MUNIYIELD
CALIFORNIA
INSURED
FUND II, INC.
FUND LOGO
Annual Report
October 31, 1995
Officers and Directors
Arthur Zeikel, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
<PAGE>
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Transfer Agents
Common Stock:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MCA
<PAGE>
This report, including the financial information herein, is
transmitted to the shareholders of MuniYield California Insured Fund
II, Inc. for their information. It is not a prospectus, circular or
representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its
Common Stock by issuing Preferred Stock to provide the Common Stock
shareholders with a potentially higher rate of return. Leverage
creates risks for Common Stock shareholders, including the
likelihood of greater volatility of net asset value and market price
of shares of the Common Stock, and the risk that fluctuations in the
short-term dividend rates of the Preferred Stock may affect the
yield to Common Stock shareholders.
MuniYield California
Insured Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield California Insured Fund II, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1995, the Common Stock of MuniYield
California Insured Fund II, Inc. earned $0.867 per share income
dividends, which included earned and unpaid dividends of $0.072.
This represents a net annualized yield of 5.81%, based on a
month-end net asset value of $14.92 per share. Over the same period,
the total investment return on the Fund's Common Stock was +19.97%,
based on a change in per share net asset value from $13.39 to
$14.92, and assuming reinvestment of $0.875 per share income
dividends and $0.071 per share capital gains distributions.
For the six-month period ended October 31, 1995, the total
investment return on the Fund's Common Stock was +9.91%, based on a
change in per share net asset value from $14.03 to $14.92, and
assuming reinvestment of $0.426 per share income dividends.
For the six-month period ended October 31, 1995, the Fund's Auction
Market Preferred Stock had an average yield of 3.19% for Series A
and 3.20% for Series B.
<PAGE>
The Environment
After losing momentum through the second calendar quarter of 1995,
it now appears that the US economic expansion has resumed. Gross
domestic product growth for the three months ended September 30 was
reported to be 4.2%, higher than generally expected. September
durable goods orders increased a surprisingly strong 3%, and
existing home sales rose to a near-record level. At the same time,
there is evidence that inflationary pressures remain subdued.
Reflecting the trend of renewed economic growth--and continued good
news on the inflation front--the Federal Reserve Board signaled no
near-term shift in monetary policy following its September meeting.
Thus, official interest rates may not be reduced further in the
immediate future.
Another significant development has been the strengthening of the US
dollar relative to the yen and the Deutschemark. Improving interest
rate differentials favoring the US currency, combined with
coordinated central bank intervention and more positive investor
sentiment, have helped to bolster the dollar in foreign exchange
markets. Other factors that appear to be improving the US dollar's
outlook in the near term are a pick-up in capital flows to the
United States and the prospect of increased capital outflows from
Japan. However, it remains to be seen if the US dollar's
strengthening trend can continue without significant improvements in
the US budget and trade deficits.
In the weeks ahead, investor interest will continue to focus on US
economic activity. Clear signs of a moderate, noninflationary
expansion could further benefit the US stock and bond markets. In
addition, should the current Federal budget deficit reduction
efforts now underway in Washington prove successful, the
implications would likely be positive for the US financial markets.
The Municipal Market
Tax-exempt bond yields continued to decline during the six-month
period ended October 31, 1995. As measured by the Bond Buyer Revenue
Bond Index, the yield on uninsured, long-term municipal revenue
bonds fell 30 basis points (0.30%) to end the October period at
approximately 6.00%. While tax-exempt bond yields have declined
dramatically from their highs one year ago, municipal bond yields
have exhibited considerable yield volatility on a weekly basis. In
recent months, tax-exempt bond yields have fluctuated by as much as
20 basis points on a week-to-week basis. US Treasury bond yields
have displayed similar volatility, but the extent of their decline
has been greater. By the end of October, long-term US Treasury bond
yields had declined almost 100 basis points to 6.33%. Proposed
Federal tax restructuring continued to weigh heavily on the
tax-exempt bond market. Thus far in 1995, US Treasury bond yields
have declined approximately 150 basis points. Municipal bond yields
have fallen approximately 95 basis points as the uncertainty
surrounding any changes to the existing Federal income tax structure
has prevented the municipal bond market from rallying as strongly as
its taxable counterpart.
<PAGE>
A general view of a moderately expanding domestic economy, supported
by a very favorable inflationary environment, allowed interest rates
to significantly decline from their recent highs in November 1994.
