MUNIYIELD
CALIFORNIA
INSURED
FUND II, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
April 30, 1999
<PAGE>
MuniYield California Insured Fund II, Inc.
TO OUR SHAREHOLDERS
For the six months ended April 30, 1999, the Common Stock of MuniYield
California Insured Fund II, Inc. earned $0.449 per share income dividends, which
included earned and unpaid dividends of $0.067. This represents a net annualized
yield of 5.94%, based on a month-end per share net asset value of $15.27. Over
the same period, the total investment return on the Fund's Common Stock was
+0.69%, based on a change in per share net asset value from $16.25 to $15.27,
and assuming reinvestment of $0.647 per share ordinary income dividends and
$0.454 per share capital gains distributions.
For the six-month period ended April 30, 1999, the Fund's Auction Market
Preferred Stock had an average yield as follows: Series A, 4.63%; Series B,
4.11%; and Series C, 4.11%.
The Municipal Market Environment
During the six months ended April 30, 1999, long-term bond yields generally
moved higher. From November 1998 through mid-January 1999, long-term bond yields
traded in a relatively narrow range. However, during February, a number of
economic indicators were released that suggested that economic growth in the
United States would likely remain strong throughout most of 1999. Consequently,
long-term US Treasury bond yields rose more than 60 basis points (0.60%) to
5.70% by early March. During the remainder of the six-month period, US Treasury
bond yields traded between 5.50% and 5.70% as the lack of inflationary pressures
offset much of the concerns generated by continued strong economic growth.
During most of the period, long-term, uninsured tax-exempt bond yields exhibited
far less volatility and were largely stable. Also, long-term municipal bond
yields rose just 5 basis points to 5.29% at the end of April 1999, as measured
by the Bond Buyer Revenue Bond Index.
In recent months, the tax-exempt market was better able to withstand much of the
upward pressure on bond yields because of its stronger technical position. While
the continued positive inflationary environment limited some of the recent
increases in taxable bond yields, a deteriorating supply/demand position helped
push taxable bond yields significantly higher than municipal bond yields. Much
of the US Treasury bond market's underperformance in recent months can be
attributed to the large amounts of taxable corporate issuance. Large taxable
corporate underwritings reduced the demand for US Government securities in
recent months, pushing US Treasury bond yields higher.
On the other hand, the tax-exempt bond market enjoyed only limited new-issue
supply. During the six months ended April 30, 1999, more than $123 billion in
new long-term tax-exempt securities was underwritten, a decline of 10% compared
to the same period a year ago. Municipalities issued less than $60 billion in
long-term tax-exempt securities during the three months ended April 30, 1999, a
decline of 25% compared to the April 30, 1998 quarter. More recently, the rate
of new tax-exempt issuance has declined even further. During April 1999, just
over $15 billion in long-term tax-exempt securities was marketed, a decline of
over 33% compared to April 1998 levels. As municipal bond yields fell and
stabilized in recent quarters, the ability of municipalities to refinance
existing higher-couponed debt declined. This led to a significant decrease in
refunding issuance and an overall drop in new municipal bond supply. When
coupled with ongoing, moderate retail and institutional demand, the tax-exempt
bond market was able to avoid much of the yield volatility exhibited by US
Treasury securities.
Looking ahead, the expected combination of moderate economic growth in the
United States and continued negligible inflation suggests a relatively stable
interest rate environment. However, in recent years, bond yields reached their
annual peaks in early May and declined for the remainder of the year. A
meaningful decline in fixed-income bond yields would require either evidence of
a significant slowdown in the US economy or the resumption of concerns regarding
renewed shocks to the world's economic system. Currently, neither condition
exists
1
<PAGE>
MuniYield California Insured Fund II, Inc. April 30, 1999
or seems likely in the immediate future. In our opinion, this suggests a
continuation of the narrow trading ranges seen in recent months.
Portfolio Strategy
For the six months ended April 30, 1999, we managed the Fund with the intention
of seeking to sustain an appealing level of tax-exempt income while
simultaneously providing an attractive total return. Throughout the period, our
strategy was to maintain a fully invested position using any market rallies to
sell aggressively structured bonds and buy larger coupon, defensively structured
bonds. Our goal was to increase the Fund's income and to seek to mute any
volatility in the Fund's net asset value.
