UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4264
Name of Fund: Merrill Lynch California Insured Municipal Bond Fund
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch
California Insured Municipal Bond Fund, 800 Scudders Mill Road,
Plainsboro, NJ 08536. Mailing address: P.O. Box 9011, Princeton, NJ
08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 08/31/03
Date of reporting period: 09/01/02 - 2/28/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers
Semi-Annual Report
February 28, 2003
Merrill Lynch
California
Insured
Municipal
Bond Fund
www.mlim.ml.com
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
DEAR SHAREHOLDER
The Municipal Market Environment
During the six-month period ended February 28, 2003, long-term fixed income
interest rates continued to move lower. As they had in 2002, declining U.S.
equity markets and escalating worldwide political tensions easily overshadowed
the incipient U.S. economic recovery, allowing bond yields to fall to recent
historical lows. Economic releases, such as national employment and purchasing
manager surveys, were generally weak early in the period. Additionally, at its
August 2002 meeting, the Federal Reserve Board indicated that concerns about
future economic weakness outweighed those of rising inflation. This signaled
that the Federal Reserve Board was more likely to continue to lower short-term
interest rates to boost economic activity rather than to raise them to reduce
inflationary pressures. These factors combined to generate a very favorable
fixed income environment in September 2002. The dramatic decline in equity
values during September also helped trigger a significant fixed income rally as
investors sought the safe-haven status of U.S. Treasury issues. By the end of
September, U.S. Treasury bond yields fell to 4.65%.
Bolstered by an unexpected decline in the national unemployment rate to 5.6% in
early October, U.S. equity markets staged a strong rally throughout much of the
month. The Standard & Poor's 500 (S&P 500) Index rose over 8% for October,
triggered by stronger-than-expected earnings reports from a large number of
companies, such as General Electric Company, International Business Machines
Corporation and Microsoft Corporation. As they have throughout most of the
period, bond prices traded in an inverse relationship to equity prices.
Consequently, as stocks rallied, bond yields rose in October, despite generally
weak economic releases. During October, the U.S. housing sector remained quite
robust, but retail sales and industrial production slowed. Fixed income bond
yields remained under pressure in November as U.S. equity markets continued to
strengthen. During November, the S&P 500 Index rose an additional 5.5%. Equity
prices were supported by further signs of U.S. economic recovery, especially
improving labor market activity. By the end of the third quarter, gross domestic
product growth was 4%, well above the second quarter 2002 rate of 1.3%.
Financial conditions were also strengthened by a larger-than-expected reduction
in short-term interest rates by the Federal Reserve Board in early November. The
Federal Funds target rate was lowered 50 basis points (.50%) to 1.25%, its
lowest level since the 1960s. Recent action by the Federal Reserve Board was
largely viewed as being taken to bolster the sputtering U.S. economic recovery.
Rebounding U.S. equity markets and the prospects for a more substantial U.S.
economic recovery pushed long-term U.S. Treasury yield levels to 5.10% by late
November.
However, over the past three months softer equity prices and renewed investor
concerns about U.S. military action against Iraq and nuclear tensions in North
Korea again pushed bond prices higher. Reacting to disappointing holiday sales
and corporate managements' attempts to scale back analysts' expectation of
future earnings, the S&P 500 Index declined more than 8% during the last three
months. Fearing a U.S./Iraq military confrontation in early 2003, investors
again sought the safety of U.S. Treasury obligations. During February, U.S.
Treasury bond yields declined more than 25 basis points to end the period at
4.67%. Over the last six months, U.S. Treasury bond yields fell more than 25
basis points.
For the six-month period ended February 28, 2003, tax-exempt bond prices also
continued to rise. In recent months, municipal bond yields have declined in
response to the positive fixed income environment engendered by falling equity
valuations. Price advances in tax-exempt issues, however, have not been able to
keep pace with U.S. Treasury bond price improvement as municipal bonds cannot
offer foreign investors the safe-haven status U.S. Treasury obligations enjoy in
periods of economic and political instability. Additionally, tax-exempt bond
issuance increased dramatically in the last half of 2002, removing some of the
positive technical support the municipal bond market enjoyed earlier in the
year. At February 28, 2003, long-term municipal bond yields, as measured by the
Bond Buyer Revenue Bond Index, stood at 5.10%, a decline of approximately 15
basis points during the last six months.
A number of factors combined to generate consistently strong demand for
municipal bonds throughout the six-month period ended February 28, 2003.
1
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
Declining U.S. equity markets supported continued positive demand for tax-exempt
products as investors sought the relative security of fixed income issues. Also,
with tax-exempt money market rates near 1%, the demand for longer maturity
municipal issues has increased as investors have opted to buy longer maturity
issues rather than remain in cash reserves. Additionally, investors renewed
approximately $30 billion in January 2003 from bond maturities, coupon income
and proceeds from early redemptions. However, these positive demand factors have
not been totally able to offset the increase in tax-exempt new-issue supply that
has resulted in the underperformance seen in recent months. This price
underperformance served to make municipal bonds a particularly attractive
purchase relative to their taxable counterparts. Throughout most of the yield
curve, municipal bonds have been available for purchase at yields near or
exceeding those of comparable U.S. Treasury issues. Compared to their recent
historical averages of 82% - 88% of U.S. Treasury yields, municipal bond yield
ratios in their current 95% - 105% range are likely to prove attractive to
long-term investors.
Declining U.S. equity markets and escalating geopolitical pressures have
resulted in reduced economic activity and consumer confidence. Consequently,
fixed income bond yields have continued to decline to recent historic lows and
to levels that may not be supported by economic fundamentals alone. It is
important to note that, despite all the negative factors impeding the growth of
U.S. businesses, the U.S. economy still grew at an approximate 2.5% rate for all
of 2002, twice that of 2001. Similar expansion is expected in early 2003.
However, until both Iraqi and North Korean conflicts are resolved, any
meaningful increase in interest rates is unlikely.
Some analysts expect that, upon resolution of these conflicts, U.S. business
conditions will quickly improve. Bond yields, especially U.S. Treasury
securities, which have enjoyed a significant safe-haven benefit, are also
expected to quickly rise. However, it is questionable to expect that even a
quick, positive closure to these hostilities would restore business and investor
confidence to the extent that U.S. economic growth would dramatically explode
and foster associated, large-scale interest rate increases.
The resumption of solid economic growth is likely to be a gradual process
accompanied by equally graduated increases in bond yields. Moderate economic
growth, within the content of negligible inflationary pressures, should not
greatly endanger the positive fixed income environment tax-exempt products are
currently experiencing.