However, this decline was not a smooth downward curve. Conflicting
economic indicators were released during recent months that have
prevented a clear consensus regarding the near-term direction of
interest rates from being reached. The resultant uncertainty has
promoted more of a saw-toothed pattern as interest rate declines
were repeatedly interrupted by indications of stronger-than-expected
economic growth. As these concerns were overcome by subsequent
weaker economic releases, interest rate declines have resumed. These
periods of volatility are likely to continue for the remainder of
1995, or until proposed Federal budget deficit reduction packages
are resolved and any resultant responses by the Federal Reserve
Board have occurred.
However, the municipal bond market's technical position remained
supportive throughout recent quarters. Approximately $82 billion in
long-term municipal securities were issued during the six months
ended October 31, 1995. While this issuance is virtually identical
to underwritings during the October 31, 1994 quarter, tax-exempt
bond issuance over the last 12 months remained approximately 25%
below comparable 1994 levels. The municipal bond market should
maintain this positive technical position well into 1996. Annual
issuance for 1995 is now projected to be approximately $140 billion,
significantly less than last year's already low level of $162
billion. Projected maturities and early redemptions for the
remainder of 1995 and throughout 1996 will lead to a continued
decline in the total outstanding municipal bond supply throughout
1996 and, perhaps, into 1998 should new bond issuance remain at
historically low levels.
Despite the municipal bond market's relative underperformance
compared to the US Treasury market thus far in 1995, the extent of
the tax-exempt bond market's rally was nonetheless quite impressive.
Municipal bond yields have fallen 135 basis points from their highs
reached in November 1994, and municipal bond prices rose
accordingly. Most tax-exempt products recouped almost all of the
losses incurred in 1994 and are well on their way to posting
double-digit total returns for all of 1995. This relative
underperformance so far in 1995 provided long-term investors with
the rare opportunity to purchase tax-exempt securities at
essentially taxable yield levels.
<PAGE>
Additionally, many of the factors that led to the relative
underperformance of the tax-exempt bond market thus far in 1995,
namely investor concern regarding Federal budget deficit reductions
and proposed changes in the Federal income tax structure, are
nearing resolution. The Federal budget reconciliation process has
already begun and is expected to be essentially completed by
year-end. Recent public opinion polls suggest that the majority of
American taxpayers prefer the existing Federal income tax system
compared to proposed changes, such as the flat tax or national sales
tax. In an upcoming election year, neither party is likely to
advocate a clearly unpopular position, particularly one that can be
expected to negatively impact the Federal budget deficit reduction
program through reduced tax revenues. As these factors are resolved,
we believe that much of the resistance that the municipal bond
market met this year should dissipate. This should allow municipal
bond yields to significantly decline from current levels in order to
return to more normal historic yield relationships.
Portfolio Strategy
For the fiscal year ended October 31, 1995, our portfolio strategy
was essentially constructive. However, within this period there were
a few months of volatility we used to our advantage in purchasing
bonds that we believed would better suit our optimistic outlook. We
sought to anticipate shifts in investor sentiment, whether they were
motivated by perceived changes in economic conditions or the belief
that interest rates had gone too high. The Fund was positioned
accordingly throughout the 12-month period to take full advantage of
the declining interest rate environment.
The only constant throughout the 12-month period was that cash
reserves were kept at minimum levels. This was done for two reasons:
First, to enhance income for the shareholders, and second, to keep
reserves low out of concern about an extremely tight technical
market for California bonds. Compared to the prior 12 months,
California bond issuance declined 42%. Looking ahead, our strategy
will continue to focus on seeking to provide an attractive total
return and a generous level of tax-exempt income for our
shareholders.
In Conclusion
We appreciate your ongoing interest in MuniYield California Insured
Fund II, Inc., and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
<PAGE>
(Vincent R. Giordano)
Vincent R. Giordano
Vice President
(Walter C. O'Connor)
Walter C. O'Connor
Portfolio Manager
December 1, 1995
We are pleased to announce that Walter C. O'Connor is responsible
for the day-to-day management of MuniYield California Insured Fund
II, Inc. Mr. O'Connor has been employed by Merrill Lynch Asset
Management, L.P. (an affiliate of the Fund's investment adviser)
since 1993 as Vice President and Portfolio Manager, and was
Assistant Vice President from 1991 to 1993. Prior thereto, he was
Assistant Vice President with Prudential Securities from 1984 to
1991.
