- 0.063 + 0.32
------
Total $0.609
Cumulative total return as of 2/29/96: +16.65%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.19 $ 8.98 -- $0.101 - 1.16%
1995 8.98 10.11 -- 0.505 +18.60
1/1/96--2/29/96 10.11 10.06 -- 0.070 + 0.29
------
Total $0.676
Cumulative total return as of 2/29/96: +17.57%**
<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>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/95 +18.73% +13.98%
Inception (2/26/93)
through 12/31/95 + 5.89 + 4.38
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
<PAGE>
Class B Shares*
Year Ended 12/31/95 +18.12% +14.12%
Inception (2/26/93)
through 12/31/95 + 5.39 + 4.75
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/95 +17.90% +16.90%
Inception (10/21/94)
through 12/31/95 +13.45 +13.45
[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*
Year Ended 12/31/95 +18.60% +13.86%
Inception (10/21/94)
through 12/31/95 +14.23 +10.39
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
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 many of the securities
according to the list below and at right.
<PAGE>
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
INFLOS Inverse Floating Rate Municipal Bonds
PCR Pollution Control Revenue Bonds
RITES Residual Interest Tax-Exempt Securities
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
California--98.5%
<S> <S> <C> <S> <C>
AAA Aaa $ 1,000 Anaheim, California, Public Financing Authority, Tax Allocation
Revenue Bonds, RITES, 8.87% due 12/28/2018 (d)(e) $ 1,185
AAA Aaa 1,000 Brea, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Redevelopment Project A-B), 6.125% due 8/01/2013 (d) 1,059
AAA Aaa 1,290 California Fairs Financing Authority Revenue Bonds, 6.50% due 7/01/2011 (f) 1,415
AAA Aaa 1,000 California Health Facilities Financing Authority Revenue Bonds (San
Diego Hospital Association), Series B, 6.125% due 8/01/2011 (d) 1,057
California Health Facilities Financing Authority Revenue Bonds, Series A:
BB Ba 2,000 Refunding (Good Samaritan Health System), 7.50% due 5/01/2000 (g) 2,292
AAA Aaa 2,000 (Scripps Memorial Hospital), 6.375% due 10/01/2022 (d) 2,135
A1+ VMIG1++ 1,300 (Scripps Memorial Hospital), VRDN, 3.05% due 12/01/2005 (a)(d) 1,300
AA- Aa 2,000 California HFA, Home Mortgage Revenue Bonds, AMT, Series F-1, 7% due
8/01/2026 2,103
California Pollution Control Financing Authority, PCR, VRDN (a):
A1+ VMIG1++ 200 Refunding (Shell Oil Company Project), Series A, 3.15% due 10/01/2009 200
A1+ VMIG1++ 200 Refunding (Shell Oil Company Project), Series A, 3% due 10/01/2010 200
A1 VMIG1++ 100 (Southern California Edison), Series A, 3.15% due 2/28/2008 100
California Pollution Control Financing Authority, Resource Recovery
Revenue Bonds, VRDN, AMT (a):
NR* P1 200 (Delano Project), Series 1991, 3.15% due 8/01/2019 200
NR* Aa3 300 (Honey Lake Power Project), 3.15% due 9/01/2018 300
NR* P1 200 Refunding (Ultra Power Malaga Project), Series A, 3.20% due 4/01/2017 200
<PAGE>
California Pollution Control Financing Authority, Solid Waste Disposal
Revenue Bonds(Shell Oil Co.--Martinez Project), VRDN, AMT (a):
A1+ VMIG1++ 1,400 Series A, 3.15% due 10/01/2024 1,400
A1+ VMIG1++ 200 Series B, 3.15% due 12/01/2024 200
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
California (continued)
<S> <S> <C> <S> <C>
AAA Aaa $ 2,000 California State Department of Water Resources, Central Valley Project
Revenue Bonds(Water Systems), Series O, 4.75% due 12/01/2029 (d) $ 1,762
California State Public Works Board, Lease Revenue Bonds, Series A:
A- A 2,000 (Department of Corrections--Monterey County), 7% due 11/01/2019 2,255
AAA Aaa 4,000 (Various University of California Projects), 6.40% due 12/01/2016 (b) 4,317
AAA Aaa 2,360 Central Coast Water Authority, California, Revenue Bonds (State Water