Specific to California, the state's budget has been deteriorating because of a
stalled state economy. The budget shortfall, estimated to be nearing $34
billion, was comprised of $10 billion from the remaining fiscal year-end and $24
billion for the fiscal year-end 2004. The governor's office attributes the
deficit to a slowing national economy and a declining stock market that resulted
in lower capital gains tax revenue. The $34 billion shortfall is for the fiscal
year beginning on July 1, 2003 through the end of 2004. Governor Gray Davis
proposed a budget package including $21 billion in spending cuts and $8 billion
in higher taxes on income, retail sales and cigarettes. However, as of February
2003, the state legislature and governor's office had yet to enact any major
budget changes. This could cause the state to issue as many as $4 billion - $11
billion worth of revenue anticipation warrants later this spring. Standard and
Poor's lowered its credit rating on the state's general obligation debt from A+
to A. Fitch lowered its rating from AA to A, while Moody's Investors Service
maintained its rating of A1. These lowered ratings, and the perception of
increased borrowing needs in the future, caused a widening of yield spreads.
California uninsured paper had traded as tight as five basis points to
comparably structured insured bonds last year. Currently, California general
obligations trade at a 50 basis point spread to bonds rated AAA. On a positive
note, California is still the world's fifth-largest economy in terms of gross
domestic product and possesses the economic basis to address these financial
problems. In our opinion, the state's challenge is to overcome the political
obstacles to achieving financial discipline.
Portfolio Strategy
For the six-month period ended February 28, 2003, the Fund continued to deliver
good relative performance results. (Complete performance information can be
found on pages 4 and 5 of this report to
2
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
shareholders.) Our strategy for achieving competitive total returns, however,
has not been through emphasizing aggressively structured holdings with long
duration that would normally perform best in a declining interest rate
environment. Instead, we focused on delivering a higher-than-industry average
degree of current yield. We sought to enhance current return by concentrating
the Fund's securities in higher-couponed bonds and by using inverse floater
product designed to take advantage of the extraordinarily steep municipal yield
curve. Stressing a higher-coupon structure allowed us to enhance tax-exempt
income to the shareholder, maintain a competitive total return, and guard
against an eventual increase in interest rates. Forecasting the next rise in
interest rates has become a very elusive target, but due to the anticipatory
nature of the municipal marketplace, it will be beneficial to be ahead of the
market when that time arises.
Given the present period of unquantifiable geopolitical risk, the Fund is
defensively structured, which can result in short-term underperformance in
periods of drastically declining interest rates. However, with the historically
low absolute level of today's investment rates, the potential degree of
continued underperformance is reduced and we believe that any sacrifice in
capital appreciation (from these low levels) can be regained through a steady
stream of high income accrual. Utilizing this strategy proved favorable to the
Fund over the past six months.
Municipal yields for California insured paper have achieved levels which have
historically been difficult to improve upon. In the past, retail and
institutional investors eschewed municipal yields once they approached current
levels. We believe in maintaining the Fund's low net asset value volatility,
perhaps sacrificing a degree of near-term price appreciation, in order to
position the portfolio for the time when economic conditions are not as positive
for California insured bond prices. Credit quality will continue to remain a
focus, as 84% of the Fund's long-term assets were rated AAA with bond insurance
at February 28, 2003.
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/ Terry K. Glenn
Terry K. Glenn
President and Trustee
/s/ Kenneth A. Jacob
Kenneth A. Jacob
Senior Vice President
/s/ John M. Loffredo
John M. Loffredo
Senior Vice President
/s/ Walter C. O'Connor
Walter C. O'Connor
Vice President and Portfolio Manager
March 24, 2003
3
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
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:
o 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.
o Effective December 1, 2002, Class B Shares are subject to a maximum
contingent deferred sales charge of 4%, declining to 0% after six years.
All Class B Shares purchased prior to December 1, 2002 will maintain the
four-year schedule. 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.)
o 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.
o 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. Performance results do not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption
of fund shares. Figures shown in each of the following tables assume
reinvestment of all dividends and capital gains distributions at net asset
value on the payable date. 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.
Recent Performance Results
Ten-Year/
6-Month 12-Month Since Inception Standardized
As of February 28, 2003 Total Return Total Return Total Return 30-Day Yield
==========================================================================================================================
ML California Insured Municipal Bond Fund Class A Shares* +3.39% +7.32% +74.82% 3.72%
- --------------------------------------------------------------------------------------------------------------------------
ML California Insured Municipal Bond Fund Class B Shares* +3.05 +6.69 +66.15 3.38
- --------------------------------------------------------------------------------------------------------------------------
ML California Insured Municipal Bond Fund Class C Shares* +3.00 +6.59 +64.52 3.28
- --------------------------------------------------------------------------------------------------------------------------
ML California Insured Municipal Bond Fund Class D Shares* +3.25 +7.13 +71.62 3.63
- --------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index** +3.36 +7.67 +84.67/+82.43 --
==========================================================================================================================
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Total investment returns are
based on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the payable date. The Fund's ten-year/since inception periods are
ten years for Class A & Class B Shares and from 10/21/94 for Class C &
Class D Shares.
** This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds. The ten-year/ since
inception total returns are for ten years and from 10/31/94, respectively.
4
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 2/28/03 +7.32% +3.03%
- --------------------------------------------------------------------------------
Five Years Ended 2/28/03 +5.48 +4.63
- --------------------------------------------------------------------------------
Ten Years Ended 2/28/03 +5.75 +5.31
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 2/28/03 +6.69% +2.69%
- --------------------------------------------------------------------------------
Five Years Ended 2/28/03 +4.95 +4.63
- --------------------------------------------------------------------------------
Ten Years Ended 2/28/03 +5.21 +5.21
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 2/28/03 +6.59% +5.59%
- --------------------------------------------------------------------------------
Five Years Ended 2/28/03 +4.85 +4.85
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 2/28/03 +6.14 +6.14
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
One Year Ended 2/28/03 +7.13% +2.84%
- --------------------------------------------------------------------------------
Five Years Ended 2/28/03 +5.38 +4.52
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 2/28/03 +6.68 +6.16
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
5
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
- ------------------------------------------------------------------------------------------------------------------------------------
California--95.5%
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $ 2,625 ABAG Finance Authority for Nonprofit Corporations, California, COP (Children's Hospital
