N-CSR 1 e400970_ncsr-municainsured.txt ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-06645 Name of Fund: MuniYield California Insured Fund, Inc. Fund Address: P.O. Box 9011 Princeton, NJ 08543-9011 Name and address of agent for service: Terry K. Glenn, President, MuniYield California Insured Fund, Inc., 800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing address: P.O. Box 9011, Princeton, NJ 08543-9011 Registrant's telephone number, including area code: (609) 282-2800 Date of fiscal year end: 10/31/04 Date of reporting period: 11/01/03 - 10/31/04 Item 1 - Report to Stockholders [LOGO] Merrill Lynch Investment Managers www.mlim.ml.com MuniYield California Insured Fund, Inc. Annual Report October 31, 2004 [LOGO] Merrill Lynch Investment Managers MuniYield California Insured Fund, Inc. The Benefits and Risks of Leveraging MuniYield California Insured Fund, 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, net of dividends to Preferred Stock, 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. As of October 31, 2004, the percentage of the Fund's total net assets invested in inverse floaters was 8.51%, before the deduction of Preferred Stock. Swap Agreements The Fund may also invest in swap agreements, which are over-the-counter contracts in which one party agrees to make periodic payments based on the change in market value of a specified bond, basket of bonds, or index in return for periodic payments based on a fixed or variable interest rate or the change in market value of a different bond, basket of bonds or index. Swap agreements may be used to obtain exposure to a bond or market without owning or taking physical custody of securities. Swap agreements involve the risk that the party with whom the Fund has entered into the swap will default on its obligation to pay the Fund and the risk that the Fund will not be able to meet its obligations to pay the other party to the agreement. 2 MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 A Letter From the President Dear Shareholder As we ended the current reporting period, the financial markets were facing a number of uncertainties. At the top of investors' minds were questions about economic expansion, corporate earnings, interest rates and inflation, politics, oil prices and terrorism. After benefiting from aggressive monetary and fiscal policy stimulus, some fear the U.S. economy has hit a "soft patch." In fact, economic expansion has slowed somewhat in recent months, but we believe it is easing into a pace of growth that is sustainable and healthy. The favorable economic environment has served to benefit American corporations, which have continued to post strong earnings. Although the most impressive results were seen earlier in the year, solid productivity, improved revenue growth and cost discipline all point to a vital corporate sector. In terms of inflation and interest rates, the Federal Reserve Board (the Fed) has signaled its confidence in the economic recovery by increasing the Federal Funds target rate four times in the past several months, from 1% to 2% as of the November 10 Federal Open Market Committee meeting. Inflation, for its part, has remained in check. Investors and economists are focused on how quickly Fed policy will move from here. With the presidential election now behind us, any politically provoked market angst should subside to some extent. The effect of oil prices, however, is more difficult to predict. At around $50 per barrel, the price of oil is clearly a concern. However, on an inflation-adjusted basis and considering modern usage levels, the situation is far from the crisis proportions we saw in the 1980s. Finally, although terrorism and geopolitical tensions are realities we are forced to live with today, history has shown us that the financial effects of any single event tend to be short-lived. Amid the uncertainty, the Lehman Brothers Municipal Bond Index posted a 12-month return of +6.03% and a six-month return of +4.79% as of October 31, 2004. Long-term bond yields were slightly lower at October 31, 2004 than they were a year earlier. As always, our investment professionals are closely monitoring the markets, the economy and the overall environment in an effort to make well-informed decisions for the portfolios they manage. For the individual investor, the key during uncertain times is to remain focused on the big picture. Investment success comes not from reacting to short-term volatility, but from maintaining a long-term perspective and adhering to the disciplines of asset allocation, diversification and rebalancing. We encourage you to work with your financial advisor to ensure these time-tested techniques are incorporated into your investment plan. We thank you for trusting Merrill Lynch Investment Managers with your investment assets, and we look forward to serving you in the months and years ahead. Sincerely, /s/ Terry K. Glenn Terry K. Glenn President and Director MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 3 [LOGO] Merrill Lynch Investment Managers A Discussion With Your Fund's Portfolio Manager Although long-term bond yields declined over the past 12 months, we maintained the Fund's defensive positioning in an effort to limit volatility and safeguard the Fund's net asset value in anticipation of rising long-term interest rates ahead. Describe the recent market environment relative to municipal bonds. Over the past 12 months, amid considerable monthly volatility, long-term U.S. Treasury bond yields generally moved lower -- despite an increase in short-term interest rates by the Federal Reserve Board (the Fed). On October 31, 2004, the 30-year Treasury bond yield stood at 4.79%, a decline of 34 basis points (.34%) from a year earlier. The yield on the 10-year U.S. Treasury note was 4.02%, a 27 basis point drop during the same 12-month period. While tax-exempt bond yields followed the same pattern as their taxable counterparts, volatility in the municipal market was more subdued. Yields on long-term revenue bonds, as measured by the Bond Buyer Revenue Bond Index, fell 27 basis points during the past 12 months. According to Municipal Market Data, yields on AAA-rated issues maturing in 30 years declined 22 basis points to 4.60%, while yields on 10-year AAA-rated issues dropped 28 basis points to 3.40%. While more than $360 billion in new long-term tax-exempt bonds was issued in the past 12 months, this represented a decline of approximately 6% compared to the previous year. The declining supply amid favorable demand allowed tax-exempt bond prices to perform in line with the taxable market. Describe conditions in the State of California. As the 12-month period began, California was facing political and economic uncertainty. Concerns over the state's $38 billion deficit led Standard and Poor's (S&P) to downgrade California's credit rating to BBB, the lowest in the nation. Conditions improved somewhat as the state passed a new budget and Arnold Schwarzenegger assumed the governor's office. The new budget, however, included a significant amount of new general obligation debt -- backed by the state's precarious revenues -- as well as new "fiscal recovery" bonds to reduce the deficit. Toward the end of 2003, credit-rating agencies Fitch and Moody's followed S&P's lead and downgraded California's credit rating. The downgrade was prompted by Governor Schwarzenegger's repeal of an unpopular vehicle licensing fee, which reduced the state's revenues, and a lack of consensus on how to resolve the state's budget crisis. In June 2004, California completed the issuance of $11 billion worth of economic recovery bonds, alleviating concerns about the state's cash-flow problems. In turn, Moody's upgraded the state's long-term credit rating to A3 from Baa1, citing a recovering state economy, increased tax collections, an improved budget outlook and more liquidity. S&P soon followed, upgrading its rating from BBB to A, while Fitch raised California's rating to A-. As the state's fiscal health improved, credit spreads tightened considerably, reflecting investors' increased comfort with taking on the risk associated with owning California's debt. Still, California faces a number of challenges, including compliance with several stringent financial mandates. These include Proposition 98, which guarantees public schools a minimum level of funding; strict property tax limits; and a requirement for a two-thirds supermajority legislative vote on financial matters, which has often impeded the timely adoption of a budget. Although California's large population and above-average per-capita income have resulted in relatively manageable debt levels, the state has depended on substantial amounts of general obligation debt to resolve recent budget shortfalls and capital needs. How did the Fund perform during the fiscal year in light of the existing market conditions? For the 12-month period ended October 31, 2004, the Common Stock of MuniYield California Insured Fund, Inc. had net annualized yields of 5.75% and 6.38%, based on a year-end per share net asset value of $15.23 and a per share market price of $13.73, respectively, and $.876 per share income dividends. Over the same period, the total investment return on the Fund's Common Stock was +7.54%, based on a change in per share net asset value from $15.10 to $15.23, and assuming reinvestment of ordinary income dividends. The Fund's total return, based on net asset value, trailed its comparable Lipper category of California Insured Municipal Debt Funds, which had an average return of +8.25% for the 12-month period. (Funds in this Lipper category invest primarily in municipal debt issues exempt from taxation in the state of California and insured as to timely payment.) The Fund's relative underperformance can be partly attributed to its very low duration, or sensitivity to changes in interest rates. We maintained portfolio duration at a relatively 4 MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 low level in an effort to reduce volatility and protect the Fund's net asset value in what we expected to be a rising interest rate environment. However, long-term rates actually declined during the past 12 months, and we opted not to trade in and out of securities to take advantage of periods of market volatility. Instead, we kept the Fund fully invested and with minimal portfolio turnover. Also impacting performance was the fact that the Fund employs a lower percentage of leverage than many of its peers. This had a negative effect on relative results at those times during the period when interest rates fell. Finally, we maintained the Fund's focus on high-quality bonds, with an average 90% of the portfolio invested in AAA-rated insured holdings throughout the period. While the Fund is permitted to invest up to 20% of its total assets in uninsured bonds, we kept our uninsured basket below that mark in an effort to limit risk. This detracted from performance somewhat as credit spreads tightened and non-investment grade bonds outperformed. Bonds backed by tobacco revenues enjoyed particularly strong performance, although we had limited exposure given the high risk associated with these credits. For the six-month period ended October 31, 2004, the total investment return on the Fund's Common Stock was +6.99%, based on a change in per share net asset value from $14.71 to $15.23, and assuming reinvestment of ordinary income dividends. For a description of the Fund's total investment return based on a change in the per share market value of the Fund's Common Stock (as measured by the trading price of the Fund's shares on the New York Stock Exchange), and assuming reinvestment of dividends, please refer to the Financial Highlights section of this report. As a closed-end fund, the Fund's shares may trade in the secondary market at a premium or discount to the Fund's net asset value. As a result, total investment returns based on changes in the market value of the Fund's Common Stock can vary significantly from total investment returns based on changes in the Fund's net asset value. What changes were made to the portfolio during the year? In general, we managed the portfolio defensively throughout the past 12 months. Our goal was to protect the Fund's net asset value should interest rates rise. Although this scenario has yet to materialize in any sustained fashion, we believe the Fund is positioned for relative strong performance once long-term yields begin to follow short-term interest rates higher. As credit spreads tightened during the year, we took the opportunity to sell some lower-rated bonds in the portfolio whose income was subject to the alternative minimum tax (AMT). We were effectively able to reduce the Fund's AMT exposure while selling these strong-performing bonds at a gain. Overall, however, we continued to focus on owning a high-quality bond portfolio that provides current return, rather than generating capital gains through trading activity. For the six-month period ended October 31, 2004, the Fund's Auction Market Preferred Stock (AMPS) had an average yield of 1.10% for Series A; 1.02% for Series B; .93% for Series C; 1.09% for Series D; and 1% for Series E. These attractive funding levels, in combination with a positively sloped yield curve, continued to provide a generous income benefit to the Common Stock shareholder from the leveraging of Preferred Stock. While the Fed is likely to continue raising short-term interest rates, the increases are expected to be gradual and should not have an immediate material impact on the positive advantage leverage has had on the Fund's Common Stock yield. However, should the spread between short-term and long-term interest rates narrow, the benefits of leveraging will decline and, as a result, reduce the yield on the Fund's Common Stock. At the end of the period, the Fund's leverage amount, due to AMPS, was 30.58% of total net assets. (For a more complete explanation of the benefits and risks of leveraging, see page 2 of this report to shareholders.) How would you characterize the Fund's position at the close of the period? We maintained the portfolio's relatively short duration. Our focus remains on protecting the Fund's net asset value in a municipal market environment that we expect will continue to be quite volatile. The Fed has continued to increase short-term interest rates at a "measured" pace, with its fourth 25 basis point rate hike this year on November 10. With the next major move in long-term rates likely to be upward, the portfolio's defensive structure is expected to mute price volatility, thereby preserving the returns the Fund has earned for shareholders. Walter C. O'Connor, CFA Vice President and Portfolio Manager November 10, 2004 MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 5 [LOGO] Merrill Lynch Investment Managers Schedule of Investments (in Thousands)
