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 of Merrill
Lynch California Municipal Series Trust
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 of Merrill Lynch California
Municipal Series Trust, 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: 08/31/04
Date of reporting period: 09/01/03 - 08/31/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
California Insured Municipal
Bond Fund
Annual Report
August 31, 2004
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch California Insured Municipal Bond
Distribution by Market Sector (unaudited)
Percent of Total
As of August 31, 2004 Investments
- --------------------------------------------------------------------------------
Other Revenue Bonds ....................................... 75.2%
General Obligation Bonds .................................. 24.6
Mutual Funds .............................................. 0.2
Other+ .................................................... --*
------
Total ..................................................... 100.0%
======
+ Includes portfolio holdings in short-term investments.
* Amount is less than 0.1%.
Important Tax Information (unaudited)
All of the net investment income distributions paid monthly by Merrill Lynch
California Insured Municipal Bond Fund during the taxable year ended August 31,
2004 qualify as tax-exempt interest dividends for federal income tax purposes.
Please retain this information for your records.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
2 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
A Letter From the President
Dear Shareholder
In recent months, the Federal Reserve Board (the Fed) has taken center stage as
it shifts away from its long-accommodative monetary stance. The Fed raised the
Federal Funds rate 75 basis points (.75%) in three separate moves since June,
bringing the target short-term interest rate to 1.75% -- still low by historical
standards. The Fed has been deliberate in telegraphing its intention to take a
"measured" approach to interest rate increases in order to avoid upsetting the
economy or the financial markets, while still leaving room to move more
aggressively if inflation and economic growth accelerate more than anticipated.
The forward curve currently projects further increases in short-term interest
rates before year-end. In addition to the Fed policy change, the financial
markets recently have had to grapple with a tense geopolitical environment,
higher oil prices and the worry and anticipation that accompanies a presidential
election.
The transition to higher rates can cause concern among equity and fixed income
investors alike. For bond investors, rising interest rates means the value of
older issues declines because they bear the former lower interest rates. In
addition, increasing inflation erodes the purchasing power of fixed income
securities. However, because municipal bonds offer the advantage of tax-exempt
income, they continue to be an attractive alternative for many fixed income
investors. For the 12-month period ended August 31, 2004, municipal bonds posted
a return of +7.11%, as measured by the Lehman Brothers Municipal Bond Index.
As always, our investment professionals are closely monitoring the markets, the
economy and the overall environment in an effort to make well-informed decisions
for the portfolios they manage. Our goal is to provide shareholders with
competitive returns, while always keeping one eye on managing the unavoidable
risk inherent in investing.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Trustee
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
Although the Fund's defensive structure resulted in modest
underperformance relative to its benchmark during the 12-month period, we
believe the portfolio is positioned to perform well in a rising interest rate
environment.
Describe the recent market environment relative to municipal bonds.
Amid considerable monthly volatility, U.S. Treasury bond yields finished the
12-month period ended August 31, 2004 lower than where they began. At the
beginning of the period, yields declined as bond prices -- which move in the
opposite direction -- rose. Despite continued improvement in U.S. economic
conditions, solid job creation remained elusive. Consumer confidence faltered,
and investors became increasingly convinced that the Federal Reserve Board (the
Fed) would hold short-term interest rates at their historic lows. Under the
circumstances, the 30-year U.S. Treasury bond yield declined to 4.65% by
mid-March.
In early April, however, monthly employment reports began to show unexpectedly
large gains. In response, bond yields increased as their prices fell. Associated
improvements in consumer confidence and spending led some investors to reverse
their earlier expectations, believing instead that the Fed would soon be forced
to raise short-term interest rates to ward off potential inflation. By early
June, the long-term U.S. Treasury bond yield had risen above 5.50%. For the
remainder of the period, bond yields generally declined. Payroll growth had
begun to wane and inflationary measures continued to be negligible. Although the
Fed began raising interest rates (.25% in June, .25% in August and another .25%
in September bringing the target rate to 1.75%), it seemed committed to a
measured tightening policy. This effectively removed much of the earlier concern
over the potential for a prolonged series of interest rate increases. The
prospect for a measured, moderate tightening sequence helped support higher bond
prices (and lower yields) for the remainder of the Fund's fiscal year. By the
end of August 2004, the yield on the long-term U.S. Treasury bond stood at
4.93%, a decline of almost 30 basis points (.30%) over the past year. The
10-year U.S. Treasury note yield ended the period at 4.12%, a decrease of 35
basis points during the 12-month period.
Tax-exempt issues, supported by a favorable technical backdrop, exhibited less
volatility than their taxable counterparts. As measured by the Bond Buyer
Revenue Bond Index, yields on long-term revenue bonds fell approximately 30
basis points over the past year. According to Municipal Market Data, yields on
AAA-rated issues maturing in 30 years declined more than 30 basis points to
4.70%, and yields on 10-year AAA-rated issues fell more than 40 basis points to
3.50%.
Declining supply trends allowed tax-exempt bond prices to register moderate
gains for the year. More than $360 billion in new long-term tax-exempt bonds was
underwritten in the past 12 months, a decline of approximately 6% compared to
last year. Approximately $95 billion in long-term tax-exempt bonds was issued in
the last three months of the fiscal year, a decline of nearly 15% versus the
same period a year ago. The tax-exempt bond market maintained a positive
supply/demand position throughout the reporting period, allowing municipal
issues to outperform their taxable counterparts. New-issue volume is expected to
remain manageable, continuing to support the tax-exempt market's favorable
technical position for the remainder of the year. In addition, attractive yield
ratios compared to taxable securities should continue to draw both traditional
and non-traditional investors to the tax-exempt market.
Describe conditions in the State of California.
As the fiscal year began, California was facing political and economic
uncertainty. A gubernatorial recall election was triggered by concerns about the
state's $38 billion budget deficit, which had led Standard & Poor's to downgrade
California's credit rating to BBB, making the state the lowest-rated in the
nation. Conditions improved somewhat as the state passed a new budget and voters
elected Arnold Schwarzenegger to the governor's office. The budget, however,
included a significant amount of new general obligation debt -- backed by the
state's precarious revenues -- as well as new "fiscal recovery" bonds to reduce
the deficit.
Toward the end of 2003, credit-rating agencies Fitch and Moody's followed
Standard & Poor's lead and downgraded California's credit rating. The downgrade
was prompted by Governor Schwarzenegger's repeal of the unpopular vehicle
licensing fee, which reduced the state's revenues, and a lack of consensus on
how California's budget crisis would be resolved.
In June 2004, California completed the issuance of $11 billion in economic
recovery bonds, alleviating concerns about the state's cash-flow situation.
Subsequently, Moody's upgraded the state's long-term credit rating to A3 from
Baa1, citing California's recovering economy, increased tax collections,
improved budget outlook and better liquidity.
4 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
Subsequently, Standard & Poor's upgraded the state's long-term credit rating to
A from BBB, citing California's recovering economy, increased tax collections,
improved budget outlook and better liquidity. Fitch soon raised the state's
credit rating to A-.
Responding to the state's improved fiscal health, credit spreads on California
bonds tightened considerably, reflecting investors' increased comfort with the
risk involved in owning the state's debt. Long-term California bonds had traded
as much as 60 basis points - 70 basis points cheaper than comparable maturity
AAA-rated bonds. By period-end, the gap had narrowed to approximately 10 basis
points - 15 basis points.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended August 31, 2004, Merrill Lynch California Insured
Municipal Bond Fund's Class A, Class B, Class C and Class I Shares posted total
returns of +6.37%, +5.94%, +5.84% and +6.48%, respectively. (Fund results shown
do not reflect sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 6 - 8 of this report to
shareholders.) For the same period, the Fund's unmanaged benchmark, the Lehman
Brothers Municipal Bond Index, returned +7.11% and its comparable Lipper
category of California Insured Municipal Debt Funds had an average return of
+6.50%. (Funds in this Lipper category invest primarily in securities exempt
from taxation in California and insured as to timely payment.)
