MUNIYIELD
INSURED
FUND II, INC.
FUND LOGO
Annual Report
October 31, 1996
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. Statements and other information
herein are as dated and are subject to change.
<PAGE>
MuniYield Insured
Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield Insured Fund II, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1996, the Common Stock of MuniYield
Insured Fund II, Inc. earned $0.902 per share income dividends,
which included earned and unpaid dividends of $0.074. This
represents a net annualized yield of 5.82%, based on a month-end per
share net asset value of $15.49. Over the same period, the total
investment return on the Fund's Common Stock was +8.29%, based on a
change in per share net asset value from $15.27 to $15.49, and
assuming reinvestment of $0.903 per share income dividends.
For the six-month period ended October 31, 1996, the total
investment return on the Fund's Common Stock was +6.94%, based on a
change in per share net asset value from $14.95 to $15.49, and
assuming reinvestment of $0.432 per share income dividends.
For the six-month period ended October 31, 1996, the Fund's Auction
Market Preferred Stock had an average yield of 3.98% for Series A
and 3.40% for Series B.
<PAGE>
The Municipal Market Environment
Municipal bond yields generally moved lower during the six-month
period ended October 31, 1996. Long-term tax-exempt revenue bond
yields, as measured by the Bond Buyer Revenue Bond Index, declined
approximately 35 basis points (0.35%) to end the October period at
approximately 5.94%. The municipal bond market exhibited
considerable weekly yield volatility over the last six months with
bond yields vacillating as much as 20 basis points. This ongoing
volatility was in response to fluctuating evidence regarding the
degree to which recent economic growth will result in any
significant increase in inflationary pressures. Much of the evidence
supporting stronger growth centered around the strong employment
growth seen in April and June and bond yields rose in response.
Other, more recent, economic indicators suggested that economic
growth will not be excessive and inflationary pressures will remain
well-contained. This continued benign inflationary environment
supported lower tax-exempt bond yields in recent months. US Treasury
bond yields exhibited similar, albeit greater, volatility during the
period ended October 31, 1996 falling over 20 basis points to end
the period at 6.64%. Over the past six months, tax-exempt bond
yields registered significantly greater declines than shown by the
US Treasury bond market. This relative outperformance by the
municipal bond market was largely the result of the strong technical
support the tax-exempt market enjoyed throughout most of 1996.
Perhaps most significantly, the pace of new bond issuance recently
slowed.
Over the last year, approximately $180 billion in long-term
municipal securities was issued, an increase of over 25% compared to
the same period a year ago. Much of this increase was the result of
issuers seeking to refinance their existing higher-couponed debt as
interest rates declined in 1995 and early 1996. As interest rates
rose, these financings became increasingly economically impractical,
and issuance declined. Over the last six months, approximately $90
billion in long-term tax-exempt securities was underwritten, an
increase of 5% versus the comparable period a year earlier. Only $41
billion in tax-exempt securities was issued in the last three
months, a 3% decline in issuance compared to the October 31, 1995
quarter.
At the same time, investor demand remained consistently strong. With
nominal new-issue yields generally above 6%, retail investor
interest was steady. Additionally, investors received over $50
billion this June and July in assets derived from coupon income,
bond maturities, and proceeds from early redemptions. Annual new
bond issuance declined in recent years and is expected to remain
below levels seen in the early 1990s. Consequently, as the higher-
couponed bonds issued in the early-to-mid 1980s were redeemed at
their first optional call dates, the total number of outstanding tax-
exempt bonds has declined. This combination of a declining net
supply and significant amounts of assets available for investment
helped maintain investor demand in recent months.
<PAGE>
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance led to the yield
ratio between long-term taxable and tax-exempt securities falling
from in excess of 90% to approximately 85%. While historically still
very attractive, some institutional investors, particularly short-
term traders, began to view the tax-exempt bond market's recent
outperformance as an opportunity to sell a relatively expensive
asset. However, to the long-term investor, such a sale would
represent the loss of an attractively priced asset which may not be
easily replaced given the relative scarcity of municipal bonds under
present supply conditions.
