UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/A
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-04624
Name of Fund: BlackRock California Insured Municipal Bond Fund of BlackRock
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, BlackRock California Insured Municipal Bond Fund of BlackRock
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: 08/31/06
Date of reporting period: 09/01/05 - 08/31/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES
FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock California Insured BLACKROCK
Municipal Bond Fund
OF BLACKROCK CALIFORNIA
MUNICIPAL SERIES TRUST
ANNUAL REPORT | AUGUST 31, 2006
(As Restated)
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock California Insured Municipal Bond Fund
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The financial statements and financial highlights in this report have been
restated as described in Note 8 to the financial statements. Other information
in this report affected by the restatement has been revised.
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Portfolio Information as of August 31, 2006 (As Restated. See Note 8)
Percent of
Distribution by Market Sector Total Investments
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Other Revenue Bonds ......................................... 61.7%
General Obligation Bonds .................................... 26.7
Prerefunded Bonds ........................................... 10.0
Mutual Funds ................................................ 0.2
Other* ...................................................... 1.4
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* Includes portfolio holdings in short-term investments.
Quality Ratings by Percent of
S&P/Moody's Total Investments
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AAA/Aaa ..................................................... 93.1%
AA/Aa ....................................................... 0.7
A/A ......................................................... 0.6
NR (Not Rated) .............................................. 4.0
Other* ...................................................... 1.6
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* Includes portfolio holdings in mutual funds and short-term investments.
Important Tax Information
All of the net investment income distributions paid monthly by BlackRock
California Insured Municipal Bond Fund of BlackRock California Municipal Series
Trust during the taxable year ended August 31, 2006 qualify as tax-exempt
interest dividends for federal income tax purposes.
Proxy Results
During the six-month period ended August 31, 2006, BlackRock California Insured
Municipal Bond Fund of BlackRock California Municipal Series Trust's
shareholders voted on the following proposals. The proposals were approved at a
shareholders' meeting on July 31, 2006. A description of the proposals and
number of shares voted were as follows:
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Shares Voted Shares Voted Shares Voted
For Against Abstain
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To approve a new investment advisory agreement. 17,818,827 556,767 750,342
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To approve a contingent subadvisory agreement. 17,765,463 548,403 812,070
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2 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
A Letter to Shareholders
Dear Shareholder
It is my pleasure to welcome you to BlackRock.
On September 29, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch
Investment Managers, L.P. ("MLIM") united to form one of the largest asset
management firms in the world. Now with more than $1 trillion in assets under
management, over 4,000 employees in 18 countries and representation in key
markets worldwide, BlackRock's global presence means greater depth and scale to
serve you.
The new BlackRock unites some of the finest money managers in the industry. Our
ranks include more than 500 investment professionals globally -- portfolio
managers, research analysts, risk management professionals and traders. With
offices strategically located around the world, our investment professionals
have in-depth local knowledge and the ability to leverage our global presence
and robust infrastructure to deliver focused investment solutions. BlackRock's
professional investors are supported by disciplined investment processes and
best-in-class technology, ensuring that our portfolio managers are well equipped
to research, uncover and capitalize on the opportunities the world's markets
have to offer.
The BlackRock culture emphasizes excellence, teamwork and integrity in the
management of a variety of equity, fixed income, cash management, alternative
investment and real estate products. Our firm's core philosophy is grounded in
the belief that experienced investment and risk professionals using disciplined
investment processes and sophisticated analytical tools can consistently add
value to client portfolios.
As you probably are aware, former MLIM investment products now carry the
"BlackRock" name. This is reflected in newspapers and online fund reporting
resources. Your account statements will reflect the BlackRock name beginning
with the October month-end reporting period. Unless otherwise communicated to
you, your funds maintain the same investment objectives that they did prior to
the combination of MLIM and BlackRock. Importantly, this union does not affect
your brokerage account or your relationship with your financial advisor. Clients
of Merrill Lynch remain clients of Merrill Lynch.
We view this combination of asset management leaders as a complementary union
that reinforces our commitment to shareholders. Individually, each firm made
investment performance its single most important mission. Together, we are even
better prepared to capitalize on market opportunities on behalf of our
shareholders. Our focus on investment excellence is accompanied by an unwavering
commitment to service, enabling us to assist clients, in cooperation with their
financial professionals, in working toward their investment goals. We thank you
for allowing us the opportunity, and we look forward to serving your investment
needs in the months and years ahead as the new BlackRock.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
Vice Chairman
BlackRock, Inc.
Data, including assets under management, are as of June 30, 2006.
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 3
A Discussion With Your Fund's Portfolio Manager
The Fund provided a competitive total return and an above-average yield as
we shifted to a more neutral stance on interest rates while maintaining a high
degree of credit quality.
Describe the recent market environment relative to municipal bonds.
Long-term bond yields rose throughout most of the past year before declining in
August as bond prices correspondingly improved. The shift in direction was
largely a reaction to the Federal Reserve Board's (the Fed) decision on August 8
to refrain from raising the federal funds target rate. After 17 consecutive
interest rate hikes since mid-2004, a moderation in economic growth and decline
in inflationary expectations were cited as reasons for the Fed pause. Earlier in
the 12-month period, bond yields rose steadily (and their prices fell) as
investors focused on solid economic growth in the United States and abroad.
Despite a decline in gross domestic product growth between the first and second
quarters of 2006, U.S. economic activity so far this year has outpaced the 3.2%
annual growth rate posted in 2005. Rising commodity prices also stoked
inflationary fears, further weighing on bond prices.
Overall, 30-year U.S. Treasury bond yields rose 62 basis points (.62%) during
the 12-month period to 4.88%, while 10-year U.S. Treasury note yields rose 72
basis points to 4.74%. The yield curve continued to flatten as short-term
interest rates rose more than longer-term interest rates. Municipal bond yields
also rose, although the tax-exempt market's strong technical position provided
price support and allowed municipal bond prices to decline less than those of
taxable bonds. As measured by Municipal Market Data, yields on AAA-rated
municipal issues maturing in 30 years rose just four basis points to 4.26%,
while yields on AAA-rated issues maturing in 10 years rose 28 basis points to
3.78%.
The rise in yields prompted a revival in investor demand for municipal bonds.
The increased demand also was triggered by seasonal factors that served to
generate large cash flows into investor accounts. Investors received more than
$40 billion in June and July from coupon income and the proceeds from bond
maturities and early redemptions. Consequently, municipal bond fund flows
continued to be supportive. As reported by the Investment Company Institute,
open-end tax-exempt bond funds received net new cash inflows of over $6.8
billion in the first seven months of 2006, compared to $4.2 billion during the
same period in 2005.
Also contributing to the outperformance of the municipal market has been
declines in new issuance. During the past six months, more than $195 billion in
new long-term tax-exempt bonds was underwritten, a 10% decline compared to the
same period a year earlier. Recent declines in issuance have largely been the
result of a 56% drop in refunding activity so far this year. Rising bond yields
have made the refinancing of existing higher-couponed debt issues increasingly
problematic, as the potential economic savings have rapidly diminished. In
addition, the improved fiscal condition of many state and local governments has
resulted in lower borrowing trends, with many new municipal capital projects
financed from existing budget surpluses. The declines in issuance have led many
analysts to lower their annual issuance forecasts. Lower annual issuance would
further solidify the tax-exempt market's already positive technical position.
Looking ahead, municipal market fundamentals are likely to remain favorable,
leading us to expect the tax-exempt market to perform at least as well as
comparable U.S. Treasury issues. Attractive yield ratios have continued to draw
both retail and institutional investors to the municipal market. Based on this,
and the prospect for reduced annual issuance in 2006, we believe the municipal
market should continue to perform well in the coming months.
Describe conditions in the State of California.
In May, the governor's 2006-2007 fiscal year budget totaled $131.1 billion, with
spending approximately 8.4% higher than the prior year. The budget was bolstered
by $7.5 billion in "unanticipated" tax revenues, which provide an opportunity to
increase funding for K-12 schools, fund the early retirement of economic
recovery bonds, increase reserve levels and fund several one-time projects.
Although the budget remained unbalanced by approximately $3.5 billion, that
amount was sizably smaller than the $12.5 billion imbalance confronted several
years ago.
Although the state was unable to eliminate the structural imbalance in the
budget, the improved revenue performance provided a catalyst for Moody's and
Standard & Poor's to increase their ratings on California's long-term general
obligation debt. Moody's increased its rating from A2 to A1 and Standard &
Poor's boosted its rating from A to A+. Both rating agencies point out that the
structural deficit limits further improvement to the AA-rating category.
4 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
In another notable development, the governor and legislature reached an
agreement on a capital improvement plan that calls for the placement of general
obligation bond measures totaling $37 billion on the November ballot. Overall,
year-to-date, California was the largest issuer of municipal debt among the
states, although new-issue volume was lower than in the prior year. Like the
national municipal market, California saw lower absolute issuance due to a
decline in refunding opportunities.
How did the Fund perform during the fiscal year?
For the 12-month period ended August 31, 2006, BlackRock California Insured
Municipal Bond Fund's Class A, Class B, Class C and Class I Shares had total
returns of +2.83%, +2.50%, +2.31% and +2.93%, 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 broad market Lehman Brothers Municipal
Bond Index returned +3.03%, and the Fund's comparable Lipper category of
California Insured Municipal Debt Funds had an average return of +2.25%. (Funds
in this Lipper category invest primarily in securities exempt from taxation in
California and insured as to timely payment.)
The Fund's performance was driven by our focus on generating a highly
competitive level of tax-exempt income for our shareholders. The Fund has
consistently been the highest-yielding constituent in its Lipper group, which is
largely attributed to our strategy of maintaining an above-average level of
coupon accrual. Importantly, the Fund's attractive yield was achieved within the
context of a very high credit quality portfolio. On average, 93% or more of the
Fund's assets was invested in AAA-rated insured bonds throughout the fiscal
year.
What changes were made to the portfolio during the period?
As discussed in our semi-annual report to shareholders, we assumed a more
neutral duration posture during the fiscal year, extending the Fund's duration
as interest rates rose. To that end, we purchased longer-dated securities, along
with some zero-coupon holdings, to bring the Fund's duration closer to that of
its Lipper peers.
We made the conscious decision to underutilize the Fund's permissible uninsured
basket during the year. Given that credit spreads were already at historically
tight levels, we saw little value in purchasing lower-rated issues, as the
additional income associated with them was not enough to compensate for their
heightened risk profile. Instead, we used the derivatives market to take
advantage of the relatively steep tax-exempt yield curve. We were able to pick
up some yield by using AAA-rated inverse floaters, accepting slight extension
risk but avoiding the lower-rated credits that come with more risk but little
additional yield.
Finally, we generally kept the portfolio's cash reserves at a minimum (less than
1% of total assets) as part of our ongoing effort to generate an above-average
level of income.
How would you characterize the Fund's position at the close of the period?
The Fund ended the period with a relatively neutral duration stance, consistent
with the recommendation of our internal Municipal Investment Committee. We
anticipate using any further market weakness (yield increases) to become more
constructive on the long end of the fixed income marketplace.
We maintained the Fund's high degree of credit quality at period-end, with 92.4%
of total investments invested in AAA-rated tax-exempt issues with bond
insurance. If credit spreads were to widen from their historically tight levels,
the Fund has ample opportunity to reduce its average credit quality to establish
positions in lower-rated investment grade bonds. In the meantime, we maintain
our focus on providing shareholders with an attractive income stream within the
context of a high-quality portfolio.
Walter C. O'Connor, CFA
Vice President and Portfolio Manager
September 14, 2006
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Effective October 2, 2006, the Fund's Class A, Class B, Class C and Class I
Shares were redesignated Investor A1, Investor B, Investor C1 and Institutional
Shares, respectively. As previously communicated to shareholders, new sales
charge schedules came into effect at the same time for certain of these classes.
