-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CoNliZyZ8ZLkWJHj2oos38+ztJ4oQiaHNFHIlrINDRiPP5By+zlrJS5n5eLbUP/F +mkN6uZ95rdaL+QrB8Skog== 0000900092-04-000074.txt : 20040628 0000900092-04-000074.hdr.sgml : 20040628 20040625174405 ACCESSION NUMBER: 0000900092-04-000074 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20040430 FILED AS OF DATE: 20040628 EFFECTIVENESS DATE: 20040628 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNIYIELD MICHIGAN INSURED FUND II INC CENTRAL INDEX KEY: 0000882151 IRS NUMBER: 223144219 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-06501 FILM NUMBER: 04882957 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD STREET 2: C/O MERRILL LYNCH ASSET MANAGEMENT CITY: PLAINSBORO STATE: NJ ZIP: 08543-9011 BUSINESS PHONE: 6092822800 MAIL ADDRESS: STREET 1: 800 SCUDDERS MILL RD STREET 2: C/O MERRILL LYNCH ASSET MANAGEMENT CITY: PLAINSBORO STATE: NJ ZIP: 08536 FORMER COMPANY: FORMER CONFORMED NAME: MUNIYIELD MICHIGAN FUND INC DATE OF NAME CHANGE: 19920717 FORMER COMPANY: FORMER CONFORMED NAME: MICHIGAN MUNIYIELD FUND INC DATE OF NAME CHANGE: 19600201 N-CSR 1 ml7147.txt MUNIYIELD MICHIGAN INSURED II UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-6501 Name of Fund: MuniYield Michigan Insured Fund II, Inc. Fund Address: P.O. Box 9011 Princeton, NJ 08543-9011 Name and address of agent for service: Terry K. Glenn, President, MuniYield Michigan Insured Fund II, Inc., 800 Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543-9011 Registrant's telephone number, including area code: (609) 282-2800 Date of fiscal year end: 10/31/04 Date of reporting period: 11/01/03 - 04/30/04 Item 1 - Report to Stockholders (BULL LOGO) Merrill Lynch Investment Managers www.mlim.ml.com MuniYield Michigan Insured Fund II, Inc. Semi-Annual Report April 30, 2004 MuniYield Michigan Insured Fund II, Inc. seeks to provide shareholders with as high a level of current income exempt from Federal income tax and Michigan income taxes as is consistent with its investment policies and prudent investment management by investing primarily in a portfolio of long-term municipal obligations the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal income tax and Michigan income taxes. This report, including the financial information herein, is transmitted to shareholders of MuniYield Michigan Insured Fund II, Inc. for their information. It is not a prospectus. Past performance results shown in this report should not be considered a representation of future performance. The Fund has leveraged its Common Stock and intends to remain leveraged by issuing Preferred Stock to provide the Common Stock shareholders with a potentially higher rate of return. Leverage creates risks for Common Stock shareholders, including the likelihood of greater volatility of net asset value and market price of shares of the Common Stock, and the risk that fluctuations in the short-term dividend rates of the Preferred Stock may affect the yield to Common Stock shareholders. Statements and other information herein are as dated and are subject to change. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2) on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's website at http://www.sec.gov. MuniYield Michigan Insured Fund II, Inc. Box 9011 Princeton, NJ 08543-9011 (GO PAPERLESS LOGO) It's Fast, Convenient, & Timely! To sign up today, go to www.icsdelivery.com/live. MuniYield Michigan Insured Fund II, Inc. The Benefits and Risks of Leveraging MuniYield Michigan 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, net of dividends to Preferred Stock, is paid to Common Stock shareholders in the form of dividends, and the value of these portfolio holdings is reflected in the per share net asset value of the Fund's Common Stock. However, in order to benefit Common Stock shareholders, the yield curve must be positively sloped; that is, short-term interest rates must be lower than long- term interest rates. At the same time, a period of generally declining interest rates will benefit Common Stock shareholders. If either of these conditions change, then the risks of leveraging will begin to outweigh the benefits. To illustrate these concepts, assume a fund's Common Stock capitalization of $100 million and the issuance of Preferred Stock for an additional $50 million, creating a total value of $150 million available for investment