MUNIYIELD
CALIFORNIA
INSURED
FUND II, INC.
[FUND LOGO]
STRATEGIC
Performance
Annual Report
October 31, 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
Philip M. Mandel, Secretary
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 -- 10/97
[RECYCLE LOGO]
Printed on post-consumer recycled paper
MuniYield California Insured Fund II, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1997, the Common Stock of MuniYield
California Insured Fund II, Inc. earned $0.881 per share income
dividends, which included earned and unpaid dividends of $0.074. This
represents a net annualized yield of 5.61%, based on a month-end per
share net asset value of $15.70. Over the same period, the total
investment return on the Fund's Common Stock was +10.82%, based on a
change in per share net asset value from $15.04 to $15.70, and
assuming reinvestment of $0.881 per share income dividends.
For the six-month period ended October 31, 1997, the total investment
return on the Fund's Common Stock was +9.64%, based on a change in per
share net asset value from $14.74 to $15.70, and assuming reinvestment
of $0.437 per share income dividends.
For the six-month period ended October 31, 1997, the Fund's Auction
Market Preferred Stock had an average yield of 3.00% for Series A,
3.43% for Series B and 2.92% for Series C.
The Municipal Market Environment
Long-term interest rates generally declined during the six-month
period ended October 31, 1997. The general financial environment has
remained one of solid economic growth tempered by few or no
inflationary pressures. While economic growth has been conducive to
declining bond yields, it has remained strong enough to suggest that
the Federal Reserve Board (FRB) might find it necessary to raise
short-term interest rates. This would be intended to slow economic
growth and ensure that any incipient inflationary pressures would be
curtailed. There were investor concerns that the FRB would be forced
to raise interest rates prior to year-end, thus preventing an even
more dramatic decline in interest rates. Long-term tax-exempt revenue
bonds, as measured by the Bond Buyer Revenue Bond Index, declined over
50 basis points (0.50%) to end the six-month period ended October 31,
1997 at 5.60%.
Similarly, long-term US Treasury bond yields generally moved lower
during most of the six-month period ended October 31, 1997. However,
the turmoil in the world's equity markets during the last week in
October has resulted in a significant rally in the Treasury bond
market. The US Treasury bond market was the beneficiary of a flight to
quality mainly by foreign investors whose own domestic markets have
continued to be very volatile. Prior to the initial decline in Asian
equity markets, long-term US Treasury bond yields were essentially
unchanged. By the end of October, US Treasury bond yields declined 80
basis points to 6.15%, their lowest level of 1997.
The tax-exempt bond market's continued underperformance as compared to
its taxable counterpart has been largely in response to its ongoing
weakening technical position. As municipal bond yields have declined,
municipalities have hurriedly rushed to refinance outstanding higher-
couponed debt with new issues financed at present low rates. During
the last six months, over $118 billion in new long-term tax-exempt
issues were underwritten, an increase of over 25% versus the
comparable period a year ago. As interest rates have continued to
decline, these refinancings have intensified municipal bond issuance.
During the past three months, approximately $60 billion in new long-
term municipal securities were underwritten, an increase of over 34%
as compared to the October 31, 1996 quarter.
The recent trend toward larger and larger bond issues has also
continued. However, issues of such magnitude usually must be
attractively priced to ensure adequate investor interest. Obviously,
the yields of other municipal bond issues are impacted by the yield
premiums such large issuers have been required to pay. Much of the
municipal bond market's recent underperformance can be traced to
market pressures that these large bond issuances have exerted.
In our opinion, the recent correction in world equity markets has
enhanced the near-term prospects for continued low, if not declining,
interest rates in the United States. It is likely that the recent
correction will result in slower US domestic growth in the coming
months. This decline is likely to be generated in part by reduced US
export growth. Additionally, some decline in consumer spending also
can be expected in response to reduced consumer confidence. Perhaps
more importantly, it is likely that barring a dramatic and unexpected
resurgence in domestic growth, the FRB may be unwilling to raise
interest rates until the full impact of the equity market's
corrections can be established.
