MUNIYIELD
CALIFORNIA
INSURED
FUND II, INC.
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
April 30, 1997
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
Roberto Roffo, Vice President
Gerald M. Richard, Treasurer
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
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 #16388 -- 4/97
MuniYield California Insured Fund II, Inc.
TO OUR SHAREHOLDERS
For the six-month period ended April 30, 1997, the Common Stock of
MuniYield California Insured Fund II, Inc. earned $0.441 per share
income dividends, which included earned and unpaid dividends of $0.071.
This represents a net annualized yield of 6.03%, based on a month-end
per share net asset value of $14.74. Over the same period, the total
investment return on the Fund's Common Stock was +1.07%, based on a
change in per share net asset value from $15.04 to $14.74, and assuming
reinvestment of $0.444 per share income dividends.
The average yields for the Fund's Auction Market Preferred Stock for the
six months ended April 30, 1997 were as follows: Series A, 3.47%; Series
B, 3.12%; and Series C, 3.15%.
The Municipal Market Environment
Long-term tax-exempt revenue bonds traded in a relatively narrow range
throughout much of the six-month period ended April 30, 1997. By mid-
January 1997, municipal bond yields rose to over 6% as investors reacted
negatively to reports of progressively stronger domestic economic
growth. However, a continued lack of any material inflationary pressures
allowed bond yields to decline to their prior levels by late February.
Bond yields rose again as investors became increasingly concerned that
the US domestic economic strength seen thus far in 1997 would continue,
and that the increase in short-term interest rates by the Federal
Reserve Board (FRB) in late March would be the first in a series of such
moves designed to slow the US economy before any dormant inflationary
pressures were awakened. Long-term tax-exempt bond yields rose
approximately 15 basis points (0.15%) to almost 6.15% by mid-April.
Similarly, long-term US Treasury bond yields rose over 35 basis points
over the same period to 7.16%. However, in late April economic
indicators were released showing that despite considerable economic
growth any inflationary pressures, particularly those associated with
wage increases, were well-contained and of no immediate concern. Fixed-
income bond prices staged a significant rally during the last week in
April with long-term US Treasury bond yields falling nearly 20 basis
points to end the month at 6.95%. Municipal bond yields, as measured by
the Bond Buyer Revenue Bond Index, declined nearly 15 basis points to
stand at 6.01% by April 30, 1997.
As in recent quarters, the relative stability of long-term tax-exempt
bond yields was supported by low levels of new municipal bond issuance.
During the six months ended April 30, 1997, approximately $90 bil-
lion in long-term tax-exempt bonds was underwritten, a decline of over
6% compared to the corresponding period a year earlier. During the three
months ended April 30, 1997, $41 billion in new long-term municipal
bonds was issued, also a 6% decline in issuance compared to the three-
month period ended April 30, 1996. Overall investor demand remained
strong, particularly from property and casualty insurance companies and
individual retail investors. In recent years, investor demand increased
whenever tax-exempt bond yields approached or exceeded the 6% level as
they have in the past few months.
Additionally, in recent months much of the new bond issuance was
dominated by a number of larger issues. These included $710 million in
New York City water bonds, $600 million in state of California bonds,
$1 billion in New York City general obligation bonds, $435 million in
Dade County, Florida water and sewer revenue bonds, $450 million in
Puerto Rico Electric Authority issues and $930 million in Port Authority
of New York and New Jersey issues. These bonds have typically been
issued in states with relatively high state income taxes and
consequently were generally underwritten at yields that were relatively
unattractive to residents in other states. This has exacerbated the
general decline in overall issuance in recent years, making the decrease
in supply even more dramatic for general market investors.
The present economic situation remains nearly ideal. The domestic
economy continues to grow steadily with little, if any, sign of a
resurgence in inflation. Recent economic growth generated
considerable unexpected tax revenues for the Federal government.
Forecasts for the 1997 Federal fiscal deficit were reduced to under $100
billion, a level not seen since the early 1980s. Such a reduced Federal
deficit enhances the prospect for a balanced Federal budget. All these
factors support a scenario of steady, or even falling, interest rates in
the coming years. Present annual estimates of future municipal bond
issuance remain centered around $175 billion, indicating that the
current relative scarcity of tax-exempt bonds should continue for at
least the remainder of the year. Should interest rates begin
to decline later this year, either as the result of a balanced Federal
budget or continued benign inflation, investors are unlikely to be able
to purchase long-term municipal bonds at their currently attractive
levels.
