-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kt1lXzXqKuTbYgHrKNFKFWNiGM3aH/y0xWF8HW6nE26XEksGSNELCNWMYFn2dJqh Vdws4HXUhF9c1vExOLqt1g== 0001005477-01-003595.txt : 20010606 0001005477-01-003595.hdr.sgml : 20010606 ACCESSION NUMBER: 0001005477-01-003595 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010430 FILED AS OF DATE: 20010605 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNIYIELD CALIFORNIA INSURED FUND II INC CENTRAL INDEX KEY: 0000888410 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 223194459 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06692 FILM NUMBER: 1654495 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092822800 N-30D 1 0001.txt SEMI-ANNUAL REPORT [LOGO] Merrill Lynch Investment Managers Semi-Annual Report April 30, 2001 MuniYield California Insured Fund II, Inc. www.mlim.ml.com MUNIYIELD CALIFORNIA INSURED FUND II, INC. 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. MuniYield California Insured Fund II, Inc., April 30, 2001 DEAR SHAREHOLDER For the six months ended April 30, 2001, the Common Stock of MuniYield California Insured Fund II, Inc. earned $0.404 per share income dividends, which included earned and unpaid dividends of $0.067. This represents a net annualized yield of 5.65%, based on a month-end per share net asset value of $14.41. Over the same period, the total investment return on the Fund's Common Stock was +4.11%, based on a change in per share net asset value from $14.24 to $14.41, and assuming reinvestment of $0.404 per share income dividends. For the six-month period ended April 30, 2001, the Fund's Auction Market Preferred Stock had an average yield of 3.93% for Series A, 3.43% for Series B and 3.30% for Series C. The Municipal Market Environment During the six months ended April 30, 2001, the direction of long-term fixed- income bond yields was affected by the continued decline in US economic activity, volatile US equity markets, and most importantly, the reaction of the Federal Reserve Board to these factors. A preliminary estimate for the first quarter of 2001 gross national product growth was recently released at 2%, much higher than expected by most economic analysts. While this estimate is subject to revision in the coming months, its initial level denotes that US economic activity remains far below its growth potential. Additionally, inflationary pressures have remained well contained, largely in the 2%-3% range. These factors combined to promote a very favorable financial environment for bonds, and when coupled with significant declines in US equity markets in late 2000, especially the NASDAQ, pushed US Treasury bond yields lower. By mid-December, the Federal Reserve Board announced that economic conditions warranted the cessation of the series of short-term interest rate increases. Given a supportive economic environment and, at least, a neutral Federal Reserve Board, investors were free again to focus on the ongoing US Treasury debt reduction programs and forecasts of sizable Federal budgetary surpluses going forward. Many analysts and investors concluded that there would be a significant future shortage of longer-maturing US Treasury securities. These factors combined to help push US Treasury bond yields significantly lower. In early January 2001, the Federal Reserve Board lowered short-term interest rates by 50 basis points (0.50%), citing declining consumer confidence and weakening industrial production and retail sales growth. Similar reasons were given for an additional 50 basis point reduction in short-term interest rates by the Federal Reserve Board at the end of January 2001. These interest rate cuts triggered a significant rebound in many US equity indexes, reducing the appeal of a large number of US fixed-income securities. Additionally, many investors, believing that the Federal Reserve Board's actions in January 2001 as well as those anticipated in the coming months would quickly restore US economic growth to earlier levels, sold US Treasury bonds to realize recent profits. At the end of January 2001, long-term US Treasury bonds yielded approximately 5.50%, a decline of more than 25 basis points since the end of October 2000. In response to weakening employment, a decline in business investments and profits, and fears of ongoing weak consumer spending, the Federal Reserve Board continued to lower short-term interest rates in March and April in an effort to foster higher US economic activity. Long-term taxable fixed-income interest rates responded by declining to recent historic lows. By late March 2001, long-term US Treasury bond yields declined an additional 25 basis points to 5.26%. However, in April, US equity markets, particularly the NASDAQ, rallied strongly on the expectation that the Federal Reserve Board would take steps to restore economic activity and corporate profitability. Throughout much of April many investors reallocated assets out of US Treasury securities into equities. Corporate bond issuance remained heavy, providing an additional investment alternative to US Treasury issues. Under these various pressures, US Treasury bond prices declined sharply and yields rose to 5.78% by the end of April. During the past six months, long-term US Treasury bond yields, although exhibiting considerable volatility, remained unchanged. By April 2001, the tax-exempt bond market also reacted to the Federal Reserve Board's actions and equity market volatility, but its reaction was muted in both intensity and degree. Throughout most of the past six months, long-term municipal bond yields traded in a range between 5.45%-5.60%. In mid-March, the tax-exempt bond market rallied to 5.40%, following the Federal Reserve Board's most recent monetary easing. With tax-exempt bond yield ratios in excess of 95% relative to their US Treasury counterparts during most of the period, investor demand was particularly strong during periods of declining equity prices. Strong equity markets in April 2001, as well as the possibility that the Federal Reserve Board was close to the end of its interest rate reduction cycle, lowered much of the investor demand and long-term tax-exempt bond yields rose throughout April. As measured by the Bond Buyer Revenue Bond Index, long-term, uninsured tax-exempt bond yields rose to approximately 5.63% at the end of the period. Despite the price reversal in April, long-term municipal bond yields