MUNIYIELD
CALIFORNIA
INSURED
FUND II, INC.
FUND LOGO
Semi-Annual Report
April 30, 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.
MuniYield California
Insured Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield California Insured Fund II, Inc.
TO OUR SHAREHOLDERS
For the six-month period ended April 30, 1996, the Common Stock of
MuniYield California Insured Fund II, Inc. earned $0.439 per share
income dividends, which included earned and unpaid dividends of
$0.071. This represents a net annualized yield of 6.10%, based on a
month-end per share net asset value of $14.44. Over the same period,
the total investment return on the Fund's Common Stock was -0.14%,
based on a change in per share net asset value from $14.92 to
$14.44, and assuming reinvestment of $0.440 per share income
dividends.
For the six-month period ended April 30, 1996, the Fund's Auction
Market Preferred Stock had an average yield of 3.76% for Series A
and 3.54% for Series B.
The Environment
Investor perceptions regarding the US economy changed over the
course of the six-month period ended April 30, 1996. As 1995 drew to
a close and 1996 began, it appeared that the US economy was losing
momentum. Lackluster retail sales, increases in initial unemployment
claims (along with weak job and income growth), and evidence of
slowing in the manufacturing sector all suggested that the rate of
economic growth was decelerating, with some forecasters even
suggesting the possibility of an imminent recession.
However, the consensus outlook for the rate of future economic
growth changed dramatically with the report of stronger-than-
expected employment data for February and March. As a result,
investors began to anticipate renewed economic growth. Long-term
interest rates rose, and the Federal Reserve Board left monetary
policy on hold. Adding to investor concerns was the report that the
Knight Ridder-Commodity Research Bureau Index was near an eight-year
high, largely because of an increase in agricultural prices and an
upward spike in the price of crude oil.
Investors are likely to continue to focus on the probable direction
of economic activity and Federal Reserve Board monetary policy in
the weeks ahead. At this time, inflationary pressures do not seem to
be building and the capital spending, housing and consumption
sectors are still relatively weak, which suggest that the economy is
not on the verge of overheating. Nevertheless, it is likely that
further indications of stronger economic activity in the weeks ahead
may add to investor concerns that accelerating economic activity
could lead to higher inflation and interest rates.
The Municipal Market
During the six months ended April 30, 1996, tax-exempt bond yields
rose as investors became increasingly concerned that recent economic
growth would reignite inflationary pressures. Through early February
1996, municipal bond yields continued their earlier declines
supported by continued moderate economic growth and favorable
inflationary expectations. As measured by the Bond Buyer Revenue
Bond Index, yields on uninsured, A-rated municipal revenue bonds
declined an additional 30 basis points (0.30%) to 5.70% by early
February. As signs of emerging economic growth became more numerous,
particularly with the release of the strong March employment
figures, inflation fears increased and bond yields rose in response
for the remainder of the six-month period ended April 30, 1996. At
April 30, 1996, long-term municipal bond yields were approximately
6.30%, an increase of approximately 30 basis points over the last
six months. The rise in US Treasury bond yields was more
substantial. Over the last six months, yields on US Treasury
securities rose approximately 60 basis points to 6.90%. During the
April period, the municipal bond market reversed the trend seen
throughout much of 1995 and significantly outperformed the US
Treasury bond market.
The municipal bond market's recent outperformance was largely the
result of two principal factors. First, and perhaps more important,
much of the earlier concern regarding proposed changes in Federal
income tax codes and their effect on the tax treatment of tax-exempt
bond income has dissipated. As the negative revenue impact of the
various proposals, such as the flat tax, became apparent, the
likelihood of immediate reform quickly diminished. When the Kemp
Commission dealing with Federal income tax reform released its
findings early in 1996, the obvious need for reform was highlighted.
However, no specific recommendations of a flat tax, value-added tax
or any other reform were made. Consequently, fears of losing the
favored tax treatment of municipal bond income declined even
further. As a percentage of Treasury bond yields, tax-exempt bond
yield ratios quickly declined from 95% to approximately 90%. This
allowed the municipal bond market to maintain much of the gains made
since early 1995.
