MERRILL LYNCH
CALIFORNIA
INSURED
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
February 28, 1997
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.
Merrill Lynch
California Insured
Municipal Bond Fund
Merrill Lynch California
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #16575 -- 2/97
Merrill Lynch California Insured Municipal Bond Fund February 28, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the three month period ended February 28, 1997, long-term
municipal revenue bond yields rose moderately. As measured by the Bond
Buyer Revenue Index, A-rated uninsured tax-exempt revenue bond yields
increased approximately 15 basis points (0.15%) to 5.93%. During
December 1996 and January 1997, evidence for continued strong economic
growth increased inflationary fears and pushed fixed-income rates
higher. Long-term tax-exempt bond yields rose to approximately 6% at the
end of January 1997 before slightly declining during February. US
Treasury bond yields followed a similar pattern, but exhibited far
greater volatility. By late January 1997, US Treasury bond yields rose
approximately 60 basis points to approximately 6.95% before falling
modestly to end the February quarter at 6.80%. In total, US Treasury
bond yields increased 45 basis points during the February quarter, while
municipal bond yields rose approximately 15 basis points.
The municipal bond market's ability to withstand the pressure of higher
bond yields in recent months was mainly the result of a continued strong
technical position. During the six months ended February 28, 1997,
approximately $100 billion in new long-term municipal securities was
issued, essentially unchanged from issuance of a year earlier.
Approximately $45 billion in tax-exempt bonds was issued during the
quarter ended February 28,1997, representing a decline of approximately
8% compared to the quarter ended February 29, 1996. This declining trend
has been even more pronounced thus far in 1997. During January and
February 1997, slightly over $21 billion in new long-term municipal
bonds was underwritten, a decline of over 15% from the first two months
of 1996.
While the recent demand for long-term tax-exempt bonds has not been
overwhelming, it was more than adequate to prevent the more significant
yield increases seen in the taxable bond markets. In early January 1997,
long-term investors did receive over $20 billion in coupon income, bond
maturities and proceeds from early redemptions. Much of these monies,
despite the continued lure of the equity market, was reallocated to the
municipal bond market. Continued strong demand from certain insurance
companies generated considerable scarcity of higher-rated tax-exempt
bonds in the 15-year -- 20-year maturity sector. Additionally, the
increasingly short supply of attractively priced municipal securities in
the 25-year -- 30-year maturity sector prevented many institutional
investors from raising large cash reserve positions. Scarce supply made
the reinvestment of such positions uncertain and, given increased market
volatility, the timing of such reinvestment became even more
problematic.
Looking forward, the supply of new bond issuance in 1997 is expected to
be very similar to that of 1996, with most annual estimates falling in
the $170 billion -- $175 billion range. Investor demand is also expected
to regain some of its former strength with 1997 total municipal
redemptions (refundings, maturities and coupon payments) in the $175
billion -- $185 billion range. This overall balance suggests that the
positive technical backdrop enjoyed in 1996 may continue in 1997. The
near-term direction of interest rates remains uncertain. Recent renewed
economic growth has not yet resulted in renewed inflationary pressures.
The interest rate volatility seen in recent months, however, is likely
to continue until either the rate of recent economic growth declines or
the Federal Reserve Board raises interest rates to restrict further
growth. The tax-exempt bond market's technical position, however, is
likely to be strong enough for much of 1997 to continue to dampen much
of this interest rate volatility. This suggests that municipal bond
yields may continue to trade in a relatively narrow range, rewarding
neither an overly aggressive nor defensive portfolio strategy.
Portfolio Strategy
We continue to manage Merrill Lynch California Insured Municipal Bond
Fund with the strategy of providing both a high current yield of
tax-exempt income combined with capital appreciation potential. The six
months ended February 28, 1997 witnessed a fairly volatile environment
for the fixed-income markets. However, throughout this period, the
municipal bond market remained within a relatively identifiable trading
range. We attempted to take advantage of this trading range by
purchasing municipal revenue bonds, when available, as municipal
interest rates approached 5.9%, and selling securities when interest
rates declined into the neighborhood of 5.50%. At the lower end of this
range, the demand for municipal securities has historically evaporated,
limiting the risk/reward relationship for further appreciation in prices
going forward.