S&P Moody's Face Ratings++ Ratings++ Amount Municipal Bonds Value =================================================================================================================================== California--130.8% ----------------------------------------------------------------------------------------------------------------------------------- AAA Aaa $ 7,000 ABAG Finance Authority for Nonprofit Corporations, California, COP (Children's Hospital Medical Center), 6% due 12/01/2029 (a) $ 7,911 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,350 Alameda, California, GO, 5% due 8/01/2033 (g) 2,419 --------------------------------------------------------------------------------------------------------- AAA Aaa 3,580 Anaheim, California, Public Financing Authority, Electric System Distribution Facilities Revenue Bonds, Series A, 5% due 10/01/2031 (e) 3,669 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,400 Anaheim, California, Union High School District, GO (Election of 2002), 5% due 8/01/2027 (g) 2,486 --------------------------------------------------------------------------------------------------------- AAA Aaa 1,985 Arcadia, California, Unified School District, GO, Series B, 6.50% due 7/01/2015 (b) 2,086 --------------------------------------------------------------------------------------------------------- AAA Aaa 3,675 Bakersfield, California, COP, Refunding (Convention Center Expansion Project), 5.80% due 4/01/2017 (g) 4,009 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,000 Bay Area Government Association, California, Revenue Refunding Bonds (California Redevelopment Agency Pool), Series A, 6% due 12/15/2024 (e) 2,050 --------------------------------------------------------------------------------------------------------- AAA Aaa 3,990 Brentwood, California, Infrastructure Refinancing Authority, Infrastructure Revenue Refunding Bonds, Series A, 5.20% due 9/02/2029 (e) 4,168 --------------------------------------------------------------------------------------------------------- California Community College Financing Authority, Lease Revenue Bonds, Series A (g): AAA Aaa 3,215 5.95% due 12/01/2022 3,703 AAA Aaa 1,100 6% due 12/01/2029 1,255 --------------------------------------------------------------------------------------------------------- California Educational Facilities Authority Revenue Bonds: AAA Aaa 28,000 (Pepperdine University), Series A, 5.50% due 8/01/2032 (g) 30,344 NR* A2 5,000 (University of San Diego), Series A, 5.50% due 10/01/2032 5,273 --------------------------------------------------------------------------------------------------------- AAA Aaa 15,625 California Educational Facilities Authority, Student Loan Revenue Bonds (Caledge Loan Program), AMT, 5.55% due 4/01/2028 (a) 16,261 --------------------------------------------------------------------------------------------------------- California HFA, Home Mortgage Revenue Bonds, VRDN (j): A1+ VMIG1+ 800 AMT, Series B, 1.81% due 8/01/2033 (e) 800 A1 VMIG1+ 100 Series F, 1.74% due 2/01/2033 (a) 100 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,750 California Health Facilities Financing Authority Revenue Bonds (Kaiser Permanente), Series A, 5.50% due 6/01/2022 (e)(k)(l) 3,064 --------------------------------------------------------------------------------------------------------- California Rural Home Mortgage Finance Authority, S/F Mortgage Revenue Bonds (Mortgage-Backed Securities Program), AMT: AAA NR* 1,155 Series A, 6.35% due 12/01/2029 (c)(d) 1,159 NR* Aaa 230 Series A-1, 6.90% due 12/01/2024 (c)(f) 242 AAA NR* 760 Series B, 6.25% due 12/01/2031 (d) 773 --------------------------------------------------------------------------------------------------------- California State Department of Veteran Affairs, Home Purpose Revenue Refunding Bonds: AAA Aaa 12,680 Series A, 5.35% due 12/01/2027 (a) 13,267 A Aa2 7,500 Series C, 6.15% due 12/01/2027 7,720 --------------------------------------------------------------------------------------------------------- BBB+ A2 7,500 California State Department of Water Resources, Power Supply Revenue Bonds, Series A, 5.75% due 5/01/2017 8,509 --------------------------------------------------------------------------------------------------------- California State, GO: AAA Aaa 860 6.25% due 10/01/2019 (g)(h) 876 A A3 5,950 Various Purpose, 5.50% due 11/01/2033 6,382
Portfolio Abbreviations To simplify the listings of MuniYield California Insured Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) COP Certificates of Participation DRIVERS Derivative Inverse Tax-Exempt Receipts GO General Obligation Bonds HFA Housing Finance Agency RIB Residual Interest Bonds RITR Residual Interest Trust Receipts S/F Single-Family VRDN Variable Rate Demand Notes 6 MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 Schedule of Investments (continued) (in Thousands)
S&P Moody's Face Ratings++ Ratings++ Amount Municipal Bonds Value =================================================================================================================================== California (continued) ----------------------------------------------------------------------------------------------------------------------------------- California State, GO, Refunding: AAA Aaa $ 6,000 5% due 2/01/2031 (g) $ 6,155 AAA NR* 9,935 DRIVERS, AMT, Series 239, 9.329% due 12/01/2032 (a)(i) 10,051 AAA Aaa 3,000 Series BX, 5.50% due 12/01/2031 (e) 3,066 --------------------------------------------------------------------------------------------------------- AAA Aaa 4,530 California State Public Works Board, Lease Revenue Bonds (Department of Corrections--Ten Administrative Segregation Housing Units), Series A, 5.25% due 3/01/2020 (a) 4,896 --------------------------------------------------------------------------------------------------------- AAA Aaa 16,675 California State Public Works Board, Lease Revenue Refunding Bonds (Department of Corrections), Series B, 5.625% due 11/01/2016 (g) 18,163 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,375 California State University and Colleges, Housing System Revenue Refunding Bonds, 5.90% due 11/01/2021 (b) 2,516 --------------------------------------------------------------------------------------------------------- AAA Aaa 1,000 California State University, Sacramento Foundation, Auxiliary Organization Revenue Bonds, Series A, 5.50% due 10/01/2037 (g) 1,079 --------------------------------------------------------------------------------------------------------- AAA Aaa 4,100 California Statewide Communities Development Authority, COP (Kaiser Permanente), 5.30% due 12/01/2015 (e)(l) 4,395 --------------------------------------------------------------------------------------------------------- A A3 3,685 California Statewide Communities Development Authority, Health Facility Revenue Bonds (Memorial Health Services), Series A, 6% due 10/01/2023 3,973 --------------------------------------------------------------------------------------------------------- AA- A1 1,000 California Statewide Communities Development Authority Revenue Bonds (Sutter Health), Series B, 5.50% due 8/15/2028 1,046 --------------------------------------------------------------------------------------------------------- AAA Aaa 8,155 Calleguas-Las Virgenes, California, Public Financing Authority Revenue Bonds (Calleguas Municipal Water District Project), Series A, 5% due 7/01/2033 (g) 8,356 --------------------------------------------------------------------------------------------------------- Ceres, California, Redevelopment Agency, Tax Allocation Bonds (Ceres Redevelopment Project Area Number 1) (g): AAA Aaa 4,600 5.75% due 11/01/2030 5,135 AAA Aaa 4,000 5% due 11/01/2033 4,109 --------------------------------------------------------------------------------------------------------- AAA Aaa 6,000 Chaffey, California, Union High School District, GO, Series C, 5.375% due 5/01/2023 (e) 6,583 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,540 Coalinga, California, Redevelopment Agency Tax Allocation Bonds, 5.90% due 9/15/2025 (g) 2,916 --------------------------------------------------------------------------------------------------------- AA NR* 2,750 Commerce, California, Joint Powers Financing Authority Revenue Bonds (Redevelopment Projects), Series A, 5% due 8/01/2028 (k) 2,788 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,000 Compton, California, Unified School District, GO (Election of 2002), Series B, 5% due 6/01/2029 (g) 2,068 --------------------------------------------------------------------------------------------------------- AAA Aaa 4,135 Contra Costa, California, Water District, Water Revenue Refunding Bonds, Series L, 5% due 10/01/2032 (e) 4,240 --------------------------------------------------------------------------------------------------------- AAA Aaa 12,180 Contra Costa County, California, COP, Refunding (Merrithew Memorial Hospital Project), 5.375% due 11/01/2017 (g) 13,410 --------------------------------------------------------------------------------------------------------- AAA Aaa 8,500 Corona, California, COP, (Clearwater Congeneration Project), 5% due 9/01/2028 (g) 8,719 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,000 Coronado, California, Community Development Agency, Tax Allocation Bonds (Coronado Community Development Project), 5.60% due 9/01/2030 (g) 2,189 --------------------------------------------------------------------------------------------------------- El Monte, California, City School District, GO, Refunding, Series A (e): AAA Aaa 1,000 6.25% due 5/01/2020 1,162 AAA Aaa 1,500 6.25% due 5/01/2025 1,732 --------------------------------------------------------------------------------------------------------- El Monte, California, School District, GO, Series B (b): AAA Aaa 3,025 5.375% due 5/01/2022 3,332 AAA Aaa 2,525 5.375% due 5/01/2027 2,709 --------------------------------------------------------------------------------------------------------- AAA Aaa 3,000 El Rancho, California, Unified School District, GO (Election of 2003), Series A, 5% due 8/01/2028 (b) 3,101 --------------------------------------------------------------------------------------------------------- AAA Aaa 10,755 Fremont, California, Unified School District, Alameda County, GO, Series A, 5.50% due 8/01/2026 (b) 11,779 --------------------------------------------------------------------------------------------------------- AAA Aaa 4,295 Fresno, California, Joint Powers Financing Authority, Lease Revenue Bonds, Series A, 5.75% due 6/01/2026 (e) 4,840 --------------------------------------------------------------------------------------------------------- AAA Aaa 4,390 Glendale, California, Electric Revenue Bonds, 5% due 2/01/2032 (g) 4,499 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,500 La Quinta, California, Financing Authority, Local Agency Revenue Bonds, Series A, 5.25% due 9/01/2024 (a) 2,705
MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 7 [LOGO] Merrill Lynch Investment Managers Schedule of Investments (continued) (in Thousands)
S&P Moody's Face Ratings++ Ratings++ Amount Municipal Bonds Value =================================================================================================================================== California (continued) ----------------------------------------------------------------------------------------------------------------------------------- AAA Aaa $ 3,800 Las Lomitas, California, School District, GO (Election of 2001), 5.50% due 7/01/2022 (e) $ 4,250 --------------------------------------------------------------------------------------------------------- AAA Aaa 10,260 Lodi, California, Unified School District, GO (Election of 2002), 5% due 8/01/2029 (e) 10,582 --------------------------------------------------------------------------------------------------------- NR* Aa3 7,575 Long Beach, California, Harbor Revenue Bonds, RIB, AMT, Series 786-X, 8.70% due 5/15/2024 (i) 8,299 --------------------------------------------------------------------------------------------------------- AAA Aaa 10,000 Los Angeles, California, Community Redevelopment Agency, Community Redevelopment Financing Authority Revenue Bonds (Bunker Hill Project), Series A, 5% due 12/01/2027 (e) 10,360 --------------------------------------------------------------------------------------------------------- Los Angeles, California, Department of Airports, Airport Revenue Bonds (b): AAA Aaa 710 (Los Angeles International Airport), AMT, Series D, 5.625% due 5/15/2005 (h) 731 AAA Aaa 290 (Los Angeles International Airport), AMT, Series D, 5.625% due 5/15/2012 298 AAA Aaa 2,500 (Ontario International Airport), AMT, Series A, 6% due 5/15/2017 2,641 --------------------------------------------------------------------------------------------------------- Los Angeles, California, Department of Water and Power, Electric Plant Revenue Refunding Bonds (g)(h): AAA Aaa 3,400 5.50% due 2/15/2005 3,471 AAA Aaa 4,000 5.875% due 2/15/2005 4,089 AAA Aaa 8,000 6% due 2/15/2005 8,180 AAA Aaa 7,140 6.125% due 2/15/2005 7,303 --------------------------------------------------------------------------------------------------------- Los