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BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 5
Performance Data
About Fund Performance
The Fund has multiple classes of shares:
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 are not subject to any front-end sales charge. Class I
Shares bear no ongoing distribution or account maintenance fees and 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.blackrock.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 August 31, 2006 Total Return Total Return Total Return 30-Day Yield
================================================================================================================================
Class A Shares* +1.47% +2.83% +66.91% 3.80%
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Class B Shares* +1.35 +2.50 +60.43 3.55
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Class C Shares* +1.21 +2.31 +58.69 3.46
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Class I Shares* +1.52 +2.93 +68.58 4.06
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Lehman Brothers Municipal Bond Index** +2.02 +3.03 +78.72 --
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* 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 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
Performance Data (concluded)
Natural Resources Trust
Merrill Lynch California Insured Municipal Bond Fund --Edgar
BR California Insured Municipal Bond Fund's Class A, Class B, Class C and Class
I Shares--Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A and
Class B Shares compared to growth of an investment in the Lehman Brothers
Municipal Bond Index. Values are from August 1996 to August 2006:
Lehman Brothers
Municipal Bond
Class A Shares*+ Class B Shares*+ Class C Shares*+ Class I Shares*+ Index++
7/96 $ 9,600 $10,000 $10,000 $ 9,600 $10,000
7/97 $10,421 $10,811 $10,800 $10,422 $10,924
7/98 $11,285 $11,661 $11,627 $11,298 $11,869
7/99 $11,061 $11,383 $11,349 $11,094 $11,929
7/00 $11,826 $12,121 $12,072 $11,873 $12,737
7/01 $12,995 $13,265 $13,198 $13,604 $14,035
7/02 $13,707 $13,936 $13,852 $14,351 $14,911
7/03 $14,030 $14,207 $14,107 $14,717 $15,379
7/04 $14,925 $15,052 $14,932 $15,672 $16,472
7/05 $15,582 $15,651 $15,510 $16,377 $17,347
7/06 $16,023 $16,043 $15,869 $16,858 $17,872
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ The Fund invests primarily in long-term investment grade obligations
issued by or on behalf of the State of California, its political
subdivisions, agencies and instrumentalities and obligations of other
qualifying issuers.
++ This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds. Past performance is not
indicative of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 8/31/06 +2.83% -1.28%
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Five Years Ended 8/31/06 +4.28 +3.43
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Ten Years Ended 8/31/06 +5.26 +4.83
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Return Return
Without CDSC With CDSC+++
================================================================================
Class B Shares+
================================================================================
One Year Ended 8/31/06 +2.50% -1.44%
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Five Years Ended 8/31/06 +3.88 +3.54
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Ten Years Ended 8/31/06 +4.84 +4.84
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Class C Shares++
================================================================================
One Year Ended 8/31/06 +2.31% +1.33%
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Five Years Ended 8/31/06 +3.75 +3.75
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Ten Years Ended 8/31/06 +4.73 +4.73
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================================================================================
Class I Shares Return
================================================================================
One Year Ended 8/31/06 +2.93%
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Five Years Ended 8/31/06 +4.38
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Ten Years Ended 8/31/06 +5.36
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* Maximum sales charge is 4%.
** Assuming maximum sales charge.
+ Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
++ Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
+++ Assuming payment of applicable contingent deferred sales charge.
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 7
Disclosure of Expenses (As Restated. See Note 8)
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
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on March 1, 2006 and held through
August 31, 2006) 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.
Each of the Actual tables 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."
Each of the Hypothetical tables 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 Hypothetical 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.
Including Interest Expense and Fees
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value March 1, 2006
March 1, 2006 August 31, 2006 to August 31, 2006
====================================================================================================================================
Actual
====================================================================================================================================
Class A $1,000 $1,014.70 $5.08
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Class B $1,000 $1,013.50 $7.21
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Class C $1,000 $1,012.10 $7.71
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Class I $1,000 $1,015.20 $4.57
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Hypothetical (5% annual return before expenses)**
====================================================================================================================================
Class A $1,000 $1,020.16 $5.09
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Class B $1,000 $1,018.04 $7.22
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Class C $1,000 $1,017.54 $7.73
- ------------------------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,020.66 $4.58
- ------------------------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (1.00% for Class A, 1.42% for Class B, 1.52% for Class
C and .90% for Class I) multiplied by the average account value over the
period, multiplied by 184/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
8 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
Disclosure of Expenses (concluded) (As Restated. See Note 8)
Excluding Interest Expense and Fees
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value March 1, 2006
March 1, 2006 August 31, 2006 to August 31, 2006
====================================================================================================================================
Actual
====================================================================================================================================
Class A $1,000 $1,028.30 $3.94
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Class B $1,000 $1,025.00 $6.02
- ------------------------------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,023.10 $6.53
- ------------------------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,029.30 $3.43
- ------------------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% annual return before expenses)**
====================================================================================================================================
Class A $1,000 $1,021.32 $3.92
- ------------------------------------------------------------------------------------------------------------------------------------
Class B $1,000 $1,019.25 $6.01
- ------------------------------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,018.75 $6.51
- ------------------------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,021.82 $3.41
- ------------------------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.77% for Class A, 1.18% for Class B, 1.28% for Class
C and .67% for Class I) multiplied by the average account value over the
period, multiplied by 184/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 9
Schedule of Investments as of August 31, 2006 (As Restated. See Note 8)
(in Thousands)
Face
Amount Municipal Bonds Value
================================================================================
California --86.0%
- --------------------------------------------------------------------------------
$ 2,625 ABAG Finance Authority for Nonprofit Corporations,
California, COP (Children's Hospital Medical Center),
6% due 12/01/2029 (a) $ 2,821
- --------------------------------------------------------------------------------
3,750 Alameda, California, Public Financing Authority, Local
Agency Special Tax Revenue Bonds (Community Facility
Number 1), Series A, 7% due 8/01/2019 3,869
- --------------------------------------------------------------------------------
3,600 Alameda Corridor Transportation Authority, California,
Revenue Bonds, Senior Lien, Series A, 5.25%
due 10/01/2021 (g) 3,797
- --------------------------------------------------------------------------------
4,000 Anaheim, California, Public Financing Authority, Tax
Allocation Revenue Refunding Bonds, RITES, 9.27%
due 12/28/2018 (g)(k) 4,436
- --------------------------------------------------------------------------------
2,000 Bakersfield, California, COP, Refunding (Convention
Center Expansion Project), 5.875% due 4/01/2007 (g)(h) 2,048
- --------------------------------------------------------------------------------
2,935 Bay Area Government Association, California, Tax
Allocation Revenue Bonds (California Redevelopment
Agency Pool), Series A, 5.125% due 9/01/2025 (l) 3,130
- --------------------------------------------------------------------------------
770 Bay Area Government Association, California, Tax
Allocation Revenue Refunding Bonds (California
Redevelopment Agency Pool), Series A, 6%
due 12/15/2024 (e) 775
- --------------------------------------------------------------------------------
320 California Educational Facilities Authority Revenue
Unrefunded Balance -- University of the Pacific,
5.875% due 11/01/2020 (g) 347
- --------------------------------------------------------------------------------
California Educational Facilities Authority, Revenue
Refunding Bonds (g):
5,000 RIB, Series 413, 8.31% due 10/01/2026 (k) 5,220
705 (University of the Pacific), 5.875%
due 11/01/2010 (h) 770
- --------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Bonds:
5,000 DRIVERS, Series 181, 7.277% due 6/01/2022 (e)(k) 5,512
(Kaiser Permanente), RIB, Series 26, 7.28%
due 6/01/2022 (e)(k) 3,307
2,080 (Sutter Health), Series A, 6.25% due 8/15/2035 2,292
- --------------------------------------------------------------------------------
2,355 California Health Facilities Financing Authority, Revenue
Refunding Bonds (Catholic Healthcare West),
Series A, 6% due 7/01/2017 (g) 2,406
- --------------------------------------------------------------------------------
3,000 California State Public Works Board, Lease Revenue
Bonds (Various Community College Projects),
Series A, 5.625% due 3/01/2016 (a) 3,065
- --------------------------------------------------------------------------------
California State Public Works Board, Lease Revenue
Refunding Bonds, Series B:
10,000 (Department of Corrections), 5.625%
due 11/01/2019 (g) 10,231
1,500 (Various Community College Projects),
5.625% due 3/01/2019 (a) 1,532
- --------------------------------------------------------------------------------
2,475 California Statewide Communities Development
Authority, Health Facility Revenue Bonds (Memorial
Health Services), Series A, 6% due 10/01/2023 2,738
- --------------------------------------------------------------------------------
1,720 Capistrano, California, Unified School District,
Community Facility District, Special Tax Bonds (Number
05-1 Rancho Madrina), 5.15% due 9/01/2029 1,742
- --------------------------------------------------------------------------------
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) 5,791
- --------------------------------------------------------------------------------
Corona, California, COP, Refunding (Corona
Community) (h):
2,065 8% due 3/01/2010 2,366
2,230 8% due 3/01/2011 2,639
2,410 8% due 3/01/2012 2,932
2,605 8% due 3/01/2013 3,251
2,810 8% due 3/01/2014 3,590
- --------------------------------------------------------------------------------
4,500 Corona, California, Department of Water and Power,
COP, 5% due 9/01/2035 (g) 4,699
- --------------------------------------------------------------------------------
1,250 Cucamonga, California, County Water District, COP,
Refunding, 5.50% due 9/01/2024 (d) 1,352
- --------------------------------------------------------------------------------
Duarte, California, Unified School District, Capital
Appreciation, GO (Election of 1998), Series E (e)(i):
2,355 4.95% due 11/01/2028 848
2,435 4.96% due 11/01/2029 830
4,805 4.96% due 11/01/2030 1,556
- --------------------------------------------------------------------------------
1,000 Elk Grove, California, East Franklin Community Number 1
Special Tax, Series A, 6% due 8/01/2007 (h) 1,058
- --------------------------------------------------------------------------------
3,000 Etiwanda School District, California, Community
Facilities District Number 8, Special Tax, 6.25%
due 9/01/2032 3,149
- --------------------------------------------------------------------------------
Portfolio Abbreviations
To simplify the listings of BlackRock 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
ROLS Reset Option Long Securities
10 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
================================================================================
California (continued)
- --------------------------------------------------------------------------------
Eureka, California, Union School District, GO
(Election of 2002) (g)(i):
$ 2,545 5.18% due 8/01/2029 $ 878
2,760 5.26% due 8/01/2032 815
2,990 5.27% due 8/01/2035 767
- --------------------------------------------------------------------------------
3,620 Fremont, California, GO (Election of 2002), Series B,
5% due 8/01/2029 (d) 3,801
- --------------------------------------------------------------------------------
2,000 Glendale, California, Unified School District, GO,
Series F, 5% due 9/01/2028 (g) 2,092
- --------------------------------------------------------------------------------
2,250 Grossmont, California, Unified High School District,
COP, 5.75% due 9/01/2008 (e)(h) 2,393
- --------------------------------------------------------------------------------
2,750 Hawthorne, California, School District, GO, Series A,
5.50% due 11/01/2008 (d)(h) 2,919
- --------------------------------------------------------------------------------
5,080 Irvine, California, Unified School District, Special Tax
Refunding Bonds (Community Facilities District
Number 86-1), 5.50% due 11/01/2017 (a) 5,284
- --------------------------------------------------------------------------------
4,000 Los Angeles, California, COP (Sonnenblick Del Rio West
Los Angeles), 6.20% due 11/01/2031 (a) 4,388
- --------------------------------------------------------------------------------
Los Angeles, California, Harbor Department Revenue
Bonds, AMT, Series B:
1,000 5.375% due 11/01/2023 1,012
14,540 6.25% due 11/01/2026 (g) 14,745
- --------------------------------------------------------------------------------
4,560 Los Angeles, California, Harbor Department Revenue
Refunding Bonds, 7.60% due 10/01/2018 (c)(g) 5,495
- --------------------------------------------------------------------------------
4,000 Los Angeles, California, Wastewater System Revenue