All of these factors suggest that for at least the near term, interest
rates, including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable that municipal bond yields will
remain under some pressure as a result of continued strong new-issue
supply. However, the recent pace of municipal bond issuance is likely
to be unsustainable. Continued increases in bond issuance will require
lower tax-exempt bond yields to generate the economic savings
necessary for additional municipal bond refinancing. With tax-exempt
bond yields at already attractive yield ratios relative to US Treasury
bonds (approximately 90% at the end of October), any further pressure
on the municipal market may represent an attractive investment
opportunity.
Portfolio Strategy
During the 12 months ended October 31, 1997, we managed the Fund with
the intention of seeking to sustain a generous level of tax-exempt
income in addition to providing an attractive total return. We began
the 12-month period optimistic that interest rates would decline in
response to the historically attractive 6.75% yield on the US Treasury
bond and the correspondingly high yields on municipal bonds. This
optimism on interest rates proved correct as interest rates declined
about 60 basis points from October 1996 to October 1997. While the
overall trend in interest rates was down for the year, market
volatility created a narrow trading range in which the Fund was
invested.
Between October 1996 and December 1996, interest rates declined about
35 basis points in response to the belief that inflation was not a
threat. At that time the Fund's aggressive posture, which we adopted
when interest rates were higher, was scaled back to a more defensive
posture because of our belief that interest rates had declined too
rapidly relative to the prevailing economic conditions. This strategy
proved correct as interest rates increased about 80 basis points from
December 1996 to April 1997 on investors' belief that the economy was
expanding at an excessive pace that would cause inflation and
ultimately lead to an FRB tightening. At this point, with interest
rates at 7.15% for long-term US Treasury bonds, we once again adopted
a more aggressive posture because of the excessive backup in municipal
yields and our belief that the FRB would not tighten monetary policy
since inflation did not appear to be a threat. This strategy benefited
Fund performance as interest rates ultimately declined about 100 basis
points from April 1997 to the end of October 1997. This interest rate
decline was the result of various circumstances, such as low inflation
and the volatility created by the Asian stock market and currency
crisis. As a result of our strategy, the Fund had a total return above
the industry average of similar California-insured municipal bond
funds.
Given our opinion that interest rates are not in danger of rising
substantially -- and that they probably will trade in a narrow range
-- we expect to concentrate on seeking to enhance tax-exempt income for
our shareholders while trying to limit any volatility in net asset
value.
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
December 2, 1997
<TABLE>
<CAPTION>
PROXY RESULTS
During the six-month period ended October 31, 1997, MuniYield California Insured Fund II, Inc. Common Stock
shareholders voted on the following proposals. The proposals were approved at a shareholders' meeting on September 18,
1997. The description of each proposal and number of shares voted are as follows:
Shares Shares Withheld
Voted For From Voting
<S> <C> <C> <C>
1. To elect the Fund's Board of Directors: James H. Bodurtha 17,450,157 316,246
Herbert I. London 17,436,240 330,163
Robert R. Martin 17,450,091 316,312
Arthur Zeikel 17,447,531 318,872
<CAPTION>
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the
Fund's independent auditors for the current fiscal year. 17,362,619 42,928 360,857
</TABLE>
<TABLE>
<CAPTION>
During the six-month period ended October 31, 1997, MuniYield California Insured Fund II, Inc. Preferred Stock
shareholders (Series A, B and C) voted on the following proposals. The proposals were approved at a shareholders'
meeting on September 17, 1997. The description of each proposal and number of shares voted are as follows:
Shares Shares Withheld
Voted For From Voting
<S> <C> <C> <C>
1. 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 1,798 0
Series B 1,800 0
Series C 1,496 18
<CAPTION>
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <C> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as
the Fund's independent auditors for the current
fiscal year as follows: Series A 1,798 0 0
Series B 1,800 0 0
Series C 1,496 0 18
</TABLE>
<TABLE>
<CAPTION>
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid by MuniYield California Insured Fund II, Inc. during its taxable
year ended October 31, 1997 qualify as tax-exempt interest dividends for Federal income tax purposes. Additionally,
the following table summarizes the per share capital gain distributions paid by the Fund during the year:
Payable Short-Term
Date Capital Gains
<S> <C> <C> <C>
Common Stock Shareholders 12/30/96 $0.002824
Preferred Stock Shareholders: Series A 12/09/96 $2.86
Series B 11/25/96 $2.78
Please retain this information for your records.