PROXY RESULTS
During the six-month period ended October 31, 1995, MuniYield
California Insured Fund II, Inc. Common Stock shareholders voted on
the following proposals. The proposals were approved at a special
shareholders' meeting on June 16, 1995. The description of each
proposal and number of shares voted are as follows:
<PAGE>
<TABLE>
<CAPTION>
Shares Shares Voted
Voted For Without Authority
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors: Herbert I. London 12,065,260 367,777
Robert R. Martin 11,855,002 666,690
Arthur Zeikel 12,154,786 366,905
<CAPTION>
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the
Fund's independent auditors for the current fiscal year: 12,065,260 34,731 421,701
<CAPTION>
During the six-month period ended October 31, 1995, MuniYield
California Insured Fund II, Inc. Preferred Stock shareholders voted
on the following proposals. The proposals were approved at a special
shareholders' meeting on June 16, 1995. The description of each
proposal and number of shares voted are as follows:
Shares Shares Voted
Voted For Without Authority
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors:
Herbert I. London, Robert R. Martin, Joseph L. May,
Andre F. Perold and Arthur Zeikel as follows: Series A 1,407 0
Series B 1,775 0
<CAPTION>
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the
Fund's independent auditors for the current fiscal year
as follows: Series A 1,407 0 0
Series B 1,775 0 0
</TABLE>
IMPORTANT TAX INFORMATION (UNAUDITED)
<PAGE>
All of the net investment income distributions paid monthly by
MuniYield California Insured Fund II, Inc. during its taxable year
ended October 31, 1995 qualify as tax-exempt interest dividends for
Federal income tax purposes. Additionally, the following table
summarizes the per share capital gains distributions paid by the
Fund during the year:
<TABLE>
<CAPTION>
Payable Short-Term Long-Term
Date Capital Gains Capital Gains
<S> <S> <C> <C> <C>
Common Stock Shareholders 12/29/94 -- $ 0.070656
Preferred Stock Shareholders: Series A 12/12/94 -- $45.65
Series B 11/28/94 -- $54.48
12/05/94 -- $22.07
Please retain this information for your records.
</TABLE>
THE BENEFITS AND RISKS OF LEVERAGING
MuniYield California Insured Fund II, Inc. utilizes leveraging to
seek to enhance the yield and net asset value of its Common Stock.
However, these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues Preferred Stock, which
pays dividends at prevailing short-term interest rates, and invests
the proceeds in long-term municipal bonds. The interest earned on
these investments is paid to Common Stock shareholders in the form
of dividends, and the value of these portfolio holdings is reflected
in the per share net asset value of the Fund's Common Stock.
However, in order to benefit Common Stock shareholders, the yield
curve must be positively sloped; that is, short-term interest rates
must be lower than long-term interest rates. At the same time, a
period of generally declining interest rates will benefit Common
Stock shareholders. If either of these conditions change, then the
risks of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred Stock
for an additional $50 million, creating a total value of $150
million available for investment in long-term municipal bonds. If
prevailing short-term interest rates are approximately 3% and long-
term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million
of Preferred Stock based on the lower short-term interest rates. At
the same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
<PAGE>
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pick-up on the
Common Stock will be reduced or eliminated completely. At the same
time, the market value of the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield California Insured Fund II,
Inc.'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
GO General Obligation Bonds
HFA Housing Finance Agency
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
California--97.2%
<S> <S> <C> <S> <C>
AAA Aaa $ 2,000 Berkeley, California, Unified School District, UT, Series C, 6.50% due
8/01/2019 (b) $ 2,134
<PAGE>
California Health Facilities Financing Authority Revenue Bonds:
AAA Aaa 1,000 (Adventist Health System-West), Series B, 6.25% due 3/01/2021 (d) 1,027
AAA Aaa 1,000 (Kaiser Permanente), Series A, 7% due 10/01/2018 (b) 1,105
