MUNIYIELD
INSURED
FUND II, INC.
FUND LOGO
Annual Report
October 31, 1994
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
M. Colyer Crum, Director
Edward H. Meyer, Director
Jack B. Sunderland, Director
J. Thomas Touchton, Director
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
<PAGE>
Transfer Agents
Common Stock:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
NYSE Symbol
MTI
This report, including the financial information herein, is
transmitted to the shareholders of MuniYield Insured Fund II, Inc.
for their information. It is not a prospectus, circular or
representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its
Common Stock by issuing Preferred Stock to provide the Common Stock
shareholders with a potentially higher rate of return. Leverage
creates risks for Common Stock shareholders, including the
likelihood of greater volatility of net asset value and market price
of shares of the Common Stock, and the risk that fluctuations in the
short-term dividend rates of the Preferred Stock may affect the
yield to Common Stock shareholders.
MuniYield Insured
Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MuniYield Insured Fund II, Inc.
DEAR SHAREHOLDER
For the year ended October 31, 1994, the Common Stock of MuniYield
Insured Fund II, Inc. earned $1.212 per share income dividends,
which includes earned and unpaid dividends of $0.079. This
represents a net annualized yield of 9.01%, based on a month-end net
asset value of $13.45 per share. Over the same period, the total
investment return on the Fund's Common Stock was -11.87%, based on a
change in per share net asset value from $16.63 to $13.45, and
assuming reinvestment of $1.219 per share income dividends.
For the six-month period ended October 31, 1994, the total
investment return on the Fund's Common Stock was -3.57%, based on a
change in per share net asset value from $14.48 to $13.45, and
assuming reinvestment of $0.478 per share income dividends.
The average yields of the Fund's Auction Market Preferred Stock for
the six months ended October 31, 1994 were 3.04% for Series A and
3.08% for Series B.
The Environment
As discussed in our last report to shareholders, the Federal Reserve
Board moved to counteract inflationary pressures by tightening
monetary policy. This trend continued during the May--October
period. Despite the series of preemptive strikes against inflation
by the central bank, concerns of increasing inflationary pressures
continued to prompt volatility in the US capital markets during the
period. In addition, the weakness of the US dollar in foreign
exchange markets prolonged stock and bond market declines.
Ongoing strength in the manufacturing sector and better-
than-expected economic results continue to fuel speculation
that the Federal Reserve Board will continue to raise short-term
interest rates in the months ahead. However, although consumer
spending is increasing, it is doing so at a lower rate than has been
the case in recent economic recoveries. In the weeks ahead,
investors will continue to assess economic data and inflationary
trends in order to gauge whether further increases in short-term
interest rates are imminent. Continued indications of moderate and
sustainable levels of economic growth would be positive for the US
capital markets. At the same time, greater US dollar stability in
foreign exchange markets would help to dampen expectations of
significantly higher short-term interest rates.
<PAGE>
The Municipal Market
The long-term tax-exempt market continued to erode throughout the
three months ended October 31, 1994. As measured by the Bond Buyer
Revenue Bond Index, yields on A-rated municipal revenue bonds
maturing in 30 years rose by almost 50 basis points (0.50%) to 6.95%
during the October 31, 1994 quarter. This represents the highest
level in tax-exempt bond yields in over two years. US Treasury bonds
suffered even greater declines during the quarter as Treasury bond
yields rose approximately 60 basis points to end the quarter at
8.00%.
The tax-exempt bond market reacted negatively throughout the October
quarter to indications that, despite a series of interest rate
increases by the Federal Reserve Board, the strength of the domestic
economy seen in recent quarters has not yet been significantly
reduced. While inflationary pressures have remained well contained,
additional Federal Reserve Board actions have been expected both to
ensure that domestic economic growth is eventually confined to
current levels and to assure nervous financial markets of its
anti-inflationary intentions.
Fortunately, while the demand for tax-exempt bonds has declined
somewhat in recent months, new bond issuance has remained greatly
reduced. During the quarter ended October 31, 1994, only $32 billion
in long-term tax-exempt securities were issued, a decline of over
50% versus the October 31, 1993 quarter. Similarly, for the six
months ended October 31, 1994, only $75 billion in municipal
securities were underwritten, a decline of over 50% versus the
comparable period a year earlier. This reduction in issuance in
recent quarters has allowed the municipal bond market to react to
both the decline in investor demand and the rise in fixed-income
yields in a more orderly fashion than in similar situations in the
past, particularly during 1987.
Long-term tax-exempt revenue bonds currently yield approximately 7%,
or almost 11.5% on an after-tax equivalent basis, to an investor in
the 39.6% Federal income tax bracket. As inflation has only
marginally increased in the past year, real tax-exempt interest
rates have risen dramatically. The Federal Reserve Board appears
committed to maintaining inflation at or below its current levels.
Indeed, most forecasts expect inflation to remain in its present
range of 3%--4% throughout 1995 and, potentially, for the remainder
of the 1990s. Real after-tax equivalent interest rates exceeding 7%
represent historically attractive municipal investments for
long-term investors.