Angeles, California, Harbor Department Revenue Bonds (g)(i): NR* Aaa 7,365 RIB, AMT, Series 349, 10.40% due 11/01/2026 8,498 NR* Aaa 7,000 Trust Receipts, AMT, Class R, Series 7, 10.373% due 11/01/2026 8,077 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,000 Los Angeles, California, Unified School District, GO, Series A, 5% due 1/01/2028 (g) 2,070 --------------------------------------------------------------------------------------------------------- AAA Aaa 3,165 Los Angeles, California, Water and Power Revenue Refunding Bonds (Power System), Series A-A-2, 5.375% due 7/01/2021 (g) 3,495 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,000 Los Angeles County, California, Metropolitan Transportation Authority, Sales Tax Revenue Refunding Bonds, Proposition C, Second Tier Senior Series A, 5.25% due 7/01/2030 (b) 2,108 --------------------------------------------------------------------------------------------------------- Los Gatos, California, Joint Union High School District, GO (Election of 1998), Series C (e): AAA Aaa 5,830 5.375% due 6/01/2022 6,423 AAA Aaa 1,000 5% due 6/01/2027 1,035 --------------------------------------------------------------------------------------------------------- AAA Aaa 3,000 Los Rios, California, Community College District, GO (Election of 2002), Series B, 5% due 8/01/2027 (g) 3,117 --------------------------------------------------------------------------------------------------------- AAA Aaa 5,370 Metropolitan Water District of Southern California, Waterworks Revenue Bonds, Series B-1, 5% due 10/01/2033 (b) 5,518 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,175 Mount Pleasant, California, Elementary School District, GO, Series B, 6.35% due 12/01/2024 (e) 2,535 --------------------------------------------------------------------------------------------------------- AAA Aaa 4,625 Napa Valley, California, Community College District, GO, Series A, 5% due 8/01/2027 (g) 4,791 --------------------------------------------------------------------------------------------------------- NR* Aaa 4,245 Nevada County, California, COP, Refunding, 5.25% due 10/01/2019 (g) 4,646 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,000 New Haven, California, Unified School District, GO, Refunding, 5.75% due 8/01/2020 (e) 2,308 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,000 Oakland, California, State Building Authority, Lease Revenue Bonds (Elihu M Harris), Series A, 5.50% due 4/01/2014 (a) 2,213 --------------------------------------------------------------------------------------------------------- AAA Aaa 1,245 Orange County, California, Airport Revenue Refunding Bonds, AMT, 5.625% due 7/01/2012 (g) 1,359 --------------------------------------------------------------------------------------------------------- AAA Aaa 6,360 Orange County, California, Public Financing Authority, Lease Revenue Refunding Bonds (Juvenile Justice Center Facility), 5.375% due 6/01/2018 (a) 7,100 --------------------------------------------------------------------------------------------------------- AAA Aaa 16,920 Orange County, California, Recovery COP, Refunding, Series A, 6% due 7/01/2026 (g) 18,274 --------------------------------------------------------------------------------------------------------- AAA Aaa 3,570 Orange County, California, Sanitation District, COP, 5% due 2/01/2033 (b) 3,646 --------------------------------------------------------------------------------------------------------- AAA Aaa 4,360 Orchard, California, School District, GO, Series A, 6.5% due 8/01/2005 (b)(h) 4,601 --------------------------------------------------------------------------------------------------------- AAA Aaa 10,000 Oxnard, California, Financing Authority, Wastewater Revenue Bonds (Redwood Trunk Sewer and Headworks Projects), Series A, 5.25% due 6/01/2034 (b) 10,595 --------------------------------------------------------------------------------------------------------- AAA Aaa 9,645 Oxnard, California, Unified High School District, GO, Refunding, Series A, 6.20% due 8/01/2030 (g) 11,168 --------------------------------------------------------------------------------------------------------- AAA Aaa 1,275 Palm Springs, California, Financing Authority, Lease Revenue Refunding Bonds (Convention Center Project), Series A, 5.50% due 11/01/2035 (g) 1,403 --------------------------------------------------------------------------------------------------------- AAA Aaa 6,205 Palmdale, California, Water District Public Facility Corporation, COP, 5% due 10/01/2029 (b) 6,396
8 MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 Schedule of Investments (continued) (in Thousands)
S&P Moody's Face Ratings++ Ratings++ Amount Municipal Bonds Value =================================================================================================================================== California (continued) ----------------------------------------------------------------------------------------------------------------------------------- AAA Aaa $10,000 Port Oakland, California, RITR, AMT, Class R, Series 5, 9.408% due 11/01/2012 (b)(i) $ 12,113 --------------------------------------------------------------------------------------------------------- AAA Aaa 7,500 Port Oakland, California, Revenue Bonds, AMT, Series K, 5.75% due 11/01/2029 (b) 8,118 --------------------------------------------------------------------------------------------------------- AAA Aaa 19,035 Port Oakland, California, Revenue Refunding Bonds, AMT, Series L, 5.375% due 11/01/2027 (b) 19,975 --------------------------------------------------------------------------------------------------------- Rio Hondo, California, Community College District, GO, Series A (g): AAA Aaa 3,000 5% due 8/01/2026 3,132 AAA Aaa 3,500 5.25% due 6/01/2029 3,725 --------------------------------------------------------------------------------------------------------- AAA Aaa 3,000 Riverside, California, COP, 5% due 9/01/2028 (a) 3,091 --------------------------------------------------------------------------------------------------------- AAA Aaa 6,000 Riverside, California, Unified School District, GO (Election of 2001), Series A, 5.25% due 2/01/2023 (b) 6,486 --------------------------------------------------------------------------------------------------------- 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 (g) 5,209 --------------------------------------------------------------------------------------------------------- AAA Aaa 3,065 Saddleback Valley, California, Unified School District, GO, 5% due 8/01/2029 (e) 3,170 --------------------------------------------------------------------------------------------------------- AAA Aaa 5,000 San Bernardino, California, City Unified School District, GO, Series A, 5% due 8/01/2028 (e) 5,183 --------------------------------------------------------------------------------------------------------- NR* Aaa 1,200 San Bernardino County, California, S/F Home Mortgage Revenue Refunding Bonds, AMT, Series A-1, 6.25% due 12/01/2031 (d) 1,203 --------------------------------------------------------------------------------------------------------- AAA Aaa 6,720 San Diego, California, Unified School District, GO (Election of 1998), Series F, 5% due 7/01/2029 (e) 6,949 --------------------------------------------------------------------------------------------------------- San Diego County, California, COP (Salk Institute for Bio Studies) (g): AAA Aaa 3,570 5.75% due 7/01/2022 4,082 AAA Aaa 5,200 5.75% due 7/01/2031 5,804 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,090 San Francisco, California, Bay Area Rapid Transit District, Revenue Refunding Bonds (BART SFO Extension), Series A, 4.875% due 6/15/2009 (a) 2,095 --------------------------------------------------------------------------------------------------------- San Francisco, California, City and County Airport Commission, International Airport Revenue Bonds, Second Series (b): AAA Aaa 8,500 AMT, Issue 11, 6.25% due 5/01/2005 (h) 8,768 AAA Aaa 3,000 Issue 12-B, 5.625% due 5/01/2021 3,187 --------------------------------------------------------------------------------------------------------- San Francisco, California, City and County Airports Commission, International Airport Revenue Refunding Bonds, Second Series 28B (g): AAA Aaa 3,000 5.25% due 5/01/2023 3,222 AAA Aaa 6,455 5.25% due 5/01/2024 6,897 --------------------------------------------------------------------------------------------------------- San Francisco, California, City and County Airports Commission, International Airport, Special Facilities Lease Revenue Bonds (SFO Fuel Company LLC), AMT, Series A (e): AAA Aaa 1,000 6.10% due 1/01/2020 1,103 AAA Aaa 1,000 6.125% due 1/01/2027 1,103 --------------------------------------------------------------------------------------------------------- San Francisco, California, Community College District, GO, Refunding, Series A (b): NR* Aaa 1,735 5.375% due 6/15/2019 1,944 NR* Aaa 1,730 5.375% due 6/15/2020 1,925 NR* Aaa 1,925 5.375% due 6/15/2021 2,130 --------------------------------------------------------------------------------------------------------- AAA Aaa 4,135 San Jose, California, Airport Revenue Bonds, Series D, 5% due 3/01/2028 (g) 4,266 --------------------------------------------------------------------------------------------------------- NR* Aaa 3,650 San Jose, California, Redevelopment Agency, Tax Allocation Bonds, RIB, AMT, Series 149, 9.60% due 8/01/2027 (g)(i) 4,280 --------------------------------------------------------------------------------------------------------- AAA Aaa 4,250 San Juan, California, Unified School District, GO (Election of 2002), 5% due 8/01/2028 (g) 4,393 --------------------------------------------------------------------------------------------------------- AAA Aaa 1,700 San Mateo County, California, Community College District, COP, 5% due 10/01/2029 (g) 1,752 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,595 Santa Clara, California, Redevelopment Agency, Tax Allocation Bonds (Bayshore North Project), Series A, 5.25% due 6/01/2019 (a) 2,866 --------------------------------------------------------------------------------------------------------- AAA Aaa 5,500 Santa Clara, California, Subordinated Electric Revenue Bonds, Series A, 5% due 7/01/2028 (g) 5,683 --------------------------------------------------------------------------------------------------------- AAA Aaa 1,100 Santa Clara Valley, California, Water District, Water Utility System Revenue, Series A, 5.125% due 6/01/2031 (b) 1,143
MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 9 [LOGO] Merrill Lynch Investment Managers Schedule of Investments (continued) (in Thousands)
S&P Moody's Face Ratings++ Ratings++ Amount Municipal Bonds Value =================================================================================================================================== California (concluded) ----------------------------------------------------------------------------------------------------------------------------------- AAA Aaa $ 5,300 Santa Paula, California, Public Financing Authority, Water Revenue Refunding Bonds, 5% due 2/01/2033 (a) $ 5,442 --------------------------------------------------------------------------------------------------------- Santa Rosa, California, High School District, GO: AAA Aaa 3,000 5.375% due 8/01/2026 (e) 3,240 AAA Aaa 2,500 (Election of 2002), 5% due 8/01/2028 (g) 2,584 --------------------------------------------------------------------------------------------------------- South Tahoe, California, Joint Powers Finance Authority, Revenue Refunding Bonds (South Tahoe Redevelopment Project Area No. 1), Series A (e): AAA NR* 1,645 5% due 10/01/2029 1,696 AAA NR* 5,830 5% due 10/01/2034 5,967 --------------------------------------------------------------------------------------------------------- AAA Aaa 5,000 Southern California Public Power Authority, Power Project Revenue Bonds (Magnolia Power Project), Series A-1, 5% due 7/01/2033 (a) 5,131 --------------------------------------------------------------------------------------------------------- AAA Aaa 1,055 Stockton, California, Public Financing Revenue Refunding Bonds, Series A, 5.875% due 9/02/2016 (e) 1,095 --------------------------------------------------------------------------------------------------------- AAA Aaa 1,500 Tehachapi, California, COP, Refunding (Installment Sale), 5.75% due 11/01/2016 (e) 1,736 --------------------------------------------------------------------------------------------------------- AAA Aaa 6,000 Tracy, California, Community Development Agency, Tax Allocation Refunding Bonds, Series A, 5% due 3/01/2034 (a) 6,123 --------------------------------------------------------------------------------------------------------- AAA Aaa 3,000 Turlock, California, Public Finance Authority, Sewer Revenue Bonds, Series A, 5% due 9/15/2033 (b) 3,082 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,800 University of California, Hospital Revenue Refunding Bonds (UCLA Medical Center), Series A, 5% due 5/15/2034 (a) 2,858 --------------------------------------------------------------------------------------------------------- University of California Revenue Bonds: AAA Aaa 8,720 (Multiple Purpose Projects), Series Q, 5% due 9/01/2024 (e) 9,127 AAA Aaa 6,110 (Multiple Purpose Projects), Series Q, 5% due 9/01/2033 (e) 6,250 AAA Aaa 4,790 Series O, 5.125% due 9/01/2031 (b) 4,964 --------------------------------------------------------------------------------------------------------- AAA Aaa 6,130 Vacaville, California, Unified School District, GO (Election of 2001), 5.25% due 8/01/2028 (e) 6,473 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,550 Vista, California, Unified School District, GO, Series B, 5% due 8/01/2028 (b) 2,636 --------------------------------------------------------------------------------------------------------- AAA Aaa 2,185 Walnut, California, Public Financing Authority, Tax Allocation Revenue Bonds (Walnut Improvement Project), 5.375% due 9/01/2021 (a) 2,403 --------------------------------------------------------------------------------------------------------- AAA Aaa 6,690 West Contra Costa, California, Unified School District, GO, Series B, 5% due 8/01/2032 (e) 6,857 =================================================================================================================================== Puerto Rico--8.9% ----------------------------------------------------------------------------------------------------------------------------------- Puerto Rico Commonwealth, Public Improvement, GO (g): AAA Aaa 4,335 5.75% due 7/01/2017 4,957 AAA Aaa 4,075 5.75% due 7/01/2018 4,660 AAA Aaa 1,090 5.75% due 7/01/2019 1,246 --------------------------------------------------------------------------------------------------------- A- A3 1,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series NN, 5.125% due 7/01/2029 1,038 --------------------------------------------------------------------------------------------------------- NR* Aaa 10,000 Puerto Rico Municipal Finance Agency, GO, RIB, Series 225, 9.44% due 8/01/2012 (e)(i) 12,803 --------------------------------------------------------------------------------------------------------- BBB+ Baa2 20,000 Puerto Rico Public Finance Corporation, Commonwealth Appropriation Revenue Bonds, Series E, 5.75% due 2/01/2007 (h) 21,611 --------------------------------------------------------------------------------------------------------- Total Municipal Bonds (Cost--$690,484)--139.7% 730,794 =========================================================================================================