Although the overall trend in interest rates was up for the six-month period,
the municipal market was relatively impervious to the backup in taxable interest
rates. The main reason for the outperformance of the municipal market was the
favorable supply/demand relationship and the attractive valuation of municipal
bonds relative to Treasury securities. Since these conditions still exist, we
believe that municipal bonds will continue to do well compared to Treasury
issues. We expect to stay fully invested with larger coupon bonds in an effort
to increase tax-exempt income until there is sufficient evidence that interest
rates have risen to a level not consistent with economic activity and the
current low level of inflation.
Short-term tax-exempt yields exhibited considerable volatility in recent months.
Interest rates paid to the Fund's Preferred Stock shareholders traded below 3%
in December 1998, reflecting heightened investor demand at year-end. Current
short-term interest rate levels reflect tax season-related pressures, which we
expect to abate soon. During the six-month period ended April 30, 1999,
leveraging generated a significant incremental yield to the Fund's Common Stock
shareholders. Because we believe that the Federal Reserve Board's monetary
policy is likely to remain in a narrow range for the remainder of the year, we
expect short-term tax-exempt interest rates to remain at, or slightly below,
current levels. However, should the spread between short-term and long-term
interest rates narrow, the benefits of the leverage will decline and, as a
result, reduce the yield to the Fund's Common Stock. (For a complete explanation
of the benefits and risks of leveraging, see page 3 of this report to
shareholders.)
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/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Roberto Roffo
Roberto Roffo
Vice President and Portfolio Manager
June 4, 1999
================================================================================
After more than 20 years of service, Arthur Zeikel recently retired as Chairman
of Merrill Lynch Asset Management, L.P. (MLAM). Mr. Zeikel served as President
of MLAM from 1977 to 1997 and as Chairman since December 1997. Mr. Zeikel is one
of the country's most respected leaders in asset management and presided over
the growth of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500 billion. Mr.
Zeikel will remain on MuniYield California Insured Fund II, Inc.'s Board of
Directors. We are pleased to announce that Terry K. Glenn has been elected
President and Director of the Fund. Mr. Glenn has held the position of Executive
Vice President of MLAM since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors in wishing
him well in his retirement from Merrill Lynch and are pleased that he will
continue as a member of the Fund's Board of Directors.
================================================================================
2
<PAGE>
MuniYield California Insured Fund II, Inc. April 30, 1999
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.
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, income 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 these securities.
3
<PAGE>
MuniYield California Insured Fund II, Inc. April 30, 1999
PROXY RESULTS
During the six-month period ended April 30, 1999, MuniYield California Insured
Fund II, Inc.'s Common Stock shareholders voted on the following proposals.
Proposals 1 and 2 were approved at a shareholders' meeting on April 21, 1999.
The meeting was adjourned with respect to Proposal 3. The description of each
proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- ------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
1. To elect the Fund's Directors: Terry K. Glenn 10,593,618 130,117
James H. Bodurtha 10,591,618 132,117
Herbert I. London 10,591,618 132,117
Robert R. Martin 10,591,618 132,117
Arthur Zeikel 10,591,618 132,117
- ------------------------------------------------------------------------------------------------------------------
<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. 10,507,138 16,268 200,328
- ------------------------------------------------------------------------------------------------------------------
3. To approve an amendment to the Articles Supplementary of the Fund. Adjourned Adjourned Adjourned
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
During the six-month period ended April 30, 1999, MuniYield California Insured
Fund II, Inc.'s Preferred Stock shareholders (Series A, B and C) voted on the
following proposals. Proposals 1 and 2 were approved at a shareholders' meeting
on April 21, 1999. The meeting was adjourned with respect to Proposal 3. The