The second major factor leading to the municipal bond market's
recent improvement was the return of a more favorable technical
environment. Over the past six months, approximately $90 billion in
municipal securities were underwritten, an increase of approximately
45% versus the comparable period a year earlier. However, much of
this increase was biased by recent underwritings dedicated toward
refinancing. Like individual homeowners, municipal issuers sought to
refinance their existing higher-couponed debt as tax-exempt bond
yields declined from their highs in 1995. In recent months such
refinancings were estimated to represent at least 50% of total
issuance. However, the recent rise in tax-exempt interest rates
slowed the pace of such refinancings. Over the last three months
approximately $40 billion in long-term tax-exempt securities were
underwritten, an increase of 35% compared to the same period a year
ago. At current interest rate levels large amounts of refundings are
unlikely and the rate of new bond issuance should continue to
decline.
Additionally, investors continue to receive significant amounts of
assets derived from coupon income, bond maturities, and proceeds
from early redemptions. In recent months investors received over $30
billion in such assets. These cash flows helped maintain individual
retail investor demand in recent months. Additionally, major
institutional investors, such as certain insurance companies whose
underwriting profits were cyclically high, demonstrated significant
ongoing interest in the tax-exempt bond market, particularly on
higher-quality securities. Individual and institutional investor
demand was strong enough during the six-month period ended April 30,
1996 to absorb the relative increase in bond issuance.
Looking ahead, we believe the municipal bond market is likely to
continue to outperform the US Treasury market. Investor demand
should remain adequate to absorb new bond issuance. It is also
unlikely that the rapid pace of issuance seen thus far in 1996 will
be maintained. The recent rise in yields made further bond
refinancings economically unfeasible. Since these refinancings were
the driving force of recent bond issuance, as the amount of these
refundings decline, overall issuance should decline. This should
allow the current demand/supply balance to be easily maintained in
upcoming months.
Additionally, as a percentage of US Treasury bond yields, long-term
municipal bond yields remain historically attractive. It is likely
that recent interest rate increases will have a negative impact on
economic growth, perhaps as early as late summer 1996. With long-
term mortgage rates above 8%, the domestic housing sector has
already indicated signs of slower growth. If other interest rate
sectors of the economy, such as the automobile industry, begin to
show similar adverse effects, taxable interest rates would be poised
to resume their decline. With long-term tax-exempt revenue bonds
yielding approximately 90% of their taxable counterparts, municipal
bond yields are poised to decline further.
Portfolio Strategy
We entered the six-month period ended April 30, 1996 very optimistic
that interest rates would decline. This optimism was based on the
belief that the economy was slowing and that advances on a balanced
Federal budget agreement would be beneficial to the fixed-income
markets. To take advantage of this anticipated decline in interest
rates, we decreased cash reserves to 1% of net assets, and increased
the Fund's duration. This strategy benefited the portfolio's
performance as long-term interest rates declined over 30 basis
points through the end of December.
The new year brought the beginning of a reversal in the trend of
lower interest rates. By late February, signs of a strengthening
economy began to undermine investor confidence in the fixed-income
market. In March an explosive employment report seemed to confirm a
surge in the growth of the US economy, and yields began to rise
rapidly. Prior to the back up in yields, we gradually increased the
Fund's cash reserves while decreasing its duration. This strategy
enabled the Fund to be less sensitive to the significant back up in
yields experienced in the fixed-income markets. One other positive
factor for the Fund during this back up in yields was that municipal
bonds significantly outperformed US Treasury securities.
Because of the various influences that affected the economy, such as
the severe winter weather and the Government shutdowns, the economic
data released so far in 1996 were cloudy and subject to many
interpretations, but overall pointed to a stronger economy. The data
suggested that the economy may be picking up steam, which warrants a
cautious approach to the market until a clearer view of the
economy's direction emerges. Looking ahead, the Fund will maintain
its cautious approach to the market until a clearer path for
interest rates becomes evident.
In Conclusion
We appreciate your ongoing interest in MuniYield California Insured
Fund II, Inc., and we look forward to serving your investment needs
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
May 29, 1996
We are pleased to announce that Roberto Roffo is responsible for the
day-to-day management of MuniYield California Insured Fund II, Inc.