10 MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 Schedule of Investments (concluded) (in Thousands)
Shares Held Short-Term Securities Value ========================================================================================================= 33 CMA California Municipal Money Fund+++ $ 33 --------------------------------------------------------------------------------------------------------- Total Short-Term Securities (Cost--$33)--0.0% 33 ========================================================================================================= Total Investments (Cost--$690,517**)--139.7% 730,827 Other Assets Less Liabilities--4.3% 22,424 Preferred Stock, at Redemption Value--(44.0%) (230,045) --------- Net Assets Applicable to Common Stock--100.0% $ 523,206 =========
(a) AMBAC Insured. (b) FGIC Insured. (c) FHLMC Collateralized. (d) FNMA/GNMA Collateralized. (e) FSA Insured. (f) GNMA Collateralized. (g) MBIA Insured. (h) Prerefunded. (i) The interest rate is subject to change periodically and inversely based upon prevailing market rates. The interest rate shown is the rate in effect at October 31, 2004. (j) The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at October 31, 2004. (k) Radian Insured. (l) Escrowed to maturity. * Not Rated. ** The cost and unrealized appreciation/depreciation of investments as of October 31, 2004, as computed for federal income tax purposes were as follows: (in Thousands) -------------------------------------------------------------------------- Aggregate cost ........................................... $690,494 ======== Gross unrealized appreciation ............................ $ 40,572 Gross unrealized depreciation ............................ (239) -------- Net unrealized appreciation .............................. $ 40,333 ======== + Highest short-term rating by Moody's Investors Service, Inc. ++ Ratings of issues shown are unaudited. +++ Investments in companies considered to be an affiliate of the Fund (such companies are defined as "Affiliated Companies" in Section 2(a)(3) of the Investment Company Act of 1940) were as follows: (in Thousands) -------------------------------------------------------------------------- Net Dividend Affiliate Activity Income -------------------------------------------------------------------------- CMA California Municipal Money Fund 17 $18 -------------------------------------------------------------------------- See Notes to Financial Statements. MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 11 [LOGO] Merrill Lynch Investment Managers Statement of Net Assets As of October 31, 2004 ============================================================================================================================ Assets ---------------------------------------------------------------------------------------------------------------------------- Investments in unaffiliated securities, at value (identified cost--$690,484,485) $ 730,794,232 Investments in affiliated securities, at value (identified cost--$32,584) 32,584 Cash ............................................................. 42,568 Receivables: Interest ...................................................... $ 13,039,276 Securities sold ............................................... 10,055,889 23,095,165 ------------- Prepaid expenses and other assets ................................ 12,055 ------------- Total assets ..................................................... 753,976,604 ------------- ============================================================================================================================ Liabilities ---------------------------------------------------------------------------------------------------------------------------- Payables: Investment adviser ............................................ 358,293 Dividends to Common Stock shareholders ........................ 280,568 Other affiliates .............................................. 5,198 644,059 ------------- Accrued expenses ................................................. 82,256 ------------- Total liabilities ................................................ 726,315 ------------- ============================================================================================================================ Preferred Stock ---------------------------------------------------------------------------------------------------------------------------- Preferred Stock, at redemption value, par value $.10 per share (1,800 Series A Shares, 1,800 Series B Shares and 1,600 Series C Shares, 2,000 Series D Shares and 2,000 Series E Shares of AMPS* authorized, issued and outstanding at $25,000 per share liquidation preference) ......................................... 230,044,712 ------------- ============================================================================================================================ Net Assets Applicable to Common Stock ---------------------------------------------------------------------------------------------------------------------------- Net assets applicable to Common Stock ............................ $ 523,205,577 ============= ============================================================================================================================ Analysis of Net Assets Applicable to Common Stock ---------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.10 per share (34,361,200 shares issued and outstanding) ................................................ $ 3,436,120 Paid-in capital in excess of par ................................. 494,824,623 Undistributed investment income--net ............................. $ 6,609,556 Accumulated realized capital losses--net ......................... (21,974,469) Unrealized appreciation--net ..................................... 40,309,747 ------------- Total accumulated earnings--net .................................. 24,944,834 ------------- Total--Equivalent to $15.23 net asset value per share of Common Stock (market price--$13.73) .................................... $ 523,205,577 =============
* Auction Market Preferred Stock. See Notes to Financial Statements. 12 MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 Statement of Operations For the Year Ended October 31, 2004 ============================================================================================================================ Investment Income ---------------------------------------------------------------------------------------------------------------------------- Interest ......................................................... $ 37,352,926 Dividends from affiliates ........................................ 18,372 ------------- Total income ..................................................... 37,371,298 ------------- ============================================================================================================================ Expenses ---------------------------------------------------------------------------------------------------------------------------- Investment advisory fees ......................................... $ 3,717,972 Commission fees .................................................. 582,512 Accounting services .............................................. 229,282 Transfer agent fees .............................................. 92,032 Professional fees ................................................ 55,129 Printing and shareholder reports ................................. 45,377 Custodian fees ................................................... 40,105 Listing fees ..................................................... 26,588 Directors' fees and expenses ..................................... 25,343 Pricing fees ..................................................... 21,535 Other ............................................................ 90,389 ------------- Total expenses before reimbursement .............................. 4,926,264 Reimbursement of expenses ........................................ (11,573) ------------- Total expenses after reimbursement ............................... 4,914,691 ------------- Investment income--net ........................................... 32,456,607 ------------- ============================================================================================================================ Realized & Unrealized Gain (Loss)--Net ---------------------------------------------------------------------------------------------------------------------------- Realized gain (loss) on: Investments--net .............................................. 67,429 Futures contracts and forward interest rate swaps--net ........ (461,318) (393,889) ------------- Change in unrealized appreciation on: Investments--net .............................................. 5,412,777 Forward interest rate swaps--net .............................. (756,132) 4,656,645 ------------------------------- Total realized and unrealized gain--net .......................... 4,262,756 ------------- ============================================================================================================================ Dividends to Preferred Stock Shareholders ---------------------------------------------------------------------------------------------------------------------------- Investment income--net ........................................... (2,199,184) ------------- Net Increase in Net Assets Resulting from Operations ............. $ 34,520,179 =============
See Notes to Financial Statements. MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 13 [LOGO] Merrill Lynch Investment Managers Statements of Changes in Net Assets
For the Year Ended October 31, ------------------------------- Increase (Decrease) in Net Assets: 2004 2003 ============================================================================================================================ Operations ---------------------------------------------------------------------------------------------------------------------------- Investment income--net ........................................... $ 32,456,607 $ 32,714,524 Realized loss--net ............................................... (393,889) (598,996) Change in unrealized appreciation--net ........................... 4,656,645 (6,051,332) Dividends to Preferred Stock shareholders ........................ (2,199,184) (1,972,130) ------------------------------- Net increase in net assets resulting from operations ............. 34,520,179 24,092,066 ------------------------------- ============================================================================================================================ Dividends to Common Stock Shareholders ---------------------------------------------------------------------------------------------------------------------------- Investment income--net ........................................... (30,100,412) (29,791,160) ------------------------------- Net decrease in net assets resulting from dividends to Common Stock shareholders .............................................. (30,100,412) (29,791,160) ------------------------------- ============================================================================================================================ Net Assets Applicable to Common Stock ---------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets applicable to Common Stock 4,419,767 (5,699,094) Beginning of year ................................................ 518,785,810 524,484,904 ------------------------------- End of year* ..................................................... $ 523,205,577 $ 518,785,810 =============================== * Undistributed investment income--net ........................ $ 6,609,556 $ 6,480,413 ===============================
See Notes to Financial Statements. 14 MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 Financial Highlights