<PAGE>
Federal Reserve Board actions taken thus far have yet to fully
impact US domestic growth and expected additional actions should
promote only a modest economic expansion within a benign
inflationary context beginning sometime early in 1995. Within such
an environment, it is unlikely that tax-exempt interest rates will
remain at their current attractive levels. Tax-exempt bond issuance
is unlikely to return to the historic high levels seen in 1992 and
1993, while investor demand should return as markets stabilize. As
we have discussed in earlier reports, the total number of tax-exempt
bonds outstanding is scheduled to decline dramatically in 1994 and
1995 as a result of both regular bond maturities and early
redemptions. Investors seeking tax-advantaged issues are likely to
find it very difficult to obtain currently available tax-exempt
yields as the current supply/demand balance is unlikely to be
maintained in the coming quarters.
Portfolio Strategy
During the quarter ended October 31, 1994, we adopted a somewhat
more defensive stance by modestly altering the composition of the
portfolio. Our course of action was to sell discounted securities
and purchase current coupon securities, which increased the average
coupon level of the portfolio. Within this framework, we
concentrated on increasing the Fund's holdings of high tax state
issues because we believe that the yield ratio to other municipal
bonds will decline as we go out to 1995--1996.
We kept cash reserves at a minimum in order to seek to take
advantage of the steep yield spread between short-term and long-term
interest rates. As of October 31, 1994, the yield spread was 300
basis points, which continued to generate positive benefits to
Common Stock shareholders derived from the leveraging of the
Preferred Stock. However, should the spread between short-term and
long-term interest rates narrow, the benefits of the leverage will
decline and, as a result, reduce the yield of the Fund's Common
Stock. (For a complete explanation of the benefits and risks of
leveraging, see page 3 of this report to shareholders.)
We appreciate your ongoing interest in MuniYield Insured Fund II,
Inc., and we look forward to assisting you with your financial needs
in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
<PAGE>
December 6, 1994
THE BENEFITS AND RISKS OF LEVERAGING
MuniYield Insured Fund II, Inc. utilizes leveraging to seek to
enhance the yield and net asset value of its Common Stock. However,
these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues Preferred Stock, which
pays dividends at prevailing short-term interest rates, and invests
the proceeds in long-term municipal bonds. The interest earned on
these investments is paid to Common Stock shareholders in the form
of dividends, and the value of these portfolio holdings is reflected
in the per share net asset value of the Fund's Common Stock.
However, in order to benefit Common Stock shareholders, the yield
curve must be positively sloped; that is, short-term interest rates
must be lower than long-term interest rates. At the same time, a
period of generally declining interest rates will benefit Common
Stock shareholders. If either of these conditions change, then the
risks of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred Stock
for an additional $50 million, creating a total value of $150
million available for investment in long-term municipal bonds. If
prevailing short-term interest rates are approximately 3% and long-
term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million
of Preferred Stock based on the lower short-term interest rates. At
the same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates.
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 pick-up on the
Common Stock will be reduced. 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.
<PAGE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield Insured Fund II, Inc.'s
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
HFA Housing Finance Authority
IDA Industrial Development Authority
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RAN Revenue Anticipation Notes
RIB Residual Interest Bonds
S/F Single-Family
SAVRS Select Auction Variable Rate Securities
TAN Tax Anticipation Notes
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama--0.7% AAA Aaa $ 2,500 Huntsville, Alabama, Health Care Authority, Health Care
Facilities Revenue Bonds, Series B, 6.625% due 6/01/2023 (d) $ 2,445