Looking ahead, no clear consensus for the direction of interest
rates currently exists. Perhaps, the primary focus going forward
will be the extent to which the increase in interest rates seen thus
far in 1996 will negatively impact future economic growth. Should
growth slow in the interest rate-sensitive sectors of the economy,
like housing, auto, and consumer spending, as many economists assert
is likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of the US Treasury bond market.
Portfolio Strategy
Our portfolio strategy changed markedly over the course of the
fiscal year ended October 31, 1996. As we entered the last half of
the fiscal year, indications of stronger economic growth were
released, particularly strong employment reports. Investor fears of
inflationary pressures mounted, and municipal bond yields rose in
response. We adopted a more defensive portfolio strategy by adding
high-coupon issues and selling lower-coupon, performance-oriented
bonds. We also raised the cash reserve level of the Fund in order to
seek to protect principal.
We continued this strategy until the last two months of the fiscal
year when we became constructive toward the market, because current
economic data indicated moderate growth and few inflationary
pressures. Therefore, we reduced our cash reserves level and
extended the average maturity of the Fund. This investment strategy
benefited the Fund's total return for the fiscal year ended October
31, 1996 as well as provided an attractive yield for shareholders
during the 12 months ended October 31, 1996.
Looking ahead, we expect the municipal market to continue to
experience volatility within a narrow trading range with interest
rates trending lower. Therefore, our investment strategy will still
emphasize the purchase of current-coupon securities during periods
of market weakness.
In Conclusion
We thank you for your support of MuniYield Insured Fund II, Inc.,
and we look forward to serving your investment needs in the months
and years ahead.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(William R. Bock)
William R. Bock
Vice President and Portfolio Manager
December 11, 1996
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.
<PAGE>
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.
PORTFOLIO ABBREVIATIONS
To simplfy 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 accordingto the list
below and at right.
ACES SM Adjustible Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<PAGE>
<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--1.3% AAA Aaa $ 2,500 Huntsville, Alabama, Health Care Authority, Health Care
Facilities Revenue Bonds, Series B, 6.625% due 6/01/2023 (d) $ 2,711
AAA Aaa 2,000 Lauderdale and Florence Counties, Alabama, Health Care
Authority, Revenue Refunding Bonds (Eliza Coffee Memorial
Hospital), 5.75% due 7/01/2019 (d) 1,990
Alaska--1.9% AAA Aaa 7,275 Alaska State Housing Finance Corporation, Refunding,
Series A, 5.875% due 12/01/2024 (d)(f)(g) 7,289
Arizona--0.4% NR* NR* 1,500 Mohave County, Arizona, IDA, IDR (North Star Steel Co.
Project), AMT, 6.70% due 3/01/2020 1,602
California-- AAA Aaa 1,500 California HFA, Home Mortgage Revenue Bonds, Series F,
14.8% 6% due 8/01/2017 (d) 1,525
A1+ P1 200 California Pollution Control Financing Authority, PCR,
Refunding (Exxon Project), VRDN, 3.50% due 12/01/2012 (a) 200
AAA Aaa 3,500 California State, GO, 5.375% due 6/01/2026 (c) 3,362