Medical Center), 6% due 12/01/2029 (a) $ 3,035
- ------------------------------------------------------------------------------------------------------------------------------------
NR* NR* 3,750 Alameda, California, Public Financing Authority, Local Agency Special Tax Revenue Bonds
(Community Facility Number 1), Series A, 7% due 8/01/2019 4,070
- ------------------------------------------------------------------------------------------------------------------------------------
Alameda Corridor, California, Transportation Authority Revenue Bonds, Senior Lien,
Series A (g):
AAA Aaa 2,000 5.125% due 10/01/2018 2,151
AAA Aaa 3,600 5.25% due 10/01/2021 3,811
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Anaheim, California, Public Financing Authority, Tax Allocation Revenue Refunding Bonds,
RITES, 11.62% due 12/28/2018 (g)(h) 5,712
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Bakersfield, California, COP, Refunding (Convention Center Expansion Project),
5.875% due 4/01/2022 (g) 2,259
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Bay Area Government Association, California, Revenue Refunding Bonds
(California Redevelopment Agency Pool), Series A, 6% due 12/15/2024 (f) 6,582
- ------------------------------------------------------------------------------------------------------------------------------------
California Educational Facilities Authority Revenue Refunding Bonds (g):
NR* Aaa 9,000 RIB, Series 413, 10.67% due 10/01/2026 (h) 11,648
NR* Aaa 1,025 (University of the Pacific), 5.875% due 11/01/2020 1,173
- ------------------------------------------------------------------------------------------------------------------------------------
A1 VMIG1+ 7,300 California HFA, Home Mortgage Revenue Bonds, VRDN, Series F, 1.05% due 2/01/2033 (a)(i) 7,300
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 California Health Facilities Finance Authority, Insured Health Facility Revenue Refunding
Bonds (Catholic Healthcare West), Series A, 6% due 7/01/2017 (g) 3,423
- ------------------------------------------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority Revenue Bonds:
AAA NR* 10,000 DRIVERS, Series 181, 9.562% due 6/01/2022 (f)(h) 11,251
AAA NR* 5,000 (Kaiser Permanente), RIB, Series 26, 9.65% due 6/01/2022 (f)(h) 5,626
AAA Aaa 2,000 (Scripps Memorial Hospital), Series A, 6.375% due 10/01/2022 (g) 2,049
NR* Aa3 5,780 (Scripps Research Institute), Series A, 6.625% due 7/01/2014 6,240
A+ A1 2,080 (Sutter Health), Series A, 6.25% due 8/15/2035 2,242
- ------------------------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 4,700 California Health Facilities Finance Authority, Revenue Refunding Bonds
(Adventist Hospital), VRDN, Series B, 1% due 9/01/2028 (g)(i) 4,700
- ------------------------------------------------------------------------------------------------------------------------------------
BBB Baa3 14,000 California Pollution Control Financing Authority, Solid Waste Disposal Revenue Refunding
Bonds (Republic Services Inc. Project), AMT, Series C, 5.25% due 6/01/2023 14,157
- ------------------------------------------------------------------------------------------------------------------------------------
BBB+ A3 4,500 California State Department of Water Resources, Power Supply Revenue Bonds, Series A,
5.75% due 5/01/2017 4,924
- ------------------------------------------------------------------------------------------------------------------------------------
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
DRIVERS Derivative Inverse Tax-Exempt Receipts
GO General Obligation Bonds
HFA Housing Finance Agency
RIB Residual Interest Bonds
RITES Residual Interest Tax-Exempt Securities
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
6
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
- ------------------------------------------------------------------------------------------------------------------------------------
California (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $ 2,000 California State Department of Water Resources, Water System Revenue Refunding Bonds
(Central Valley Project), Series Q, 5.375% due 12/01/2027 (g) $ 2,125
- ------------------------------------------------------------------------------------------------------------------------------------
California State Public Works Board, Lease Revenue Bonds:
AAA NR* 1,500 DRIVERS, Series 209, 9.803% due 3/01/2016 (a)(h) 1,860
AAA NR* 10,000 (Department of Corrections), Series A, 7% due 11/01/2019 (a) 11,186
AAA Aaa 2,800 (Department of Health Services), Series A, 5.625% due 11/01/2019 (g) 3,061
- ------------------------------------------------------------------------------------------------------------------------------------
California State Public Works Board, Lease Revenue Refunding Bonds, Series B:
AAA Aaa 10,000 (Department of Corrections), 5.625% due 11/01/2019 (g) 11,196
AAA Aaa 1,500 (Various Community College Projects), 5.625% due 3/01/2019 (a) 1,675
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,580 California State University and Colleges, Housing System Revenue Refunding Bonds,
5.80% due 11/01/2017 (d) 1,771
- ------------------------------------------------------------------------------------------------------------------------------------
AAA NR* 6,000 California Statewide Communities Development Authority, COP, Refunding
(Huntington Memorial Hospital), 5.80% due 7/01/2026 (b) 6,613
- ------------------------------------------------------------------------------------------------------------------------------------
A- A3 2,475 California Statewide Communities Development Authority, Health Facility Revenue Bonds
(Memorial Health Services), Series A, 6% due 10/01/2023 2,623
- ------------------------------------------------------------------------------------------------------------------------------------
NR* NR* 1,200 Capistrano, California, Unified School District, Community Facility District, Special Tax
Bonds (No. 90-2 Talega), 6% due 9/01/2032 1,212
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,585 Contra Costa County, California, Public Financing Authority, Lease Revenue Refunding
Bonds (Various Capital Facilities), Series A, 5.35% due 8/01/2024 (g) 5,954
- ------------------------------------------------------------------------------------------------------------------------------------
BBB NR* 340 Contra Costa County, California, Public Financing Authority, Tax Allocation Revenue Bonds,
Series A, 7.10% due 8/01/2022 347
- ------------------------------------------------------------------------------------------------------------------------------------
Corona, California, COP, Refunding (Corona Community):
AAA Aaa 1,915 8% due 3/01/2009 (e) 2,486
AAA Aaa 2,065 8% due 3/01/2010 (e) 2,715
AAA Aaa 2,230 8% due 3/01/2011 (e) 2,971
AAA Aaa 2,410 8% due 3/01/2012 (e) 3,254
AAA Aaa 2,605 8% due 3/01/2013 (e) 3,557
AAA Aaa 2,810 8% due 3/01/2014 (e) 3,867
AAA Aaa 3,035 8% due 3/01/2015 (c) 4,208
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,250 Cucamonga, California, County Water District, COP, Refunding, 5.50% due 9/01/2024 (d) 1,341
- ------------------------------------------------------------------------------------------------------------------------------------
NR* NR* 1,000 Elk Grove, California, East Franklin Community Number 1 Special Tax, Series A,
6% due 8/01/2033 1,010
- ------------------------------------------------------------------------------------------------------------------------------------
NR* NR* 3,000 Etiwanda School District, California, Community Facilities District Number 8, Special Tax,
6.25% due 9/01/2032 3,051
- ------------------------------------------------------------------------------------------------------------------------------------
A A1 3,000 Golden State Tobacco Securitization Corporation, California, Tobacco Settlement Revenue
Bonds, Series 2003-A-1, 6.75% due 6/01/2039 2,956
- ------------------------------------------------------------------------------------------------------------------------------------
Grossmont, California, Unified High School District, COP (f):
AAA Aaa 1,220 5.65% due 9/01/2017 1,379
AAA Aaa 2,250 5.75% due 9/01/2026 2,492
- ------------------------------------------------------------------------------------------------------------------------------------
7
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
- ------------------------------------------------------------------------------------------------------------------------------------
California (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $ 2,750 Hawthorne, California, School District, GO, Series A, 5.50% due 5/01/2022 (d) $ 2,948
