MUNIYIELD
CALIFORNIA
INSURED
FUND II, INC.
FUND LOGO
Annual Report
October 31, 1996
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. Statements and other information
herein are as dated and are subject to change.
<PAGE>
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, 1996, the Common Stock of MuniYield
California Insured Fund II, Inc. earned $0.875 per share income
dividends, which included earned and unpaid dividends of $0.075.
This represents a net annualized yield of 5.82%, based on a month-
end per share net asset value of $15.04. Over the same period, the
total investment return on the Fund's Common Stock was +7.26%, based
on a change in per share net asset value from $14.92 to $15.04, and
assuming reinvestment of $0.872 per share income dividends.
<PAGE>
For the six-month period ended October 31, 1996, the total
investment return on the Fund's Common Stock was +7.42%, based on a
change in per share net asset value from $14.44 to $15.04, and
assuming reinvestment of $0.432 per share income dividends.
For the six-month period ended October 31, 1996, the Fund's Auction
Market Preferred Stock had an average yield of 3.18% for Series A
and 3.20% for Series B.
The Municipal Market Environment
Municipal bond yields generally moved lower during the six-month
period ended October 31, 1996. Long-term tax-exempt revenue bond
yields, as measured by the Bond Buyer Revenue Bond Index, declined
approximately 35 basis points (0.35%) to end the October period at
approximately 5.94%. The municipal bond market exhibited
considerable weekly yield volatility over the last six months with
bond yields vacillating as much as 20 basis points. This ongoing
volatility was in response to fluctuating evidence regarding the
degree to which recent economic growth will result in any
significant increase in inflationary pressures. Much of the evidence
supporting stronger growth centered around the strong employment
growth seen in April and June and bond yields rose in response.
Other, more recent, economic indicators suggested that economic
growth will not be excessive and inflationary pressures will remain
well-contained. This continued benign inflationary environment
supported lower tax-exempt bond yields in recent months. US Treasury
bond yields exhibited similar, albeit greater, volatility during the
period ended October 31, 1996, falling over 20 basis points to end
the period at 6.64%. Over the past six months, tax-exempt bond
yields registered significantly greater declines than shown by the
US Treasury bond market. This relative outperformance by the
municipal bond market was largely the result of the strong technical
support the tax-exempt market enjoyed throughout most of 1996.
Perhaps most significantly, the pace of new bond issuance recently
slowed.
Over the last year, approximately $180 billion in long-term
municipal securities was issued, an increase of over 25% compared to
the same period a year ago. Much of this increase was the result of
issuers seeking to refinance their existing higher-couponed debt as
interest rates declined in 1995 and early 1996. As interest rates
rose, these financings became increasingly economically impractical,
and issuance declined. Over the last six months, approximately $90
billion in long-term tax-exempt securities was underwritten, an
increase of 5% versus the comparable period a year earlier. Only $41
billion in tax-exempt securities was issued in the last three
months, a 3% decline in issuance compared to the October 31, 1995
quarter.
<PAGE>
At the same time, investor demand remained consistently strong. With
nominal new-issue yields generally above 6%, retail investor
interest was steady. Additionally, investors received over $50
billion this June and July in assets derived from coupon income,
bond maturities, and proceeds from early redemptions. Annual new
bond issuance declined in recent years and is expected to remain
below levels seen in the early 1990s. Consequently, as the higher-
couponed bonds issued in the early-to-mid 1980s were redeemed at
their first optional call dates, the total number of outstanding tax-
exempt bonds has declined. This combination of a declining net
supply and significant amounts of assets available for investment
helped maintain investor demand in recent months.
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance led to the yield
ratio between long-term taxable and tax-exempt securities falling
from in excess of 90% to approximately 85%. While historically still
very attractive, some institutional investors, particularly short-
term traders, began to view the tax-exempt bond market's recent
outperformance as an opportunity to sell a relatively expensive
asset. However, to the long-term investor, such a sale would
represent the loss of an attractively priced asset which may not be
easily replaced given the relative scarcity of municipal bonds under
present supply conditions.