Mr. Roffo has been employed by Merrill Lynch Asset Management, L.P.
(an affiliate of the Fund's investment adviser) since 1996 as Vice
President and Portfolio Manager and was Assistant Portfolio Manager
thereof from 1992 to 1996. Prior thereto, he was Operations Manager
with State Street Bank and Trust Company.
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.
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 below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
CP Commercial Paper
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--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) $ 2,101
California Health Facilities Financing Authority Revenue Bonds:
AAA Aaa 1,000 (Adventist Health System--West), Series B, 6.25% due 3/01/2021 (d) 1,019
AAA Aaa 1,000 (Kaiser Permanente), Series A, 7% due 10/01/2018 (b) 1,076
AA Aa3 2,855 (Kaiser Permanente), Series A, 6.50% due 12/01/2020 2,928
AAA Aaa 15,750 (San Diego Children's Hospital), 6.50% due 7/01/2000 (d)(i) 17,215
California HFA, Home Mortgage Revenue Bonds:
AA- Aa 3,900 AMT, Series F-1, 7% due 8/01/2026 4,033
AA- Aa 2,425 Refunding, AMT, Series H, 7.50% due 8/01/2025 2,556
AA- Aa 5,750 Series B, 6.90% due 8/01/2016 5,862
AA- Aa 2,000 California HFA, Revenue Bonds, RIB, AMT, 9.237% due 8/01/2023 (k) 2,020
AAA Aaa 4,000 California Maritime Infrastructure Authority, Airport Revenue Bonds
(San Diego Unified Port District), AMT, 5% due 11/01/2020 (b) 3,444
A1 P1 300 California Pollution Control Financing Authority, PCR (Southern California
Edison), VRDN, Series C, 3.75% due 2/28/2008 (a) 300
NR* Aa3 600 California Pollution Control Financing Authority, Resource Recovery Revenue
Bonds (Honey Lake Power Project), VRDN, AMT, 4.10% due 9/01/2018 (a) 600
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
(g)(j) 1,049
AA Aa 5,360 California State Department of Water Resources, Water System Revenue Bonds
(Central Valley Project) Series O, 5% due 12/01/2022 4,633
California State, GO, UT (c):
AAA Aaa 1,935 7% due 11/01/2004 (i) 2,243
AAA Aaa 65 7% due 11/01/2014 72
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)(h) 2,782
AAA Aaa 3,000 Refunding (Department of Corrections--State Prisons), Series A, 5% due
12/01/2019 (b) 2,669
AAA Aaa 900 (Secretary of State), Series A, 6.40% due 12/01/2007 (b) 992
A - A 2,000 (Various Community College Projects), Series B, 7% due 3/01/2014 2,168
AAA Aaa 3,200 (Various University of California Projects), Series A, 6.40% due 12/01/2016 (b) 3,328
</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 $ 5,415 California State University, Housing System Revenue Refunding Bonds, 5.90%
due 11/01/2021 (c) $ 5,352
California Statewide Community Development Authority Revenue Bonds, COP:
AAA Aaa 1,000 (Good Samaritan Health System), 6.50% due 5/01/2004 (e)(i) 1,120
A1+ VMIG1++ 1,300 Refunding (Saint Joseph Health System), VRDN, 3.75% due 7/01/2008 (a) 1,300
Central Coast Water Authority, California, Revenue Bonds (State Water
Project Regional Facilities) (b):
AAA Aaa 2,385 6.50% due 10/01/2014 2,511
AAA Aaa 7,500 6.60% due 10/01/2022 7,967
AAA Aaa 6,000 Compton, California, Community Redevelopment Agency, Tax Allocation
Refunding Bonds (Compton Redevelopment Project), Series A, 6.50% due
8/01/2013(h) 6,368
AAA Aaa 2,000 Cucamonga County, California, Water District Facilities Refinancing Bonds,
COP, 6.50% due 9/01/2022(c) 2,082
Culver City, California, Redevelopment Finance Authority, Tax Allocation
Revenue Refunding Bonds (b):
AAA Aaa 5,425 5.50% due 11/01/2014 5,278
AAA Aaa 1,785 5% due 11/01/2023 1,527
AAA Aaa 1,750 East Bay, California, Municipal Utilities District, Water System Subordinate
Revenue Refunding Bonds, 5% due 6/01/2021 (d) 1,514
AAA Aaa 6,000 El Cajon, California, Redevelopment Agency, Tax Allocation Bonds (El Cajon
Redevelopment Project), 6.60% due 10/01/2022 (b) 6,406
AAA Aaa 3,125 Elk Grove, California, Unified School District, Special Tax Community
Facilities District No. 1, 7% due 12/01/2003 (b)(i) 3,608