Refunding Bonds, Series A, 5% due 6/01/2032 (g) 4,203
- --------------------------------------------------------------------------------
Los Angeles, California, Water and Power Revenue
Refunding Bonds (Power System):
5,400 Series A-A-1, 5.25% due 7/01/2020 (e) 5,742
4,000 Series A-A-2, 5.375% due 7/01/2021 (g) 4,290
- --------------------------------------------------------------------------------
4,000 Los Angeles County, California, Metropolitan
Transportation Authority, Sales Tax Revenue Refunding
Bonds, Proposition A, First Tier Senior Series A, 5%
due 7/01/2035 (a) 4,201
- --------------------------------------------------------------------------------
Los Angeles County, California, Sanitation Districts
Financing Authority, Revenue Refunding Bonds
(Capital Projects -- District Number 14), Sub-Series B (d):
5,000 5% due 10/01/2029 5,280
2,500 5% due 10/01/2030 2,636
- --------------------------------------------------------------------------------
4,275 Los Gatos, California, Unified School District, GO
(Election of 2001), Series C, 5% due 8/01/2030 (d) 4,504
- --------------------------------------------------------------------------------
2,000 Los Rios, California, Community College District, GO
(Election of 2002), Series B, 5% due 8/01/2027 (g) 2,101
- --------------------------------------------------------------------------------
2,220 Madera, California, Unified School District, GO
(Election of 2002), 5% due 8/01/2028 (e) 2,309
- --------------------------------------------------------------------------------
5,445 Manteca, California, Unified School District, Capital
Appreciation, GO (Election of 2004), 4.86%
due 8/01/2031 (g)(i) 1,686
- --------------------------------------------------------------------------------
2,355 Montebello, California, Unified School District, GO
(Election of 1998), 4.90% due 8/01/2028 (d)(i) 858
- --------------------------------------------------------------------------------
5,500 Murrieta Valley, California, Unified School District,
Public Financing Authority, Special Tax Revenue Bonds,
Series A, 5.125% due 9/01/2026 (b) 5,847
- --------------------------------------------------------------------------------
3,565 Oakland, California, Sewer Revenue Bonds, Series A,
5% due 6/15/2028 (e) 3,745
- --------------------------------------------------------------------------------
3,000 Orange County, California, Community Facilities District,
Special Tax Bonds (Number 04-1 Ladera Ranch), Series A,
5.15% due 8/15/2029 3,049
- --------------------------------------------------------------------------------
2,000 Orange County, California, Sanitation District, COP,
5.25% due 2/01/2028 (d) 2,127
- --------------------------------------------------------------------------------
1,025 Palm Desert, California, Financing Authority, Tax
Allocation Revenue Refunding Bonds (Project Area
Number 1), 5.45% due 4/01/2018 (g) 1,055
- --------------------------------------------------------------------------------
1,500 Palm Springs, California, Financing Authority, Lease
Revenue Refunding Bonds (Convention Center Project),
Series A, 5.50% due 11/01/2029 (g) 1,661
- --------------------------------------------------------------------------------
5,485 Peralta, California, Community College District, GO
(Election of 2000), Series C, 5% due 8/01/2029 (g) 5,759
- --------------------------------------------------------------------------------
1,000 Petaluma, California, Community Development
Commission Tax Allocation Bonds (Petaluma
Community Development Project), Series A, 5.75%
due 5/01/2008 (g)(h) 1,047
- --------------------------------------------------------------------------------
1,000 Port of Oakland, California, Port Revenue Refunding
Bonds, Series I, 5.60% due 11/01/2019 (g) 1,042
- --------------------------------------------------------------------------------
5,778 Port of Oakland, California, RITR, AMT, Class R, Series 5,
7.728% due 11/01/2012 (d)(k) 6,517
- --------------------------------------------------------------------------------
4,295 Riverside, California, Unified School District, GO
(Election of 2001), Series B, 5% due 8/01/2030 (g) 4,546
- --------------------------------------------------------------------------------
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 11
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
================================================================================
California (continued)
- --------------------------------------------------------------------------------
$ 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) $ 1,952
- --------------------------------------------------------------------------------
285 Sacramento, California, City Financing Authority,
Capital Improvement Revenue Bonds (Redevelopment
Projects), 5.75% due 12/01/2022 (a) 308
- --------------------------------------------------------------------------------
8,000 Sacramento, California, Municipal Utility District,
Revenue Refunding Bonds, Series L, 5.125%
due 7/01/2022 (g) 8,235
- --------------------------------------------------------------------------------
3,400 Sacramento, California, Unified School District, GO
(Election of 2002), 5% due 7/01/2027 (g) 3,594
- --------------------------------------------------------------------------------
1,820 Saddleback Valley, California, Unified School District,
GO, 5% due 8/01/2029 (e) 1,911
- --------------------------------------------------------------------------------
3,500 Saddleback Valley, California, Unified School District,
Public Financing Authority, Special Tax Revenue
Refunding Bonds, Series A, 5.65% due 9/01/2017 (e) 3,540
- --------------------------------------------------------------------------------
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) 2,043
- --------------------------------------------------------------------------------
4,000 San Bernardino County, California, COP, Refunding
(Medical Center Financing Project), 5.50%
due 8/01/2019 (g) 4,006
- --------------------------------------------------------------------------------
2,000 San Diego, California, Certificates of Undivided Interest,
Revenue Bonds, ROLS, Series II-R-551X, 6.884%
due 8/01/2024 (d)(k) 2,137
- --------------------------------------------------------------------------------
10,000 San Diego, California, Certificates of Undivided Interest,
Water Utility Fund, Net System Revenue Bonds, 5%
due 8/01/2021 (d) 10,322
- --------------------------------------------------------------------------------
San Diego, California, Public Facilities Financing
Authority, Sewer Revenue Bonds (d):
4,450 Series A, 5.25% due 5/15/2027 4,536
6,175 Series B, 5.25% due 5/15/2027 6,294
- --------------------------------------------------------------------------------
11,325 San Diego, California, Unified School District, GO
(Election of 1998), Series F, 5% due 7/01/2029 (e) 11,885
- --------------------------------------------------------------------------------
San Diego County, California, Water Authority, Water
Revenue Bonds, COP, Series A (e):
7,350 5% due 5/01/2030 7,698
4,000 5% due 5/01/2031 4,183
- --------------------------------------------------------------------------------
San Francisco, California, Bay Area Rapid Transit District,
Sales Tax Revenue Refunding Bonds:
1,325 5.125% due 7/01/2036 (a) 1,385
6,270 Series A, 5% due 7/01/2030 (g) 6,604
- --------------------------------------------------------------------------------
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 (e) 1,313
- --------------------------------------------------------------------------------
5,790 San Joaquin Hills, California, Transportation Corridor
Agency, Toll Road Revenue Refunding Bonds, Series A,
5.375% due 1/15/2029 (g) 5,936
- --------------------------------------------------------------------------------
1,420 San Jose-Evergreen, California, Community College
District, GO, Series B, 5.50% due 9/01/2021 (d) 1,513
- --------------------------------------------------------------------------------
San Juan, California, Unified School District, GO:
3,740 5.625% due 8/01/2017 (d) 4,038
3,000 5.70% due 8/01/2019 (e) 3,226
4,345 5.625% due 8/01/2020 (d) 4,691
3,500 (Election of 2002), 5% due 8/01/2028 (g) 3,660
- --------------------------------------------------------------------------------
2,240 San Mateo County, California, Joint Powers Authority,
Lease Revenue Refunding Bonds (Capital Projects),
Series A, 5.125% due 7/15/2028 (e) 2,308
- --------------------------------------------------------------------------------
1,650 Santa Margarita, California, Water District, Special Tax
Refunding Bonds (Community Facilities District
Number 99), Series 1, 6.20% due 9/01/2020 1,768
- --------------------------------------------------------------------------------
4,000 Santa Monica, California, Redevelopment Agency, Tax
Allocation Bonds (Earthquake Recovery Redevelopment
Project), 6% due 7/01/2009 (a)(h) 4,311
- --------------------------------------------------------------------------------
Santa Rosa, California, High School District, GO:
1,000 5.70% due 5/01/2021 (e) 1,044
1,000 (Election of 2002), 5% due 8/01/2028 (g) 1,046
- --------------------------------------------------------------------------------
6,700 Sonoma County, California, Junior College District, GO
(Election of 2002), Refunding, Series B, 5%
due 8/01/2028 (e) 7,080
- --------------------------------------------------------------------------------
4,865 South Tahoe, California, Joint Powers Financing
Authority, Lease Revenue Refunding Bonds, 5.125%
due 10/01/2025 (g) 5,248
- --------------------------------------------------------------------------------
1,400 Stockton, California, Public Financing Authority, Water
Revenue Bonds (Water System Capital Improvement
Projects), Series A, 5% due 10/01/2031 (g) 1,474
- --------------------------------------------------------------------------------
Temecula Valley, California, Unified School District,
Community Facilities District, Special Tax Bonds 02-1):
1,255 5.125% due 9/01/2030 1,270
1,905 5.125% due 9/01/2035 1,919
- --------------------------------------------------------------------------------
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) 6,050
- --------------------------------------------------------------------------------
12 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
Schedule of Investments (concluded) (in Thousands)
Face
Amount Municipal Bonds Value
================================================================================
California (concluded)
- --------------------------------------------------------------------------------
$ 4,215 Vista, California, Unified School District, GO, Series A,
5.25% due 8/01/2025 (e) $ 4,485
================================================================================
Puerto Rico -- 3.0%
- --------------------------------------------------------------------------------
Puerto Rico Commonwealth Infrastructure Financing
Authority, Special Tax and Capital Appreciation
Revenue Bonds, Series A (i):
9,750 4.66% due 7/01/2033 (d) 2,846
10,000 4.90% due 7/01/2037 (a) 2,405
- --------------------------------------------------------------------------------
6,610 Puerto Rico Commonwealth, Public Improvement, GO,
Refunding, 5.70% due 7/01/2020 (g) 7,081
- --------------------------------------------------------------------------------
Total Municipal Bonds
(Cost -- $353,166) --89.0% 369,967
================================================================================
Municipal Bonds Held in Trust (m)
================================================================================
California --15.7%
- --------------------------------------------------------------------------------
8,000 California Educational Facilities Authority Revenue
Refunding Bonds (University of San Francisco),
6% due 10/01/2006 (g)(h) 8,177
- --------------------------------------------------------------------------------
14,000 California Health Facilities Financing Authority
Revenue Bonds (Kaiser Permanente),
Series A, 5.50% due 6/01/2022 (c)(e) 14,717
- --------------------------------------------------------------------------------
6,000 La Quinta, California, Financing Authority, Local Agency
Revenue Bonds, Series A, 5.125% due 9/01/2034 (a) 6,336
- --------------------------------------------------------------------------------
8,000 Los Angeles, California, Unified School District, GO,
Series A, 5% due 1/01/2028 (g) 8,401
- --------------------------------------------------------------------------------
2,540 Palm Desert, California, Financing Authority, Tax Allocation
Revenue Refunding Bonds (Project Area Number 2),
Series A, 5.125% due 8/01/2036 (a) 2,701
- --------------------------------------------------------------------------------
5,035 Port of Oakland, California, Revenue Bonds, AMT,
Series K, 5.875% due 11/01/2017 (d) 5,357
- --------------------------------------------------------------------------------
12,710 Port of Oakland, California, Revenue Refunding Bonds,
AMT, Series L, 5.375% due 11/01/2027 (d) 13,584
- --------------------------------------------------------------------------------
6,000 San Diego, California, Certificates of Undivided Interest
Revenue Bonds (Water Utility Fund), 5.20%
due 8/01/2024 (d) 6,205
- --------------------------------------------------------------------------------
Total Municipal Bonds Held in Trust
(Cost -- $64,550) --15.7% 65,478
================================================================================
Shares
Held Mutual Funds
================================================================================
69 BlackRock California Insured Municipal 2008 Term
Trust, Inc. 1,040
- --------------------------------------------------------------------------------
Total Mutual Funds (Cost -- $1,156) -- 0.3% 1,040
================================================================================
Short-Term Securities
================================================================================
6,251 CMA California Municipal Money Fund, 2.96% (f)(j) 6,251
- --------------------------------------------------------------------------------
Total Short-Term Securities
(Cost -- $6,251) -- 1.5% 6,251
================================================================================
Total Investments (Cost -- $425,123*) --106.5% 442,736
Other Assets Less Liabilities -- 1.1% 4,417
Liability for Trust Certificates,
Including Interest Expense Payable -- (7.6%) (31,486)
--------
Net Assets -- 100.0% $415,667
========
* The cost and unrealized appreciation (depreciation) of investments as of
August 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost ............................................. $ 393,928
=========
Gross unrealized appreciation .............................. $ 18,533
Gross unrealized depreciation .............................. (868)
---------
Net unrealized appreciation ................................ $ 17,665
=========
(a) AMBAC Insured.
(b) Assured Guaranty Insured.
(c) Escrowed to maturity.
(d) FGIC Insured.
(e) FSA Insured.
(f) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
CMA California Municipal Money Fund (1,172) $ 113
--------------------------------------------------------------------------
(g) MBIA Insured.
(h) Prerefunded.
(i) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
(j) Represents the current yield as of August 31, 2006.
(k) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(l) XL Capital Insured.
(m) As Restated. See Note 8. Securities represent underlying bonds transferred
to a separate securitization trust established in a tender option bond
transaction in which the Fund may have acquired the residual interest
certificates. These securities serve as collateral in a financing
transaction. See Note 1(c) to Financial Statements for details of
Municipal Bonds Held in Trust.
See Notes to Financial Statements.