Arizona--1.5% A1+ VMIG1 1,500 Maricopa County, Arizona, IDA, Hospital Facility Revenue
Bonds (Samaritan Health Services Hospital), VRDN,
Series B2, 3.70% due 12/01/2008 (a)(d) 1,500
SP-1 MIG2 3,500 Maricopa County, Arizona, TAN, 5% due 7/28/1995 3,518
<PAGE>
California--12.8% California State Public Works Board, Lease Revenue Bonds
(Various Universities of California Projects):
A- A 2,000 Refunding, Series A, 5.50% due 6/01/2021 1,606
AAA Aaa 7,250 Series A, 6.40% due 12/01/2016 (b) 7,058
A- A 5,000 Series B, 5.50% due 6/01/2019 4,046
AAA Aaa 1,750 California State, RAN, Series C, 5.75% due 4/25/1996 (c) 1,772
AAA Aaa 1,500 Calleguas-Las Virgines, California, Public Financing Authority,
Installment Purchase Revenue Refunding Bonds (Calleguas
Municipal Water District Project), 5.125% due 7/01/2014 (c) 1,214
A+ A1 1,245 Contra Costa County, California, COP, 6.50% due 8/01/2019 1,182
AAA Aaa 2,250 Los Angeles, California, Wastewater System Revenue Refunding
Bonds, Series A, 5.70% due 6/01/2020 (d) 1,942
AAA Aaa 5,000 Los Angeles County, California, COP (Correctional Facilities
Project), 6.50% due 9/01/2013 (d) 4,933
AAA Aaa 5,000 Los Angeles County, California, Metropolitan Transportation
Authority, Sales Tax Revenue Refunding Bonds, Proposition A,
Series A, 5.625% due 7/01/2018 (d) 4,292
AAA Aaa 8,000 Los Angeles County, California, Transportation Commission,
Sales Tax Revenue Bonds, Proposition C, Second Senior, Series A,
6% due 7/01/2023 (d) 7,252
AAA Aaa 3,000 Sacramento, California, Municipal Utility District, Electric
Revenue Bonds, Series I, 6% due 1/01/2024 (d) 2,718
AAA Aaa 2,000 San Francisco, California, City and County, Sewer Revenue
Refunding Bonds, 5.375% due 10/01/2022 (c) 1,629
AAA Aaa 2,000 Southern California Public Power Authority, Revenue Refunding
Bonds (Transmission Project), Subseries A, 5.25% due
7/01/2020 (d) 1,605
NR* Aa 2,300 University of California, COP, Refunding (UCLA Center--
Chiller/Cogen Project), 5.60% due 11/01/2020 1,887
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (conitnued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Colorado--1.1% A1 Aa3 $ 200 Colorado Housing Finance Authority, M/F Revenue Bonds
(Central Park Coven & Greenwood), VRDN, 3.35% due 5/01/1997 (a) $ 200
AAA Aaa 1,000 Douglas County, Colorado, School District No. 1 (Douglas and
Elbert Counties Improvement Project), Series A, 6.50% due
12/15/2016 (d) 987
AAA Aaa 2,500 Garfield, Pitkin and Eagle Counties, Colorado, School District
No. 1, 6.60% due 12/15/2014 (d) 2,514
Connecticut--2.4% AAA Aaa 8,000 Connecticut State HFA, Revenue Bonds (Housing Mortgage
Finance Program), Series B, 6.75% due 11/15/2023 (d) 7,840
A1+ VMIG1 300 Connecticut State Special Assessment Unemployment
Compensation, Advanced Fund Revenue Bonds (Connecticut
Unemployment), VRDN, Series B, 3.45% due 11/01/2001 (a) 300
Delaware--1.1% AAA Aaa 2,500 Delaware River and Bay Authority, Delaware, Revenue
Refunding Bonds, 4.75% due 1/01/2024 (d) 1,843
AAA Aaa 2,500 Delaware State EDA, Gas Facility Revenue Bonds (Delmarva
Power and Light), AMT, Series A, 6.05% due 6/01/2032 (d) 2,201
District of AAA Aaa 1,800 Metropolitan Washington D.C. Airports Authority, General
Columbia--0.4% Airport Revenue Bonds, AMT, Series A, 5.50% due 10/01/2024 (d) 1,467
Florida--1.7% AAA Aaa 1,500 Brevard County, Florida, School Board, COP, Refunding,
Series A, 6.50% due 7/01/2012 (b) 1,497
AAA Aaa 5,540 Orlando and Orange County Expressway Authority, Florida,
Revenue Refunding Bonds (Florida Expressway), Junior Lien,
Series A, 5.25% due 7/01/2019 (c) 4,496
Georgia--3.2% AAA Aaa 4,700 Albany, Georgia, Sewer System Revenue Bonds, 6.70% due
7/01/2022 (d) 4,688
AAA Aaa 2,000 Chatam County, Georgia, School District Revenue Bonds, UT,
6.75% due 8/01/2018 (d) 2,007
AA- A3 2,000 Monroe County, Georgia, Development Authority, PCR, Refunding
(Oglethorpe Power Scherer), Series A, 6.80% due 1/01/2012 1,985
AAA Aaa 2,000 Municipal Electric Authority, Georgia, Project One,
Sub-Series A, 6.50% due 1/01/2026 (b) 1,938
Hawaii--1.8% AAA Aaa 6,000 Hawaii State Airport System Revenue Bonds, AMT, Second
Series, 7% due 7/01/2018 (d) 6,034
<PAGE>
Illinois--12.4% Chicago, Illinois, O'Hare International Airport, Special
Facilities Revenue Bonds (International Terminal), AMT (d):
AAA Aaa 2,000 6.75% due 1/01/2012 2,001
AAA Aaa 3,870 6.75% due 1/01/2018 3,768
Chicago, Illinois, Wastewater Transmission Revenue Bonds:
AAA Aaa 10,375 6.35% due 1/01/2022 (c) 9,762
AAA Aaa 6,000 6.375% due 1/01/2024 (d) 5,656
Illinois Health Facilities Authority Revenue Bonds:
A- NR* 1,300 (Northern Illinois Medical Center Project), 5.875% due 9/01/2013 1,139
AA Aa 3,250 Refunding (Northwestern Memorial Hospital), Series A,
6% due 8/15/2024 2,838
AAA Aaa 3,000 (Servantcor Project), Capital Guaranty, Series A,
6.375% due 8/15/2021 2,791
Metropolitan Pier and Exposition Authority, Illinois, Dedicated
State Tax Revenue Bonds (McCormick Expansion Project),
Series A:
A+ A 1,505 6.50% due 6/15/2022 1,405
AAA Aaa 9,200 6.50% due 6/15/2027 (b) 8,712
AAA Aaa 4,000 Regional Transportation Authority, Illinois, Series A, 7.20%
due 11/01/2020 (b) 4,204
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Indiana--3.4% AAA Aaa $ 3,800 Ball State University, Indiana, University Revenue Bonds
(Student Fee), Series G, 6.125% due 7/01/2014 (c)(g) $ 3,531
AAA Aaa 1,390 Indiana Municipal Power Agency, Power Supply System,
Revenue Refunding Bonds, Series B, 6% due 1/01/2012 (d) 1,294
AAA Aaa 2,400 Indiana State Vocational Technical College, Building Facilities
Bonds (Student Fee), Series D, 6.50% due 7/01/2014 (b) 2,337
A+ NR* 4,650 Indianapolis, Indiana, Local Public Improvement Bond
Bank, Refunding Bonds, Series D, 6.75% due 2/01/2020 4,433
Iowa--1.4% A1+ NR* 500 Iowa Finance Authority, Solid Waste Disposal Revenue Bonds
(Cedar River Paper Company Project), VRDN, Series A,
3.80% due 6/01/2024 (a) 500
AAA Aaa 4,435 Iowa Financing Authority, S/F, Mortgage Revenue Refunding
Bonds, Series F, 6.35% due 7/01/2009 (b) 4,331
<PAGE>
Kentucky--0.6% A1+ VMIG1 2,200 Daviess County, Kentucky, Solid Waste Disposal Facility
Revenue Bonds (Scott Paper Co. Project), VRDN, AMT,
Series B, 3.75% due 12/01/2023 (a) 2,200
Louisiana--1.1% AAA Aaa 2,000 Louisiana Public Facilities Authority Revenue Bonds
(General Health Inc. Project), 6.375% due 11/01/2024 (d) 1,880
NR* Aa 2,000 Louisiana Public Facilities Authority, Student Loan Revenue
Bonds, AMT, Senior Series A-2, 6.75% due 9/01/2006 1,989
Maryland--0.6% NR* Aa 2,085 Maryland State Community Development Administration,
M/F Housing Revenue Bonds (Department of Housing and
Community Development), Series C, 6.65% due 5/15/2025 2,006
Massachusetts-- Massachusetts State Health and Educational Facilities
4.3% Authority Revenue Bonds:
AAA Aaa 5,000 (Massachusetts General Hospital), Series F, 6.25% due
7/01/2020(b) 4,679
AAA Aaa 10,000 (Northeastern University), Series E, 6.55% due 10/01/2022 (d) 9,786
Michigan--2.2% AAA Aaa 2,750 Caledonia, Michigan, Community Schools, Revenue Refunding
Bonds, UT, 6.625% due 5/01/2014 (b) 2,742
BBB Baal 1,750 Michigan State, Hospital Financing Authority, Revenue Refunding
Bonds (Pontiac Osteopathic), Series A, 6% due 2/01/2024 1,413
AAA Aaa 3,500 Monroe County, Michigan, PCR (Detroit Edison Company--Coll
Project), AMT, Series I-B, 6.55% due 9/01/2024 (d) 3,380
Minnesota--1.3% A- A 4,500 Minneapolis and St. Paul, Minnesota, Housing and Redevelopment
Authority, Health Care System Revenue Bonds (Group Health
Plan Incorporated Project), 6.90% due 10/15/2022 4,378
Mississippi--1.5% NR* P1 5,200 Jackson County, Mississippi, Port Facility Revenue Refunding
Bonds (Chevron USA, Inc. Project), VRDN, 3.50% due 6/01/2023 (a) 5,200
Nebraska--0.8% NR* Aa 2,700 Nebraska Higher Education Loan Program Incorporated Revenue
Bonds, AMT, Senior Sub-Lien, Series A-5, 6.65% due 6/01/2008 2,678
Nevada--3.4% AAA Aaa 2,770 Henderson, Nevada, Health Care Facilities, Revenue Refunding
Bonds (Catholic Healthcare), Series A, 5% due 7/01/2020 (b) 2,098
AAA Aaa 5,000 Washoe County, Nevada, Gas Facility Revenue Bonds
(Sierra Pacific Power), AMT, 6.55% due 9/01/2020 (d) 4,710
AAA Aaa 5,000 Washoe County, Nevada, Water Facility Revenue Bonds
(Sierra Pacific Power), AMT, 6.65% due 6/01/2017 (d) 4,852
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New Jersey--1.2% AAA Aaa $ 4,500 New Jersey State Housing and Mortgage Finance Agency
Revenue Bonds (Home Buyer), AMT, Series K, 6.375% due
10/01/2026 (d) $ 4,143
A1+ VMIG1 100 Port Authority of New York and New Jersey, Special Obligation
Revenue Bonds (Versatile Structure Obligations), VRDN,
Series 1, 3.65% due 8/01/2028 (a) 100
New Mexico--1.7% AAA Aaa 5,750 Gallup, New Mexico, PCR, Refunding (Plains Electric
Generation), 6.65% due 8/15/2017 (d) 5,742
New York--6.4% A- Baal 7,500 New York City, New York, GO, UT, Series C, Subseries C-1,