Fresno, California, Sewer Revenue Bonds:
AAA Aaa 2,000 Series A, 4.75% due 9/01/2026 (d) 1,641
AAA Aaa 1,500 Series A-1, 5.25% due 9/01/2019 (b) 1,388
Los Angeles, California, Department of Water and Power, Electric Plant
Revenue Refunding Bonds:
AAA Aaa 4,990 4.75% due 8/15/2015 (c) 4,237
AA- Aa 1,000 6.375% due 2/01/2020 1,036
AA Aa 2,000 Los Angeles, California, Harbor Department Revenue Bonds, AMT, Series B,
6.625% due 8/01/2025 2,083
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 984
A1+ VMIG1++ 12,400 Los Angeles County, California, Metropolitan Transportation Authority, Sales
Tax Revenue Refunding Bonds, Proposition C, VRDN, Second Senior Series A,
3.85% due 7/01/2020 (a)(d) 12,400
AAA Aaa 10,000 Los Angeles County, California, Public Works Financing Authority, Lease
Revenue Bonds(Multiple Capital Facilities Project-IV), 4.75% due 12/01/2013 (d) 8,643
AAA Aaa 4,000 Los Angeles County, California, Transportation Commission, Sales Tax Revenue
Bonds, Series A, 6.75% due 7/01/2001 (c)(i) 4,459
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) 1,043
AAA Aaa 4,250 Marysville, California, Hospital Revenue Bonds (Fremont-Rideout Health Group),
Series A, 6.30% due 1/01/2022 (b) 4,364
</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 $ 1,750 Metropolitan Water District, Southern California Waterworks Revenue
Refunding Bonds, Series B, 4.75% due 7/01/2021 (d) $ 1,458
AAA Aaa 3,850 Mountain View, California, Capital Improvements Financing Authority Revenue
Bonds (City Hall Community Theatre), 6.50% due 8/01/2016 (d) 4,035
Northern California Power Agency, Multiple Capital Facilities Revenue Bonds
(d):
AAA Aaa 2,500 RIB, 9.121% due 9/02/2025 (k) 2,703
AAA Aaa 2,000 Series A, 6.50% due 8/01/2012 2,128
AAA Aaa 2,000 Northern California Transmission Revenue Bonds (California-Oregon Transmission
Project), Series A, 6.50% due 5/01/2016 (d) 2,117
AAA Aaa 7,000 Orange County, California, Local Transportation Authority, Sales Tax Revenue
Bonds, 6.20% due 2/14/2011 (b) 7,197
AAA Aaa 2,360 Orchard, California, School District, GO, Series A, 6.50% due 8/01/2019 (c) 2,487
AAA Aaa 2,500 Pioneers Memorial Hospital District, California, Refunding, GO, 6.50% due
10/01/2024 (b) 2,627
AAA Aaa 2,000 Port Oakland, California, Port Revenue Bonds, AMT, Series E, 6.50% due
11/01/2016 (d) 2,054
AAA Aaa 2,400 Riverside County, California, Transportation Commission, Sales Tax Revenue
Bonds, Series A, 6.50% due 6/01/2001 (b)(i) 2,643
Sacramento, California, City Financing Authority, Lease Revenue Refunding
Bonds:
AAA Aaa 7,000 Series A, 5.40% due 11/01/2020 (b) 6,558
A+ Aa 2,600 Series B, 5.40% due 11/01/2020 2,401
Sacramento, California, Municipal Utility District, Electric Revenue Bonds (d):
AAA Aaa 1,270 Refunding, Series G, 6.50% due 9/01/2013 1,388
AAA Aaa 7,000 Series B, 6.375% due 8/15/2022 7,247
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) 1,538
AAA Aaa 3,000 AMT, Issue 6, 6.50% due 5/01/2018 (b) 3,075
AAA Aaa 4,385 Refunding, Issue 1, 6.30% due 5/01/2011 (b) 4,569
AAA Aaa 4,000 Refunding, Issue 1, 6.50% due 5/01/2013 (b) 4,248
AAA Aaa 1,000 Refunding, Issue 2, 6.75% due 5/01/2013 (d) 1,081
AAA Aaa 10,000 Refunding, Issue 2, 6.75% due 5/01/2020 (d) 10,788
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) 1,677
AAA Aaa 2,000 San Jose, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Merged Area Redevelopment Project), 4.75% due 8/01/2024 (d) 1,659
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) 3,603
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 3,068
AAA Aaa 10,770 6.875% due 11/15/2014 11,811
AAA Aaa 1,700 6.75% due 11/15/2020 1,841
AAA Aaa 3,000 Santa Rosa, California, Wastewater Revenue Bonds (Subregional Wastewater
Project), Series A, 6.50% due 9/01/2002 (c)(i) 3,330
</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 NR* $ 3,335 Southern California, HFA, S/F Mortgage Revenue Bonds Program, AMT, Series B,
6.90% due 10/01/2024 (g) $ 3,406