Looking forward, no clear consensus for the direction of interest
rates currently exists. Perhaps, the primary focus going forward
will be the extent to which the increase in interest rates seen thus
far in 1996 will negatively impact future economic growth. Should
growth slow in the interest rate-sensitive sectors of the economy,
like housing, auto, and consumer spending, as many economists assert
is likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of the US Treasury bond market.
Portfolio Strategy
For the 12 months ended October 31, 1996, we managed the Fund with
the intention of sustaining an attractive level of tax-exempt income
while trying to achieve an above-average total return. We entered
the 12-month period optimistic that interest rates would decline.
This opinion was based on the belief that higher interest rates
earlier in the year would cause a drag on the economy. To take
advantage of this scenario, we extended the Fund's duration and
lowered our cash reserve position to a minimal level. From October
1995 to January 1996, the impression that the economy had slowed and
that there was no inflation on the horizon was enough to lower
interest rates by almost 50 basis points. Two rounds of Federal
Reserve Board easings in December 1995 and January 1996 made
investors complacent. This set the stage for a sudden loss of
investor confidence as an undeniably strong employment number in
March blindsided the market and began a period of extreme
volatility, which continued through the end of October. Looking
ahead, we expect this volatility to continue, and our portfolio
strategy is expected to remain neutral until the direction of the
economy becomes clearer.
<PAGE>
In Conclusion
We appreciate your ongoing interest in MuniYield California Insured
Fund II, Inc., and we look forward to serving your investment needs
and objectives in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Roberto Roffo)
Roberto Roffo
Vice President and Portfolio Manager
December 2, 1996
THE BENEFITS AND RISKS OF LEVERAGING
<PAGE>
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.
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 pickup 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
<PAGE>
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 below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
RAN Revenue Anticipation Notes
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--99.2%
<S> <S> <C> <S> <C>
AAA Aaa $ 2,000 Berkeley, California, Unified School District, UT, Series C, 6.50% due
8/01/2019 (b) $ 2,175
AAA Aaa 1,450 Big Bear Lake, California, Water Revenue Refunding Bonds, 6% due 4/01/2015 (d) 1,552
California Health Facilities Financing Authority Revenue Bonds:
AAA Aaa 1,000 (Adventist Health System-West), Series B, 6.25% due 3/01/2021 (d) 1,044
AAA Aaa 1,000 (Kaiser Permanente), Series A, 7% due 10/01/2018 (b) 1,083
AAA Aaa 15,750 (San Diego Children's Hospital), 6.50% due 7/01/2000 (d)(i) 17,205
California HFA, Home Mortgage Revenue Bonds:
AA- Aa 3,865 AMT, Series F-1, 7% due 8/01/2026 4,106
AA- Aa 2,415 Refunding, AMT, Series H, 7.50% due 8/01/2025 2,634
AA- Aa 5,750 Series B, 6.90% due 8/01/2016 5,873
AA- Aa 2,000 California HFA, Revenue Bonds, RIB, AMT, 9.237% due 8/01/2023 (e) 2,116
California Pollution Control Financing Authority, PCR, AMT:
A1 NR* 200 Refunding (Pacific Gas and Electric Co.), VRDN, Series G, 3.60% due
2/01/2016 (a) 200
AAA Aaa 1,500 (Southern California Edison Co.), Series B, 6.40% due 12/01/2024 (d) 1,591
<PAGE>