AAA Aaa 5,000 California State, Public Works Board, Lease Revenue Bonds
(Various University of California Projects), Series A, 6.40%
due 12/01/2016 (b) 5,355
AAA Aaa 2,585 California State, Variable Purpose, 5.90% due 3/01/2025 (b) 2,611
AAA Aaa 3,330 Los Angeles, California, Harbor Department Revenue
Bonds, AMT, Series B, 6.625% due 8/01/2019 (b) 3,590
AAA Aaa 3,245 Los Angeles, California, M/F Housing Revenue Refunding Bonds,
Senior Series G, 5.75% due 1/01/2024 (e) 3,210
AAA Aaa 3,750 Los Angeles, California, Unified School District, COP (Multiple
Properties Project), Series A, 5.50% due 10/01/2016 (e) 3,670
AAA Aaa 4,500 Los Angeles, California, Wastewater System Revenue Refunding
Bonds, Series A, 5.80% due 6/01/2021 (d) 4,509
AAA Aaa 5,000 Los Angeles County, California, COP (Correctional Facilities
Project), 6.50% due 9/01/2000 (d)(h) 5,484
AAA Aaa 1,000 Los Angeles County, California, Public Works Financing
Authority, Lease Revenue Refunding Bonds, Series B, 5.25%
due 9/01/2014 (d) 959
AAA Aaa 3,000 Sacramento, California, Municipal Utility District, Electric
Revenue Bonds, Series I, 6% due 1/01/2024 (d) 3,072
AAA Aaa 3,000 San Francisco, California, Bay Area Rapid Transit District,
Sales Tax Revenue Bonds, 5.50% due 7/01/2020 (c) 2,919
AAA Aaa 2,500 San Francisco, California, City and County Airports Commission
Revenue Bonds (International Airport), Second Series,
Issue 8-B, 6.10% due 5/01/2025 (c) 2,573
AAA Aaa 5,000 San Francisco, California, City and County, COP (San Francisco
Courthouse Project), 5.875% due 4/01/2021 (e) 5,029
AAA Aaa 2,000 Santa Clara County, California, Financing Authority, Lease
Revenue Bonds (VMC Facility Replacement Project), Series A,
6.75% due 11/15/2020 (b) 2,224
Santa Rosa, California, Wastewater Revenue Refunding Bonds (c):
AAA Aaa 3,295 Series B, 6.125% due 9/01/2017 3,401
AAA Aaa 2,000 (Sub-Regional Wastewater Project), Series A, 4.75
due 9/01/2016 1,791
<PAGE>
Colorado--2.5% AA Aa 5,500 Colorado Springs, Colorado, Utilities Revenue Bonds, Series A,
6.10% due 11/15/2024 5,661
AAA Aaa 4,000 Denver, Colorado, City and County Airport Revenue Refunding
Bonds, Series D, 5.50% due 11/15/2025 (d) 3,870
</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>
Connecticut-- AAA Aaa $ 8,000 Connecticut State, HFA (Housing Mortgage Finance Program),
2.6% Series B, 6.75% due 11/15/2023 (d) $ 8,394
AA- A1 1,035 Connecticut State Health and Educational Facilities Authority
Revenue Bonds (Nursing Home Program--AHF/Windsor
Project), 7.125% due 11/01/2024 1,176
District of AAA Aaa 3,000 District of Columbia, Revenue Bonds (American University),
Columbia--0.8% 5.625% due 10/01/2026 (b) 2,926
Florida--1.5% AAA Aaa 4,000 Florida State Board of Education, Capital Outlay (Public
Education), Series F, 5.50% due 6/01/2026 (c) 3,920
A1+ VMIG1++ 1,450 Jacksonville, Florida, PCR, Refunding (Florida Power and
Light Co. Project), VRDN, 3.50% due 5/01/2029 (a) 1,450
A2 VMIG1++ 400 Volusia County, Florida, Health Facilities Authority Revenue
Bonds (Pooled Hospital Loan Program), ACES, 3.65% due
11/01/2015 (a)(c) 400
Georgia--2.0% AAA Aaa 4,700 Albany, Georgia, Sewer System Revenue Bonds, 6.70% due
7/01/2022 (d) 5,153
AAA Aaa 2,000 Municipal Electric Authority of Georgia (Project One),
Sub-Series A, 6.50% due 1/01/2026 (b) 2,179
Hawaii--1.8% AAA Aaa 6,000 Hawaii State Airports System Revenue Bonds, AMT, Second
Series, 7% due 7/01/2018 (d) 6,570