</TABLE>
THE BENEFITS AND RISKS OF LEVERAGING
MuniYield California Insured Fund II, Inc. utilizes leveraging to seek
to enhance the yield and net asset value of its Common Stock. However,
these objectives cannot be achieved in all interest rate environments.
To leverage, the Fund issues Preferred Stock, which pays dividends at
prevailing short-term interest rates and invests the proceeds in long-
term municipal bonds. The interest earned on these investments is paid
to Common Stock shareholders in the form of dividends, and the value
of these portfolio holdings is reflected in the per share net asset
value of the Fund's Common Stock. However, in order to benefit Common
Stock shareholders, the yield curve must be positively sloped; that
is, short-term interest rates must be lower than long-term interest
rates. At the same time, a period of generally declining interest
rates will benefit Common Stock shareholders. If either of these
conditions change, then the risks of leveraging will begin to outweigh
the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred Stock for
an additional $50 million, creating a total value of $150 million
available for investment in long-term municipal bonds. If prevailing
short-term interest rates are approximately 3% and long-term interest
rates are approximately 6%, the yield curve has a strongly positive
slope. The fund pays dividends on the $50 million of Preferred Stock
based on the lower short-term interest rates. At the same time, the
fund's total portfolio of $150 million earns the income based on long-
term interest rates. Of course, increases in short-term interest rates
would reduce (and even eliminate) the dividends on the Common Stock.
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>
<CAPTION>
MuniYield California Insured Fund II, Inc. October 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
California -- 98.3%
AAA Aaa $1,985 Arcadia, California, Unified School District, UT, Series B, 6.50% due
7/01/2015 (c) $2,227
AAA Aaa 2,000 Berkeley, California, Unified School District, UT, Series C, 6.50% due
8/01/2019 (b) 2,235
AAA Aaa 1,450 Big Bear Lake, California, Water Revenue Refunding Bonds, 6% due 4/01/2015 (d) 1,596
California HFA, Home Mortgage Revenue Bonds, AMT:
AA - Aa 2,265 Refunding, Series H, 7.50% due 8/01/2025 2,471
AAA Aaa 1,500 Series E, 6.15% due 8/01/2025 (d) 1,556
AA - Aa 6,330 Series F-1, 7% due 8/01/2026 6,822
AAA Aaa 5,500 Series I, 5.75% due 2/01/2029 (d) 5,556
AA - Aa 3,950 California HFA, Revenue Bonds, RIB, AMT, 8.945% due 8/01/2023 (e) 4,409
California Health Facilities Financing Authority Revenue Bonds:
A1+ VMIG1+ 2,400 (Catholic Healthcare), VRDN, Series D, 3.40% due 7/01/2021 (a)(d) 2,400
AAA Aaa 2,485 (Children's Hospital - San Diego), 7% due 7/01/2000 (d)(i) 2,716
AAA Aaa 1,000 (Kaiser Permanente), Series A, 7% due 10/01/2018 (b) 1,068
AAA Aaa 5,000 Refunding (Catholic Healthcare West), Series A, 5.125% due 7/01/2024 (d) 4,834
AAA Aaa 1,000 (Sutter Health), Series A, 5.125% due 8/15/2017 (h) 988
California Pollution Control Financing Authority, PCR, Refunding (Pacific Gas
and Electric Co.), VRDN (a):
NR* NR* 1,400 AMT, Series C, 3.65% due 11/01/2026 1,400
A1+ NR* 200 Series A, 3.55% due 12/01/2018 200
A1+ NR* 300 Series C, 3.55% due 11/01/2026 300
A1 VMIG1+ 1,800 California Pollution Control Financing Authority, PCR (Southern California
Edison Co.), VRDN, Series B, 3.40% due 2/28/2008 (a) 1,800
NR* P1 3,700 California Pollution Control Financing Authority, Resource Recovery Revenue