Because the Fund's investments are limited to California municipal bonds,
primarily insured issues, it is little surprise that returns lagged the
broad-market Lehman Brothers Municipal Bond Index. Given the volatile conditions
in the state for much of the year, California municipal securities
underperformed the national municipal market for the period. Compared to its
Lipper group, the Fund's relatively short duration hampered performance in an
environment of modestly declining interest rates. Given the prolonged period of
historically low interest rates, we positioned the Fund defensively in
anticipation of rising rates ahead. The shorter duration was designed to limit
the Fund's sensitivity to rising interest rates and to provide protection for
the Fund's net asset value. Although bond yields ended the year lower than where
they began, we believe our short duration stance prepares the Fund for relative
strong performance as interest rates rise in accordance with the Fed's
tightening cycle.
What changes were made to the portfolio during the period?
We focused on providing a competitive total return by enhancing the Fund's
current yield. At August 31, 2004, the portfolio's average coupon yield was
6.20%, while the current yield on AAA-rated, 30-year California municipal bonds
averaged 4.74%.
We maintained the portfolio's relatively low turnover rate in an effort to
improve the Fund's tax efficiency. Lower turnover leads to less frequent capital
gains distributions, thereby reducing shareholders' income tax liability. As a
result, there was very little trading activity in the last quarter of the
period.
We kept the Fund's defensive positioning, as we believe this readies the
portfolio to perform well in a rising interest rate environment. We have
fashioned this defensive stance by reducing the portfolio's effective duration
(a measurement of a bond's sensitivity to changes in interest rates), rather
than the use of derivatives and/or hedging, which we believe would increase the
Fund's volatility.
The Fund's overall credit quality improved somewhat during the period, as its
weighting in insured California municipal securities rose from approximately 82%
of net assets to 86%.
How would you characterize the Fund's position at the close of the period?
We maintained the Fund's conservative positioning at period-end. We anticipate
that market rates will rise as the Fed moves to "normalize" short-term interest
rates, the U.S. economy continues to improve, and we feel some relief from the
geopolitical tensions that we believe have been priced into the market. These
include concerns of terrorism at the now-concluded Summer Olympics and the
uncertainty surrounding the upcoming presidential election.
Overall, we believe the Fund will continue to provide shareholders with
competitive total returns and limited risk, as its relatively high current yield
should offset somewhat any decline in its net asset value in a rising interest
rate environment.
Walter C. O'Connor
Vice President and Portfolio Manager
September 22, 2004
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple pricing
alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of 4%
and an account maintenance fee of 0.10% per year (but no distribution
fee).
o 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% per year and an
account maintenance fee of 0.25% per year. These shares automatically
convert to Class A Shares after approximately ten years. (There is no
initial sales charge for automatic share conversions.)
o Class C Shares are subject to a distribution fee of 0.35% per year and an
account maintenance fee of 0.25% per year. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one
year of purchase.
o Class I Shares incur a maximum initial sales charge (front-end load) of 4%
and bear no ongoing distribution or account maintenance fees. Class I
Shares are available only to eligible investors.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain more current performance
information. 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 gain distributions, if any, 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
10-Year/
6-Month 12-Month Since Inception Standardized
As of August 31, 2004 Total Return Total Return Total Return 30-Day Yield
==========================================================================================================================
ML California Insured Municipal Bond Fund Class A Shares* +0.08% +6.37% +80.95% 3.54%
- --------------------------------------------------------------------------------------------------------------------------
ML California Insured Municipal Bond Fund Class B Shares* -0.21 +5.94 +69.47 3.29
- --------------------------------------------------------------------------------------------------------------------------
ML California Insured Municipal Bond Fund Class C Shares* -0.18 +5.84 +72.15 3.19
- --------------------------------------------------------------------------------------------------------------------------
ML California Insured Municipal Bond Fund Class I Shares* +0.13 +6.48 +78.16 3.64
- --------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index** +0.55 +7.11 +88.71/+94.98 --
- --------------------------------------------------------------------------------------------------------------------------
* 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 10-year/since inception periods are
10 years for Class B & Class I Shares and from 10/21/94 for Class A &
Class C Shares.
** This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds. Ten-year/since
inception total returns are for 10 years and from 10/31/94.
6 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
Performance Data (continued)
ML California Insured Municipal Bond Fund's Class A and Class C Shares--Total
Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A and
Class C Shares compared to growth of an investment in the Lehman Brothers
Municipal Bond Index. Values are from October 21, 1994 to August 2004:
10/21/94** 8/95 8/96 8/97 8/98 8/99
ML California Insured
Municipal Bond Fund+--
Class A Shares* $ 9,600 $10,501 $11,173 $12,128 $13,134 $12,874
ML California Insured
Municipal Bond Fund+--
Class C Shares* $10,000 $10,891 $11,529 $12,451 $13,405 $13,084
8/00 8/01 8/02 8/03 8/04
ML California Insured
Municipal Bond Fund+--
Class A Shares* $13,764 $15,124 $15,953 $16,329 $17,371
ML California Insured
Municipal Bond Fund+--
Class C Shares* $13,918 $15,216 $15,970 $16,264 $17,215
10/31/94 8/95 8/96 8/97 8/98 8/99
Lehman Brothers Municipal
Bond Index++ $10,000 $11,248 $11,837 $12,932 $14,050 $14,120
8/00 8/01 8/02 8/03 8/04
Lehman Brothers Municipal
Bond Index++ $15,077 $16,614 $17,651 $18,205 $19,498
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML California Insured Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the state of
California, its political subdivisions, agencies and instrumentalities and
obligations of other qualifying issuers.
++ This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds. The starting date for
the Index in the Class A & Class C Shares' graph is from 10/31/94.
Past performance is not predictive of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 8/31/04 +6.37% +2.12%
- --------------------------------------------------------------------------------
Five Years Ended 8/31/04 +6.18 +5.31
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 8/31/04 +6.20 +5.76
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 8/31/04 +5.84% +4.84%
- --------------------------------------------------------------------------------
Five Years Ended 8/31/04 +5.64 +5.64
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 8/31/04 +5.66 +5.66
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004 7
[LOGO] Merrill Lynch Investment Managers
Performance Data (concluded)
ML California Insured Municipal Bond Fund's Class B and Class I Shares--Total
Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class B Shares
and Class I Shares compared to growth of an investment in the Lehman Brothers
Municipal Bond Index. Values are from August 1994 to August 2004:
8/94 8/95 8/96 8/97 8/98
ML California Insured
Municipal Bond Fund+--
Class B Shares* $10,000 $10,625 $11,259 $12,172 $13,128
ML California Insured
Municipal Bond Fund+--
Class I Shares* $ 9,600 $10,248 $10,914 $11,848 $12,844
8/99 8/00 8/01 8/02 8/03 8/04
ML California Insured
Municipal Bond Fund+--
Class B Shares* $12,816 $13,646 $14,934 $15,690 $15,994 $16,947
ML California Insured
Municipal Bond Fund+--
Class I Shares* $12,613 $13,498 $14,847 $15,663 $16,062 $17,104
8/94 8/95 8/96 8/97 8/98
Lehman Brothers Municipal
Bond Index++ $10,000 $10,886 $11,457 $12,516 $13,598
8/99 8/00 8/01 8/02 8/03 8/04
Lehman Brothers Municipal
Bond Index++ $13,666 $14,592 $16,079 $17,083 $17,619 $18,871
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ ML California Insured Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the state of
California, its political subdivisions, agencies and instrumentalities and
obligations of other qualifying issuers.
++ This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds.
Past performance is not predictive of future results.