Illinois--12.0% NR* P2 1,400 Chicago, Illinois, O'Hare International Airport, Revenue
Bonds (American Airlines), VRDN, Series A, 3.60% due
12/01/2017 (a) 1,400
AAA Aaa 3,870 Chicago, Illinois, O'Hare International Airport, Special
Facilities Revenue Bonds (International Terminal), AMT, 6.75%
due 1/01/2018 (d) 4,145
Chicago, Illinois, Wastewater Transmission Revenue Bonds:
AAA Aaa 6,000 6.35% due 1/01/2003 (c)(h) 6,611
AAA Aaa 6,000 6.375% due 1/01/2024 (d) 6,337
AAA Aaa 5,500 Cook County, Illinois, Capital Improvement Refunding Bonds, UT,
5.875% due 11/15/2022 (c) 5,502
<PAGE>
AAA Aaa 3,000 Illinois Health Facilities Authority Revenue Bonds (Servantcor
Project), Series A, 6.375% due 8/15/2021 (e) 3,155
Metropolitan Pier and Exposition Authority, Illinois, Dedicated
State Tax Revenue Bonds (McCormick Place Expansion Project),
Series A:
AAA Aaa 9,200 6.50% due 6/15/2027 (b) 9,902
AAA Aaa 8,055 Refunding, 6.20% due 6/15/2023 (d)** 1,671
AAA Aaa 3,250 Refunding, 5.25% due 6/15/2027 (b) 3,017
AAA Aaa 2,500 Northern Illinois, University Auxiliary Facilities Systems
Revenue Bonds, 5.75% due 4/01/2022 (c) 2,483
A1+ VMIG1++ 600 Southwestern Illinois Development Authority, Solid Waste
Disposal Revenue Bonds (Shell Oil Co.--Wood River Project),
VRDN, AMT, 3.65% due 4/01/2022 (a) 600
Indiana--1.6% AAA Aaa 2,400 Indiana State Vocational Technical College, Building Facilities,
Refunding (Student Fee), Series D, 6.50% due 7/01/2014 (b) 2,633
A+ NR* 3,000 Indianapolis, Indiana, Local Public Improvement Bond Bank,
Refunding, Series D, 6.75% due 2/01/2020 3,239
Iowa--1.1% AAA Aaa 3,915 Iowa Financing Authority, S/F Mortgage, Refunding, Series F,
6.35% due 7/01/2009 (b) 4,144
</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>
Kansas--1.3% AAA Aaa $ 5,000 Kansas State Turnpike Authority, Revenue Refunding Bonds,
5.25% due 9/01/2017 (b) $ 4,846
Louisiana--0.6% AAA Aaa 2,000 Louisiana State, Refunding, Series A, 6% due 8/01/2001 (c) 2,123
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 2,185
Massachusetts-- AAA Aaa 3,000 Massachusetts Bay Transportation Authority, Massachusetts
5.1% General Transportation Systems, Series B, 5.25% due 3/01/2026 (e) 2,825
Massachusetts State Health and Educational Facilities Authority
Revenue Bonds:
AAA Aaa 5,000 (Massachusetts General Hospital), Series F, 6.25% due
7/01/2020 (b) 5,224
AAA Aaa 10,000 (Northeastern University), Series E, 6.55% due 10/01/2022 (d) 10,918
Michigan--1.8% AAA Aaa 2,750 Caledonia, Michigan, Community Schools, Refunding,
UT, 6.625% due 5/01/2014 (b) 3,007
AAA Aaa 3,500 Monroe County, Michigan, PCR (Detroit Edison Company Project),
AMT, Series I-B, 6.55% due 9/01/2024 (d) 3,765
<PAGE>
Minnesota--1.4% 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 4,904
AA- A1 500 Minneapolis, Minnesota, Community Development Agency, PCR
(Northern States Power Co. Project), VRDN, 3.65%
due 3/01/2011 (a) 500
Mississippi-- NR* Aa2 1,800 Jackson County, Mississippi, Individual Sewer Facilities Revenue
1.6% Bonds (Chevron USA, Inc. Project), VRDN, 3.65% due
12/15/2024 (a) 1,800
AAA Aaa 3,930 Mississippi Hospital Equipment and Facilities Authority, Revenue
Refunding Bonds (Baptist Medical Center), 6.50% due
5/01/2011 (d) 4,260
Missouri--0.9% AAA Aaa 3,000 Kansas City, Missouri, Airport General Revenue Improvement
Bonds, Series B, 6.875% due 9/01/2014 (e) 3,366
Nebraska--1.3% AAA Aaa 5,000 Nebraska Public Power District Revenue Bonds, Series A,