description of each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- ------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn, James
H. Bodurtha, Herbert I. London, Robert R. Martin, Joseph L. May,
Andre F. Perold and Arthur Zeikel as follows:
Series A 1,799 0
Series B 1,733 0
Series C 1,547 0
- ------------------------------------------------------------------------------------------------------------------
<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 as follows:
Series A 1,799 0 0
Series B 1,732 1 0
Series C 1,547 0 0
- ------------------------------------------------------------------------------------------------------------------
3. To approve an amendment to the Articles Supplementary of the
Fund as follows:
Series A Adjourned Adjourned Adjourned
Series B Adjourned Adjourned Adjourned
Series C Adjourned Adjourned Adjourned
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
MuniYield California Insured Fund II, Inc. April 30, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California--96.5%
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $ 2,110 ABC, California, Unified School District, GO, Series A, 4.75% due 8/01/2022 (f) $ 2,004
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Alameda County, California, Water District Revenue Refunding Bonds,
4.75% due 6/01/2020 (h) 2,888
- -----------------------------------------------------------------------------------------------------------------------------------
Anaheim, California, Public Financing Authority, Lease Revenue Bonds
(Public Improvement Projects), Sub-Series C (f):
AAA Aaa 5,000 5.38%** due 9/01/2027 1,129
AAA Aaa 12,485 5.37%** due 9/01/2034 1,921
AAA Aaa 21,885 5.24%** due 9/01/2035 3,183
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,985 Arcadia, California, Unified School District, GO, Series B, 6.50% due 7/01/2015 (c) 2,246
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Berkeley, California, Unified School District, GO, Series C, 6.50% due 8/01/2004 (a)(i) 2,295
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,450 Big Bear Lake, California, Water Revenue Refunding Bonds, 6% due 4/01/2015 (h) 1,661
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,125 Burbank, California, Public Service Department, Electric Revenue Refunding Bonds,
4.75% due 6/01/2023 (f) 3,920
- -----------------------------------------------------------------------------------------------------------------------------------
California Educational Facilities Authority Revenue Bonds:
NR* Aaa 6,000 RITR, AMT, Series 37, 6.62% due 4/01/2028 (a)(j) 6,508
AAA Aaa 5,000 (Stanford University), Series N, 5.20% due 12/01/2027 5,056
- -----------------------------------------------------------------------------------------------------------------------------------
California HFA, Home Mortgage Revenue Bonds, AMT:
AAA Aaa 1,500 Series E, 6.15% due 8/01/2025 (d)(h) 1,588
AA- Aa2 5,570 Series F-1, 7% due 8/01/2026 (d) 6,012
AA- Aa2 955 Series H, 7.50% due 8/01/2025 (d) 976
AAA Aaa 5,500 Series I, 5.75% due 2/01/2029 (h) 5,729
- -----------------------------------------------------------------------------------------------------------------------------------
AA- Aa 3,850 California HFA, Revenue Bonds, RIB, AMT, Series B-2, 9.621% due 8/01/2023 (d)(j) 4,389
- -----------------------------------------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority Revenue Bonds:
AAA Aaa 4,000 (Kaiser Permanente), Series A, 5.50% due 6/01/2022 (f) 4,172
AAA NR* 5,000 RITR, Series 17, 6.32% due 8/15/2030 (h)(j) 5,276
AAA NR* 8,750 RITR, Series 26, 6.835% due 6/01/2022 (f)(j) 9,501
- -----------------------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 600 California Health Facilities Finance Authority, Revenue Refunding Bonds
(Adventist Hospital), VRDN, Series C, 4.20% due 9/01/2015 (h)(k) 600
- -----------------------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority, PCR, Refunding (Pacific Gas and
Electric), VRDN (k):
A1+ NR* 1,600 AMT, Series C, 4.25% due 11/01/2026 1,600
A1+ NR* 1,700 Series D, 4.10% due 11/01/2026 1,700
A1+ VMIG1+ 9,700 Series E, 4.10% due 11/02/2026 9,700
- -----------------------------------------------------------------------------------------------------------------------------------
NR* Aa2 100 California Pollution Control Financing Authority, Resource Recovery Revenue Bonds
(Delano Project), VRDN, AMT, 4.30% due 8/01/2019 (k) 100
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
VRDN Variable Rate Demand Notes
5
<PAGE>
MuniYield California Insured Fund II, Inc. April 30, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
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 (e)(g) $ 1,111
