UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-04264
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: Robert C. Doll, Jr., Chief Executive
Officer, 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: 08/31/05
Date of reporting period: 09/01/04 - 02/28/05
Item 1 - Report to Stockholders
Merrill Lynch
California Insured Municipal
Bond Fund
Semi-Annual Report
February 28, 2005
Merrill Lynch California Insured Municipal Bond Fund
Portfolio Information as of February 28, 2005
Percent of
Distribution by Market Sector Total Investments
- --------------------------------------------------------------------------------
Other Revenue Bonds ........................................ 71.5%
General Obligation Bonds ................................... 28.2
Mutual Funds ............................................... 0.3
Other+ ..................................................... --*
- --------------------------------------------------------------------------------
+ Includes portfolio holdings in short-term investments.
* Amount is less than 0.1%.
Quality Ratings by Percent of
S&P/Moody's Total Investments
- --------------------------------------------------------------------------------
AAA/Aaa ................................................. 90.3%
AA/Aa ................................................... 2.1
A/A ..................................................... 1.8
BBB/Baa ................................................. 0.3
NR (Not Rated) .......................................... 4.7
Other* .................................................. 0.8
- --------------------------------------------------------------------------------
* Includes portfolio holdings in mutual funds and short-term investments.
2 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005
A Letter From the President
Dear Shareholder
Financial markets broadly posted positive returns over the most recent reporting
period, with international equities providing some of the most impressive
results.
Total Returns as of February 28, 2005 6-month 12-month
=====================================================================================================
U.S. equities (Standard & Poor's 500 Index) + 9.99% + 6.98%
- -----------------------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) +21.18 +18.68
- -----------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) + 1.26 + 2.43
- -----------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 2.40 + 2.96
- -----------------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) + 7.53 +11.21
- -----------------------------------------------------------------------------------------------------
The U.S. economy has continued to show resilience in the face of the Federal
Reserve Board's (the Fed) continued interest rate hikes and, more recently,
higher oil prices. The Fed's measured tightening program recently brought the
federal funds rate to 2.75% en route to a more "neutral" short-term interest
rate target (relative to inflation). Since the U.S. presidential election,
progress has been monitored on many fronts in Washington, although concerns
remain about the structural problems of debt and deficits, as reflected by a
significant decline in the U.S. dollar.
U.S. equities ended 2004 in a strong rally, but remained in a fairly narrow
trading range for the first two months of 2005. Divergences were notable among
sectors, with energy emerging as a clear leader. On the positive side,
corporations have accelerated their hiring plans, capital spending remains
reasonably robust and merger-and-acquisition activity has increased. Offsetting
the positives are slowing corporate earnings growth, renewed energy price
concerns and the potential for an economic slowdown. International equities,
particularly in Asia, have benefited from higher economic growth rates (China
recorded growth of 9.3% in 2004), stronger currencies and relatively reasonable
valuations.
The major action in the bond market has been a flattening of the yield curve. As
short-term interest rates continued to rise, yields on the long end of the curve
remained relatively stable -- even declining at certain points since the Fed's
monetary tightening program began in June 2004. This phenomenon has been largely
attributed to continued foreign interest in U.S. bonds, which has served to
absorb much of the excess supply. By period-end, many believed long-term yields
were long overdue for a rise.
Looking ahead, the environment is likely to be a challenging one for investors,
with diversification and selectivity becoming increasingly important themes.
With this in mind, we encourage you to meet with your financial advisor to
review your goals and asset allocation and to rebalance your portfolio, as
necessary, to ensure it remains aligned with your objectives and risk tolerance.
As always, 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/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Trustee
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005 3
A Discussion With Your Fund's Portfolio Manager
We continued our efforts to preserve the Fund's net asset value while
focusing on providing an above-average yield for our shareholders.
Describe the recent market environment relative to municipal bonds.
Despite broadly positive economic conditions, long-term bond yields declined
during the past six months as bond prices, which move opposite yields, generally
rose. Gross domestic product (GDP) growth was recently revised to 3.8% for the
fourth quarter of 2004, similar to the 4% rate recorded in the third quarter.
For 2004 as a whole, real GDP grew at a 4.4% rate, well ahead of 2003's annual
rate of 3%. The improving economic activity was largely offset by inflationary
trends remaining in the 1.5% - 2% range. Also helping to boost bond prices was
strong currency-related demand for long-term U.S. Treasury issues on the part of
many foreign governments.
Over the past six months, long-term U.S. Treasury bond yields declined 21 basis
points (.21%) to 4.72% at February 28, 2005. In the meantime, the Federal
Reserve Board (the Fed) continued to raise short-term interest rates, moving its
federal funds target rate recently to 2.75%. The Fed's series of interest rate
hikes, and the expectation for a continuation of the monetary tightening
program, pressured shorter-maturity bond yields higher throughout the period.
The yield on the 10-year Treasury note increased 26 basis points to 4.36% at the
end of February.
In the municipal bond market, a generally positive technical environment
supported higher bond prices in the long end. Recent bond issuance has been
heavily weighted in the 10-year - 20-year maturity range, leading to a moderate
scarcity of bonds maturing in 30 years - 35 years. Investor demand was solid
throughout the period and increased in the latter months. The most current
statistics from the Investment Company Institute indicate that long-term
municipal bond funds saw net new cash flows of $870 million in January 2005 -- a
sharp contrast to the $224 million in net cash outflows in January 2004. As
measured by the Bond Buyer Revenue Bond Index, the yield on A-rated revenue
bonds maturing in 30 years declined 16 basis points to 4.93% at the end of
February. AAA-rated issues maturing in 30 years, as reported by Municipal Market
Data, declined 19 basis points to 4.51%. Conversely, shorter-maturity municipal
bond yields increased over the past six months, responding to rising U.S.
Treasury note yields and increased supply pressures. Yields on AAA-rated
tax-exempt bonds maturing in 10 years increased 15 basis points to 3.65% at the
end of February.
During the past six months, more than $175 billion in new long-term tax-exempt
bonds was underwritten, essentially unchanged versus the same period a year ago.
In the last three months, the pace of new issuance increased. Approximately $91
billion in long-term tax-exempt bonds was issued during that time, an increase
of 12% compared to the same three months a year ago. New-issue municipal volume
is expected to be easily manageable in early 2005, continuing to support the
tax-exempt market's favorable technical position.
Describe conditions in the State of California.
California entered 2005 with a budget shortfall of approximately $8 billion. In
his January State of the State address, Governor Schwarzenegger outlined steps
to deal with the state's fiscal problems. Measures cited by the governor
included new debt issues in the form of additional "economic recovery" bonds and
notes, tribal gaming revenue bonds, a possible pension-obligation bond, cutbacks
in state spending on local school districts, and other nonspecific budget cuts.