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,080 Irvine, California, Unified School District, Special Tax Refunding Bonds
(Community Facilities District No. 86-1), 5.50% due 11/01/2017 (a) 5,667
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,780 Long Beach, California, Bond Finance Authority, Tax Allocation Revenue Bonds
(Industrial Redevelopment Project Areas), Series B, 5% due 11/01/2024 (a) 5,931
- ------------------------------------------------------------------------------------------------------------------------------------
NR* NR* 1,000 Long Beach, California, Special Tax Bonds (Community Facilities District No. 3--Pine Ave.),
6.375% due 9/01/2023 1,048
- ------------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 4,000 Los Angeles, California, COP (Sonnenblick Del Rio West Los Angeles),
6.20% due 11/01/2031 (a) 4,672
- ------------------------------------------------------------------------------------------------------------------------------------
Los Angeles, California, Community College District, GO, Series A (g):
AAA Aaa 12,265 5.50% due 8/01/2020 13,404
AAA Aaa 5,035 5.50% due 8/01/2021 5,469
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,150 Los Angeles, California, Community Redevelopment Agency, Tax Allocation Refunding
Bonds (Bunker Hill), Series H, 6.50% due 12/01/2016 (f) 5,453
- ------------------------------------------------------------------------------------------------------------------------------------
AAA NR* 7,000 Los Angeles, California, Convention and Exhibition Center Authority, COP,
9% due 12/01/2020 (a) 8,480
- ------------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 7,000 Los Angeles, California, Harbor Department Revenue Bonds, RITR, AMT, Series RI-7,
11.095% due 11/01/2026 (g)(h) 9,120
- ------------------------------------------------------------------------------------------------------------------------------------
AAA NR* 5,000 Los Angeles, California, Harbor Department Revenue Refunding Bonds,
7.60% due 10/01/2018 (c)(g) 6,454
- ------------------------------------------------------------------------------------------------------------------------------------
Los Angeles, California, Water and Power Revenue Refunding Bonds (Power System):
AAA Aaa 5,400 Series A-A-1, 5.25% due 7/01/2020 (f) 5,756
AAA Aaa 4,000 Series A-A-2, 5.375% due 7/01/2021 (g) 4,293
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,780 Morgan Hill, California, Unified School District, GO, 5.25% due 8/01/2019 (d) 3,009
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 15,000 Northern California, Transmission Revenue Refunding Bonds (California-Oregon
Transmission Project), Series A, 5.25% due 5/01/2020 (g) 15,399
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,260 Oakland, California, Measure G, GO, Series A, 5% due 1/15/2022 (d) 3,380
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,025 Palm Desert, California, Financing Authority, Tax Allocation Revenue Refunding Bonds
(Project Area Number 1), 5.45% due 4/01/2018 (g) 1,131
- ------------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,000 Petaluma, California, Community Development Commission Tax Allocation Bonds
(Petaluma Community Development Project), Series A, 5.75% due 5/01/2030 (g) 1,106
- ------------------------------------------------------------------------------------------------------------------------------------
NR* NR* 7,835 Pleasanton, California, Joint Powers Financing Authority, Revenue Refunding
Reassessment Bonds, Sub-Series B, 6.75% due 9/02/2017 8,067
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Port Oakland, California, Port Revenue Refunding Bonds, Series I, 5.60% due 11/01/2019 (g) 1,117
- ------------------------------------------------------------------------------------------------------------------------------------
AAAr Aaa 8,295 Port Oakland, California, RITR, AMT, Class R, Series 5, 10.141% due 11/01/2012 (d)(h) 10,077
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 12,710 Port Oakland, California, Revenue Refunding Bonds, AMT, Series L,
5.375% due 11/01/2027 (d) 13,161
- ------------------------------------------------------------------------------------------------------------------------------------
NR* NR* 1,000 Poway, California, Unified School District, Special Tax (Community Facilities District
Number 6), 5.60% due 9/01/2033 952
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,750 Riverside County, California, Asset Leasing Corporation, Leasehold Revenue Refunding
Bonds (Riverside County Hospital Project), Series B, 5.70% due 6/01/2016 (g) 2,001
- ------------------------------------------------------------------------------------------------------------------------------------
8
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
- ------------------------------------------------------------------------------------------------------------------------------------
California (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $ 3,865 Sacramento, California, City Financing Authority, Capital Improvement Revenue Bonds
(Solid Waste and Redevelopment Project), 5.75% due 12/01/2022 (a) $ 4,241
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 8,000 Sacramento, California, Municipal Utility District, Electric Revenue Refunding Bonds,
Series L, 5.125% due 7/01/2022 (g) 8,277
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Sacramento County, California, Airport System Revenue Refunding Bonds, Sub-Series B,
5% due 7/01/2026 (d) 10,140
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Saddleback Valley, California, Unified School District, Public Financing Authority,
Special Tax Revenue Refunding Bonds, Series A, 5.65% due 9/01/2017 (f) 3,890
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 San Bernardino, California, Joint Powers Financing Authority, Lease Revenue Bonds
(Department of Transportation Lease), Series A, 5.50% due 12/01/2020 (g) 2,199
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 San Bernardino, California, Joint Powers Financing Authority, Tax Allocation Revenue
Refunding Bonds, Series A, 5.75% due 10/01/2015 (f) 4,467
- ------------------------------------------------------------------------------------------------------------------------------------
AAA NR* 4,000 San Bernardino County, California, COP, Refunding (Medical Center Financing Project),
5.50% due 8/01/2019 (g) 4,288
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 San Diego, California, Certificates of Undivided Interest, Water Utility Fund, Net System
Revenue Bonds, 5% due 8/01/2021 (d) 10,361
- ------------------------------------------------------------------------------------------------------------------------------------
San Diego, California, Public Facilities Financing Authority, Sewer Revenue Bonds (d):
AAA Aaa 4,450 Series A, 5.25% due 5/15/2027 4,655
AAA Aaa 6,175 Series B, 5.25% due 5/15/2027 6,459
- ------------------------------------------------------------------------------------------------------------------------------------
San Francisco, California, City and County Airports Commission, International Airport
Revenue Bonds, AMT, Second Series:
AAA Aaa 6,500 Issue 6, 6.60% due 5/01/2020 (a) 6,988
AAA Aaa 5,500 Issue 11, 6.25% due 5/01/2005 (d)(e) 6,138
- ------------------------------------------------------------------------------------------------------------------------------------
San Francisco California, City and County Airports Commission, International Airport
Revenue Refunding Bonds, Second Series:
AAA Aaa 5,855 Issue 28-B, 5.25% due 5/01/2022 (g) 6,200
AAA Aaa 6,730 Issue 29-B, 3% due 5/01/2007 (d) 7,022
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,250 San Francisco, California, City and County Airports Commission, International Airport,
Special Facilities Lease Revenue Bonds (SFO Fuel Company LLC), AMT, Series A,
6.10% due 1/01/2020 (f) 1,404
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 San Francisco, California, State Building Authority, Lease Revenue Bonds (San Francisco
Civic Center Complex), Series A, 5.25% due 12/01/2021 (a) 4,272
- ------------------------------------------------------------------------------------------------------------------------------------
San Joaquin Hills, California, Transportation Corridor Agency, Toll Road Revenue
Refunding Bonds, Series A (g):
AAA Aaa 5,790 5.375% due 1/15/2029 5,988
AAA Aaa 3,410 5.25% due 1/15/2030 3,556
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 7,000 San Jose, California, Redevelopment Agency Tax Allocation Bonds (Merged Area