7% due 8/01/2018 7,388
New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, VRDN, Series C (a)(c):
A1+ VMIG1 1,500 3.55% due 6/15/2022 1,500
AAA VMIG1 1,100 3.55% due 6/15/2023 1,100
BBB- Baa1 5,725 New York State Dormitory Authority Revenue Bonds (Upstate
Community Colleges), Series A, 5.70% due 7/01/2021 4,765
New York State Medical Care Facilities Finance Agency
Revenue Bonds (Mental Health Services Facility) (c):
AAA Aaa 5,685 Refunding, Series F, 5.25% due 2/15/2019 4,592
AAA Aaa 3,000 Series A, 5.25% due 8/15/2023 2,381
North NR* Aa2 2,100 Halifax County, North Carolina, Industrial Facilities and Pollution
Carolina--0.6% Control Financing Authority Revenue Bonds (Exempt Facilities--
Westmoreland), VRDN, AMT, 3.75% due 12/01/2019 (a)(g) 2,100
Ohio--0.7% AAA Aaa 2,500 North Canton, Ohio, City School District, UT, 6.70% due
12/01/2019 (b) 2,506
Pennsylvania--2.7% AAA Aaa 1,000 Beaver County, Pennsylvania, Hospital Authority Revenue
Refunding Bonds (Medical Center Beaver County, Incorporated),
6.625% due 7/01/2010 (b) 1,004
AA Aa 8,000 Pennsylvania, HFA, SAVRS, RIB, AMT, 6.057% due 4/01/2025 (f) 7,080
BBB+ Baal 1,150 Philadelphia, Pennsylvania, Hospitals and Higher Education
Facilities Authority, Hospital Revenue Refunding Bonds
(Temple University Hospital), Series A, 6.625% due 11/15/2023 1,024
South AAA Aaa 1,000 Berkeley County, South Carolina, School District, COP
Carolina--4.6% (Berkeley School Facilities Group, Inc.), 6.30% due 2/01/2016 (b) 955
Piedmont, South Carolina, Municipal Power Agency, Electric
Revenue Refunding Bonds (d):
AAA Aaa 3,500 6.30% due 1/01/2014 3,317
AAA Aaa 10,000 6.30% due 1/01/2022 9,295
AAA Aaa 2,000 South Carolina State Public Service Authority Revenue Bonds
(Santee Cooper), Series D, 6.50% due 7/01/2014 (b) 1,956
Tennessee--0.3% A+ A1 1,000 Tennessee Housing Development Agency, Mortgage Finance
Bonds, AMT, Series A, 6.90% due 7/01/2025 969
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Texas--11.0% Brazos River Authority, Texas, Revenue Refunding Bonds (b):
AAA Aaa $ 7,000 (Coll Houston Light & Power), Series A, 6.70% due 3/01/2017 $ 6,951
AAA Aaa 11,500 PCR (Coll Texas Utilities Electric Company Project), AMT,
6.50% due 12/01/2027 10,818
AAA Aaa 6,105 Brownsville, Texas, Utilities System Revenue Bonds, 6.50%
due 9/01/2017 (b) 5,873
AAA Aaa 4,500 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Hermann Hospital Project),
6.375% due 10/01/2024 (d) 4,235
A1+ VMIG1 2,800 Harris County, Texas, Health Facilities Development
Corporation, Special Facilities Revenue Bonds (Texas Medical
Center Project), VRDN, 3.70% due 2/15/2022 (a)(d) 2,800
AAA Aaa 5,565 Houston, Texas, Water and Sewer System Revenue Bonds,
Junior Lien, Series A, 6.375% due 12/01/2022 (d) 5,290
NR* P1 550 Port Arthur, Texas, Navigational District, Industrial Development
Corporation, PCR (American Petrofina Incorporated), VRDN,
3.65% due 5/01/2003 (a) 550
AAA Aaa 1,500 Sabine River Authority, Texas, PCR, Refunding (Coll Texas
Utilities Electric Company Project), 6.55% due 10/01/2022 (c) 1,451
Virginia--3.1% AAA Aaa 6,750 Prince William County, Virginia, Service Authority Water and
Sewer System Revenue Bonds, 6.50% due 7/01/2001 (c)(e) 7,181
AA+ Aa 3,500 Virginia State Housing Development Authority, Commonwealth
Mortgage Bonds, Series J, Subseries J-2, 6.75% due 7/01/2017 3,397
Washington--4.9% AAA Aaa 11,000 Spokane County, Washington, Lease Revenue Refunding
Financing Bonds (Multi-Purpose Arena Project), AMT, Series A,
6.60% due 1/01/2014 (b) 10,549
AAA Aaa 2,500 Washington State, Health Care Facilities Authority Revenue
Bonds (Virginia Mason Obligation Group, Seattle),
6.30% due 2/15/2017 (d) 2,317
AAA Aaa 4,000 Washington State Public Power Supply System, Revenue
Refunding Bonds (Nuclear Project Number 1), Series A,
6.25% due 7/01/2017 (d) 3,725
Wisconsin--1.6% AAA Aaa 6,000 Wisconsin State Health and Educational Facilities Authority,
Revenue Refunding Bonds (Meriter Hospital Incorporated),
Series A, 6% due 12/01/2022 (c) 5,300
Total Investments (Cost--$348,463)--98.5% 335,643
Variation Margin on Financial Futures Contracts**--0.0% 17
Other Assets Less Liabilities--1.5% 5,168
--------
Net Assets--100.0% $340,828
========
<PAGE>
<FN>
(a)The interest rate is subject to change periodically based upon
the prevailing market rate. The interest rate shown is the rate in
effect at October 31, 1994.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)Prerefunded.