Average Annual Total Return
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 8/31/04 +5.94% +1.94%
- --------------------------------------------------------------------------------
Five Years Ended 8/31/04 +5.75 +5.43
- --------------------------------------------------------------------------------
Ten Years Ended 8/31/04 +5.42 +5.42
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 8/31/04 +6.48% +2.22%
- --------------------------------------------------------------------------------
Five Years Ended 8/31/04 +6.28 +5.42
- --------------------------------------------------------------------------------
Ten Years Ended 8/31/04 +5.95 +5.51
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
8 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses, including advisory fees, distribution fees including
12(b)-1 fees, and other Fund expenses. The following example (which is based on
a hypothetical investment of $1,000 invested on March 1, 2004 and held through
August 31, 2004) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees, or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value March 1, 2004
March 1, 2004 August 31, 2004 to August 31, 2004
================================================================================
Actual
================================================================================
Class A $1,000 $1,000.80 $3.93
- --------------------------------------------------------------------------------
Class B $1,000 $ 997.90 $5.99
- --------------------------------------------------------------------------------
Class C $1,000 $ 998.20 $6.45
- --------------------------------------------------------------------------------
Class I $1,000 $1,001.30 $3.43
================================================================================
Hypothetical (5% annual return before expenses)**
================================================================================
Class A $1,000 $1,021.27 $3.97
- --------------------------------------------------------------------------------
Class B $1,000 $1,019.21 $6.06
- --------------------------------------------------------------------------------
Class C $1,000 $1,018.75 $6.51
- --------------------------------------------------------------------------------
Class I $1,000 $1,021.78 $3.47
- --------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.78% for Class A, 1.19% for Class B, 1.28% for Class
C, .68% for Class I) multiplied by the average account value over the
period, multiplied by 184/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half-year divided by 365.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (in Thousands)
S&P Moody's Face
Ratings@ Ratings@ Amount Municipal Bonds Value
===================================================================================================================================
California--93.6%
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $ 2,625 ABAG Finance Authority for Nonprofit Corporations, California, COP
(Children's Hospital Medical Center), 6% due 12/01/2029 (a) $ 2,950
----------------------------------------------------------------------------------------------------------------
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 4,029
----------------------------------------------------------------------------------------------------------------
AAA Aaa 3,600 Alameda Corridor Transportation Authority, California, Revenue Bonds,
Senior Lien, Series A, 5.25% due 10/01/2021 (g) 3,884
----------------------------------------------------------------------------------------------------------------
Anaheim, California, Public Financing Authority:
AAA Aaa 3,000 Electric System Distribution Facilities Revenue Bonds, Series A,
5% due 10/01/2031 (f) 3,050
AAA Aaa 4,000 Tax Allocation Revenue Refunding Bonds, RITES, 11.32%
due 12/28/2018 (g)(h) 5,127
----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Bakersfield, California, COP, Refunding (Convention Center Expansion
Project), 5.875% due 4/01/2022 (g) 2,177
----------------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Bay Area Government Association, California, Revenue Refunding Bonds
(California Redevelopment Agency Pool), Series A, 6% due 12/15/2024 (f) 6,189
----------------------------------------------------------------------------------------------------------------
California Educational Facilities Authority, Revenue Refunding
Bonds (g):
NR* Aaa 9,000 RIB, Series 413, 10.40% due 10/01/2026 (h) 10,657
NR* Aaa 1,025 (University of the Pacific), 5.875% due 11/01/2020 1,164
----------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 California Health Facilities Financing Authority, Insured Health
Facility Revenue Refunding Bonds (Catholic Healthcare West), Series A,
6% due 7/01/2017 (g) 3,259
----------------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority Revenue Bonds:
AAA NR* 10,000 DRIVERS, Series 181, 9.395% due 6/01/2022 (f)(h) 11,987
AAA NR* 5,000 (Kaiser Permanente), RIB, Series 26, 9.38% due 6/01/2022 (f)(h) 5,993
AAA Aaa 2,000 (Scripps Memorial Hospital), Series A, 6.375% due 10/01/2022 (g) 2,007
NR* Aa3 5,780 (Scripps Research Institute), Series A, 6.625% due 7/01/2014 5,916
AA- A1 2,080 (Sutter Health), Series A, 6.25% due 8/15/2035 2,297
----------------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority, Revenue Refunding
Bonds, VRDN, Series B (g)(i):
A1+ VMIG1+ 200 (Adventist Hospital), 1.33% due 9/01/2015 200
A1+ VMIG1+ 300 (Adventist Hospital), 1.33% due 9/01/2028 300
A1+ VMIG1+ 825 (Sutter/Catholic Healthcare System), 1.32% due 7/01/2012 825
----------------------------------------------------------------------------------------------------------------
BBB+ Baa2 4,350 California Pollution Control Financing Authority, Solid Waste Disposal
Revenue Refunding Bonds (Republic Services Inc. Project), AMT,
Series C, 5.25% due 6/01/2023 4,540
----------------------------------------------------------------------------------------------------------------
BBB+ A3 4,500 California State Department of Water Resources, Power Supply Revenue
Bonds, Series A, 5.75% due 5/01/2017 5,071
----------------------------------------------------------------------------------------------------------------
California State Public Works Board, Lease Revenue Bonds, Series A:
AAA NR* 10,000 (Department of Corrections), 7% due 11/01/2019 (a) 10,297
AAA Aaa 2,800 (Department of Health Services), 5.625% due 11/01/2019 (g) 3,133
AAA Aaa 3,000 (Various Community College Projects), 5.625% due 3/01/2016 (a) 3,214
----------------------------------------------------------------------------------------------------------------
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) 10,898
AAA Aaa 1,500 (Various Community College Projects), 5.625% due 3/01/2019 (a) 1,606
----------------------------------------------------------------------------------------------------------------
AAA Aaa 1,580 California State University and Colleges, Housing System Revenue
Refunding Bonds, 5.80% due 11/01/2017 (d) 1,682
----------------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 California State University, Systemwide Revenue Refunding Bonds,
Series A, 5% due 11/01/2034 (f) 6,116
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 at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DRIVERS Derivative Inverse Tax-Exempt Receipts
GO General Obligation Bonds
RIB Residual Interest Bonds
RITES Residual Interest Tax-Exempt Securities
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
10 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
Ratings@ Ratings@ Amount Municipal Bonds Value
===================================================================================================================================
California (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
AAA NR* $ 6,000 California Statewide Communities Development Authority, COP, Refunding
(Huntington Memorial Hospital), 5.80% due 7/01/2026 (b) $ 6,442
----------------------------------------------------------------------------------------------------------------
A A3 2,475 California Statewide Communities Development Authority, Health Facility
Revenue Bonds (Memorial Health Services), Series A, 6% due 10/01/2023 2,644
----------------------------------------------------------------------------------------------------------------
NR* NR* 1,200 Capistrano, California, Unified School District, Community Facility
District, Special Tax Bonds (No. 90-2 Talega), 6% due 9/01/2032 1,224
----------------------------------------------------------------------------------------------------------------
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) 5,876
----------------------------------------------------------------------------------------------------------------
Corona, California, COP, Refunding (Corona Community):
AAA Aaa 1,915 8% due 3/01/2009 (e) 2,342
AAA Aaa 2,065 8% due 3/01/2010 (e) 2,583
AAA Aaa 2,230 8% due 3/01/2011 (e) 2,834
AAA Aaa 2,410 8% due 3/01/2012 (e) 3,118
AAA Aaa 2,605 8% due 3/01/2013 (e) 3,421
AAA Aaa 2,810 8% due 3/01/2014 (e) 3,746
AAA Aaa 3,035 8% due 3/01/2015 (c) 4,096
----------------------------------------------------------------------------------------------------------------
AAA Aaa 1,250 Cucamonga, California, County Water District, COP, Refunding, 5.50%
due 9/01/2024 (d) 1,346
----------------------------------------------------------------------------------------------------------------
NR* NR* 1,000 Elk Grove, California, East Franklin Community Number 1 Special Tax,
Series A, 6% due 8/01/2033 1,026
----------------------------------------------------------------------------------------------------------------
NR* NR* 3,000 Etiwanda School District, California, Community Facilities District
Number 8, Special Tax, 6.25% due 9/01/2032 3,052
----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Glendale, California, Unified School District, GO, Series F, 5%
due 9/01/2028 (g) 2,044
----------------------------------------------------------------------------------------------------------------
Grossmont, California, Unified High School District, COP (e)(f):
AAA Aaa 1,220 5.65% due 9/01/2008 1,404
AAA Aaa 2,250 5.75% due 9/01/2008 2,597
----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,750 Hawthorne, California, School District, GO, Series A, 5.50% due
5/01/2022 (d) 3,015
----------------------------------------------------------------------------------------------------------------
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) 5,616
----------------------------------------------------------------------------------------------------------------
NR* NR* 1,000 Long Beach, California, Special Tax Bonds (Community Facilities
District No. 3-Pine Ave.), 6.375% due 9/01/2023 1,056
----------------------------------------------------------------------------------------------------------------
NR* Aaa 4,000 Los Angeles, California, COP (Sonnenblick Del Rio West Los Angeles),
6.20% due 11/01/2031 (a) 4,617
----------------------------------------------------------------------------------------------------------------
Los Angeles, California, Community College District, GO, Series A (g):
AAA Aaa 12,265 5.50% due 8/01/2020 13,677
AAA Aaa 5,035 5.50% due 8/01/2021 5,576
----------------------------------------------------------------------------------------------------------------
AAA NR* 7,000 Los Angeles, California, Convention and Exhibition Center Authority,
COP, 9% due 12/01/2020 (a) 7,657
----------------------------------------------------------------------------------------------------------------
Los Angeles, California, Harbor Department Revenue Bonds, AMT:
AAA Aaa 7,000 RITR, Series RI-7, 10.725% due 11/01/2026 (g)(h) 8,161
AA Aa2 1,000 Series B, 5.375% due 11/01/2023 1,051
----------------------------------------------------------------------------------------------------------------