Redevelopment Project), 5% due 8/01/2026 (a) 7,104
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,420 San Jose--Evergreen, California, Community College District, GO, Series B,
5.50% due 9/01/2021 (d) 1,531
- ------------------------------------------------------------------------------------------------------------------------------------
San Juan, California, Unified School District, GO:
AAA Aaa 3,740 5.625% due 8/01/2017 (d) 4,217
AAA Aaa 3,000 5.70% due 8/01/2019 (f) 3,381
AAA Aaa 4,345 5.625% due 8/01/2020 (d) 4,836
- ------------------------------------------------------------------------------------------------------------------------------------
9
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
- ------------------------------------------------------------------------------------------------------------------------------------
California (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $ 2,240 San Mateo County, California, Joint Powers Authority, Lease Revenue Refunding Bonds
(Capital Projects), Series A, 5.125% due 7/15/2028 (f) $ 2,289
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Santa Clara County, California, Financing Authority, Lease Revenue Bonds (VMC Facility
Replacement Project), Series A, 6.75% due 11/15/2004 (a)(e) 11,166
- ------------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 10,000 Santa Clara Valley, California, Water District, COP, Refunding, RIB, Series 411,
10.67% due 2/01/2024 (d)(h) 11,211
- ------------------------------------------------------------------------------------------------------------------------------------
NR* NR* 1,650 Santa Margarita, California, Water Disposal Special Tax Refunding Bonds
(Community Facilities District Number 99-1), 6.20% due 9/01/2020 1,696
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Santa Monica, California, Redevelopment Agency, Tax Allocation Bonds
(Earthquake Recovery Redevelopment Project), 6% due 7/01/2029 (a) 4,550
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Santa Rosa, California, High School District, GO, 5.70% due 5/01/2021 (f) 1,121
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Southwestern Community College, District of California, GO, 5.625% due 8/01/2018 (a) 1,125
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,630 Temecula Valley, California, Unified School District, GO, Series F, 5.80% due 9/01/2014 (f) 1,861
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Ventura County, California, Community College District, GO, Refunding, Series A,
5% due 8/01/2027 (g) 3,567
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,215 Vista, California, Unified School District, GO, Series A, 5.25% due 8/01/2025 (f) 4,416
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--3.2%
- ------------------------------------------------------------------------------------------------------------------------------------
AAAr Aaa 7,300 Puerto Rico Commonwealth, GO, Refunding, RITR, Class R, Series 3,
10.091% due 7/01/2016 (g)(h) 9,680
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Puerto Rico Commonwealth Highway and Transportation Authority,
Transportation Revenue Bonds, Series B, 5.75% due 7/01/2018 (g) 2,260
- ------------------------------------------------------------------------------------------------------------------------------------
BBB+ Baa3 4,385 Puerto Rico Public Finance Corporation, Commonwealth Appropriation Revenue Bonds,
Series E, 5.50% due 8/01/2029 4,580
- ------------------------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$460,391)--98.7% 506,494
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
Held Short-Term Securities
- ------------------------------------------------------------------------------------------------------------------------------------
6 CMA California Municipal Money Fund (j) 6
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$6)--0.0% 6
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$460,397)--98.7% 506,500
Other Assets Less Liabilities--1.3% 6,754
--------
Net Assets--100.0% $513,254
========
- ------------------------------------------------------------------------------------------------------------------------------------
(a) AMBAC Insured.
(b) Connie Lee Insured.
(c) Escrowed to maturity.
(d) FGIC Insured.
(e) Prerefunded.
(f) FSA Insured.
(g) MBIA Insured.
(h) 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, 2003.
(i) 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, 2003.
(j) Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
(in Thousands)
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
CMA California Municipal Money Fund 6 $6
--------------------------------------------------------------------------
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
10
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
FINANCIAL INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of February 28, 2003
- ---------------------------------------------------------------------------------------------------------------------------------
Assets: Investments, at value (identified cost--$460,396,967) .................... $506,499,641
Cash ..................................................................... 60,823
Receivables:
Interest ............................................................... $ 7,587,827
Beneficial interest sold ............................................... 272,233
Dividends .............................................................. 5,793 7,865,853
-----------
Prepaid registration fees ................................................ 35,464
------------
Total assets ............................................................. 514,461,781
------------
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Beneficial interest redeemed ........................................... 435,775
Dividends to shareholders .............................................. 383,471
Investment adviser ..................................................... 214,847
Distributor ............................................................ 109,677 1,143,770
-----------
Accrued expenses ......................................................... 64,231
------------
Total liabilities ........................................................ 1,208,001
------------
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ............................................................... $513,253,780
============
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized ........................................................ $ 358,044
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................ 1,541,395
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................ 394,058
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................ 2,012,282
Paid-in capital in excess of par ......................................... 475,662,824
Undistributed investment income--net ..................................... $ 657,168
Accumulated realized capital losses on investments--net .................. (13,474,665)
Unrealized appreciation on investments--net .............................. 46,102,674
-----------
Total accumulated earnings--net .......................................... 33,285,177
------------
Net assets ............................................................... $513,253,780
============
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $42,672,035 and 3,580,442 shares
of beneficial interest outstanding ....................................... $ 11.92
============
Class B--Based on net assets of $183,764,165 and 15,413,945 shares
of beneficial interest outstanding ....................................... $ 11.92
============
Class C--Based on net assets of $46,971,481 and 3,940,579 shares
of beneficial interest outstanding ....................................... $ 11.92
============
Class D--Based on net assets of $239,846,099 and 20,122,816 shares
of beneficial interest outstanding ....................................... $ 11.92
============
- ---------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
11
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
FINANCIAL INFORMATION (continued)
Statement of Operations
For the Six Months Ended
February 28, 2003
- --------------------------------------------------------------------------------------------------------------
Investment Income: Interest ............................................. $ 14,038,387
Dividends ............................................ 5,793
------------
Total income ......................................... 14,044,180
------------