Project Regional Facilities), 6.50% due 10/01/2014 (b) 2,607
AAA Aaa 2,000 Contra Costa, California, Water District, Water Revenue Bonds, Series G,
5.50% due 10/01/2019 (d) 1,974
AAA Aaa 1,200 Cucamonga, California, Water District Facilities Refinancing Bonds, COP,
6.50% due 9/01/2022 (c) 1,308
AAA Aaa 2,150 Culver City, California, Wastewater Facilities Revenue Bonds, Series A,
6.75% due 9/01/2016 (c) 2,392
AAA Aaa 2,000 Cupertino, California, Unified School District, Series A, UT, 5.75% due
8/01/2020 (c) 2,023
AA Aaa 4,000 El Cajon, California, Redevelopment Agency, Tax Allocation Revenue Bonds
(El Cajon Redevelopment Project), 6.60% due 10/01/2022 (b) 4,404
AAA Aaa 2,500 Fresno, California, Sewer Revenue Bonds (Fowler Avenue Project), Series A,
6.25% due 8/01/2011 (b) 2,663
AAA Aaa 2,500 Industry, California, Urban Development Agency Refunding Bonds
(Transportation District Industrial Redevelopment Project 2), 6.50%
due 11/01/2016 (d) 2,760
<PAGE>
AA- Aa 2,000 Los Angeles, California, Department of Water and Power, Electric Plant
Revenue Bonds, Registered RITR, 8.67% due 2/01/2020 (e) 2,253
AAA Aaa 2,000 Los Angeles, California, Harbor Department Revenue Bonds, AMT, Series B,
6.625% due 8/01/2019 (b) 2,158
AAA Aaa 3,000 Los Angeles, California, Wastewater System Revenue Refunding Bonds,
Series A, 5.80% due 6/01/2021 (d) 3,040
AAA Aaa 2,000 Los Angeles County, California, COP (Correctional Facilities Project),
6.50% due 9/01/2013 (d) 2,169
AAA Aaa 1,000 Mesa, California, Consolidated Water District, COP (Water Project),
6.375% due 3/15/2012 (c) 1,069
AAA Aaa 2,140 Mount Diablo, California, Unified School District, Community Facilities--
Special District Tax No. 1 Bonds, 6.30% due 8/01/2022 (b) 2,276
AAA Aaa 2,500 Mountain View, California, Capital Improvements Financing Authority
Revenue Bonds(City Hall Community Theatre), 6.50% due 8/01/2016 (d) 2,736
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) 3,738
AAA Aaa 3,000 Orchard, California, School District, GO, UT, Series A, 6.50% due
8/01/2019 (c) 3,298
AAA Aaa 2,000 Rancho Cucamonga, California, Redevelopment Agency, Tax Allocation Bonds
(Rancho Redevelopment Project), 7.125% due 9/01/2019 (d) 2,202
</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>
Sacramento, California, Municipal Utility District, Electric Revenue Bonds:
AAA Aaa $ 2,000 INFLOS, 8.818% due 8/15/2018 (c)(e) $ 2,215
AAA Aaa 1,500 Refunding, Series G, 6.50% due 9/01/2013 (d) 1,698
AAA Aaa 3,000 Series B, 6.375% due 8/15/2022 (d) 3,205
AAA Aaa 1,000 San Diego, California, Public Facilities Financing Authority, Sewer
Revenue Bonds, 5% due 5/15/2025 (c) 924
<PAGE>
San Francisco, California, City and County Airport Commission, International
Airport, Revenue Refunding Bonds, Second Series:
AAA Aaa 1,500 First Issue, 6.50% due 5/01/2013 (b) 1,652
AAA Aaa 2,500 Second Issue, 6.75% due 5/01/2020 (d) 2,794
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) 2,525
A1+ VMIG1++ 600 Southern California Public Power Authority, Revenue Refunding Bonds
(Southern Transmission Project), VRDN, 2.75% due 7/01/2019 (a)(b) 600
AAA Aaa 2,500 Stockton, California, COP, Revenue Bonds (Wastewater Treatment Plant
Expansion), Series A, 6.70% due 9/01/2014 (c) 2,782
University of California Revenue Bonds (Multiple Purpose Projects),
Series D (d):
AAA Aaa 3,685 6.30% due 9/01/2015 3,932
AAA Aaa 2,250 6.375% due 9/01/2019 2,406
Total Investments (Cost--$89,290)--98.5% 93,483
Other Assets Less Liabilities--1.5% 1,402
-------
Net Assets--100.0% $94,885
=======
<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 29, 1996.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)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 29, 1996.