Bonds (Delano Project), VRDN, AMT, Series 1991, 3.65% due 8/01/2019 (a) 3,700
A A2 4,440 California Pollution Control Financing Authority, Solid Waste Disposal Revenue
Bonds, (Keller Canyon Landfill Company Project), AMT, 6.875% due 11/01/2027 4,928
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) 1,085
AAA Aaa 1,935 California State, GO, UT, 7% due 11/01/2004 (c)(i) 2,277
A1+ NR* 2,000 California State, MSTR, VRDN, 3.65% 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) 2,353
AAA Aaa 2,000 (Department of Corrections - State Prisons), AMT, 6% due 6/01/2007 (h) 2,189
AAA Aaa 5,525 Refunding (Department of Corrections - State Prisons), Series A, 5% due
12/01/2019 (b) 5,381
A Aaa 2,000 (Various Community College Projects), Series B, 7% due 3/01/2004 (i) 2,327
AAA Aaa 2,375 California State University, Housing System Revenue Refunding Bonds, 5.90% due
11/01/2021 (c) 2,496
California Statewide Community Development Authority Revenue Bonds, COP:
AAA Aaa 1,000 (Good Samaritan Health System), 6.50% due 5/01/2004 (f)(i) 1,136
AA Aa 2,000 (Saint Joseph Health System Group), 6.625% due 7/01/2004 (i) 2,288
NR* Aa2 300 California Statewide Community Development Authority, Solid Waste Facilities
Revenue Bonds (Chevron U.S.A. Inc. Project), VRDN, AMT, 3.60% due 12/15/2024
(a) 300
AAA Aaa 1,000 California Statewide Community Development Corporation, COP (Devereux
Foundation Obligation Group), 5.25% due 11/01/2019 (d) 986
AAA Aaa 2,270 Center Unified School District, California, Refunding, UT, Series C, 5.55%**
due 9/01/2015 (d) 882
Central Coast Water Authority, California, Revenue Bonds (State Water Project
Regional Facilities) (b)(i):
AAA Aaa 2,385 6.50% due 10/01/2002 2,671
AAA Aaa 9,500 6.60% due 10/01/2002 10,680
AAA Aaa 7,990 Compton, California, Community Redevelopment Agency, Tax Allocation Refunding
Bonds (Compton Redevelopment Project), Series A, 6.50% due 8/01/2013 (h) 9,015
AAA Aaa 2,000 Contra Costa, California, Water District Revenue Bonds, Series G, 5.75% due
10/01/2014 (d) 2,092
AAA Aaa 4,000 Cucamonga County, California, Water District Facilities Refinancing Bonds, COP,
6.50% due 9/01/2022 (c) 4,344
AAA Aaa 1,375 East Bay, California, Municipal Utility District, Water System Subordinated
Revenue Refunding Bonds, 5% due 6/01/2026 (c) 1,317
AAA Aaa 6,000 El Cajon, California, Redevelopment Agency, Tax Allocation Bonds (El Cajon
Redevelopment Project), 6.60% due 10/01/2001 (b)(i) 6,647
AAA Aaa 3,125 Elk Grove, California, Unified School District, Special Tax Community Facilities
District No. 1, 7% due 12/01/2003 (b)(i) 3,633
AAA Aaa 1,000 Fairfield - Suisun, California, Sewer District Revenue Refunding Bonds, Series A,
6.25% due 5/01/2016 (d) 1,074
AAA Aaa 2,500 Fresno, California, Sewer Revenue Bonds, Series A-1, 5.25% due 9/01/2019 (b) 2,516
AAA Aaa 1,500 Long Beach California, Water Revenue Refunding Bonds, Series A, 5% due 5/01/2024
(d) 1,438
AAA Aaa 3,750 Los Angeles, California, Community College District, COP, Refunding, Series A,
6% due 8/15/2020 (h) 3,926
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 1,672
AAA Aaa 3,500 6.50% due 12/01/2016 3,902
AAA Aaa 10,000 Los Angeles, California, Convention and Exhibition Center Authority, Lease
Revenue Refunding Bonds, Series A, 5.125% due 8/15/2021 (d) 9,659
AAA Aaa 2,500 Los Angeles, California, Department Airports Revenue Bonds (Ontario
International Airport), AMT, Series A, 6% due 5/15/2017 (c) 2,612