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 13
Statement of Assets and Liabilities (As Restated. See Note 8)
As of August 31, 2006
====================================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost -- $418,872,590) .................................................... $436,485,929
Investments in affiliated securities, at value
(identified cost -- $6,250,553) ...................................................... 6,250,553
Cash ................................................................................... 127,339
Receivables:
Interest ........................................................................... $ 5,949,606
Securities sold .................................................................... 3,412,950
Beneficial interest sold ........................................................... 972,295
Dividends .......................................................................... 4,410 10,339,261
------------
Prepaid expenses and other assets ...................................................... 41,279
------------
Total assets ........................................................................... 453,244,361
------------
====================================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Trust Certificates ..................................................................... 31,142,500
Payables:
Securities purchased ............................................................... 4,413,226
Beneficial interest redeemed ....................................................... 952,209
Dividends to shareholders .......................................................... 402,181
Interest expense ................................................................... 343,161
Investment adviser ................................................................. 155,720
Distributor ........................................................................ 75,128
Other affiliates ................................................................... 14,790 6,356,415
------------
Accrued expenses ....................................................................... 78,897
------------
Total liabilities ...................................................................... 37,577,812
------------
====================================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets ............................................................................. $415,666,549
============
====================================================================================================================================
Net Assets Consist of
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Shares of beneficial interest, $.10 par value, unlimited number
of shares authorized ................................................................. $ 2,243,717
Class BShares of beneficial interest, $.10 par value, unlimited number
of shares authorized ................................................................. 604,195
Class CShares of beneficial interest, $.10 par value, unlimited number
of shares authorized ................................................................. 394,681
Class IShares of beneficial interest, $.10 par value, unlimited number
of shares authorized ................................................................. 365,027
Paid-in capital in excess of par ....................................................... 395,257,731
Undistributed investment income -- net ................................................. $ 764,789
Accumulated realized capital losses -- net ............................................. (1,576,930)
Unrealized appreciation -- net ......................................................... 17,613,339
------------
Total accumulated earnings -- net ...................................................... 16,801,198
------------
Net Assets ............................................................................. $415,666,549
============
====================================================================================================================================
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------------
Class A -- Based on net assets of $258,492,287 and 22,437,173 shares of
beneficial interest outstanding ...................................................... $ 11.52
============
Class B -- Based on net assets of $69,646,638 and 6,041,948 shares of
beneficial interest outstanding ...................................................... $ 11.53
============
Class C -- Based on net assets of $45,474,337 and 3,946,806 shares of
beneficial interest outstanding ...................................................... $ 11.52
============
Class I -- Based on net assets of $42,053,287 and 3,650,267 shares of
beneficial interest outstanding ...................................................... $ 11.52
============
See Notes to Financial Statements.
14 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
Statement of Operations (As Restated. See Note 8)
For the Year Ended August 31, 2006
====================================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------------
Interest ............................................................................... $ 22,660,378
Dividends (including $113,411 from affiliates) ......................................... 166,327
------------
Total income 22,826,705
------------
====================================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................................... $ 2,339,385
Interest expense and fees .............................................................. 1,003,270
Account maintenance and distribution fees -- Class B ................................... 414,495
Account maintenance and distribution fees -- Class C ................................... 268,543
Account maintenance fees -- Class A .................................................... 259,363
Accounting services .................................................................... 168,060
Transfer agent fees -- Class A ......................................................... 82,561
Professional fees ...................................................................... 53,993
Printing and shareholder reports ....................................................... 46,993
Registration fees ...................................................................... 46,690
Custodian fees ......................................................................... 33,445
Transfer agent fees -- Class B ......................................................... 32,077
Trustees' fees and expenses ............................................................ 22,672
Pricing fees ........................................................................... 17,784
Transfer agent fees -- Class C ......................................................... 16,936
Transfer agent fees -- Class I ......................................................... 12,158
Other .................................................................................. 35,175
------------
Total expenses before reimbursement .................................................... 4,853,600
Reimbursement of expenses .............................................................. (18,356)
------------
Total expenses after reimbursement ..................................................... 4,835,244
------------
Investment income -- net ............................................................... 17,991,461
------------
====================================================================================================================================
Realized & Unrealized Gain (Loss) -- Net
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gain on:
Investments -- net ................................................................. 4,922,978
Financial futures contracts -- net ................................................. 60,736 4,983,714
------------
Change in unrealized appreciation on investments -- net ................................ (11,799,018)
------------
Total realized and unrealized loss -- net .............................................. (6,815,304)
------------
Net Increase in Net Assets Resulting from Operations ................................... $ 11,176,157
============
See Notes to Financial Statements.
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 15
Statements of Changes in Net Assets (As Restated for 2006. See Note 8)
For the Year Ended
August 31,
------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ............................................... $ 17,991,461 $ 19,668,627
Realized gain -- net ................................................... 4,983,714 4,552,900
Change in unrealized appreciation -- net ............................... (11,799,018) (5,182,090)
------------------------------
Net increase in net assets resulting from operations ................... 11,176,157 19,039,437
------------------------------
===================================================================================================================================
Dividends to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net:
Class A ............................................................ (11,284,726) (11,717,196)
Class B ............................................................ (3,276,574) (4,380,225)
Class C ............................................................ (1,720,848) (1,854,212)
Class I ............................................................ (1,703,239) (1,645,811)
------------------------------
Net decrease in net assets resulting from dividends to shareholders .... (17,985,387) (19,597,444)
------------------------------
===================================================================================================================================
Beneficial Interest Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from beneficial interest transactions (20,461,128) (16,252,019)
------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ........................................... (27,270,358) (16,810,026)
Beginning of year ...................................................... 442,936,907 459,746,933
------------------------------
End of year* ........................................................... $ 415,666,549 $ 442,936,907
==============================
* Undistributed investment income -- net ........................... $ 764,789 $ 892,371
==============================
See Notes to Financial Statements.
16 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
Financial Highlights (As Restated. See Note 8)
Class A
The following per share data ----------------------------------------------------
and ratios have been derived For the Year Ended August 31,
from information provided in ----------------------------------------------------
the financial statements. 2006 2005 2004 2003 2002
=================================================================================================
Per Share Operating Performance
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of year ......... $ 11.70 $ 11.72 $ 11.54 $ 11.82 $ 11.77
----------------------------------------------------
Investment income -- net* .................. .50 .53 .55 .56 .57
Realized and unrealized gain (loss) -- net . (.18) (.03) .17 (.28) .05
----------------------------------------------------
Total from investment operations ........... .32 .50 .72 .28 .62
----------------------------------------------------
Less dividends from investment
income -- net ............................ (.50) (.52) (.54) (.56) (.57)
----------------------------------------------------
Net asset value, end of year ............... $ 11.52 $ 11.70 $ 11.72 $ 11.54 $ 11.82
====================================================
Total Investment Return**
Based on net asset value per share ......... 2.83% 4.40% 6.37% 2.35% 5.46%
====================================================
Ratios to Average Net Assets
Expenses, net of reimbursement and excluding
interest expense and fees ................ .78% .78% .78% .78% .81%
====================================================
Expenses, net of reimbursement ............. 1.01% .88% .83% .89% .98%
====================================================
Expenses ................................... 1.02% .89% .83% .89% 1.00%
====================================================
Investment income -- net ................... 4.35% 4.50% 4.66% 4.74% 4.93%
====================================================
Supplemental Data
Net assets, end of year (in thousands) ..... $258,492 $264,482 $258,411 $247,184 $236,181
====================================================
Portfolio turnover ......................... 30% 27% 22% 26% 30%
====================================================
Class B
The following per share data ----------------------------------------------------
and ratios have been derived For the Year Ended August 31,
from information provided in ----------------------------------------------------
the financial statements. 2006 2005 2004 2003 2002
=================================================================================================
Per Share Operating Performance
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of year ......... $ 11.70 $ 11.72 $ 11.54 $ 11.82 $ 11.77
----------------------------------------------------
Investment income -- net* .................. .46 .48 .50 .51 .52
Realized and unrealized gain (loss) -- net . (.17) (.02) .18 (.28) .05
----------------------------------------------------
Total from investment operations ........... .29 .46 .68 .23 .57
----------------------------------------------------
Less dividends from investment
income -- net ............................ (.46) (.48) (.50) (.51) (.52)
----------------------------------------------------
Net asset value, end of year ............... $ 11.53 $ 11.70 $ 11.72 $ 11.54 $ 11.82
====================================================
Total Investment Return**
Based on net asset value per share ......... 2.50% 3.98% 5.94% 1.93% 5.04%
====================================================
Ratios to Average Net Assets
Expenses, net of reimbursement and excluding
interest expense and fees ................ 1.18% 1.19% 1.18% 1.19% 1.22%
====================================================
Expenses, net of reimbursement ............. 1.42% 1.29% 1.24% 1.29% 1.38%
====================================================
Expenses ................................... 1.42% 1.29% 1.24% 1.30% 1.41%
====================================================
Investment income -- net ................... 3.95% 4.10% 4.25% 4.34% 4.52%
====================================================
Supplemental Data
Net assets, end of year (in thousands) ..... $ 69,647 $ 96,650 $118,304 $151,276 $194,733
====================================================
Portfolio turnover ......................... 30% 27% 22% 26% 30%
====================================================
* Based on average shares outstanding.
** Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 17
Financial Highlights (concluded) (As Restated. See Note 8)
Class C
The following per share data ----------------------------------------------------
and ratios have been derived For the Year Ended August 31,
from information provided in ----------------------------------------------------
the financial statements. 2006 2005 2004 2003 2002
=================================================================================================
Per Share Operating Performance
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of year ......... $ 11.70 $ 11.72 $ 11.54 $ 11.82 $ 11.77
----------------------------------------------------
Investment income -- net* .................. .44 .47 .49 .50 .51
Realized and unrealized gain (loss) -- net . (.18) (.02) .17 (.28) .05
----------------------------------------------------
Total from investment operations ........... .26 .45 .66 .22 .56
----------------------------------------------------
Less dividends from investment
income -- net ............................ (.44) (.47) (.48) (.50) (.51)
----------------------------------------------------
Net asset value, end of year ............... $ 11.52 $ 11.70 $ 11.72 $ 11.54 $ 11.82
====================================================
Total Investment Return**
Based on net asset value per share ......... 2.31% 3.88% 5.84% 1.83% 4.94%
====================================================
Ratios to Average Net Assets
Expenses, net of reimbursement and excluding
interest expense and fees ................ 1.28% 1.29% 1.28% 1.29% 1.32%
====================================================
Expenses, net of reimbursement ............. 1.52% 1.39% 1.34% 1.39% 1.48%
====================================================
Expenses ................................... 1.52% 1.39% 1.34% 1.40% 1.51%
====================================================
Investment income -- net ................... 3.85% 4.00% 4.15% 4.24% 4.42%
====================================================
Supplemental Data
Net assets, end of year (in thousands) ..... $ 45,474 $ 45,700 $ 46,900 $ 50,197 $ 36,983
====================================================
Portfolio turnover ......................... 30% 27% 22% 26% 30%
====================================================
Class I
The following per share data ----------------------------------------------------
and ratios have been derived For the Year Ended August 31,
from information provided in ----------------------------------------------------
the financial statements. 2006 2005 2004 2003 2002
=================================================================================================
Per Share Operating Performance
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of year ......... $ 11.70 $ 11.72 $ 11.54 $ 11.81 $ 11.77
----------------------------------------------------
Investment income -- net* .................. .51 .54 .56 .57 .58
Realized and unrealized gain (loss) -- net . (.18) (.02) .17 (.27) .04
----------------------------------------------------
Total from investment operations ........... .33 .52 .73 .30 .62
----------------------------------------------------
Less dividends from investment
income -- net ............................ (.51) (.54) (.55) (.57) (.58)
----------------------------------------------------
Net asset value, end of year ............... $ 11.52 $ 11.70 $ 11.72 $ 11.54 $ 11.81
====================================================
Total Investment Return**
Based on net asset value per share ......... 2.93% 4.50% 6.48% 2.54% 5.48%
====================================================
Ratios to Average Net Assets
Expenses, net of reimbursement and excluding
interest expense and fees ................ .68% .68% .68% .68% .71%
====================================================
Expenses, net of reimbursement ............. .91% .78% .73% .79% .88%
====================================================
Expenses ................................... .92% .79% .73% .79% .90%
====================================================
Investment income -- net ................... 4.45% 4.60% 4.76% 4.84% 5.03%
====================================================
Supplemental Data
Net assets, end of year (in thousands) ..... $ 42,053 $ 36,105 $ 36,132 $ 39,841 $ 42,873
====================================================
Portfolio turnover ......................... 30% 27% 22% 26% 30%
====================================================
* Based on average shares outstanding.
** Total investment returns exclude the effects of sales charges. Effective
December 28, 2005, Class I Shares are no longer subject to any front-end
sales charge.
See Notes to Financial Statements.
18 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
Notes to Financial Statements
1. Significant Accounting Policies:
On September 29, 2006, Merrill Lynch California Insured Municipal Bond Fund and
Merrill Lynch California Municipal Series Trust, of which the Fund is part of,
were renamed BlackRock California Insured Municipal Bond Fund (the "Fund") and
BlackRock Municipal Series Trust (the "Trust"), respectively. The Fund is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. The Fund offers multiple classes
of shares. Class A Shares are sold with a front-end sales charge. Shares of
Class B and Class C may be subject to a contingent deferred sales charge. Class
I Shares are sold only to certain eligible investors. 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 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 ("OTC") markets and are valued at the last available bid price
in the OTC 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 Fund. 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 OTC market, valuation is the last asked price
(options written) or the last bid price (options purchased). Swap agreements are
valued based upon quoted fair valuations 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 Fund.