The state legislature's original 2005 budget relied heavily on an improving
economy to generate sizable revenue improvement. Planned budget reductions,
however, have been more difficult to enact. Most recently, the governor has
become more aggressive in pursuing voter referendums to reform spending
practices across all phases of the budget.
During 2004, each of the three major rating agencies upgraded California's
long-term credit rating, recognizing that last year's budget was met through a
relatively aggressive borrowing program accomplished in a period of attractive
financing rates. However, the credit-rating upgrades were not based on any
significant progress in mending the underlying budget problems.
Despite limited progress in addressing the fiscal woes, spreads for California
general obligation (GO) bonds continued to narrow, suggesting strong investor
demand. At the height of the state's budget troubles, California GO debt traded
as wide as 80 basis points above comparable AAA-rated tax-exempt bonds. By
period-end, that spread had narrowed to 10 basis points - 20 basis points.
"Cushion securities" -- higher-coupon, defensively structured bonds that are
popular when the market is anticipating higher rates -- were spread even
tighter.
4 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended February 28, 2005, Merrill Lynch California
Insured Municipal Bond Fund's Class A, Class B, Class C and Class I Shares had
total returns of +2.33%, +2.12%, +2.07% and +2.38%, 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 and 7 of this
report to shareholders.) For the same period, the Fund's unmanaged benchmark,
the Lehman Brothers Municipal Bond Index, returned +2.40% and its comparable
Lipper category of California Insured Municipal Debt Funds had an average return
of +2.59%. (Funds in this Lipper category invest primarily in securities exempt
from taxation in California and insured as to timely payment.)
The Fund's relative performance during the period was influenced by our
below-average duration stance -- a strategy we employed to provide protection to
the Fund's underlying net asset value in what we expected to be a rising
interest rate environment. However, as long-term bond prices rallied (and yields
fell), the Fund's total return performance was hindered somewhat. Notably, this
was an unexpected phenomenon given the Fed's efforts to increase interest rates
all along the curve. As short-term yields rose in symphony with increases in the
federal funds rate, long-term yields remained stubbornly low. The result has
been a flattening of the yield curve, a market action that even Fed Chairman
Alan Greenspan has described as a "conundrum."
For some time, our strategy has been to limit the Fund's interest rate
sensitivity, particularly through the short duration stance. As such, the Fund
is not positioned to deliver capital gains through price appreciation. Instead,
our portfolio is built for current yield, which has allowed us to continue
providing shareholders with an above-average level of monthly income. The
average coupon in the portfolio is 6.125%, whereas longer-dated California
insured bonds currently offer an average yield of just 4.50%.
What changes were made to the portfolio during the period?
We have been emphasizing a defensive market posture for several quarters in
anticipation of rising interest rates. Although this action has been slow to
materialize on the long end of the yield curve, concerns remain that the next
significant move in interest rates will be to the upside. Under these
circumstances, we did not change our approach nor significantly restructure the
portfolio over the past six months.
We continued to focus on generating a high level of tax-exempt income through
investment in high-quality California municipal debt. Given the general
tightening of credit spreads during the period, we had little incentive to take
on the additional risk associated with uninsured bonds -- as there was no
significant yield to be gained. For this reason, we consciously underutilized
the Fund's permissible 20% uninsured basket, and ended the period with 90.3% of
total investments in bonds rated AAA. Throughout the six months, we kept the
Fund essentially fully invested, with less than 1% of net assets committed to
cash reserves. At current low money market rates, the yield penalty associated
with keeping Fund assets in cash equivalents was far too severe, as interest
rates on short-term floaters were near 1.50%.
Purchase and sale activity during the period consisted mainly of selective bond
swaps executed to improve the call structure, diversification and liquidity of
the portfolio. We sold a small portion of lower-yielding, cash equivalent
holdings with shorter maturities and recommitted the proceeds to longer-dated,
higher-yielding alternatives. This resulted in an insignificant extension of the
portfolio's duration and does not represent a change in our view on interest
rate volatility. Overall, our intention is to maintain the highest current yield
for our shareholders.
How would you characterize the Fund's position at the close of the period?
We maintained our defensive duration stance at period-end, and continue to
believe that the Fund's emphasis on protecting net asset value is appropriate
under current market conditions. We will continue to monitor the economic
landscape, as well as market reaction to Fed activity, before assuming a more
aggressive position. Should long-term interest rates rise in the next few
months, we would anticipate taking a more neutral duration posture.
Walter C. O'Connor, CFA
Vice President and Portfolio Manager
March 24, 2005
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005 5
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 performance data current to the
most recent month-end. 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.
The Fund's Investment Adviser reimbursed a portion of its fee. Without such
reimbursement, the Fund's total returns may have been lower.
Recent Performance Results
6-Month 12-Month 10-Year Standardized
As of February 28, 2005 Total Return Total Return Total Return 30-Day Yield
=========================================================================================================================
ML California Insured Municipal Bond Fund Class A Shares* +2.33% +2.40% +76.49% 3.23%
- -------------------------------------------------------------------------------------------------------------------------
ML California Insured Municipal Bond Fund Class B Shares* +2.12 +1.91 +69.49 2.95
- -------------------------------------------------------------------------------------------------------------------------
ML California Insured Municipal Bond Fund Class C Shares* +2.07 +1.89 +67.78 2.85
- -------------------------------------------------------------------------------------------------------------------------
ML California Insured Municipal Bond Fund Class I Shares* +2.38 +2.51 +78.43 3.32
- -------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index** +2.40 +2.96 +87.96 --
- -------------------------------------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Cumulative 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.