Los Angeles, California, Harbor Department Revenue Bonds, AMT (d):
AAA Aaa 7,000 RITR, Series 7, 8.395% due 11/01/2026 (e) 8,531
AAA Aaa 5,000 Series B, 6.625% due 8/01/2025 5,441
Los Angeles County, California, Metropolitan Transportation Authority, Sales
Tax Revenue Bonds (Proposition C):
A1+ VMIG1+ 2,800 Refunding, VRDN, Second Senior Series A, 3.35% due 7/01/2020 (a)(d) 2,800
AAA Aaa 10,150 Second Series A, 5% due 7/01/2025 (b) 9,611
AAA Aaa 3,000 Los Angeles County, California, Transportation Commission, Sales Tax Revenue
Bonds, Series A, 6.75% due 7/01/2001 (c)(i) 3,323
M-S-R Public Power Agency, California, Revenue Bonds (San Juan Project) (d):
AAA Aaa 1,500 Refunding, 6.75% due 7/01/2020 (l) 1,801
AAA Aaa 3,000 Refunding, Series H, 5.90% due 7/01/2020 3,012
AAA Aaa 2,000 Series E, 6.75% due 7/01/2011 2,191
AAA Aaa 1,000 Series E, 6.50% due 7/01/2017 1,087
AAA Aaa 4,250 Marysville, California, Hospital Revenue Bonds (Fremont - Rideout Health
Group), Series A, 6.30% due 1/01/2022 (b) 4,570
AAA Aaa 1,740 Modesto, California, Health Facilities Revenue Bonds (Memorial Hospital
Association), Series A, 6.875% due 6/01/2001 (d)(i) 1,931
AAA Aaa 3,850 Mountain View, California, Capital Improvements Financing Authority Revenue
Bonds (City Hall Community Theatre), 6.50% due 8/01/2016 (d) 4,190
Mountain View - Los Altos, California, Unified High School District, UT:
AA Aa3 3,000 Series B, 6.50% due 5/01/2017 3,370
AAA Aaa 1,015 Series C, 6.05%** due 5/01/2017 (d) 359
AAA Aaa 1,080 Series C, 6.05%** due 5/01/2018 (d) 361
AAA Aaa 1,045 Series C, 6.05%** due 5/01/2019 (d) 331
Northern California Power Agency, Multiple Capital Facilities Revenue Bonds
(d):
AAA Aaa 2,500 RIB, 9.045% due 9/02/2025 (e) 2,984
AAA Aaa 2,000 Series A, 6.50% due 8/01/2012 2,202
AAA Aaa 2,000 Northern California Transmission Revenue Bonds (California - Oregon
Transmission Project), Series A, 6.50% due 5/01/2016 (d) 2,195
AAA Aaa 1,000 Oakland, California, Redevelopment Agency, Refunding, INFLOS, 8.116% due
9/01/2019 (d)(e) 1,089
AAA Aaa 2,750 Oceanside, California, COP (Watereuse Association Financing Program), Series A,
6.50% due 10/01/2017 (b) 3,016
AAA Aaa 2,360 Orchard, California, School District, GO, UT, Series A, 6.50% due 8/01/2019 (c) 2,650
A+ A1 2,000 Pasadena, California, COP, Refunding (Old Pasadena Package Facility Project),
6.25% due 1/01/2018 2,233
AAA Aaa 7,500 Pioneers Memorial Hospital District, California, Refunding, GO, UT, 6.50% due
10/01/2024 (b) 8,374
AAA Aaa 8,000 Port Oakland, California, Port Revenue Bonds, AMT, Series E, 6.50% due
11/01/2016 (d) 8,721
AAA Aaa 1,000 Rancho Cucamonga, California, Redevelopment Agency, Tax Allocation Bonds
(Rancho Redevelopment Project), 5.25% due 9/01/2026 (d) 984
Riverside County, California, Asset Leasing Corporation, Leasehold Revenue Bonds
(Riverside County Hospital Project), Series B (d):
AAA Aaa 4,500 5.70% due 6/01/2016 4,731
AAA Aaa 3,000 5% due 6/01/2019 2,866
AAA Aaa 4,335 Riverside County, California, COP (Lease Refunding Project), Series 1997,
5.125% due 11/01/2021 (d) 4,215
BBB - Baa2 4,905 Riverside County, California, Public Financing Authority, Tax Allocation Revenue
Bonds (Redevelopment Projects), Series A, 5.625% due 10/01/2033 4,907
AAA Aaa 2,400 Riverside County, California, Transportation Commission Sales Tax Revenue Bonds,
Series A, 6.50% due 6/01/2001 (b)(i) 2,634
Sacramento, California, City Financing Authority, Lease Revenue Refunding Bonds:
AAA Aaa 10,500 Series A, 5.40% due 11/01/2020 (b) 10,756