(f)FSA Insured.
(g)Prerefunded.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets and Liabilities as of February 29, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$89,289,893) (Note 1a) $93,482,838
Cash 24,899
Receivables:
Interest $ 1,453,941
Beneficial interest sold 221,299 1,675,240
-----------
Deferred organization expenses (Note 1e) 28,497
Prepaid expenses and other assets (Note 1e) 50,011
-----------
Total assets 95,261,485
-----------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 111,941
Beneficial interest redeemed 103,779
Distributor (Note 2) 31,292
Investment adviser (Note 2) 10,702 257,714
-----------
Accrued expenses and other liabilities 118,837
-----------
Total liabilities 376,551
-----------
Net Assets: Net assets $94,884,934
===========
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 142,712
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 730,876
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 40,804
Class D Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 29,753
Paid-in capital in excess of par 93,861,004
Accumulated realized capital losses on investments--net (Note 5) (3,747,421)
Accumulated distributions in excess of realized capital gains--net (365,739)
Unrealized appreciation on investments--net 4,192,945
-----------
Net assets $94,884,934
===========
<PAGE>
Net Asset Value: Class A--Based on net assets of $14,341,220 and 1,427,115 shares
of beneficial interest outstanding $ 10.05
===========
Class B--Based on net assets of $73,452,828 and 7,308,760 shares
of beneficial interest outstanding $ 10.05
===========
Class C--Based on net assets of $4,098,827 and 408,043 shares
of beneficial interest outstanding $ 10.05
===========
Class D--Based on net assets of $2,992,059 and 297,528 shares
of beneficial interest outstanding $ 10.06
===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
February 29, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,606,500
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 252,372
Account maintenance and distribution fees--Class B (Note 2) 181,093
Registration fees (Note 1e) 34,373
Professional fees 26,852
Printing and shareholder reports 22,399
Accounting services (Note 2) 21,809
Transfer agent fees--Class B (Note 2) 16,355
Account maintenance and distribution fees--Class C (Note 2) 7,732
Custodian fees 7,683
Amortization of organization expenses (Note 1e) 5,825
Trustees' fees and expenses 4,453
Pricing fees 3,023
Transfer agent fees--Class A (Note 2) 2,705
Account maintenance fees--Class D (Note 2) 1,210
Transfer agent fees--Class C (Note 2) 569
Transfer agent fees--Class D (Note 2) 455
Other 958
-----------
Total expenses before reimbursement 589,866
Reimbursement of expenses (Note 2) (183,543)
-----------
Total expenses after reimbursement 406,323
-----------
Investment income--net 2,200,177
-----------
Realized & Realized gain on investments--net 657,449
Unrealized Change in unrealized appreciation on investments--net 3,046,555
Gain on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 5,904,181
(Notes 1b, 1d & 3): ===========
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
February 29, August 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 2,200,177 $ 4,444,002
Realized gain (loss) on investments--net 657,449 (2,217,617)
Change in unrealized appreciation on investments--net 3,046,555 2,985,447
----------- -----------
Net increase in net assets resulting from operations 5,904,181 5,211,832
----------- -----------
Dividends to Investment income--net:
Shareholders Class A (373,876) (814,541)
(Note 1f): Class B (1,705,205) (3,562,702)
Class C (59,271) (29,658)
Class D (61,825) (37,101)
----------- -----------
Net decrease in net assets resulting from dividends to shareholders (2,200,177) (4,444,002)
----------- -----------
Beneficial Interest Net increase (decrease) in net assets derived from beneficial
Transactions interest transactions 1,683,812 (2,198,874)
(Note 4): ----------- -----------
Net Assets: Total increase (decrease) in net assets 5,387,816 (1,431,044)
Beginning of period 89,497,118 90,928,162
----------- -----------
End of period $94,884,934 $89,497,118
=========== ===========
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 For the Year 1993++ to
Feb. 29, Ended August 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.65 $ 9.54 $ 10.23 $ 10.00
Operating -------- -------- -------- --------
Performance: Investment income--net .26 .52 .51 .24
Realized and unrealized gain (loss) on investments--net .40 .11 (.65) .23
-------- -------- -------- --------
Total from investment operations .66 .63 (.14) .47
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.26) (.52) (.51) (.24)
In excess of realized gain on investments--net -- -- (.04) --
-------- -------- -------- --------
Total dividends and distributions (.26) (.52) (.55) (.24)
-------- -------- -------- --------