AAA NR* 5,000 Los Angeles, California, Harbor Department Revenue Refunding Bonds,
7.60% due 10/01/2018 (c)(g) 6,260
----------------------------------------------------------------------------------------------------------------
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) 5,842
AAA Aaa 4,000 Series A-A-2, 5.375% due 7/01/2021 (g) 4,345
----------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Los Angeles County, California, Metropolitan Transportation Authority,
Sales Tax Revenue Refunding Bonds, Proposition A, First Tier Senior
Series A, 2.125% due 7/01/2005 (f) 4,024
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004 11
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
Ratings@ Ratings@ Amount Municipal Bonds Value
===================================================================================================================================
California (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $ 2,000 Los Rios, California, Community College District, GO (Election of
2002), Series B, 5% due 8/01/2027 (g) $ 2,049
----------------------------------------------------------------------------------------------------------------
NR* Aaa 5,435 Monterey County, California, COP (Master Plan Financing), 5% due
8/01/2032 (g) 5,493
----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,780 Morgan Hill, California, Unified School District, GO, 5.25% due
8/01/2019 (d) 3,011
----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Orange County, California, Sanitation District, COP, 5.25% due
2/01/2028 (d) 2,088
----------------------------------------------------------------------------------------------------------------
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) 1,117
----------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Palm Springs, California, Financing Authority, Lease Revenue Refunding
Bonds (Convention Center Project), Series A, 5.50% due 11/01/2029 (g) 1,633
----------------------------------------------------------------------------------------------------------------
AAA Aaa 5,485 Peralta, California, Community College District, GO (Election of 2000),
Series C, 5% due 8/01/2029 (g) 5,610
----------------------------------------------------------------------------------------------------------------
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) 1,089
----------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Port Oakland, California, Port Revenue Refunding Bonds, Series I, 5.60%
due 11/01/2019 (g) 1,111
----------------------------------------------------------------------------------------------------------------
AAA Aaa 8,295 Port Oakland, California, RITR, AMT, Class R, Series 5, 9.881% due
11/01/2012 (d)(h) 10,043
----------------------------------------------------------------------------------------------------------------
AAA Aaa 12,710 Port Oakland, California, Revenue Refunding Bonds, AMT, Series L,
5.375% due 11/01/2027 (d) 13,189
----------------------------------------------------------------------------------------------------------------
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) 2,007
----------------------------------------------------------------------------------------------------------------
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) 4,353
----------------------------------------------------------------------------------------------------------------
AAA Aaa 8,000 Sacramento, California, Municipal Utility District, Electric Revenue
Refunding Bonds, Series L, 5.125% due 7/01/2022 (g) 8,437
----------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Sacramento County, California, Airport System Revenue Refunding Bonds,
Sub-Series B, 5% due 7/01/2026 (d) 10,131
----------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Saddleback Valley, California, Unified School District, GO, 5% due
8/01/2029 (f) 1,023
----------------------------------------------------------------------------------------------------------------
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) 3,696
----------------------------------------------------------------------------------------------------------------
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) 2,116
----------------------------------------------------------------------------------------------------------------
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) 4,245
----------------------------------------------------------------------------------------------------------------
AAA NR* 4,000 San Bernardino County, California, COP, Refunding (Medical Center
Financing Project), 5.50% due 8/01/2019 (g) 4,092
----------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 San Diego, California, Certificates of Undivided Interest, Water
Utility Fund, Net System Revenue Bonds, 5% due 8/01/2021 (d) 10,442
----------------------------------------------------------------------------------------------------------------
San Diego, California, Public Facilities Financing Authority, Sewer
Revenue Bonds (d):
AAA Aaa 4,450 Series A, 5.25% due 5/15/2027 4,568
AAA Aaa 6,175 Series B, 5.25% due 5/15/2027 6,338
----------------------------------------------------------------------------------------------------------------
AAA Aaa 4,235 San Diego, California, Unified School District, GO (Election of 1998),
Series F, 5% due 7/01/2029 (f) 4,330
----------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 San Diego County, California, Water Authority, Water Revenue Refunding
Bonds, COP, Series A, 5% due 5/01/2027 (g) 4,064
----------------------------------------------------------------------------------------------------------------
AAA Aaa 5,500 San Francisco, California, City and County Airport Commission,
International Airport Revenue Bonds, AMT, Second Series, Issue 11,
6.25% due 5/01/2005 (d)(e) 5,728
12 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
Ratings@ Ratings@ Amount Municipal Bonds Value
===================================================================================================================================
California (concluded)
- -----------------------------------------------------------------------------------------------------------------------------------
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) $ 1,380
----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 San Francisco, California, City and County Airports, International
Airport Revenue Refunding Bonds, Second Series, Issue 29-B, 3%
due 5/01/2007 (d) 2,572
----------------------------------------------------------------------------------------------------------------
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) 4,297
----------------------------------------------------------------------------------------------------------------
AAA Aaa 5,790 San Joaquin Hills, California, Transportation Corridor Agency, Toll
Road Revenue Refunding Bonds, Series A, 5.375% due 1/15/2029 (g) 5,954
----------------------------------------------------------------------------------------------------------------
AAA Aaa 1,420 San Jose-Evergreen, California, Community College District, GO,
Series B, 5.50% due 9/01/2021 (d) 1,605
----------------------------------------------------------------------------------------------------------------
San Juan, California, Unified School District, GO:
AAA Aaa 3,740 5.625% due 8/01/2017 (d) 4,222
AAA Aaa 3,000 5.70% due 8/01/2019 (f) 3,395
AAA Aaa 4,345 5.625% due 8/01/2020 (d) 4,758
AAA Aaa 3,500 (Election of 2002), 5% due 8/01/2028 (g) 3,576
----------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 San Mateo County, California, Community College District, COP, 5%
due 10/01/2029 (g) 1,017
----------------------------------------------------------------------------------------------------------------
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) 2,282
----------------------------------------------------------------------------------------------------------------
AAA Aaa 1,700 Santa Clara, California, Subordinated Electric Revenue Bonds,
Series A, 5% due 7/01/2028 (g) 1,736
----------------------------------------------------------------------------------------------------------------
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) 10,314
----------------------------------------------------------------------------------------------------------------
NR* NR* 1,650 Santa Margarita, California, Water District, Special Tax Refunding
Bonds (Community Facilities District No. 99), Series 1, 6.20%
due 9/01/2020 1,734
----------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Santa Monica, California, Redevelopment Agency, Tax Allocation Bonds
(Earthquake Recovery Redevelopment Project), 6% due 7/01/2029 (a) 4,464
----------------------------------------------------------------------------------------------------------------
Santa Rosa, California, High School District, GO:
AAA Aaa 1,000 5.70% due 5/01/2021 (f) 1,099
AAA Aaa 1,000 (Election of 2002), 5% due 8/01/2028 (g) 1,022
----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,600 Southern California Public Power Authority, Power Project Revenue Bonds
(Magnolia Power Project), Series A-1, 5% due 7/01/2033 (a) 2,646
----------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Southwestern Community College, District of California, GO, 5.625% due
8/01/2018 (a) 1,138
----------------------------------------------------------------------------------------------------------------
AAA Aaa 5,500 University of California, Hospital Revenue Refunding Bonds (UCLA
Medical Center), Series B, 5.50% due 5/15/2021 (a) 6,111
----------------------------------------------------------------------------------------------------------------
AAA Aaa 4,215 Vista, California, Unified School District, GO, Series A, 5.25%
due 8/01/2025 (f) 4,438
===================================================================================================================================
Puerto Rico--3.9%
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Puerto Rico Commonwealth Highway and Transportation Authority,
Transportation Revenue Bonds, Series B, 5.75% due 7/01/2018 (g) 2,295
----------------------------------------------------------------------------------------------------------------
AAA Aaa 6,790 Puerto Rico Commonwealth, Public Improvement, GO, 5.75% due
7/01/2018 (g) 7,810
----------------------------------------------------------------------------------------------------------------
AAA Aaa 6,610 Puerto Rico Commonwealth, Public Improvement, GO, Refunding, 5.70% due
7/01/2020 (g) 7,419
----------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$413,931)--97.5% 448,547
================================================================================================================
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004 13
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded) (in Thousands)
Shares
Held Mutual Funds Value
================================================================================================================
69 BlackRock California Insured Municipal 2008 Term Trust, Inc. $ 1,124
================================================================================================================
Total Mutual Funds (Cost--$1,156)--0.3% 1,124
----------------------------------------------------------------------------------------------------------------
Short-Term Securities
================================================================================================================
6 CMA California Municipal Money Fund (j) 6
----------------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$6)--0.0% 6
================================================================================================================
Total Investments (Cost--$415,093**)--97.8% 449,677
Other Assets Less Liabilities--2.2% 10,070
--------
Net Assets--100.0% $459,747
========
+ Highest short-term rating by Moody's Investors Service, Inc.