The following per share data and ratios have been derived from information provided in the financial statements. For the Year Ended October 31, ----------------------------------------------------------- Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000 ================================================================================================================================ Per Share Operating Performance -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ........ $ 15.10 $ 15.26 $ 15.44 $ 14.24 $ 13.14 ----------------------------------------------------------- Investment income--net .................... .94@@ .95@@ .95 1.00 1.02 Realized and unrealized gain (loss)--net .............................. .13 (.18) (.22) 1.21 1.14 Dividends and distributions to Preferred Stock shareholders: Investment income--net ................. (.06) (.06) (.09) (.20) (.25) Realized gain--net ..................... -- -- --@ -- -- In excess of realized gain--net ........ -- -- -- --@ -- ----------------------------------------------------------- Total from investment operations .......... 1.01 .71 .64 2.01 1.91 ----------------------------------------------------------- Less dividends and distributions to Common Stock shareholders: Investment income--net ................. (.88) (.87) (.81) (.81) (.81) Realized gain--net ..................... -- -- (.01) -- -- In excess of realized gain--net ........ -- -- -- --@ -- ----------------------------------------------------------- Total dividends and distributions to Common Stock shareholders ............. (.88) (.87) (.82) (.81) (.81) ----------------------------------------------------------- Net asset value, end of year .............. $ 15.23 $ 15.10 $ 15.26 $ 15.44 $ 14.24 =========================================================== Market price per share, end of year ....... $ 13.73 $ 13.82 $ 13.68 $ 14.46 $13.625 =========================================================== ================================================================================================================================ Total Investment Return* -------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share ........ 7.54% 5.29% 4.68% 14.76% 15.28% =========================================================== Based on market price per share ........... 5.93% 7.50% .20% 12.33% 14.23% =========================================================== ================================================================================================================================ Ratios Based on Average Net Assets of Common Stock -------------------------------------------------------------------------------------------------------------------------------- Total expenses, net of reimbursement and excluding reorganization expenses** ................. .95% .94% .96% 1.06% 1.04% =========================================================== Total expenses, excluding reorganization expenses** ................ .95% .94% .96% 1.06% 1.04% =========================================================== Total expenses** .......................... .95% .94% 1.00% 1.06% 1.04% =========================================================== Total investment income--net** ............ 6.29% 6.20% 6.38% 6.74% 7.43% =========================================================== Amount of dividends to Preferred Stock shareholders ....................... .43% .37% .56% 1.36% 1.81% =========================================================== Investment income--net, to Common Stock shareholders ....................... 5.86% 5.83% 5.82% 5.38% 5.62% =========================================================== ================================================================================================================================ Ratios Based on Average Net Assets of Common and Preferred Stock** -------------------------------------------------------------------------------------------------------------------------------- Total expenses, net of reimbursement and excluding reorganization expenses ................... .66% .65% .67% .72% .68% =========================================================== Total expenses, excluding reorganization expenses .................. .66% .66% .67% .72% .68% =========================================================== Total expenses ............................ .66% .66% .70% .72% .68% =========================================================== Total investment income--net .............. 4.36% 4.31% 4.42% 4.57% 4.88% =========================================================== ================================================================================================================================ Ratios Based on Average Net Assets of Preferred Stock -------------------------------------------------------------------------------------------------------------------------------- Dividends to Preferred Stock shareholders ............................. .96% .85% 1.25% 2.86% 3.46% ===========================================================
MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 15 [LOGO] Merrill Lynch Investment Managers Financial Highlights (concluded)
For the Year Ended October 31, The following per share data and ratios have been derived -------------------------------------------------------- from information provided in the financial statements. 2004 2003 2002 2001 2000 ==================================================================================================================== Supplemental Data -------------------------------------------------------------------------------------------------------------------- Net assets applicable to Common Stock, end of year (in thousands) $523,206 $518,786 $524,485 $283,553 $261,474 ======================================================== Preferred Stock outstanding, end of year (in thousands) .......... $230,000 $230,000 $230,000 $130,000 $130,000 ======================================================== Portfolio turnover ............... 68.05% 52.17% 77.13% 59.36% 78.52% ======================================================== ==================================================================================================================== Leverage -------------------------------------------------------------------------------------------------------------------- Asset coverage per $1,000 ........ $ 3,275 $ 3,256 $ 3,280 $ 3,181 $ 3,011 ======================================================== ==================================================================================================================== Dividends Per Share on Preferred Stock Outstanding -------------------------------------------------------------------------------------------------------------------- Series A--Investment income--net . $ 246 $ 216 $ 359 $ 758 $ 879 ======================================================== Series B--Investment income--net . $ 238 $ 212 $ 324 $ 700 $ 838 ======================================================== Series C--Investment income--net . $ 224 $ 204 $ 320 $ 683 $ 884 ======================================================== Series D+--Investment income--net $ 249 $ 242 $ 203 -- -- ======================================================== Series E+--Investment income--net $ 236 $ 196 $ 201 -- -- ========================================================
* 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. + The Fund's Preferred Stock was issued on February 4, 2002 for Series D and E. @ Amount is less than $(.01) per share. @@ Based on average shares outstanding. See Notes to Financial Statements. 16 MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 Notes to Financial Statements 1. Significant Accounting Policies: MuniYield California Insured Fund, Inc. (the "Fund"), is registered under the Investment Company Act of 1940, as amended, as a non-diversified, closed-end management investment company. The Fund's financial statements are prepared in conformity with U.S. generally accepted accounting principles, which may require the use of management accruals and estimates. Actual results may differ from these estimates. The Fund determines and makes available for publication the net asset value of its Common Stock on a daily 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 last available bid price in the over-the-counter market or on the basis of values as obtained by a pricing service. Pricing services use valuation matrixes that incorporate both dealer-supplied valuations and valuation models. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general direction of the Board of Directors. Such valuations and procedures will be reviewed periodically by the Board of Directors of the Fund. 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). Swap agreements are valued by quoted fair values received daily by the Fund's pricing service. Short-term investments with a remaining maturity of 60 days or less are valued at amortized cost, which approximates market value, under which method the investment is valued at cost and any premium or discount is amortized on a straight line basis to maturity. Investments in open-end investment companies are valued at their net asset value each business day. Securities and other 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. (b) Derivative financial instruments -- The Fund may engage in various portfolio investment strategies both to increase the return of the Fund and to hedge, or protect, its exposure to interest rate movements and movements in the securities 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. 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 may 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. o Forward interest rate swaps -- The Fund may enter into forward interest rate swaps. In a forward interest rate swap, the Fund and the counterparty agree to make periodic net payments on a specified notional contract amount, commencing on a specified future effective date, unless terminated earlier. When the agreement is closed, the Fund records a realized gain or loss in an amount equal to the value of the agreement. MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 17 [LOGO] Merrill Lynch Investment Managers Notes to Financial Statements (continued) (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. Dividend income is recorded on the ex-dividend dates. Interest income is recognized on the accrual basis. The Fund amortizes all premiums and discounts on debt securities. (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. (f) Reclassifications -- U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, during the current year, $56,028 has been reclassified between undistributed net investment income and accumulated net realized capital losses on investments and $28,160 has been reclassified between paid-in capital in excess of par and undistributed net investment income as a result of permanent differences attributable to the amortization methods for premiums and discounts on fixed income securities and nondeductible expenses. These reclassifications have no effect on net assets or net asset values per share. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of .50% of the Fund's average weekly net assets, including proceeds from the issuance of Preferred Stock. The Investment Adviser has agreed to reimburse its management fee by the amount of management fees the Fund pays to FAM indirectly through its investment in CMA California Municipal Money Fund. For the year ended October 31, 2004, FAM reimbursed the Fund in the amount of $11,573. For the year ended October 31, 2004, the Fund reimbursed FAM $14,472 for certain accounting 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 year ended October 31, 2004 were $518,780,271 and $490,076,953, respectively. 18 MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 Notes to Financial Statements (concluded) 4. Stock Transactions: The Fund is authorized to issue 200,000,000 shares of 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 stock without approval of holders of Common Stock. Preferred Stock Auction Market Preferred Stock are redeemable shares of Preferred Stock of the Fund, with a par value of $.10 per share and a liquidation preference of $25,000 per share plus accrued and unpaid dividends, that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yields in effect at October 31, 2004 were as follows: Series A, .90%; Series B, 1.58%; Series C, 1.10%; Series D, 1.40%; and Series E, 1.10%. 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 year ended October 31, 2004, Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of FAM, earned $167,420 as commissions. 5. Distributions to Shareholders: The Fund paid a tax-exempt income dividend to holders of Common Shares in the amount of $.073000 per share on November 29, 2004 to shareholders of record on November 12, 2004. The tax character of distributions paid during the fiscal years ended October 31, 2004 and October 31, 2003 was as follows: -------------------------------------------------------------------------------- 10/31/2004 10/31/2003 -------------------------------------------------------------------------------- Distributions paid from: Tax-exempt income .................... $32,299,596 $31,763,290 =============================== Total distributions .................... $32,299,596 $31,763,290 =============================== As of October 31, 2004, the components of accumulated earnings on a tax basis were as follows: ----------------------------------------------------------------------------- Undistributed tax-exempt income--net .................... $ 6,585,997 Undistributed long-term capital gains--net .............. -- ------------ Total undistributed earnings--net ....................... 6,585,997 Capital loss carryforward ............................... (15,358,482)* Unrealized gains--net ................................... 