AAA VMIG1++ 1,200 (Pooled Loan Program), VRDN, Series 85-B, 3.70% due 10/01/2010 (a)(c) 1,200
AAA Aaa 15,750 (San Diego Children's Hospital), 6.50% due 7/01/2020 (d) 16,430
California HFA, Home Mortgage Revenue Bonds:
AA- Aa 3,900 AMT, Series F-1, 7% due 8/01/2026 4,088
AA- Aa 2,435 Refunding, AMT, Series H, 7.50% due 8/01/2025 2,609
AA- Aa 5,750 Series B, 6.90% due 8/01/2016 5,905
AA- Aa 2,000 California HFA, Revenue Bonds, RIB, AMT, 8.777% due 8/01/2023 (h) 2,085
A1 P1 100 California Pollution Control Financing Authority, PCR (Southern California
Edison), VRDN, Series C, 3.75% due 2/28/2008 (a) 100
California Pollution Control Financing Authority, Resource Recovery Revenue Bonds,
VRDN, AMT (a):
NR* P1 500 (Delano Project), 4% due 8/01/2019 500
NR* P1 100 Refunding (Ultra Power Malaga Project), Series B, 4.05% due 4/01/2017 100
NR* Aaa 1,000 California Rural Home Mortgage Finance Authority, S/F Mortgage Revenue Bonds
(Mortgage-Backed Securities Program), AMT, Series A-1, 6.90% due 12/01/2024 (j) 1,055
AA Aaa 1,500 California State Department of Water Resources, Water System Revenue Bonds
(Central Valley Project), Series I, 6.95% due 6/01/2000 (i) 1,681
California State, GO, UT:
AAA Aaa 2,000 7% due 11/01/2014 (c) 2,255
AAA Aaa 5,750 Refunding, 5.125% due 10/01/2017 (d)(f) 5,319
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
California (continued)
<S> <S> <C> <S> <C>
California State Public Works Board, Lease Revenue Bonds:
AAA Aaa $ 3,000 (Department of Corrections-California State Prison-Susanville), Series D, 5.25%
due 6/01/2015 (f) $ 2,842
AAA Aaa 3,000 Refunding (Department of Corrections-State Prisons), Series A, 5% due
12/01/2019 (b) 2,734
A- A1 1,000 Refunding (Various Universities of California Projects), Series A, 5.50% due
6/01/2021 926
AAA Aaa 900 (Secretary of State), Series A, 6.40% due 12/01/2007 (b) 1,002
A- A 2,000 (Various Community College Projects), 7% due 3/01/2014 2,177
AAA Aaa 3,200 (Various University of California Projects), Series A, 6.40% due 12/01/2016 (b) 3,382
<PAGE>
AAA Aaa 1,000 California Statewide Community Development Authority Revenue Bonds, COP
(Good Samaritan Health System), 6.50% due 5/01/2024 (e) 1,113
Central Coast Water Authority, California, Water Project, Regional Facilities Revenue
Bonds (b):
AAA Aaa 2,385 6.50% due 10/01/2014 2,541
AAA Aaa 7,500 6.60% due 10/01/2022 8,037
AAA Aaa 6,000 Compton, California, Community Redevelopment Agency, Tax Allocation Refunding Bonds
(Compton Redevelopment Project), Series A, 6.50% due 8/01/2013 (f) 6,476
AAA Aaa 2,000 Cucamonga County, California, Water District COP, Refinancing Facilities, 6.50% due
9/01/2022 (c) 2,120
Culver City, California, Redevelopment Finance Authority, Tax Allocation Revenue
Refunding Bonds (b):
AAA Aaa 5,425 5.50% due 11/01/2014 5,387
AAA Aaa 1,785 5% due 11/01/2023 1,607
AAA Aaa 6,000 El Cajon, California, Redevelopment Agency, Tax Allocation Bonds (El Cajon
Redevelopment Project), 6.60% due 10/01/2022 (b) 6,410
AAA Aaa 3,125 Elk Grove, California, Unified School District, Special Tax Community Facilities
District No. 1, 7% due 12/01/2003 (b)(i) 3,681
AAA Aaa 1,500 Fresno, California, Sewer Revenue Bonds, Series A-1, 5.25% due 9/01/2019(b) 1,426
AAA Aaa 1,500 Los Angeles, California, Community Redevelopment Agency, Tax Allocation Refunding
Bonds (Bunker), Series C, 6% due 12/01/2001 (d)(i) 1,651
AAA Aaa 6,000 Los Angeles, California, Convention and Exhibition Center Authority, Lease Revenue
Refunding Bonds, Series A, 5.125% due 8/15/2021 (d) 5,521
AAA Aaa 3,000 Los Angeles, California, Department of Water and Power, Electric Plant Revenue
Refunding Bonds, 5.375% due 9/01/2023 (c) 2,852
AA Aa 2,000 Los Angeles, California, Harbor Department Revenue Bonds, AMT, Series B, 6.625%
due 8/01/2025 2,101
A- A 1,000 Los Angeles, California, State Building Authority, Lease Revenue Refunding Bonds
(California State Department of General Services), Series A, 5.625% due 5/01/2011 985
AAA Aaa 1,250 Los Angeles, California, Wastewater System Revenue Refunding Bonds, Series D,
5.20% due 11/01/2021 (c) 1,163
Los Angeles County, California, Metropolitan Transportation Authority, Sales Tax
Revenue Bonds:
AAA Aaa 6,250 (Proposition C), Second Series A, 5% due 7/01/2025 (b) 5,619
AAA Aaa 5,325 Refunding (Proposition A), Series A, 5% due 7/01/2021 (c) 4,812
<PAGE>
AAA Aaa 6,285 Los Angeles County, California, Transportation Commission, Sales Tax Revenue
