MUNIYIELD
CALIFORNIA
INSURED
FUND II, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
October 31, 1998
<PAGE>
MuniYield California Insured Fund II, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1998, the Common Stock of MuniYield California
Insured Fund II, Inc. earned $0.869 per share income dividends, which included
earned and unpaid dividends of $0.081. This represents a net annualized yield of
5.35%, based on a month-end per share net asset value of $16.25. Over the same
period, the total investment return on the Fund's Common Stock was +9.72%, based
on a change in per share net asset value from $15.70 to $16.25, and assuming
reinvestment of $0.862 per share income dividends and $0.048 per share capital
gains distributions.
For the six-month period ended October 31, 1998, the total investment return on
the Fund's Common Stock was +7.79%, based on a change in per share net asset
value from $15.49 to $16.25, and assuming reinvestment of $0.426 per share
income dividends.
For the six-month period ended October 31, 1998, the Fund's Auction Market
Preferred Stock had an average yield as follows: Series A, 3.26%; Series B,
3.56%; and Series C, 3.55%.
The Municipal Market Environment
During the six months ended October 31, 1998, long-term bond yields declined
significantly. The near absence of any inflationary pressures in the United
States continued to support historic low interest rates. Additionally, foreign
economic factors have continued to outweigh US domestic fundamentals, as they
have for much of 1998. The economic crisis that began in Asia over a year ago
has spread both to Russia and South America. However, economic factors in these
countries have begun to negatively impact US growth. For example, employment in
the US manufacturing sector declined in recent months as a result of reduced
demand for export goods. Concern that the modest decline in US economic growth
seen thus far would spread and intensify led the Federal Reserve Board to lower
short-term interest rates in late September, in mid-October and in mid-November.
These actions were taken to offset the drag of foreign economies on future US
growth.
US Treasury bond yields continued to benefit from a strong "flight to quality"
as foreign investors were drawn to the relative safe haven of US Government
securities. Additionally, the sharp equity market correction, which began at the
end of August, triggered a further flight into US Treasury securities. Long-term
US Treasury bond yields fell over 90 basis points (0.90%) to approximately 5% by
the end of September. This is the lowest level since the US Treasury
reintroduced 30-year maturity bond auctions in 1977.
By early October, worldwide investor confidence began to rise, reducing the
demand for the safety and liquidity of US Treasury securities. Investor
confidence was restored by the belief that major world governments, as well as
the International Monetary Fund, would take the necessary action to support weak
domestic economies in Asia and Latin America. Additionally, rapid recovery in US
and world equity markets caused some investors to reallocate funds from US debt
instruments back to various world equity markets. US Treasury security yields
rose for the remainder of the month to end October at 5.15%. During the
six-month period ended October 31, 1998, long-term Treasury security yields
declined approximately 80 basis points.
During the past 12 months, the tax-exempt bond market has contended with
significant new-issue supply pressures. Over the past year, more than $277
billion in new long-term tax-exempt bonds were underwritten, an increase of
almost 30% compared to the same period a year ago. During the most recent
six-month period, approximately $140 billion in new long-term municipal bonds
were underwritten, representing an increase of more than 15% over the same
six-month period last year. This increased supply, coupled with the high returns
the US equity market generated for much of 1998, was one of the major reasons
municipal bond yields declined less than their taxable counterparts during the
period.
The continued increase in new bond issuance has required ever-lower tax-exempt
bond yields to generate the economic savings necessary for additional municipal
bond financings. Consequently, the pace of new bond issuance has slowed in
recent months. In fact, the trend may be reversing. During the three months
ended October 31, 1998, just over $60 billion
1
<PAGE>
MuniYield California Insured Fund II, Inc. October 31, 1998
in new long-term municipal bonds were underwritten, a decline of 4% compared to
the same quarter a year ago. During the month of October, there were less than
$20 billion in new municipal bond securities issued, a decline of over 10%
compared to October 1997. We will monitor this trend closely in the coming
months to determine if the supply pressures exerted thus far in 1998 are abating
and fostering a more balanced supply/demand environment.
Throughout the six-month period ended October 31, 1998, municipal bond yields
followed a pattern that was similar to US Treasury securities, although the
yield declines were more muted. As measured by the unmanaged Bond Buyer Revenue
Bond Index, long-term, uninsured tax-exempt revenue bond yields declined over 40
basis points to 5.09% by the end of September, their lowest level since the
early 1970s. Municipal bond yields rose during October to end the period at
5.24%. Over the past six months, long-term tax-exempt bond yields declined
almost 30 basis points.