declined more than 10 basis points. The recent relative outperformance of the tax-exempt bond market was particularly impressive given the dramatic increase in long-term municipal bond issuance during April 2001. Historically low municipal bond yields continued to allow municipalities to refund outstanding, higher-couponed debt. Also, as yields rose in early April, tax-exempt issuers rushed to issue new financing, fearing higher yields in the coming months. During the past six months, more than $115 billion in long-term tax-exempt bonds was issued, an increase of over 25% compared to the same period a year ago. During the three-month period ended April 30, 2001, tax-exempt bond issuance was particularly heavy with more than $66 billion in long-term municipal bonds underwritten, an increase of over 40% compared to the same period ended April 30, 2000. More than $20 billion in municipal securities was issued in April 2001, a 20% increase compared to April 2000. Historically, April has been a period of weak demand for tax-exempt products as investors are often forced to liquidate bond positions to meet Federal and state tax payments. In April 2001, there was no appreciable selling by retail accounts. It has been noted that thus far in 2001, new net cash inflows into municipal bond mutual funds have exceeded $4 billion compared to net new cash outflows of nearly $9 billion for the same period a year ago. This suggests that the positive technical structure of the municipal market has remained intact. Also, the coming months of June and July tend to be periods of strong retail demand in response to the larger-coupon income payments and proceeds from bond maturities these months generate. Additionally, short-term tax-exempt interest rates are poised to move lower. Seasonal tax pressures have kept short-term municipal rates artificially high, although not as high as in recent years. We believe all of these factors should enhance the tax-exempt market's technical position in the coming months. Looking forward, the municipal market's direction appears uncertain. Should the US economy materially weaken into late summer, the Federal Reserve Board may be forced to ease monetary policy to a greater extent than investors currently expect. The prospect of two or three additional interest rate easings may push fixed-income bond yields, including municipal bond yields, lower. However, should the cumulative 200 basis point reduction in short-term interest rates by the Federal Reserve Board and the proposed Federal tax reform combine to quickly restore consumer confidence and economic activity, tax-exempt bond rates may not decline further. Given the strong technical position of the municipal market, we believe the tax-exempt market is poised to continue to outperform its taxable counterpart in the coming months. Portfolio Strategy For the six-month period ended April 30, 2001, we had a duration that was higher than the Fund's competitive group average. This reflected our 2 & 3 MuniYield California Insured Fund II, Inc., April 30, 2001 belief that municipal bond yields were attractive relative to a slowing US domestic economy. We also believed that the Federal Reserve Board would lower short-term interest rates to bolster US economic activity and that long-term interest rates would decline in concert. In late 2000 as yields declined, we sold our lower-coupon bonds with long maturities and replaced them with higher-couponed issues in the intermediate part of the yield curve. This allowed us to capture a significant amount of the yield available in the municipal yield curve, while muting the overall volatility of the Fund. Our strategy worked well as it enhanced the Fund's yield and, as yields rose in early 2001, the Fund was able to preserve much of the gains realized in late 2000. Looking forward, we expect to concentrate our investments in the 10-year-20-year range maturity sector. This portion of the yield curve is expected to outperform longer maturities as financial markets start to anticipate a US economic recovery and long-term interest rates begin to rise. The Federal Reserve Board's 200 basis point decrease in short-term interest rates by April 30, 2001 provided a beneficial effect on the Fund's borrowing costs. Despite recent seasonal tax pressures on short-term interest rates, borrowing costs were in the 3.5%-3.75% range for much of the period. Short-term tax-exempt interest rates are expected to fall into the 3% range. This decline in borrowing costs is expected to generate a significant yield enhancement to benefit the Fund's Common Stock shareholders from leveraging of the Preferred Stock. However, should the spread between short-term and long-term interest rates narrow, the benefits of leverage will decline and, as a result, reduce the yield on the Fund's Common Stock. (See page 1 of this report to shareholders for a complete explanation of the benefits and risks of leveraging.) 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 May 23, 2001 PROXY RESULTS During the six-month period ended April 30, 2001, MuniYield California Insured Fund II, Inc.'s Common Stock shareholders voted on the following proposal. The proposal was approved at a shareholders' meeting on April 25, 2001. The description of the proposal and number of shares voted are as follows:
- ---------------------------------------------------------------------------------------- Shares Voted Shares Withheld For From Voting - ---------------------------------------------------------------------------------------- 1. To elect the Fund's Directors: Terry K. Glenn 13,010,459 226,914 James H. Bodurtha 13,009,907 227,466 Herbert I. London 13,004,100 233,273 Roberta Cooper Ramo 13,005,359 232,014 - ----------------------------------------------------------------------------------------
During the six-month period ended April 30, 2001, MuniYield California Insured Fund II, Inc.'s Preferred Stock shareholders (Series A, B and C) voted on the following proposal. The proposal was approved at a shareholders' meeting on April 25, 2001. The description of the proposal and number of shares voted are as follows:
- ---------------------------------------------------------------------------------------- Shares Voted Shares Withheld For From Voting - ---------------------------------------------------------------------------------------- 1. To elect the Fund's Board of Directors: Terry K. Glenn, James H. Bodurtha, Herbert I. London, Joseph L. May, Andre F. Perold and Roberta Cooper Ramo as follows: Series A 1,500 287 Series B 1,693 100 Series C 1,579 0 - ----------------------------------------------------------------------------------------
4 & 5 MuniYield California Insured Fund II, Inc., April 30, 2001 SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Ratings Ratings Amount Issue Value ==================================================================================================================================== STATE California--96.1% AAA Aaa $ 3,500 ABAG Finance Authority for Nonprofit Corporations, California, COP (Children's Hospital Medical Center), 6% due 12/01/2029 (a) $ 3,729 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,985 Arcadia, California, Unified School District, GO, Series B, 6.50% due 7/01/2015 (c) 2,184 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 3,675 Bakersfield, California, COP, Refunding (Convention Center Expansion Project), 5.80% due 4/01/2017 (i) 3,852 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,450 Big Bear Lake, California, Water Revenue Refunding Bonds, 6% due 4/01/2015 (i) 1,624 - ------------------------------------------------------------------------------------------------------------------------------------ California Community College Financing Authority, Lease Revenue Bonds, Series A (i): AAA Aaa 3,215 5.95% due 12/01/2022 3,442 AAA Aaa 1,100 6% due 12/01/2029 1,177 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 6,100 California Educational Facilities Authority Revenue Bonds, Trust Receipts, AMT, Class R, Series 11, 6.674% due 4/01/2028 (a)(k) 6,286 - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aa1 2,750 California Educational Facilities Authority, Revenue Refunding Bonds, RIB, Series 147, 6.58% due 10/01/2027 (k) 2,838 - ------------------------------------------------------------------------------------------------------------------------------------ California HFA, Home Mortgage Revenue Bonds, AMT: AAA Aaa 1,395 Series E, 6.15% due 8/01/2025 (i) 1,444 AA- Aa2 1,140 Series F-1, 7% due 8/01/2026 (d) 1,166 - ------------------------------------------------------------------------------------------------------------------------------------ A1+ VMIG1@ 600 California HFA, M/F Housing Revenue Bonds, VRDN, AMT, Series C, 4.55% due 2/01/2033 (l) 600 - ------------------------------------------------------------------------------------------------------------------------------------ AA- Aa2 3,450 California HFA Revenue Bonds, RIB, AMT, Series B-2, 8.959% due 8/01/2023 (d)(k) 3,704 - ------------------------------------------------------------------------------------------------------------------------------------ California Health Facilities Finance Authority Revenue Bonds (Kaiser Permanente), RIB (g)(k): AAA NR* 8,750 Series 26, 6.56% due 6/01/2022 9,011 NR* Aaa 6,625 Series 152, 6.58% due 6/01/2022 6,823 - ------------------------------------------------------------------------------------------------------------------------------------ A1+ VMIG1@ 800 California Health Facilities Finance Authority, Revenue Refunding Bonds (Adventist Hospital), VRDN, Series A, 4.40% due 9/01/2028 (i)(l) 800 - ------------------------------------------------------------------------------------------------------------------------------------ California Pollution Control Financing Authority, PCR, Refunding (Pacific Gas and Electric), VRDN (l): A1+ NR* 13,500 AMT, Series B, 5% due 11/01/2026 13,500 A1+ NR* 4,000 Series B, 6% due 12/01/2016 4,000 A1+ NR* 2,800 Series C, 5.70% due 11/01/2026 2,800 - ------------------------------------------------------------------------------------------------------------------------------------ California Rural Home Mortgage Finance Authority, S/F Mortgage Revenue Bonds (Mortgage-Backed Securities Program), AMT: AAA NR* 4,305 Series A, 6.35% due 12/01/2029 (e)(f) 4,473 NR* Aaa 1,000 Series A-1, 6.90% due 12/01/2024 (e)(h) 1,087 AAA NR* 3,250 Series B, 6.25% due 12/01/2031 (f) 3,447 - ------------------------------------------------------------------------------------------------------------------------------------ California State, GO: AAA NR* 2,500 6.60% due 2/01/2010 (c) 2,868 AAA Aaa 18,000 6.25% due 10/01/2019 (i) 18,862 AAA Aaa 10,000 4.50% due 12/01/2024 (c) 8,634 - ------------------------------------------------------------------------------------------------------------------------------------ California State, GO, Refunding: AAA Aaa 5,500 5.75% due 2/01/2011 (c) 6,056 AAA Aaa 1,000 5.50% due 3/01/2012 (c) 1,063 AAA NR* 4,500 5.50% due 3/01/2012 (g) 4,784 AAA Aaa 15,000 5.50% due 3/01/2013 (c) 15,827 AAA Aaa 10,000 5.50% due 3/01/2015 (a) 10,392 - ------------------------------------------------------------------------------------------------------------------------------------ California State, GO, Refunding, Veterans, AMT, Series B: AAA Aaa 4,690 5.45% due 12/01/2017 (i) 4,632 AAA Aaa 15,200 5.70% due 12/01/2032 (a) 15,122 - ------------------------------------------------------------------------------------------------------------------------------------ California State Public Works Board, Lease Revenue Refunding Bonds: A Aa3 1,000 (California Community Colleges), Series A, 5.25% due 12/01/2014 1,006 AAA Aaa 4,765 (Department of Corrections), Series B, 5.25% due 1/01/2012 (a) 5,044 AAA Aaa 8,675 (Department of Corrections), Series B, 5.625% due 11/01/2016 (i) 8,994 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,375 California State University and Colleges, Housing System Revenue Refunding Bonds, 5.90% due 11/01/2021 (c) 2,529 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,500 California State University and Colleges, Student Union Revenue Bonds (Chico), Series B, 4.375% due 11/01/2028 (i) 2,077 - ------------------------------------------------------------------------------------------------------------------------------------ California Statewide Communities Development Authority, COP: NR* VMIG1@ 900 (Continuing Care/University Project), VRDN, 4.40% due 11/15/2028 (l) 900 AAA Aaa 4,100 (Kaiser Permanente), 5.30% due 12/01/2015 (g) 4,186 - ------------------------------------------------------------------------------------------------------------------------------------ California Statewide Communities Development Authority, Revenue Refunding Bonds (a): NR* Aaa 