Bonds, Series A, 6.75% due 7/01/2001 (c)(i) 7,123
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
California (continued)
<S> <S> <C> <S> <C>
AAA Aaa $ 1,000 M-S-R Public Power Agency, California, Revenue Bonds (San Juan Project), Series E,
6.50% due 7/01/2017 (d) $ 1,057
AAA Aaa 4,250 Marysville, California, Hospital Revenue Bonds (Fremont-Rideout Health Group),
Series A, 6.30% due 1/01/2022 (b) 4,378
AAA Aaa 3,850 Mountain View, California, Capital Improvements Financing Authority Revenue
Bonds (City Hall Community Theatre), 6.50% due 8/01/2016 (d) 4,063
Northern California Power Agency, Multiple Capital Facilities Revenue Bonds (d):
AAA Aaa 2,500 RIB, 8.891% due 9/02/2025 (h) 2,775
AAA Aaa 2,000 Series A, 6.50% due 8/01/2012 2,151
Northern California Transmission Revenue Bonds (California-Oregon Transmission
Project), Series A (d):
AAA Aaa 2,000 6.50% due 5/01/2016 2,133
AAA Aaa 6,400 Refunding, 5.25% due 5/01/2020 6,038
AAA Aaa 7,000 Orange County, California, Local Transportation Authority, Sales Tax Revenue
Bonds, 6.20% due 2/14/2011 (b) 7,397
AAA Aaa 2,360 Orchard, California, School District, GO, Series A, 6.50% due 8/01/2019 (c) 2,528
AAA Aaa 2,000 Port Oakland, California, Port Revenue Bonds, AMT, Series E, 6.50% due
11/01/2016 (d) 2,098
AAA Aaa 14,000 Poway, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Paraguay Redevelopment Project), 5.50% due 12/15/2023 (c) 13,476
AAA Aaa 2,000 Sacramento, California, Area Flood Control Agency, Capital Assessment
District No. 2, 5.375% due 10/01/2025 (c) 1,902
A+ Aa 2,600 Sacramento, California, City Financing Authority, Lease Revenue Refunding
Bonds, Series B, 5.40% due 11/01/2020 2,441
<PAGE>
Sacramento, California, Municipal Utility District, Electric Revenue Bonds (d):
AAA Aaa 7,475 Refunding, Series D, 5.25% due 11/15/2020 7,010
AAA Aaa 1,270 Refunding, Series G, 6.50% due 9/01/2013 1,404
AAA Aaa 7,000 Series B, 6.375% due 8/15/2022 7,347
San Francisco, California, City and County Airport Commission, International
Airport Revenue Bonds, Second Series:
AAA Aaa 1,500 AMT, Issue 5, 6.50% due 5/01/2019 (c) 1,593
AAA Aaa 3,000 AMT, Issue 6, 6.50% due 5/01/2018 (b) 3,188
AAA Aaa 1,000 Refunding, Issue 2, 6.75% due 5/01/2013 (d) 1,096
AAA Aaa 10,000 Refunding, Issue 2, 6.75% due 5/01/2020 (d) 10,938
AAA Aaa 1,550 San Francisco, California, City and County Redevelopment Agency, Lease
Revenue Bonds (George R. Moscone Convention Center), 6.75% due 7/01/2024 (f) 1,680
AAA Aaa 2,470 San Francisco, California, City and County Sewer Revenue Refunding Bonds,
5.375% due 10/01/2022 (c) 2,360
AAA Aaa 4,845 San Jose, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Merged Area Redevelopment Project), 5% due 8/01/2020 (d) 4,386
AAA Aaa 1,150 San Mateo County, California, COP (Capital Projects Program), 6.50% due
7/01/2001 (d)(i) 1,289
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
California (concluded)
<S> <S> <C> <S> <C>
AAA Aaa $ 3,430 Santa Ana, California, Financing Authority, Lease Revenue Bonds (Police
Administration and Holding Facility), Series A, 6.25% due 7/01/2024 (d) $ 3,730
Santa Clara County, California, Financing Authority, Lease Revenue Bonds (VMC
Facility Replacement Project), Series A (b):
AAA Aaa 2,500 7.75% due 11/15/2011 3,076
AAA Aaa 10,770 6.875% due 11/15/2014 11,913
AAA Aaa 1,700 6.75% due 11/15/2020 1,853
AAA Aaa 3,000 Santa Rosa, California, Wastewater Revenue Bonds (Subregional Wastewater Project),
Series A, 6.50% due 9/01/2022 (c) 3,189
AAA NR* 3,335 Southern California, HFA, S/F Mortgage Revenue Bonds Program, AMT, Series B,
6.90% due 10/01/2024 (g) 3,466
AAA Aaa 1,375 Southern California Public Power Authority, Transmission Project Revenue Refunding
Bonds, Sub-Series A, 5% due 7/01/2022 (d) 1,233
<PAGE>
BBB+ NR* 1,280 Stanislaus, California, Waste-to-Energy Financing Agency, Solid Waste Facility
Revenue Refunding Bonds (Ogden Martin System Inc. Project), 7.625% due 1/01/2010 1,371
AAA Aaa 2,000 Suisun City, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Suisun City Redevelopment Project), 5.50% due 10/01/2023 (d) 1,939
AAA Aaa 2,500 University of California, Housing Systems Revenue Refunding Bonds, Series A, 5% due
11/01/2014 (d) 2,304
University of California, Revenue Refunding Bonds (Multiple Purpose Projects):
AAA Aaa 3,000 Series A, 6.875% due 9/01/2002 (d)(i) 3,463
AAA Aaa 2,000 Series C, 5.25% due 9/01/2016 (b) 1,896