(f)The interest rate is subject to change periodically and inversely
based upon the prevailing market rate. The interest rate shown is
the rate in effect at October 31, 1994.
(g)Security held in connection with open futures contract.
*Not Rated.
**Financial futures contracts sold as of October 31, 1994 were as
follows:
<CAPTION>
Value
Number of Expiration (in Thousands)
Contracts Issue Date (Note 1a)
<S> <S> <S> <C>
530 US Treasury Bonds December 1994 ($53,870)
(Total Contract Price--$54,551) ($53,870)
========
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements. .
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$348,462,941) (Note 1a) $335,642,660
Receivables:
Securities sold $ 17,037,755
Interest 6,442,075
Variation margin (Note 1b) 16,562 23,496,392
------------
Deferred organization expense (Note 1e) 22,434
Prepaid expenses and other assets 75,647
------------
Total assets 359,237,133
------------
<PAGE>
Liabilities: Payables:
Securities purchased 14,925,528
Dividends to shareholders (Note 1g) 778,412
Investment adviser (Note 2) 147,251 15,851,191
------------
Accrued expenses and other liabilities 2,558,254
------------
Total liabilities 18,409,445
------------
Net Assets: Net assets $340,827,688
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (2,400 shares of AMPS*
issued and outstanding at $50,000 per share liquidation preference) $120,000,000
Common Stock, par value $.10 per share (16,420,827 shares
issued and outstanding) $ 1,642,083
Paid-in capital in excess of par 228,565,325
Undistributed investment income--net 2,072,616
Undistributed realized capital gains on investments--net 686,226
Unrealized depreciation on investments and financial futures
contracts--net (12,138,562)
------------
Total--Equivalent to $13.45 net asset value per share of Common
Stock (market price--$11.375) 220,827,688
------------
Total capital $340,827,688
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year ended October 31, 1994
<CAPTION>
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount $ 21,906,967
Income
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,844,696
Commission fees (Note 4) 348,349
Professional fees 87,449
Transfer agent fees 66,337
Accounting services (Note 2) 44,014
Listing fees 28,759
Printing and shareholder reports 27,036
Directors' fees and expenses 22,830
Custodian fees 19,202
Pricing fees 12,406
Amortization of organization expenses (Note 1e) 7,478
Other 25,714
------------
Total expenses 2,534,270
------------
Investment income--net 19,372,697
------------
Realized & Realized gain on investments and financial futures contracts--net 686,231
Unrealized Change in unrealized appreciation on investments and financial
Gain(Loss) on futures contracts--net (48,661,875)
Investments-- ------------
Net: (Notes Net Decrease in Net Assets Resulting from Operations $(28,602,947)
1d & 3): ============
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 19,372,697 $ 18,825,793
Realized gain on investments and financial futures contracts--net 686,231 4,951,515
Change in unrealized appreciation on investments and financial
futures contracts--net (48,661,875) 36,523,313
------------ ------------
Net increase (decrease) in net assets resulting from operations (28,602,947) 60,300,621
------------ ------------
<PAGE>
Dividends & Investment income--net:
Distributions Common Stock (15,824,435) (14,394,871)
To Shareholders Preferred Stock (2,951,808) (2,954,760)
(Note 1g): Realized gain on investments--net:
Common Stock (4,174,364) --
Preferred Stock (777,156) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (23,727,763) (17,349,631)
------------ ------------
Common & Proceeds from issuance of Preferred Stock -- 120,000,000
Preferred Stock Value of shares issued to Common Stock shareholders in reinvestment
Transactions of dividends and distributions 491,846 1,373,218
(Notes Offering and underwriting costs from the issuance of Preferred Stock 27,598 (2,352,020)
1e & 4): ------------ ------------
Net increase in net assets derived from capital stock transactions 519,444 119,021,198
------------ ------------
Net Assets: Total increase (decrease) in net assets (51,811,266) 161,972,188
Beginning of year 392,638,954 230,666,766
------------ ------------
End of year* $340,827,688 $392,638,954
============ ============
*Undistributed investment income--net $ 2,072,616 $ 1,476,162
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
For the
Period
The following per share data and ratios have been derived October 30,
from information provided in the financial statements. For the Year Ended 1992++ to
October 31, October 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 16.63 $ 14.15 $ 14.18
Operating ------------ ------------ ------------
Performance: Investment income--net 1.18 1.15 --
Realized and unrealized gain (loss) on investments--net (2.92) 2.53 --
------------ ------------ ------------
Total from investment operations (1.74) 3.68 --