(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 financial futures contracts.
Financial 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) Municipal bonds held in trust -- The Fund invests in leveraged residual
certificates ("TOB Residuals") issued by tender option bond trusts ("TOBs"). A
TOB is established by a third party sponsor forming a special purpose entity,
into
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 19
Notes to Financial Statements (continued)
which a Fund, or an agent on behalf of the Fund, transfers municipal securities.
A TOB typically issues two classes of beneficial interests: short-term floating
rate certificates, which are sold to third party investors, and residual
certificates, which are generally issued to the Fund which made the transfer or
to affiliates of the Fund. The Fund's transfers of the municipal securities to a
TOB do not qualify for sale treatment under Statement of Financial Accounting
Standards No. 140 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," therefore the municipal securities
deposited into a TOB are presented in the Fund's schedules of investments and
the proceeds from the transactions are reported as a liability for trust
certificates of the Fund. Similarly, proceeds from residual certificates issued
to affiliates, if any, from the transaction are included in the liability for
trust certificates. Interest income from the underlying security is recorded by
the Fund on an accrual basis. Interest expense incurred on the secured borrowing
and other expenses related to remarketing, administration and trustee services
to a TOB are reported as expenses of a Fund. The floating rate certificates have
interest rates that generally reset weekly and their holders have the option to
tender certificates to the TOB for redemption at par at each reset date. The
residual interests held by the Fund include the right of the Fund (1) to cause
the holders of a proportional share of floating rate certificates to tender
their certificates at par, and (2) to transfer a corresponding share of the
municipal securities from the TOB to the Funds. At August 31, 2006, the
aggregate value of the underlying municipal securities transferred to TOBs was
$65,477,596, the related liability for trust certificates was $31,142,500 and
the range of interest rates on the liability for trust certificates was 3.41% to
3.46%.
Financial transactions executed through TOBs generally will underperform the
market for fixed rate municipal bonds in a rising interest rate environment, but
tend to outperform the market for fixed rate bonds when interest rates decline
or remain relatively stable. Should short-term interest rates rise, the Fund's
investments in TOB Residuals likely will adversely affect the Fund's investment
income -- net and distributions to shareholders. Fluctuations in the market
value of municipal securities deposited into the TOB may adversely affect the
Fund's net asset value per share.
While the Fund's investment policies and restrictions expressly permit
investments in inverse floating rate securities such as TOB Residuals, they
generally do not allow the Fund to borrow money for purposes of making
investments. The Fund's management believes that the Fund's restrictions on
borrowings do not apply to the secured borrowings deemed to have occurred for
accounting purposes.
(d) 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.
(e) Recent accounting pronouncement -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48") entitled
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income tax
positions taken or expected to be taken by an entity including mutual funds
before being measured and recognized in the financial statements. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006. The
impact on the Fund's financial statements, if any, is currently being assessed.
(f) 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.
(g) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(h) 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.
(i) 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.
(j) Reclassification -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $133,656 has been reclassified between undistributed net investment income
and accumulated net realized capital losses as a result of permanent differences
attributable to amortization methods on fixed income securities. This
reclassification has no effect on net assets or net asset values per share.
20 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
Notes to Financial Statements (continued)
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. The Investment Adviser has agreed to reimburse its
management fee by the amount of management fees the Fund pays to FAM indirectly
through its investment in the CMA California Municipal Money Fund. For the year
ended August 31, 2006, FAM reimbursed the Fund in the amount of $18,356.
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 year ended August 31, 2006, 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 ............................................ $ 4,877 $43,302
Class I ............................................ $ 3,534 $33,177
- --------------------------------------------------------------------------------
For the year ended August 31, 2006, MLPF&S received contingent deferred sales
charges of $47,572 and $3,446 relating to transactions in Class B and Class C
Shares, respectively.
Financial Data Services, Inc. ("FDS"), a wholly owned subsidiary of ML & Co., is
the Fund's transfer agent.
For the year ended August 31, 2006, the Fund reimbursed FAM $9,342 for certain
accounting services.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction will close on
September 29, 2006.
On July 31, 2006, shareholders of the Fund approved a new Investment Advisory
Agreement with BlackRock Advisors, Inc. (the "Manager"), a wholly owned
subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was recently reorganized
into BlackRock Advisors, LLC. The new advisory agreement became effective on
September 29, 2006 and the investment advisory fee is unchanged. In addition,
the Manager has entered into a sub-advisory agreement with BlackRock Investment
Management, LLC, an affiliate, under which the Manager pays the Sub-Adviser for
services it provides a fee equal to 59% of the management fee paid to the
Manager.
In connection with the closing, the Fund's Transfer Agent became PFPC, Inc., an
affiliate of the Fund. In addition, BlackRock Distributors, Inc., an affiliate
of BlackRock, Inc., became an additional distributor.
During the year ended August 31, 2006, certain officers and/or trustees of the
Fund are officers and/or directors of FAM, PSI, FDS, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended August 31, 2006 were $140,068,437 and $164,695,373, respectively.
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 21
Notes to Financial Statements (continued)
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$20,461,128 and $16,252,019 for the years ended August 31, 2006 and August 31,
2005, respectively.
Transactions in shares of beneficial interest for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended August 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................. 1,479,802 $ 17,017,821
Automatic conversion of shares ............... 1,057,574 12,158,609
Shares issued to shareholders in
reinvestment of dividends .................. 456,697 5,254,757
---------------------------
Total issued ................................. 2,994,073 34,431,187
Shares redeemed .............................. (3,160,727) (36,358,719)
---------------------------
Net decrease ................................. (166,654) $ (1,927,532)
===========================
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................. 1,668,005 $ 19,517,215
Automatic conversion of shares ............... 687,586 8,056,701
Shares issued to shareholders in
reinvestment of dividends .................. 460,636 5,402,855
---------------------------
Total issued ................................. 2,816,227 32,976,771
Shares redeemed .............................. (2,267,688) (26,572,006)
---------------------------
Net increase ................................. 548,539 $ 6,404,765
===========================
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended August 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................. 101,383 $ 1,190,423
Shares issued to shareholders in
reinvestment of dividends .................. 110,858 1,276,508
---------------------------
Total issued ................................. 212,241 2,466,931
---------------------------
Shares redeemed .............................. (1,371,215) (15,780,754)
Automatic conversion of shares ............... (1,057,090) (12,158,609)
---------------------------
Total redemptions ............................ (2,428,305) (27,939,363)
---------------------------
Net decrease ................................. (2,216,064) $(25,472,432)
===========================
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................. 187,982 $ 2,203,871
Shares issued to shareholders in
reinvestment of dividends .................. 148,916 1,747,316
---------------------------
Total issued ................................. 336,898 3,951,187
---------------------------
Shares redeemed .............................. (1,486,201) (17,431,258)
Automatic conversion of shares ............... (687,322) (8,056,701)
---------------------------
Total redemptions ............................ (2,173,523) (25,487,959)
---------------------------
Net decrease ................................. (1,836,625) $(21,536,772)
===========================
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended August 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................. 831,944 $ 9,553,375
Shares issued to shareholders in
reinvestment of dividends .................. 75,587 870,003
---------------------------
Total issued ................................. 907,531 10,423,378
Shares redeemed .............................. (866,124) (9,962,411)
---------------------------
Net increase ................................. 41,407 $ 460,967
===========================
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 663,641 $ 7,785,750
Shares issued to shareholders in
reinvestment of dividends .................... 84,383 989,892
---------------------------
Total issued ................................... 748,024 8,775,642
Shares redeemed ................................ (845,227) (9,908,126)
---------------------------
Net decrease ................................... (97,203) $(1,132,484)
===========================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended August 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................. 990,715 $ 11,381,126
Shares issued to shareholders in
reinvestment of dividends .................. 75,044 863,077
---------------------------
Total issued ................................. 1,065,759 12,244,203
Shares redeemed .............................. (501,223) (5,766,334)
---------------------------
Net increase ................................. 564,536 $ 6,477,869
===========================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 444,568 $ 5,205,686
Shares issued to shareholders in
reinvestment of dividends .................... 72,265 847,615
---------------------------
Total issued ................................... 516,833 6,053,301
Shares redeemed ................................ (515,164) (6,040,829)
---------------------------
Net increase ................................... 1,669 $ 12,472
===========================
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, which expires November 2006. 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 year ended August 31, 2006.
22 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
Notes to Financial Statements (continued)
6. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended August 31,
2006 and August 31, 2005 was as follows:
- --------------------------------------------------------------------------------
8/31/2006 8/31/2005
- --------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .............................. $17,985,387 $19,597,444
--------------------------
Total distributions .............................. $17,985,387 $19,597,444
==========================
As of August 31, 2006, the components of accumulated earnings on a tax basis
were as follows:
- -----------------------------------------------------------------------------
Undistributed tax-exempt income -- net ...................... $ 471,226
Undistributed ordinary income -- net ........................ 133,656
Undistributed long-term capital gains -- net ................ --
------------
Total undistributed earnings -- net ......................... 604,882
Capital loss carryforward ................................... (1,295,867)*
Unrealized gains -- net ..................................... 17,492,183**
------------
Total accumulated earnings -- net ........................... $ 16,801,198
============
* On August 31, 2006, the Fund had a net capital loss carryforward of
$1,295,867, all of which expires in 2009. This amount will be available to
offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on straddles, the
difference between book and tax amortization methods for premiums and
discounts on fixed income securities and the difference between the book
and tax treatment of residual interests in tender option bond trusts.
7. Share Class Redesignation:
Effective October 2, 2006, Class A, Class B, Class C and Class I Shares were
redesignated Investor A1, Investor B, Investor C1 and Institutional Shares,
respectively. Investor A1, Investor B and Investor C1 Shares are no longer be
available for purchase except through dividend reinvestment in connection with
existing holdings or through certain authorized qualified employee benefit
plans.
8. Restatement Information:
Subsequent to the issuance of its August 31, 2006 financial statements, the Fund
determined that the criteria for sale accounting in Statement of Financial
Accounting Standards No. 140 had not been met for certain transfers of municipal
bonds and that these transfers should have been accounted for as secured
borrowings rather than as sales. Accordingly, the Fund has restated the
Statement of Assets and Liabilities, including the Schedule of Investments, as
of August 31, 2006, the Statement of Operations for the year then ended, the
Statement of Changes in Net Assets for the year ended August 31, 2006 and
certain financial highlights for each of the five years in the period then
ended. The effects of the restatements were to record the transfers of the
municipal bonds as secured borrowings, to give effect to offsetting changes in
realized gain (loss) -- net and in the change in unrealized
appreciation/depreciation -- net on the transferred municipal securities and to
give effect to interest on the bonds as interest income and interest on the
secured borrowings as interest expense.