- --------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees ............................. $ 1,390,020
Account maintenance and distribution fees--Class B ... 468,262
Account maintenance and distribution fees--Class C ... 125,290
Account maintenance fees--Class D .................... 117,397
Accounting services .................................. 97,762
Transfer agent fees--Class D ......................... 43,755
Transfer agent fees--Class B ......................... 40,686
Professional fees .................................... 38,306
Printing and shareholder reports ..................... 32,124
Registration fees .................................... 19,398
Trustees' fees and expenses .......................... 15,852
Custodian fees ....................................... 15,393
Pricing fees ......................................... 10,643
Transfer agent fees--Class C ......................... 9,022
Transfer agent fees--Class A ......................... 7,839
Other ................................................ 14,415
-----------
Total expenses before reimbursement .................. 2,446,164
Reimbursement of expenses ............................ (3,179)
-----------
Total expenses after reimbursement ................... 2,442,985
------------
Investment income--net ............................... 11,601,195
------------
- --------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments--net .................... 719,665
Unrealized Change in unrealized appreciation on investments--net 3,635,299
Gain on ------------
Investments--Net: Total realized and unrealized gain on investments--net 4,354,964
------------
Net Increase in Net Assets Resulting from Operations . $ 15,956,159
============
- --------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
12
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------
Operations: Investment income--net ............................................ $ 11,601,195 $ 23,455,004
Realized gain on investments--net ................................. 719,665 3,249,693
Change in unrealized appreciation on investments--net ............. 3,635,299 (1,081,594)
------------- -------------
Net increase in net assets resulting from operations .............. 15,956,159 25,623,103
------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------
Dividends to Investment income--net:
Shareholders: Class A ......................................................... (1,022,714) (2,085,753)
Class B ......................................................... (4,079,271) (9,188,278)
Class C ......................................................... (889,947) (1,090,321)
Class D ......................................................... (5,592,669) (11,095,385)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders (11,584,601) (23,459,737)
------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Net increase (decrease) in net assets derived from beneficial
Transactions: interest transactions ............................................. (1,887,601) 10,414,391
------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets ...................................... 2,483,957 12,577,757
Beginning of period ............................................... 510,769,823 498,192,066
------------- -------------
End of period* .................................................... $ 513,253,780 $ 510,769,823
============= =============
- ------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net .............................. $ 657,168 $ 640,574
============= =============
- ------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
13
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights
Class A
-----------------------------------------------------------------
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended August 31,
Feb. 28, -------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Net asset value, beginning of period ...... $ 11.81 $ 11.77 $ 11.26 $ 11.10 $ 12.15
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .................... .29+ .58+ .59 .58 .60
Realized and unrealized gain (loss) on
investments--net .......................... .11 .04 .51 .16 (.79)
--------- --------- --------- --------- ---------
Total from investment operations .......... .40 .62 1.10 .74 (.19)
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net .................. (.29) (.58) (.59) (.58) (.60)
Realized gain on investments--net ....... -- -- -- -- (.18)
In excess of realized gain on
investments--net ........................ -- -- -- -- (.08)
--------- --------- --------- --------- ---------
Total dividends and distributions ......... (.29) (.58) (.59) (.58) (.86)
--------- --------- --------- --------- ---------
Net asset value, end of period ............ $ 11.92 $ 11.81 $ 11.77 $ 11.26 $ 11.10
========= ========= ========= ========= =========
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ........ 3.39%++ 5.48% 10.04% 7.02% (1.80%)
Return:** ========= ========= ========= ========= =========
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement and
Average excluding reorganization expenses ......... .68%* .71% .69% .67% .65%
Net Assets: ========= ========= ========= ========= =========
Expenses, excluding reorganization expenses .68%* .71% .69% .67% .65%
========= ========= ========= ========= =========
Expenses .................................. .68%* .74% .75% .67% .65%
========= ========= ========= ========= =========
Investment income--net .................... 4.87%* 5.03% 5.06% 5.35% 5.07%
========= ========= ========= ========= =========
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) .. $ 42,672 $ 42,873 $ 40,877 $ 31,868 $ 37,641
Data: ========= ========= ========= ========= =========
Portfolio turnover ........................ 10.22% 37.35% 55.75% 84.36% 106.84%
========= ========= ========= ========= =========
- ----------------------------------------------------------------------------------------------------------------------------------
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
14
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
Class B
-----------------------------------------------------------------
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended August 31,
Feb. 28, --------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Net asset value, beginning of period ...... $ 11.82 $ 11.77 $ 11.26 $ 11.10 $ 12.16
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .................... .26+ .52+ .53 .53 .54
Realized and unrealized gain (loss) on
investments--net .......................... .10 .05 .51 .16 (.80)
--------- --------- --------- --------- ---------
Total from investment operations .......... .36 .57 1.04 .69 (.26)
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net .................. (.26) (.52) (.53) (.53) (.54)
Realized gain on investments--net ....... -- -- -- -- (.18)
In excess of realized gain on
investments--net ........................ -- -- -- -- (.08)
--------- --------- --------- --------- ---------
Total dividends and distributions ......... (.26) (.52) (.53) (.53) (.80)
--------- --------- --------- --------- ---------
Net asset value, end of period ............ $ 11.92 $ 11.82 $ 11.77 $ 11.26 $ 11.10
========= ========= ========= ========= =========
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ........ 3.05%++ 5.04% 9.48% 6.48% (2.38%)
Return:** ========= ========= ========= ========= =========
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement and
Average excluding reorganization expenses ......... 1.19%* 1.22% 1.20% 1.18% 1.16%
Net Assets: ========= ========= ========= ========= =========
Expenses, excluding reorganization expenses 1.19%* 1.22% 1.20% 1.18% 1.16%
========= ========= ========= ========= =========
Expenses .................................. 1.19%* 1.25% 1.25% 1.18% 1.16%
========= ========= ========= ========= =========
Investment income--net .................... 4.36%* 4.52% 4.55% 4.85% 4.57%
========= ========= ========= ========= =========
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) .. $ 183,764 $ 194,733 $ 221,516 $ 200,409 $ 269,191
Data: ========= ========= ========= ========= =========
Portfolio turnover ........................ 10.22% 37.35% 55.75% 84.36% 106.84%
========= ========= ========= ========= =========
- ----------------------------------------------------------------------------------------------------------------------------------
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
15
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
Class C
---------------------------------------------------------------