We maintained an above-average industry level of current return within
the portfolio mix in order to seek to provide a generous level of
tax-exempt income. Also, this relatively high coupon structure serves
the Fund well in periods of rising interest rates because these
securities are less sensitive to negative price movements. We expect to
keep the Fund within this trading range until there are clear signs of
economic strength or weakness providing clues to the next move by the
Federal Reserve Board and a corresponding change in the trend of short-
term and long-term interest rates. Now that long-term US Treasury
interest rates have breached 7%, we believe this situation provides an
outstanding opportunity to pursue a more aggressive investment strategy.
Long-term municipal bond yields near the 6% level would provide
excellent value for long-term investors, and we would use that type of
buying opportunity to become fully invested. We remain committed to
maintaining a majority of total assets in AAA-enhanced securities
because of the lack of any real credit quality spreads. Currently 92% of
the Fund's net assets are rated AAA by at least one of the major rating
agencies.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch California Insured
Municipal Bond Fund, and we look forward to serving your investment
needs in the months and years to come.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/WALTER C. O'CONNOR
Walter C. O'Connor
Vice President and Portfolio Manager
April 7, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
(bullet) 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.
(bullet) 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. (There is no initial sales charge for automatic
share conversions.)
(bullet) 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.
(bullet) 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>
<CAPTION>
Recent Performance Results
12 Month 3 Month
2/28/97 11/30/96 2/29/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.10 $10.19 $10.05 +0.50% -0.88%
Class B Shares* 10.10 10.19 10.05 +0.50 -0.88
Class C Shares* 10.09 10.19 10.05 +0.40 -0.98
Class D Shares* 10.11 10.20 10.06 +0.50 -0.88
Class A Shares -- Total Return* +5.80(1) +0.38(2)
Class B Shares -- Total Return* +5.26(3) +0.25(4)
Class C Shares -- Total Return* +5.06(5) +0.13(6)
Class D Shares -- Total Return* +5.69(7) +0.35(8)
Class A Shares -- Standardized 30-day Yield 4.50%
Class B Shares -- Standardized 30-day Yield 4.18%
Class C Shares -- Standardized 30-day Yield 4.09%
Class D Shares -- Standardized 30-day Yield 4.41%
* 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 $0.514 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.127 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.464 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.115 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.454 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.112 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.505 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.125 per share ordinary income dividends.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
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
1996 10.10 10.09 -- 0.510 + 5.17
1/1/97 -- 2/28/97 10.09 10.10 -- 0.076 + 0.94
Total $2.068
Cumulative total return as of 2/28/97: +24.91%**
* 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>
<CAPTION>
Performance Summary -- Class B Shares
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
1996 10.11 10.10 -- 0.460 + 4.64
1/1/97 -- 2/28/97 10.10 10.10 -- 0.068 + 0.75
Total $1.871
Cumulative total return as of 2/28/97: +22.40%**
* 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>
<CAPTION>
Performance Summary -- Class C Shares
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
1996 10.09 10.09 -- 0.450 + 4.64
1/1/97 -- 2/28/97 10.09 10.09 -- 0.067 + 0.74
Total $1.063
Cumulative total return as of 2/28/97: +22.56%**
* 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>
<CAPTION>
Performance Summary -- Class D Shares
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