5.25% due 1/01/2022 (d) 4,771
Nevada--3.6% AAA Aaa 2,730 Clark County, Nevada, GO, Public Safety, 5.25% due 6/01/2017 (c) 2,617
AAA Aaa 5,000 Washoe County, Nevada, Gas Facilities Revenue Bonds (Sierra
Pacific Power), AMT, 6.55% due 9/01/2020 (d) 5,342
AAA Aaa 5,000 Washoe County, Nevada, Water Facility Revenue Bonds (Sierra
Pacific Power), AMT, 6.65% due 6/01/2017 (d) 5,379
New Jersey-- AAA Aaa 4,500 New Jersey State Housing and Mortgage Finance Agency Revenue
1.2% Bonds (Home Buyer), AMT, Series K, 6.375% due 10/01/2026 (d) 4,615
New Mexico-- A1+ P1 1,600 Farmington, New Mexico, PCR, Refunding (Arizona Public
2.5% Service Co.), VRDN, Series B, 3.60% due 9/01/2024 (a) 1,600
AAA Aaa 5,750 Gallup, New Mexico, PCR, Refunding (Plains Electric Generation),
6.65% due 8/15/2017 (d) 6,289
A1+ P1 1,600 Hurley, New Mexico, PCR (Kennecott Santa Fe), VRDN, 3.60%
due 12/01/2015 (a) 1,600
</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>
New York--4.2% AAA Aaa $ 3,000 Battery Park City Authority, New York, Revenue Bonds, Junior
Series A, 5.50% due 11/01/2026 (b) $ 2,902
AAA Aaa 1,500 Metropolitan Transportation Authority, New York, Commuter
Facilities Revenue Bonds, Series A, 6% due 7/01/2021 (c) 1,543
<PAGE> New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds:
AAA Aaa 2,650 Refunding, Series A, 5.375% due 6/15/2026 (e) 2,538
A1+ VMIG1++ 900 VRDN, Series G, 3.60% due 6/15/2024 (a)(c) 900
AAA Aaa 2,710 New York State Energy Research and Development Authority,
Solid Waste Disposal Revenue Bonds (New York State Electric
and Gas Co. Project), AMT, Series A, 5.70% due 12/01/2028 (d) 2,625
AA- Aa 2,750 New York State Power Authority, Revenue and General
Purpose Refunding Bonds, Series CC, 5% due 1/01/2014 2,558
BBB Baa1 3,000 New York State Urban Development Corporation, Revenue
Refunding Bonds (Correctional Facilities), Series A,
5.25% due 1/01/2021 2,683
North Carolina-- A1+ NR* 700 Raleigh-Durham, North Carolina, Airport Authority, Special
0.2% Facility Revenue Refunding Bonds (American Airlines),
VRDN, Series A, 3.60% due 11/01/2005 (a) 700
Ohio--1.4% AAA Aaa 2,500 Greater Cleveland Ohio Regional Transit Authority, Capital
Improvement Bonds, 5.65% due 12/01/2016 (c) 2,500
AAA Aaa 2,500 North Canton, Ohio, City School District Improvement Bonds,
UT, 6.70% due 12/01/2019 (b) 2,781
Pennsylvania-- AA Aa 4,000 Pennsylvania, HFA, RIB, AMT, 8.414% due 4/01/2025 (i) 3,971
1.1%
South Carolina-- AAA Aaa 10,000 Piedmont, South Carolina, Municipal Power Agency, Electric
3.4% Revenue Refunding Bonds, 6.30% due 1/01/2022 (d) 10,547
AAA Aaa 2,000 South Carolina State Public Service Authority Revenue Bonds
(Santee Cooper), Series D, 6.50% due 7/01/2014 (b) 2,167
Tennessee--0.8% AAA Aaa 2,000 Metropolitan Government Nashville and Davidson County,
Tennessee, Water and Sewer Revenue Bonds, RIB, 8.317%
due 1/01/2022 (b)(i) 2,063
A+ A1 1,000 Tennessee HDA, Mortgage Finance, AMT, Series A, 6.90%
due 7/01/2025 1,047
Texas--11.2% Brazos River Authority, Texas, PCR, Refunding (Texas Utilities
Electric Co. Project), AMT:
AAA Aaa 11,500 6.50% due 12/01/2027 (b) 12,308
A1+ VMIG1++ 1,000 VRDN, Series C, 3.65% due 6/01/2030 (a) 1,000
AAA Aaa 7,000 Brazos River Authority, Texas, Revenue Refunding Bonds
(Houston Light & Power), Series A, 6.70% due 3/01/2017 (b) 7,634
A1+ VMIG1++ 1,300 Gulf Coast Waste Disposal Authority, Texas, PCR (Amoco Oil Co.