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended August 31,
Feb. 28, ------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Per Share Net asset value, beginning of period ...... $ 11.82 $ 11.77 $ 11.26 $ 11.10 $ 12.15
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .................... .25+ .51+ .52 .52 .53
Realized and unrealized gain (loss) on
investments--net .......................... .10 .05 .51 .16 (.79)
--------- --------- --------- --------- ---------
Total from investment operations .......... .35 .56 1.03 .68 (.26)
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net .................. (.25) (.51) (.52) (.52) (.53)
Realized gain on investments--net ....... -- -- -- -- (.18)
In excess of realized gain on
investments--net ........................ -- -- -- -- (.08)
--------- --------- --------- --------- ---------
Total dividends and distributions ......... (.25) (.51) (.52) (.52) (.79)
--------- --------- --------- --------- ---------
Net asset value, end of period ............ $ 11.92 $ 11.82 $ 11.77 $ 11.26 $ 11.10
========= ========= ========= ========= =========
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ........ 3.00%++ 4.94% 9.37% 6.37% (2.40%)
Return:** ========= ========= ========= ========= =========
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement and
Average excluding reorganization expenses ......... 1.29%* 1.32% 1.30% 1.28% 1.26%
Net Assets: ========= ========= ========= ========= =========
Expenses, excluding reorganization expenses 1.29%* 1.32% 1.30% 1.28% 1.26%
========= ========= ========= ========= =========
Expenses .................................. 1.29%* 1.35% 1.35% 1.28% 1.26%
========= ========= ========= ========= =========
Investment income--net .................... 4.27%* 4.42% 4.45% 4.75% 4.46%
========= ========= ========= ========= =========
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) .. $ 46,972 $ 36,983 $ 16,357 $ 10,262 $ 11,769
Data: ========= ========= ========= ========= =========
Portfolio turnover ........................ 10.22% 37.35% 55.75% 84.36% 106.84%
========= ========= ========= ========= =========
- -------------------------------------------------------------------------------------------------------------------------------
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
16
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
Class D
------------------------------------------------------------------
For the
Six Months
The following per share data and ratios have been derived Ended For the Year Ended August 31,
from information provided in the financial statements. Feb. 28, ---------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Net asset value, beginning of period ...... $ 11.82 $ 11.77 $ 11.26 $ 11.10 $ 12.16
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .................... .28+ .57+ .58 .57 .59
Realized and unrealized gain (loss) on
investments--net .......................... .10 .05 .51 .16 (.80)
---------- ---------- ---------- ---------- ----------
Total from investment operations .......... .38 .62 1.09 .73 (.21)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net .................. (.28) (.57) (.58) (.57) (.59)
Realized gain on investments--net ....... -- -- -- -- (.18)
In excess of realized gain on
investments--net ........................ -- -- -- -- (.08)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ......... (.28) (.57) (.58) (.57) (.85)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ............ $ 11.92 $ 11.82 $ 11.77 $ 11.26 $ 11.10
========== ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ........ 3.25%++ 5.46% 9.93% 6.91% (1.98%)
Return:** ========== ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement and
Average excluding reorganization expenses ......... .78%* .81% .79% .77% .75%
Net Assets: ========== ========== ========== ========== ==========
Expenses, excluding reorganization expenses .78%* .81% .79% .77% .75%
========== ========== ========== ========== ==========
Expenses .................................. .78%* .84% .84% .77% .75%
========== ========== ========== ========== ==========
Investment income--net .................... 4.77%* 4.93% 4.96% 5.25% 4.98%
========== ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) .. $ 239,846 $ 236,181 $ 219,442 $ 193,497 $ 194,029
Data: ========== ========== ========== ========== ==========
Portfolio turnover ........................ 10.22% 37.35% 55.75% 84.36% 106.84%
========== ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------------
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
17
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
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 diversified, open-end
management investment company. The Fund's financial statements are prepared in
conformity with accounting principles generally accepted in the United States of
America, which may require the use of management accruals and estimates. 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. Income, expenses (other than expenses attributable to
a specific class) and realized and unrealized gains and losses on investments
are allocated daily to each class based on its relative net assets. 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 at
amortized cost, 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
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. Losses may arise due to changes in the value of the contract or if
the counterparty does not perform under the contract.
o Financial futures contracts -- The Fund may purchase or sell financial 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).
18
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(e) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(f) Dividends and distributions -- Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). 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 FAM Distributors, Inc.
("FAMD" or the "Distributor"), which is 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 is required to pay a
monthly fee based upon the average daily value of the Fund's net assets at the
following annual rates: .55% of the Fund's average daily net assets not
exceeding $500 million; .525% of average daily net assets in excess of $500
million but not exceeding $1 billion; and .50% of average daily net assets in
excess of $1 billion. For the six months ended February 28, 2003, FAM reimbursed
the Fund in the amount of $3,179.
Pursuant to 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 .............................. .25% .25%
Class C .............................. .25% .35%
Class D .............................. .10% --
- -------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("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, 2003, FAMD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Fund's Class A and Class D
Shares as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A .......................... $ 747 $ 6,736
Class D .......................... $ 2,153 $19,754
- --------------------------------------------------------------------------------
For the six months ended February 28, 2003, MLPF&S received contingent deferred
sales charges of $65,913 and $7,380 relating to transactions in Class B and
Class C Shares, respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
For the six months ended February 28, 2003, the Fund reimbursed FAM $5,521 for
certain accounting services.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, PSI, FDS, FAMD, and/or ML & Co.
19
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended February 28, 2003 were $63,133,372 and $49,707,938, respectively.
Net realized gains (losses) for the six months ended February 28, 2003 and net
unrealized gains as of February 28, 2003 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments ................... $ 943,340 $46,102,674
Financial futures contracts ............. (223,675) --
----------- -----------
Total ................................... $ 719,665 $46,102,674
=========== ===========
- --------------------------------------------------------------------------------
As of February 28, 2003, net unrealized appreciation for Federal income tax
purposes aggregated $45,595,348, of which $45,654,660 related to appreciated
securities and $59,312 related to depreciated securities. The aggregate cost of
investments at February 28, 2003 for Federal income tax purposes was
$460,904,293.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $(1,887,601) and $10,414,391 for the six months ended February
28, 2003 and the year ended August 31, 2002, respectively.