Although municipal bond yields declined during the six-month period, recent
supply pressures and the absence of the safe haven status enjoyed by US
securities caused municipal bond yields to rise relative to US Treasury bond
yields. At October 31, 1998, long-term tax-exempt bond yield spreads were
attractive relative to US Treasury securities of comparable maturities (over
100%), well in excess of their historic range of 85%-88%. Tax-exempt bond yield
ratios have rarely exceeded 90% in the 1980s and 1990s. Historically, yield
spreads have been wider than these levels when there have been potential changes
in Federal tax codes that would have adversely affected the tax-favored status
of municipal bonds.
Currently, municipal bond investors find themselves in a unique investment
environment. Previous opportunities to purchase tax-exempt bonds with yields
exceeding that of comparable US Treasury issues have been limited to relatively
brief episodes and then further limited to a few municipal credits undergoing
specific financial pressures. At present, almost the entire municipal bond
universe, across nearly all maturity and credit sectors, can be purchased at
yields greater than their taxable counterparts. However, the current opportunity
may quickly disappear should tax-exempt bond supply pressures diminish or the
safe-haven status of US Treasury securities become less desirable. Under these
conditions, municipal bond ratios should quickly revert to more normal historic
percentages, certainly well below their presently attractive levels.
Portfolio Strategy
For the six-month period ended October 31, 1998, we managed the Fund with the
intention of seeking to sustain an appealing level of tax-exempt income in
addition to providing an attractive total return. Throughout the period, we
maintained a fully invested position using any dips in the market to restructure
the Fund more aggressively, while using market rallies to sell more aggressively
structured bonds. Although the overall trend in interest rates declined during
the period, market volatility created a trading range. Interest rates fluctuated
rapidly during the period, reflecting changes in both the outlook for inflation
and the Federal Reserve Board's monetary policy. Overall, the Fund was
well-positioned to benefit from a decline in interest rates because we believed
that inflation was not an obstacle.
Looking ahead, we believe that interest rates will fluctuate until a sustained
slowdown in the US economy drives interest rates lower. Consequently, we will
focus on extending the Fund's duration on any market back-ups in order to seek
to enhance the Fund's total return.
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 4, 1998
2
<PAGE>
MuniYield California Insured Fund II, Inc. October 31, 1998
PROXY RESULTS
During the six-month period ended October 31, 1998, MuniYield California Insured
Fund II, Inc. Common Stock shareholders voted on the following proposals. The
proposals were approved at a shareholders' meeting on September 24, 1998. The
description of each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect the Fund's Board of Directors: James H. Bodurtha 16,930,095 367,788
Herbert I. London 16,930,095 367,788
Robert R. Martin 16,930,098 367,786
Arthur Zeikel 16,930,098 367,786
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares 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. 16,931,441 38,480 327,963
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the six-month period ended October 31, 1998, 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 24, 1998. The description of each proposal and number of shares voted
are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
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 1,536 45
Series B 1,726 0
Series C 861 0
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares 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 1,582 0 0
Series B 1,726 0 0
Series C 861 0 0
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its net
investment income to its share holders on a monthly basis. However, in order to
provide shareholders with a more consistent yield to the current trading price
of shares of Common Stock of the Fund, the Fund may at times pay out less than
the entire amount of net investment income earned in any particular month and
may at times in any month pay out such accumulated but undistributed income in
addition to net investment income earned in that month. As a result, the
dividends paid by the Fund for any particular month may be more or less than the
amount of net investment income earned by the Fund during such month. The Fund's
current accumulated but undistributed net investment income, if any, is
disclosed in the Statement of Assets, Liabilities and Capital, which comprises
part of the Financial Information included in this report.
3
<PAGE>
MuniYield California Insured Fund II, Inc. October 31, 1998
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 California 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.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, interest rates on inverse
floaters will decrease when short-term interest rates increase and increase when
short-term interest rates decrease. Investments in inverse floaters may be
characterized as derivative securities and may subject the Fund to the risks of
reduced or eliminated interest payments and losses of invested principal. In
addition, inverse floaters have the effect of providing investment leverage and,
as a result, the market value of such securities will generally be more volatile
than that of fixed-rate, tax-exempt securities. To the extent the Fund invests
in inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in such securities.