1996 10.11 10.10 -- 0.501 + 5.07
1/1/97 -- 2/28/97 10.10 10.11 -- 0.074 + 0.92
Total $1.181
Cumulative total return as of 2/28/97: +24.30%**
* 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 12/31/96 +5.17% +0.96%
Inception (2/26/93)
through 12/31/96 +5.70 +4.58
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +4.64% +0.64%
Inception (2/26/93)
through 12/31/96 +5.19 +4.97
* 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 12/31/96 +4.64% +3.64%
Inception (10/21/94)
through 12/31/96 +9.35 +9.35
* 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 12/31/96 +5.07% +0.86%
Inception (10/21/94)
through 12/31/96 +9.96 +7.93
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch California Insured Municipal Bond Fund February 28, 1996
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
California -- 98.9%
AAA Aaa $15,010 Anaheim, California, Public Financing Authority, Lease Revenue Bonds
(Public Improvement Projects), Series C, 6.03%** due 9/01/2028 (f) $2,338
AAA Aaa 1,000 Anaheim, California, Public Financing Authority, Tax Allocation Revenue Bonds, RITES,
8.97% due 12/28/2018 (d)(e) 1,159
AAA Aaa 1,290 California Fairs Financing Authority Revenue Bonds, 6.50% due 7/01/2011 (f) 1,401
AA- Aa 1,965 California HFA, Home Mortgage Revenue Bonds, AMT, Series F-1, 7% due 8/01/2026 2,086
California Health Facilities Financing Authority Revenue Bonds, Series A:
BB Aaa 2,000 Refunding (Good Samaritan Health System), 7.50% due 5/01/2000 (g) 2,227
AAA Aaa 2,000 (Scripps Memorial Hospital), 6.375% due 10/01/2022 (d) 2,134
California Pollution Control Financing Authority, PCR, Refunding (Pacific Gas and
Electric), VRDN (a):
A1 NR* 1,700 AMT, Series G, 3.40% due 2/01/2016 1,700
A1+ NR* 2,100 Series C, 3.35% due 11/01/2026 2,100
A1+ NR* 700 Series F, 3.35% due 11/01/2026 700
California Pollution Control Financing Authority, Resource Recovery Revenue Bonds,
VRDN, AMT (a):
NR* Aa3 100 (Honey Lake Power Project), 3.35% due 9/01/2018 100
NR* P1 100 Refunding (Ultra Power Malaga Project), Series B, 3.35% due 4/01/2017 100
A1+ VMIG1+ 2,600 California Pollution Control Financing Authority, Solid Waste Disposal Revenue Bonds
(Shell Oil Co. -- Martinez Project), VRDN, AMT, Series A, 3.40% due 10/01/2024 (a) 2,600
California State Public Works Board, Lease Revenue Bonds, Series A (g):
A Aaa 2,000 (Department of Corrections -- Monterey County Soledad II), 7% due 11/01/2004 2,353
AAA Aaa 4,000 (Various University of California Projects), 6.40% due 12/01/2002 (b) 4,482
AAA Aaa 3,500 California State, Veterans' Bonds, AMT, UT, Series BD, BE and BF, 6.375% due 2/01/2027 (b) 3,604
A1 VMIG1+ 900 California Statewide Community Development Authority Revenue Bonds, COP (Sutter Health
Obligation Group), VRDN, 3.25% due 7/01/2015 (a)(b) 900
Central Coast Water Authority, California, Revenue Bonds (State Water Project
Regional Facilities) (b):
AAA Aaa 3,000 6.35% due 10/01/2002 (g) 3,347
AAA Aaa 2,360 6.50% due 10/01/2002 (g) 2,650
AAA Aaa 3,000 Refunding, Series A, 5% due 10/01/2022 2,734
A1 VMIG1+ 200 Chula Vista, California, IDR, Refunding (San Diego Gas), VRDN, Series A, 3.35% due
7/01/2021 (a) 200
AAA Aaa 1,200 Cucamonga County, California, Water District Facilities Refinancing Bonds, COP, 6.50%
due 9/01/2022 (c) 1,299
AAA Aaa 4,000 El Cajon, California, Redevelopment Agency, Tax Allocation Bonds (El Cajon
Redevelopment Project), 6.60% due 10/01/2022 (b) 4,358
AAA Aaa 2,500 Fresno, California, Sewer Revenue Bonds (Fowler Avenue Project), Series A, 6.25%
due 8/01/2011 (b) 2,659
AAA Aaa 2,500 Industry, California, Urban Development Agency Refunding Bonds (Transportation District
Industrial Redevelopment Project 2), 6.50% due 11/01/2016 (d) 2,743
A+ Aa 2,000 Los Angeles, California, Department of Water and Power, Electric Plant Revenue Bonds,
Registered RITR, 8.687% due 2/01/2020 (e) 2,225
Los Angeles, California, Harbor Department Revenue Bonds, AMT:
AAA Aaa 2,000 RITR, 8.794% due 11/01/2026 (d)(e) 2,222
AAA Aaa 2,000 Series B, 6.625% due 8/01/2019 (b) 2,164