Portfolio Strategy
For the six-month period ended April 30, 1997, we focused on sustaining
an appealing level of tax-exempt income while seeking to achieve an
above-average total return for the Fund. We entered the April period
optimistic that interest rates would decline because of the seemingly
attractive level of interest rates and the tight technical market in
municipal bonds. To take advantage of this scenario, we extended the
portfolio's duration and lowered cash reserves to a minimal level. From
November 1996 to the beginning of December 1996, this strategy prevailed
as interest rates declined about 30 basis points.
The following three months proved to be extremely volatile as economic
reports suggested strength in the economy with benign inflation combined
with the threat of a monetary tightening by the FRB. Our investment
strategy shifted at this point to seek to take advantage of the trading
ranges the municipal market maintained during this time. Finally in late
March 1997 when the FRB raised the Federal Funds rate by 25 basis
points, interest rates broke out of the trading range in which they had
vacillated.
At this point our strategy shifted again because of the attractive level
of interest rates. Therefore, we extended the portfolio's duration and
again lowered cash reserves to minimal levels in anticipation of a
decline in interest rates. This strategy proved correct as interest
rates rallied during the last week of April and declined nearly 25 basis
points very quickly. Looking forward, we anticipate a volatile market
that will once again remain caught within a constrained trading range
until the economy either moderates or accelerates even further.
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,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/ROBERTO ROFFO
Roberto Roffo
Vice President and Portfolio Manager
June 6, 1997
<TABLE>
<CAPTION>
PROXY RESULTS
During the six-month period ended April 30, 1997, MuniYield California Insured Fund II, Inc. Common Stock
shareholders voted on the following proposals. The proposals were approved at a special shareholders'
meeting on December 12, 1996. The description of each proposal and number of shares voted are as follows:
Shares Shares Voted Shares Voted
Voted For Against Abstain
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. To consider and act upon a proposal to approve the
Agreement and Plan of Reorganization between the
Fund and MuniVest California Insured Fund, Inc. 6,607,088 200,104 533,799
- --------------------------------------------------------------------------------------------------------------
Shares Shares Voted
Voted For Without Authority
- --------------------------------------------------------------------------------------------------------------
2. To elect the Fund's Board of Directors: James H. Bodurtha 11,984,778 529,714
Herbert I. London 11,989,615 524,878
Robert R. Martin 11,930,512 583,981
Arthur Zeikel 11,993,060 521,433
- --------------------------------------------------------------------------------------------------------------
Shares Shares Voted Shares Voted
Voted For Against Abstain
- --------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche llp as the indepen-
dent auditors of the Fund to serve for the current
fiscal year. 11,890,786 119,437 503,744
During the six-month period ended April 30, 1997, MuniYield California Insured Fund II, Inc. Preferred Stock
shareholders voted on the following proposals. The proposals were approved at the annual shareholders' meeting
on November 14, 1996. The description of each proposal and number of shares voted are as follows:
Shares Shares Voted Shares Voted
Voted For Against Abstain
- --------------------------------------------------------------------------------------------------------------
1. To consider and act upon a proposal to approve
the Agreement and Plan of Reorganization between
the Fund and MuniVest California Insured Fund, Inc.
as follows: Series A 1,186 0 110
Series B 764 2 18
- --------------------------------------------------------------------------------------------------------------
Shares Shares Voted