Project), VRDN, AMT, 3.65% due 5/01/2023 (a) 1,300
A1+ NR* 1,900 Gulf Coast Waste Disposal Authority, Texas, Pollution Control
and Solid Waste Disposal Revenue Refunding Bonds (Amoco
Oil Co. Project), VRDN, AMT, 3.65% due 5/01/2024 (a) 1,900
Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds:
AAA Aaa 4,500 (Hermann Hospital Project), 6.375% due 10/01/2024 (d) 4,752
A1+ NR* 2,000 (Methodist Hospital), VRDN, 3.60% due 12/01/2025 (a) 2,000
</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 AAA Aaa $ 5,565 Houston, Texas, Water and Sewer System Revenue Bonds,
(concluded) Junior Lien, Series A, 6.375% due 12/01/2022 (d) $ 5,924
Sabine River Authority, Texas, PCR, Refunding (Texas
Utilities Electric Company Project):
AAA Aaa 1,500 6.55% due 10/01/2022 (c) 1,638
A1 VMIG1++ 800 VRDN, Series A, 3.60% due 3/01/2026 (a)(b) 800
AAA Aaa 3,000 Texas State Turnpike Authority, Dallas North Thruway Revenue
Bonds (President George Bush Turnpike), 5.25% due 1/01/2023 (c) 2,849
Utah--0.8% A1+ VMIG1++ 1,300 Emery County, Utah, PCR, Refunding (Pacificorp Projects),
VRDN, 3.55% due 11/01/2024 (a)(b) 1,300
A+ Aa 1,500 Intermountain Power Agency, Utah, Power Supply Revenue
Refunding Bonds, Series A, 6.15% due 7/01/2014 1,550
Virginia--3.6% AAA Aaa 1,500 Henrico County, Virginia, IDA, Revenue Refunding Bonds
(Bon Secours Health Care), 6.25% due 8/15/2020 (d) 1,635
Virginia State, HDA, Commonwealth Mortgage:
AAA Aaa 2,500 AMT, Series A, Sub-Series A-4, 6.45% due 7/01/2028 (d) 2,566
AA+ Aa1 3,000 AMT, Series B, Sub-Series B-1, 6.375% due 7/01/2026 3,048
AA+ Aa1 3,500 Series J, Sub-Series J-2, 6.75% due 7/01/2017 3,678
AAA Aaa 2,500 Washington State, Health Care Facilities Authority Revenue
Bonds (Virginia Mason Obligation Group, Seattle), 6.30%
due 2/15/2017 (d) 2,609
Washington-- AAA Aaa 2,300 Grant County, Washington, Public Utility District No. 2, Priest
5.1% Rapids Hydro Electric Revenue Bonds, Second Series A, 5.625%
due 1/01/2026 (d) 2,256
AAA Aaa 1,465 Seattle, Washington, Municipality Metropolitan, Sewer
Revenue Bonds, Series W, 6.25% due 1/01/2021 (d) 1,522
AAA Aaa 7,875 Spokane, Washington, Lease Revenue Refunding
Financing Bonds (Multi-Purpose Arena Project), Series A,
AMT, 6.60% due 1/01/2014 (b) 8,422
AAA Aaa 2,500 Tacoma, Washington, Refuse Utility Revenue Bonds, 7%
due 12/01/2019 (b) 2,872
AAA Aaa 4,000 Washington State Public Power Supply Systems, Revenue
Refunding Bonds (Nuclear Project No. 1), Series A, 6.25%
due 7/01/2017 (d) 4,160
Wisconsin--1.4% Wisconsin Public Power Inc., Power Supply System
Revenue Bonds, Series A (d):
AAA Aaa 1,500 6% due 7/01/2015 1,553
AAA Aaa 3,735 5.75% due 7/01/2023 3,730
<PAGE>
Total Investments (Cost--$351,693)--99.4% 372,081
Other Assets Less Liabilities--0.6% 2,264
--------
Net Assets--100.0% $374,345
========
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at October 31, 1996.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)FSA Insured.