AAA Aaa 2,000 Los Angeles County, California, Metropolitan Transportation Authority, Sales Tax Revenue
Bonds (Proposition C), Second Series A, 5% due 7/01/2025 (b) 1,804
AAA Aaa 1,000 Mesa, California, Consolidated Water District, COP (Water Project), 6.375% due 3/15/2012 (c) 1,067
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) 2,275
AAA Aaa 2,500 Mountain View, California, Capital Improvements Financing Authority Revenue Bonds
(City Hall Community Theatre), 6.50% due 8/01/2016 (d) 2,715
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) 3,719
AAA Aaa 3,000 Orchard, California, School District, GO, UT, Series A, 6.50% due 8/01/2019 (c) 3,283
AAA Aaa 1,500 Rancho, California, Water District Financing Authority, Revenue Refunding Bonds,
6.25% due 8/01/2012 (c) 1,593
Sacramento, California, Municipal Utility District, Electric Revenue Bonds:
AAA Aaa 2,000 INFLOS, 8.868% due 8/15/2018 (c)(e) 2,250
AAA Aaa 3,000 Series B, 6.375% due 8/15/2022 (d) 3,220
San Francisco, California, City and County Airport Commission, International Airport,
Revenue Refunding Bonds, Second Series:
AAA Aaa 3,750 First Issue, 6.50% due 5/01/2013 (b) 4,099
AAA Aaa 2,500 Second Issue, 6.75% due 5/01/2020 (d) 2,786
Stockton, California, Revenue Bonds, COP (Wastewater Treatment Plant Expansion),
Series A (c):
AAA Aaa 2,500 6.70% due 9/01/2014 2,793
AAA Aaa 2,500 6.80% due 9/01/2024 (h) 2,805
University of California Revenue Bonds (Multiple Purpose Projects), Series D (d):
AAA Aaa 3,685 6.30% due 9/01/2015 3,933
AAA Aaa 2,250 6.375% due 9/01/2019 2,410
Total Investments (Cost -- $92,998) -- 98.9% 97,337
Variation Margin on Financial Futures Contracts*** -- 0.0% 5
Other Assets Less Liabilities -- 1.1% 1,099
--------
Net Assets -- 100.0% $98,441
========
(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, 1997.
(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 28, 1997.
(f) FSA Insured.
(g) Prerefunded.
(h) All or portion of security held as collateral in connection with
open financial futures contracts.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase by the Fund.
*** Financial futures contracts purchased as of February 28, 1997
(in thousands) were as follows:
Value
Number of Expiration (Notes
Contracts Issue Date 1a & 1b)
25 Municipal Bond Index March 1997 $2,901
Total Financial Futures Contracts Purchased
(Total Contract Price -- $2,906) $2,901
======
+ Highest short-term rating by Moody's Investors Service, Inc.
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.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
IDR Industrial Development Revenue Bonds
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
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of February 28, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $92,997,828) (Note 1a) $97,337,183
Cash 155,124
Receivables:
Interest $1,404,772
Beneficial interest sold 49,461
Variation margin (Note 1b) 5,469 1,459,702
-----------
Deferred organization expenses (Note 1e) 17,023
Prepaid registered fees and other assets (Note 1e) 33,604
-----------
Total assets 99,002,636
-----------
Liabilities: Payables:
Beneficial interest redeemed 291,656
Dividends to shareholders (Note 1f) 75,121
Distributor (Note 2) 31,222
Investment adviser (Note 2) 18,832 416,831
-----------
Accrued expenses and other liabilities 144,356
-----------
Total liabilities 561,187
-----------
Net Assets: Net assets $98,441,449
===========
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $138,969
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 729,708
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 57,230
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 48,940
Paid-in capital in excess of par 96,774,889
Accumulated realized capital losses on investments -- net (Note 5) (3,642,517)
Unrealized appreciation on investments -- net 4,334,230
-----------
Net assets $98,441,449
===========
Net Asset Value: Class A -- Based on net assets of $14,031,905 and 1,389,689 shares
of beneficial interest outstanding $10.10
===========
Class B -- Based on net assets of $73,687,736 and 7,297,083 shares