A+ A1 4,100 Series B, 5.40% due 11/01/2020 4,171
Sacramento, California, Municipal Utility District, Electric Revenue Bonds:
AAA Aaa 11,000 Series B, 6.375% due 8/15/2002 (d)(i) 12,233
AAA Aaa 7,500 Series K, 5.25% due 7/01/2024 (b) 7,521
AAA Aaa 1,000 Sacramento County, California, COP, 6.50% due 6/01/2000 (d)(i) 1,080
San Diego, California, IDR, RITR (e):
AAA Aaa 3,000 8.185% due 9/01/2018 3,405
AAA Aaa 2,900 8.185% due 9/01/2019 3,291
AAA Aaa 5,000 San Diego, California, IDR, Refunding (San Diego Gas & Electric Co.), Series C,
5.90% due 9/01/2018 (h) 5,216
San Diego, California, Public Facilities Financing Authority, Sewer Revenue
Bonds (c):
AAA Aaa 4,000 5% due 5/15/2020 3,843
AAA Aaa 12,500 5% due 5/15/2025 11,960
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) 3,819
AAA Aaa 3,000 AMT, Issue 6, 6.50% due 5/01/2018 (b) 3,273
AAA Aaa 2,000 AMT, Issue 6, 6.60% due 5/01/2020 (b) 2,194
AAA Aaa 4,335 Refunding, Issue 1, 6.30% due 5/01/2011 (b) 4,723
AAA Aaa 4,000 Refunding, Issue 1, 6.50% due 5/01/2013 (b) 4,390
AAA Aaa 10,000 Refunding, Issue 2, 6.75% due 5/01/2020 (d) 11,190
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 3,175
AAA Aaa 3,050 6.75% due 7/01/2024 3,458
AAA Aaa 5,000 San Jose, California, Redevelopment Agency, Tax Allocation Bonds, AMT, Series E,
5.85% due 8/01/2027 (d) 5,167
AAA Aaa 4,720 San Mateo, California, Foster City School District, UT, 5% due 8/01/2027 (d) 4,516
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) 2,427
AAA Aaa 1,600 San Mateo County, California, Transportation District, Sales Tax Revenue
Refunding Bonds, Series A, 5.25% due 6/01/2019 (d) 1,610
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) 3,945
Santa Clara County, California, Financing Authority, Lease Revenue Bonds (VMC
Facility Replacement Project), Series A (b):
AAA Aaa 1,700 6.75% due 11/15/2004 (i) 1,976
AAA Aaa 10,770 6.875% due 11/15/2004 (i) 12,598
AAA Aaa 2,500 7.75% due 11/15/2011 3,214
AAA Aaa 3,500 Santa Clara County, California, Financing Authority, Lease Revenue Refunding
Bonds, Series A, 5% due 11/15/2022 (b) 3,360
AAA Aaa 3,000 Santa Rosa, California, Wastewater Revenue Bonds (Subregional Wastewater
Project), Series A, 6.50% due 9/01/2002 (c)(i) 3,343
AAA NR* 3,265 Southern California, HFA, S/F Mortgage Revenue Bonds Program, AMT, Series B,
6.90% due 10/01/2024 (g) 3,446
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 1,313
AAA Aaa 3,500 Stockton, California, Revenue Bonds, COP (Wastewater Treatment Plant Expansion),
Series A, 6.70% due 9/01/2014 (c) 3,932
AAA Aaa 2,000 University of California Revenue Bonds (Multiple Purpose Projects), Series D,
6.375% due 9/01/2024 (d) 2,181
AAA Aaa 1,500 Vacaville, California, Public Financing Authority, Tax Allocation Revenue
Refunding Bonds (Vacaville Redevelopment Projects), 6.35% due 9/01/2022 (d) 1,603
AAA Aaa 1,500 Walnut, California, Public Financing Authority, Tax Allocation Revenue
Refunding Bonds (Walnut Improvement Project), 6.50% due 9/01/2022 (d) 1,654
Puerto Rico -- 0.4%
A1+ VMIG1+ 1,600 Puerto Rico Commonwealth, Government Development Bank, Refunding, VRDN, 3.35%
due 12/01/2015 (a) 1,600
---------
Total Investments (Cost -- $382,053) -- 98.7% 408,397
Other Assets Less Liabilities -- 1.3% 5,264
---------
Net Assets -- 100.0% $413,661
=========
(a) The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the
rate in effect at October 31, 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 October 31, 1997.