Southern California Public Power Authority, Power Project Revenue Refunding
Bonds, Series A (b):
AAA Aaa 1,000 (Mead Adelanto Project), 4.875% due 7/01/2020 845
AAA Aaa 5,455 (Mead Phoenix Project), 5% due 7/01/2017 4,794
A1+ VMIG1++ 10,800 Southern California Public Power Authority, Revenue Refunding Bonds (Southern
Transmission Project), VRDN, 3.80% due 7/01/2019 (a)(b) 10,800
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 1,361
Puerto Rico--2.0%
A1+ P1 4,900 Puerto Rico Commonwealth (Government Development Bank), CP, 4.10% due 5/03/1996 4,900
A1+ VMIG1++ 600 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway Revenue
Bonds, VRDN, Series X, 3.75% due 7/01/1999 (a) 600
Total Investments (Cost--$269,151)--101.2% 276,438
Liabilities in Excess of Other Assets--(1.2%) (3,394)
--------
Net Assets--100.0% $273,044
========
<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 April 30, 1996.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)CAPMAC Insured.
(f)CGIC Insured.
(g)GNMA/FNMA Collateralized.
(h)FSA Insured.
(i)Prerefunded.
(j)FHLMC Insured.
(k)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 April 30, 1996.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets, Liabilities and Capital as of April 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$269,150,581) (Note 1a) $276,437,893
Cash 8,239
Interest receivable 5,040,369
Deferred organization expenses (Note 1e) 15,227
Prepaid expenses and other assets 10,301
------------
Total assets 281,512,029
------------
Liabilities: Payables:
Securities purchased $ 8,015,282
Dividends to shareholders (Note 1f) 254,185
Investment adviser (Note 2) 119,975 8,389,442
------------
Accrued expenses and other liabilities 78,218
------------
Total liabilities 8,467,660
------------
Net Assets: Net assets $273,044,369
============
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 1,631,798
Accumulated realized capital losses on investments--net (Note 5) (3,617,195)
Unrealized appreciation on investments--net 7,287,312
------------
Total--Equivalent to $14.44 net asset value per Common Stock
(market price--$13.875) 183,044,369
------------
Total capital $273,044,369
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
April 30, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 7,984,785
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 701,986
Commission fees (Note 4) 113,663
Professional fees 39,776
Transfer agent fees 27,840
Accounting services (Note 2) 24,440
Printing and shareholder reports 14,997
Listing fees 12,104
Directors' fees and expenses 11,584
Custodian fees 9,030
Pricing fees 5,372
Amortization of organization expenses (Note 1e) 3,793
Other 10,988
------------
Total expenses 975,573
------------
Investment income--net 7,009,212
------------
Realized & Realized gain on investments--net 1,059,556
Unrealized Change in unrealized appreciation on investments--net (6,932,225)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 1,136,543
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the
Six Months For the
Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 1996 Oct. 31, 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 7,009,212 $ 14,521,375
Realized gain (loss) on investments--net 1,059,556 (4,676,753)
Change in unrealized appreciation/depreciation on investments--net (6,932,225) 25,009,415
------------ ------------
Net increase in net assets resulting from operations 1,136,543 34,854,037
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (5,576,963) (11,088,099)
Shareholders Preferred Stock (1,638,738) (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 (7,215,701) (15,487,764)
------------ ------------
Net Assets: Total increase (decrease) in net assets (6,079,158) 19,366,273
Beginning of period 279,123,527 259,757,254
------------ ------------
End of period* $273,044,369 $279,123,527
============ ============
<FN>
*Undistributed investment income--net $ 1,631,798 $ 1,838,287