A A2 3,000 California Pollution Control Financing Authority, Solid Waste Disposal Revenue
Bonds (Keller Canyon Landfill Co. Project), AMT, 6.875% due 11/01/2027 3,197
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)(k) 1,074
California State, GO (c):
AAA Aaa 7,625 5.375% due 6/01/2026 7,325
AAA Aaa 1,935 UT, 7% due 11/01/2004 (i) 2,264
AAA Aaa 65 UT, 7% due 11/01/2014 74
AAA Aaa 2,315 California State, HFA, Home Mortgage Revenue Bonds, Series K, 6.15% due
8/01/2016 (d) 2,370
California State Public Works Board, Lease Revenue Bonds:
AAA Aaa 3,410 Refunding (California State University Projects), Series A, 5.375% due
10/01/2017 (b) 3,312
AAA Aaa 3,000 Refunding (Department of Corrections-State Prisons), Series A, 5% due
12/01/2019 (b) 2,794
AAA Aaa 900 (Secretary of State), Series A, 6.40% due 12/01/2007 (b) 1,007
A A 2,000 (Various Community College Projects), Series B, 7% due 3/01/2004 (i) 2,309
AAA Aaa 6,000 (Various University of California Projects), Series A, 6.40% due
12/01/2016 (b) 6,426
</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>
A1+ VMIG1++$ 2,800 California State, RAN, VRDN, Series C-1, 3.35% due 6/30/1997 (a) $ 2,800
California Statewide Community Development Authority Revenue Bonds, COP:
AAA Aaa 1,000 (Good Samaritan Health System), 6.50% due 5/01/2004 (f)(i) 1,124
A1+ VMIG1++ 1,300 Refunding (Saint Joseph Health System), VRDN, 3.50% due 7/01/2008 (a) 1,300
A1 VMIG1++ 500 (Sutter Health Obligation Group), VRDN, 3.55% due 7/01/2015 (a)(b) 500
Central Coast Water Authority, California, Revenue Bonds (State Water Project
Regional Facilities) (b):
AAA Aaa 2,385 6.50% due 10/01/2014 2,611
AAA Aaa 7,500 6.60% due 10/01/2022 8,248
A1 VMIG1++ 400 Chula Vista, California, IDR, Refunding (San Diego Gas), VRDN, Series A, 3.50%
due 7/01/2021 (a) 400
<PAGE>
AAA Aaa 6,000 Compton, California, Community Redevelpment Agency, Tax Allocation Refunding
Bonds (Compton Redevelopment Project), Series A, 6.50% due 8/01/2013 (h) 6,517
AAA Aaa 2,000 Cucamonga County, California, Water District Facilities Refinancing Bonds, COP,
6.50% due 9/01/2022 (c) 2,164
AAA Aaa 3,000 Culver City, California, Redevelopment Finance Authority, Tax Allocation Revenue
Refunding Bonds, 5.50% due 11/01/2014 (b) 3,020
AAA Aaa 6,000 El Cajon, California, Redevelopment Agency, Tax Allocation Bonds (El Cajon
Redevelopment Project), 6.60% due 10/01/2022 (b) 6,543
AAA Aaa 3,125 Elk Grove, California, Unified School District, Special Tax Community Facilities
District No. 1, 7% due 12/01/2003 (b)(i) 3,632
AAA Aaa 1,000 Fairfield-Suisun, California, Sewer District Revenue Refunding Bonds, Series A,
6.25% due 5/01/2016 (d) 1,048
AAA Aaa 1,500 Fresno, California, Sewer Revenue Bonds, Series A-1, 5.25% due 9/01/2019 (b) 1,446
AAA Aaa 2,000 Los Angeles, California, Harbor Department Revenue Bonds, AMT, Series B, 6.625%
due 8/01/2025 (d) 2,143
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 1,027
AAA Aaa 5,900 Los Angeles, California, Wastewater System Revenue Refunding Bonds, Series D,
4.70% due 11/01/2017 (c) 5,170
Los Angeles County, California, Public Works Financing Authority, Lease Revenue
Bonds, Series A:
AAA Aaa 10,000 (Multiple Capital Facilities Project), 5.125% due 6/01/2017 (b) 9,447
AAA Aaa 1,570 Refunding, 5.25% due 9/01/2015 (d) 1,510
AAA Aaa 3,000 Los Angeles County, California, Transportation Commission, Sales Tax Revenue
Bonds, Series A, 6.75% due 7/01/2001 (c)(i) 3,354
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) 1,079
AAA Aaa 4,250 Marysville, California, Hospital Revenue Bonds (Fremont-Rideout Health Group),