(f) CAPMAC Insured.
(g) GNMA/FNMA Collateralized.
(h) FSA Insured.
(i) Prerefunded.
(j) GNMA Collateralized.
(k) FHLMC Collateralized.
(l) Escrowed to maturity.
* 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 rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
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
MSTR Municipal Trust Receipts
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of October 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $382,052,775) (Note 1a) $408,397,247
Cash 88,239
Receivables:
Interest $7,324,389
Securities sold 973,561 8,297,950
-------------
Prepaid expenses and other assets 11,362
-------------
Total assets 416,794,798
-------------
Liabilities: Payables:
Securities purchased 2,512,327
Dividends to shareholders (Note 1f) 294,960
Investment adviser (Note 2) 185,742 2,993,029
-------------
Accrued expenses and other liabilities 140,958
-------------
Total liabilities 3,133,987
-------------
Net Assets: Net assets $413,660,811
=============
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 259,273,946
Undistributed investment income -- net 2,122,111
Accumulated realized capital losses on investments -- net (Note 5) (5,886,422)
Unrealized appreciation on investments -- net 26,344,472
-------------
Total -- Equivalent to $15.70 net asset value per share of Common Stock
(market price -- $15.0625) 283,660,811
-------------
Total capital $413,660,811
=============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended October 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $21,162,477
(Note 1d):
Expenses: Investment advisory fees (Note 2) $1,886,424
Commission fees (Note 4) 305,582
Professional fees 91,650
Transfer agent fees 81,307
Accounting services (Note 2) 61,237
Directors' fees and expenses 21,145
Printing and shareholder reports 19,055
Custodian fees 16,531
Pricing fees 15,997
Listing fees 13,591
Amortization of organization expenses (Note 1e) 7,614
Other 20,944
------------
Total expenses 2,541,077
------------
Investment income -- net 18,621,400
------------
Realized & Realized gain on investments 6,072,724
Unrealized Gain on Change in unrealized appreciation on investments -- net 7,145,659
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $31,839,783
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $18,621,400 $13,969,783
Realized gain on investments -- net 6,072,724 1,250,414
Change in unrealized appreciation on investments -- net 7,145,659 446,717
------------- -------------
Net increase in net assets resulting from operations 31,839,783 15,666,914
------------- -------------
Dividends & Investment income -- net:
Distributions to Common Stock (14,322,833) (11,051,597)
Shareholders Preferred Stock (3,853,552) (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 (18,222,341) (14,137,301)
------------- -------------
Capital Stock Proceeds from issuance of Preferred Stock resulting from reorganization 40,000,000 --
Transactions Proceeds from issuance of Common Stock resulting from reorganization 79,644,600 --
(Notes 1e & 4): Offering costs from issuance of Common Stock resulting from reorganization (254,371) --
------------- -------------
Net increase in net assets derived from capital stock transactions 119,390,229 --
------------- -------------
Net Assets: Total increase in net assets 133,007,671 1,529,613
Beginning of year 280,653,140 279,123,527
------------- -------------
End of year* $413,660,811 $280,653,140
============= =============
* Undistributed investment income -- net (Note 1g) $2,122,111 $1,670,769
============= =============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended October 31,
1997 1996 1995 1994 1993
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $15.04 $14.92 $13.39 $16.36 $14.15
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net 1.10 1.10 1.13 1.17 1.12
Realized and unrealized gain (loss) on
investments -- net .68 .13 1.61 (2.90) 2.27
--------- --------- --------- --------- ---------
Total from investment operations 1.78 1.23 2.74 (1.73) 3.39
--------- --------- --------- --------- ---------
Less dividends and distributions to
Common Stock shareholders:
Investment income -- net (.88) (.87) (.87) (.92) (.84)
Realized gain on investments -- net --+ -- (.07) (.11) --
--------- --------- --------- --------- ---------
Total dividends and distributions to
Common Stock shareholders (.88) (.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 (.23) (.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 (.23) (.24) (.27) (.21) (.34)
--------- --------- --------- --------- ---------
Net asset value, end of year $15.70 $15.04 $14.92 $13.39 $16.36
========= ========= ========= ========= =========
Market price per share, end of year $15.0625 $14.125 $13.125 $11.875 $15.375
========= ========= ========= ========= =========
Total Investment Based on market price per share 13.20% 14.52% 19.00% (16.79%) 8.24%
Return:* ========= ========= ========= ========= =========