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
UT Unlimited Tax
VRDN Variable Rate Demand Notes
4
<PAGE>
MuniYield California Insured Fund II, Inc. October 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
California--98.7%
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA Aaa $ 2,110 ABC, California, Unified School District, UT, Series A, 4.75% due 8/01/2022(h) $ 2,037
==================================================================================================================================
Anaheim, California, Public Financing Authority, Lease Revenue Bonds (Public
Improvements Project), Sub-Series C(h):
AAA Aaa 5,000 Sub-Series C, 5.38%** due 9/01/2027 1,147
AAA Aaa 12,485 Sub-Series C, 5.37%** due 9/01/2034 2,004
AAA Aaa 21,885 Sub-Series C, 5.24%** due 9/01/2035 3,339
==================================================================================================================================
AAA Aaa 1,985 Arcadia, California, Unified School District, UT, Series B, 6.50% due 7/01/2015(c) 2,267
==================================================================================================================================
AAA Aaa 2,000 Berkeley, California, Unified School District, UT, Series C, 6.50% due 8/01/2004(b)(i) 2,318
==================================================================================================================================
AAA Aaa 1,450 Big Bear Lake, California, Water Revenue Refunding Bonds, 6% due 4/01/2015(d) 1,666
==================================================================================================================================
AAA Aaa 6,000 California Educational Facilities Authority Revenue Bonds, RITR, AMT, Series 37, 7.27%
due 4/01/2028(b)(e) 6,462
==================================================================================================================================
AAA Aaa 10,000 California Educational Facilities Authority, Revenue Refunding Bonds (California
Institute of Technology), 4.25% due 10/01/2028 8,927
==================================================================================================================================
California HFA, Home Mortgage Revenue Bonds, AMT:
AA- Aa 3,900 RIB, 9.061% due 8/01/2023(e) 4,495
AA- Aa 1,800 Refunding, Series H, 7.50% due 8/01/2025 1,973
AAA Aaa 1,500 Series E, 6.15% due 8/01/2025(d) 1,599
AA- Aa 6,330 Series F-1, 7% due 8/01/2026 6,881
AAA Aaa 5,500 Series I, 5.75% due 2/01/2029(d) 5,765
==================================================================================================================================
California Health Facilities Financing Authority Revenue Bonds:
A1+ VMIG1+ 150 (Adventist Hospital), VRDN, Series B, 3.60% due 9/01/2028(a)(d) 150
AAA Aaa 4,000 (Kaiser Permanente), Series A, 5.50% due 6/01/2022(h) 4,206
AAA Aaa 5,000 RITR, Series 17, 7.02% due 8/15/2030(d)(e) 5,375
AAA NR* 8,750 (Residual Certificates), Series 26, 7.535% due 6/01/2022(e)(h) 9,637
==================================================================================================================================
California Pollution Control Financing Authority, PCR, Refunding (Pacific Gas and
Electric Co.), VRDN(a):
A1+ NR* 800 AMT, Series C, 3.70% due 11/01/2026 800
A1+ NR* 100 Series A, 3.60% due 12/01/2018 100
A1+ NR* 1,900 Series C, 3.60% due 11/01/2026 1,900
==================================================================================================================================
NR* P1 200 California Pollution Control Financing Authority, Resource Recovery Revenue Bonds
(Delano Project), VRDN, AMT, Series 1991, 3.65% due 8/01/2019(a) 200
==================================================================================================================================
A1+ NR* 2,200 California Pollution Control Financing Authority, Solid Waste Disposal Revenue Bonds
(Shell Oil Co.--Martinez Refining Project), VRDN, AMT, 3.65% due 10/01/2031(a) 2,200
==================================================================================================================================
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) 1,115
==================================================================================================================================
A1+ VMIG1+ 1,400 California State Economic Development Financing Authority Revenue Bonds
(California Independent Systems Project), VRDN, Series A, 3.60% due 4/01/2008(a) 1,400
==================================================================================================================================
California State, GO(d):
AAA Aaa 23,000 6.25% due 10/01/2019 25,609
AAA Aaa 20,000 Refunding, UT, 4.25% due 10/01/2026 17,865
==================================================================================================================================
</TABLE>
5
<PAGE>
MuniYield California Insured Fund II, Inc. October 31, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
California (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California State Public Works Board, Lease Revenue Bonds:
AAA Aaa $ 9,480 (California State University), Series C, 5.40% due 10/01/2022(d) $ 9,918
AAA Aaa 2,000 (Department of Corrections--State Prisons), AMT, Series E, 6% due 6/01/2007(h) 2,287
AAA Aaa 5,525 Refunding (Department of Corrections--State Prisons), Series A, 5% due 12/01/2019(b) 5,626
==================================================================================================================================