- -----------------------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 400 California State Economic Development Financing Authority Revenue Bonds
(California Independent Systems Project), VRDN, Series A, 4.15% due 4/01/2008 (k) 400
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 23,000 California State, GO, 6.25% due 10/01/2019 (h) 25,374
- -----------------------------------------------------------------------------------------------------------------------------------
AAA NR* 9,480 California State Public Works Board, Lease Revenue Bonds (California State University),
Series C, 5.40% due 10/01/2022 (h) 9,824
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,525 California State Public Works Board, Lease Revenue Refunding Bonds (Department of
Corrections--State Prisons), Series A, 5% due 12/01/2019 (a) 5,582
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,375 California State University and Colleges, Housing System Revenue Refunding Bonds,
5.90% due 11/01/2021 (c) 2,567
- -----------------------------------------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority, COP:
NR* VMIG1+ 3,300 (Continuing Care/University Project), VRDN, 4.20% due 11/15/2028 (k) 3,300
NR* NR* 5,750 RIB, Series 24, 6.435% due 12/01/2015 (f)(j) 6,184
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 7,045 California Statewide Communities Development Authority, Revenue Refunding Bonds
(Sherman Oaks Project), Series A, 5.50% due 8/01/2011 (a) 7,668
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,900 Chaffey, California, Union High School District, GO, Series A, 5.50% due 8/01/2023 (c) 3,058
- -----------------------------------------------------------------------------------------------------------------------------------
Coalinga, California, Public Financing Authority, Local Obligation Revenue Refunding Bonds,
Senior Lien, Series A (a):
AAA Aaa 495 5.75% due 9/15/2015 551
AAA Aaa 1,270 6% due 9/15/2018 1,445
- -----------------------------------------------------------------------------------------------------------------------------------
NR* NR* 5,240 Contra Costa, California, COP, RITR, Series 1, 5.375% due 11/01/2017 (h)(j) 5,618
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,450 Corona, California, Public Financing Authority, Water Revenue Bonds, 4.75% due 9/01/2023 (c) 5,178
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Cucamonga, California, County Water District, COP, Refunding (Facilities Refinancing),
6.50% due 9/01/2022 (c) 4,310
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Fairfield--Suisun, California, Sewer District, Sewer Revenue Refunding Bonds,
Series A, 6.25% due 5/01/2016 (h) 1,065
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,060 Fontana, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Southwest Industrial Park Project), 4.75% due 9/01/2026 (h) 1,945
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Fresno, California, Sewer Revenue Bonds, Series A-1, 5.25% due 9/01/2019 (a) 2,605
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Los Angeles, California, Airports Department, Airport Revenue Bonds (Ontario
International Airport), AMT, Series A, 6% due 5/15/2017 (c) 2,702
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,750 Los Angeles, California, Community College Refunding Bonds, COP,
Series A, 6% due 8/15/2020 (f) 4,034
- -----------------------------------------------------------------------------------------------------------------------------------
Los Angeles, California, Community Redevelopment Agency, Tax Allocation Refunding Bonds
(Bunker Hill), Series H (f):
AAA Aaa 1,500 6.50% due 12/01/2015 1,683
AAA Aaa 3,500 6.50% due 12/01/2016 3,917
- -----------------------------------------------------------------------------------------------------------------------------------
Los Angeles, California, Harbor Department Revenue Bonds, AMT:
NR* Aaa 7,000 RITR, Series RI-7, 7.995% due 11/01/2026 (j) 8,521
AA Aa3 3,525 Series B, 5.375% due 11/01/2023 3,587
AAA Aaa 5,000 Series B, 6.625% due 8/01/2025 (h) 5,471
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
MuniYield California Insured Fund II, Inc. April 30, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $11,600 Los Angeles, California, Parking Revenue Bonds, Series A, 5.25% due 5/01/2029 (a) $ 11,804
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,930 Los Angeles, California, Wastewater System Revenue Refunding Bonds, Series C,
4% due 6/01/2016 (h) 2,627
- -----------------------------------------------------------------------------------------------------------------------------------
M-S-R Public Power Agency, California, Revenue Bonds (San Juan Project), Series E (h):