Series A, 6.30% due 1/01/2022 (b) 4,494
AAA Aaa 3,850 Mountain View, California, Capital Improvements Financing Authority Revenue Bonds
(City Hall Community Theatre), 6.50% due 8/01/2016 (d) 4,159
Northern California Power Agency, Multiple Capital Facilities Revenue Bonds (d):
AAA Aaa 2,500 RIB, 9.129% due 9/02/2025 (e) 2,863
AAA Aaa 2,000 Series A, 6.50% due 8/01/2012 2,172
</TABLE>
<PAGE>
<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 $ 2,000 Northern California Transmission Revenue Bonds (California-Oregon Transmission
Project), Series A, 6.50% due 5/01/2016 (d) $ 2,164
AAA Aaa 2,360 Orchard, California, School District, GO, UT, Series A, 6.50% due 8/01/2019 (c) 2,565
AAA Aaa 2,500 Pioneers Memorial Hospital District, California, Refunding, GO, UT, 6.50% due
10/01/2024 (b) 2,713
AAA Aaa 4,000 Port Oakland, California, Port Revenue Bonds, AMT, Series E, 6.50% due
11/01/2016 (d) 4,285
AAA Aaa 2,400 Riverside County, California, Transportation Commission Sales Tax Revenue Bonds,
Series A, 6.50% due 6/01/2001 (b)(i) 2,656
Sacramento, California, City Financing Authority, Lease Revenue Refunding Bonds:
AAA Aaa 10,500 Series A, 5.40% due 11/01/2020 (b) 10,320
A+ Aa 2,600 Series B, 5.40% due 11/01/2020 2,525
Sacramento, California, Municipal Utility District, Electric Revenue Bonds (d):
AAA Aaa 1,270 Refunding, Series G, 6.50% due 9/01/2013 1,425
AAA Aaa 7,000 Series B, 6.375% due 8/15/2022 7,447
AAA Aaa 12,500 San Diego, California, IDR (San Diego Gas and Electric Co.), Series A, 6.10% due
9/01/2018 (d) 12,883
AAA Aaa 17,000 San Diego, California, Public Facilities Financing Authority, Sewer Revenue Bonds,
5% due 5/15/2025 (c) 15,465
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) 1,601
AAA Aaa 3,000 AMT, Issue 6, 6.50% due 5/01/2018 (b) 3,227
AAA Aaa 4,385 Refunding, Issue 1, 6.30% due 5/01/2011 (b) 4,653
AAA Aaa 4,000 Refunding, Issue 1, 6.50% due 5/01/2013 (b) 4,334
AAA Aaa 2,175 Refunding, Issue 2, 6.75% due 5/01/2013 (d) 2,405
AAA Aaa 10,000 Refunding, Issue 2, 6.75% due 5/01/2020 (d) 11,065
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 (h) 1,724
<PAGE>
AAA Aaa 1,000 San Jose-Santa Clara, California, Water Financing Authority, Sewer Revenue Bonds,
Series A, 5.375% due 11/15/2020 (c) 965
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) 3,804
</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>
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 $ 3,125
AAA Aaa 10,770 6.875% due 11/15/2014 12,108
AAA Aaa 1,700 6.75% due 11/15/2020 1,890
AAA Aaa 3,000 Santa Rosa, California, Wastewater Revenue Bonds (Subregional Wastewater Project),
Series A, 6.50% due 9/01/2002 (c)(i) 3,354
AAA NR* 3,265 Southern California, HFA, S/F Mortgage Revenue Bonds Program, AMT, Series B,
6.90% due 10/01/2024 (g) 3,390
A1+ VMIG1++ 2,200 Southern California Public Power Authority, Revenue Refunding Bonds (Southern
Transmission Project), VRDN, 3.40% due 7/01/2019 (a)(b) 2,200
BBB+ NR* 1,265 Stanislaus, California, Waste-to-Energy Financing Agency, Solid Waste Facility
Revenue Refunding Bonds (Ogden Martin System Inc. Project), 7.625% due 1/01/2010 1,365
AAA Aaa 2,000 University of California Revenue Bonds (Multiple Purpose Projects), Series D,
6.375% due 9/01/2024 (d) 2,136
Total Investments (Cost--$263,630)--99.2% 278,296
Other Assets Less Liabilities--0.8% 2,357
--------
Net Assets--100.0% $280,653
========
<PAGE>
<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, 1996.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)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, 1996.