AAA Aaa 2,375 California State University, Housing System Revenue Refunding Bonds, 5.90% due
11/01/2021(c) 2,591
==================================================================================================================================
NR* Aaa 5,750 California Statewide Community Development Authority, COP, Residual Certificates,
Series 24, 7.135% due 12/01/2015(e) 6,233
==================================================================================================================================
AAA Aaa 7,045 California Statewide Community Development Authority, Revenue Refunding Bonds
(Sherman Oaks Projects), 5.50% due 8/01/2011(b) 7,766
==================================================================================================================================
AAA Aaa 1,575 Central Coast Water Authority, California, Revenue Refunding Bonds (State Water
Project Regional Facilities), Series A, 5% due 10/01/2016(b) 1,600
==================================================================================================================================
AAA Aaa 2,900 Chaffey, California, Unified High School District, UT, Series A, 5.50% due 8/01/2023(c) 3,074
==================================================================================================================================
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) 9,181
==================================================================================================================================
AAA Aaa 2,000 Contra Costa, California, Water District Revenue Bonds, Series G, 5.75% due
10/01/2014(d) 2,192
==================================================================================================================================
AAA Aaa 4,000 Cucamonga County, California, Water District Facilities Refinancing Bonds, COP, 6.50%
due 9/01/2022(c) 4,354
==================================================================================================================================
AAA Aaa 1,000 Fairfield--Suisun, California, Sewer District Revenue Refunding Bonds, Series A,
6.25% due 5/01/2016(d) 1,075
==================================================================================================================================
AAA Aaa 2,060 Fontana, California, Redevelopment Agency, Tax Allocation Refunding Bonds (Southwest
Industrial Park Project), 4.75% due 9/01/2026(d) 1,986
==================================================================================================================================
AAA Aaa 2,100 Fresno, California, Joint Powers Financing Authority, Lease Revenue Bonds (Exhibit Hall
Expansion Project), 4.75% due 9/01/2028(b) 2,022
==================================================================================================================================
AAA Aaa 2,500 Fresno, California, Sewer Revenue Bonds, Series A-1, 5.25% due 9/01/2019(b) 2,627
==================================================================================================================================
AAA Aaa 3,750 Los Angeles, California, Community College District, COP, Refunding, Series A, 6% due
8/15/2020(h) 4,062
==================================================================================================================================
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 1,691
AAA Aaa 3,500 6.50% due 12/01/2016 3,946
==================================================================================================================================
AAA Aaa 2,500 Los Angeles, California, Airports Department Revenue Bonds (Ontario International
Airport), AMT, Series A, 6% due 5/15/2017(c) 2,702
==================================================================================================================================
Los Angeles, California, Harbor Department Revenue Bonds, AMT(d):
AAA Aaa 7,000 RITR, Series 7, 8.645% due 11/01/2026(e) 8,637
AAA Aaa 5,000 Series B, 6.625% due 8/01/2025 5,519
==================================================================================================================================
AAA Aaa 2,930 Los Angeles, California, Wastewater System Revenue Refunding Bonds, Series C, 4%
due 6/01/2016(d) 2,663
==================================================================================================================================
AA Aa2 3,455 Los Gatos--Saratoga, California, Joint Union High School, UT, Series A, 4.375% due
10/01/2023 3,163
==================================================================================================================================
</TABLE>
6
<PAGE>
MuniYield California Insured Fund II, Inc. October 31, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
California (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
M-S-R Public Power Agency, California, Revenue Bonds (San Juan Project)(d):
AAA Aaa $ 1,500 Refunding, 6.75% due 7/01/2020(f) $ 1,830
AAA Aaa 2,980 Refunding, Series H, 5.90% due 7/01/2020 2,987
AAA Aaa 2,000 Series E, 6.75% due 7/01/2011 2,188
AAA Aaa 1,000 Series E, 6.50% due 7/01/2017 1,085
==================================================================================================================================
AAA Aaa 2,200 Madera, California, Redevelopment Agency, Tax Revenue Bonds (Tax Allocation Redevelopment
Project), 4.75% due 9/01/2028(h) 2,160