(f)FNMA Collateralized.
(g)GNMA Collateralized.
(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, 1996.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$351,692,847) (Note 1a) $372,080,679
Cash 51,810
Interest receivable 6,193,130
Deferred organization expenses (Note 1e) 7,457
Prepaid expenses and other assets 87,292
------------
Total assets 378,420,368
------------
Liabilities: Payables:
Securities purchased $ 3,324,460
Dividends to shareholders (Note 1f) 497,120
Investment adviser (Note 2) 157,964 3,979,544
------------
Accrued expenses and other liabilities 96,195
------------
Total liabilities 4,075,739
------------
<PAGE>
Net Assets: Net assets $374,344,629
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (4,800 shares of AMPS*
issued and outstanding at $25,000 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 2,943,624
Undistributed realized capital gains on investments--net 805,765
Unrealized appreciation on investments--net 20,387,832
------------
Total--Equivalent to $15.49 net asset value per share of Common
Stock (market price--$13.75) 254,344,629
------------
Total capital $374,344,629
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended October 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 21,747,271
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,857,207
Commission fees (Note 4) 337,872
Professional fees 83,072
Accounting services (Note 2) 75,213
Transfer agent fees 61,051
Printing and shareholder reports 49,828
Listing fees 24,510
Directors' fees and expenses 22,800
Custodian fees 22,655
Pricing fees 13,570
Amortization of organization expenses (Note 1e) 7,498
Other 25,785
------------
Total expenses 2,581,061
------------
Investment income--net 19,166,210
------------
<PAGE>
Realized & Realized gain on investments--net 2,914,808
Unrealized Gain on Change in unrealized appreciation on investments--net 807,668
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 22,888,686
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 19,166,210 $ 19,481,221
Realized gain (loss) on investments--net 2,914,808 (816,424)
Change in unrealized appreciation/depreciation on
investments--net 807,668 31,718,726
------------ ------------
Net increase in net assets resulting from operations 22,888,686 50,383,523
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (14,362,608) (14,703,701)
Shareholders Preferred Stock (4,263,768) (4,452,300)
(Note 1f): Realized gain on investments--net:
Common Stock (468,617) (581,683)
Preferred Stock (138,816) (104,543)
In excess of realized gain on investments--net:
Common Stock -- (575,755)
Preferred Stock -- (103,477)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (19,233,809) (20,521,459)
------------ ------------
Net Assets: Total increase in net assets 3,654,877 29,862,064
Beginning of year 370,689,752 340,827,688
------------ ------------
End of year* $374,344,629 $370,689,752
============ ============
<FN>
*Undistributed investment income--net $ 2,943,624 $ 2,403,790
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the Period
The following per share data and ratios have been derived Oct. 30,
from information provided in the financial statements. 1992++ to
For the Year Ended October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.27 $ 13.45 $ 16.63 $ 14.15 $ 14.18
Operating -------- -------- -------- -------- --------
Performance: Investment income--net 1.16 1.19 1.18 1.15 --
Realized and unrealized gain (loss) on
investments--net .23 1.88 (2.92) 2.53 --
-------- -------- -------- -------- --------
Total from investment operations 1.39 3.07 (1.74) 3.68 --
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.87) (.90) (.96) (.88) --
Realized gain on investments--net (.03) (.04) (.25) -- --
In excess of realized gain on
investments--net -- (.03) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.90) (.97) (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 (.26) (.27) (.18) (.18) --
Realized gain on investments--net (.01) (.01) (.05) -- --
In excess of realized gain on investments--
net -- --+++ -- -- --
Capital charge resulting from issuance of
Preferred Stock -- -- -- (.14) --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.27) (.28) (.23) (.32) --
-------- -------- -------- -------- --------
Net asset value, end of period $ 15.49 $ 15.27 $ 13.45 $ 16.63 $ 14.15
======== ======== ======== ======== ========
Market price per share, end of period $ 13.75 $ 13.125 $ 11.375 $ 15.875 $ 15.00
======== ======== ======== ======== ========
Total Investment Based on market price per share 11.84% 24.33% (21.92%) 11.95% .00%+++++
Return:* ======== ======== ======== ======== ========
Based on net asset value per share 8.29% 22.33% (11.87%) 24.32% (.21%)+++++
======== ======== ======== ======== ========
<PAGE>
Ratios to Average Expenses, net of reimbursement .69% .69% .69% .54% --
Net Assets:** ======== ======== ======== ======== ========
Expenses .69% .69% .69% .65% --
======== ======== ======== ======== ========
Investment income--net 5.15% 5.47% 5.24% 5.25% --
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end
Data: of period (in thousands) $254,345 $250,690 $220,828 $272,639 $230,667
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $120,000 $120,000 $120,000 $120,000 --
======== ======== ======== ======== ========
Portfolio turnover 92.13% 64.18% 47.85% 38.69% --
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,120 $ 3,089 $ 2,840 $ 3,272 --
======== ======== ======== ======== ========
Dividends Per Series A--Investment income--net $ 908 $ 953 $ 590 $ 592 --
Share On ======== ======== ======== ======== ========
Preferred Stock Series B--Investment income--net $ 869 $ 902 $ 640 $ 640 --
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.