------------ ------------ ------------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net (.96) (.88) --
Realized gain on investments--net (.25) -- --
------------ ------------ ------------
Total dividends and distributions (1.21) (.88) --
------------ ------------ ------------
Capital charge resulting from issuance of Common Stock -- -- (.03)
------------ ------------ ------------
Effect of Preferred Stock activity++++:
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net (.18) (.18) --
Realized gain on investments--net (.05) -- --
Capital charge resulting from issuance of
Preferred Stock -- (.14) --
------------ ------------ ------------
Total effect of Preferred Stock activity (.23) (.32) --
------------ ------------ ------------
Net asset value, end of period $ 13.45 $ 16.63 $ 14.15
============ ============ ============
Market price per share, end of period $ 11.375 $ 15.875 $ 15.00
============ ============ ============
Total Investment Based on market price per share (21.92%) 11.95% 0.00%+++
Return:* ============ ============ ============
Based on net asset value per share (11.87%) 24.32% (0.21%)+++
============ ============ ============
Ratios to Expenses, net of reimbursement .69% .54% --
Average ============ ============ ============
Net Assets:** Expenses .69% .65% --
============ ============ ============
Investment income--net 5.24% 5.25% --
============ ============ ============
<PAGE>
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) $ 220,828 $ 272,639 $ 230,667
============ ============ ============
Preferred Stock outstanding, end of period (in thousands) $ 120,000 $ 120,000 $ --
============ ============ ============
Portfolio turnover 47.85% 38.69% --
============ ============ ============
Dividends Per Series A--Investment income--net $ 1,180 $ 1,183 $ --
Share On Series B--Investment income--net 1,280 1,279 --
Preferred Stock
Outstanding:
<FN>
*Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may
result in substantially different returns. Total investment
returns exclude the effects of sales loads.
**Do not reflect the effect of dividends to Preferred Stock shareholders.
++Commencement of Operations.
++++The Fund's Preferred Stock was issued on November 30, 1992.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Insured Fund II, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. The Fund determines and makes
available for publication the net asset value of its Common Stock on
a weekly basis. The Fund's Common Stock is listed on the New York
Stock Exchange under the symbol MTI. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts, which are traded on exchanges, are valued at
their closing prices as of the close of such exchanges. Options,
which are traded on exchanges, are valued at their last sale price
as of the close of such exchanges or, lacking any sales, at the last
available bid price. Securities with remaining maturities of sixty
days or less are valued at amortized cost, which approximates market
value. Securities for which market quotations are not readily
available are valued at their fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund.
<PAGE>
(b) Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Original issue discounts and market premiums are amortized
into interest income. Realized gains and losses on security
transactions are determined on the identified cost basis.
(e) Deferred organization expenses and offering expenses--Deferred
organization expenses are amortized on a straight-line basis over a
five-year period. Direct expenses relating to the public offering of
the Common and Preferred Stock were charged to capital at the time
of issuance.
(f) Non-income producing investments--Written and purchased options
are non-income producing investments.
(g) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
<PAGE>
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). Effective January 1, 1994, the
investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Fund
Asset Management, Inc. ("FAMI"), which is also an indirect wholly-owned
subsidiary of ML & Co.
NOTES TO FINANCIAL STATEMENTS (concluded)
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, FAMI, PSI, Merrill Lynch, Pierce, Fenner & Smith
Inc. ("MLPF&S"), and/or
ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1994 were $164,512,042 and
$189,197,427, respectively.
Net realized and unrealized gains (losses) as of October 31, 1994
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ (539,204) $(12,820,956)
Short-term investments 6,601 675
Financial futures contracts 1,218,834 681,719
---------- ------------
Total $ 686,231 $(12,138,562)
========== ============
<PAGE>
As of October 31, 1994, net unrealized depreciation for Federal
income tax purposes aggregated $12,820,281, of which $612,657
related to appreciated securities and $13,432,938 related to
depreciated securities. The aggregate cost of investments at October
31, 1994 for Federal income tax purposes was $348,462,941.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.