3,520 RIB, Series 151, 6.58% due 8/01/2011 (k) 4,051 AAA Aaa 1,345 (Sherman Oaks Project), Series A, 5.50% due 8/01/2013 1,431 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 4,600 Ceres, California, Redevelopment Agency, Tax Allocation Bonds (Ceres Redevelopment Project Area Number 1), 5.75% due 11/01/2030 (i) 4,805 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,330 Chaffey, California, Unified High School District, GO, Series B, 5.50% due 8/01/2013 (c) 1,412 - ------------------------------------------------------------------------------------------------------------------------------------ Coalinga, California, Public Financing Authority, Local Obligation Revenue Refunding Bonds, Senior Lien, Series A (a): AAA Aaa 495 5.75% due 9/15/2015 542 AAA Aaa 1,270 6% due 9/15/2018 1,413 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 10,480 Contra Costa County, California, COP, Refunding (Merrithew Memorial Hospital Project), 5.375% due 11/01/2017 (i) 10,634 - ------------------------------------------------------------------------------------------------------------------------------------ Eastern Municipal Water District, California, Water and Sewer Revenue Refunding Bonds, COP, Series A (c): AAA Aaa 3,620 5.25% due 7/01/2016 3,721 AAA Aaa 4,660 5.25% due 7/01/2017 4,753 - ------------------------------------------------------------------------------------------------------------------------------------
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 INFLOS Inverse Floating Rate Municipal Bonds M/F Multi-Family PCR Pollution Control Revenue Bonds RIB Residual Interest Bonds RITR Residual Interest Trust Receipts S/F Single-Family VRDN Variable Rate Demand Notes 6 & 7 MuniYield California Insured Fund II, Inc., April 30, 2001 SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Ratings Ratings Amount Issue Value ==================================================================================================================================== STATE California (concluded) El Monte, California, City School District, GO, Refunding, Series A (g): AAA Aaa $1,000 6.25% due 5/01/2020 $1,098 AAA Aaa 1,500 6.25% due 5/01/2025 1,640 - ------------------------------------------------------------------------------------------------------------------------------------ Los Angeles, California, Community Redevelopment Agency, Tax Allocation Refunding Bonds: AAA Aaa 1,500 (Bunker Hill), Series H, 6.50% due 12/01/2015 (g) 1,628 AAA Aaa 3,500 (Bunker Hill), Series H, 6.50% due 12/01/2016 (g) 3,799 AAA Aaa 2,395 (Hollywood Redevelopment Project), Series C, 5.50% due 7/01/2016 (i) 2,545 - ------------------------------------------------------------------------------------------------------------------------------------ Los Angeles, California, Department of Airports, Airport Revenue Bonds, AMT (c): AAA Aaa 1,000 (Los Angeles International Airport), Series D, 5.625% due 5/15/2012 1,040 AAA Aaa 2,500 (Ontario International Airport), Series A, 6% due 5/15/2017 2,608 - ------------------------------------------------------------------------------------------------------------------------------------ Los Angeles, California, Department of Water and Power, Electric Plant Revenue Refunding Bonds (i): AAA Aaa 3,400 5.50% due 2/15/2014 3,490 AAA Aaa 3,000 6% due 2/15/2016 3,225 AAA Aaa 2,000 5.875% due 2/15/2020 2,062 AAA Aaa 2,500 6% due 2/15/2030 2,592 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 8,000 Los Angeles, California, Department of Water and Power, Waterworks Revenue Bonds, 6.10% due 10/15/2009 (c)(j) 9,129 - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aaa 7,000 Los Angeles, California, Harbor Department Revenue Bonds, Trust Receipts, AMT, Class R, Series 7, 8.048% due 11/01/2026 (i)(k) 7,923 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,500 M-S-R Public Power Agency, California, Revenue Refunding Bonds (San Juan Project), Series D, 6.75% due 7/01/2020 (b)(i) 1,770 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 3,000 Metropolitan Water District of Southern California, Waterworks Revenue Refunding Bonds, Series A, 5.375% due 7/01/2012 (i) 3,174 - ------------------------------------------------------------------------------------------------------------------------------------ Monrovia, California, Unified School District, GO, Series B (c): AAA Aaa 1,900 5.63%** due 8/01/2026 456 AAA Aaa 4,525 5.65%** due 8/01/2029 912 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 5,715 Newhall, California, School District, GO, Series A, 6.40% due 5/01/2025 (g) 6,308 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 965 Oakland, California, Redevelopment Agency Tax Allocation Refunding Bonds, INFLOS, 8.27% due 9/01/2019 (i)(k) 1,049 - ------------------------------------------------------------------------------------------------------------------------------------ Oakland, California, State Building Authority, Lease Revenue Bonds (Elihu M. Harris), Series A (a): AAA Aaa 1,000 5.50% due 4/01/2011 1,065 AAA Aaa 2,000 5.50% due 4/01/2014 2,091 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 7,260 Orange County, California, Recovery COP, Refunding, Series A, 6% due 7/01/2026 (i) 7,751 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,360 Orchard, California, School District, GO, Series A, 6.50% due 8/01/2005 (c)(j) 2,662 - ------------------------------------------------------------------------------------------------------------------------------------ A+ A1 2,000 Pasadena, California, COP, Refunding (Old Pasadena Parking Facility Project), 6.25% due 1/01/2018 2,250 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 7,500 Pioneers Memorial Hospital District, California, GO, Refunding, 6.50% due 10/01/2024 (a) 8,291 - ------------------------------------------------------------------------------------------------------------------------------------ AAAr Aaa 5,000 Port Oakland, California, RITR, AMT, Class R, Series 5, 7.084% due 11/01/2012 (c)(k) 5,683 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 3,750 Port Oakland, California, Revenue Bonds, AMT, Series K, 5.75% due 11/01/2029 (c) 3,883 - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aaa 2,250 Riverside County, California, Asset Leasing Corporation, Leasehold Revenue Refunding Bonds, RIB, Series 148, 6.98% due 6/01/2016 (i)(k) 2,556 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 5,000 