(f)CAPMAC Insured.
(g)GNMA/FNMA Collateralized.
(h)FSA Insured.
(i)Prerefunded.
(j)GNMA Collateralized.
(k)FHLMC 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>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$263,630,071) (Note 1a) $278,296,325
Cash 29,566
Receivables:
Securities sold $ 18,580,954
Interest 5,140,116 23,721,070
------------
Deferred organization expenses (Note 1e) 7,614
Prepaid expenses and other assets 67,357
------------
Total assets 302,121,932
------------
Liabilities: Payables:
Securities purchased 21,014,998
Dividends to shareholders (Note 1f) 252,703
Investment adviser (Note 2) 118,264 21,385,965
------------
Accrued expenses and other liabilities 82,827
------------
Total liabilities 21,468,792
------------
Net Assets: Net assets $280,653,140
============
<PAGE>
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 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 1,670,769
Accumulated realized capital losses on investments--net (Note 5) (3,426,337)
Unrealized appreciation on investments--net 14,666,254
------------
Total--Equivalent to $15.04 net asset value per Common Stock
(market price--$14.125) 190,653,140
------------
Total capital $280,653,140
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
October 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 15,902,509
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,394,543
Commission fees (Note 4) 228,114
Professional fees 77,599
Transfer agent fees 50,923
Accounting services (Note 2) 50,510
Printing and shareholder reports 26,344
Listing fees 24,260
Directors' fees and expenses 22,897
Custodian fees 17,154
Pricing fees 12,185
Amortization of organization expenses (Note 1e) 7,614
Other 20,583
------------
Total expenses 1,932,726
------------
Investment income--net 13,969,783
------------
<PAGE>
Realized & Realized gain on investments--net 1,250,414
Unrealized Change in unrealized appreciation on investments--net 446,717
Gain on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 15,666,914
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 13,969,783 $ 14,521,375
Realized gain (loss) on investments--net 1,250,414 (4,676,753)
Change in unrealized appreciation on investments--net 446,717 25,009,415
------------ ------------
Net increase in net assets resulting from operations 15,666,914 34,854,037
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (11,051,597) (11,088,099)
Shareholders Preferred Stock (3,085,704) (3,332,916)
(Note 1f): Realized gain on investments--net:
Common Stock -- (895,821)
Preferred Stock -- (170,928)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (14,137,301) (15,487,764)
------------ ------------
Net Assets: Total increase in net assets 1,529,613 19,366,273
Beginning of year 279,123,527 259,757,254
------------ ------------
End of year* $280,653,140 $279,123,527
============ ============
<FN>
*Undistributed investment income--net $ 1,670,769 $ 1,838,287
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<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: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 14.92 $ 13.39 $ 16.36 $ 14.15 $ 14.18
Operating -------- -------- -------- -------- --------
Performance: Investment income--net 1.10 1.13 1.17 1.12 --
Realized and unrealized gain (loss) on
investments--net. .13 1.61 (2.90) 2.27 --
-------- -------- -------- -------- --------
Total from investment operations 1.23 2.74 (1.73) 3.39 --
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.87) (.87) (.92) (.84) --
Realized gain on investments--net -- (.07) (.11) -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.87) (.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 (.24) (.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 (.24) (.27) (.21) (.34) --
-------- -------- -------- -------- --------
Net asset value, end of period $ 15.04 $ 14.92 $ 13.39 $ 16.36 $ 14.15
======== ======== ======== ======== ========
Market price per share, end of period $ 14.125 $ 13.125 $ 11.875 $ 15.375 $ 15.00
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on market price per share 14.52% 19.00% (16.79%) 8.24% .00%+++
Return:* ======== ======== ======== ======== ========
Based on net asset value per share 7.26% 19.97% (11.82%) 22.09% (.21%)+++
======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .69% .71% .70% .56% --
Net Assets:** ======== ======== ======== ======== ========
Expenses .69% .71% .70% .68% --