of beneficial interest outstanding $10.10
===========
Class C -- Based on net assets of $5,776,276 and 572,296 shares
of beneficial interest outstanding $10.09
===========
Class D -- Based on net assets of $4,945,532 and 489,403 shares
of beneficial interest outstanding $10.11
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
February 28, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $2,727,418
(Note 1d):
Expenses: Investment advisory fees (Note 2) $264,865
Account maintenance and distribution fees -- Class B (Note 2) 182,093
Accounting services (Note 2) 48,067
Registration fees (Note 1e) 38,040
Professional fees 25,984
Printing and shareholder reports 25,531
Account maintenance and distribution fees -- Class C (Note 2) 14,709
Transfer agent fees -- Class B (Note 2) 12,038
Custodian fees 7,201
Amortization of organization expenses (Note 1e) 5,759
Pricing fees 3,303
Account maintenance fees -- Class D (Note 2) 2,262
Transfer agent fees -- Class A (Note 2) 1,854
Trustees' fees and expenses 1,606
Transfer agent fees -- Class C (Note 2) 810
Transfer agent fees -- Class D (Note 2) 597
Other 1,658
----------
Total expenses before reimbursement 636,377
Reimbursement of expenses (Note 2) (144,472)
----------
Total expenses after reimbursement 491,905
----------
Investment income -- net 2,235,513
----------
Realized & Realized gain on investments -- net 522,345
Unrealized Gain on Change in unrealized appreciation on investments -- net 2,005,991
Investments -- Net ----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $4,763,849
==========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $2,235,513 $4,511,142
Realized gain on investments -- net 522,345 605,747
Change in unrealized appreciation on investments -- net 2,005,991 1,181,849
----------- -----------
Net increase in net assets resulting from operations 4,763,849 6,298,738
----------- -----------
Dividends to Investment income -- net:
Shareholders Class A (355,514) (752,385)
(Note 1f): Class B (1,658,593) (3,437,910)
Class C (109,181) (161,469)
Class D (112,225) (159,378)
----------- -----------
Net decrease in net assets resulting from dividends to shareholders (2,235,513) (4,511,142)
----------- -----------
Beneficial Interest Net increase (decrease) in net assets derived from beneficial
Transactions interest transactions (766,530) 5,394,929
(Note 4): ----------- -----------
Net Assets: Total increase in net assets 1,761,806 7,182,525
Beginning of period 96,679,643 89,497,118
----------- -----------
End of period $98,441,449 $96,679,643
=========== ===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
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. 28, Ended August 31, Aug. 31,
1997 1996 1995 1994 1993
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.84 $9.65 $9.54 $10.23 $10.00
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net .25 .52 .52 .51 .24
Realized and unrealized gain (loss) on
investments -- net .26 .19 .11 (.65) .23
------- ------- ------- ------- -------
Total from investment operations .51 .71 .63 (.14) .47
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net (.25) (.52) (.52) (.51) (.24)
In excess of realized gain on
investments -- net -- -- -- (.04) --
------- ------- ------- ------- -------
Total dividends and distributions (.25) (.52) (.52) (.55) (.24)
------- ------- ------- ------- -------
Net asset value, end of period $10.10 $9.84 $9.65 $9.54 $10.23
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 5.24%++ 7.44% 6.94% (1.44%) 4.81%++
Return:** ======= ======= ======= ======= =======
Ratios to Expenses, net of reimbursement .60%* .49% .47% .33% .14%*
Average ======= ======= ======= ======= =======
Net Assets: Expenses .90%* .85% .87% .96% 1.06%*
======= ======= ======= ======= =======
Investment income -- net 5.06%* 5.20% 5.53% 5.16% 4.80%*
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $14,032 $14,183 $14,204 $15,946 $17,105
Data: ======= ======= ======= ======= =======
Portfolio turnover 22.97% 87.77% 61.53% 93.04% 74.26%
======= ======= ======= ======= =======
* Annualized.