Roseville, California, Special Tax Refunding Bonds (Community Facilities District 1-- Northwest), 4.75% due 9/01/2020 (g) 4,630 - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aaa 2,870 San Bernardino County, California, S/F Home Mortgage Revenue Refunding Bonds, AMT, Series A-1, 6.25% due 12/01/2031 (f) 3,034 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 5,200 San Diego County, California, COP (Salk Institute for Bio Studies), 5.75% due 7/01/2031 (i) 5,413 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,500 San Diego County, California, Water Authority, COP, Series A, 4.75% due 5/01/2028 (c) 1,347 - ------------------------------------------------------------------------------------------------------------------------------------ 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) 3,752 AAA Aaa 3,000 AMT, Issue 6, 6.50% due 5/01/2018 (a) 3,216 AAA Aaa 2,000 AMT, Issue 6, 6.60% due 5/01/2020 (a) 2,149 AAA Aaa 3,000 Issue 12-B, 5.625% due 5/01/2021 (c) 3,063 AAA Aaa 4,660 Issue 21, 4.50% due 5/01/2023 (i) 4,058 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 4,250 San Francisco, California, City and County Airport Commission, International Airport Revenue Refunding Bonds, Second Series, Issue 20, 4.50% due 5/01/2026 (i) 3,646 - ------------------------------------------------------------------------------------------------------------------------------------ San Francisco, California, City and County Redevelopment Agency, Lease Revenue Refunding Bonds (George R. Moscone Convention Center) (g): AAA Aaa 2,800 6.75% due 7/01/2015 3,087 AAA Aaa 3,050 6.75% due 7/01/2024 3,366 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 3,170 San Francisco State University, California, Revenue Bonds (Student Union), Series B, 4.20% due 11/01/2023 (i) 2,619 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 3,560 San Jose, California, Redevelopment Agency, Tax Allocation Bonds (Merged Area Redevelopment Project), 4.75% due 8/01/2029 (a) 3,167 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,450 San Mateo County, California, Joint Powers Authority, Lease Revenue Refunding Bonds (Capital Projects Program), 5.125% due 7/01/2018 (i) 2,471 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,600 San Mateo County, California, Transportation District, Sales Tax Revenue Refunding Bonds, Series A, 5.25% due 6/01/2019 (i) 1,632 - ------------------------------------------------------------------------------------------------------------------------------------ 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 (i) 3,886 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,595 Santa Clara, California, Redevelopment Agency, Tax Allocation Bonds (Bayshore North Project), Series A, 5.25% due 6/01/2019 (a) 2,603 - ------------------------------------------------------------------------------------------------------------------------------------ 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) 3,171 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 955 Santa Maria, California, Joint Unified High School District, GO, Series A, 5.375% due 8/01/2018 (g) 976 - ------------------------------------------------------------------------------------------------------------------------------------ Walnut, California, Public Financing Authority, Tax Allocation Revenue Refunding Bonds (i): AAA NR* 580 6.50% due 9/01/2002 (j) 616 AAA Aaa 920 6.5% due 9/01/2022 964 - ------------------------------------------------------------------------------------------------------------------------------------
8 & 9 MuniYield California Insured Fund II, Inc., April 30, 2001 SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Ratings Ratings Amount Issue Value ==================================================================================================================================== Puerto Rico--1.8% AAA Aaa $1,200 Puerto Rico Commonwealth Highway and Transportation Authority, Highway Revenue Refunding Bonds, Series W, 5.50% due 7/01/2015 (i) $ 1,282 - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aaa 5,000 Puerto Rico Municipal Finance Agency, GO, RIB, Series 225, 7.08% due 8/01/2012 (g)(k) 5,908 ==================================================================================================================================== Total Investments (Cost--$377,165)--97.9% 386,461 Other Assets Less Liabilities--2.1% 8,100 -------- Net Assets--100.0% $394,561 ======== ====================================================================================================================================
(a) AMBAC Insured. (b) Escrowed to maturity. (c) FGIC Insured. (d) FHA Insured. (e) FHLMC Collateralized. (f) FNMA/GNMA Collateralized. (g) FSA Insured. (h) GNMA Collateralized. (i) MBIA Insured. (j) Prerefunded. (k) The interest rate is subject to change periodically and inversely based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 2001. (l) 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, 2001. * 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, 2001 were as follows: - -------------------------------------------------------------------------------- Percent of S&P Rating/Moody's Rating Net Assets - -------------------------------------------------------------------------------- AAA/Aaa ............................................................ 89.4% AA/Aa .............................................................. 2.2 A/A ................................................................ 0.6 Other+ ............................................................. 5.7 - -------------------------------------------------------------------------------- + Temporary investments in short-term municipal securities. STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of April 30, 2001 ========================================================================================================================== Assets: Investments, at value (identified cost--$377,164,673) ................... $ 386,460,619 Cash .................................................................... 118,723 Receivables: Interest .............................................................. $ 6,996,745 Securities sold ....................................................... 4,281,577 11,278,322 ------------- Prepaid expenses and other assets ....................................... 40,971 ------------- Total assets ............................................................ 