======== ======== ======== ======== ========
Investment income--net 4.99% 5.42% 5.28% 5.17% --
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end
Data: of period (in thousands) $190,653 $189,124 $169,757 $207,404 $178,555
======== ======== ======== ======== ========
Preferred Stock outstanding, end of
period (in thousands) $ 90,000 $ 90,000 $ 90,000 $ 90,000 --
======== ======== ======== ======== ========
Portfolio turnover 119.52% 114.78% 41.67% 15.85% .00%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,118 $ 3,101 $ 2,886 $ 3,304 --
======== ======== ======== ======== ========
Dividends Per Share Series A--Investment income--net $ 870 $ 948 $ 636 $ 743 --
On Preferred Stock ======== ======== ======== ======== ========
Outstanding:++++++ Series B--Investment income--net $ 844 $ 904 $ 687 $ 685 --
======== ======== ======== ======== ========
<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 that occurred on December 1, 1994.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
<PAGE>
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.
(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.
<PAGE>
* 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.
(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--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(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.
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, 1996 were $315,702,481 and
$315,404,755, respectively.
Net realized and unrealized gains (losses) as of October 31, 1996
were as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ 978,576 $14,666,254
Short-term investments (14,012) --
Financial futures contracts 285,850 --
----------- -----------
Total $ 1,250,414 $14,666,254
=========== ===========
As of October 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $14,664,497 all of which related to
appreciated securities. The aggregate cost of investments at October
31, 1996 for Federal income tax purposes was $263,631,828.
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, 1996, shares issued and outstanding
remained constant at 12,678,633. At October 31, 1996, total paid-in
capital amounted to $177,742,454.
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, 1996 were as
follows: Series A, 3.10% and Series B, 2.97%.
<PAGE>
As of October 31, 1996, there were 3,600 AMPS shares authorized,
issued and outstanding with a liquidation preference of $25,000 per
share.
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, 1996, MLPF&S, an affiliate of FAM, earned $157,600 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1996, the Fund had a net capital loss carryforward of
approximately $635,000, 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 8, 1996, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.074701 per share, payable on November 27, 1996 to shareholders
of record as of November 18, 1996.
7. Reorganization Plan:
On June 21, 1996, the Board of Directors approved a plan of
reorganization, subject to shareholder approval and certain other
conditions, whereby the Fund would acquire substantially all of the
assets and liabilities of MuniVest California Insured Fund, Inc. in
exchange for newly issued shares of the Fund. MuniVest California
Insured Fund, Inc. is a registered, non-diversified, closed-end
management investment company, with a similar investment objective
to the Fund and is managed by FAM.
<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, 1996, 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 four-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, 1996 by correspondence with the custodian and brokers. 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, 1996,
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 3, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniYield
California Insured Fund II, Inc. during its taxable year ended
October 31, 1996 qualify as tax-exempt interest dividends for
Federal income tax purposes. Additionally, there were no capital
gains distributed by the Fund during the year.
Please retain this information for your records.
OFFICERS AND DIRECTORS
<PAGE>
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
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Walter C. O'Connor, Vice President
Roberto Roffo, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Transfer Agents
Common Stock:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
NYSE Symbol
MCA