** This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds.
6 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 2/28/05 +2.40% -1.69%
- --------------------------------------------------------------------------------
Five Years Ended 2/28/05 +6.90 +6.03
- --------------------------------------------------------------------------------
Ten Years Ended 2/28/05 +5.85 +5.41
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 2/28/05 +1.91% -2.00%
- --------------------------------------------------------------------------------
Five Years Ended 2/28/05 +6.47 +6.15
- --------------------------------------------------------------------------------
Ten Years Ended 2/28/05 +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 Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 2/28/05 +1.89% +0.91%
- --------------------------------------------------------------------------------
Five Years Ended 2/28/05 +6.36 +6.36
- --------------------------------------------------------------------------------
Ten Years Ended 2/28/05 +5.31 +5.31
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 2/28/05 +2.51% -1.59%
- --------------------------------------------------------------------------------
Five Years Ended 2/28/05 +7.00 +6.13
- --------------------------------------------------------------------------------
Ten Years Ended 2/28/05 +5.96 +5.53
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005 7
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 September 1, 2004 and held
through February 28, 2005) 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 September 1, 2004
September 1, 2004 February 28, 2005 to February 28, 2005
=========================================================================================================================
Actual
=========================================================================================================================
Class A $1,000 $1,023.30 $3.91
- -------------------------------------------------------------------------------------------------------------------------
Class B $1,000 $1,021.20 $5.91
- -------------------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,020.70 $6.41
- -------------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,023.80 $3.41
=========================================================================================================================
Hypothetical (5% annual return before expenses)**
=========================================================================================================================
Class A $1,000 $1,020.93 $3.91
- -------------------------------------------------------------------------------------------------------------------------
Class B $1,000 $1,018.94 $5.91
- -------------------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,018.45 $6.41
- -------------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,021.42 $3.41
- -------------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.78% for Class A, 1.18% for Class B, 1.28% for Class
C and .68% for Class I) multiplied by the average account value over the
period, multiplied by 181/365 (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.
8 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005
Schedule of Investments (in Thousands)
Face
Amount Municipal Bonds Value
====================================================================================================================================
California--95.2%
- ------------------------------------------------------------------------------------------------------------------------------------
$ 2,625 ABAG Finance Authority for Nonprofit Corporations, California, COP (Children's
Hospital Medical Center), 6% due 12/01/2029 (a) $ 2,943
----------------------------------------------------------------------------------------------------------
3,750 Alameda, California, Public Financing Authority, Local Agency Special Tax Revenue
Bonds (Community Facility Number 1), Series A, 7% due 8/01/2019 3,984
----------------------------------------------------------------------------------------------------------
3,600 Alameda Corridor Transportation Authority, California, Revenue Bonds, Senior Lien,
Series A, 5.25% due 10/01/2021 (g) 3,897
----------------------------------------------------------------------------------------------------------
Anaheim, California, Public Financing Authority:
6,000 Electric System Distribution Facilities Revenue Bonds, Series A, 5%
due 10/01/2031 (f) 6,191
4,000 Tax Allocation Revenue Refunding Bonds, RITES, 10.92% due 12/28/2018 (g)(h) 4,913
----------------------------------------------------------------------------------------------------------
2,000 Bakersfield, California, COP, Refunding (Convention Center Expansion Project),
5.875% due 4/01/2022 (g) 2,136
----------------------------------------------------------------------------------------------------------
2,935 Bay Area Government Association, California, Tax Allocation Revenue Bonds
(California Redevelopment Agency Pool), Series A, 5.125% due 9/01/2025 (j) 3,094
----------------------------------------------------------------------------------------------------------
1,675 Bay Area Government Association, California, Tax Allocation Revenue Refunding
Bonds (California Redevelopment Agency Pool), Series A, 6% due 12/15/2024 (f) 1,725
----------------------------------------------------------------------------------------------------------
California Educational Facilities Authority Revenue Refunding Bonds (g):
9,000 RIB, Series 413, 9.84% due 10/01/2026 (h) 10,264
1,025 (University of the Pacific), 5.875% due 11/01/2020 1,154
----------------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority Revenue Bonds:
10,000 DRIVERS, Series 181, 8.851% due 6/01/2022 (f)(h) 11,605
5,000 (Kaiser Permanente), RIB, Series 26, 8.82% due 6/01/2022 (f)(h) 5,803
2,000 (Scripps Memorial Hospital), Series A, 6.375% due 10/01/2022 (g) 2,007
5,780 (Scripps Research Institute), Series A, 6.625% due 7/01/2014 5,918
2,080 (Sutter Health), Series A, 6.25% due 8/15/2035 2,340
----------------------------------------------------------------------------------------------------------
3,000 California Health Facilities Financing Authority, Insured Health Facility Revenue
Refunding Bonds (Catholic Healthcare West), Series A, 6% due 7/01/2017 (g) 3,186
----------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority, Revenue Refunding Bonds, VRDN (i):
1,300 (Adventist Hospital), Series A, 1.76% due 9/01/2028 (g) 1,300
10 (Adventist Hospital), Series C, 1.76% due 9/01/2015 (g) 10
1,600 (Sutter/Catholic Healthcare System), Series B, 1.68% due 7/01/2012 (a) 1,600
----------------------------------------------------------------------------------------------------------
4,500 California State Department of Water Resources, Power Supply Revenue Bonds,
Series A, 5.75% due 5/01/2017 5,050
----------------------------------------------------------------------------------------------------------
California State Public Works Board, Lease Revenue Bonds:
2,800 (Department of Health Services), Series A, 5.625% due 11/01/2019 (g) 3,102
3,000 (Various Community College Projects), Series A, 5.625% due 3/01/2016 (a) 3,147
----------------------------------------------------------------------------------------------------------
California State Public Works Board, Lease Revenue Refunding Bonds:
10,000 (Department of Corrections), Series B, 5.625% due 11/01/2019 (g) 10,667
1,500 (Various Community College Projects), Series B, 5.625% due 3/01/2019 (a) 1,573
----------------------------------------------------------------------------------------------------------
1,580 California State University and Colleges, Housing System Revenue Refunding Bonds,
5.80% due 11/01/2017 (d) 1,644
----------------------------------------------------------------------------------------------------------
6,000 California Statewide Communities Development Authority, COP, Refunding (Huntington
Memorial Hospital), 5.80% due 7/01/2026 (b) 6,341
----------------------------------------------------------------------------------------------------------
2,475 California Statewide Communities Development Authority, Health Facility Revenue
Bonds (Memorial Health Services), Series A, 6% due 10/01/2023 2,812
----------------------------------------------------------------------------------------------------------
1,100 California Statewide Communities Development Authority, Revenue Refunding Bonds
(Daughters of Charity National Health System), Series A, 5.25% due 7/01/2035 1,128
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
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005 9
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
====================================================================================================================================
California (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Capistrano, California, Unified School District, Community Facility District,
Special Tax Bonds:
$ 1,720 (No. 05-1 Rancho Madrina), 5.15% due 9/01/2029 $ 1,705