@ Ratings of issues shown are unaudited.
* Not Rated.
** The cost and unrealized appreciation/depreciation of investments as of
August 31, 2004, as computed for federal income tax purposes, were as
follows:
(in Thousands)
--------------------------------------------------------------------------
Aggregate cost .............................................. $414,793
========
Gross unrealized appreciation ............................... $ 34,938
Gross unrealized depreciation ............................... (54)
--------
Net unrealized appreciation ................................. $ 34,884
========
(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 August 31, 2004.
(i) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at August 31,
2004.
(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) were as follows:
(in Thousands)
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
CMA California Municipal Money Fund -- --(1)
--------------------------------------------------------------------------
(1) Amount is less than $1,000.
See Notes to Financial Statements.
14 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
Statement of Assets and Liabilities
As of August 31, 2004
==================================================================================================================================
Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified
cost--$415,086,279) ................................................... $ 449,670,634
Investments in affiliated securities, at value (identified
cost--$6,437) ......................................................... 6,437
Cash ................................................................... 48,088
Receivables:
Securities sold ..................................................... $ 7,911,500
Interest ............................................................ 7,230,195
Beneficial interest sold ............................................ 190,916
Dividends ........................................................... 4,410 15,337,021
-------------
Prepaid expenses ....................................................... 33,729
-------------
Total assets ........................................................... 465,095,909
-------------
==================================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------------
Payables:
Securities purchased ................................................ 4,317,117
Dividends to shareholders ........................................... 515,101
Beneficial interest redeemed ........................................ 335,629
Distributor ......................................................... 92,579
Other affiliates .................................................... 31,125
Investment adviser .................................................. 13,780 5,305,331
-------------
Accrued expenses ....................................................... 43,645
-------------
Total liabilities ...................................................... 5,348,976
-------------
==================================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets ............................................................. $ 459,746,933
=============
==================================================================================================================================
Net Assets Consist of
- ----------------------------------------------------------------------------------------------------------------------------------
Class A Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized ........................................... $ 2,205,529
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized ........................................... 1,009,464
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized ........................................... 400,260
Class I Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized ........................................... 308,406
Paid-in capital in excess of par ....................................... 431,654,839
Undistributed investment income--net ................................... $ 821,188
Accumulated realized capital losses--net ............................... (11,237,108)
Unrealized appreciation--net ........................................... 34,584,355
-------------
Total accumulated earnings--net ........................................ 24,168,435
-------------
Net Assets ............................................................. $ 459,746,933
=============
==================================================================================================================================
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $258,411,069 and 22,055,288 shares
of beneficial interest outstanding .................................... $ 11.72
=============
Class B--Based on net assets of $118,303,562 and 10,094,637 shares
of beneficial interest outstanding .................................... $ 11.72
=============
Class C--Based on net assets of $46,899,842 and 4,002,602 shares
of beneficial interest outstanding .................................... $ 11.72
=============
Class I--Based on net assets of $36,132,460 and 3,084,062 shares
of beneficial interest outstanding .................................... $ 11.72
=============
See Notes to Financial Statements.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004 15
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
For the Year Ended August 31, 2004
==================================================================================================================================
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------------
Interest ............................................................... $ 25,959,046
Dividends (including $416 from affiliates) ............................. 55,618
-------------
Total income ........................................................... 26,014,664
-------------
==================================================================================================================================
Expenses
- ----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................... $ 2,624,472
Account maintenance and distribution fees--Class B ..................... 673,447
Account maintenance and distribution fees--Class C ..................... 297,220
Account maintenance fees--Class A ...................................... 255,597
Accounting services .................................................... 184,642
Transfer agent fees--Class A ........................................... 94,212
Professional fees ...................................................... 63,054
Transfer agent fees--Class B ........................................... 58,074
Printing and shareholder reports ....................................... 48,757
Registration fees ...................................................... 44,705
Custodian fees ......................................................... 24,784
Trustees' fees and expenses ............................................ 22,182
Transfer agent fees--Class C ........................................... 21,212
Pricing fees ........................................................... 15,772
Transfer agent fees--Class I ........................................... 13,774
Other .................................................................. 47,372
-------------
Total expenses before reimbursement .................................... 4,489,276
Reimbursement of expenses .............................................. (292)
-------------
Total expenses after reimbursement ..................................... 4,488,984
-------------
Investment income--net ................................................. 21,525,680
-------------
==================================================================================================================================
Realized & Unrealized Gain--Net
- ----------------------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ...................................... 1,654,864
Change in unrealized appreciation on investments--net .................. 5,630,844
-------------
Total realized and unrealized gain--net ................................ 7,285,708
-------------
Net Increase in Net Assets Resulting from Operations ................... $ 28,811,388
=============
See Notes to Financial Statements.