==================================================================================================================================
AAA Aaa 10,000 Madera County, California, COP (Children's Valley Hospital Project), 4.75% due 3/15/2018(d) 9,850
==================================================================================================================================
AAA Aaa 2,250 Metropolitan Water District, Southern California, Waterworks Revenue Bonds, Series H,
4.75% due 3/01/2037 2,154
==================================================================================================================================
AAA Aaa 4,960 Modesto, California, Public Financing Authority, Lease Revenue Refunding Bonds (Capital
Improvements and Refinancing Project), 4.75% due 9/01/2024(b) 4,788
==================================================================================================================================
Monterey County, California, COP (Natividad Medical Improvement Center), Series E(d):
AAA Aaa 3,300 4.75% due 8/01/2018 3,233
AAA Aaa 5,000 4.75% due 8/01/2025 4,781
==================================================================================================================================
AAA Aaa 3,850 Mountain View, California, Capital Improvements Financing Authority Revenue Bonds (City
Hall--Community Theatre), 6.50% due 8/01/2016(d) 4,183
==================================================================================================================================
Mountain View--Los Altos, California, Unified High School District, UT, Series C(d):
AAA Aaa 1,015 6.05%** due 5/01/2017 404
AAA Aaa 1,080 6.05%** due 5/01/2018 407
==================================================================================================================================
Northern California Power Agency, Multiple Capital Facilities Revenue Bonds(d):
AAA Aaa 1,080 RIB, 9.192% due 9/03/2002(e)(i) 1,330
AAA Aaa 1,420 RIB, 9.192% due 8/01/2025(e) 1,711
AAA Aaa 865 Series A, 6.50% due 8/01/2002(i) 970
AAA Aaa 1,135 Series A, 6.50% due 8/01/2012 1,257
==================================================================================================================================
AAA Aaa 2,000 Northern California Transmission Revenue Bonds (California--Oregon Transmission Project),
Series A, 6.50% due 5/01/2016(d) 2,199
==================================================================================================================================
AAA Aaa 1,000 Oakland, California, Redevelopment Agency, Refunding, INFLOS, 8.523% due 9/01/2019(d)(e) 1,157
==================================================================================================================================
AAA Aaa 2,360 Orchard, California, School District, GO, UT, Series A, 6.50% due 8/01/2019(c) 2,721
==================================================================================================================================
AAA Aaa 1,450 Palm Springs, California, Financing Authority, Airport Passenger Facilities, AMT, 5.50%
due 1/01/2028(h) 1,501
==================================================================================================================================
A+ A1 2,000 Pasadena, California, COP, Refunding (Old Pasadena Package Facility Project), 6.25%
due 1/01/2018 2,299
==================================================================================================================================
AAA Aaa 7,500 Pioneers Memorial Hospital District, California, Refunding, GO, UT, 6.50% due 10/01/2024(b) 8,530
==================================================================================================================================
AAA Aaa 8,000 Port Oakland, California, Port Revenue Bonds, AMT, Series E, 6.50% due 11/01/2016(d) 8,807
==================================================================================================================================
AAA Aaa 3,755 Poway, California, Unified School District, Special Tax Refunding Bonds (Community
Facilities District No. 1), 4.75% due 10/01/2023(d) 3,622
==================================================================================================================================
AAA Aaa 4,500 Riverside County, California, Asset Leasing Corporation, Leasehold Revenue Bonds
(Riverside County Hospital Project), Series B, 5.70% due 6/01/2016(d) 5,008
==================================================================================================================================
</TABLE>
7
<PAGE>
MuniYield California Insured Fund II, Inc. October 31, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
California (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sacramento, California, City Financing Authority, Lease Revenue Refunding Bonds:
AAA Aaa $10,500 Series A, 5.40% due 11/01/2020(b) $ 11,246
A+ A1 4,100 Series B, 5.40% due 11/01/2020 4,306
==================================================================================================================================
AAA Aaa 7,500 Sacramento, California, Municipal Utility District, Electric Revenue Bonds, Series K,
5.25% due 7/01/2024(b) 7,903
==================================================================================================================================
San Diego, California, IDR, RITR(e):
AAA Aaa 3,000 8.435% due 9/01/2018 3,552
AAA Aaa 2,900 8.435% due 9/01/2019 3,434
==================================================================================================================================