in long-term municipal bonds. If prevailing short-term interest rates are approximately 3% and long-term interest rates are approximately 6%, the yield curve has a strongly positive slope. The fund pays dividends on the $50 million of Preferred Stock based on the lower short-term interest rates. At the same time, the fund's total portfolio of $150 million earns the income based on long-term interest rates. Of course, increases in short-term interest rates would reduce (and even eliminate) the dividends on the Common Stock. In this case, the dividends paid to Preferred Stock shareholders are significantly lower than the income earned on the fund's long-term investments, and therefore the Common Stock shareholders are the beneficiaries of the incremental yield. However, if short-term interest rates rise, narrowing the differential between short-term and long-term interest rates, the incremental yield pickup on the Common Stock will be reduced or eliminated completely. At the same time, the market value of the fund's Common Stock (that is, its price as listed on the New York Stock Exchange) may, as a result, decline. Furthermore, if long-term interest rates rise, the Common Stock's net asset value will reflect the full decline in the price of the portfolio's investments, since the value of the fund's Preferred Stock does not fluctuate. In addition to the decline in net asset value, the market value of the fund's Common Stock may also decline. As a part of its investment strategy, the Fund may invest in certain securities whose potential income return is inversely related to changes in a floating interest rate ("inverse floaters"). In general, income on inverse floaters will decrease when short-term interest rates increase and increase when short-term interest rates decrease. Investments in inverse floaters may be characterized as derivative securities and may subject the Fund to the risks of reduced or eliminated interest payments and losses of invested principal. In addition, inverse floaters have the effect of providing investment leverage and, as a result, the market value of such securities will generally be more volatile than that of fixed-rate, tax-exempt securities. To the extent the Fund invests in inverse floaters, the market value of the Fund's portfolio and the net asset value of the Fund's shares may also be more volatile than if the Fund did not invest in such securities. As of April 30, 2004, the percentage of the Fund's total net assets invested in inverse floaters was 12.28%. Swap Agreements The Fund may also invest in swap agreements, which are over-the- counter contracts in which one party agrees to make periodic payments based on the change in market value of a specified bond, basket of bonds, or index in return for periodic payments based on a fixed or variable interest rate or the change in market value of a different bond, basket of bonds or index. Swap agreements may be used to obtain exposure to a bond or market without owning or taking physical custody of securities. MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 A Letter From the President Dear Shareholder For the six-month and 12-month periods ended April 30, 2004, the Lehman Brothers Municipal Bond Index posted returns of +1.19% and +2.68%, respectively. Its taxable counterpart, the Lehman Brothers Aggregate Bond Index, had returns of +1.25% and +1.82% for the same periods. Amid considerable month-to-month volatility, tax-exempt bond yields rose over the past year, although not to the same extent as 10-year U.S. Treasury yields. In all, tax-exempt securities continued to be an attractive fixed income investment alternative. As of April month-end, the Federal Reserve Board maintained its accommodative policy stance, although a better-than-expected employment report for the month of March prompted speculation that an interest rate increase could come sooner than many had expected. On April 2, 2004, the good news on the employment front - previously the one dim spot in an otherwise bright economic picture - helped prompt the yield on the 10-year Treasury bond to spike nearly 25 basis points (.25%), from 3.91% to 4.15%. Market watchers continue to monitor the economic data and Federal Reserve Board language for indications of interest rate direction. If economic growth maintains its recent pace and employment figures continue