397,898,635 ------------- ========================================================================================================================== Liabilities: Payables: Securities purchased .................................................. 2,907,550 Dividends to shareholders ............................................. 203,483 Investment adviser .................................................... 158,754 3,269,787 ------------- Accrued expenses ........................................................ 67,828 ------------- Total liabilities ....................................................... 3,337,615 ------------- ========================================================================================================================== Net Assets: Net assets .............................................................. $ 394,561,020 ============= ========================================================================================================================== Capital: Capital Stock (200,000,000 shares authorized): Preferred Stock, par value $.10 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 (18,359,120 shares issued and outstanding) .......................................................... $ 1,835,912 Paid-in capital in excess of par ........................................ 263,746,850 Undistributed investment income--net .................................... 1,450,751 Accumulated realized capital losses on investments--net ................. (5,298,707) Accumulated distributions in excess of realized capital gains on investments--net ........................................................ (6,469,732) Unrealized appreciation on investments--net ............................. 9,295,946 ------------- Total--Equivalent to $14.41 net asset value per Common Stock (market price--$13.68) .................................................. 264,561,020 ------------- Total capital ........................................................... $ 394,561,020 ============= ==========================================================================================================================
* Auction Market Preferred Stock. See Notes to Financial Statements. 10 & 11 MuniYield California Insured Fund II, Inc., April 30, 2001 STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 2001 ========================================================================================================= Investment Interest and amortization of premium and discount earned .. $10,602,318 Income: ========================================================================================================= Expenses: Investment advisory fees .................................. $996,021 Commission fees ........................................... 166,236 Accounting services ....................................... 86,469 Professional fees ......................................... 40,765 Transfer agent fees ....................................... 30,207 Printing and shareholder reports .......................... 21,519 Listing fees .............................................. 17,575 Directors' fees and expenses .............................. 12,833 Custodian fees ............................................ 11,094 Pricing fees .............................................. 6,461 Other ..................................................... 12,681 -------- Total expenses ............................................ 1,401,861 ----------- Investment income--net .................................... 9,200,457 ----------- ========================================================================================================= Realized & Realized gain on investments--net ......................... 4,402,123 Unrealized Change in unrealized appreciation on investments--net ..... (755,542) Gain (Loss) on ----------- Investments--Net: Net Increase in Net Assets Resulting from Operations ...... $12,847,038 =========== =========================================================================================================
See Notes to Financial Statements. STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the Months Ended Year Ended Increase (Decrease) in Net Assets: April 30, 2001 Oct. 31, 2000 ============================================================================================================================= Operations: Investment income--net ................................................ $ 9,200,457 $ 18,480,573 Realized gain (loss) on investments--net .............................. 4,402,123 (9,635,039) Change in unrealized appreciation/depreciation on investments--net .... (755,542) 30,763,983 ------------- ------------- Net increase in net assets resulting from operations .................. 12,847,038 39,609,517 ------------- ------------- ============================================================================================================================= Dividends & Investment income--net: Distributions to Common Stock ........................................................ (7,413,412) (14,801,729) Shareholders: Preferred Stock ..................................................... (2,280,862) (4,504,460) Realized gain on investments--net: Common Stock ........................................................ (49,753) -- Preferred Stock ..................................................... (16,038) -- ------------- ------------- Net decrease in net assets resulting from dividends and distributions to shareholders ....................................................... (9,760,065) (19,306,189) ------------- ------------- ============================================================================================================================= Capital Stock Value of shares issued to Common Stock shareholders in reinvestment Transactions: of dividends and distributions ........................................ -- 198,010 ------------- ------------- ============================================================================================================================= Net Assets: Total increase in net assets .......................................... 3,086,973 20,501,338 Beginning of period ................................................... 391,474,047 370,972,709 ------------- ------------- End of period* ........................................................ $ 394,561,020 $ 391,474,047 ============= ============= ============================================================================================================================= *Undistributed investment income--net .................................. $ 1,450,751 $ 1,944,568 ============= ============= =============================================================================================================================