AAA Aaa 5,000 San Diego, California, IDR, Refunding (San Diego Gas and Electric), Series C, 5.90%
due 9/01/2018(h) 5,409
==================================================================================================================================
AAA Aaa 3,405 San Francisco, California, Bay Area Rapid Transit District, Sales Tax Revenue Refunding
Bonds, 4.75% due 7/01/2023(b) 3,290
==================================================================================================================================
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) 3,893
AAA Aaa 3,000 AMT, Issue 6, 6.50% due 5/01/2018(b) 3,337
AAA Aaa 2,000 AMT, Issue 6, 6.60% due 5/01/2020(b) 2,234
AAA Aaa 3,335 Refunding, Issue 1, 6.30% due 5/01/2011(b) 3,659
AAA Aaa 4,000 Refunding, Issue 1, 6.50% due 5/01/2013(b) 4,414
AAA Aaa 10,000 Refunding, Issue 2, 6.75% due 5/01/2020(d) 11,264
AAA Aaa 3,500 Series 12-B, 5.625% due 5/01/2006(c)(i) 3,920
==================================================================================================================================
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 3,207
AAA Aaa 3,050 6.75% due 7/01/2024 3,493
==================================================================================================================================
AAA Aaa 3,170 San Francisco State University, California, Revenue Bonds (Student Union), Series B, 4.20%
due 11/01/2023(d) 2,827
==================================================================================================================================
AAA Aaa 5,000 San Jose, California, Housing Redevelopment Agency, Tax Allocation Bonds (Set-Aside Merged
Area), AMT, Series E, 5.85% due 8/01/2027(d) 5,367
==================================================================================================================================
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) 2,538
==================================================================================================================================
AAA Aaa 1,600 San Mateo County, California, Transportation District, Sales Tax Revenue Refunding Bonds,
Series A, 5.25% due 6/01/2019(d) 1,680
==================================================================================================================================
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) 4,113
==================================================================================================================================
AAA Aaa 3,000 Santa Clara, California, Electric Revenue Bonds, Series A, 6.25% due 7/01/2001(d)(i) 3,269
==================================================================================================================================
AAA Aaa 2,500 Santa Clara County, California, Financing Authority, Lease Revenue Bonds (VMC Facility
Replacement Project), Series A, 7.75% due 11/15/2011(b) 3,317
==================================================================================================================================
AAA NR* 3,060 Southern California, HFA, S/F Mortgage Revenue Program Bonds, AMT, Series B, 6.90%
due 10/01/2024(g) 3,227
==================================================================================================================================
</TABLE>
8
<PAGE>
MuniYield California Insured Fund II, Inc. October 31, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
California (concluded)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA Aaa $ 4,580 Southern California, Public Power Authority, Revenue Refunding Bonds (Southern
Transmission Project), Series A, 5.25% due 7/01/2010(d) $ 4,963
==================================================================================================================================
Tustin, California, Unified School District, Special Tax Community Facilities,
District No. 88-1(h):
AAA Aaa 4,000 4.375% due 9/01/2019 3,723
AAA Aaa 5,735 4.50% due 9/01/2024 5,353
==================================================================================================================================
AAA Aaa 1,500 Walnut, California, Public Financing Authority, Tax Allocation Revenue Refunding
Bonds (Walnut Improvement Project), 6.50% due 9/01/2022(d) 1,660
==================================================================================================================================
Total Investments (Cost--$396,366)--98.7% 418,112
Other Assets Less Liabilities--1.3% 5,557
--------
Net Assets--100.0% $423,669
========
==================================================================================================================================
</TABLE>
(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,
1998.
(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, 1998.
(f) Escrowed to maturity.
(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 rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
QUALITY PROFILE
The quality ratings of securities in the Fund as of October 31, 1998 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa .......................................................... 90.9%
AA/Aa ............................................................ 4.6
A/A .............................................................. 1.6
Other+ ........................................................... 1.6
- --------------------------------------------------------------------------------
+ Temporary investments on short-term municipal securities.