to improve, many believe it is just a matter of time before interest rates move upward. Equity markets, in the meantime, gleaned support from the improving economic environment and provided attractive returns. For the six-month and 12-month periods ended April 30, 2004, the Standard & Poor's 500 Index returned +6.27% and +22.88%, respectively. Significant fiscal and monetary stimulus in 2003, including low interest rates and tax cuts, has opened the door to consumer spending, capital spending, increases in exports and long-awaited job growth. As expected, these developments have led the way to improvements in corporate earnings - a positive for stock markets. The events and efforts of the past year leave us with a much stronger economy today. Of course, markets will always fluctuate, and there are many uncertainties - not the least of which are geopolitical in nature - which can translate into negative market movements. Keeping this in mind, we encourage you to revisit your portfolio and your asset allocation strategy to ensure you are well positioned to take advantage of the opportunities that lie ahead. Importantly, your financial advisor can help you develop a strategy most suitable for your circumstances through all types of market and economic cycles. We thank you for trusting Merrill Lynch Investment Managers with your investment assets, and we look forward to serving you in the months and years ahead. Sincerely, (Terry K. Glenn) Terry K. Glenn President and Director MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 A Discussion With Your Fund's Portfolio Manager Throughout the period, we remained focused on enhancing yield and preserving net asset value in a volatile interest rate environment. Describe the recent market environment relative to municipal bonds. For much of the six-month period, a positive economic backdrop helped bond prices to move higher as yields, which move opposite of prices, declined. In early April, however, a surprisingly strong monthly employment report triggered fears that the long- accommodative Federal Reserve Board might raise interest rates sooner than many had expected. As a result, bond yields rose (prices fell) sharply for the remainder of the period. At the end of April, long-term U.S. Treasury bond yields had climbed to 5.13%, representing an increase of approximately 15 basis points (.15%) over the past six months. Ten-year U.S. Treasury note yields stood at 4.30% as of period-end, an increase of more than 20 basis points. Tax-exempt bond yields generally mimicked the movement of their taxable counterparts, although volatility in the municipal market was more subdued. Long-term revenue bond yields, as measured by the Bond Buyer Revenue Bond Index, rose just four basis points over the past six months. For the same period, yields on AAA-rated issues maturing in 30 years rose approximately 10 basis points to 4.93% while yields on 10-year, AAA-rated issues increased more than 16 basis points to nearly 4%, according to Municipal Market Data. The more marked increase in 10-year bond yields may be attributed to the fact that recent issuance has been heavily concentrated in the 10-year - 20-year range. The resulting supply imbalance prompted higher intermediate bond yields (and lower prices). Longer-maturity and lower-rated issues continued to benefit from more favorable supply/demand factors and, therefore, have seen less price depreciation. For the six-month period as a whole, new-issue supply in the municipal market declined approximately 5% compared to the same period a year ago. Overall, demand for tax-exempt municipal bonds has remained positive. Data from the Investment Company Institute indicates that, in just the first three months of 2004, tax-exempt bond funds have seen net new cash flows of almost $640 million. Describe conditions in the State of Michigan. Michigan maintains credit ratings of Aa1 from Moody's and AA+ from Standard & Poor's (S&P) and Fitch, all with stable trends. Moody's and S&P had downgraded the state in the fourth quarter of 2003. Michigan ranks 33rd in the nation in terms of debt per capita and 35th in debt as a percentage of personal income. These ratios are quite low for a populous state and point toward Michigan's flexibility in responding to economic downturns relative to other states. The state's pension system is nearly fully