Transactions in shares of beneficial interest for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended February 28, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 204,879 $ 2,416,915
Shares issued to shareholders
in reinvestment of dividends ........... 36,117 426,577
------------ ------------
Total issued ........................... 240,996 2,843,492
Shares redeemed ........................ (289,536) (3,428,082)
------------ ------------
Net decrease ........................... (48,540) $ (584,590)
============ ============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended August 31, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 647,353 $ 7,518,687
Shares issued to shareholders
in reinvestment of dividends ........... 74,346 861,819
------------ ------------
Total issued ........................... 721,699 8,380,506
Shares redeemed ........................ (566,850) (6,581,153)
------------ ------------
Net increase ........................... 154,849 $ 1,799,353
============ ============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended February 28, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 822,686 $ 9,734,872
Shares issued to shareholders
in reinvestment of dividends ........... 148,679 1,756,925
------------ ------------
Total issued ........................... 971,365 11,491,797
Automatic conversion of
shares ................................. (860,188) (10,166,445)
Shares redeemed ........................ (1,175,095) (13,873,662)
------------ ------------
Net decrease ........................... (1,063,918) $(12,548,310)
============ ============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended August 31, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 2,226,522 $ 25,871,856
Shares issued to shareholders
in reinvestment of dividends ........... 343,648 3,984,430
------------ ------------
Total issued ........................... 2,570,170 29,856,286
Automatic conversion of
shares ................................. (2,035,493) (23,726,527)
Shares redeemed ........................ (2,876,883) (33,376,806)
------------ ------------
Net decrease ........................... (2,342,206) $(27,247,047)
============ ============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended February 28, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 1,017,259 $ 12,061,622
Shares issued to shareholders
in reinvestment of dividends ........... 42,133 497,693
------------ ------------
Total issued ........................... 1,059,392 12,559,315
Shares redeemed ........................ (248,823) (2,920,090)
------------ ------------
Net increase ........................... 810,569 $ 9,639,225
============ ============
- -------------------------------------------------------------------------------
20
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended August 31, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 2,116,735 $ 24,603,457
Shares issued to shareholders
in reinvestment of dividends ........... 47,620 552,179
------------ ------------
Total issued ........................... 2,164,355 25,155,636
Shares redeemed ........................ (424,323) (4,898,714)
------------ ------------
Net increase ........................... 1,740,032 $ 20,256,922
============ ============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class D Shares for the Six Months Dollar
Ended February 28, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 404,847 $ 4,786,437
Automatic conversion
of shares .............................. 860,693 10,166,445
Shares issued to shareholders
in reinvestment of dividends ........... 210,474 2,485,907
------------ ------------
Total issued ........................... 1,476,014 17,438,789
Shares redeemed ........................ (1,343,138) (15,832,715)
------------ ------------
Net increase ........................... 132,876 $ 1,606,074
============ ============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended August 31, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 1,397,500 $ 16,186,767
Automatic conversion
of shares .............................. 2,035,844 23,726,526
Shares issued to shareholders
in reinvestment of dividends ........... 409,392 4,746,423
------------ ------------
Total issued ........................... 3,842,736 44,659,716
Shares redeemed ........................ (2,501,336) (29,054,553)
------------ ------------
Net increase ........................... 1,341,400 $ 15,605,163
============ ============
- -------------------------------------------------------------------------------
5. Short-Term Borrowings:
The Fund, along with certain other funds managed by FAM and its affiliates, is a
party to a $500,000,000 credit agreement with Bank One, N.A. and certain other
lenders. The Fund may borrow under the credit agreement to fund shareholder
redemptions and for other lawful purposes other than for leverage. The Fund may
borrow up to the maximum amount allowable under the Fund's current prospectus
and statement of additional information, subject to various other legal,
regulatory or contractual limits. The Fund pays a commitment fee of .09% per
annum based on the Fund's pro rata share of the unused portion of the credit
agreement. Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each fund's election, the Federal Funds rate plus .50% or a base
rate as determined by Bank One, N.A. On November 29, 2002, the credit agreement
was renewed for one year under the same terms, except that the total commitment
was reduced from $1,000,000,000 to $500,000,000. The Fund did not borrow under
the credit agreement during the six months ended February 28, 2003.
6. Capital Loss Carryforward:
On August 31, 2002, the Fund had a net capital loss carryforward of $12,622,391,
of which $2,000,245 expires in 2008 and $10,622,146 expires in 2009. This amount
will be available to offset like amounts of any future taxable gains.
21
Merrill Lynch California Insured Municipal Bond Fund February 28, 2003
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Joe Grills, Trustee
Herbert I. London, Trustee
Andre F. Perold, Trustee
Roberta Cooper Ramo, Trustee
Robert S. Salomon, Jr., Trustee
Stephen B. Swensrud, Trustee
Kenneth A. Jacob, Senior Vice President
John M. Loffredo, Senior Vice President
Walter C. O'Connor, Vice President
Donald C. Burke, Vice President and Treasurer
Brian D. Stewart, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
- -------------------------------------------------------------------------------
Melvin R. Seiden, Trustee of Merrill Lynch California Insured Municipal Bond
Fund, has recently retired. The Fund's Board of Trustees wishes Mr. Seiden well
in his retirement.
- -------------------------------------------------------------------------------
[LOGO] Merrill Lynch Investment Managers
[GRAPHICS OMITTED]
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 of
Merrill Lynch California Municipal Series Trust
Box 9011
Princeton, NJ 08543-9011
[RECYCLED LOGO] Printed on post-consumer recycled paper #10329--2/03
Item 2 - Did registrant adopt a code of ethics, as of the end of the period
covered by this report, that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party? If not, why not? Briefly describe any amendments or
waivers that occurred during the period. State here if code of
ethics/amendments/waivers are on website and give website address-.
State here if fund will send code of ethics to shareholders without
charge upon request-- N/A (not answered until July 15, 2003 and only
annually for funds)
Item 3 - Did the registrant's board of directors determine that the registrant
either: (i) has at least one audit committee financial expert serving
on its audit committee; or (ii) does not have an audit committee
financial expert serving on its audit committee? If yes, disclose name
of financial expert and whether he/she is "independent," (fund may, but
is not required, to disclose name/independence of more than one
financial expert) If no, explain why not. -N/A (not answered until July
15, 2003 and only annually for funds)
Item 4 - Disclose annually only (not answered until December 15, 2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last two
fiscal years for professional services rendered by the
principal accountant for the audit of the registrant's
annual financial statements or services that are
normally provided by the accountant in connection with
statutory and regulatory filings or engagements for
those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and related
services by the principal accountant that are
reasonably related to the performance of the
audit of the registrant's financial statements
and are not reported under paragraph (a) of this
Item. Registrants shall describe the nature of
the services comprising the fees disclosed under
this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and
tax planning. Registrants shall describe the nature of the
services comprising the fees disclosed under this category.
N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services provided
by the principal accountant, other than the services
reported in paragraphs (a) through (c) of this Item.
Registrants shall describe the nature of the
services comprising the fees disclosed under this
category. N/A.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. N/A.
(e)(2) Disclose the percentage of services described in each of paragraphs
(b) through (d) of this Item that were approved by the audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended on
the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Items 5-6 - Reserved
Item 7 - For closed-end funds that contain voting securities in their portfolio,
describe the policies and procedures that it uses to determine how to
vote proxies relating to those portfolio securities. N/A (not answered
until July 1, 2003)
Item 8 -- Reserved
Item 9(a) - Disclose the conclusions of the registrant's principal executive
officer or officers and principal financial officer or officers, or
persons performing similar functions, about the effectiveness of the
registrant's disclosure controls and procedures (as defined in Rule
30a-2(c) under the Act (17 CFR 270.30a-2(c))) based on their
evaluation of these controls and procedures as of a date within 90
days of the filing date of the report that includes the disclosure
required by this paragraph. N/A (not answered until July 15, 2003
and only annually for funds)
Item 9(b) -- There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon request
without charge. N/A.
10(b) - Attach certifications (4 in total pursuant to Sections 302 and 906 for
CEO/CFO). Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch California Insured Municipal Bond Fund
By: /s/ Terry K. Glenn
----------------------------
Terry K. Glenn,
President of
Merrill Lynch California Insured Municipal Bond Fund
Date: April 21, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Terry K. Glenn
----------------------------
Terry K. Glenn,
President of
Merrill Lynch California Insured Municipal Bond Fund
Date: April 21, 2003
By: /s/ Donald C. Burke
----------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch California Insured Municipal Bond Fund
Date: April 21, 2003