1,200 (No. 90-2 Talega), 6% due 9/01/2032 1,281
----------------------------------------------------------------------------------------------------------
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) 5,986
----------------------------------------------------------------------------------------------------------
Corona, California, COP, Refunding (Corona Community):
1,915 8% due 3/01/2009 (e) 2,265
2,065 8% due 3/01/2010 (e) 2,510
2,230 8% due 3/01/2011 (e) 2,770
2,410 8% due 3/01/2012 (e) 3,049
2,605 8% due 3/01/2013 (e) 3,352
2,810 8% due 3/01/2014 (e) 3,675
3,035 8% due 3/01/2015 (c) 4,031
----------------------------------------------------------------------------------------------------------
1,250 Cucamonga, California, County Water District, COP, Refunding, 5.50%
due 9/01/2024 (d) 1,382
----------------------------------------------------------------------------------------------------------
1,000 Elk Grove, California, East Franklin Community Number 1 Special Tax, Series A, 6%
due 8/01/2033 1,063
----------------------------------------------------------------------------------------------------------
3,000 Etiwanda School District, California, Community Facilities District Number 8,
Special Tax, 6.25% due 9/01/2032 3,227
----------------------------------------------------------------------------------------------------------
2,000 Glendale, California, Unified School District, GO, Series F, 5% due 9/01/2028 (g) 2,084
----------------------------------------------------------------------------------------------------------
Grossmont, California, Unified High School District, COP (e)(f):
1,220 5.65% due 9/01/2008 1,363
2,250 5.75% due 9/01/2008 2,521
----------------------------------------------------------------------------------------------------------
2,750 Hawthorne, California, School District, GO, Series A, 5.5% due 11/01/2008 (d)(e) 3,018
----------------------------------------------------------------------------------------------------------
5,080 Irvine, California, Unified School District, Special Tax Refunding Bonds
(Community Facilities District No. 86-1), 5.50% due 11/01/2017 (a) 5,506
----------------------------------------------------------------------------------------------------------
4,000 Los Angeles, California, COP (Sonnenblick Del Rio West Los Angeles), 6.20%
due 11/01/2031 (a) 4,584
----------------------------------------------------------------------------------------------------------
17,300 Los Angeles, California, Community College District, GO, Series A, 5.5%
due 8/01/2011 (e)(g) 19,544
----------------------------------------------------------------------------------------------------------
7,000 Los Angeles, California, Convention and Exhibition Center Authority, COP, 9%
due 12/01/2020 (a) 7,350
----------------------------------------------------------------------------------------------------------
Los Angeles, California, Harbor Department Revenue Bonds, AMT:
7,000 RITR, Series RI-7, 10.195% due 11/01/2026 (g)(h) 7,875
1,000 Series B, 5.375% due 11/01/2023 1,039
----------------------------------------------------------------------------------------------------------
4,785 Los Angeles, California, Harbor Department Revenue Refunding Bonds, 7.60%
due 10/01/2018 (c)(g) 5,999
----------------------------------------------------------------------------------------------------------
2,350 Los Angeles, California, Wastewater System Revenue Refunding Bonds, Series A, 5%
due 6/01/2032 (f) 2,435
----------------------------------------------------------------------------------------------------------
Los Angeles, California, Water and Power Revenue Refunding Bonds (Power System):
5,400 Series A-A-1, 5.25% due 7/01/2020 (f) 5,859
4,000 Series A-A-2, 5.375% due 7/01/2021 (g) 4,380
----------------------------------------------------------------------------------------------------------
2,000 Los Rios, California, Community College District, GO (Election of 2002), Series
B, 5% due 8/01/2027 (g) 2,096
----------------------------------------------------------------------------------------------------------
2,220 Madera, California, Unified School District, GO (Election of 2002), 5%
due 8/01/2028 (f) 2,304
----------------------------------------------------------------------------------------------------------
8,175 Manteca, California, Unified School District, GO, 5% due 8/01/2027 (f) 8,569
----------------------------------------------------------------------------------------------------------
2,780 Morgan Hill, California, Unified School District, GO, 5.25% due 8/01/2019 (d) 3,049
----------------------------------------------------------------------------------------------------------
700 Murrieta, California, Community Facilities District, Special Tax Bonds (No. 04-1
Bremerton), 5.625% due 9/01/2034 706
----------------------------------------------------------------------------------------------------------
4,000 Orange County, California, Community Facilities District, Special Tax Bonds (No.
04-1 Ladera Ranch), Series A, 5.15% due 8/15/2029 3,992
----------------------------------------------------------------------------------------------------------
10 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
====================================================================================================================================
California (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 2,000 Orange County, California, Sanitation District, COP, 5.25% due 2/01/2028 (d) $ 2,129
----------------------------------------------------------------------------------------------------------
1,025 Palm Desert, California, Financing Authority, Tax Allocation Revenue Refunding
Bonds (Project Area Number 1), 5.45% due 4/01/2018 (g) 1,096
----------------------------------------------------------------------------------------------------------
1,500 Palm Springs, California, Financing Authority, Lease Revenue Refunding Bonds
(Convention Center Project), Series A, 5.50% due 11/01/2029 (g) 1,667
----------------------------------------------------------------------------------------------------------
5,485 Peralta, California, Community College District, GO (Election of 2000), Series C,
5% due 8/01/2029 (g) 5,724
----------------------------------------------------------------------------------------------------------
1,000 Petaluma, California, Community Development Commission Tax Allocation Bonds
(Petaluma Community Development Project), Series A, 5.75% due 5/01/2030 (g) 1,081
----------------------------------------------------------------------------------------------------------
5,600 Placentia-Yorba Linda, California, Unified School District, GO (Election of 2002),
Series B, 5.245%** due 8/01/2028 (d) 1,694
----------------------------------------------------------------------------------------------------------
1,000 Port Oakland, California, Port Revenue Refunding Bonds, Series I, 5.60%
due 11/01/2019 (g) 1,088
----------------------------------------------------------------------------------------------------------
8,295 Port Oakland, California, RITR, AMT, Class R, Series 5, 9.338%
due 11/01/2012 (d)(h) 9,890
----------------------------------------------------------------------------------------------------------
12,710 Port Oakland, California, Revenue Refunding Bonds, AMT, Series L, 5.375%
due 11/01/2027 (d) 13,449
----------------------------------------------------------------------------------------------------------
1,750 Riverside County, California, Asset Leasing Corporation, Leasehold Revenue
Refunding Bonds (Riverside County Hospital Project), Series B, 5.70%
due 6/01/2016 (g) 2,001
----------------------------------------------------------------------------------------------------------
3,865 Sacramento, California, City Financing Authority, Capital Improvement Revenue
Bonds (Solid Waste and Redevelopment Project), 5.75% due 12/01/2022 (a) 4,347
----------------------------------------------------------------------------------------------------------
2,000 Sacramento, California, Municipal Utility District, Electric Revenue Bonds,
Series R, 5% due 8/15/2033 (g) 2,074
----------------------------------------------------------------------------------------------------------
8,000 Sacramento, California, Municipal Utility District, Electric Revenue Refunding
Bonds, Series L, 5.125% due 7/01/2022 (g) 8,500
----------------------------------------------------------------------------------------------------------
10,000 Sacramento County, California, Airport System Revenue Refunding Bonds,
Sub-Series B, 5% due 7/01/2026 (d) 10,346
----------------------------------------------------------------------------------------------------------
1,820 Saddleback Valley, California, Unified School District, GO, 5% due 8/01/2029 (f) 1,899
----------------------------------------------------------------------------------------------------------
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) 3,621
----------------------------------------------------------------------------------------------------------