AAA Aaa 2,000 6.75% due 7/01/2011 2,163
AAA Aaa 1,000 6.50% due 7/01/2017 1,074
- -----------------------------------------------------------------------------------------------------------------------------------
M-S-R Public Power Agency, California, Revenue Refunding Bonds (San Juan Project) (h):
AAA Aaa 1,500 Series D, 6.75% due 7/01/2020 (b) 1,807
AAA Aaa 2,980 Series H, 5.90% due 7/01/2020 2,987
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,200 Madera, California, Redevelopment Agency, Tax Allocation Bonds (Tax Allocation
Redevelopment Project), 4.75% due 9/01/2028 (f) 2,087
- -----------------------------------------------------------------------------------------------------------------------------------
AAA NR* 1,500 Madera County, California, COP, Refunding Bonds (Valley Children's Hospital Project),
4.75% due 3/15/2018 (h) 1,456
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,250 Metropolitan Water District, Southern California, GO, Election 1966, Series H,
4.75% due 3/01/2037 2,108
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,960 Modesto, California, Public Financing Authority, Lease Revenue Refunding Bonds
(Capital Improvements and Refinancing Project), 4.75% due 9/01/2024 (a) 4,701
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Monterey County, California, COP (Natividad Medical Center Improvement), Series E,
4.75% due 8/01/2025 (h) 4,727
- -----------------------------------------------------------------------------------------------------------------------------------
Northern California Power Agency, Multiple Capital Facilities Revenue Bonds, Series A (h):
AAA Aaa 865 6.50% due 8/01/2002 (i) 959
AAA Aaa 1,135 6.50% due 8/01/2012 1,245
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Northern California Transmission Revenue Bonds (California--Oregon Transmission Project),
Series A, 6.50% due 5/01/2016 (h) 2,180
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Oakland, California, Redevelopment Agency, Tax Allocation Refunding Bonds, INFLOS,
8.777% due 9/01/2019 (h)(j) 1,146
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,360 Orchard, California, School District, GO, Series A, 6.50% due 8/01/2019 (c) 2,692
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,450 Palm Springs, California, Financing Authority, Airport Passenger Facility Charge
Revenue Bonds (Palm Springs Regional Airport), AMT, 5.50% due 1/01/2028 (f) 1,500
- -----------------------------------------------------------------------------------------------------------------------------------
AAA NR* 5,070 Palmdale, California, COP (Courthouse and City Hall Project), 4.75% due 9/01/2029 (a) 4,775
- -----------------------------------------------------------------------------------------------------------------------------------
A+ A1 2,000 Pasadena, California, COP, Refunding (Old Pasadena Parking Facility Project),
6.25% due 1/01/2018 2,283
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 7,500 Pioneers Memorial Hospital District, California, GO, Refunding, 6.50% due 10/01/2024 (a) 8,463
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 8,000 Port Oakland, California, Port Revenue Bonds, AMT, Series E, 6.50% due 11/01/2016 (h) 8,735
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,755 Poway, California, Unified School District, Special Tax Refunding Bonds
(Community Facilities District No. 1), 4.75% due 10/01/2023 (h) 3,567
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Riverside County, California, Asset Leasing Corporation, Leasehold Revenue Refunding
Bonds (Riverside County Hospital Project), Series B, 5.70% due 6/01/2016 (h) 4,922
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
MuniYield California Insured Fund II, Inc. April 30, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
Sacramento, California, City Financing Authority, Lease Revenue Refunding Bonds:
AAA Aaa $10,500 Series A, 5.40% due 11/01/2020 (a) $ 11,121
A+ A1 4,100 Series B, 5.40% due 11/01/2020 4,259
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 7,500 Sacramento, California, Municipal Utility District, Electric Revenue Bonds, Series K,
5.25% due 7/01/2024 (a) 7,766
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 San Diego, California, IDR, Refunding (San Diego Gas & Electric Company), Series C,
5.90% due 9/01/2018 (f) 5,359
- -----------------------------------------------------------------------------------------------------------------------------------
San Diego, California, Public Facilities Financing Authority, Sewer Revenue
Bonds, Series A (c):
AAA Aaa 2,540 5% due 5/15/2014 2,598
AAA Aaa 5,000 5.25% due 5/15/2027 5,086