funded. However, Michigan has continued to lose manufacturing jobs, and revenues consistently have fallen below projections as a result. Officials have resorted to drawing down the Budget Stabilization Fund (BSF), which declined from $1 billion in fiscal year 2001 to near zero in fiscal year 2003. A sign of stability came in January 2004, when the fiscal year 2004 revenue projections did not require any revisions from October 2003 estimates. Officials expect the fiscal year 2004 budget to produce $185 million to replenish the BSF. Despite that good news, budget balancing remains difficult due to a slow economic recovery in the state. How did the Fund perform during the period in light of the existing market conditions? For the six-month period ended April 30, 2004, the Common Stock of MuniYield Michigan Insured Fund, Inc. had net annualized yields of 6.24% and 7.06%, based on a period-end per share net asset value of $14.81 and a per share market price of $13.10, respectively, and $.461 per share income dividends. Over the same period, the total investment return on the Fund's Common Stock was +.57%, based on a change in per share net asset value from $15.21 to $14.81, and assuming reinvestment of $.458 per share ordinary income dividends. For the six-month period ended April 30, 2004, the Fund's Auction Market Preferred Stock (AMPS) had an average yield of .84% for Series A and .87% for Series B. The Fund's return, based on net asset value, for the six-month period lagged the +1.42% return of its comparable Lipper category of Michigan Municipal Debt Funds. (Funds in this Lipper category limit their investment to securities exempt from taxation in Michigan or a city in Michigan). This Lipper category includes both insured and uninsured Michigan municipal debt funds. MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Recent performance has largely reflected the Fund's defensive position. By maintaining a conservative duration slightly below that of our peers, the Fund was better equipped to weather movements in interest rates. In general, the lower the duration, the less an investment will fluctuate in value as interest rates move up or down. This positioning limited asset price appreciation early in the period when interest rates fell sharply. In addition, lower-rated issues, such as BBB-rated hospital and corporate-backed revenue bonds, were among the best-performing assets over the past six months, as they have been for the past year. As an insured product, the Fund holds fewer of these issues than do the uninsured funds in the Lipper category. For a description of the Fund's total investment return based on a change in the per share market value of the Fund's Common Stock (as measured by the trading price of the Fund's shares on the New York Stock Exchange), and assuming reinvestment of dividends, please refer to the Financial Highlights section included in this report. As a closed-end fund, the Fund's shares may trade in the secondary market at a premium or discount to the Fund's net asset value. As a result, total investment returns based on changes in the market value of the Fund's Common Stock can vary significantly from total investment return based on changes in the Fund's net asset value. What changes were made to the portfolio during the period? Portfolio activity was restricted during the period, largely because of a significant decline in Michigan tax-exempt bond issuance. Over the past six months, approximately $4.3 billion in new long-term tax- exempt bonds was issued by Michigan municipalities, a decline of more than 20% compared to the same period a year ago. In addition, recent market yields appear relatively unattractive compared to those of the Fund's existing holdings. Portfolio transactions largely involved selling insured bonds in the intermediate maturity range and purchasing longer-maturity insured issues. The goal was to take advantage of the steep yield curve and capture the incremental yield available from the longer-maturity issues. In terms of leverage, the Fund's borrowing costs remained at or below 1% throughout most of the six-month period. These attractive funding levels, in combination with the steep municipal yield curve, continued to generate significant income to the Fund's Common Stock shareholders. The Federal Reserve Board appears poised to begin raising short-term