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) 2,080
----------------------------------------------------------------------------------------------------------
4,000 San Bernardino, California, Joint Powers Financing Authority, Tax Allocation
Revenue Refunding Bonds, Series A, 5.75% due 10/01/2015 (f) 4,152
----------------------------------------------------------------------------------------------------------
4,000 San Bernardino County, California, COP, Refunding (Medical Center Financing
Project), 5.50% due 8/01/2019 (g) 4,089
----------------------------------------------------------------------------------------------------------
2,000 San Buenaventura, California, Waste Water Revenue Refunding Bonds, COP, 5%
due 3/01/2029 (g) 2,075
----------------------------------------------------------------------------------------------------------
10,000 San Diego, California, Certificates of Undivided Interest, Water Utility Fund,
Net System Revenue Bonds, 5% due 8/01/2021 (d) 10,578
----------------------------------------------------------------------------------------------------------
San Diego, California, Public Facilities Financing Authority, Sewer Revenue
Bonds (d):
4,450 Series A, 5.25% due 5/15/2027 4,679
6,175 Series B, 5.25% due 5/15/2027 6,493
----------------------------------------------------------------------------------------------------------
4,235 San Diego, California, Unified School District, GO (Election of 1998), Series F,
5% due 7/01/2029 (f) 4,418
----------------------------------------------------------------------------------------------------------
7,350 San Diego County, California, Water Authority, Water Revenue Bonds, COP, Series A,
5% due 5/01/2030 (f) 7,659
----------------------------------------------------------------------------------------------------------
4,000 San Diego County, California, Water Authority, Water Revenue Refunding Bonds, COP,
Series A, 5% due 5/01/2027 (g) 4,155
----------------------------------------------------------------------------------------------------------
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) 5,593
----------------------------------------------------------------------------------------------------------
1,250 San Francisco, California, City and County Airport Commission, International
Airport, Special Facilities Lease Revenue Bonds (SFO Fuel Company LLC), AMT,
Series A, 6.10% due 1/01/2020 (f) 1,361
----------------------------------------------------------------------------------------------------------
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) 4,242
----------------------------------------------------------------------------------------------------------
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005 11
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
====================================================================================================================================
California (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 5,790 San Joaquin Hills, California, Transportation Corridor Agency, Toll Road Revenue
Refunding Bonds, Series A, 5.375% due 1/15/2029 (g) $ 6,126
----------------------------------------------------------------------------------------------------------
1,420 San Jose-Evergreen, California, Community College District, GO, Series B, 5.50%
due 9/01/2021 (d) 1,584
----------------------------------------------------------------------------------------------------------
San Juan, California, Unified School District, GO:
3,740 5.625% due 8/01/2017 (d) 4,198
3,000 5.70% due 8/01/2019 (f) 3,362
4,345 5.625% due 8/01/2020 (d) 4,843
3,500 (Election of 2002), 5% due 8/01/2028 (g) 3,646
----------------------------------------------------------------------------------------------------------
1,000 San Mateo County, California, Community College District, COP, 5%
due 10/01/2029 (g) 1,039
----------------------------------------------------------------------------------------------------------
2,240 San Mateo County, California, Joint Powers Authority, Lease Revenue Refunding
Bonds (Capital Projects), Series A, 5.125% due 7/15/2028 (f) 2,348
----------------------------------------------------------------------------------------------------------
1,700 Santa Clara, California, Subordinated Electric Revenue Bonds, Series A, 5%
due 7/01/2028 (g) 1,770
----------------------------------------------------------------------------------------------------------
1,650 Santa Margarita, California, Water District, Special Tax Refunding Bonds
(Community Facilities District No. 99), Series 1, 6.20% due 9/01/2020 1,763
----------------------------------------------------------------------------------------------------------
4,000 Santa Monica, California, Redevelopment Agency, Tax Allocation Bonds (Earthquake
Recovery Redevelopment Project), 6% due 7/01/2029 (a) 4,449
----------------------------------------------------------------------------------------------------------
Santa Rosa, California, High School District, GO:
1,000 5.70% due 5/01/2021 (f) 1,087
1,000 (Election of 2002), 5% due 8/01/2028 (g) 1,042
----------------------------------------------------------------------------------------------------------
1,000 Southwestern Community College, District of California, GO, 5.625%
due 8/01/2011 (a)(e) 1,145
----------------------------------------------------------------------------------------------------------
Temecula Valley, California, Unified School District, Community Facilities
District, Special Tax Bonds (No. 02-1):
1,225 5.125% due 9/01/2030 1,199
1,905 5.125% due 9/01/2035 1,855
----------------------------------------------------------------------------------------------------------
1,650 Turlock, California, Public Finance Authority, Sewer Revenue Bonds, Series A, 5%
due 9/15/2026 (d) 1,729
----------------------------------------------------------------------------------------------------------
5,500 University of California, Hospital Revenue Refunding Bonds (UCLA Medical Center),
Series B, 5.50% due 5/15/2021 (a) 6,108
----------------------------------------------------------------------------------------------------------
4,215 Vista, California, Unified School District, GO, Series A, 5.25% due 8/01/2025 (f) 4,558
----------------------------------------------------------------------------------------------------------
====================================================================================================================================
Puerto Rico--3.8%
- ------------------------------------------------------------------------------------------------------------------------------------
2,000 Puerto Rico Commonwealth Highway and Transportation Authority, Transportation
Revenue Bonds, Series B, 5.75% due 7/01/2018 (g) 2,264
----------------------------------------------------------------------------------------------------------
6,790 Puerto Rico Commonwealth, Public Improvement, GO, 5.75% due 7/01/2010 (e)(g) 7,634
----------------------------------------------------------------------------------------------------------
6,610 Puerto Rico Commonwealth, Public Improvement, GO, Refunding, 5.70%
due 7/01/2020 (g) 7,343
----------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$410,081)--99.0% 443,375
==========================================================================================================
12 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005
Schedule of Investments (concluded) (in Thousands)
Shares
Held Mutual Funds Value
==========================================================================================================
68 BlackRock California Insured Municipal 2008 Term Trust, Inc. $ 1,110
----------------------------------------------------------------------------------------------------------
Total Mutual Funds (Cost--$1,156)--0.2% 1,110
==========================================================================================================
Short-Term Securities
==========================================================================================================
15 CMA California Municipal Money Fund (k) 15
----------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$15)--0.0% 15
==========================================================================================================
Total Investments (Cost--$411,252*)--99.2% 444,500
Other Assets Less Liabilities--0.8% 3,554
---------
Net Assets--100.0% $ 448,054
=========
* The cost and unrealized appreciation (depreciation) of investments as of
February 28, 2005, as computed for federal income tax purposes, were as
follows:
(in Thousands)
--------------------------------------------------------------------------
Aggregate cost ............................................ $410,916
========
Gross unrealized appreciation ............................. $ 33,816
Gross unrealized depreciation ............................. (232)
--------
Net unrealized appreciation ............................... $ 33,584
========
** Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
(a) AMBAC Insured.