- -------------------------------------------------------------------------------
Statement of Assets and Liabilities
As of August 31, 2006
- -------------------------------------------------------------------------------
Previously
Reported Restated
- -------------------------------------------------------------------------------
Investments in unaffiliated
securities, at value ..................... $ 405,343,429 $ 436,485,929
Investments in unaffiliated
securities, identified cost .............. $ 388,211,285 $ 418,872,590
Interest receivable ........................ $ 5,606,445 $ 5,949,606
Total assets ............................... $ 421,758,700
Trust certificates ......................... -- $ 31,142,500
Interest expense payable ................... -- $ 343,161
Total liabilities .......................... $ 6,092,151 $ 37,577,812
Accumulated realized capital
losses -- net ............................ $ (1,095,735) $ (1,576,930)
Unrealized appreciation -- net ............. $ 17,132,144 $ 17,613,339
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Statement of Operations
For the Year Ended August 31, 2006
- -------------------------------------------------------------------------------
Previously
Reported Restated
- -------------------------------------------------------------------------------
Interest income .............................. $ 21,657,108 $ 22,660,378
Total income ................................. $ 21,823,435 $ 22,826,705
Interest expense and fees .................... -- $ 1,003,270
Total expenses before
reimbursement .............................. $ 3,850,330 $ 4,853,600
Total expenses after
reimbursement .............................. $ 3,831,974 $ 4,835,244
Realized gain on
investments -- net ......................... $ 5,394,081 $ 4,922,978
Change in unrealized appreciation
on investments -- net ...................... $(12,270,121) $(11,799,018)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Year Ended August 31, 2006
- -------------------------------------------------------------------------------
Previously
Reported Restated
- -------------------------------------------------------------------------------
Realized gain -- net ......................... $ 5,454,817 $ 4,983,714
Change in unrealized
appreciation -- net ........................ $(12,270,121) $(11,799,018)
- -------------------------------------------------------------------------------
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 23
Notes to Financial Statements (concluded)
Financial Highlights
For the Years Ended August 31, 2006, 2005, 2004, 2003 and 2002
- ------------------------------------------------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
------------------- ------------------- ------------------- ------------------- -------------------
Previously Previously Previously Previously Previously
Class A Reported Restated Reported Restated Reported Restated Reported Restated Reported Restated
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of
reimbursement ....... .78% 1.01% .78% .88% .78% .83% .78% .89% .81% .98%
Expenses ............ .78% 1.02% .78% .89% .78% .83% .78% .89% .84% 1.00%
Portfolio turnover .. 37.90% 30% 30.78% 27% 24.69% 22% 29.70% 26% 37.35% 30%
- ------------------------------------------------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
------------------- ------------------- ------------------- ------------------- -------------------
Previously Previously Previously Previously Previously
Class B Reported Restated Reported Restated Reported Restated Reported Restated Reported Restated
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of
reimbursement ....... 1.18% 1.42% 1.19% 1.29% 1.18% 1.24% 1.19% 1.29% 1.22% 1.38%
Expenses ............ 1.19% 1.42% 1.19% 1.29% 1.18% 1.24% 1.19% 1.30% 1.25% 1.41%
Portfolio turnover .. 37.90% 30% 30.78% 27% 24.69% 22% 29.70% 26% 37.35% 30%
- ------------------------------------------------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
------------------- ------------------- ------------------- ------------------- -------------------
Previously Previously Previously Previously Previously
Class C Reported Restated Reported Restated Reported Restated Reported Restated Reported Restated
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of
reimbursement ...... 1.28% 1.52% 1.29% 1.39% 1.28% 1.34% 1.29% 1.39% 1.32% 1.48%
Expenses ........... 1.29% 1.52% 1.29% 1.39% 1.28% 1.34% 1.29% 1.40% 1.35% 1.51%
Portfolio turnover.. 37.90% 30% 30.78% 27% 24.69% 22% 29.70% 26% 37.35% 30%
- ------------------------------------------------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
------------------- ------------------- ------------------- ------------------- -------------------
Previously Previously Previously Previously Previously
Class I Reported Restated Reported Restated Reported Restated Reported Restated Reported Restated
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of
reimbursement ...... .68% .91% .68% .78% .68% .73% .68% .79% .71% .88%
Expenses ........... .68% .92% .68% .79% .68% .73% .68% .79% .74% .90%
Portfolio turnover.. 37.90% 30% 30.78% 27% 24.69% 22% 29.70% 26% 37.35% 30%
- ------------------------------------------------------------------------------------------------------------------------------------
While the Statements of Assets and Liabilities, including the Schedules of
Investments, for the Fund as of August 31, 2005, 2004, 2003 and 2002, not
presented herein, have not been reissued to give effect to the restatements, the
principal effects of the restatements would be to increase investments and
liability for trust certificates by corresponding amounts at each year, with no
effect on previously reported net assets.
The Statements of Operations for the Fund for the years ended August 31, 2005,
2004, 2003 and 2002, not presented herein, have not been reissued to give effect
to the restatements. However, the principal effects of the restatements would be
to increase interest income and interest expense and fees by corresponding
amounts each year, and where applicable, to revise realized gain (loss) on
investments -- net, and the change in unrealized appreciation/ depreciation on
investments -- net, by corresponding and offsetting amounts.
The Statements of Changes in Net Assets for the Fund for the years ended August
31, 2004, 2003 and 2002, not presented herein, have not been reissued to give
effect to the restatements, but the principal effects of the restatements, where
applicable, would be to revise previously reported realized gain (loss) on
investments -- net, and change in unrealized appreciation/depreciation -- net,
by corresponding and offsetting amounts.
24 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of BlackRock California Municipal
Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of BlackRock California Insured Municipal Bond Fund
of BlackRock California Municipal Series Trust (the "Trust") (formerly Merrill
Lynch California Insured Municipal Bond Fund of Merrill Lynch California
Municipal Series Trust) as of August 31, 2006, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of August 31, 2006 by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BlackRock California Insured Municipal Bond Fund of BlackRock California
Municipal Series Trust as of August 31, 2006, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 8, the statement of assets and liabilities, including the
schedule of investments, as of August 31, 2006, the statement of operations for
the year then ended, the statement of changes in net assets for the year then
ended, and certain financial highlights for each of the five years in the period
ended August 31, 2006 have been restated.
Deloitte & Touche LLP
Princeton, New Jersey
October 19, 2006
(May 18, 2007 as to the effects of the restatements disclosed in Note 8)
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 25
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreement -- Matters Considered by the Board
In connection with the combination of Merrill Lynch's investment advisory
business, including Fund Asset Management, L.P. (the "Previous Investment
Adviser"), with that of BlackRock, Inc. ("BlackRock") to create a new
independent company ("New BlackRock") (the "Transaction"), the Fund's Board of
Trustees considered and approved a new investment advisory agreement (the
"BlackRock Investment Advisory Agreement") between the Fund and BlackRock
Advisors, LLC ("BlackRock Advisors"). The Fund's shareholders subsequently
approved the BlackRock Investment Advisory Agreement and it became effective on
September 29, 2006, replacing the investment advisory agreement with the
Previous Investment Adviser (the "Previous Investment Advisory Agreement").
The Board discussed the BlackRock Investment Advisory Agreement at telephonic
and in-person meetings held during April and May 2006. The Board, including the
independent trustees, approved the BlackRock Investment Advisory Agreement at an
in-person meeting held on May 9, 2006. The Board also approved the issuance of
new classes of shares and new distribution arrangements with respect to these
new share classes, including higher distribution fees for certain new share
classes, which took effect after September 29, 2006. The Board also approved
revised front-end sales charge schedules with respect to certain classes of
shares of the Fund.
To assist the Board in its consideration of the BlackRock Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent trustees, through their independent legal counsel,
also requested and received additional information from Merrill Lynch and
BlackRock in connection with their consideration of the BlackRock Investment
Advisory Agreement. The additional information was provided in advance of the
May 9, 2006 meeting. In addition, the independent trustees consulted with their
counsel and Fund counsel on numerous occasions, discussing, among other things,
the legal standards and certain other considerations relevant to the trustees'
deliberations.
At the Board meetings, the trustees discussed with Merrill Lynch management and
certain BlackRock representatives the Transaction, its strategic rationale and
BlackRock's general plans and intentions regarding the Fund. At these Board
meetings, representatives of Merrill Lynch and BlackRock made presentations to
and responded to questions from the Board. The trustees also inquired about the
plans for and anticipated roles and responsibilities of certain employees and
officers of the Previous Investment Adviser, and of its affiliates, to be
transferred to BlackRock in connection with the Transaction. The independent
trustees of the Board also conferred separately and with their counsel about the
Transaction and other matters related to the Transaction on a number of
occasions, including in connection with the April and May 2006 meetings. After
the presentations and after reviewing the written materials provided, the
independent trustees met in executive sessions with their counsel to consider
the BlackRock Investment Advisory Agreement.
In connection with the Board's review of the BlackRock Investment Advisory
Agreement, Merrill Lynch and/or BlackRock advised the trustees about a variety
of matters. The advice included the following, among other matters:
o that there was not expected to be any diminution in the nature, quality
and extent of services provided to the Fund and its shareholders by
BlackRock Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm would enhance its ability to attract and retain talented
professionals;
o that the Fund was expected to benefit from having access to BlackRock's
state of the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions(R) brand name;
o that BlackRock had no present intention to alter any applicable expense
waivers or reimbursements that were currently in effect and, while it
reserved the right to do so in the future, it would seek the approval of
the Board before making any changes;
o that BlackRock and Merrill Lynch would enter into an agreement, for an
initial three-year period and automatically renewable from year to year
thereafter, in connection with the Transaction under which Merrill Lynch-
affiliated broker-dealers would continue to offer the Fund as an
investment product;
26 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
o that BlackRock Advisors would have substantially the same access to the
Merrill Lynch sales force when distributing shares of the Fund as was
currently being provided to the Previous Investment Adviser and that other
arrangements between the Previous Investment Adviser and Merrill Lynch
sales channels would be preserved;
o that the Fund would have access to BlackRock's network of third party
brokers, retirement plan platforms and registered investment advisers;
o that in connection with the Transaction, Merrill Lynch and BlackRock had
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Previous Investment Adviser (or affiliates),
respectively; and
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they had a financial interest in the
matters being considered that was different from that of Fund
shareholders.
The trustees considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
o the potential benefits to Fund shareholders from being part of a combined
fund family with BlackRock-sponsored funds, including possible economies
of scale and access to investment opportunities;
o the potential for expanding distribution of Fund shares through improved
access to third party distribution;
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
o the terms and conditions of the BlackRock Investment Advisory Agreement,
including the fact that the Fund's advisory fee schedule would not
increase under the BlackRock Investment Advisory Agreement, but would
remain the same;
o that in February 2006, the Board had performed a full annual review of the
Previous Investment Advisory Agreement, as required by the 1940 Act, and
had determined that the Previous Investment Adviser had the capabilities,
resources and personnel necessary to provide the advisory and
administrative services that were then being provided to the Fund; and
that the advisory and/or management fees paid by the Fund, taking into
account any applicable agreed-upon fee waivers and breakpoints, had
represented reasonable compensation to the Previous Investment Adviser in
light of the services provided, the costs to the Previous Investment
Adviser of providing those services, economies of scale, the fees and
other expenses paid by similar funds (including information provided by
Lipper Inc. ["Lipper"]), and such other matters as the trustees had
considered relevant in the exercise of their reasonable judgment; and
o that Merrill Lynch had agreed to pay all expenses of the Fund in
connection with the Board's consideration of the BlackRock Investment
Advisory Agreement and related agreements and all costs of shareholder
approval of the BlackRock Investment Advisory Agreement and as a result
the Fund would bear no costs in obtaining shareholder approval of the
BlackRock Investment Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the BlackRock Investment Advisory Agreement, the Board assessed
the nature, quality and scope of the services to be provided to the Fund by the
personnel of BlackRock Advisors and its affiliates, including administrative
services, shareholder services, oversight of fund accounting, marketing services
and assistance in meeting legal and regulatory requirements. In its review of
the BlackRock Investment Advisory Agreement, the Board also considered a range
of information in connection with its oversight of the services to be provided
by BlackRock Advisors and its affiliates. Among the matters considered were: (a)
fees (in addition to management fees) to be paid to BlackRock Advisors and its
affiliates by the Fund; (b) Fund operating expenses paid to third parties; (c)
the resources devoted to and compliance reports relating to the Fund's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and BlackRock Advisors' compliance policies and procedures; and
(d) the nature, cost and character of non-investment management services to be
provided by BlackRock Advisors and its affiliates.
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 27
Disclosure of New Investment Advisory Agreement (continued)
In the period prior to the Board meeting to consider renewal of the Previous
Investment Advisory Agreement, the Board had requested and received materials
specifically relating to the Previous Investment Advisory Agreement. These
materials included (a) information compiled by Lipper on the fees and expenses
and the investment performance of the Fund as compared to a comparable group of
funds as classified by Lipper; (b) a discussion by the Fund's portfolio
management team on investment strategies used by the Fund during its most recent
fiscal year; (c) information on the profitability to the Previous Investment
Adviser of the Previous Investment Advisory Agreement and other payments
received by the Previous Investment Adviser and its affiliates from the Fund;
and (d) information provided by the Previous Investment Adviser concerning
services related to the valuation and pricing of Fund portfolio holdings, the
Fund's portfolio turnover statistics, and direct and indirect benefits to the
Previous Investment Adviser and its affiliates from their relationship with the
Fund.
In their deliberations, the trustees considered information received in
connection with their most recent approval of the continuance of the Previous
Investment Advisory Agreement, in addition to information provided by BlackRock
and BlackRock Advisors in connection with their evaluation of the terms and
conditions of the BlackRock Investment Advisory Agreement. The trustees did not
identify any particular information that was all-important or controlling. The
trustees, including a majority of the independent trustees, concluded that the
terms of the BlackRock Investment Advisory Agreement are appropriate, that the
fees to be paid are reasonable in light of the services to be provided to the
Fund, and that the BlackRock Investment Advisory Agreement should be approved
and recommended to Fund shareholders.