AAA Aaa 6,500 Series C, 5% due 9/01/2023 (b) 5,852
Total Investments (Cost--$257,075)--97.2% 271,294
Other Assets Less Liabilities--2.8% 7,830
--------
Net Assets--100.0% $279,124
========
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at October 31, 1995.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)CAPMAC Insured.
(f)CGIC Insured.
(g)GNMA/FNMA Collateralized.
(h)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at October 31, 1995.
(i)Prerefunded.
(j)GNMA Collateralized.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$257,074,845) (Note 1a) $271,294,382
Cash 3,063,315
Interest receivable 5,157,121
Deferred organization expenses (Note 1e) 15,227
Prepaid expenses and other assets 9,951
------------
Total assets 279,539,996
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) $ 232,224
Investment adviser (Note 2) 121,463 353,687
------------
Accrued expenses and other liabilities 62,782
------------
Total liabilities 416,469
------------
Net Assets: Net assets $279,123,527
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (3,600 shares of
AMPS* issued and outstanding at $25,000 per share liquidation
preference) $ 90,000,000
Common Stock, par value $.10 per share (12,678,633 shares
issued and outstanding) $ 1,267,863
Paid-in capital in excess of par 176,474,591
Undistributed investment income--net 1,838,287
Accumulated realized capital losses on investments--net (Note 5) (4,676,751)
Unrealized appreciation on investments--net 14,219,537
------------
Total--Equivalent to $14.92 net asset value per share of
Common Stock (market price--$13.125) 189,123,527
------------
Total capital $279,123,527
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended October 31, 1995
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 16,419,079
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,340,990
Commission fees (Note 4) 226,674
Professional fees 79,533
Accounting services (Note 2) 63,054
Transfer agent fees 58,799
Printing and shareholder reports 30,261
Listing fees 24,295
Directors' fees and expenses 23,667
Custodian fees 12,653
Pricing fees 10,785
Amortization of organization expenses (Note 1e) 7,593
Other 19,400
------------
Total expenses 1,897,704
------------
Investment income--net 14,521,375
------------
Realized & Realized loss on investments--net (4,676,753)
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net 25,009,415
(Loss) on ------------
Investments Net Increase in Net Assets Resulting from Operations $ 34,854,037
- --Net (Notes 1b, ============
1d & 3):
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended Oct. 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 14,521,375 $ 14,861,089
Realized gain (loss) on investments--net (4,676,753) 1,066,977
Change in unrealized appreciation/depreciation on investments--net 25,009,415 (37,816,850)
------------ ------------
Net increase (decrease) in net assets resulting from operations 34,854,037 (21,888,784)
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (11,088,099) (11,722,512)
Shareholders Preferred Stock (3,332,916) (2,381,373)
(Note 1f): Realized gain on investments--net:
Common Stock (895,821) (1,352,849)
Preferred Stock (170,928) (300,357)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (15,487,764) (15,757,091)
------------ ------------
Capital Stock Offering and underwriting costs from issuance of Preferred Stock -- (1,000)
Transactions ------------ ------------
(Notes 1e & 4): Net decrease in net assets derived from capital stock transactions -- (1,000)
------------ ------------
Net Assets: Total increase (decrease) in net assets 19,366,273 (37,646,875)
Beginning of year 259,757,254 297,404,129
------------ ------------
End of year* $279,123,527 $259,757,254
============ ============
<FN>
*Undistributed investment income--net (Note 1g) $ 1,838,287 $ 1,737,697
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
For the
Period
The following per share data and ratios have been derived Oct. 30,
from information provided in the financial statements. For the Year Ended 1992++ to
October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 13.39 $ 16.36 $ 14.15 $ 14.18
Operating -------- -------- -------- --------
Performance: Investment income--net 1.13 1.17 1.12 --
Realized and unrealized gain (loss) on investments--net 1.61 (2.90) 2.27 --
-------- -------- -------- --------
Total from investment operations 2.74 (1.73) 3.39 --