16 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
Statements of Changes in Net Assets
For the Year Ended
August 31,
-------------------------------
Increase (Decrease) in Net Assets: 2004 2003
==================================================================================================================================
Operations
- ----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................. $ 21,525,680 $ 23,195,829
Realized gain--net ..................................................... 1,654,864 1,302,358
Change in unrealized appreciation--net ................................. 5,630,844 (13,513,864)
-------------------------------
Net increase in net assets resulting from operations ................... 28,811,388 10,984,323
-------------------------------
==================================================================================================================================
Dividends to Shareholders
- ----------------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ............................................................. (11,895,855) (11,484,980)
Class B ............................................................. (5,720,284) (7,656,305)
Class C ............................................................. (2,053,614) (1,923,362)
Class I ............................................................. (1,776,326) (2,037,876)
-------------------------------
Net decrease in net assets resulting from dividends to shareholders .... (21,446,079) (23,102,523)
-------------------------------
==================================================================================================================================
Beneficial Interest Transactions
- ----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from beneficial interest transactions (36,115,908) (10,154,091)
-------------------------------
==================================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ........................................... (28,750,599) (22,272,291)
Beginning of year ...................................................... 488,497,532 510,769,823
-------------------------------
End of year* ........................................................... $ 459,746,933 $ 488,497,532
===============================
* Undistributed investment income--net .............................. $ 821,188 $ 740,799
===============================
See Notes to Financial Statements.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004 17
[LOGO] Merrill Lynch Investment Managers
Financial Highlights
Class A
------------------------------------------------------------
The following per share data and ratios have been derived For the Year Ended
from information provided in the financial statements. August 31,
------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ......... $ 11.54 $ 11.82 $ 11.77 $ 11.26 $ 11.10
------------------------------------------------------------
Investment income--net ..................... .55+ .56+ .57+ .58 .57
Realized and unrealized gain (loss)--net ... .17 (.28) .05 .51 .16
------------------------------------------------------------
Total from investment operations ........... .72 .28 .62 1.09 .73
------------------------------------------------------------
Less dividends from investment income--net . (.54) (.56) (.57) (.58) (.57)
------------------------------------------------------------
Net asset value, end of year ............... $ 11.72 $ 11.54 $ 11.82 $ 11.77 $ 11.26
============================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ......... 6.37% 2.35% 5.46% 9.93% 6.91%
============================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement and excluding
reorganization expenses ................... .78% .78% .81% .79% .77%
============================================================
Expenses, excluding reorganization expenses .78% .78% .81% .79% .77%
============================================================
Expenses ................................... .78% .78% .84% .84% .77%
============================================================
Investment income--net ..................... 4.66% 4.74% 4.93% 4.96% 5.25%
============================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ..... $258,411 $247,184 $236,181 $219,442 $193,497
============================================================
Portfolio turnover ......................... 24.69% 29.70% 37.35% 55.75% 84.36%
============================================================
* Total investment returns exclude the effect of sales charges.
+ Based on average shares outstanding.
See Notes to Financial Statements.
18 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
Financial Highlights (continued)
Class B
------------------------------------------------------------
The following per share data and ratios have been derived For the Year Ended
from information provided in the financial statements. August 31,
------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ......... $ 11.54 $ 11.82 $ 11.77 $ 11.26 $ 11.10
------------------------------------------------------------
Investment income--net ..................... .50+ .51+ .52+ .53 .53
Realized and unrealized gain (loss)--net ... .18 (.28) .05 .51 .16
------------------------------------------------------------
Total from investment operations ........... .68 .23 .57 1.04 .69
------------------------------------------------------------
Less dividends from investment income--net . (.50) (.51) (.52) (.53) (.53)
------------------------------------------------------------
Net asset value, end of year ............... $ 11.72 $ 11.54 $ 11.82 $ 11.77 $ 11.26
============================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ......... 5.94% 1.93% 5.04% 9.48% 6.48%
============================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement and excluding
reorganization expenses ................... 1.18% 1.19% 1.22% 1.20% 1.18%
============================================================
Expenses, excluding reorganization expenses 1.18% 1.19% 1.22% 1.20% 1.18%
============================================================
Expenses ................................... 1.18% 1.19% 1.25% 1.25% 1.18%
============================================================
Investment income--net ..................... 4.25% 4.34% 4.52% 4.55% 4.85%
============================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ..... $118,304 $151,276 $194,733 $221,516 $200,409
============================================================
Portfolio turnover ......................... 24.69% 29.70% 37.35% 55.75% 84.36%
============================================================
* Total investment returns exclude the effect of sales charges.
+ Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004 19
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued)
Class C
------------------------------------------------------------
The following per share data and ratios have been derived For the Year Ended
from information provided in the financial statements. August 31,
------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ......... $ 11.54 $ 11.82 $ 11.77 $ 11.26 $ 11.10
------------------------------------------------------------
Investment income--net ..................... .49+ .50+ .51+ .52 .52
Realized and unrealized gain (loss)--net ... .17 (.28) .05 .51 .16
------------------------------------------------------------
Total from investment operations ........... .66 .22 .56 1.03 .68
------------------------------------------------------------
Less dividends from investment income--net . (.48) (.50) (.51) (.52) (.52)
------------------------------------------------------------
Net asset value, end of year ............... $ 11.72 $ 11.54 $ 11.82 $ 11.77 $ 11.26
============================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ......... 5.84% 1.83% 4.94% 9.37% 6.37%
============================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement and excluding
reorganization expenses ................... 1.28% 1.29% 1.32% 1.30% 1.28%
============================================================
Expenses, excluding reorganization expenses 1.28% 1.29% 1.32% 1.30% 1.28%
============================================================
Expenses ................................... 1.28% 1.29% 1.35% 1.35% 1.28%
============================================================
Investment income--net ..................... 4.15% 4.24% 4.42% 4.45% 4.75%
============================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ..... $ 46,900 $ 50,197 $ 36,983 $ 16,357 $ 10,262
============================================================
Portfolio turnover ......................... 24.69% 29.70% 37.35% 55.75% 84.36%
============================================================
* Total investment returns exclude the effect of sales charges.
+ Based on average shares outstanding.
See Notes to Financial Statements.
20 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
Financial Highlights (concluded)
Class I
------------------------------------------------------------
The following per share data and ratios have been derived For the Year Ended
from information provided in the financial statements. August 31,
------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ......... $ 11.54 $ 11.81 $ 11.77 $ 11.26 $ 11.10
------------------------------------------------------------
Investment income--net ..................... .56+ .57+ .58+ .59 .58
Realized and unrealized gain (loss)--net ... .17 (.27) .04 .51 .16
------------------------------------------------------------
Total from investment operations ........... .73 .30 .62 1.10 .74
------------------------------------------------------------
Less dividends from investment income--net . (.55) (.57) (.58) (.59) (.58)
------------------------------------------------------------
Net asset value, end of year ............... $ 11.72 $ 11.54 $ 11.81 $ 11.77 $ 11.26
============================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ......... 6.48% 2.54% 5.48% 10.04% 7.02%
============================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement and excluding
reorganization expenses ................... .68% .68% .71% .69% .67%
============================================================
Expenses, excluding reorganization expenses .68% .68% .71% .69% .67%
============================================================
Expenses ................................... .68% .68% .74% .75% .67%
============================================================
Investment income--net ..................... 4.76% 4.84% 5.03% 5.06% 5.35%
============================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ..... $ 36,132 $ 39,841 $ 42,873 $ 40,877 $ 31,868
============================================================
Portfolio turnover ......................... 24.69% 29.70% 37.35% 55.75% 84.36%
============================================================
* Total investment returns exclude the effect of sales charges.
+ Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004 21
[LOGO] Merrill Lynch Investment Managers
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 amended, as a
diversified, open-end management investment company. The Fund's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. The Fund offers four classes of
shares. Shares of Class I and Class A 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 A, Class B,
and Class C 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 are traded primarily in the
over-the-counter markets and are valued at the last available bid price in the
over-the-counter market or on the basis of values as obtained by a pricing
service. Pricing services use valuation matrixes that incorporate both
dealer-supplied valuations and valuation models. The procedures of the pricing
service and its valuations are reviewed by the officers of the Fund under the
general direction of the Board of Trustees. Such valuations and procedures will
be reviewed periodically by the Board of Trustees of the Trust. Financial
futures contracts and options thereon, which are traded on exchanges, are valued
at their closing prices as of the close of such exchanges. Options written or
purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Swap agreements are valued by quoted fair values received daily by
the Fund from the counterparty. Short-term investments with a remaining maturity
of 60 days or less are valued at amortized cost which approximates market value,
under which method the investment is valued at cost and any premium or discount
is amortized on a straight line basis to maturity. Investments in open-end
investment companies are valued at their net asset value each business day.
Securities and other 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.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. 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. 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.
o Forward interest rate swaps -- The Fund may enter into forward interest
rate swaps. In a forward interest rate swap, the Fund and the counterparty
agree to make periodic net payments on a specified notional contract
amount, commencing on a specified future effective date, unless terminated
earlier. When the agreement is closed, the Fund records a realized gain or
loss in an amount equal to the value of the agreement.