interest rates, most likely later in 2004. The increase, however, is expected to be gradual and should not have a material impact on the positive advantage leverage has had on the Fund's Common Stock yield. However, should the spread between short- term and long-term interest rates narrow, the benefits of leveraging will decline and, as a result, reduce the yield on the Fund's Common Stock. At the end of the period, the Fund's leverage amount, due to AMPS, was 33.29% of total assets. (For a more complete explanation of the benefits and risks of leveraging, see page 2 of this report to shareholders.) How would you characterize the Fund's position at the close of the period? We ended the period in a slightly defensive posture with respect to interest rates. We believe this positioning readies the Fund to perform better in stable to slightly rising interest rate environments. We would expect to adopt a more defensive stance when interest rates decline during periods of market volatility. The Fund was fully invested at period-end in an effort to enhance investment income flows. With short-term cash equivalents yielding only near 1%, the performance penalty for holding assets in cash reserves is far too severe. We continue to favor higher-couponed, lower-rated issues over more interest rate-sensitive current- couponed issues. With economic growth expected to continue its moderate advance, long- term interest rates are likely to begin reversing their recent declines. Given consensus inflationary forecasts, any increase in long-term interest rates is likely to be moderate. With this in mind, and considering expectations for manageable new-issue volume in 2004, we believe the municipal market is poised to provide attractive returns compared to the taxable bond market regardless of the interest rate environment. Fred K. Stuebe Vice President and Portfolio Manager May 12, 2004 MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Proxy Results
During the six-month period ended April 30, 2004, MuniYield Michigan Insured Fund II, Inc.'s Common Stock shareholders voted on the following proposal. The proposal was approved at a shareholders' meeting on April 27, 2004. A description of the proposal and number of shares voted are as follows: Shares Voted Shares Withheld For From Voting 1. To elect the Fund's Directors: James H. Bodurtha 11,397,951 339,627 Joe Grills 11,395,502 342,076 Roberta Cooper Ramo 11,393,509 344,069 Robert S. Salomon, Jr. 11,396,190 341,388 Stephen B. Swensrud 11,392,559 345,019 During the six-month period ended April 30, 2004, Merrill Lynch MuniYield Michigan Insured Fund II, Inc.'s Preferred Stock shareholders (Series A - B) voted on the following proposal. The proposal was approved at a shareholders' meeting on April 27, 2004. A description of the proposal and number of shares voted are as follows: Shares Voted Shares Withheld For From Voting 1. To elect the Fund's Board of Directors: James H. Bodurtha, Joe Grills, Herbert I. London, Andre F. Perold, Roberta Cooper Ramo, Robert S. Salomon, Jr. and Stephen B. Swensrud 3,446 0
Quality Profile The quality ratings of securities in the Fund as of April 30, 2004 were as follows: Percent of Total S&P Rating/Moody's Rating Investments AAA/Aaa 82.1% AA/Aa 3.2 A/A 2.8 BBB/Baa 7.0 NR (Not Rated) 4.9 MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Schedule of Investments (In Thousands)
S&P Moody's Face Ratings Ratings Amount Municipal Bonds Value Michigan--139.5% Anchor Bay, Michigan, School District, GO (School Building and Site) (c)(f): AAA Aaa $ 4,250 Series I, 6% due 5/01/2009 $ 4,841 AAA Aaa 1,375 Series II, 5.7% due 5/01/2010 1,556 AAA Aaa 3,165 Series II, 5.75% due 5/01/2010 3,590 AA+ Aa1 2,150 Bullock Creek, Michigan, School District, GO, 5.50% due 5/01/2026 (e) 2,231 AAA Aaa 2,175 Carman-Ainsworth, Michigan, Community School, GO, 5.50% due 5/01/2018 (c) 2,357 AAA Aaa 1,000 Central Montcalm, Michigan, Public Schools, GO, 5.75% due 5/01/2024 (e) 1,078 AAA Aaa 3,850 Charlotte, Michigan, Public School District, GO, 5.375% due 5/01/2029 (c) 3,949 AAA Aaa 1,500 Comstock Park, Michigan, Public Schools, GO, 5.75% due 5/01/2029 (c) 1,608 BBB Baa2 2,420 Delta County, Michigan, Economic Development Corporation, Environmental Improvement Revenue Refunding Bonds (Mead Westvaco--Escanaba), Series A, 6.25% due 4/15/2027 2,518 Detroit, Michigan, City School