See Notes to Financial Statements. 12 & 13 MuniYield California Insured Fund II, Inc., April 30, 2001 FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived from information For the Six provided in the financial statements. Months Ended For the Year Ended October 31, April 30, ---------------------------------------- Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997 ================================================================================================================================== Per Share Net asset value, beginning of period ................... $ 14.24 $ 13.14 $ 16.25 $ 15.70 $ 15.04 Operating -------- -------- -------- -------- -------- Performance: Investment income--net ................................. .49 1.02 1.03 1.08 1.10 Realized and unrealized gain (loss) on investments--net ....................................... .20 1.14 (2.37) .63 .68 -------- -------- -------- -------- -------- Total from investment operations ....................... .69 2.16 (1.34) 1.71 1.78 -------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net ................................ (.40) (.81) (.87) (.86) (.88) Realized gain on investments--net ..................... --@@ -- (.33) (.05) --@@ In excess of realized gain on investments--net ........ -- -- (.31) -- -- -------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders ........................................... (.40) (.81) (1.51) (.91) (.88) -------- -------- -------- -------- -------- Capital charge resulting from issuance of Common Stock . -- -- -- -- (.01) -------- -------- -------- -------- -------- Effect of Preferred Stock activity: Dividends and distributions to Preferred Stock shareholders: Investment income--net .............................. (.12) (.25) (.15) (.20) (.23) Realized gain on investments--net ................... --@@ -- (.06) (.05) --@@ In excess of realized gain on investments--net ...... -- -- (.05) -- -- -------- -------- -------- -------- -------- Total effect of Preferred Stock activity ............... (.12) (.25) (.26) (.25) (.23) -------- -------- -------- -------- -------- Net asset value, end of period ......................... $ 14.41 $ 14.24 $ 13.14 $ 16.25 $ 15.70 ======== ======== ======== ======== ======== Market price per share, end of period .................. $ 13.68 $ 13.625 $12.6875 $16.0625 $15.0625 ======== ======== ======== ======== ======== ================================================================================================================================== Total Investment Based on market price per share ........................ 3.30%@ 14.23% (12.83%) 13.04% 13.20% Return:** ======== ======== ======== ======== ======== Based on net asset value per share ..................... 4.11%@ 15.28% (10.76%) 9.72% 10.82% ======== ======== ======== ======== ======== ================================================================================================================================== Ratios Based on Total expenses*** ...................................... 1.04%* 1.04% 1.02% .96% 1.00% Average Net Assets ======== ======== ======== ======== ======== Of Common Stock: Total investment income--net*** ........................ 6.83%* 7.43% 6.86% 6.84% 7.35% ======== ======== ======== ======== ======== Amount of dividends to Preferred Stock shareholders .... 1.69%* 1.81% .98% 1.27% 1.52% ======== ======== ======== ======== ======== Investment income--net, to Common Stock shareholders ... 5.14%* 5.62% 5.88% 5.57% 5.83% ======== ======== ======== ======== ======== ================================================================================================================================== Ratios Based on Total expenses ......................................... .70%* .68% .69% .66% .68% Total Average Net ======== ======== ======== ======== ======== Assets:***+ Total investment income--net ........................... 4.62%* 4.88% 4.65% 4.72% 4.97% ======== ======== ======== ======== ======== ================================================================================================================================== Ratios Based on Dividends to Preferred Stock shareholders .............. 3.54%* 3.46% 2.08% 2.80% 3.20% Average Net Assets ======== ======== ======== ======== ======== Of Preferred Stock: ================================================================================================================================== Supplemental Net assets, net of Preferred Stock, end of period Data: (in thousands) ......................................... $264,561 $261,474 $240,973 $293,669 $283,661 ======== ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) ............................................. $130,000 $130,000 $130,000 $130,000 $130,000 ======== ======== ======== ======== ======== Portfolio turnover ..................................... 39.05% 78.52% 86.51% 103.93% 85.35% ======== ======== ======== ======== ======== ================================================================================================================================== Leverage: Asset coverage per $1,000 .............................. $ 3,035 $ 3,011 $ 2,854 $ 3,259 $ 3,182 ======== ======== ======== ======== ======== ================================================================================================================================== Dividends Per Share Series A--Investment income--net ....................... $ 484 $ 879 $ 493 $ 734 $ 809 On Preferred Stock ======== ======== ======== ======== ======== Outstanding:++ Series B--Investment income--net ....................... $ 422 $ 838 $ 555 $ 672 $ 821 ======== ======== ======== ======== ======== Series C--Investment income--net ....................... $ 406 $ 884 $ 503 $ 697 $ 574 ======== ======== ======== ======== ======== ==================================================================================================================================