(b) Connie Lee Insured.
(c) Escrowed to maturity.
(d) FGIC Insured.
(e) Prerefunded.
(f) FSA Insured.
(g) MBIA Insured.
(h) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(i) Security has a maturity of more than one year, but has variable rate and
demand features which qualify it as a short-term security. The rate
disclosed is that currently in effect. This rate changes periodically
based upon prevailing market rates.
(j) XL Capital Insured.
(k) 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 9 $8
--------------------------------------------------------------------------
See Notes to Financial Statements.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005 13
Statement of Assets and Liabilities
As of February 28, 2005
===================================================================================================================
Assets
- -------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$411,237,805) ........................ $ 444,485,231
Investments in affiliated securities, at value
(identified cost--$14,505) ............................. 14,505
Cash .................................................... 20,076
Receivables:
Interest ............................................. $ 6,295,471
Securities sold ...................................... 2,562,040
Beneficial interest sold ............................. 32,251
Dividends (including $14 from affiliates) ............ 4,424 8,894,186
-------------
Prepaid expenses and other assets ....................... 965,507
-------------
Total assets ............................................ 454,379,505
-------------
===================================================================================================================
Liabilities
- -------------------------------------------------------------------------------------------------------------------
Payables:
Securities purchased ................................. 4,747,636
Beneficial interest redeemed ......................... 884,859
Dividends to shareholders ............................ 376,649
Investment adviser ................................... 149,939
Distributor .......................................... 83,415
Other affiliates ..................................... 45,585 6,288,083
-------------
Accrued expenses ........................................ 37,593
-------------
Total liabilities ....................................... 6,325,676
-------------
===================================================================================================================
Net Assets
- -------------------------------------------------------------------------------------------------------------------
Net assets .............................................. $ 448,053,829
=============
===================================================================================================================
Net Assets Consist of
- -------------------------------------------------------------------------------------------------------------------
Class A Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................. $ 2,204,174
Class BShares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................. 916,547
Class CShares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................. 394,439
Class IShares of beneficial interest, $.10 par value,
unlimited number of shares authorized .................. 304,278
Paid-in capital in excess of par ........................ 419,492,323
Undistributed investment income--net .................... $ 858,157
Accumulated realized capital losses--net ................ (9,363,515)
Unrealized appreciation--net ............................ 33,247,426
-------------
Total accumulated earnings--net ......................... 24,742,068
-------------
Net Assets .............................................. $ 448,053,829
=============
===================================================================================================================
Net Asset Value
- -------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $258,551,739 and
22,041,737 shares of beneficial interest outstanding ... $ 11.73
=============
Class B--Based on net assets of $107,539,915 and
9,165,470 shares of beneficial interest outstanding .... $ 11.73
=============
Class C--Based on net assets of $46,271,657 and
3,944,392 shares of beneficial interest outstanding .... $ 11.73
=============
Class I--Based on net assets of $35,690,518 and
3,042,784 shares of beneficial interest outstanding .... $ 11.73
=============
See Notes to Financial Statements.
14 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005
Statement of Operations
For the Six Months Ended February 28, 2005
===================================================================================================================
Investment Income
- -------------------------------------------------------------------------------------------------------------------
Interest ................................................ $ 11,919,173
Dividends (including $7,857 from affiliates) ............ 34,315
-------------
Total income ............................................ 11,953,488
-------------
===================================================================================================================
Expenses
- -------------------------------------------------------------------------------------------------------------------
Investment advisory fees ................................ $ 1,246,748
Account maintenance and distribution fees--Class B ...... 280,608
Account maintenance and distribution fees--Class C ...... 139,927
Account maintenance fees--Class A ....................... 129,277
Accounting services ..................................... 89,455
Transfer agent fees--Class A ............................ 43,465
Professional fees ....................................... 27,032
Printing and shareholder reports ........................ 25,255
Transfer agent fees--Class B ............................ 22,329
Registration fees ....................................... 21,757
Custodian fees .......................................... 13,299
Trustees' fees and expenses ............................. 10,612
Transfer agent fees--Class C ............................ 9,255
Pricing fees ............................................ 7,735
Transfer agent fees--Class I ............................ 6,038
Other ................................................... 16,506
-------------
Total expenses before reimbursement ..................... 2,089,298
Reimbursement of expenses ............................... (3,096)
-------------
Total expenses after reimbursement ...................... 2,086,202
-------------
Investment income--net .................................. 9,867,286
-------------
===================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- -------------------------------------------------------------------------------------------------------------------
Realized gain on:
Investments--net ..................................... 1,786,843
Futures contracts--net ............................... 86,750 1,873,593
-------------
Change in unrealized appreciation on investments--net ... (1,336,929)
-------------
Total realized and unrealized gain--net ................. 536,664
-------------
Net Increase in Net Assets Resulting from Operations .... $ 10,403,950
=============
See Notes to Financial Statements.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005 15
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 2005 2004
===================================================================================================================
Operations
- -------------------------------------------------------------------------------------------------------------------
Investment income--net .................................. $ 9,867,286 $ 21,525,680
Realized gain--net ...................................... 1,873,593 1,654,864
Change in unrealized appreciation--net .................. (1,336,929) 5,630,844
-------------------------------
Net increase in net assets resulting from operations .... 10,403,950 28,811,388
-------------------------------
===================================================================================================================
Dividends to Shareholders
- -------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A .............................................. (822,887) (11,895,855)
Class B .............................................. (2,286,938) (5,720,284)
Class C .............................................. (927,009) (2,053,614)
Class I .............................................. (5,793,483) (1,776,326)
-------------------------------
Net decrease in net assets resulting from dividends to
shareholders ........................................... (9,830,317) (21,446,079)
-------------------------------
===================================================================================================================
Beneficial Interest Transactions
- -------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from beneficial
interest transactions .................................. (12,266,737) (36,115,908)
-------------------------------
===================================================================================================================
Net Assets
- -------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ............................ (11,693,104) (28,750,599)
Beginning of period ..................................... 459,746,933 488,497,532
-------------------------------
End of period* .......................................... $ 448,053,829 $ 459,746,933
===============================
* Undistributed investment income--net ............... $ 858,157 $ 821,188
===============================
See Notes to Financial Statements.