District, GO (School Building and Site Improvement) (c): AAA Aaa 1,480 Series A, 5.375% due 5/01/2024 1,547 AAA Aaa 1,400 Series B, 5% due 5/01/2028 1,400 AAA Aaa 3,400 Series B, 5% due 5/01/2033 3,374 AAA Aaa 1,000 Detroit, Michigan, Sewer Disposal Revenue Bonds, Series A, 5.75% due 1/01/2010 (c)(f) 1,139 AAA Aaa 2,000 Detroit, Michigan, Sewer Disposal Revenue Refunding Bonds, Senior Lien, Series A, 5% due 7/01/2032 (d) 1,986 Detroit, Michigan, Water Supply System Revenue Bonds: AAA NR* 1,000 DRIVERS, Series 200, 5.75% due 7/01/2011 (c)(f)(g) 1,297 AAA Aaa 7,600 Senior Lien, Series A, 5.75% due 1/01/2010 (c)(f) 8,656 AAA Aaa 1,300 Series B, 5.25% due 7/01/2032 (e) 1,328 AAA Aaa 6,400 Series B, 5% due 7/01/2034 (e) 6,343 BBB Baa2 2,500 Dickinson County, Michigan, Economic Development Corporation, Environmental Improvement Revenue Refunding Bonds (International Paper Company Project), Series A, 5.75% due 6/01/2016 2,663 BBB Baa2 1,500 Dickinson County, Michigan, Economic Development Corporation, PCR, Refunding (Champion International Corporation Project), 5.85% due 10/01/2018 1,540 A NR* 2,170 Dickinson County, Michigan, Healthcare System, Hospital Revenue Refunding Bonds, 5.80% due 11/01/2024 (h) 2,235 East Grand Rapids, Michigan, Public School District, GO (d)(f): AAA Aaa 1,610 5.75% due 5/01/2009 1,815 AAA Aaa 6,300 6% due 5/01/2009 7,176 A NR* 385 Flint, Michigan, Hospital Building Authority, Revenue Refunding Bonds (Hurley Medical Center), Series A, 5.375% due 7/01/2020 (h) 386 Gibraltar, Michigan, School District, GO (School Building and Site) (c): NR* Aaa 1,850 5% due 5/01/2024 1,867 AAA Aaa 3,650 5% due 5/01/2028 (c) 3,659 Grand Blanc, Michigan, Community Schools, GO: AAA Aaa 1,000 5.625% due 5/01/2017 (c) 1,099 AAA Aaa 1,000 5.625% due 5/01/2018 (c) 1,096 AAA Aaa 1,100 5.625% due 5/01/2019 (c) 1,204 AAA Aaa 1,720 (School Building and Site), 5% due 5/01/2028 (d) 1,725
Portfolio Abbreviations To simplify the listings of MuniYield Michigan 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 at right. AMT Alternative Minimum Tax (subject to) COP Certificates of Participation DRIVERS Derivative Inverse Tax-Exempt Receipts GO General Obligation Bonds HDA Housing Development Authority PCR Pollution Control Revenue Bonds RIB Residual Interest Bonds MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Schedule of Investments (continued) (In Thousands)
S&P Moody's Face Ratings Ratings Amount Municipal Bonds Value Michigan (continued) AAA Aaa $ 1,600 Grand Ledge, Michigan, Public Schools District, GO, Refunding, 5.375% due 5/01/2024 (e) $ 1,661 Grand Rapids, Michigan, Building Authority Revenue Bonds, Series A (a): AAA Aaa 1,340 5.50% due 10/01/2018 1,454 AAA Aaa 320 5.50% due 10/01/2019 346 AAA Aaa 1,500 Grand Rapids, Michigan, Sanitation Sewer System Revenue Refunding and Improvement Bonds, Series A, 5.50% due 1/01/2022 (c) 1,641 AAA Aaa 7,425 Hartland, Michigan, Consolidated School District, GO, 6% due 5/01/2010 (c)(f) 8,524 AA+ Aa1 1,275 Haslett, Michigan, Public School District, Building and Site, GO, 5.625% due 5/01/2018 (e) 1,395 AAA Aaa 2,000 Howell, Michigan, Public Schools, GO, 5.875% due 5/01/2009 (e)(f) 2,267 AAA Aaa 3,975 Jackson, Michigan, Public Schools, GO, 5.375% due 5/01/2022 (c) 4,199 NR* Aaa 7,550 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue Refunding Bonds (Bronson Methodist Hospital), 5.50% due 5/15/2028 (e) 7,690 AAA NR* 3,000 Kent, Michigan, Hospital Finance Authority Revenue Bonds (Spectrum Health), Series A, 5.50% due 1/15/2031 (e) 3,120 Livonia, Michigan, Public School District, GO, Refunding, Series A (e): AAA Aaa 1,900 5% due 5/01/2024 1,918 AAA Aaa 1,900 5% due 5/01/2025 1,913 NR* Aaa 1,440 Ludington, Michigan, Area School District, GO, 5.25% due 5/01/2023 (e) 1,498 BBB NR* 1,000 Michigan Higher Education Facilities Authority, Limited Obligation Revenue Refunding Bonds (Hope College), Series A, 5.90% due 4/01/2032 1,021 Michigan Higher Education Facilities Authority, Revenue Refunding Bonds (College for Creative Studies): NR* Baa2 550 5.85% due 12/01/2022 553 NR* Baa2 1,000 5.90% due 12/01/2027 1,002 AAA NR* 3,000 Michigan Higher Education Student Loan Authority, Student Loan Revenue Bonds, AMT, Series XVII-B, 5.40% due 6/01/2018 (a) 3,085 AA+ Aa1 550 Michigan Municipal Bond Authority Revenue Refunding Bonds (Local Government--Qualified School), Series A, 6.50% due 