(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.
22 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
Notes to Financial Statements (continued)
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
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) Expenses -- Certain expenses have been allocated to the individual Funds in
the Trust on a pro rata basis based upon the respective aggregate net asset
value of each Fund included in the Trust.
(g) 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.
(h) Reclassification -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $788 has been reclassified between paid-in-capital in excess of par and
undistributed net investment income as a result of permanent differences
attributable to non-deductible expenses. This reclassification has no effect on
net assets or net asset values per share.
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 pays 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 year ended August 31, 2004, the Investment Adviser has agreed
to waive its management fee by the amount of management fees the Fund pays to
FAM indirectly through its investment in the CMA California Municipal Money
Fund. FAM reimbursed the Fund in the amount of $292.
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 A ................................ .10% --
Class B ................................ .25% .25%
Class C ................................ .25% .35%
- --------------------------------------------------------------------------------
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 A, Class B and Class C 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 year ended August 31, 2004, FAMD earned underwriting discounts and
MLPF&S earned dealer concessions on sales of the Fund's Class A and Class I
Shares as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A ............................ $10,625 $77,142
Class I ............................ $ 987 $ 8,033
- --------------------------------------------------------------------------------
For the year ended August 31, 2004, MLPF&S received contingent deferred sales
charges of $115,204 and $31,213 relating to transactions in Class B and Class C
Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $5,333 relating to transactions subject to front-end sales charge
waivers in Class A Shares.
In addition, MLPF&S received $3,167 in commissions on the execution of portfolio
security transactions for the Fund for the year ended August 31, 2004.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004 23
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
For the year ended August 31, 2004, the Fund reimbursed FAM $9,850 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.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended August 31, 2004 were $114,601,889 and $148,012,059, respectively.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$36,115,908 and $10,154,091 for the year ended August 31, 2004 and for the year
ended August 31, 2003, respectively.
Transactions in shares of beneficial interest for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended August 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 1,862,165 $ 21,715,625
Automatic conversion of shares ........... 1,520,151 17,769,810
Shares issued to shareholders in
reinvestment of dividends ............. 470,853 5,517,417
------------------------------
Total issued ............................. 3,853,169 45,002,852
Shares redeemed .......................... (3,222,586) (37,606,242)
------------------------------
Net increase ............................. 630,583 $ 7,396,610
==============================
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended August 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 1,254,766 $ 14,903,047
Automatic conversion of shares ........... 2,593,787 30,828,314
Shares issued to shareholders in
reinvestment of dividends ............. 427,503 5,048,446
------------------------------
Total issued ............................. 4,276,056 50,779,807
Shares redeemed .......................... (2,841,291) (33,533,908)
------------------------------
Net increase ............................. 1,434,765 $ 17,245,899
==============================
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended August 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 550,699 $ 6,445,928
Shares issued to shareholders in
reinvestment of dividends ............. 203,217 2,383,197
------------------------------
Total issued ............................. 753,916 8,829,125
Shares redeemed .......................... (2,248,089) (26,204,483)
Automatic conversion of shares ........... (1,519,589) (17,769,810)
------------------------------
Net decrease ............................. (3,013,762) $(35,145,168)
==============================
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended August 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 1,516,169 $ 17,984,139
Shares issued to shareholders in
reinvestment of dividends ............. 276,563 3,267,758
------------------------------
Total issued ............................. 1,792,732 21,251,897
Automatic conversion of shares ........... (2,592,997) (30,828,314)
Shares redeemed .......................... (2,569,199) (30,339,314)
------------------------------
Net decrease ............................. (3,369,464) $(39,915,731)
==============================
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended August 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 783,145 $ 9,196,564
Shares issued to shareholders in
reinvestment of dividends ............. 99,268 1,163,896
------------------------------
Total issued ............................. 882,413 10,360,460
Shares redeemed .......................... (1,230,288) (14,363,533)
------------------------------
Net decrease ............................. (347,875) $ (4,003,073)
==============================
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended August 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 2,017,941 $ 23,936,180
Shares issued to shareholders in
reinvestment of dividends ............. 88,763 1,048,286
------------------------------
Total issued ............................. 2,106,704 24,984,466
Shares redeemed .......................... (886,237) (10,443,796)
------------------------------
Net increase ............................. 1,220,467 $ 14,540,670
==============================
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended August 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 443,328 $ 5,185,502
Shares issued to shareholders in
reinvestment of dividends ............. 74,671 875,059
------------------------------
Total issued ............................. 517,999 6,060,561
Shares redeemed .......................... (887,383) (10,242,838)
------------------------------
Net decrease ............................. (369,384) $ (4,364,277)
==============================
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended August 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 564,411 $ 6,700,020
Shares issued to shareholders in
reinvestment of dividends ............. 73,005 861,983
------------------------------
Total issued ............................. 637,416 7,562,003
Shares redeemed .......................... (812,952) (9,586,932)
------------------------------
Net decrease ............................. (175,536) $ (2,024,929)
==============================
- -------------------------------------------------------------------------------
24 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
Notes to Financial Statements (concluded)
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 28, 2003, the credit agreement
was renewed for one year under the same terms. The Fund did not borrow under the
credit agreement during the year ended August 31, 2004.
6. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended August 31,
2004 and August 31, 2003 was as follows:
- -------------------------------------------------------------------------------
8/31/2004 8/31/2003
- -------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income ..................... $ 21,446,079 $ 23,102,523
-------------------------------
Total distributions ...................... $ 21,446,079 $ 23,102,523
===============================
As of August 31, 2004, the components of accumulated earnings on a tax basis
were as follows:
- -----------------------------------------------------------------------------
Undistributed tax-exempt income--net .................... $ 521,632
Undistributed long-term capital gains--net .............. --
------------
Total undistributed earnings--net ....................... 521,632
Capital loss carryforward ............................... (11,062,986)*
Unrealized gains--net ................................... 34,709,789**
------------
Total accumulated earnings--net ......................... $ 24,168,435
============
* On August 31, 2004, the Fund had a net capital loss carryforward of
$11,062,986, of which $440,840 expires in 2008 and $10,622,146 expires in
2009. This amount will be available to offset like amounts of any future
taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on straddles and the
difference between book and tax amortization methods for premiums and
discounts on fixed income securities.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004 25
[LOGO] Merrill Lynch Investment Managers
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of
Merrill Lynch California Municipal Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch California Insured Municipal Bond
Fund of Merrill Lynch California Municipal Series Trust (the "Trust") as of
August 31, 2004, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 2004 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch California Insured Municipal Bond Fund of Merrill Lynch California
Municipal Series Trust as of August 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for each of the five years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 15, 2004
26 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
Officers and Trustees (unaudited)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 1999 to President of the Merrill Lynch Investment Managers, 124 Funds None
Glenn* Princeton, NJ and present L.P. ("MLIM")/Fund Asset Management, L.P. ("FAM")-- 157 Portfolios
08543-9011 Trustee Advised Funds since 1999; Chairman (Americas Region)
Age: 63 of MLIM from 2000 to 2002; Executive Vice President
of MLIM and FAM (which terms as used herein
include their corporate predecessors) from 1983 to
2002; President of FAM Distributors, Inc. ("FAMD")
from 1986 to 2002 and Director thereof from 1991 to
2002; Executive Vice President and Director of Princeton
Services, Inc. ("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P. from 1989 to
2002; Director of Financial Data Services, Inc. since 1985.
------------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which MLIM
or FAM acts as investment adviser. Mr. Glenn is an "interested person" as described in the Investment Company Act, of
the Fund based on his present and former positions with MLIM, FAM, FAMD, Princeton Services and Princeton
Administrators, L.P. The Trustee's term is unlimited. Trustees serve until their resignation, removal, or death, or
until December 31 of the year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board
of Trustees.