** Total investment returns exclude the effect of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<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 For the Year 1993+ to
Feb. 28, Ended August 31, Aug. 31,
1997 1996 1995 1994 1993
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.84 $9.65 $9.54 $10.23 $10.00
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net .23 .47 .48 .46 .22
Realized and unrealized gain (loss) on
investments -- net .26 .19 .11 (.65) .23
------- ------- ------- ------- -------
Total from investment operations .49 .66 .59 (.19) .45
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net (.23) (.47) (.48) (.46) (.22)
In excess of realized gain on
investments -- net -- -- -- (.04) --
------- ------- ------- ------- -------
Total dividends and distributions (.23) (.47) (.48) (.50) (.22)
------- ------- ------- ------- -------
Net asset value, end of period $10.10 $9.84 $9.65 $9.54 $10.23
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 4.98%++ 6.89% 6.38% (1.93%) 4.56%++
Return:** ======= ======= ======= ======= =======
Ratios to Expenses, net of reimbursement 1.11%* .99% .97% .83% .64%*
Average ======= ======= ======= ======= =======
Net Assets: Expenses 1.41%* 1.36% 1.38% 1.48% 1.56%*
======= ======= ======= ======= =======
Investment income -- net 4.55%* 4.69% 5.02% 4.67% 4.31%*
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $73,688 $73,292 $71,670 $74,982 $72,861
Data: ======= ======= ======= ======= =======
Portfolio turnover 22.97% 87.77% 61.53% 93.04% 74.26%
======= ======= ======= ======= =======
* Annualized.
** Total investment returns exclude the effect of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class C
For the For the
Six For the Period
Months Year Oct. 21,
The following per share data and ratios have been derived Ended Ended 1994+ to
from information provided in the financial statements. Feb. 28, Aug. 31, Aug. 31,
1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.84 $9.64 $9.19
Operating ------- ------- -------
Performance: Investment income -- net .22 .46 .39
Realized and unrealized gain on investments -- net .25 .20 .45
------- ------- -------
Total from investment operations .47 .66 .84
------- ------- -------
Less dividends from investment income -- net (.22) (.46) (.39)
------- ------- -------
Net asset value, end of period $10.09 $9.84 $9.64
======= ======= =======
Total Investment Based on net asset value per share 4.82%++ 6.90% 9.38%++
Return:** ======= ======= =======
Ratios to Average Expenses, net of reimbursement 1.21%* 1.10% 1.09%*
Net Assets: ======= ======= =======
Expenses 1.51%* 1.46% 1.49%*
======= ======= =======
Investment income -- net 4.45%* 4.59% 4.76%*
======= ======= =======
Supplemental Net assets, end of period (in thousands) $5,776 $4,901 $1,778
Data: ======= ======= =======
Portfolio turnover 22.97% 87.77% 61.53%
======= ======= =======
* Annualized.
** Total investment returns exlude the effect of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class D
For the For the
Six For the Period
Months Year Oct. 21,
The following per share data and ratios have been derived Ended Ended 1994+ to
from information provided in the financial statements. Feb. 28, Aug. 31, Aug. 31,
1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.85 $9.65 $9.19
Operating ------- ------- -------
Performance: Investment income -- net .25 .51 .44
Realized and unrealized gain on investments -- net .26 .20 .46
------- ------- -------
Total from investment operations .51 .71 .90
------- ------- -------
Less dividends from investment income -- net (.25) (.51) (.44)
------- ------- -------
Net asset value, end of period $10.11 $9.85 $9.65
======= ======= =======
Total Investment Based on net asset value per share 5.18%++ 7.44% 9.99%++
Return:** ======= ======= =======
Ratios to Average Expenses, net of reimbursement .70%* .59% .57%*
Net Assets: ======= ======= =======
Expenses 1.00%* .95% .97%*
======= ======= =======
Investment income -- net 4.96%* 5.09% 5.33%*
======= ======= =======
Supplemental Net assets, end of period (in thousands) $4,945 $4,304 $1,845
Data: ======= ======= =======
Portfolio turnover 22.97% 87.77% 61.53%
======= ======= =======
* Annualized.
** Total investment returns exlude the effect of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch California Insured Municipal Bond Fund February 28, 1997
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 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 PricingSM 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 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.
(bullet) 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 date.
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.
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.
For the six months ended February 28, 1997, FAM earned fees of $264,865,
of which $144,472 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, 1997, 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 $125 $ 965
Class D $327 $2,073
For the six months ended February 28, 1997, MLPF&S received contingent
deferred sales charges of $86,709 and $1,086 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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the six months ended February 28, 1997 were $20,996,490 and $26,281,130,
respectively.