16 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005
Financial Highlights
Class A
------------------------------------------------------------------------
For the Six For the Year Ended
Months Ended August 31,
The following per share data and ratios have been derived February 28, --------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 11.72 $ 11.54 $ 11.82 $ 11.77 $ 11.26
------------------------------------------------------------------------
Investment income--net ................. .26+ .55+ .56+ .57+ .58
Realized and unrealized gain (loss)--net .01 .17 (.28) .05 .51
------------------------------------------------------------------------
Total from investment operations ....... .27 .72 .28 .62 1.09
------------------------------------------------------------------------
Less dividends from investment
income--net ........................... (.26) (.54) (.56) (.57) (.58)
------------------------------------------------------------------------
Net asset value, end of period ......... $ 11.73 $ 11.72 $ 11.54 $ 11.82 $ 11.77
========================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 2.33%@ 6.37% 2.35% 5.46% 9.93%
========================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement and
excluding reorganization expenses ..... .78%* .78% .78% .81% .79%
========================================================================
Expenses, excluding reorganization
expenses .............................. .78%* .78% .78% .81% .79%
========================================================================
Expenses ............................... .78%* .78% .78% .84% .84%
========================================================================
Investment income--net ................. 4.50%* 4.66% 4.74% 4.93% 4.96%
========================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 258,552 $ 258,411 $ 247,184 $ 236,181 $ 219,442
========================================================================
Portfolio turnover ..................... 15.70% 24.69% 29.70% 37.35% 55.75%
========================================================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
+ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005 17
Financial Highlights (continued)
Class B
------------------------------------------------------------------------
For the Six For the Year Ended
Months Ended August 31,
The following per share data and ratios have been derived February 28, --------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 11.72 $ 11.54 $ 11.82 $ 11.77 $ 11.26
------------------------------------------------------------------------
Investment income--net ................. .24+ .50+ .51+ .52+ .53
Realized and unrealized gain (loss)--net .01 .18 (.28) .05 .51
------------------------------------------------------------------------
Total from investment operations ....... .25 .68 .23 .57 1.04
------------------------------------------------------------------------
Less dividends from investment
income--net ........................... (.24) (.50) (.51) (.52) (.53)
------------------------------------------------------------------------
Net asset value, end of period ......... $ 11.73 $ 11.72 $ 11.54 $ 11.82 $ 11.77
========================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 2.12%@ 5.94% 1.93% 5.04% 9.48%
========================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement and
excluding reorganization expenses ..... 1.18%* 1.18% 1.19% 1.22% 1.20%
========================================================================
Expenses, excluding reorganization
expenses .............................. 1.18%* 1.18% 1.19% 1.22% 1.20%
========================================================================
Expenses ............................... 1.18%* 1.18% 1.19% 1.25% 1.25%
========================================================================
Investment income--net ................. 4.09%* 4.25% 4.34% 4.52% 4.55%
========================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 107,540 $ 118,304 $ 151,276 $ 194,733 $ 221,516
========================================================================
Portfolio turnover ..................... 15.70% 24.69% 29.70% 37.35% 55.75%
========================================================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
+ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
18 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005
Financial Highlights (continued)
Class C
------------------------------------------------------------------------
For the Six For the Year Ended
Months Ended August 31,
The following per share data and ratios have been derived February 28, --------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 11.72 $ 11.54 $ 11.82 $ 11.77 $ 11.26
------------------------------------------------------------------------
Investment income--net ................. .23+ .49+ .50+ .51+ .52
Realized and unrealized gain (loss)--net .01 .17 (.28) .05 .51
------------------------------------------------------------------------
Total from investment operations ....... .24 .66 .22 .56 1.03
------------------------------------------------------------------------
Less dividends from investment
income--net ........................... (.23) (.48) (.50) (.51) (.52)
------------------------------------------------------------------------
Net asset value, end of period ......... $ 11.73 $ 11.72 $ 11.54 $ 11.82 $ 11.77
========================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 2.07%@ 5.84% 1.83% 4.94% 9.37%
========================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement and
excluding reorganization expenses ..... 1.28%* 1.28% 1.29% 1.32% 1.30%
========================================================================
Expenses, excluding reorganization
expenses .............................. 1.28%* 1.28% 1.29% 1.32% 1.30%
========================================================================
Expenses ............................... 1.28%* 1.28% 1.29% 1.35% 1.35%
========================================================================
Investment income--net ................. 3.99%* 4.15% 4.24% 4.42% 4.45%
========================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 46,272 $ 46,900 $ 50,197 $ 36,983 $ 16,357
========================================================================
Portfolio turnover ..................... 15.70% 24.69% 29.70% 37.35% 55.75%
========================================================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
+ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005 19
Financial Highlights (concluded)
Class I
------------------------------------------------------------------------
For the Six For the Year Ended
Months Ended August 31,
The following per share data and ratios have been derived February 28, --------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 11.72 $ 11.54 $ 11.81 $ 11.77 $ 11.26
------------------------------------------------------------------------
Investment income--net ................. .27+ .56+ .57+ .58+ .59
Realized and unrealized gain (loss)--net .01 .17 (.27) .04 .51
------------------------------------------------------------------------
Total from investment operations ....... .28 .73 .30 .62 1.10
------------------------------------------------------------------------
Less dividends from investment
income--net ........................... (.27) (.55) (.57) (.58) (.59)
------------------------------------------------------------------------
Net asset value, end of period ......... $ 11.73 $ 11.72 $ 11.54 $ 11.81 $ 11.77
========================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 2.38%@ 6.48% 2.54% 5.48% 10.04%
========================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement and
excluding reorganization expenses ..... .68%* .68% .68% .71% .69%
========================================================================
Expenses, excluding reorganization
expenses .............................. .68%* .68% .68% .71% .69%
========================================================================
Expenses ............................... .68%* .68% .68% .74% .75%
========================================================================
Investment income--net ................. 4.60%* 4.76% 4.84% 5.03% 5.06%
========================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 35,691 $ 36,132 $ 39,841 $ 42,873 $ 40,877
========================================================================
Portfolio turnover ..................... 15.70% 24.69% 29.70% 37.35% 55.75%
========================================================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
+ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
20 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005
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. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period. All
such adjustments are of a normal, recurring nature. The Fund offers multiple
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 (except that Class B shareholders may vote on certain changes to
the Class A distribution plan). 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 are
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's pricing service. 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.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005 21
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.