33,717,319** ------------ Total accumulated earnings--net ......................... $ 24,944,834 ============ * On October 31, 2004, the Fund had a net capital loss carryforward of $15,358,482, of which $2,049,122 expires in 2007, $5,722,655 expires in 2008, $9,668 expires in 2009, $4,901,089 expires in 2011 and $2,675,948 expires in 2012. This amount will be available to offset like amounts of any future taxable gains. ** The difference between book-basis and tax-basis net unrealized gains is attributable primarily to the tax deferral of losses on straddles and the difference between book and tax amortization methods for premiums and discounts on fixed income securities. MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 19 [LOGO] Merrill Lynch Investment Managers Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of MuniYield California Insured Fund, Inc.: We have audited the accompanying statement of net assets, including the schedule of investments, of MuniYield California Insured Fund, Inc. as of October 31, 2004, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2004, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of MuniYield California Insured Fund, Inc. as of October 31, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. Deloitte & Touche LLP Princeton, New Jersey December 14, 2004 Important Tax Information (unaudited) All of the net investment income distributions paid by MuniYield California Insured Fund, Inc. during its taxable year ended October 31, 2004 qualify as tax-exempt interest dividends for federal income tax purposes. Please retain this information for your records. 20 MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 Quality Profile (unaudited) The quality ratings of securities in the Fund as of October 31, 2004 were as follows: -------------------------------------------------------------------------------- Percent of Total S&P Rating/Moody's Rating Investments -------------------------------------------------------------------------------- AAA/Aaa ........................................................... 90.8% AA/Aa ............................................................. 2.7 A/A ............................................................... 3.4 BBB/Baa ........................................................... 3.0 Other+ ............................................................ 0.1 -------------------------------------------------------------------------------- + Includes portfolio holdings in short-term investments. Dividend Policy (unaudited) 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 stable level of dividend distributions, 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 particular 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 Net Assets, which comprises part of the financial information included in this report. MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 21 [LOGO] Merrill Lynch Investment Managers Automatic Dividend Reinvestment Plan The following description of the Fund's Automatic Dividend Reinvestment Plan (the "Plan") is sent to you annually as required by federal securities laws. Pursuant to the Fund's Plan, unless a holder of Common Stock otherwise elects, all dividend and capital gains distributions will be automatically reinvested by EquiServe (the "Plan Agent"), as agent for shareholders in administering the Plan, in additional shares of Common Stock of the Fund. Holders of Common Stock who elect not to participate in the Plan will receive all distributions in cash paid by check mailed directly to the shareholder of record (or, if the shares are held in street or other nominee name then to such nominee) by EquiServe, as dividend paying agent. Such participants may elect not to participate in the Plan and to receive all distributions of dividends and capital gains in cash by sending written instructions to EquiServe, as dividend paying agent, at the address set forth below. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by written notice if received by the Plan Agent not less than ten days prior to any dividend record date; otherwise such termination will be effective with respect to any subsequently declared dividend or distribution. Whenever the Fund declares an income dividend or capital gains distribution (collectively referred to as "dividends") payable either in shares or in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in shares of Common Stock. The shares will be acquired by the Plan Agent for the participant's account, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized shares of Common Stock from the Fund ("newly issued shares") or (ii) by purchase of outstanding shares of Common Stock on the open market ("open-market purchases") on the New York Stock Exchange or elsewhere. If on the payment date for the dividend, the net asset value per share of the Common Stock is equal to or less than the market price per share of the Common Stock plus estimated brokerage commissions (such conditions being referred to herein as "market premium"), the Plan Agent will invest the dividend amount in newly issued shares on behalf of the participant. The number of newly issued shares of Common Stock to be credited to the participant's account will be determined by dividing the dollar amount of the dividend by the net asset value per share on the date the shares are issued, provided that the maximum discount from the then current market price per share on the date of issuance may not exceed 5%. If, on the dividend payment date, the net asset value per share is greater than the market value (such condition being referred to herein as "market discount"), the Plan Agent will invest the dividend amount in shares acquired on behalf of the participant in open-market purchases. In the event of a market discount on the dividend payment date, the Plan Agent will have until the last business day before the next date on which the shares trade on an "ex-dividend" basis or in no event more than 30 days after the dividend payment date (the "last purchase date") to invest the dividend amount in shares acquired in open-market purchases. It is contemplated that the Fund will pay monthly income dividends. Therefore, the period during which open-market purchases can be made will exist only from the payment date on the dividend through the date before the next "ex-dividend" date, which typically will be approximately ten days. If, before the Plan Agent has completed its open-market purchases, the market price of a share of Common Stock exceeds the net asset value per share, the average per share purchase price paid by the Plan Agent may exceed the net asset value of the Fund's shares, resulting in the acquisitions of fewer shares than if the dividend had been paid in newly issued shares on the dividend payment date. Because of the foregoing difficulty with respect to open-market purchases, the Plan provides that if the Plan Agent is unable to invest the full dividend amount in open-market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent will cease making open-market purchases and will invest the uninvested portion of the dividend amount in newly issued shares at the close of business on the last purchase date determined by dividing the uninvested portion of the dividend by the net asset value per share. The Plan Agent maintains all shareholders' accounts in the Plan and furnishes written confirmation of all transactions in the account, including information needed by shareholders for tax records. Shares in the account of each Plan participant will be held by the Plan Agent in non-certificated form in the name of the participant, and each shareholder's proxy will include those shares purchased or received pursuant to the Plan. The Plan Agent will forward all proxy solicitation materials to participants and vote proxies for shares held pursuant to the Plan in accordance with the instructions of the participants. In the case of shareholders such as banks, brokers or nominees which hold shares of others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by the record 22 MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 shareholders as representing the total amount registered in the record shareholder's name and held for the account of beneficial owners who are to participate in the Plan. There will be no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or capital gains distributions payable either in shares or in cash. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open-market purchases in connection with the reinvestment of dividends. The automatic reinvestment of dividends and distributions will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends. Shareholders participating in the Plan may receive benefits not available to shareholders not participating in the Plan. If the market price plus commissions of the Fund's shares is above the net asset value, participants in the Plan will receive shares of the Fund at less than they could otherwise purchase them and will have shares with a cash value greater than the value of any cash distribution they would have received on their shares. If the market price plus commissions is below the net asset value, participants will receive distributions in shares with a net asset value greater than the value of any cash distribution they would have received on their shares. However, there may be insufficient shares available in the market to make distributions in shares at prices below the net asset value. Also, since the Fund does not redeem shares, the price on resale may be more or less than the net asset value. The value of shares acquired pursuant to the Plan will generally be excluded from gross income to the extent that the cash amount reinvested would be excluded from gross income. If, when the Fund's shares are trading at a premium over net asset value, the Fund issues shares pursuant to the Plan that have a greater fair market value than the amount of cash reinvested, it is possible that all or a portion of such discount (which may not exceed 5% of the fair market value of the Fund's shares) could be viewed as a taxable distribution. If the discount is viewed as a taxable distribution, it is also possible that the taxable character of this discount would be allocable to all the shareholders, including shareholders who do not participate in the Plan. Thus, shareholders who do not participate in the Plan might be required to report as ordinary income a portion of their distributions equal to their allocable share of the discount. Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. All correspondence concerning the Plan should be directed to the Plan Agent at EquiServe, P.O. Box 43010, Providence, RI 02940-3010, Telephone: 800-426-5523. MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 23 [LOGO] Merrill Lynch Investment Managers Officers and Directors (unaudited)
Number of Portfolios in Other Public Position(s) Length of Fund Complex Directorships Held with Time Overseen by Held by Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director ==================================================================================================================================== Interested Director ------------------------------------------------------------------------------------------------------------------------------------ Terry K. P.O. Box 9011 President 1999 to President of the Merrill Lynch Investment Managers, 124 Funds None Glenn* Princeton, NJ and present L.P. ("MLIM")/Fund Asset Management, L.P. 157 Portfolios 08543-9011 Director ("FAM")-advised funds since 1999; Chairman Age: 64 (Americas Region) of MLIM from 2000 to 2002; Executive Vice President of MLIM and FAM (which terms as used herein include their corporate predecessors) from 1983 to 2002; President of FAM Distributors, Inc. ("FAMD") from 1986 to 2002 and Director thereof from 1991 to 2002; Executive Vice President and Director of Princeton Services, Inc. ("Princeton Services") from 1993 to 2002; President of Princeton Administrators, L.P. from 1989 to 2002; Director of Financial Data Services, Inc. since 1985. ------------------------------------------------------------------------------------------------------------------------ * Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which MLIM or FAM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of the Fund based on his present and former positions with MLIM, FAM, FAMD, Princeton Services and Princeton Administrators, L.P. The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of Directors. ==================================================================================================================================== Independent Directors* ------------------------------------------------------------------------------------------------------------------------------------ James H. P.O. Box 9095 Director 1995 to Director, The China Business Group, Inc. since 38 Funds None Bodurtha Princeton, NJ present 1996 and Executive Vice President thereof from 55 Portfolios 08543-9095 1996 to 2003; Chairman of the Board, Berkshire Age: 60 Holding Corporation since 1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993. ------------------------------------------------------------------------------------------------------------------------------------ Joe Grills P.O. Box 9095 Director 2002 to Member of the Committee of Investment of 38 Funds Kimco Princeton, NJ present Employee Benefit Assets of the Association of 55 Portfolios Realty 08543-9095 Financial Professionals ("CIEBA") since 1986; Corporation Age: 69 Member of CIEBA's Executive Committee since 1988 and its Chairman from 1991 to 1992; Assistant Treasurer of International Business Machines Corporation ("IBM") and Chief Investment Officer of IBM Retirement Funds from 1986 to 1993; Member of the Investment Advisory Committee of the State of New York Common Retirement Fund since 1989; Member of the Investment Advisory Committee of the Howard Hughes Medical Institute from 1997 to 2000; Director, Duke University Management Company from 1992 to 2004, Vice Chairman thereof from 1998 to 2004 and Director Emeritus thereof since 2004; Director, LaSalle Street Fund from 1995 to 2001; Director, Kimco Realty Corporation since 1997; Member of the Investment Advisory Committee of the Virginia Retirement System since 1998 and Vice Chairman thereof since 2002; Director, Montpelier Foundation since 1998 and its Vice Chairman since 2000; Member of the Investment Committee of the Woodberry Forest School since 2000; Member of the Investment Committee of the National Trust for Historic Preservation since 2000.