Net asset value, end of period $ 10.05 $ 9.65 $ 9.54 $ 10.23
======== ======== ======== ========
Total Investment Based on net asset value per share 6.89%+++ 6.89% (1.44%) 4.81%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .46%* .47% .33% .14%*
Net Assets: ======== ======== ======== ========
Expenses .86%* .87% .96% 1.06%*
======== ======== ======== ========
Investment income--net 5.20%* 5.53% 5.16% 4.80%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 14,341 $ 14,204 $ 15,946 $ 17,105
Data: ======== ======== ======== ========
Portfolio turnover 39.75% 61.53% 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>
<PAGE>
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Financial Highlights (continued)
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 For the Year 1993++ to
Feb. 29, Ended August 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.65 $ 9.54 $ 10.23 $ 10.00
Operating -------- -------- -------- --------
Performance: Investment income--net .23 .48 .46 .22
Realized and unrealized gain (loss) on investments--net .40 .11 (.65) .23
-------- -------- -------- --------
Total from investment operations .63 .59 (.19) .45
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.23) (.48) (.46) (.22)
In excess of realized gain on investments--net -- -- (.04) --
-------- -------- -------- --------
Total dividends and distributions (.23) (.48) (.50) (.22)
-------- -------- -------- --------
Net asset value, end of period $ 10.05$ 9.65 $ 9.54 $ 10.23
======== ======== ======== ========
Total Investment Based on net asset value per share 6.62%+++ 6.35% (1.93%) 4.56%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .97%* .97% .83% .64%*
Net Assets: ======== ======== ======== ========
Expenses 1.37%* 1.38% 1.46% 1.56%*
======== ======== ======== ========
Investment income--net 4.70%* 5.02% 4.67% 4.31%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 73,453 $ 71,670 $ 74,982 $ 72,861
Data: ======== ======== ======== ========
Portfolio turnover 39.75% 61.53% 93.04% 74.26%
======== ======== ======== ========
<PAGE>
<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)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the For the For the
Six Period Six Period
The following per share data and ratios have been derived Months Oct. 21, Months Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
Feb. 29, Aug. 31, Feb. 29, Aug. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.64 $ 9.19 $ 9.65 $ 9.19
Operating -------- -------- -------- --------
Performance: Investment income--net .23 .39 .25 .44
Realized and unrealized gain on investments--net .41 .45 .41 .46
-------- -------- -------- --------
Total from investment operations .64 .84 .66 .90
-------- -------- -------- --------
Less dividends from investment income--net (.23) (.39) (.25) (.44)
-------- -------- -------- --------
Net asset value, end of period $ 10.05 $ 9.64 $ 10.06 $ 9.65
======== ======== ======== ========
Total Investment Based on net asset value per share 6.68%+++ 9.35%+++ 6.94%+++ 9.94%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.07%* 1.09%* .56%* .57%*
Net Assets: ======== ======== ======== ========
Expenses 1.47%* 1.49%* .96%* .97%*
======== ======== ======== ========
Investment income--net 4.59%* 4.76%* 5.10%* 5.33%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 4,099 $ 1,778 $ 2,992 $ 1,845
Data: ======== ======== ======== ========
Portfolio turnover 39.75% 61.53% 39.75% 61.53%
======== ======== ======== ========
<PAGE>
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
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.
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.
<PAGE>
(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 Board of Trustees of the Trust, including
valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Trust under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* 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.
NOTES TO FINANCIAL STATEMENTS (continued)
(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.
<PAGE>
(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"). 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 had also entered into a Distribution
Agreement and Distribution Plans with Merill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
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 29, 1996, FAM earned fees of $252,372, of
which $183,543 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
<PAGE>
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 29, 1996, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $1,256 $7,485
Class D $ 712 $7,871
For the six months ended February 29, 1996, MLPF&S received
contingent deferred sales charges of $92,278 and $966 relating to
transactions in Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 29, 1996 were $34,411,802 and
$34,311,605, respectively.