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 San Diego County, California, Water Authority, Water Revenue Bonds, COP, Series A,
4.75% due 5/01/2028 (c) 1,414
- -----------------------------------------------------------------------------------------------------------------------------------
San Francisco, California, City and County Airport Commission, International Airport
Revenue Bonds, AMT, Second Series:
AAA Aaa 3,500 Issue 5, 6.50% due 5/01/2019 (c) 3,898
AAA Aaa 3,000 Issue 6, 6.50% due 5/01/2018 (a) 3,341
AAA Aaa 2,000 Issue 6, 6.60% due 5/01/2020 (a) 2,236
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 San Francisco, California, City and County Airport Commission, International Airport
Revenue Bonds, Second Series, Issue 12-B, 5.625% due 5/01/2021 (c) 3,695
- -----------------------------------------------------------------------------------------------------------------------------------
San Francisco, California, City and County Airport Commission, International Airport
Revenue Refunding Bonds:
AAA NR* 1,335 Issue 1, 6.30% due 5/01/2002 (a)(i) 1,464
AAA NR* 1,605 Issue 1, 6.50% due 5/01/2002 (a)(i) 1,769
AAA Aaa 2,000 Issue 1, 6.30% due 5/01/2011 (a) 2,177
AAA Aaa 2,395 Issue 1, 6.50% due 5/01/2013 (a) 2,622
AAA NR* 1,675 Issue 2, 6.75% due 5/01/2003 (h)(i) 1,898
AAA Aaa 8,325 Issue 2, 6.75% due 5/01/2020 (h) 9,280
- -----------------------------------------------------------------------------------------------------------------------------------
San Francisco, California, City and County Redevelopment Agency, Lease Revenue
Refunding Bonds (George R. Moscone Convention Center) (f):
AAA Aaa 2,800 6.75% due 7/01/2015 3,196
AAA Aaa 3,050 6.75% due 7/01/2024 3,463
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,170 San Francisco State University, California, Revenue Bonds (Student Union), Series B,
4.20% due 11/01/2023 (h) 2,757
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 San Jose, California, Redevelopment Agency, Tax Allocation Bonds (Housing Set-Aside
Merged Area), AMT, Series E, 5.85% due 8/01/2027 (h) 5,383
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,450 San Mateo County, California, Joint Powers Authority, Lease Revenue Refunding Bonds
(Capital Projects Program), 5.125% due 7/01/2018 (h) 2,521
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,600 San Mateo County, California, Transportation District, Sales Tax Revenue Refunding Bonds,
Series A, 5.25% due 6/01/2019 (h) 1,667
- -----------------------------------------------------------------------------------------------------------------------------------
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 (h) 4,040
- -----------------------------------------------------------------------------------------------------------------------------------
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 (a) 3,276
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,225 Stockton, California, Revenue Bonds, COP (Wastewater System Project), Series A,
5.20% due 9/01/2029 (h) 4,261
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
MuniYield California Insured Fund II, Inc. April 30, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (concluded)
- -----------------------------------------------------------------------------------------------------------------------------------
Tustin, California, Unified School District, Special Tax Refunding Bonds (Community
Facilities District No. 88-1) (f):
AAA Aaa $ 4,000 4.375% due 9/01/2019 $ 3,676
AAA Aaa 5,735 4.50% due 9/01/2024 5,218
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Walnut, California, Public Financing Authority, Tax Allocation Revenue Refunding Bonds
(Walnut Improvement Project), 6.50% due 9/01/2022 (h) 1,646
- -----------------------------------------------------------------------------------------------------------------------------------
Westlands, California, Water District, COP, Series A (a):
AAA Aaa 1,165 5.25% due 3/01/2017 1,193
AAA Aaa 1,225 5.25% due 3/01/2018 1,250
- -----------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--1.2%
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Puerto Rico Public Buildings Authority Revenue Bonds, Guaranteed Government Facilities,
Series B, 5% due 7/01/2027 (a) 4,947
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$384,602)--97.7% 400,339
Other Assets Less Liabilities--2.3% 9,573
--------
Net Assets--100.0% $409,912
========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AMBAC Insured.
(b) Escrowed to maturity.
(c) FGIC Insured.
(d) FHA Insured.
(e) FHLMC Collateralized.
(f) FSA Insured.
(g) GNMA Collateralized.
(h) MBIA Insured.
(i) Prerefunded.
(j) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at April 30, 1999.