24 MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 Officers and Directors (unaudited) (continued)
Number of Portfolios in Other Public Position(s) Length of Fund Complex Directorships Held with Time Overseen by Held by Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director ==================================================================================================================================== Independent Directors* (concluded) ------------------------------------------------------------------------------------------------------------------------------------ Herbert I. P.O. Box 9095 Director 1992 to John M. Olin Professor of Humanities, New York 38 Funds None London Princeton, NJ present University since 1993 and Professor thereof since 55 Portfolios 08543-9095 1980; President, Hudson Institute since 1997 Age: 65 and Trustee thereof since 1980; Dean, Gallatin Division of New York University from 1976 to 1993; Distinguished Fellow, Herman Kahn Chair, Hudson Institute from 1984 to 1985; Director, Damon Corp. from 1991 to 1995; Overseer, Center for Naval Analyses from 1983 to 1993. ------------------------------------------------------------------------------------------------------------------------------------ Roberta P.O. Box 9095 Director 1999 to Shareholder, Modrall, Sperling, Roehl, Harris & 38 Funds None Cooper Princeton, NJ present Sisk, P.A. since 1993; President, American Bar 55 Portfolios Ramo 08543-9095 Association from 1995 to 1996 and Member of Age: 62 the Board of Governors thereof from 1994 to 1997; Shareholder, Poole, Kelly & Ramo, Attorneys at Law, P.C. from 1977 to 1993; Director of ECMC Group (service provider to students, schools and lenders) since 2001; Director, United New Mexico Bank (now Wells Fargo) from 1983 to 1988; Director, First National Bank of New Mexico (now Wells Fargo) from 1975 to 1976; Vice President, American Law Institute since 2004. ------------------------------------------------------------------------------------------------------------------------------------ Robert S. P.O. Box 9095 Director 2002 to Principal of STI Management (investment adviser) 38 Funds None Salomon, Princeton, NJ present since 1994; Chairman and CEO of Salomon 55 Portfolios Jr. 08543-9095 Brothers Asset Management from 1992 to 1995; Age: 67 Chairman of Salomon Brothers equity mutual funds from 1992 to 1995; regular columnist with Forbes Magazine from 1992 to 2002; Director of Stock Research and U.S. Equity Strategist at Salomon Brothers from 1975 to 1991; Trustee, Common fund from 1980 to 2001. ------------------------------------------------------------------------------------------------------------------------------------ Stephen B. P.O. Box 9095 Director 2002 to Chairman of Fernwood Advisors, Inc. (investment 39 Funds None Swensrud Princeton, NJ present adviser) since 1996; Principal, Fernwood Associates 56 Portfolios 08543-9095 (financial consultants) since 1975; Chairman of Age: 71 R.P.P. Corporation (manufacturing company) since 1978; Director of International Mobile Communications, Incorporated (telecommunications) since 1998. ------------------------------------------------------------------------------------------------------------------------ * The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 25 [LOGO] Merrill Lynch Investment Managers Officers and Directors (unaudited) (concluded)
Position(s) Length of Held with Time Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years ==================================================================================================================================== Fund Officers* ------------------------------------------------------------------------------------------------------------------------------------ Donald C. P.O. Box 9011 Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999; Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director 08543-9011 and and since 2004; Vice President of FAMD since 1999; Vice President of MLIM and FAM from Age: 44 Treasurer 1999 to 1990 to 1997; Director of MLIM Taxation since 1990. present ------------------------------------------------------------------------------------------------------------------------------------ Kenneth A. P.O. Box 9011 Senior Vice 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund Jacob Princeton, NJ President present Management) of MLIM from 1997 to 2000. 08543-9011 Age: 53 ------------------------------------------------------------------------------------------------------------------------------------ John M. P.O. Box 9011 Senior Vice 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund Loffredo Princeton, NJ President present Management) of MLIM from 1998 to 2000. 08543-9011 Age: 40 ------------------------------------------------------------------------------------------------------------------------------------ Walter C. P.O. Box 9011 Vice 2002 to Managing Director of MLIM since 2003; Director (Municipal Tax-Exempt Fund O'Connor Princeton, NJ President present Management) of MLIM from 2000 to 2003; Vice President of MLIM from 1994 to 1999. 08543-9011 Age: 43 ------------------------------------------------------------------------------------------------------------------------------------ Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM since 2004; Global Director of Compliance at 08543-9011 Officer Morgan Stanley Investment Management from 2002 to 2004; Managing Director and Age: 53 Global Director of Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential Financial from 1995 to 2000. ------------------------------------------------------------------------------------------------------------------------------------ Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997. 08543-9011 Age: 44 ------------------------------------------------------------------------------------------------------------------------ * Officers of the Fund serve at the pleasure of the Board of Directors. ------------------------------------------------------------------------------------------------------------------------------------
Custodian State Street Bank and Trust Company P.O. Box 351 Boston, MA 02101 Transfer Agents Common Stock: EquiServe P.O. Box 43010 Providence, RI 02940-3010 Preferred Stock: The Bank of New York 101 Barclay Street -- 7 West New York, NY 10286 NYSE Symbol MCA ------------------------------------------------------------------------------ Andre F. Perold resigned as a Director of the Fund effective October 22, 2004. ------------------------------------------------------------------------------ 26 MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 Availability of Quarterly Schedule of Investments The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Electronic Delivery The Fund offers electronic delivery of communications to its shareholders. In order to receive this service, you must register your account and provide us with e-mail information. To sign up for this service, simply access this Web site http://www.icsdelivery.com/live and follow the instructions. When you visit this site, you will obtain a personal identification number (PIN). You will need this PIN should you wish to update your e-mail address, choose to discontinue this service and/or make any other changes to the service. This service is not available for certain retirement accounts at this time. MUNIYIELD CALIFORNIA INSURED FUND, INC. OCTOBER 31, 2004 27 [LOGO] Merrill Lynch Investment Managers MuniYield California Insured Fund, 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 investment grade 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, 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 and intends to remain leveraged 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. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2) at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's Web site at http://www.sec.gov. Information about how the Fund voted proxies relating to securities held in the Fund's portfolio during the most recent 12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2) on the Securities and Exchange Commission's Web site at http://www.sec.gov. MuniYield California Insured Fund, Inc. Box 9011 Princeton, NJ 08543-9011 #16388 -- 10/04 Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the end of the period covered by this report, that applies to the registrant's principal executive officer, principal financial officer and principal accounting officer, or persons performing similar functions. A copy of the code of ethics is available without charge upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863). Item 3 - Audit Committee Financial Expert - The registrant's board of directors has determined that (i) the registrant has the following audit committee financial experts serving on its audit committee and (ii) each audit committee financial expert is independent: (1) Joe Grills, (2) Andre F. Perold (resigned as of October 1, 2004), (3) Robert S. Salomon, Jr., and (4) Stephen B. Swensrud. Item 4 - Principal Accountant Fees and Services (a) Audit Fees - Fiscal Year Ending October 31, 2004 - $28,000 Fiscal Year Ending October 31, 2003 - $26,000 (b) Audit-Related Fees - Fiscal Year Ending October 31, 2004 - $3,000 Fiscal Year Ending October 31, 2003 - $5,600 The nature of the services include assurance and related services reasonably related to the performance of the audit of financial statements not included in Audit Fees. (c) Tax Fees - Fiscal Year Ending October 31, 2004 - $5,610 Fiscal Year Ending October 31, 2003 - $4,800 The nature of the services include tax compliance, tax advice and tax planning. (d) All Other Fees - Fiscal Year Ending October 31, 2004 - $0 Fiscal Year Ending October 31, 2003 - $0 (e)(1) The registrant's audit committee (the "Committee") has adopted policies and procedures with regard to the pre-approval of services. Audit, audit-related and tax compliance services provided to the registrant on an annual basis require specific pre-approval by the Committee. The Committee also must approve other non-audit services provided to the registrant and those non-audit services provided to the registrant's affiliated service providers that relate directly to the operations and the financial reporting of the registrant. Certain of these non-audit services that the Committee believes are a) consistent with the SEC's auditor independence rules and b) routine and recurring services that will not impair the independence of the independent accountants may be approved by the Committee without consideration on a specific case-by-case basis ("general pre-approval"). However, such services will only be deemed pre-approved provided that any individual project does not exceed $5,000 attributable to the registrant or $50,000 for all of the registrants the Committee oversees. Any proposed services exceeding the pre-approved cost levels will require specific pre-approval by the Committee, as will any other services not subject to general pre-approval (e.g., unanticipated but permissible services). The Committee is informed of each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting. (e)(2) 0% (f) Not Applicable (g) Fiscal Year Ending October 31, 2004 - $13,270,096 Fiscal Year Ending October 31, 2003 - $18,737,552 (h) The registrant's audit committee has considered and determined that the provision of non-audit services that were rendered to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0% Item 5 - Audit Committee of Listed Registrants - The following individuals are members of the registrant's separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)): James H. Bodurtha Joe Grills Herbert I. London Andre F. Perold (resigned as of October 1, 2004) Roberta Cooper Ramo Robert S. Solomon, Jr. Stephen B. Swensrud Item 6 - Schedule of Investments - Not Applicable Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies - Proxy Voting Policies and Procedures Each Fund's Board of Directors/Trustees has delegated to Merrill Lynch Investment Managers, L.P. and/or Fund Asset Management, L.P. (the "Investment Adviser") authority to vote all proxies relating to the Fund's portfolio securities. The Investment Adviser has adopted policies and procedures ("Proxy Voting Procedures") with respect to the voting of proxies related to the portfolio securities held in the account of one or more of its clients, including a Fund. Pursuant to these Proxy Voting Procedures, the Investment Adviser's primary objective when voting proxies is to make proxy voting decisions solely in the best interests of each Fund and its shareholders, and to act in a manner that the Investment Adviser believes is most likely to enhance the economic value of the securities held by the Fund. The Proxy Voting Procedures are designed to ensure that that the Investment Adviser considers the interests of its clients, including the Funds, and not the interests of the Investment Adviser, when voting proxies and that real (or perceived) material conflicts that may arise between the Investment Adviser's interest and those of the Investment Adviser's clients are properly addressed and resolved. In order to implement the Proxy Voting Procedures, the Investment Adviser has formed a Proxy Voting Committee (the "Committee"). The Committee is comprised of the Investment Adviser's Chief Investment Officer (the "CIO"), one or more other senior investment professionals appointed by the CIO, portfolio managers and investment analysts appointed by the CIO and any other personnel the CIO deems appropriate. The Committee will also include two non-voting representatives from the Investment Adviser's Legal department appointed by the Investment Adviser's General Counsel. The Committee's membership shall be limited to full-time employees of the Investment Adviser. No person with any investment banking, trading, retail brokerage or research responsibilities for the Investment Adviser's affiliates may serve as a member of the Committee or participate in its decision making (except to the extent such person is asked by the Committee to present information to the Committee, on the same basis as other interested knowledgeable parties not affiliated with the Investment Adviser might be asked to do so). The Committee determines how to vote the proxies of all clients, including a Fund, that have delegated proxy voting authority to the Investment Adviser and seeks to ensure that all votes are consistent with the best interests of those clients and are free from unwarranted and inappropriate influences. The Committee establishes general proxy voting policies for the Investment Adviser and is responsible for determining how those policies are applied to specific proxy votes, in light of each issuer's unique structure, management, strategic options and, in certain circumstances, probable economic and other anticipated consequences of alternate actions. In so doing, the Committee may determine to vote a particular proxy in a manner contrary to its generally stated policies. In addition, the Committee will be responsible for ensuring that all reporting and recordkeeping requirements related to proxy voting are fulfilled. The Committee may determine that the subject matter of a recurring proxy issue is not suitable for general voting policies and requires a case-by-case determination. In such cases, the Committee may elect not to adopt a specific voting policy applicable to that issue. The Investment Adviser believes that certain proxy voting issues require investment analysis - such as approval of mergers and other significant corporate transactions - akin to investment decisions, and are, therefore, not suitable for general guidelines. The Committee may elect to adopt a common position for the Investment Adviser on certain proxy votes that are akin to investment decisions, or determine to permit the portfolio manager to make individual decisions on how best to maximize economic value for a Fund (similar to normal buy/sell investment decisions made by such portfolio managers). While it is expected that the Investment Adviser will generally seek to vote proxies over which the Investment Adviser exercises voting authority in a uniform manner for all the Investment Adviser's clients, the Committee, in conjunction with a Fund's portfolio manager, may determine that the Fund's specific circumstances require that its proxies be voted differently. To assist the Investment Adviser in voting proxies, the Committee has retained Institutional Shareholder Services ("ISS"). ISS is an independent adviser that specializes in providing a variety of fiduciary-level proxy-related services to institutional investment managers, plan sponsors, custodians, consultants, and other institutional investors. The services provided to the Investment Adviser by ISS include in-depth research, voting recommendations (although the Investment Adviser is not obligated to follow such recommendations), vote execution, and recordkeeping. ISS will also assist the Fund in fulfilling its reporting and recordkeeping obligations under the Investment Company Act. The Investment Adviser's Proxy Voting Procedures also address special circumstances that can arise in connection with proxy voting. For instance, under the Proxy Voting Procedures, the Investment Adviser generally will not seek to vote proxies related to portfolio securities that are on loan, although it may do so under certain circumstances. In addition, the Investment Adviser will vote proxies related to securities of foreign issuers only on a best efforts basis and may elect not to vote at all in certain countries where the Committee determines that the costs associated with voting generally outweigh the benefits. The Committee may at any time override these general policies if it determines that such action is in the best interests of a Fund. From time to time, the Investment Adviser may be required to vote proxies in respect of an issuer where an affiliate of the Investment Adviser (each, an "Affiliate"), or a money management or other client of the Investment Adviser (each, a "Client") is involved. The Proxy Voting Procedures and the Investment Adviser's adherence to those procedures are designed to address such conflicts of interest. The Committee intends to strictly adhere to the Proxy Voting Procedures in all proxy matters, including matters involving Affiliates and Clients. If, however, an issue representing a non-routine matter that is material to an Affiliate or a widely known Client is involved such that the Committee does not reasonably believe it is able to follow its guidelines (or if the particular proxy matter is not addressed by the guidelines) and vote impartially, the Committee may, in its discretion for the purposes of ensuring that an independent determination is reached, retain an independent fiduciary to advise the Committee on how to vote or to cast votes on behalf of the Investment Adviser's clients. In the event that the Committee determines not to retain an independent fiduciary, or it does not follow the advice of such an independent fiduciary, the powers of the Committee shall pass to a subcommittee, appointed by the CIO (with advice from the Secretary of the Committee), consisting solely of Committee members selected by the CIO. The CIO shall appoint to the subcommittee, where appropriate, only persons whose job responsibilities do not include contact with the Client and whose job evaluations would not be affected by the Investment Adviser's relationship with the Client (or failure to retain such relationship). The subcommittee shall determine whether and how to vote all proxies on behalf of the Investment Adviser's clients or, if the proxy matter is, in their judgment, akin to an investment decision, to defer to the applicable portfolio managers, provided that, if the subcommittee determines to alter the Investment Adviser's normal voting guidelines or, on matters where the Investment Adviser's policy is case-by-case, does not follow the voting recommendation of any proxy voting service or other independent fiduciary that may be retained to provide research or advice to the Investment Adviser on that matter, no proxies relating to the Client may be voted unless the Secretary, or in the Secretary's absence, the Assistant Secretary of the Committee concurs that the subcommittee's determination is consistent with the Investment Adviser's fiduciary duties In addition to the general principles outlined above, the Investment Adviser has adopted voting guidelines with respect to certain recurring proxy issues that are not expected to involve unusual circumstances. These policies are guidelines only, and the Investment Adviser may elect to vote differently from the recommendation set forth in a voting guideline if the Committee determines that it is in a Fund's best interest to do so. In addition, the guidelines may be reviewed at any time upon the request of a Committee member and may be amended or deleted upon the vote of a majority of Committee members present at a Committee meeting at which there is a quorum. The Investment Adviser has adopted specific voting guidelines with respect to the following proxy issues: o Proposals related to the composition of the Board of Directors of issuers other than investment companies. As a general matter, the Committee believes that a company's Board of Directors (rather than shareholders) is most likely to have access to important, nonpublic information regarding a company's business and prospects, and is therefore best-positioned to set corporate policy and oversee management. The Committee, therefore, believes that the foundation of good corporate governance is the election of qualified, independent corporate directors who are likely to diligently represent the interests of shareholders and oversee management of the corporation in a manner that will seek to maximize shareholder value over time. In individual cases, the Committee may look at a nominee's history of representing shareholder interests as a director of other companies or other factors, to the extent the Committee deems relevant. o Proposals related to the selection of an issuer's independent auditors. As a general matter, the Committee believes that corporate auditors have a responsibility to represent the interests of shareholders and provide an independent view on the propriety of financial reporting decisions of corporate management. While the Committee will generally defer to a corporation's choice of auditor, in individual cases, the Committee may look at an auditors' history of representing shareholder interests as auditor of other companies, to the extent the Committee deems relevant. o Proposals related to management compensation and employee benefits. As a general matter, the Committee favors disclosure of an issuer's compensation and benefit policies and opposes excessive compensation, but believes that compensation matters are normally best determined by an issuer's board of directors, rather than shareholders. Proposals to "micro-manage" an issuer's compensation practices or to set arbitrary restrictions on compensation or benefits will, therefore, generally not be supported. o Proposals related to requests, principally from management, for approval of amendments that would alter an issuer's capital structure. As a general matter, the Committee will support requests that enhance the rights of common shareholders and oppose requests that appear to be unreasonably dilutive. o Proposals related to requests for approval of amendments to an issuer's charter or by-laws. As a general matter, the Committee opposes poison pill provisions. o Routine proposals related to requests regarding the formalities of corporate meetings. o Proposals related to proxy issues associated solely with holdings of investment company shares. As with other types of companies, the Committee believes that a fund's Board of Directors (rather than its shareholders) is best-positioned to set fund policy and oversee management. However, the Committee opposes granting Boards of Directors authority over certain matters, such as changes to a fund's investment objective, that the Investment Company Act envisions will be approved directly by shareholders. o Proposals related to limiting corporate conduct in some manner that relates to the shareholder's environmental or social concerns. The Committee generally believes that annual shareholder meetings are inappropriate forums for discussion of larger social issues, and opposes shareholder resolutions "micromanaging" corporate conduct or requesting release of information that would not help a shareholder evaluate an investment in the corporation as an economic matter. While the Committee is generally supportive of proposals to require corporate disclosure of matters that seem relevant and material to the economic interests of shareholders, the Committee is generally not supportive of proposals to require disclosure of corporate matters for other purposes. Item 8 - Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers - Not Applicable Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable Item 10 - Controls and Procedures 10(a) - The registrant's certifying officers have reasonably designed such disclosure controls and procedures to ensure material information relating to the registrant is made known to us by others particularly during the period in which this report is being prepared. The registrant's certifying officers have determined that the registrant's disclosure controls and procedures are effective based on our evaluation of these controls and procedures as of a date within 90 days prior to the filing date of this report. 10(b) - There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the second fiscal half-year of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11 - Exhibits attached hereto 11(a)(1) - Code of Ethics - See Item 2 11(a)(2) - Certifications - Attached hereto 11(a)(3) - Not Applicable 11(b) - Certifications - Attached hereto Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MuniYield California Insured Fund, Inc. By: /s/ Terry K. Glenn Terry K. Glenn, President of MuniYield California Insured Fund, Inc. Date: December 13, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Terry K. Glenn Terry K. Glenn, President of MuniYield California Insured Fund, Inc. Date: December 13, 2004 By: /s/ Donald C. Burke Donald C. Burke, Chief Financial Officer of MuniYield California Insured Fund, Inc. Date: December 13, 2004