Voted For Without Authority
- --------------------------------------------------------------------------------------------------------------
2. To elect the Fund's Board of Directors:
James H. Bodurtha, Herbert I. London,
Robert R. Martin, Joseph L. May, Andre F. Perold
and Arthur Zeikel as follows: Series A 1,760 0
Series B 1,769 2
- --------------------------------------------------------------------------------------------------------------
Shares Shares Voted Shares Voted
Voted For Against Abstain
- --------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche llp as the indepen-
dent auditors of the Fund to serve for the current
fiscal year as follows: Series A 1,760 0 0
Series B 1,761 2 8
- --------------------------------------------------------------------------------------------------------------
During the six-month period ended April 30, 1997, MuniYield California Insured Fund, Inc. Common Stock
shareholders voted on the following proposals. The proposals were approved at a special shareholders'
meeting on December 12, 1996. The description of each proposal and number of shares voted are as follows:
- --------------------------------------------------------------------------------------------------------------
Shares Shares Voted Shares Voted
Voted For Against Abstain
- --------------------------------------------------------------------------------------------------------------
1. To consider and act upon a proposal to approve the
Agreement and Plan of Reorganization between the
Fund and MuniYield California Insured Fund II, Inc. 3,171,422 108,067 189,481
- --------------------------------------------------------------------------------------------------------------
Shares Shares Voted
Voted For Without Authority
- --------------------------------------------------------------------------------------------------------------
2. To consider and act upon a proposal to elect the
following persons as Directors of the Fund: Edward H. Meyer 5,665,280 190,609
Jack B. Sunderland 5,665,280 190,609
J. Thomas Touchton 5,665,280 190,609
Arthur Zeikel 5,665,280 190,609
- --------------------------------------------------------------------------------------------------------------
Shares Shares Voted Shares Voted
Voted For Against Abstain
- --------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche llp as the indepen-
dent auditors of the Fund to serve for the current
fiscal year. 5,661,391 27,914 171,038
- --------------------------------------------------------------------------------------------------------------
During the six-month period ended April 30, 1997, MuniVest California Insured Fund, Inc. Preferred Stock
shareholders voted on the following proposals. The proposals were approved at a shareholders' meeting on
December 12, 1996. The description of each proposal and number of shares voted are as follows:
- --------------------------------------------------------------------------------------------------------------
Shares Shares Voted Shares Voted
Voted For Against Abstain
- --------------------------------------------------------------------------------------------------------------
1. To consider and act upon a proposal to approve the
Agreement and Plan of Reorganization between the
Fund and MuniYield California Insured Fund II, Inc. 816 0 3
- --------------------------------------------------------------------------------------------------------------
Shares Shares Voted
Voted For Without Authority
- --------------------------------------------------------------------------------------------------------------
2. To consider and act upon a proposal to elect the
following persons as Directors of the Fund: Donald Cecil 1,588 4
M. Colyer Crum 1,588 4
Edward H. Meyer 1,588 4
Jack B. Sunderland 1,588 4
J. Thomas Touchton 1,588 4
Arthur Zeikel 1,588 4
- --------------------------------------------------------------------------------------------------------------
Shares Shares Voted Shares Voted
Voted For Against Abstain
- --------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche llp as the independent
auditors of the Fund to serve for the current fiscal year. 1,592 0 0