* 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 charges. *** Do not reflect the effect of dividends to Preferred Stock shareholders. + Includes Common and Preferred Stock average net assets. ++ 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. @@ Amount is less than $.01 per share. See Notes to Financial Statements. 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 conformity with accounting principles generally accepted in the United States of America, 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 14 & 15 MuniYield California Insured Fund II, Inc., April 30, 2001 NOTES TO FINANCIAL STATEMENTS (concluded) 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 investment strategies to increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments. 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). Realized gains and losses on security transactions are determined on the identified cost basis. Interest income is recognized on the accrual basis. The Fund will adopt the provisions to amortize all premiums and discounts on debt securities effective November 1, 2001, as now required under the new AICPA Audit and Accounting Guide for Investment Companies. The cumulative effect of this accounting change will have no impact on the total net assets of the Fund. The impact of this accounting change has not been determined, but will result in an adjustment to the cost of securities and a corresponding adjustment to net unrealized appreciation/depreciation, based on debt securities held as of October 31, 2001. (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. Distributions in excess of realized capital gains are due primarily to differing tax treatments for future transactions. 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 .50% of the Fund's average weekly net assets, including proceeds from the issuance of Preferred Stock. Prior to January 1, 2001, FAM provided accounting services to the Fund at its cost and the Fund reimbursed FAM for these services. FAM continues to provide certain accounting services to the Fund. The Fund reimburses FAM at its cost for such services. For the six months ended April 30, 2001, the Fund reimbursed FAM an aggregate of $44,006 for the above-described services. The Fund entered into an agreement with State Street Bank and Trust Company ("State Street"), effective January 1, 2001, pursuant to which State Street provides certain accounting services to the Fund. The Fund pays a fee for these services. 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, 2001 were $161,563,305 and $142,551,496, respectively. Net realized gains for the six months ended April 30, 2001 and net unrealized gains as of April 30, 2001 were as follows: - -------------------------------------------------------------------------------- Realized Unrealized Gains Gains - -------------------------------------------------------------------------------- Long-term investments .................... $4,380,964 $9,295,946 Financial futures contracts .............. 21,159 -- ---------- ---------- Total .................................... $4,402,123 $9,295,946 ========== ========== - -------------------------------------------------------------------------------- As of April 30, 2001, net unrealized appreciation for Federal income tax purposes aggregated $9,295,946, of which $12,311,859 related to appreciated securities and $3,015,913 related to depreciated securities. The aggregate cost of investments at April 30, 2001 for Federal income tax purposes was $377,164,673. 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, 2001 remained constant and for the year ended October 31, 2000 increased by 14,174, as a result of dividend reinvestment. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund, with a par value of $.10 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, 2001 were as follows: Series A, 3.10%; Series B, 3.55%; and Series C, 3.40%. Shares issued and outstanding during the six months ended April 30, 2001 and October 31, 2000 remained constant. The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from .25% to .375%, calculated on the proceeds of each auction. For the six months ended April 30, 2001, Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of FAM, earned $59,992 as commissions. 5. Capital Loss Carryforward: At October 31, 2000, the Fund had a net capital loss carryforward of approximately $14,862,000, of which $4,997,000 expires in 2007 and $9,865,000 expires in 2008. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: On May 8, 2001, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $.067300 per share, payable on May 30, 2001 to shareholders of record as of May 16, 2001. 16 & 17 MuniYield California Insured Fund II, Inc., April 30, 2001 MANAGED DIVIDEND POLICY The Fund's dividend policy is to distribute all or a portion of its net investment income to its shareholders on a monthly basis. 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. OFFICERS AND DIRECTORS Terry K. Glenn, President and Director James H. Bodurtha, Director Herbert I. London, Director Joseph L. May, Director Andre F. Perold, Director Roberta Cooper Ramo, 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 - -------------------------------------------------------------------------------- Arthur Zeikel, Director of MuniYield California Insured Fund II, Inc., has recently retired. The Fund's Board of Directors wishes Mr. Zeikel well in his retirement. - -------------------------------------------------------------------------------- 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: The Bank of New York 100 Church Street New York, NY 10286 NYSE Symbol MCA 18 & 19 [LOGO] Merrill Lynch Investment Managers [GRAPHIC OMITTED] MuniYield California Insured Fund II, Inc. seeks to provide shareholders with as high a level of current income exempt from Federal and California income taxes as is consistent with its investment policies and prudent investment management by investing primarily in a portfolio of long-term municipal obligations the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal and California income taxes. This report, including the financial information herein, is transmitted to shareholders of MuniYield California Insured Fund II, Inc. for their information. It is not a prospectus. 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 [RECYCLE LOGO] Printed on post-consumer recycled paper #16388-4/01 -----END PRIVACY-ENHANCED MESSAGE-----