Nature, Quality and Extent of Services Provided -- The Board reviewed the
nature, quality and extent of services provided by the Previous Investment
Adviser, including the investment advisory services and the resulting
performance of the Fund, as well as the nature, quality and extent of services
expected to be provided by BlackRock Advisors. The Board focused primarily on
the Previous Investment Adviser's investment advisory services and the Fund's
investment performance, but also considered certain areas in which both the
Previous Investment Adviser and the Fund received services as part of the
Merrill Lynch complex. The Board compared the Fund's performance -- both
including and excluding the effects of fees and expenses -- to the performance
of a comparable group of mutual funds, and the performance of a relevant index
or combination of indexes. While the Board reviews performance data at least
quarterly, consistent with the Previous Investment Adviser's investment goals,
the Board attaches more importance to performance over relatively long periods
of time, typically three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the BlackRock Investment Advisory Agreement, the
trustees considered, among other things, the expected impact of the Transaction
on the operations, facilities, organization and personnel of New BlackRock and
how it would affect the Fund; the ability of BlackRock Advisors to perform its
duties after the Transaction; and any anticipated changes to the investment and
other practices of the Fund.
The trustees were given information with respect to the potential benefits to
the Fund and its shareholders from having access to BlackRock's state of the art
technology and risk management analytic tools, including the investment tools
provided under the BlackRock Solutions brand name.
The trustees were advised that, as a result of Merrill Lynch's equity interest
in BlackRock after the Transaction, the Fund would continue to be subject to
restrictions concerning certain transactions involving Merrill Lynch affiliates
(for example, transactions with a Merrill Lynch broker-dealer acting as
principal) absent revised or new regulatory relief. The trustees were advised
that a revision of existing regulatory relief with respect to these restrictions
was being sought from the Securities and Exchange Commission and were advised of
the possibility of receipt of such revised regulatory relief.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the trustees
determined that the nature and quality of services to be provided to the Fund
under the BlackRock Investment Advisory Agreement were expected to be as good as
or better than that provided under the Previous Investment Advisory Agreement.
The trustees were advised that BlackRock Advisors did not plan to change the
Fund's portfolio management team upon the closing of the transaction. It was
noted, however, that other changes in personnel were expected to follow the
Transaction and the combination of the operations of the Previous Investment
Adviser and its affiliates with those of BlackRock. The trustees noted that if
portfolio managers or other personnel were to cease to be available prior to the
closing of the Transaction, the Board would consider all available options,
including seeking the investment advisory or other services of BlackRock
affiliates. Accordingly, the trustees concluded that, overall, they were
satisfied at the present time with
28 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
assurances from BlackRock and BlackRock Advisors as to the expected nature,
quality and extent of the services to be provided to the Fund under the
BlackRock Investment Advisory Agreement.
Costs of Services Provided and Profitability -- It was noted that, in
conjunction with the recent review of the Previous Investment Advisory
Agreement, the trustees had received, among other things, a report from Lipper
comparing the Fund's fees and expenses to those of a peer group selected by
Lipper, and information as to the fees charged by the Previous Investment
Adviser or its affiliates to other registered investment company clients for
investment management services. The Board reviewed the Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels -- the actual rate includes advisory fees and the
effects of any fee waivers -- compared to the other funds in its Lipper
category. They also compared the Fund's total expenses to those of other
comparable funds. The information showed that the Fund had fees and expenses
within the range of fees and expenses of comparable funds. The Board considered
the services to be provided by and the fees to be charged by BlackRock Advisors
to other funds with similar investment mandates and noted that the fees charged
by BlackRock Advisors in those cases, including fee waivers and expense
reimbursements, were generally comparable to those being charged to the Fund.
The Board concluded that the Fund's management fee and fee rate and overall
expense ratio are reasonable compared to those of other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the BlackRock Investment Advisory Agreement, the trustees considered,
among other things, whether advisory fees or other expenses would change as a
result of the Transaction. Based on their review of the materials provided and
the fact that the BlackRock Investment Advisory Agreement is substantially
similar to the Previous Investment Advisory Agreement in all material respects,
including the rate of compensation, the trustees determined that the Transaction
should not increase the total fees payable, including any fee waivers or after
any expense caps or expense reimbursements, for advisory and administrative
services. The trustees noted that it was not possible to predict how the
Transaction would affect BlackRock Advisors' profitability from its relationship
with the Fund.
The trustees discussed with BlackRock Advisors its general methodology to be
used in determining its profitability with respect to its relationship with the
Fund and noted that they expect to receive profitability information from
BlackRock Advisors on at least an annual basis.
Fees and Economies of Scale -- The Board considered the extent to which
economies of scale might be realized as the assets of the Fund increase and
whether there should be changes in the management fee rate or structure in order
to enable the Fund to participate in these economies of scale. The Board
determined that changes were not currently necessary and that the Fund
appropriately participated in these economies of scale.
In reviewing the Transaction, the trustees considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that the BlackRock Investment Advisory Agreement
is substantially similar to the Previous Investment Advisory Agreement in all
material respects, including the rate of compensation, the trustees determined
that as a result of the Transaction, the Fund's total advisory fees would be no
higher than the fees under the Previous Investment Advisory Agreement. The
trustees concluded that because the rates for advisory fees for the Fund would
be no higher than the fee rates in effect at the time, the proposed management
fee structure, including any fee waivers, was reasonable and that no additional
changes were currently necessary.
Fall-Out Benefits -- The trustees considered whether the Fund would generate any
fall-out benefits to BlackRock Advisors. Fall-out benefits are indirect profits
from other activities that accrue to the adviser or its affiliates solely
because of the existence of the Fund. In evaluating the fall-out benefits to be
received by BlackRock Advisors under the BlackRock Investment Advisory
Agreement, the trustees considered whether BlackRock Advisors would experience
such benefits to the same extent that the Previous Investment Adviser was
experiencing such benefits under the Previous Investment Advisory Agreement.
Based on their review of the materials provided, including materials received in
connection with their most recent approval of the continuance of the Previous
Investment Advisory Agreement, and their discussions with management of the
Previous Investment Adviser and BlackRock, the trustees determined that those
benefits could include increased ability for BlackRock to distribute shares of
its funds and other investment products. The trustees noted that any such
benefits were difficult to quantify with certainty at this time, and indicated
that they would continue to evaluate them going forward.
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 29
Disclosure of New Investment Advisory Agreement (concluded)
Investment Performance -- The trustees considered investment performance for the
Fund. The trustees compared the Fund's performance -- both including and
excluding the effects of fees and expenses -- to the performance of a comparable
group of mutual funds, and the performance of a relevant index or combination of
indexes. The comparative information received from Lipper showed Fund
performance at various levels within the range of performance of comparable
funds over different time periods. The trustees believed the Fund's performance
was satisfactory. Also, the trustees took into account the investment
performance of funds advised by BlackRock Advisors. The Board considered
comparative information from Lipper which showed that the performance of the
funds advised by BlackRock Advisors was within the range of performance of
comparable funds over different time periods. The Board noted BlackRock's
considerable investment management experience and capabilities, but was unable
to predict what effect, if any, consummation of the Transaction would have on
the future performance of the Fund.
Conclusion -- After the independent trustees of the Fund deliberated in
executive session, the entire Board, including the independent trustees,
approved the BlackRock Investment Advisory Agreement, concluding that the
advisory fee rate was reasonable in relation to the services provided and that
the BlackRock Investment Advisory Agreement was in the best interests of the
shareholders. In approving the BlackRock Investment Advisory Agreement, the
Board noted that it anticipated reviewing the continuance of the agreement in
advance of the expiration of the initial two-year period.
New BlackRock Sub-Advisory Agreement -- Matters Considered by the Board
At an in-person meeting held on August 22 - 23, 2006, the Board of Trustees,
including the independent trustees, discussed and approved the sub-advisory
agreement (the "BlackRock Sub-Advisory Agreement") between BlackRock Advisors
and its affiliate, BlackRock Investment Management, LLC (the "Sub-Adviser"). The
BlackRock Sub-Advisory Agreement became effective on September 29, 2006, at the
same time the BlackRock Investment Advisory Agreement became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors equal to 59% of the advisory fee received by
BlackRock Advisors from the Fund. BlackRock Advisors pays the Sub-Adviser out of
its own resources, and there is no increase in Fund expenses as a result of the
BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, the Board reviewed its considerations in connection with its approval
of the BlackRock Investment Advisory Agreement in May 2006. The Board relied on
the same information and considered the same factors as those discussed above in
connection with the approval of the BlackRock Investment Advisory Agreement, and
came to the same conclusions. In reviewing the sub-advisory fee rate provided in
the BlackRock Sub-Advisory Agreement, the Board noted the fact that both
BlackRock Advisors and the Sub-Adviser have significant responsibilities under
their respective advisory agreements. BlackRock Advisors remains responsible for
oversight of the Fund's operations and administration, and the Sub-Adviser
provides advisory services to the Fund and is responsible for the day-to-day
management of the Fund's portfolio under the BlackRock Sub-Advisory Agreement.
The Board also took into account the fact that there is no increase in total
advisory fees paid by the Fund as a result of the BlackRock Sub-Advisory
Agreement. Under all of the circumstances, the Board concluded that it was a
reasonable allocation of fees for the Sub-Adviser to receive 59% of the advisory
fee paid by the Fund to BlackRock Advisors.
After the independent trustees deliberated in executive session, the entire
Board, including the independent trustees, approved the BlackRock Sub-Advisory
Agreement, concluding that the sub-advisory fee was reasonable in relation to
the services provided and that the BlackRock Sub-Advisory Agreement was in the
best interests of shareholders.
30 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
Officers and Trustees
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years by Trustee Trustee
====================================================================================================================================
Interested Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to Vice Chairman and Director of BlackRock, and 129 Funds None
Doll, Jr.* Princeton, NJ and present Global Chief Investment Officer for 174 Portfolios
08543-9011 Trustee Equities, Chairman of the BlackRock Private
Age: 52 Client Operating Committee, and member of
the BlackRock Executive Committee since
2006; President of the Funds advised by
Merrill Lynch Investment Managers ("MLIM")
and its affiliates ("MLIM/FAM-advised
funds") from 2005 to 2006 and Chief
Investment Officer thereof from 2001 to
2006; President of MLIM and Fund Asset
Management, L.P. ("FAM") from 2001 to 2006;
Co-Head (Americas Region) thereof from 2000
to 2001 and Senior Vice President from 1999
to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") since
2001; President of Princeton Administrators,
L.P. ("Princeton Administrators") from 2001
to 2006; Chief Investment Officer of
OppenheimerFunds, Inc. in 1999 and Executive
Vice President thereof from 1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which
BlackRock acts as investment adviser. Mr. Doll is an "interested person," as described in the Investment Company
Act, of the Fund based on his current and former positions with BlackRock, Inc. and its affiliates. Trustees serve
until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund
President, Mr. Doll serves at the pleasure of the Board of Trustees.
====================================================================================================================================
Independent Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Trustee 1995 to Director, The China Business Group, Inc. since 39 Funds None
Bodurtha** Princeton, NJ present 1996 and Executive Vice President thereof from 59 Portfolios
08543-9095 1996 to 2003; Chairman of the Board, Berkshire
Age: 62 Holding Corporation since 1980; Partner, Squire,
Sanders & Dempsey from 1980 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9095 Trustee 2005 to Professor, Harvard University since 1992; 39 Funds None
Froot Princeton, NJ present Professor, Massachusetts Institute of Technology 59 Portfolios
08543-9095 from 1986 to 1992.
Age: 49
- ------------------------------------------------------------------------------------------------------------------------------------
Joe P.O. Box 9095 Trustee 2002 to Member of the Committee of Investment of Employee 39 Funds Kimco Realty
Grills** Princeton, NJ present Benefit Assets of the Association of Financial 59 Portfolios Corporation
08543-9095 Professionals ("CIEBA") since 1986; Member of
Age: 71 CIEBA's Executive Committee since 1988 and its
Chairman from 1991 to 1992; Assistant Treasurer of
International Business Machines Corporation
("IBM") and Chief Investment Officer of IBM
Retirement Funds from 1986 to 1993; Member of the
Investment Advisory Committee of the State of New
York Common Retirement Fund since 1989; Member of
the Investment Advisory Committee of the Howard
Hughes Medical Institute from 1997 to 2000;
Director, Duke University Management Company from
1992 to 2004, Vice Chairman thereof from 1998 to
2004, and Director Emeritus thereof since 2004;
Director, LaSalle Street Fund from 1995 to 2001;
Director, Kimco Realty Corporation since 1997;
Member of the Investment Advisory Committee of the
Virginia Retirement System since 1998, Vice
Chairman thereof from 2002 to 2005, and Chairman
thereof since 2005; Director, Montpelier
Foundation since 1998 and its Vice Chairman since
2000; Member of the Investment Committee of the
Woodberry Forest School since 2000; Member of the
Investment Committee of the National Trust for
Historic Preservation since 2000.