</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.
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.
</TABLE>
<TABLE>
<CAPTION>
MuniYield California Insured Fund II, Inc. April 30, 1997
Schedule of Investments (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
California -- 98.5%
Anaheim, California, Public Financing Authority, Lease Revenue Bonds
(Public Improvement Project), Sub-Series C (h):
AAA Aaa $4,000 5.90%** due 9/01/2018 $1,145
AAA Aaa 36,205 6.05%** due 9/01/2031 4,671
AAA Aaa 1,985 Arcadia, California, Unified School District, UT, Series B, 6.50% due
7/01/2015 (c) 2,117
AAA Aaa 2,000 Berkeley, California, Unified School District, UT, Series C, 6.50% due
8/01/2019 (b) 2,136
AAA Aaa 1,450 Big Bear Lake, California, Water Revenue Refunding Bonds, 6% due
4/01/2015 (d) 1,517
California HFA, Home Mortgage Revenue Bonds, AMT:
AA- Aa 2,325 Refunding, Series H, 7.50% due 8/01/2025 2,501
AA- Aa 6,330 Series F-1, 7% due 8/01/2026 6,677
AA- Aa 4,000 California HFA, Revenue Bonds, RIB, AMT, 9.112% due 8/01/2023 (e) 4,185
California Health Facilities Financing Authority Revenue Bonds:
AAA Aaa 2,485 (Children's Hospital - San Diego), 7% due 7/01/2000 (d)(i) 2,705
AAA Aaa 1,000 (Kaiser Permanente), Series A, 7% due 10/01/2018 (b) 1,065
California Pollution Control Financing Authority, PCR, Refunding
(Pacific Gas and Electric Co.), VRDN (a):
A1 NR* 1,600 AMT, Series G, 4.20% due 2/01/2016 1,600
A1+ NR* 3,600 Series C, 4.15% due 11/01/2026 3,600
A1+ NR* 100 Series F, 4.20% due 11/01/2026 100
California Pollution Control Financing Authority, Solid Waste Disposal
Revenue Bonds, AMT:
A A2 4,440 (Keller Canyon Landfill Company Project), 6.875% due 11/01/2027 4,765
A1+ VMIG1+ 8,900 (Shell Oil Co. - Martinez Project), VRDN, Series A, 4.15% due 10/01/2024 (a) 8,900
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) 1,067
California State, GO, UT (c):
AAA Aaa 1,935 7% due 11/01/2004 (i) 2,221
AAA Aaa 65 7% due 11/01/2014 72
A1+ NR* 2,000 California State Municipal Securities Trust Receipts, VRDN, 4.60% due
8/01/2019 (a) 2,000
California State Public Works Board, Lease Revenue Bonds:
A Aaa 2,000 (Department of Corrections - Monterey County, Soledad II), Series A, 7% due
11/01/2004 (i) 2,296
AAA Aaa 3,000 Refunding (Department of Corrections - State Prisons), Series A, 5% due
12/01/2019 (b) 2,742
A Aaa 2,000 (Various Community College Projects), Series B, 7% due 3/01/2004 (i) 2,276
AAA Aaa 3,975 California State, Revenue Refunding Bonds, 5.375% due 6/01/2026 (c) 3,765
California Statewide Community Development Authority Revenue Bonds, COP:
AAA Aaa 1,000 (Good Samaritan Health System), 6.50% due 5/01/2004 (f)(i) 1,109
AA Aa 2,000 (Saint Joseph Health System Group), 6.625% due 7/01/2021 2,161
Central Coast Water Authority, California, Revenue Bonds (State Water
Project Regional Facilities) (b):
AAA Aaa 2,385 6.50% due 10/01/2002 (i) 2,620
AAA Aaa 9,500 6.60% due 10/01/2002 (i) 10,483
AAA Aaa 10,000 Refunding, Series A, 5% due 10/01/2022 9,004
AAA Aaa 7,990 Compton, California, Community Redevelpment Agency, Tax Allocation Refunding
Bonds (Compton Redevelopment Project), Series A, 6.50% due 8/01/2013 (h) 8,596
AAA Aaa 4,000 Cucamonga County, California, Water District Facilities Refinancing Bonds,
COP, 6.50% due 9/01/2022 (c) 4,263
AAA Aaa 5,000 Culver City, California, Redevelopment Finance Authority, Tax Allocation
Revenue Refunding Bonds, 5.50% due 11/01/2014 (b) 4,945
East Bay, California, Municipal Utility District, Water System Subordinated
Revenue Refunding Bonds (c):
AAA Aaa 1,000 4.75% due 6/01/2021 859
AAA Aaa 3,750 5% due 6/01/2026 3,355
AAA Aaa 6,000 El Cajon, California, Redevelopment Agency, Tax Allocation Bonds (El Cajon
Redevelopment Project), 6.60% due 10/01/2022 (b) 6,445
AAA Aaa 5,500 El Dorado County, California, Public Agency Financing Authority, Revenue
Refunding Bonds, 5.50% due 2/15/2021 (c) 5,316
AAA Aaa 3,125 Elk Grove, California, Unified School District, Special Tax Community Facilities
District No. 1, 7% due 12/01/2003 (b) (i) 3,555
AAA Aaa 1,000 Fairfield-Suisun, California, Sewer District Revenue Refunding Bonds, Series A,