9
<PAGE>
MuniYield California Insured Fund II, Inc. October 31, 1998
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of October 31, 1998
<TABLE>
<CAPTION>
=========================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$396,365,562) (Note 1a) ........ $418,111,780
Cash ................................................................... 91,020
Interest receivable .................................................... 6,071,377
Prepaid expenses and other assets ...................................... 15,320
------------
Total assets ........................................................... 424,289,497
------------
=========================================================================================================================
Liabilities: Payables:
Dividends to shareholders (Note 1e) ................................. $ 298,389
Investment adviser (Note 2) ......................................... 187,152 485,541
------------
Accrued expenses and other liabilities ................................. 135,086
------------
Total liabilities ...................................................... 620,627
------------
=========================================================================================================================
Net Assets: Net assets ............................................................. $423,668,870
============
=========================================================================================================================
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 ................................... 2,586,657
Undistributed realized capital gains on investments--net ............... 8,255,345
Unrealized appreciation on investments--net ............................ 21,746,218
------------
Total--Equivalent to $16.25 net asset value per Common Stock
(market price--$16.0625) ............................................... 293,668,870
------------
Total capital .......................................................... $423,668,870
============
=========================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
10
<PAGE>
MuniYield California Insured Fund II, Inc. October 31, 1998
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1998
==================================================================================================================================
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned ................ $ 22,425,892
(Note 1d):
==================================================================================================================================
Expenses: Investment advisory fees (Note 2) ....................................... $ 2,086,194
Commission fees (Note 4) ................................................ 329,330
Transfer agent fees ..................................................... 81,948
Professional fees ....................................................... 67,733
Accounting services (Note 2) ............................................ 57,928
Listing fees ............................................................ 29,123
Custodian fees .......................................................... 24,055
Directors' fees and expenses ............................................ 23,050
Pricing fees ............................................................ 17,800
Printing and shareholder reports ........................................ 14,436
Other ................................................................... 25,188
------------
Total expenses .......................................................... 2,756,785
------------
Investment income--net .................................................. 19,669,107
------------
==================================================================================================================================
Realized & Unrealized Realized gain on investments ............................................ 15,896,436
Gain (Loss) on Change in unrealized appreciation on investments--net ................... (4,598,254)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations .................... $ 30,967,289
------------
==================================================================================================================================
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended October 31,
------------------------------
Increase (Decrease) in Net Assets: 1998 1997
==================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net .................................................. $ 19,669,107 $ 18,621,400
Realized gain on investments--net ....................................... 15,896,436 6,072,724
Change in unrealized appreciation on investments--net ................... (4,598,254) 7,145,659
------------ ------------
Net increase in net assets resulting from operations .................... 30,967,289 31,839,783
------------ ------------
==================================================================================================================================
Dividends & Investment income--net:
Distributions to Common Stock ......................................................... (15,562,259) (14,322,833)
Shareholders Preferred Stock ...................................................... (3,644,922) (3,853,552)
(Note 1e): Realized gain on investments--net:
Common Stock ......................................................... (887,345) (35,804)
Preferred Stock ...................................................... (864,704) (10,152)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ......................................................... (20,959,230) (18,222,341)
------------ ------------
==================================================================================================================================
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
(Note 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 ............................................ 10,008,059 133,007,671
Beginning of year ....................................................... 413,660,811 280,653,140
------------ ------------
End of year* ............................................................ $423,668,870 $413,660,811
============ ============
==================================================================================================================================
* Undistributed investment income--net (Note 1f) .......................... $ 2,586,657 $ 2,122,111
============ ============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
MuniYield California Insured Fund II, Inc. October 31, 1998
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended October 31,
--------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ............. $ 15.70 $ 15.04 $ 14.92 $ 13.39 $ 16.36
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ......................... 1.08 1.10 1.10 1.13 1.17
Realized and unrealized gain (loss) on
investments--net ............................... .63 .68 .13 1.61 (2.90)
-------- -------- -------- -------- --------
Total from investment operations ............... 1.71 1.78 1.23 2.74 (1.73)
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net ....................... (.86) (.88) (.87) (.87) (.92)
Realized gain on investments--net ............ (.05) --+ -- (.07) (.11)
-------- -------- -------- -------- --------
Total dividends and distributions to
Common Stock shareholders ...................... (.91) (.88) (.87) (.94) (1.03)
-------- -------- -------- -------- --------
Capital charge resulting from issuance of Common
Stock .......................................... -- (.01) -- -- --
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:++
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net .................... (.20) (.23) (.24) (.26) (.19)
Realized gain on investments--net ......... (.05) --+ -- (.01) (.02)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity ....... (.25) (.23) (.24) (.27) (.21)
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 16.25 $ 15.70 $ 15.04 $ 14.92 $ 13.39
======== ======== ======== ======== ========
Market price per share, end of year ............ $16.0625 $15.0625 $ 14.125 $ 13.125 $ 11.875
======== ======== ======== ======== ========
================================================================================================================================
Total Investment Based on market price per share ................ 13.04% 13.20% 14.52% 19.00% (16.79%)
Return:* ======== ======== ======== ======== ========
Based on net asset value per share ............. 9.72% 10.82% 7.26% 19.97% (11.82%)
======== ======== ======== ======== ========
================================================================================================================================
Ratios to Average Expenses ....................................... .66% .68% .69% .71% .70%
Net Assets:** ======== ======== ======== ======== ========
Investment income--net ......................... 4.72% 4.97% 4.99% 5.42% 5.28%
======== ======== ======== ======== ========
================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of year
Data: (in thousands) ................................. $293,669 $283,661 $190,653 $189,124 $169,757
======== ======== ======== ======== ========
Preferred Stock outstanding, end of year
(in thousands) ................................. $130,000 $130,000 $ 90,000 $ 90,000 $ 90,000
======== ======== ======== ======== ========
Portfolio turnover ............................. 103.93% 85.35% 119.52% 114.78% 41.67%
======== ======== ======== ======== ========
================================================================================================================================
Leverage: Asset coverage per $1,000 ...................... $ 3,259 $ 3,182 $ 3,118 $ 3,101 $ 2,886
======== ======== ======== ======== ========
================================================================================================================================
Dividends Per Share Series A--Investment income--net ............... $ 734 $ 809 $ 870 $ 948 $ 636
On Preferred Stock ======== ======== ======== ======== ========
Outstanding:+++ Series B--Investment income--net ............... $ 672 $ 821 $ 844 $ 904 $ 687
======== ======== ======== ======== ========
Series C--Investment income--net ............... $ 697 $ 574 -- -- --
======== ======== ======== ======== ========
================================================================================================================================
</TABLE>
* 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.