(k) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at April 30,
1999.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
+ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
QUALITY PROFILE
The quality ratings of securities in the Fund as of April 30, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ........................................................... 85.3%
AA/Aa ............................................................. 3.7
A/A ............................................................... 1.6
NR (Not Rated) .................................................... 2.9
Other+ ............................................................ 4.2
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
9
<PAGE>
MuniYield California Insured Fund II, Inc. April 30, 1999
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of April 30, 1999
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$384,601,936) (Note 1a) ........ $ 400,339,141
Cash ................................................................... 37,301
Receivables:
Securities sold ...................................................... $ 8,947,558
Interest ............................................................. 6,446,125 15,393,683
-------------
Prepaid expenses and other assets ...................................... 15,320
-------------
Total assets ........................................................... 415,785,445
-------------
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ................................................. 5,619,900
Investment adviser (Note 2) .......................................... 180,290
Dividends to shareholders (Note 1e) .................................. 28,911 5,829,101
-------------
Accrued expenses and other liabilities ................................. 44,789
-------------
Total liabilities ...................................................... 5,873,890
-------------
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ............................................................. $ 409,911,555
=============
- ------------------------------------------------------------------------------------------------------------------------------
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 (18,327,938 shares issued
and outstanding) ..................................................... $ 1,832,794
Paid-in capital in excess of par ....................................... 263,332,050
Undistributed investment income--net ................................... 2,788,309
Accumulated realized capital losses on investments--net ................ (3,778,803)
Unrealized appreciation on investments--net ............................ 15,737,205
-------------
Total--Equivalent to $15.27 net asset value per Common Stock
(market price--$15.375) ................................................ 279,911,555
-------------
Total capital .......................................................... $ 409,911,555
=============
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
10
<PAGE>
MuniYield California Insured Fund II, Inc. April 30, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Six Months Ended
April 30, 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $10,824,469
(Note 1d):
- -----------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) .............................. $ 1,035,452
Commission fees (Note 4) ....................................... 157,033
Accounting services (Note 2) ................................... 47,345
Transfer agent fees ............................................ 46,987
Professional fees .............................................. 41,545
Printing and shareholder reports ............................... 12,919
Listing fees ................................................... 12,426
Custodian fees ................................................. 11,605
Directors' fees and expenses ................................... 11,032
Pricing fees ................................................... 8,407
Other .......................................................... 19,442
-----------
Total expenses ................................................. 1,404,193
-----------
Investment income~--~net ....................................... 9,420,276
-----------
- -----------------------------------------------------------------------------------------------------------------
Realized & Unreal- Realized gain on investments ................................... 1,495,896
ized Gain (Loss) on Change in unrealized appreciation on investments~--~net ........ (6,009,013)
Investments--Net -----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ........... $ 4,907,159
===========
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 1999 Oct. 31, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ........................................ $ 9,420,276 $19,669,107
Realized gain on investments--net ............................. 1,495,896 15,896,436
Change in unrealized appreciation on investments--net ......... (6,009,013) (4,598,254)
------------ ------------
Net increase in net assets resulting from operations .......... 4,907,159 30,967,289
------------ ------------
- --------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Common Stock ................................................ (8,428,912) (15,562,259)
Shareholders Preferred Stock ............................................. (789,712) (3,644,922)
(Note 1e): Realized gain on investments--net:
Common Stock ................................................ (11,538,906) (887,345)
Preferred Stock ............................................. (1,991,138) (864,704)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ................................. (22,748,668) (20,959,230)
------------ ------------
- --------------------------------------------------------------------------------------------------------------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends and distributions ................... 4,084,194 --
(Note 4): ------------ ------------
- --------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets ....................... (13,757,315) 10,008,059
Beginning of period ........................................... 423,668,870 413,660,811
------------ ------------
End of period* ................................................ $409,911,555 $423,668,870
============ ============
- --------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net .......................... $ 2,788,309 $ 2,586,657
============ ============
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
MuniYield California Insured Fund II, Inc. April 30, 1999
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended For the Year Ended October 31,
April 30, --------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ........... $ 16.25 $ 15.70 $ 15.04 $ 14.92 $ 13.39
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ......................... .51 1.08 1.10 1.10 1.13
Realized and unrealized gain (loss) on
investments--net ............................... (.24) .63 .68 .13 1.61
-------- -------- -------- -------- --------
Total from investment operations ............... .27 1.71 1.78 1.23 2.74
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net ....................... (.46) (.86) (.88) (.87) (.87)
Realized gain on investments--net ............ (.64) (.05) --+ -- (.07)
-------- -------- -------- -------- --------
Total dividends and distributions to
Common Stock shareholders ...................... (1.10) (.91) (.88) (.87) (.94)
-------- -------- -------- -------- --------
Capital charge resulting from issuance of
Common Stock ................................... -- -- (.01) -- --
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:++
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net ..................... (.04) (.20) (.23) (.24) (.26)
Realized gain on investments--net .......... (.11) (.05) --+ -- (.01)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity ....... (.15) (.25) (.23) (.24) (.27)
-------- -------- -------- -------- --------
Net asset value, end of period ................. $ 15.27 $ 16.25 $ 15.70 $ 15.04 $ 14.92
======== ======== ======== ======== ========
Market price per share, end of period .......... $ 15.375 $16.0625 $15.0625 $ 14.125 $ 13.125
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share ................ 2.57%+++ 13.04% 13.20% 14.52% 19.00%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share ............. .69%+++ 9.72% 10.82% 7.26% 19.97%
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ....................................... .68%* .66% .68% .69% .71%
Net Assets:*** ======== ======== ======== ======== ========
Investment income--net ......................... 4.54%* 4.72% 4.97% 4.99% 5.42%
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Stock, end of
Data: period (in thousands) .......................... $279,912 $293,669 $283,661 $190,653 $189,124
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) ................................. $130,000 $130,000 $130,000 $ 90,000 $ 90,000
======== ======== ======== ======== ========
Portfolio turnover ............................. 30.79% 103.93% 85.35% 119.52% 114.78%
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 ...................... $ 3,153 $ 3,259 $ 3,182 $ 3,118 $ 3,101
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends Per Share Series A--Investment income--net ............... $ 155 $ 734 $ 809 $ 870 $ 948
On Preferred Stock ======== ======== ======== ======== ========
Outstanding: Series B--Investment income--net ............... $ 167 $ 672 $ 821 $ 844 $ 904
======== ======== ======== ======== ========
Series C--Investment income--net ............... $ 131 $ 697 $ 574 -- --
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Amount is less than $.01 per share.