6.25% due 5/01/2016 (d) 1,034
AAA Aaa 2,500 Fresno, California, Sewer Revenue Bonds, Series A-1, 5.25% due 9/01/2019 (b) 2,368
AAA Aaa 3,000 Long Beach, California, Harbor Revenue Bonds, AMT, 5.375% due 5/15/2020 (d) 2,810
Los Angeles, California, Community Redevelopment Agency, Tax Allocation
Refunding Bonds (Bunker Hill), Series H (h):
AAA Aaa 1,500 6.50% due 12/01/2015 1,612
AAA Aaa 3,500 6.50% due 12/01/2016 3,762
AAA Aaa 3,000 Los Angeles, California, Department of Water and Power, Electric Plant Revenue
Refunding Bonds, Second Issue, 5.25% due 11/15/2026 (c) 2,737
Los Angeles, California, Harbor Department Revenue Bonds, AMT (d):
AAA Aaa 7,000 RITR, 7.645% due 11/01/2026 (e) 7,403
AAA Aaa 5,000 Series B, 6.625% due 8/01/2025 5,268
Los Angeles County, California, Metropolitan Transportation Authority, Sales
Tax Revenue Bonds:
AAA Aaa 6,000 (Proposition C), Second Series A, 5% due 7/01/2025 (b) 5,360
A1+ VMIG1+ 2,800 Refunding (Proposition C), VRDN, Second Senior Series A, 4.50% due 7/01/2020
(a)(d) 2,800
AAA Aaa 13,480 Los Angeles County, California, Public Works Financing Authority, Lease
Revenue Bonds (Multiple Capital Facilities Project), Series A, 5.125% due
6/01/2017 (b) 12,544
SP1+ MIG1+ 4,600 Los Angeles County, California, TRAN, Series A, 4.50% due 6/30/1997 4,603
AAA Aaa 3,000 Los Angeles County, California, Transportation Commission, Sales Tax Revenue
Bonds, Series A, 6.75% due 7/01/2001 (c)(i) 3,287
M-S-R Public Power Agency, California, Revenue Bonds (San Juan Project) (d):
AAA Aaa 1,500 Refunding, 6.75% due 7/01/2020 1,705
AAA Aaa 3,000 Refunding, Series H, 5.90% due 7/01/2020 3,000
AAA Aaa 2,000 Series E, 6.75% due 7/01/2011 2,155
AAA Aaa 1,000 Series E, 6.50% due 7/01/2017 1,070
AAA Aaa 4,250 Marysville, California, Hospital Revenue Bonds (Fremont-Rideout Health Group),
Series A, 6.30% due 1/01/2022 (b) 4,406
AAA Aaa 3,000 Metropolitan Water District, Southern California Waterworks Revenue Bonds,
Series C, 5% due 7/01/2027 (d) 2,683
AAA Aaa 1,740 Modesto, California, Health Facilities Revenue Bonds (Memorial Hospital
Association), Series A, 6.875% due 6/01/2021 (d) 1,871
AAA Aaa 3,850 Mountain View, California, Capital Improvements Financing Authority Revenue
Bonds (City Hall Community Theatre), 6.50% due 8/01/2016 (d) 4,122
Mountain View - Los Altos, California, Unified High School District:
AA Aa3 3,000 Series B, 6.50% due 5/01/2017 3,236
AAA Aaa 1,015 Series C, 6.05%** due 5/01/2017 (d) 314
AAA Aaa 1,080 Series C, 6.05%** due 5/01/2018 (d) 315
AAA Aaa 1,045 Series C, 6.05%** due 5/01/2019 (d) 288
Northern California Power Agency, Multiple Capital Facilities Revenue Bonds (d):
AAA Aaa 2,500 RIB, 9.04% due 9/02/2025 (e) 2,831
AAA Aaa 2,000 Series A, 6.50% due 8/01/2012 2,150
AAA Aaa 2,000 Northern California Transmission Revenue Bonds (California-Oregon Transmission
Project), Series A, 6.50% due 5/01/2016 (d) 2,146
AAA Aaa 1,000 Oakland, California, Redevelopment Agency, Revenue Refunding Bonds, INFLOS,
7.915% due 9/01/2019 (d)(e) 985
AAA Aaa 2,750 Oceanside, California, COP (Watereuse Association Financing Program), Series A,
6.50% due 10/01/2017 (b) 2,944
AAA Aaa 2,360 Orchard, California, School District, GO, UT, Series A, 6.50% due 8/01/2019 (c) 2,516
A+ A1 2,000 Pasadena, California, COP, Refunding (Old Pasadena Package Facility Project),
6.25% due 1/01/2018 2,093
AAA Aaa 7,500 Pioneers Memorial Hospital District, California, Refunding, GO, UT, 6.50% due
10/01/2024 (b) 8,034
AAA Aaa 8,000 Port Oakland, California, Port Revenue Bonds, AMT, Series E, 6.50% due
11/01/2016 (d) 8,381
Rancho Cucamonga, California, Redevelopment Agency, Tax Allocation Bonds
(Rancho Redevelopment Project) (d):
AAA Aaa 1,000 5.25% due 9/01/2026 924
AAA Aaa 1,750 Refunding, 5% due 9/01/2015 1,608
AAA Aaa 2,400 Riverside County, California, Transportation Commission Sales Tax Revenue Bonds,
Series A, 6.50% due 6/01/2001 (b)(i) 2,604
Sacramento, California, City Financing Authority, Lease Revenue Refunding Bonds:
AAA Aaa 10,500 Series A, 5.40% due 11/01/2020 (b) 10,148
A+ A1 4,100 Series B, 5.40% due 11/01/2020 3,926