-------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net (.87) (.92) (.84) --
Realized gain on investments--net (.07) (.11) -- --
-------- -------- -------- --------
Total dividends and distributions to
Common Stock shareholders (.94) (1.03) (.84) --
-------- -------- -------- --------
Capital charge resulting from issuance of
Common Stock -- -- -- (.03)
-------- -------- -------- --------
Effect of Preferred Stock activity:++++
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net (.26) (.19) (.20) --
Realized gain on investments--net (.01) (.02) -- --
Capital charge resulting from issuance of
Preferred Stock -- -- (.14) --
-------- -------- -------- --------
Total effect of Preferred Stock activity (.27) (.21) (.34) --
-------- -------- -------- --------
Net asset value, end of period $ 14.92 $ 13.39 $ 16.36 $ 14.15
======== ======== ======== ========
Market price per share, end of period $ 13.125 $ 11.875 $ 15.375 $ 15.00
======== ======== ======== ========
Total Investment Based on market price per share 19.00% (16.78%) 8.24% .00%+++
Return:* ======== ======== ======== ========
Based on net asset value per share 19.97% (11.82%) 22.09% (.21%)+++
======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .71% .70% .56% --%
Net Assets:** ======== ======== ======== ========
Expenses .71% .70% .68% --%
======== ======== ======== ========
Investment income--net 5.42% 5.28% 5.17% --%
======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) $189,124 $169,757 $207,404 $178,555
======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $ 90,000 $ 90,000 $ 90,000 --
======== ======== ======== ========
Portfolio turnover 114.78% 41.67% 15.85% .00%
======== ======== ======== ========
<PAGE>
Dividends Per Series A--Investment income--net $ 948 $ 636 $ 743 --
Share on Series B--Investment income--net 904 687 685 --
Preferred Stock
Outstanding:++++++
<FN>
*Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
**Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Commencement of Operations.
++++The Fund's Preferred Stock was issued on November 30, 1992.
++++++Dividends per share have been adjusted to reflect a two-for-
one stock split.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield California Insured Fund II, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a non-
diversified, closed-end management investment company. The Fund
determines and makes available for publication the net asset value
of its Common Stock on a weekly basis. The Fund's Common Stock is
listed on the New York Stock Exchange under the symbol MCA. The
following is a summary of significant accounting policies followed
by the Fund.
<PAGE>
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. 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, which are traded on exchanges, are valued
at their last sale price as of the close of such exchanges or,
lacking any sales, at the last available bid price. Securities with
remaining maturities of sixty days or less are valued at amortized
cost, which approximates market value. Securities and assets for
which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the
Board of Directors of the Fund, including valuations furnished by a
pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the
general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell interest
rate futures contracts and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
<PAGE>
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses and offering expenses--Deferred
organization expenses are amortized on a straight-line basis over a
five-year period. Direct expenses relating to the public offering of
the Common and Preferred Stock were charged to capital at the time
of issuance.
NOTES TO FINANCIAL STATEMENTS (concluded)
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
(g) Reclassification--Generally accepted accounting principles
require that certain differences between accumulated net realized
capital losses for financial reporting and tax purposes, if
permanent, be reclassified to undistributed net investment income.
Accordingly, current year's permanent book/tax differences of $230
have been reclassified from accumulated net realized capital losses
to undistributed net investment income. These reclassifications have
no effect on net assets or net asset value per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets.