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 31
Officers and Trustees (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years by Trustee Trustee
====================================================================================================================================
Independent Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Trustee 1993 to Chairman of the Board of Directors of Vigilant 39 Funds None
London Princeton, NJ present Research, Inc. since 2006; Member of the Board 59 Portfolios
08543-9095 of Directors for Grantham University since 2006;
Age: 67 Director of AIMS since 2006; Director of Reflex
Security since 2006; Director of InnoCentive, Inc.
since 2006; Director of Cerego, LLC since 2005;
Professor Emeritus, New York University since
2005; John M. Olin Professor of Humanities, New
York University from 1993 to 2005; and Professor
thereof from 1980 to 2005; President, Hudson
Institute since 1997 and Trustee thereof since
1980; Dean, Gallatin Division of New York
University from 1976 to 1993; Distinguished
Fellow, Herman Kahn Chair, Hudson Institute
from 1984 to 1985; Director, Damon Corp. from
1991 to 1995; Overseer, Center for Naval Analyses
from 1983 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Trustee 2000 to Shareholder, Modrall, Sperling, Roehl, Harris & 39 Funds None
Cooper Princeton, NJ present Sisk, P.A. since 1993; President, American Bar 59 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of
Age: 64 the Board of Governors thereof from 1994 to 1997;
Shareholder, Poole, Kelly and Ramo, Attorneys at
Law P.C. from 1977 to 1993; Director of ECMC
Group (service provider to students, schools and
since 2001; Director, United New Mexico Bank
(now Wells Fargo) from 1983 to 1988; Director,
First National Bank of New Mexico (now Wells Fargo)
from 1975 to 1976; Vice President, American Law
Institute since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Trustee 2002 to Principal of STI Management (investment adviser) 39 Funds None
Salomon, Princeton, NJ present from 1994 to 2005; Chairman and CEO of Salomon 59 Portfolios
Jr. 08543-9095 Brothers Asset Management Inc. from 1992 to 1995;
Age: 69 Chairman of Salomon Brothers Equity Mutual Funds
from 1992 to 1995; regular columnist with Forbes
Magazine from 1992 to 2002; Director of Stock
Research and U.S. Equity Strategist at Salomon
Brothers Inc. from 1975 to 1991; Trustee,
Commonfund from 1980 to 2001.
------------------------------------------------------------------------------------------------------------------------
* Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Co-Chairman of the Board of Trustees and the Audit Committee.
32 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
Officers and Trustees (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to Managing Director of BlackRock since 2006; Managing Director of MLIM and
Burke Princeton, President present FAM from 2005 to 2006 and Treasurer thereof from 1999 to 2006; First Vice
NJ 08543-9011 and and President of MLIM and FAM from 1997 to 2005; Senior Vice President and
Age: 46 Treasurer 1999 to Treasurer of Princeton Services from 1999 to 2006 and Director from 2004 to
present 2006; Vice President of FAM Distributors, Inc. ("FAMD") from 1999 to 2006
and Director from 2004 to 2006; Vice President of MLIM and FAM from 1990 to
1997; Director of Taxation of MLIM from 1990 to 2001; Vice President,
Treasurer and Secretary of the IQ Funds from 2004 to 2006.
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9011 Senior 2002 to Managing Director of BlackRock since 2006; Managing Director (Municipal
Jacob Princeton, NJ Vice present Tax-Exempt Fund Management) of MLIM from 2000 to 2006; Director of MLIM from
08543-9011 President 1997 to 2000.
Age: 55
- ------------------------------------------------------------------------------------------------------------------------------------
John M. P.O. Box 9011 Senior 2002 to Managing Director of BlackRock since 2006; Managing Director (Municipal
Loffredo Princeton, NJ Vice present Tax-Exempt Fund Management) of MLIM from 2000 to 2006; Director of MLIM from
08543-9011 President 1997 to 2000.
Age: 42
- ------------------------------------------------------------------------------------------------------------------------------------
Walter C. P.O. Box 9011 Vice 1993 to Managing Director of BlackRock since 2006; Managing Director (Municipal
O'Connor Princeton, NJ President present Tax-Exempt Fund Management) of MLIM from 2003 to 2006; Director of MLIM from
08543-9011 2000 to 2003; Vice President of MLIM from 1993 to 2000.
Age: 44
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Fund Chief 2004 to Managing Director of BlackRock and Fund Chief Compliance Officer since
Hiller Princeton, NJ Compliance present 2006; Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice
08543-9011 Officer President and Chief Compliance Officer of MLIM (Americas Region) from 2004
Age: 55 to 2006; Chief Compliance Officer of the IQ Funds since 2004; Global
Director of Compliance at Morgan Stanley Investment Management from 2002 to
2004; Managing Director and Global Director of Compliance at Citigroup
Asset Management from 2000 to 2002; Chief Compliance Officer at Soros Fund
Management in 2000; Chief Compliance Officer at Prudential Financial from
1995 to 2000; Senior Counsel in the Securities and Exchange Commission's
Division of Enforcement in Washington, D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director of BlackRock since 2006; Director (Legal Advisory) of MLIM from
Pellegrino Princeton, NJ present 2002 to 2006; Vice President of MLIM from 1999 to 2002; Attorney associated
08543-9011 with MLIM from 1997 to 2006; Secretary of MLIM, FAM, FAMD and Princeton
Age: 46 Services from 2004 to 2006.
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Trustees is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-441-7762.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Pre Transaction
(Until September 29, 2006)
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
Post Transaction
(After September 29, 2006)
PFPC Inc.
Wilmington, DE 19809
- --------------------------------------------------------------------------------
Effective January 1, 2007, Edward D. Zinbarg retired as a Trustee of BlackRock
California Municipal Bond Fund of BlackRock California Municipal Series Trust.
The Fund's Board of Trustees wishes Mr. Zinbarg well in his retirement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Effective April 13, 2007, Jeffrey Hiller resigned his position as Chief
Compliance Officer of the Fund. Also effective April 13, 2007, Karen Clark was
appointed Chief Compliance Officer of the Fund. Ms. Clark has been a Managing
Director of BlackRock, Inc. since 2007. She was a Director thereof from 2005 to
2007. Prior to that, Ms. Clark was a principal and senior compliance officer at
State Street Global Advisors from 2001 to 2005. Ms. Clark was a principal
consultant with PricewaterhouseCoopers, LLP from 1998 to 2001. From 1993 to
1998, Ms. Clark was Branch Chief, Division of Investment Management and Office
of Compliance Inspections and Examinations, with the U.S. Securities and
Exchange Commission.
- --------------------------------------------------------------------------------
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 33
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their nonpublic personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any nonpublic
personal information about its Clients, except as permitted by law or as is
necessary to service Client accounts. These nonaffiliated third parties are
required to protect the confidentiality and security of this information and to
use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to nonpublic
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the nonpublic
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
34 BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006
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.
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial advisor. Please note that not all investment
advisers, banks or brokerages may offer this service.
Shareholders Who Hold Accounts Directly with BlackRock:
1) Access the BlackRock Web site at http://www.blackrock.com/edelivery
2) Log into your account
BLACKROCK CALIFORNIA INSURED MUNICIPAL BOND FUND AUGUST 31, 2006 35
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 1-800-441-7762; (2) at
www.blackrock.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.blackrock.com and (2) on the Securities
and Exchange Commission's Web site at http://www.sec.gov.
BlackRock California Insured Municipal Bond Fund
Of BlackRock California Municipal Series Trust
P.O. Box 9011
Princeton, NJ 08543-9011
BLACKROCK
#10329R-8/06
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of
the end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge at
www.blackrock.com.
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Joe Grills,
(2) Robert S. Salomon, Jr., and (3) Stephen B. Swensrud (retired as of
December 31, 2005).
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending August 31, 2006 - $28,500
Fiscal Year Ending August 31, 2005 - $28,000
(b) Audit-Related Fees - Fiscal Year Ending August 31, 2006 - $0
Fiscal Year Ending August 31, 2005 - $0
(c) Tax Fees - Fiscal Year Ending August 31, 2006 - $6,000
Fiscal Year Ending August 31, 2005 - $7,300
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending August 31, 2006 - $0
Fiscal Year Ending August 31, 2005 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to
the registrant's affiliated service providers that relate directly to
the operations and the financial reporting of the registrant. Certain
of these non-audit services that the Committee believes are a)
consistent with the SEC's auditor independence rules and b) routine
and recurring services that will not impair the independence of the
independent accountants may be approved by the Committee without
consideration on a specific case-by-case basis ("general
pre-approval"). However, such services will only be deemed
pre-approved provided that any individual project does not exceed
$5,000 attributable to the registrant or $50,000 for all of the
registrants the Committee oversees. Any proposed services exceeding
the pre-approved cost levels will require specific pre-approval by the
Committee, as will any other services not subject to general
pre-approval (e.g., unanticipated but permissible services). The
Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending August 31, 2006 - $3,098,500
Fiscal Year Ending August 31, 2005 - $7,377,027
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $1,739,500, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - 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 - The registrant's
Nominating Committee will consider nominees to the Board recommended
by shareholders when a vacancy becomes available. Shareholders who
wish to recommend a nominee should send nominations which include
biographical information and sets forth the qualifications of the
proposed nominee to the registrant's Secretary. There have been no
material changes to these procedures.
Item 11 - Controls and Procedures
11(a) - The Registrant's principal executive and principal financial officers
have evaluated the Registrant's disclosure controls and procedures,
including internal control over financial reporting, within 90 days of
this filing. Such principal officers have concluded that as of May 18,
2007, the Registrant's disclosure controls and procedures were
effective in design and operation to reasonably ensure that
information required to be disclosed by the Registrant in this Form
N-CSR/A was recorded, processed, summarized, and reported within the
required time periods, and were sufficient to form the basis of the
certifications required by Rule 30a-(2) of the Investment Company Act
of 1940, as amended. Prior to reaching that conclusion, such principal
officers had become aware of matters relating to the Registrant's
participation in certain inverse floater structures that necessitated
restatement of financial information included in Item 1 of this
filing. As a result, management of the Registrant had reevaluated
certain disclosure controls and procedures determined not to be
effective, as discussed more fully below.
Management of the Registrant is responsible for establishing and
maintaining effective internal control over financial reporting. In
fulfilling this responsibility, estimates and judgments by management
are required to assess the expected benefits and related costs of
controls. The Registrant's internal control over financial reporting
is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally
accepted accounting principles. Such internal control includes
policies and procedures that provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or
disposition of a registrant's assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
A control deficiency exists when the design or operation of a control
does not allow management or employees, in the normal course of
performing their assigned functions, to prevent or detect
misstatements on a timely basis. A significant deficiency is a control
deficiency, or combination of control deficiencies, that adversely
affects the Registrant's ability to initiate, authorize, record,
process or report financial data reliably in accordance with generally
accepted accounting principles such that there is more than a remote
likelihood that a misstatement of the Registrant's annual or interim
financial statements that is more than inconsequential will not be
prevented or detected. A material weakness is a significant
deficiency, or combination of significant deficiencies, that results
in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or
detected.
Subsequent to the initial filing of the Registrant's Form N-CSR, the
Registrant identified the following control deficiency, that was
determined to be a material weakness, as defined above, in the
Registrant's internal control over financial reporting at August 31,
2006. The Registrant's controls related to the review and analysis of
relevant terms and conditions of transfers of certain assets
pertaining to inverse floater structures were not operating
effectively to appropriately determine whether the transfers of assets
qualified for sale accounting under the provisions of Statement of
Financial Accounting Standards No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 140"). As a result, these controls did not detect that certain
transfers were not appropriately recorded as borrowings. Accordingly,
the Registrant's financial statements as of and for the period ended
August 31, 2006, including prior periods where applicable, were
restated to appropriately reflect transfers of such securities as
secured borrowings and to report the related income and expense. The
restatement had no impact on net assets, net asset value per share or
total return.
Subsequent to August 31, 2006, but prior to the evaluation of the
design and operation of the Registrant's disclosure controls and
procedures at May 18, 2007, the Registrant's disclosure controls and
procedures were modified to enhance the review and analysis of the
relevant terms and conditions of transfers of securities in connection
with inverse floater structures in light of SFAS 140.
11(b) - There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Investment
Company Act of 1940, as amended) that occurred during the second half
of the Registrant's fiscal year that have materially affected, or are
reasonably likely to materially affect, the Registrant's internal
control over financial reporting. However, as discussed above,
subsequent to August 31, 2006, the Registrant has enhanced controls
related to the application of SFAS 140.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
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.
BlackRock California Insured Municipal Bond Fund of BlackRock California
Municipal Series Trust
By: /s/ Robert C. Doll, Jr.
---------------------------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock California Insured Municipal Bond Fund of
BlackRock California Municipal Series Trust
Date: June 7, 2007
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
BlackRock California Insured Municipal Bond Fund of
BlackRock California Municipal Series Trust
Date: June 7, 2007
By: /s/ Donald C. Burke
---------------------------------------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock California Insured Municipal Bond Fund of
BlackRock California Municipal Series Trust
Date: June 7, 2007