12
<PAGE>
MuniYield California Insured Fund II, Inc. October 31, 1998
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 written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). 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.
o Financial futures contracts--The Fund may purchase or sell financial 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.
o 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) Dividends and distributions--Dividends from net investment income are
declared and paid
13
<PAGE>
MuniYield California Insured Fund II, Inc. October 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
monthly. Distributions of capital gains are recorded on the ex-dividend dates.
(f) 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 $2,620 have been reclassified between undistributed net
realized capital gains and undistributed net investment income. These
reclassifications have no effect on net assets or net asset value per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.50% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Stock.
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, 1998 were $423,077,261 and $414,691,698, respectively.
Net realized gains (losses) for the year ended October 31, 1998 and net
unrealized gains as of October 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments .......................... $15,992,087 $21,746,218
Financial futures contracts .................... (95,651) --
----------- -----------
Total .......................................... $15,896,436 $21,746,218
=========== ===========
- --------------------------------------------------------------------------------
As of October 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $21,746,218, of which $23,076,669 related to appreciated
securities and $1,330,451 related to depreciated securities. The aggregate cost
of investments at October 31, 1998 for Federal income tax purposes was
$396,365,562.
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, 1998 remained
constant and during the year ended October 31, 1997 increased 5,388,404 pursuant
to a plan of reorganization.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.05 per share and a liquidation preference of $25,000
per share, 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, 1998 were as follows: Series A, 3.00%; Series B, 2.25%; and Series
C, 2.80%.
Shares issued and outstanding during the year ended October 31, 1998 remained
constant and during the year ended October 31, 1997 increased by 1,600 pursuant
to a plan of reorganization.
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, 1998, Merrill Lynch, Pierce, Fenner
& Smith Inc., an affiliate of FAM, earned $173,093 as commissions.
5. Subsequent Event:
On November 5, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.080611 per share,
payable on November 27, 1998 to shareholders of record as of November 20, 1998.
14
<PAGE>
MuniYield California Insured Fund II, Inc. October 31, 1998
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders, 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, 1998, 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 gener ally 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, 1998 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MuniYield California
Insured Fund II, Inc. as of October 31, 1998, 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 10, 1998
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniYield California
Insured Fund II, Inc. during its taxable year ended October 31, 1998 qualify as
tax-exempt interest dividends for Federal income tax purposes. Additionally, the
following table summarizes the per share capital gains distributions paid by the
Fund during the year:
- --------------------------------------------------------------------------------
Payable Ordinary Long-Term
Date Income Capital Gains
- --------------------------------------------------------------------------------
Common Stock Shareholders 12/30/97 $.000843 $.048271*
- --------------------------------------------------------------------------------
Preferred Stock Shareholders: Series A 10/08/97 $.84 $ 47.79*
10/13/97 -- $ 105.60**
-------------------------------------------------
Series B 11/24/97 $.44 $ 23.86*
12/01/97 $.38 $ 23.64*
9/28/98 -- $ 21.60**
10/05/98 -- $ 29.13**
10/13/98 -- $ 26.36**
10/19/98 -- $ 19.56**
10/26/98 -- $ 22.65**
-------------------------------------------------
Series C 11/26/97 $.37 $ 19.09*
12/03/97 $.24 $ 15.92*
9/30/98 -- $ 25.08**
10/07/98 -- $ 24.03**
10/14/98 -- $ 23.14**
10/21/98 -- $ 23.46**
10/28/98 -- $ 24.27**
- --------------------------------------------------------------------------------
* Of this distribution, 47.71% is subject to the 28% tax rate and 52.29% is
subject to the 20% tax rate.
** The entire distribution is subject to the 20% tax rate.
Please retain this information for your records.
15
<PAGE>
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--10/98
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