<PAGE>
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1995 were $295,216,613 and
$299,397,095, respectively.
Net realized and unrealized gains (losses) as of October 31, 1995
were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $(1,395,321) $ 14,219,537
Short-term investments 26,475 --
Financial futures contracts (3,307,907) --
----------- ------------
Total $(4,676,753) $ 14,219,537
=========== ============
As of October 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $14,183,125, of which $14,205,636
related to appreciated securities and $22,511 related to depreciated
securities. The aggregate cost of investments at October 31, 1995
for Federal income tax purposes was $257,111,257.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of holders of Common Stock.
Common Stock
For the year ended October 31, 1995, shares issued and outstanding
remained constant at 12,678,633. At October 31, 1995, total paid-in
capital amounted to $177,742,454.
<PAGE>
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund that entitle their holders to receive cash
dividends at an annual rate that may vary for the successive
dividend periods. The yields in effect at October 31, 1995 were as
follows: Series A, 3.65% and Series B, 3.40%.
A two-for-one stock split occurred on December 1, 1994. As a result,
as of October 31, 1995, there were 3,600 AMPS shares authorized,
issued and outstanding with a liquidation preference of $25,000 per
share, plus accumulated and unpaid dividends of $181,192.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from 0.25% to 0.375%,
calculated on the proceeds of each auction. For the year ended
October 31, 1995, MLPF&S, an affiliate of FAM, earned $183,927 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1995, the Fund had a net capital loss carryforward of
approximately $2,501,000, all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable
gains.
6. Subsequent Event:
On November 13, 1995, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $0.071678 per share, payable on November 29, 1995 to shareholders
of record as of November 24, 1995.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
MuniYield California Insured Fund II, Inc.:
We have audited the accompanying statement of assets, liabilities
and capital, including the schedule of investments, of MuniYield
California Insured Fund II, Inc. as of October 31, 1995, the related
statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and
the financial highlights for each of the years in the three-year
period then ended and for the period October 30, 1992 (commencement
of operations) to October 31, 1992. These financial statements and
the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our
audits.
<PAGE>
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at October
31, 1995 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
MuniYield California Insured Fund II, Inc. as of October 31, 1995,
the results of its operations, the changes in its net assets, and
the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 1, 1995
</AUDIT-REPORT>
PER SHARE INFORMATION (UNAUDITED)
<TABLE>
Per Share Selected Quarterly Financial Data*
<CAPTION>
Dividends/Distributions
Net Realized Unrealized
Investment Gains Gains Net Investment Income Capital Gains
For the Quarter Income (Losses) (Losses) Common Preferred Common Preferred
<S> <C> <C> <C> <C> <C> <C> <C>
November 1, 1993 to January 31, 1994 $.30 $ .11 $ .01 $.23 $.05 $.11 $.02
February 1, 1994 to April 30, 1994 .28 .11 (2.21) .22 .04 -- --
May 1, 1994 to July 31, 1994 .29 (.07) .34 .23 .05 -- --
August 1, 1994 to October 31, 1994 .30 (.07) (1.12) .24 .05 -- --
November 1, 1994 to January 31, 1995 .29 (.45) .94 .23 .07 .07 .01
February 1, 1995 to April 30, 1995 .28 (.04) .28 .22 .06 -- --
May 1, 1995 to July 31, 1995 .28 .07 .19 .21 .07 -- --
August 1, 1995 to October 31, 1995 .28 .05 .57 .21 .06 -- --
<PAGE>
<CAPTION>
Net Asset Value Market Price**
For the Quarter High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
November 1, 1993 to January 31, 1994 $16.38 $15.78 $15.375 $14.375 1,568
February 1, 1994 to April 30, 1994 16.33 13.64 15.125 12.875 1,553
May 1, 1994 to July 31, 1994 14.89 13.95 13.625 13.00 1,207
August 1, 1994 to October 31, 1994 14.61 13.37 13.50 11.75 1,504
November 1, 1994 to January 31, 1995 13.81 12.22 12.375 10.625 3,424
February 1, 1995 to April 30, 1995 14.45 13.79 13.375 12.75 1,019
May 1, 1995 to July 31, 1995 15.16 14.01 13.50 12.625 1,124
August 1, 1995 to October 31, 1995 14.95 13.96 13.25 12.625 915
<FN>
*Calculations are based upon shares of Common Stock outstanding at
the end of each quarter.
**As reported in the consolidated transaction reporting system.
***In thousands.
</TABLE>