====================================================================================================================================
Independent Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Trustee 1995 to Director, The China Business Group, Inc. since 1996 38 Funds None
Bodurtha Princeton, NJ present and Executive Vice President thereof from 1996 to 55 Portfolios
08543-9095 2003; Chairman of the Board, Berkshire Holding
Age: 60 Corporation since 1980; Partner, Squire, Sanders &
Dempsey from 1980 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Joe Grills P.O. Box 9095 Trustee 2002 to Member of the Committee of Investment of Employee 38 Funds Kimco Realty
Princeton, NJ present Benefit Assets of the Association of Financial 55 Portfolios Corporation
08543-9095 Professionals ("CIEBA") since 1986; Member of CIEBA's
Age: 69 Executive Committee since 1988 and its Chairman
from 1991 to 1992; Assistant Treasurer of International
Business Machines Corporation ("IBM") and Chief
Investment Officer of IBM Retirement Funds from
1986 to 1993; Member of the Investment Advisory
Committee of the State of New York Common
Retirement Fund since 1989; Member of the Investment
Advisory Committee of the Howard Hughes Medical
Institute from 1997 to 2000; Director, Duke
University Management Company from 1992 to
2004, Vice Chairman thereof from 1998 to 2004
and Director Emeritus thereof since 2004; Director,
LaSalle Street Fund from 1995 to 2001; Director, Kimco
Realty Corporation since 1997; Member of the Invest-
ment Advisory Committee of the Virginia Retirement
System since 1998 and Vice Chairman thereof since
2002; Director, Montpelier Foundation since 1998 and
its Vice Chairman since 2000; Member of the
Investment Committee of the Woodberry Forest School
since 2000; Member of the Investment Committee of
the National Trust for Historic Preservation since 2000.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004 27
[LOGO] Merrill Lynch Investment Managers
Officers and Trustees (unaudited) (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Trustee 1993 to John M. Olin Professor of Humanities, New York 38 Funds None
London Princeton, NJ present University since 1993 and Professor thereof since 55 Portfolios
08543-9095 1980; President, Hudson Institute since 1997 and
Age: 65 Trustee thereof since 1980; Dean, Gallatin Division
of New York University from 1976 to 1993;
Distinguished Fellow, Herman Kahn Chair, Hudson
Institute from 1984 to 1985; Director, Damon Corp. from
1991 to 1995; Overseer, Center for Naval Analyses from
1983 to 1993; Director, Level Playing Field (education)
from 2000 to 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Andre F. P.O. Box 9095 Trustee 1993 to Harvard Business School: George Gund Professor of 38 Funds None
Perold Princeton, NJ present Finance and Banking since 2000; Senior Associate 55 Portfolios
08543-9095 Dean, Director of Faculty Recruiting since 2001;
Age: 52 Finance Area Chair from 1996 to 2001; Sylvan C.
Coleman Professor of Financial Management from
1993 to 2000; Director, Genbel Securities Limited and
Gensec Bank from 1999 to 2003; Director, Stockback,
Inc. from 2000 to 2002; Director, Sanlam Limited from
2001 to 2003; Trustee, Commonfund from 1989 to
2001; Director, Sanlam Investment Management from
1999 to 2001; Director, Bulldogresearch.com from
2000 to 2001; Director, Quantec Limited from 1991
to 1999; Director and Chairman of the Board of
UNX Inc. since 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Trustee 2001 to Shareholder of Modrall, Sperling, Roehl, Harris & 38 Funds None
Cooper Princeton, NJ present Sisk, P.A. since 1993; President, American Bar 55 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of
Age: 62 the Board of Governors thereof from 1994 to 1997;
Shareholder of Poole, Kelly & Ramo, Attorneys at Law,
P.C. from 1977 to 1993; Director, Coopers, Inc. since
1999; Director of ECMC Group (service provider to
students, schools and lenders) since 2001; Director,
United New Mexico Bank (now Wells Fargo) from
1983 to 1988; Director, First National Bank of New
Mexico (now Wells Fargo) from 1975 to 1976.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Trustee 2002 to Principal of STI Management (investment adviser) 38 Funds None
Salomon, Princeton, NJ present since 1994; Chairman and CEO of Salomon Brothers 55 Portfolios
Jr. 08543-9095 Asset Management from 1992 until 1995; Chairman
Age: 67 of Salomon Brothers equity mutual funds from 1992
until 1995; regular columnist with Forbes Magazine
from 1992 to 2002; Director of Stock Research and
U.S. Equity Strategist at Salomon Brothers from 1975
until 1991; Trustee, Commonfund from 1980 to 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen B. P.O. Box 9095 Trustee 2002 to Chairman of Fernwood Advisors, Inc. (investment 39 Funds None
Swensrud Princeton, NJ present adviser) since 1996; Principal, Fernwood Associates 56 Portfolios
08543-9095 (financial consultants) since 1975; Chairman of R.P.P.
Age: 71 Corporation (manufacturing) since 1978; Director of
International Mobile Communications, Incorporated
(telecommunications) since 1998.
------------------------------------------------------------------------------------------------------------------------
* The Trustee's term is unlimited. Trustees serve until their resignation, removal or death, or until December 31 of the
year in which they turn 72.
28 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
Officers and Trustees (unaudited) (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President, Director and Treasurer of Princeton Services since 1999;
08543-9011 and and Vice President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 44 Treasurer 1999 to
present
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9011 Senior 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
Jacob Princeton, NJ Vice present Management) of MLIM from 1997 to 2000.
08543-9011 President
Age: 53
- ------------------------------------------------------------------------------------------------------------------------------------
John M. P.O. Box 9011 Senior 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
Loffredo Princeton, NJ Vice present Management) of MLIM from 1998 to 2000.
08543-9011 President
Age: 40
- ------------------------------------------------------------------------------------------------------------------------------------
Walter C. P.O. Box 9011 Vice 1993 to Managing Director of MLIM since 2003; Director (Municipal Tax-Exempt Fund
O'Connor Princeton, NJ President present Management) of MLIM from 2000 to 2003; Vice President of MLIM from 1994 to 2000.
08543-9011
Age: 42
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM since 2004; Global Director of Compliance at
08543-9011 Officer Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Age: 53 Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance Officer
at Prudential Financial from 1995 to 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997.
08543-9011
Age: 44
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Trustees is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
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
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004 29
[LOGO] Merrill Lynch Investment Managers
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site http://www.icsdelivery.com/live and follow the instructions. When you visit
this site, you will obtain a personal identification number (PIN). You will need
this PIN should you wish to update your e-mail address, choose to discontinue
this service and/or make any other changes to the service. This service is not
available for certain retirement accounts at this time.
30 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2004
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch California Insured Municipal Bond Fund of
Merrill Lynch California Municipal Series Trust
Box 9011
Princeton, NJ 08543-9011
#10329 -- 8/04
Item 2 - Code of Ethics - The registrant has adopted 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
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Joe Grills,
(2) Andre F. Perold, (3) Robert S. Salomon, Jr., and (4) Stephen B.
Swensrud.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending August 31, 2004 - $26,000
Fiscal Year Ending August 31, 2003 - $26,000
(b) Audit-Related Fees - Fiscal Year Ending August 31, 2004 - $0
Fiscal Year Ending August 31, 2003 - $0
(c) Tax Fees - Fiscal Year Ending August 31, 2004 - $5,610
Fiscal Year Ending August 31, 2003 - $4,800
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending August 31, 2004 - $0
Fiscal Year Ending August 31, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending August 31, 2004 - $14,913,836
Fiscal Year Ending August 31, 2003 - $18,318,444
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's 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.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
10(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - 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 of Merrill Lynch
California Municipal Series Trust
By: /s/ Terry K. Glenn
----------------------
Terry K. Glenn,
President of
Merrill Lynch California Insured Municipal Bond Fund of Merrill Lynch
California Municipal Series Trust
Date: October 18, 2004
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 of Merrill Lynch
California Municipal Series Trust
Date: October 18, 2004
By: /s/ Donald C. Burke
----------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch California Insured Municipal Bond Fund of Merrill Lynch
California Municipal Series Trust
Date: October 18, 2004