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 Plan with FAM Distributors, Inc. ("FAMD"
or the "Distributor"), which is a wholly-owned subsidiary of Merrill Lynch
Group, Inc.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund is required to pay a
monthly fee based upon the average daily value of the Fund's net assets at the
following annual rates: .55% of the Fund's average daily net assets not
exceeding $500 million; .525% of average daily net assets in excess of $500
million but not exceeding $1 billion; and .50% of average daily net assets in
excess of $1 billion. For the six months ended February 28, 2005, the Investment
Adviser agreed to reimburse its management fee by the amount of management fees
the Fund pays to FAM indirectly through its investment in CMA California
Municipal Money Fund. FAM reimbursed the Fund in the amount of $3,096.
Pursuant to the Distribution Plan 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"), an affiliate of FAM, 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 six months ended February 28, 2005, 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 ............................ $ 4,172 $32,575
Class I ............................ $ 151 $ 1,465
- --------------------------------------------------------------------------------
For the six months ended February 28, 2005, MLPF&S received contingent deferred
sales charges of $45,540 and $1,249 relating to transactions in Class B and
Class C Shares, respectively. Furthermore, MLPF&S received contingent deferred
sales charges of $445 relating to transactions subject to front-end sales charge
waivers in Class A Shares.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
For the six months ended February 28, 2005, the Fund reimbursed FAM $4,767 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 six
months ended February 28, 2005 were $68,992,040 and $74,866,504, respectively.
22 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005
Notes to Financial Statements (continued)
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$12,266,737 and $36,115,908 for the six months ended February 28, 2005 and for
the year ended August 31, 2004, respectively.
Transactions in shares of beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended February 28, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 435,746 $ 5,113,870
Automatic conversion of shares ........... 400,657 4,710,469
Shares issued to shareholders in
reinvestment of dividends ............. 227,019 2,671,834
-----------------------------
Total issued ............................. 1,063,422 12,496,173
Shares redeemed .......................... (1,076,973) (12,663,248)
-----------------------------
Net decrease ............................. (13,551) $ (167,075)
=============================
- --------------------------------------------------------------------------------
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 B Shares for the Six Months Dollar
Ended February 28, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 131,908 $ 1,547,497
Shares issued to shareholders in
reinvestment of dividends ............. 78,502 924,067
-----------------------------
Total issued ............................. 210,410 2,471,564
-----------------------------
Shares redeemed .......................... (739,045) (8,698,122)
Automatic conversion of shares ........... (400,532) (4,710,469)
-----------------------------
Total redemptions ........................ (1,139,577) (13,408,591)
-----------------------------
Net decrease ............................. (929,167) $(10,937,027)
=============================
- --------------------------------------------------------------------------------
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
-----------------------------
Automatic conversion of shares ........... (2,248,089) (26,204,483)
Shares redeemed .......................... (1,519,589) (17,769,810)
-----------------------------
Total redeemed ........................... (3,767,678) (43,974,293)
-----------------------------
Net decrease ............................. (3,013,762) $(35,145,168)
=============================
- --------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended February 28, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 273,337 $ 3,218,517
Shares issued to shareholders in
reinvestment of dividends ............. 42,696 502,501
-----------------------------
Total issued ............................. 316,033 3,721,018
Shares redeemed .......................... (374,243) (4,398,434)
-----------------------------
Net decrease ............................. (58,210) $ (677,416)
=============================
- --------------------------------------------------------------------------------
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 I Shares for the Six Months Dollar
Ended February 28, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 193,624 $ 2,275,679
Shares issued to shareholders in
reinvestment of dividends ............. 35,567 418,595
-----------------------------
Total issued ............................. 229,191 2,694,274
Shares redeemed .......................... (270,469) (3,179,493)
-----------------------------
Net decrease ............................. (41,278) $ (485,219)
=============================
- --------------------------------------------------------------------------------
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) (10,424,838)
-----------------------------
Net decrease ............................. (369,384) $ (4,364,277)
=============================
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005 23
Notes to Financial Statements (concluded)
5. Short-Term Borrowings:
The Trust, on behalf of the Fund, along with certain other funds managed by FAM
and its affiliates, is a party to a $500,000,000 credit agreement with a group
of 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 .07% 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 defined in the credit agreement. The Fund did not borrow under the
credit agreement during the six months ended February 28, 2005. On November 26,
2004, the credit agreement was renewed for one year under substantially the same
terms.
6. Capital Loss Carryforward:
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.
24 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005
Officers and Trustees
Robert C. Doll, Jr., President and Trustee
James H. Bodurtha, Trustee
Joe Grills, Trustee
Herbert I. London, Trustee
Roberta Cooper Ramo, Trustee
Robert S. Salomon, Jr., Trustee
Stephen B. Swensrud, Trustee
Kenneth A. Jacob, Senior Vice President
John M. Loffredo, Senior Vice President
Walter C. O'Connor, Vice President
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
- --------------------------------------------------------------------------------
Andre F. Perold resigned as a Trustee of Merrill Lynch California Insured
Municipal Bond Fund of Merrill Lynch California Municipal Series Trust effective
October 22, 2004.
Effective January 1, 2005, Terry K. Glenn retired as President and Trustee of
the Fund. The Fund's Board of Trustees wishes Mr. Glenn well in his retirement.
Effective January 1, 2005, Robert C. Doll, Jr. became President and Trustee of
the Fund.
- --------------------------------------------------------------------------------
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005 25
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.
26 MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005
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 at 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.
MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND FEBRUARY 28, 2005 27
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
- --------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.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 -- 2/05
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
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 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(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.
11(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 last 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 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(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/ Robert C. Doll, Jr.
-----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch California Insured Municipal Bond Fund of Merrill Lynch
California Municipal Series Trust
Date: April 22, 2005
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/ Robert C. Doll, Jr.
-----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch California Insured Municipal Bond Fund of Merrill Lynch
California Municipal Series Trust
Date: April 22, 2005
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: April 22, 2005