Net realized and unrealized gains (losses) as of February 28, 1997 were
as follows:
Realized Unrealized
Gains Gains (Losses)
Long-term investments $485,233 $4,339,355
Financial futures contracts 37,112 (5,125)
-------- ----------
Total $522,345 $4,334,230
======== ==========
As of February 28, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $4,339,355, of which $4,431,068 related to
appreciated securities and $91,713 related to depreciated securities.
The aggregate cost of investments at February 28, 1997 for Federal
income tax purposes was $92,997,828.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $(766,530) and $5,394,929 for the six months ended
February 28, 1997 and for the year ended August 31, 1996,
respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Months Dollar
Ended February 28, 1997 Shares Amount
Shares sold 18,099 $ 180,607
Shares issued to shareholders
in reinvestment of dividends 13,418 134,601
-------- ---------
Total issued 31,517 315,208
Shares redeemed (83,238) (834,173)
-------- ---------
Net decrease (51,721) $(518,965)
======== =========
Class A Shares for the Year Dollar
Ended August 31, 1996 Shares Amount
Shares sold 192,761 $1,890,855
Shares issued to shareholders
in reinvestment of dividends 28,926 285,031
-------- ---------
Total issued 221,687 2,175,886
Shares redeemed (252,553) (2,492,063)
--------- ----------
Net decrease (30,866) $ (316,177)
========= ==========
Class B Shares for the Six Months Dollar
Ended February 28, 1997 Shares Amount
Shares sold 568,297 $ 5,685,337
Shares issued to shareholders
in reinvestment of dividends 68,130 683,488
--------- ----------
Total issued 636,427 6,368,825
Automatic conversion of shares (26,997) (273,150)
Shares redeemed (760,520) (7,616,531)
--------- ----------
Net decrease (151,090) $(1,520,856)
========= ==========
Class B Shares for the Year Dollar
Ended August 31, 1996 Shares Amount
Shares sold 1,369,886 $13,477,417
Shares issued to shareholders
in reinvestment of dividends 155,360 1,531,776
----------- -----------
Total issued 1,525,246 15,009,193
Automatic conversion of shares (35,131) (353,395)
Shares redeemed (1,469,919) (14,486,720)
----------- -----------
Net increase 20,196 $ 169,078
========= ===========
Class C Shares for the Six Months Dollar
Ended February 28, 1997 Shares Amount
Shares sold 170,033 $ 1,708,211
Shares issued to shareholders
in reinvestment of dividends 7,256 72,767
----------- -----------
Total issued 177,289 1,780,978
Shares redeemed (103,303) (1,035,001)
----------- -----------
Net increase 73,986 $ 745,977
=========== ===========
Class C Shares for the Year Dollar
Ended August 31, 1996 Shares Amount
Shares sold 424,343 $ 4,215,073
Shares issued to shareholders
in reinvestment of dividends 11,412 112,281
----------- -----------
Total issued 435,755 4,327,354
Shares redeemed (121,901) (1,209,318)
----------- -----------
Net increase 313,854 $ 3,118,036
=========== ===========
Class D Shares for the Six Months Dollar
Ended February 28, 1997 Shares Amount
Shares sold 35,041 $ 350,153
Automatic conversion of shares 26,979 273,150
Shares issued to shareholders
in reinvestment of dividends 8,133 81,663
----------- -----------
Total issued 70,153 704,966
Shares redeemed (17,822) (177,652)
----------- -----------
Net increase 52,331 $ 527,314
=========== ===========
Class D Shares for the Year Dollar
Ended August 31, 1996 Shares Amount
Shares sold 263,889 $ 2,602,675
Automatic conversion of shares 35,107 353,395
Shares issued to shareholders
in reinvestment of dividends 10,947 107,791
----------- -----------
Total issued 309,943 3,063,861
Shares redeemed (63,998) (639,869)
----------- -----------
Net increase 245,945 $ 2,423,992
=========== ===========
5. Capital Loss Carryforward:
At August 31, 1996, the Fund had a net capital loss carryforward of
approximately $3,966,000, of which $2,950,000 expires in 2003 and
$1,016,000 expires in 2004. 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
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Walter C. O'Connor, Vice President
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