++ The Fund's Preferred Stock was issued on November 30, 1992 (Series A and
B) and January 27, 1997 (Series C).
+++ Aggregate total investment return.
See Notes to Financial Statements.
12
<PAGE>
MuniYield California Insured Fund II, Inc. April 30, 1999
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's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. The Fund determines and makes available for
publication the net asset value of its Common Stock on a weekly basis. The
Fund's Common Stock is listed on the New York Stock Exchange under the symbol
MCA. The following is a summary of significant accounting policies followed by
the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options 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.
13
<PAGE>
MuniYield California Insured Fund II, Inc. April 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
(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 monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.50% of the Fund's average weekly net assets, 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 six
months ended April 30, 1999 were $121,405,014 and $145,076,852, respectively.
Net realized gains for the six months ended April 30, 1999 and net unrealized
gains as of April 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments ............................ $ 1,491,411 $15,737,205
Short-term investments ........................... 4,485 --
----------- -----------
Total ............................................ $ 1,495,896 $15,737,205
=========== ===========
- --------------------------------------------------------------------------------
As of April 30, 1999, net unrealized appreciation for Federal income tax
purposes aggregated $15,737,205, of which $16,729,900 related to appreciated
securities and $992,695 related to depreciated securities. The aggregate cost of
investments at April 30, 1999 for Federal income tax purposes was $384,601,936.
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 six months ended April 30, 1999
increased by 260,901 as a result of dividend reinvestment and during the year
ended October 31, 1998 remained constant.
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
April 30, 1999 were as follows: Series A, 3.19%; Series B, 3.35%; and Series C,
3.55%.
Shares issued and outstanding during the six months ended April 30, 1999 and the
year ended October 31, 1998 remained constant.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the six months ended April 30, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an affiliate of FAM, earned $71,049 as commissions.
5. Subsequent Event:
On May 6, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.067189 per share,
payable on May 27, 1999 to shareholders of record as of May 21, 1999.
14
<PAGE>
MuniYield California Insured Fund II, Inc. April 30, 1999
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders 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.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund's management that they
also expect to resolve the Year 2000 Problem, and the Fund's management will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the securities in which
the Fund invests and this could hurt the Fund's investment returns.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Roberto Roffo, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
- --------------------------------------------------------------------------------
Gerald M. Richard, Treasurer and Philip M. Mandel, Secretary of MuniYield
California Insured Fund II, Inc. have recently retired. Their colleagues at
Merrill Lynch Asset Management, L.P. join the Fund's Board of Directors in
wishing Mr. Richard and Mr. Mandel well in their retirements.
- --------------------------------------------------------------------------------
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 Whitehall Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MCA
15
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of MuniYield California Insured Fund II, Inc. for their
information. It is not a prospectus, circular or representation intended for use
in the purchase of shares of the Fund or any securities mentioned in the report.
Past performance results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its Common Stock by
issuing Preferred Stock to provide the Common Stock shareholders with a
potentially higher rate of return. Leverage creates risks for Common Stock
shareholders, including the likelihood of greater volatility of net asset value
and market price of shares of the Common Stock, and the risk that fluctuations
in the short-term dividend rates of the Preferred Stock may affect the yield to
Common Stock shareholders. Statements and other information herein are as dated
and are subject to change.
MuniYield California
Insured Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011 #16388--4/99
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