Net realized and unrealized gains (losses) as of February 29, 1996
were as follows:
<PAGE>
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ 818,586 $ 4,192,945
Financial futures contracts (161,137) --
----------- -----------
Total $ 657,449 $ 4,192,945
=========== ===========
As of February 29, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $4,192,945, of which $4,403,277
related to appreciated securities and $210,332 related to
depreciated securities. The aggregate cost of investments at
February 29, 1996 for Federal income tax purposes was $89,289,893.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial
interest transactions was $1,683,812 and $(2,198,874) for the six
months ended February 29, 1996 and for the year ended August 31,
1995, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the
Six Months Ended Dollar
February 29, 1996 Shares Amount
Shares sold 96,335 $ 950,543
Shares issued to share-
holders in reinvestment
of dividends 14,192 141,070
------------ ------------
Total issued 110,527 1,091,613
Shares redeemed (155,688) (1,540,876)
------------ ------------
Net decrease (45,161) $ (449,263)
============ ============
Class A Shares for the Year Dollar
Ended August 31, 1995 Shares Amount
Shares sold 182,796 $ 1,683,426
Shares issued to share-
holders in reinvestment
of dividends 33,346 310,570
------------ ------------
Total issued 216,142 1,993,996
Shares redeemed (415,410) (3,820,473)
------------ ------------
Net decrease (199,268) $ (1,826,477)
============ ============
<PAGE>
Class B Shares for the
Six Months Ended Dollar
February 29, 1996 Shares Amount
Shares sold 569,618 $ 5,682,176
Shares issued to share-
holders in reinvestment
of dividends 76,878 764,665
------------ ------------
Total issued 646,496 6,446,841
Shares redeemed (736,492) (7,322,823)
Automatic conversion
of shares (29,221) (290,252)
------------ ------------
Net decrease (119,217) $ (1,166,234)
============ ============
Class B Shares for the Year Dollar
Ended August 31, 1995 Shares Amount
Shares sold 1,704,924 $ 15,799,247
Shares issued to share-
holders in reinvestment
of dividends 174,843 1,629,535
------------ ------------
Total issued 1,879,767 17,428,782
Shares redeemed (2,311,348) (21,348,197)
------------ ------------
Net decrease (431,581) $ (3,919,415)
============ ============
Class C Shares for the
Six Months Ended Dollar
February 29, 1996 Shares Amount
Shares sold 273,491 $ 2,738,436
Shares issued to share-
holders in reinvestment
of dividends 4,045 40,322
------------ ------------
Total issued 277,536 2,778,758
Shares redeemed (53,949) (541,626)
------------ ------------
Net increase 223,587 $ 2,237,132
============ ============
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Period
October 21, 1994++ to Dollar
August 31, 1995 Shares Amount
Shares sold 247,131 $ 2,347,801
Shares issued to share-
holders in reinvestment
of dividends 1,481 14,182
------------ ------------
Total issued 248,612 2,361,983
Shares redeemed (64,156) (608,073)
------------ ------------
Net increase 184,456 $ 1,753,910
============ ============
[FN]
++Commencement of Operations.
Class D Shares for the
Six Months Ended Dollar
February 29, 1996 Shares Amount
Shares sold 111,291 $ 1,116,131
Automatic conversion
of shares 29,203 290,252
Shares issued to share-
holders in reinvestment
of dividends 3,873 38,614
------------ ------------
Total issued 144,367 1,444,997
Shares redeemed (37,966) (382,820)
------------ ------------
Net increase 106,401 $ 1,062,177
============ ============
Class D Shares for the Period
October 21, 1994++ to Dollar
August 31, 1995 Shares Amount
Shares sold 308,159 $ 2,879,606
Shares issued to share-
holders in reinvestment
of dividends 1,745 16,707
------------ ------------
Total issued 309,904 2,896,313
Shares redeemed (118,777) (1,103,205)
------------ ------------
Net increase 191,127 $ 1,793,108
============ ============
<PAGE>
[FN]
++Commencement of Operations.
5. Capital Loss Carryforward:
At August 31, 1995, the Fund had a net capital loss carryforward of
approximately $2,950,000, all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable
gains.
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
James H. Bodurtha, 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, Senior Vice President
Kenneth A. Jacob, Vice President
Walter C. O'Connor, Portfolio Manager
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, New York 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
<PAGE>