++++++Dividends per share have been adjusted to reflect a two-
for-one stock split that occurred on December 1, 1994.
+++Amount less than $.01 per share.
+++++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.
<PAGE>
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of
such exchanges. Options, 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 fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund, including valuations furnished by a pricing
service retained by the Fund, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* 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.
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired, or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
<PAGE>
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. Distributions in excess of
realized capital gains are due primarily to differing tax treatments
for futures transactions and post-October losses.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, 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, 1996 were $324,201,104 and
$333,635,748, respectively.
Net realized and unrealized gains (losses) as of October 31, 1996
were as follows:
<PAGE>
Realized Unrealized
Gains (Losses) Gains
Long-term investments $2,265,052 $20,387,832
Short-term investments (556) --
Financial futures contracts 650,312 --
---------- -----------
Total $2,914,808 $20,387,832
========== ===========
As of October 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $20,317,933, of which $20,378,960
related to appreciated securities and $61,027 related to depreciated
securities. The aggregate cost of investments at October 31, 1996
for Federal income tax purposes was $351,762,746.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of holders of Common Stock.
Common Stock
For the year ended October 31, 1996, shares issued and outstanding
remained constant at 16,420,827. At October 31, 1996, 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, 1996 were
3.68% for Series A and 3.40% for Series B.
As of October 31, 1996, there were 4,800 AMPS shares authorized,
issued and outstanding 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, 1996, MLPF&S, an affiliate of FAM, earned $165,981 as
commissions.
5. Reorganization Plan:
On November 14, 1996, shareholders approved a plan of reorganization
whereby MuniYield Insured Fund, Inc. would acquire substantially all
of the assets and liabilities of the Fund in exchange for newly
issued shares of MuniYield Insured Fund, Inc. MuniYield Insured
Fund, Inc. is a registered, non-diversified, closed-end management
investment company, with a similar investment objective to the Fund,
and is managed by FAM.
<PAGE>
6. Subsequent Event:
On November 8, 1996, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.074440 per share, payable on November 27, 1996 to shareholders
of record as of November 18, 1996.
<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 of MuniYield Insured Fund II, Inc., including the
schedule of investments, as of October 31, 1996, 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 as of October 31, 1996 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,
1996, 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 financial highlights for each of the indicated
periods, in conformity with generally accepted accounting
principles.
(Ernst & Young LLP)
<PAGE>
Princeton, New Jersey
December 9, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniYield
Insured Fund II, Inc. during its taxable year ended October 31, 1996
qualify as tax-exempt interest dividends for Federal income tax
purposes. Additionally, the following table summarizes the per share
capital gain distributions paid by the Fund during the year.
<TABLE>
Payable Short-Term
Date Capital Gains
<S> <S> <S> <C>
Common Stock Shareholders 12/28/95 $ 0.028538
Preferred Stock Shareholders: Series A 11/28/95 $29.72
Series B 11/28/95 $28.12
Please retain this information for your records.
</TABLE>
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
Vincent R. Giordano, Senior Vice President
William R. Bock, Vice President
Donald C. Burke, 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