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the For the
Six Period
The following per share data and ratios have been derived Months Oct. 30,
from information provided in the financial statements. Ended For the Year Ended 1992++ to
April 30, 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 .56 1.13 1.17 1.12 --
Realized and unrealized gain (loss) on
investments--net (.47) 1.61 (2.90) 2.27 --
-------- -------- -------- -------- --------
Total from investment operations .09 2.74 (1.73) 3.39 --
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.44) (.87) (.92) (.84) --
Realized gain on investments--net -- (.07) (.11) -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.44) (.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 (.13) (.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 (.13) (.27) (.21) (.34) --
-------- -------- -------- -------- --------
Net asset value, end of period $ 14.44 $ 14.92 $ 13.39 $ 16.36 $ 14.15
======== ======== ======== ======== ========
Market price per share, end of period $ 13.875 $ 13.125 $ 11.875 $ 15.375 $ 15.00
======== ======== ======== ======== ========
Total Investment Based on market price per share 9.08%+++ 19.00% (16.78%) 8.24% .00%+++
Return:** ======== ======== ======== ======== ========
Based on net asset value per share (.14%)+++ 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 4.97%* 5.42% 5.28% 5.17% --
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of
Data: period (in thousands) $183,044 $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 57.30% 114.78% 41.67% 15.85% 0.00%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,034 $ 3,101 $ 2,886 $ 3,304 --
======== ======== ======== ======== ========
Dividends Per Share Series A--Investment income--net $ 469 $ 948 $ 636 $ 743 --
On Preferred Stock ======== ======== ======== ======== ========
Outstanding:++++++ Series B--Investment income--net $ 441 $ 904 $ 687 $ 685 --
======== ======== ======== ======== ========
<FN>
*Annualized.
**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
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. These
unaudited financial statements reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are
of a normal recurring nature. 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.
* 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.
NOTES TO FINANCIAL STATEMENTS (concluded)
(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.
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 six months ended April 30, 1996 were $154,639,787 and
$172,104,096, respectively.
Net realized and unrealized gains (losses) as of April 30, 1996 were
as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ 618,042 $ 7,287,312
Short-term investments (721) --
Financial futures contracts 442,235 --
------------ ------------
Total $ 1,059,556 $ 7,287,312
============ ============
As of April 30, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $7,287,312, of which $9,817,847 related to
appreciated securities and $2,530,535 related to depreciated
securities. The aggregate cost of investments at April 30, 1996 for
Federal income tax purposes was $269,150,581.
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 six months ended April 30, 1996, shares issued and
outstanding remained constant at 12,678,633. At April 30, 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 April 30, 1996 were as
follows: Series A, 3.50% and Series B, 3.375%.
As of April 30, 1996, 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 $16,951.
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 six months ended
April 30, 1996, MLPF&S, an affiliate of FAM, earned $86,207 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 May 10, 1996, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$0.071145 per share, payable on May 30, 1996 to shareholders of
record as of May 21, 1996.
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
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