Based on net asset value per share 10.82% 7.26% 19.97% (11.82%) 22.09%
========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement .68% .69% .71% .70% .56%
Net Assets:** ========= ========= ========= ========= =========
Expenses .68% .69% .71% .70% .68%
========= ========= ========= ========= =========
Investment income -- net 4.97% 4.99% 5.42% 5.28% 5.17%
========= ========= ========= ========= =========
Supplemental Net assets, net of Preferred Stock,
Data: end of year (in thousands) $283,661 $190,653 $189,124 $169,757 $207,404
========= ========= ========= ========= =========
Preferred Stock outstanding, end of year
(in thousands) $130,000 $90,000 $90,000 $90,000 $90,000
========= ========= ========= ========= =========
Portfolio turnover 85.35% 119.52% 114.78% 41.67% 15.85%
========= ========= ========= ========= =========
Leverage: Asset coverage per $1,000 $3,182 $3,118 $3,101 $2,886 $3,304
========= ========= ========= ========= =========
Dividends Per Share Series A -- Investment income -- net $809 $870 $948 $636 $743
On Preferred Stock ========= ========= ========= ========= =========
Outstanding:+++ Series B -- Investment income -- net $821 $844 $904 $687 $685
========= ========= ========= ========= =========
Series C -- Investment income -- net $574 -- -- -- --
========= ========= ========= ========= =========
* 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.
See Notes to Financial Statements.
</TABLE>
MuniYield California Insured Fund II, Inc. October 31, 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. 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 and offering costs -- Deferred
organization expenses are amortized on a straight-line basis over a
five-year period. Direct expenses relating to the issuance of Common
Stock resulting from the reorganization were charged to capital.
(f) Dividends and distributions -- Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
(g) Reclassification -- Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of $30,568
have been reclassified between accumulated net realized capital losses
and paid-in capital in excess of par and $6,327 have been reclassified
between undistributed net investment income and accumulated net
realized capital losses. These reclassifications have no effect on net
assets or net asset value per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets.
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,
for the year ended October 31, 1997 were $299,956,332 and
$320,053,765, respectively.
Net realized and unrealized gains (losses) as of October 31, 1997 were
as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $6,817,559 $26,344,472
Short-term investments (1,172) --
Financial futures contracts (743,663) --
----------- -----------
Total $6,072,724 $26,344,472
=========== ===========
As of October 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $26,344,472, of which $26,396,758 related to
appreciated securities and $52,286 related to depreciated securities.
The aggregate cost of investments at October 31, 1997 for Federal
income tax purposes was $382,052,775.
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
Shares issued and outstanding during the year ended October 31, 1997
increased by 5,388,404 pursuant to a plan of reorganization and during
the year ended October 31, 1996 remained constant.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock
of the Fund that entitle their holders to receive cash dividends at an
annual rate that may vary for the successive dividend periods. The
yields in effect at October 31, 1997 were as follows: Series A, 3.24%;
Series B, 3.26%; and Series C, 3.50%.
In addition, 1,600 Series C AMPS shares were issued pursuant to a plan
of reorganization. As a result, as of October 31, 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 year ended October 31, 1997,
Merrill Lynch, Pierce, Fenner & Smith Inc., an affiliate of FAM,
earned $184,482 as commissions.
5. Capital Loss Carryforward:
At October 31, 1997, the Fund had a net capital loss carryforward of
approximately $1,680,000, all of which expires in 2002. 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 November 6, 1997, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount of
$.073943 per share, payable on November 26, 1997 to shareholders of
record as of November 17, 1997.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
MuniYield California Insured Fund II, Inc.:
We have audited the accompanying statement of assets, liabilities and
capital, including the schedule of investments, of MuniYield
California Insured Fund II, Inc. as of October 31, 1997, the related
statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and
the financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned at October 31, 1997 by
correspondence with the custodian and broker. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
MuniYield California Insured Fund II, Inc. as of October 31, 1997,
the results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 3, 1997