Sacramento, California, Municipal Utility District, Electric Revenue Bonds (d):
AAA Aaa 1,270 Refunding, Series G, 6.50% due 9/01/2013 1,403
AAA Aaa 11,000 Series B, 6.375% due 8/15/2022 11,544
AAA Aaa 1,000 Sacramento County, California, COP, 6.50% due 6/01/2000 (d)(i) 1,074
San Diego, California, IDR, RITR (e):
AAA Aaa 3,000 7.435% due 9/01/2018 3,131
AAA Aaa 2,900 7.435% due 9/01/2019 3,027
San Diego, California, Public Facilities Financing Authority, Sewer Revenue
Bonds (c):
AAA Aaa 6,500 5% due 5/15/2020 5,874
AAA Aaa 16,500 5% due 5/15/2025 14,765
San Francisco, California, City and County Airport Commission, International
Airport Revenue Bonds, Second Series:
AAA Aaa 3,500 AMT, Issue 5, 6.50% due 5/01/2019 (c) 3,667
AAA Aaa 3,000 AMT, Issue 6, 6.50% due 5/01/2018 (b) 3,152
AAA Aaa 2,000 AMT, Issue 6, 6.60% due 5/01/2020 (b) 2,110
AAA Aaa 4,335 Refunding, Issue 1, 6.30% due 5/01/2011 (b) 4,594
AAA Aaa 4,000 Refunding, Issue 1, 6.50% due 5/01/2013 (b) 4,292
AAA Aaa 3,675 Refunding, Issue 2, 6.75% due 5/01/2013 (d) 4,000
AAA Aaa 10,000 Refunding, Issue 2, 6.75% due 5/01/2020 (d) 10,883
San Francisco, California, City and County Redevelopment Agency, Lease
Revenue Bonds (George R. Moscone Convention Center) (h):
AAA Aaa 2,800 6.75% due 7/01/2015 3,060
AAA Aaa 3,050 6.75% due 7/01/2024 3,333
AAA Aaa 7,500 San Francisco, California, State Building Authority, Lease Revenue Bonds (San
Francisco Civic Center Complex), Series A, 5.25% due 12/01/2021 (b) 7,009
AAA Aaa 2,450 San Mateo County, California, Joint Powers Financing Authority, Lease Revenue
Refunding Bonds (Capital Projects Program), 5.125% due 7/01/2018 (d) 2,286
AAA Aaa 1,600 San Mateo County, California, Transportation District Sales Tax Revenue
Refunding Bonds, Series A, 5.25% due 6/01/2019 (d) 1,516
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) 3,704
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 3,042
AAA Aaa 10,770 6.875% due 11/15/2014 11,887
AAA Aaa 1,700 6.75% due 11/15/2020 1,863
AAA Aaa 3,000 Santa Rosa, California, Wastewater Revenue Bonds (Subregional Wastewater
Project), Series A, 6.50% due 9/01/2002 (c)(i) 3,281
Soledad, California, Unified School District (c):
AAA Aaa 630 5.78%** due 6/01/2014 236
AAA Aaa 850 5.78%** due 6/01/2015 299
AAA Aaa 870 5.83%** due 6/01/2016 286
AAA NR* 3,265 Southern California, HFA, S/F Mortgage Revenue Bonds Program, AMT, Series B,
6.90% due 10/01/2024 (g) 3,381
BBB+ NR* 1,225 Stanislaus, California, Waste-to-Energy Financing Agency, Solid Waste Facility
Revenue Refunding Bonds (Ogden Martin System Inc. Project), 7.625% due 1/01/2010 1,311
AAA Aaa 3,500 Stockton, California, Revenue Bonds, COP (Wastewater Treatment Plant Expansion),
Series A, 6.70% due 9/01/2014 (c) 3,831
AAA Aaa 2,000 University of California Revenue Bonds (Multiple Purpose Projects), Series D,
6.375% due 9/01/2024 (d) 2,099
AAA Aaa 1,500 Vacaville, California, Public Financing Authority, Tax Allocation Revenue
Refunding Bonds (Vacaville Redevelopment Projects), 6.35% due 9/01/2022 (d) 1,559
AAA Aaa 2,525 Visalia, California, COP, Refunding (Multiple Projects), Series B, 5.375% due
12/01/2026 (d) 2,381
AAA Aaa 1,500 Walnut, California Public Financing Authority, Tax Allocation Revenue Refunding
Bonds (Walnut Improvement Project), 6.50% due 9/01/2022 (d) 1,608
Puerto Rico - 1.6%
A1+ VMIG1+ 3,000 Puerto Rico Commonwealth, Government Development Bank Refunding Bonds,
VRDN, 4.30% due 12/01/2015 (a) 3,000
A1+ VMIG1+ 3,100 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway Revenue
Bonds, VRDN, Series X, 4.30% due 7/01/1999 (a) 3,100
Total Investments (Cost -- $384,363) -- 100.1% 396,465
Liabilities in Excess of Other Assets -- (0.1%) (200)
--------
Net Assets -- 100.0% $396,265
========
(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, 1997.
(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 April 30, 1997.
(f) CAPMAC Insured.
(g) GNMA/FNMA Collateralized.
(h) FSA Insured.
(i) Prerefunded.
(j) GNMA Collateralized.
(k) FHLMC Collateralized.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase by the Fund.
+ Highest short-term ratings by Moody's Investors Service, Inc.
See Notes to Financial Statements.