Common Stock
For the year ended October 31,1994, shares issued and outstanding
increased by 30,267 to 16,420,827 as a result of dividend
reinvestment. At October 31, 1994, total paid-in capital amounted to
$230,207,408.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund that entitle their holders to receive cash
dividends at an annual rate that may vary for the successive
dividend periods. The yields in effect at October 31,1994 were as
follows: Series A, 3.423%; and Series B, 3.075%.
In connection with the offering of AMPS, the Board of Directors
reclassified 2,400 shares of unissued capital stock as AMPS. For the
year ended October 31, 1994, there were 2,400 AMPS shares
authorized, issued and outstanding with a liquidation preference of
$50,000 per share, plus accumulated and unpaid dividends of
$469,392. Effective December 1, 1994, as a result of a two-for-one
stock split, there will be 4,800 AMPS shares with a liquidation
preference of $25,000 per share.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from 0.25% to 0.375%,
calculated on the proceeds of each auction. For the year ended
October 31, 1994, MLPF&S, an affiliate of FAMI, earned $189,177 as
commissions.
5. Subsequent Event:
On November 8, 1994, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $0.078986 per share, payable on November 29, 1994 to shareholders
of record as of November 18, 1994.
<PAGE>
<AUDIT-REPORT>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
MuniYield Insured Fund II, Inc.:
We have audited the accompanying statement of assets, liabilities
and capital, including the schedule of investments, of MuniYield
Insured Fund II, Inc. as of October 31, 1994, 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 financial highlights for each of the periods indicated
therein. 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 generally accepted
auditing standards. 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 at October 31, 1994 by
correspondence with the custodian and brokers. 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 Insured Fund II, Inc. at October 31,
1994, 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 the financial highlights for each of the indicated periods, in
conformity with generally accepted accounting principles.
(Ernst & Young LLP)
New York, New York
December 8, 1994
</AUDIT-REPORT>
<PAGE>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
MuniYield Insured Fund II, Inc. during its taxable year ended
October 31, 1994 qualify as tax-exempt interest dividends for
Federal income tax purposes. Additionally, the following table
summarizes the per share capital gains distributions paid by the
Fund during the year.
<TABLE>
<CAPTION>
Payable Short-Term Long-Term
Date Capital Gains Capital Gains
<S> <S> <C> <C> <C>
Common Stock Shareholders 12/30/93 $ 0.254681 --
Preferred Stock Shareholders: Series A 11/30/93 $154.95 --
12/28/93 $156.32 --
Series B 11/23/93 $ 39.69 --
11/30/93 $ 38.89 --
12/07/93 $ 39.69 --
12/14/93 $ 30.17 --
12/21/93 $ 34.11 --
1/03/94 $ 84.85 --
2/01/94 $ 68.96 --
Please retain this information for your records.
</TABLE>
PER SHARE INFORMATION (unaudited)
<TABLE>
Per Share Selected Quarterly Financial Data*
<CAPTION>
Net Realized Unrealized Divedends/Distributions
Investment Gains Gains Net Investment Income Capital Gains
For the Quarter Income (Losses) (Losses) Common Preferred Common Preferred
<S> <C> <C> <C> <C> <C> <C> <C>
October 30, 1992++ to January 31, 1993 $.25 $ .01 $ .68 $.13 $.04 -- --
February 1, 1993 to April 30, 1993 .30 .07 .63 .25 .04 -- --
May 1, 1993 to July 31, 1993 .30 .15 .14 .25 .05 -- --
August 1, 1993 to October 31, 1993 .30 .07 .78 .25 .05 -- --
November 1, 1993 to January 31, 1994 .30 .18 (.12) .25 .01 $.25 $.05
February 1, 1994 to April 30, 1994 .28 .18 (2.13) .24 .05 -- --
May 1, 1994 to July 31, 1994 .29 (.10) .33 .23 .05 -- --
August 1, 1994 to October 31, 1994 .31 (.22) (1.04) .24 .07 -- --
<PAGE>
<CAPTION>
Net Asset Value Market Price**
For the Quarter High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
October 30, 1992++ to January 31, 1993 $14.78 $14.15 $15.125 $14.125 8,336
February 1, 1993 to April 30, 1993 16.00 14.78 15.875 14.625 17,791
May 1, 1993 to July 31, 1993 16.01 15.39 15.75 15.00 1,237
August 1, 1993 to October 31, 1993 16.95 15.80 16.50 15.25 2,677
November 1, 1993 to January 31, 1994 16.61 16.03 16.75 15.375 998
February 1, 1994 to April 30, 1994 16.38 13.87 16.125 12.75 1,791
May 1, 1994 to July 31, 1994 15.14 14.07 13.75 13.00 1,541
August 1, 1994 to October 31, 1994 14.74 13.45 13.375 11.375 2,080
<FN>
++Commencement of Operations.
*Calculations are based upon shares of Common Stock outstanding at
the end of each quarter.
**As reported in the consolidated transaction reporting system.
***In thousands.
</TABLE>