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
GO General Obligation Bonds
HFA Housing Finance Agency
IDR Industrial Development Revenue Bonds
INFLOS Inverse Floating Rate Municipal Bonds
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
TRAN Tax Revenue Anticipation Notes
UT Unlimited Tax
VRDN Variable Rate Demand Notes
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of April 30, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $384,362,888) (Note 1a) $396,465,255
Cash 22,266
Receivables:
Interest $7,416,578
Securities sold 1,046,420 8,462,998
------------
Deferred organization expenses (Note 1e) 7,614
Prepaid expenses and other assets 13,193
------------
Total assets 404,971,326
------------
Liabilities: Payables:
Securities purchased 8,001,040
Dividends to shareholders (Note 1f) 282,931
Investment adviser (Note 2) 161,263 8,445,234
------------
Accrued expenses and other liabilities 261,102
------------
Total liabilities 8,706,336
------------
Net Assets: Net assets $396,264,990
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (5,200 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) $130,000,000
Common Stock, par value $.10 per share (18,067,037 shares issued
and outstanding) $1,806,704
Paid-in capital in excess of par 259,244,387
Undistributed investment income -- net 1,975,424
Accumulated realized capital losses on investments -- net (Note 5) (8,863,892)
Unrealized appreciation on investments -- net 12,102,367
-----------
Total -- Equivalent to $14.74 net asset value per share of Common
Stock (market price -- $14.125) 266,264,990
------------
Total capital $396,264,990
============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended April 30, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $9,641,346
(Note 1d):
Expenses: Investment advisory fees (Note 2) $848,640
Commission fees (Note 4) 140,298
Professional fees 38,940
Transfer agent fees 38,626
Accounting services (Note 2) 28,597
Printing and shareholder reports 14,031
Custodian fees 11,450
Listing fees 11,129
Directors' fees and expenses 9,605
Pricing fees 8,078
Amortization of organization expenses (Note 1e) 3,495
Other 8,353
--------
Total expenses 1,161,242
----------
Investment income -- net 8,480,104
----------
Realized & Unreal- Realized gain on investments -- net 3,088,928
ized Gain (Loss) on Change in unrealized appreciation on investments -- net (7,096,446)
Investments -- Net
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $4,472,586
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 1997 Oct. 31, 1996
<S> <C> <C> <C>
Operations: Investment income -- net $8,480,104 $13,969,783
Realized gain on investments -- net 3,088,928 1,250,414
Change in unrealized appreciation on investments -- net (7,096,446) 446,717
------------ ------------
Net increase in net assets resulting from operations 4,472,586 15,666,914
------------ ------------
Dividends & Investment income -- net:
Distributions to Common Stock (6,421,431) (11,051,597)
Shareholders Preferred Stock (1,784,586) (3,085,704)
(Note 1f): Realized gain on investments-- net:
Common Stock (35,804) --
Preferred Stock (10,152) --
------------ -----------
Net decrease in net assets resulting from dividends and
distributions to shareholders (8,251,973) (14,137,301)
------------ -----------
Capital Stock Proceeds from issuance of Preferred Stock resulting from reorganization 40,000,000 --
Transactions Net proceeds from issuance of Common Stock resulting from reorganization 79,391,237 --
(Note 4): ------------ ------------
Net increase in net assets derived from capital stock transactions 119,391,237 --
------------ ------------
Net Assets: Total increase in net assets 115,611,850 1,529,613
Beginning of period 280,653,140 279,123,527
------------ ------------
End of period* $396,264,990 $280,653,140
============ ============
* Undistributed investment income -- net $1,975,424 $1,670,769
============ ============
See Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended
April 30, October 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $15.04 $14.92 $13.39 $16.36 $14.15
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .53 1.10 1.13 1.17 1.12
Realized and unrealized gain (loss)
on investments -- net (.27) .13 1.61 (2.90) 2.27
--------- --------- --------- --------- ---------
Total from investment operations .26 1.23 2.74 (1.73) 3.39
--------- --------- --------- --------- ---------
Less dividends and distributions to
Common Stock shareholders:
Investment income -- net (.44) (.87) (.87) (.92) (.84)
Realized gain on investments -- net -- + -- (.07) (.11) --
--------- --------- --------- --------- ---------
Total dividends and distributions
to Common Stock shareholders (.44) (.87) (.94) (1.03) (.84)
--------- --------- --------- --------- ---------
Capital charge resulting from
issuance of Common Stock (.01) -- -- -- --
--------- --------- --------- --------- ---------
Effect of Preferred Stock activity:++
Dividends and distributions to
Preferred Stock shareholders:
Investment income -- net (.11) (.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 (.11) (.24) (.27) (.21) (.34)
--------- --------- --------- --------- ---------
Net asset value, end of period $14.74 $15.04 $14.92 $13.39 $16.36
========= ========= ========= ========= =========
Market price per share, end of
period $14.125 $14.125 $13.125 $11.875 $15.375
========= ========= ========= ========= =========
Total Investment Based on market price per share 3.13%++++ 14.52% 19.00% (16.79%) 8.24%
Return:** ========= ========= ========= ========= =========
Based on net asset value per share 1.07%++++ 7.26% 19.97% (11.82%) 22.09%
========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement .69%* .69% .71% .70% .56%
Net Assets:*** ========= ========= ========= ========= =========
Expenses .69%* .69% .71% .70% .68%
========= ========= ========= ========= =========
Investment income -- net 5.06%* 4.99% 5.42% 5.28% 5.17%
========= ========= ========= ========= =========
Supplemental Net assets, net of Preferred Stock,
Data: end of period (in thousands) $266,265 $190,653 $189,124 $169,757 $207,404
========= ========= ========= ========= =========
Preferred Stock outstanding,
end of period (in thousands) $130,000 $90,000 $90,000 $90,000 $90,000
========= ========= ========= ========= =========
Portfolio turnover 34.99% 119.52% 114.78% 41.67% 15.85%
========= ========= ========= ========= =========
Leverage: Asset coverage per $1,000 $3,048 $3,118 $3,101 $2,886 $3,304
========= ========= ========= ========= =========
Dividends Per Series A -- Investment income -- net $428 $870 $948 $636 $743
Share On ========= ========= ========= ========= =========
Preferred Stock Series B -- Investment income -- net $384 $844 $904 $687 $685
Outstanding:+++ ========= ========= ========= ========= =========
Series C -- Investment income -- net $203 -- -- -- --
========= ========= ========= ========= =========
* 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.
+ Amount is less than $.01 per share.
++ The Fund's Preferred Stock was issued on November
30, 1992 (Series A and B) and January 27, 1997 (Series C).
+++ 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>
MuniYield California Insured Fund II, Inc. April 30, 1997
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.
[bullet] 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.
[bullet] 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.
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, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities and
securities acquired through the reorganization, for the six months ended
April 30, 1997 were $113,903,164 and $141,307,459, respectively.
Net realized and unrealized gains (losses) as of April 30, 1997 were as
follows:
Realized Unrealized
Gains Gains (Losses)
Long-term investments $3,088,688 $12,105,669
Short-term investments 240 (3,302)
----------- -----------
Total $3,088,928 $12,102,367
=========== ===========
As of April 30, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $12,102,367, of which $13,630,586 related to
appreciated securities and $1,528,219 related to depreciated securities.
The aggregate cost of investments at April 30, 1997 for Federal income
tax purposes was $384,362,888.
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, 1997, shares issued and outstanding
increased by 5,388,404 pursuant to a plan of reorganization. At April
30, 1997, shares issued and outstanding amounted to 18,067,037 and total
paid-in capital amounted to $261,051,091.
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, 1997 were as follows: Series A, 3.60%;
Series B, 4.15%; and Series C, 4.04%.
In addition, AMPS shares increased by 1,600 pursuant to a plan of
reorganization. As a result, as of April 30, 1997, there were 5,200
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 six months ended April 30, 1997,
Merrill Lynch, Pierce, Fenner & Smith Inc., an affiliate of FAM, earned
$86,690 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. Acquisition of MuniVest California Insured Fund, Inc.:
On January 27, 1997, MuniYield California Insured Fund II, Inc. acquired
all the net assets of MuniVest California Insured Fund, Inc. pursuant to
a plan of reorganization. The acquisition was accomplished by a tax-free
exchange of 5,388,404 Common Stock shares and 1,600 AMPS shares of
MuniYield California Insured Fund II, Inc. for 5,961,365 Common Stock
shares and 1,600 AMPS shares outstanding of MuniVest California Insured
Fund, Inc. MuniVest California Insured Fund, Inc.'s net assets on that
date of $119,644,600, including $4,532,559 of unrealized appreciation
and $8,480,527 of accumulated net realized capital losses, were combined
with those of MuniYield California Insured Fund II, Inc. The aggregate
net assets of MuniYield California Insured Fund II, Inc. immediately
after the acquisition amounted to $397,041,763.
7. Subsequent Event:
On May 9, 1997, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of $.071340
per share, payable on May 29, 1997 to shareholders of record as of May
19, 1997.