5/01/2016 569 Michigan State Building Authority Revenue Bonds: AAA Aaa 1,185 (Facilities Program), Series II, 4.67%** due 10/15/2009 (a)(b) 981 AAA Aaa 1,675 (Facilities Program), Series II, 4.77%** due 10/15/2010 (a)(b) 1,316 AA+ Aaa 2,675 GO, RIB, Series 481, 9.633% due 4/15/2009 (e)(g) 3,310 NR* Aaa 3,500 Michigan State Building Authority, Revenue Refunding Bonds, RIB, Series 517X, 9.63% due 10/15/2010 (d)(g) 4,309 Michigan State, COP: AAA Aaa 3,870 5.50% due 6/01/2027 (a) 4,025 AAA NR* 5,380 RIB, Series 530, 10.11% due 9/01/2011 (e)(g) 6,877 AAA Aaa 1,500 Michigan State Comprehensive Transportation Revenue Refunding Bonds, Series A, 5.50% due 11/01/2018 (d) 1,629 AAA Aaa 1,155 Michigan State, HDA, Rental Housing Revenue Bonds, AMT, Series A, 5.30% due 10/01/2037 (e) 1,156 AAA Aaa 1,000 Michigan State, HDA, Revenue Refunding Bonds, AMT, Series B, 5.50% due 6/01/2030 (e) 1,019 AAA Aaa 1,000 Michigan State Hospital Finance Authority, Hospital Revenue Bonds (Mid-Michigan Obligation Group), Series A, 5.50% due 4/15/2018 (a) 1,062 Michigan State Hospital Finance Authority, Hospital Revenue Refunding Bonds: A+ A2 1,300 (Crittenton Hospital), Series A, 5.625% due 3/01/2027 1,324 A A1 1,250 (Sparrow Obligation Group), 5.625% due 11/15/2031 1,266 AAA Aaa 2,000 Michigan State Hospital Finance Authority Revenue Bonds (Mercy Health Services), Series R, 5.375% due 8/15/2026 (a)(b) 2,048
MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Schedule of Investments (continued) (In Thousands)
S&P Moody's Face Ratings Ratings Amount Municipal Bonds Value Michigan (concluded) Michigan State Hospital Finance Authority, Revenue Refunding Bonds: AAA Aaa $ 8,000 (Ascension Health Credit), Series A, 6.125% due 11/15/2009 (e)(f) $ 9,293 AAA Aa2 2,500 (Ascension Health Credit), Series A, 6.125% due 11/15/2009 (f) 2,904 AAA Aaa 3,760 (Ascension Health Credit), Series A, 6.25% due 11/15/2009 (e)(f) 4,392 AAA Aaa 3,215 (Mercy Health Services), Series X, 6% due 8/15/2014 (e) 3,578 AAA Aaa 1,000 (Mercy Mount Clemens), Series A, 6% due 5/15/2014 (e) 1,111 AAA Aaa 2,000 (Mercy Mount Clemens), Series A, 5.75% due 5/15/2029 (e) 2,093 AAA Aaa 1,250 (Mid-Michigan Obligation Group), Series A, 5.375% due 6/01/2027 (d) 1,273 AA- Aa3 1,000 (Trinity Health Credit), Series C, 5.375% due 12/01/2023 1,022 AA- Aa3 1,450 (Trinity Health Credit), Series C, 5.375% due 12/01/2030 1,470 AAA Aaa 5,500 (Trinity Health), Series A, 6% due 12/01/2027 (a) 5,983 BBB+ NR* 2,000 Michigan State Strategic Fund, Limited Obligation Revenue Bonds (Republic Services Inc.), AMT, 4.25% due 8/01/2031 1,888 Michigan State Strategic Fund, Limited Obligation Revenue Refunding Bonds: AAA Aaa 8,000 (Detroit Edison Company), AMT, Series A, 5.55% due 9/01/2029 (e) 8,230 AAA Aaa 2,000 (Detroit Edison Company Fund--Pollution), Series AA, 6.95% due 5/01/2011 (c) 2,394 A- A3 1,375 (Dow Chemical Company Project), AMT, 5.50% due 12/01/2028 1,461 NR* Aaa 5,000 RIB, Series 382, 11.38% due 9/01/2025 (e)(g) 5,737 BBB Baa1 2,500 Michigan State Strategic Fund, PCR, Refunding (General Motors Corp.), 6.20% due 9/01/2020 2,557 AAA Aaa 1,400 Michigan Technological University, General Revenue Bonds, Series A, 5% due 10/01/2034 (e) 1,394 AAA Aaa 1,500 Milan, Michigan, Area Schools, GO, Series A, 5.75% due 5/01/2010 (c)(f) 1,702 AAA Aaa 6,500 Monroe County, Michigan, Economic Development Corp., Limited Obligation Revenue Refunding Bonds (Detroit Edison Co. Project), Series AA, 6.95% due 9/01/2022 (c) 8,222 AAA Aaa 2,500 Oxford, Michigan, Area Community School District, GO, 5.40% due 5/01/2025 (c) 2,584 AAA Aaa 1,000 Plainwell, Michigan, Community Schools, School District, GO (School Building and Site), 5.50% due 5/01/2018 (d) 1,084 A NR* 1,000 Pontiac, Michigan, Tax Increment Finance Authority, Revenue Refunding Bonds (Tax Increment--Development Area Number 3), 5.375% due 6/01/2017 (h) 1,032 AA+ Aa1 1,900 Rochester, Michigan, Community School District, GO, Series II, 5.50% due 5/01/2018 (e) 2,055 AAA Aaa 1,500 Romulus, Michigan, Community Schools, GO, 5.75% due 5/01/2009 (c)(f) 1,691 NR* Aaa 6,500 Saint Clair County, Michigan, Economic Revenue Refunding Bonds (Detroit Edison Company), RIB, Series 282, 11.42% due 8/01/2024 (a)(g) 8,365 AAA Aaa 2,650 South Lyon, Michigan, Community Schools, GO, Series A, 5.75% due 5/01/2023 (e) 2,875 AAA Aaa 6,500 Wayne Charter County, Michigan, Airport Revenue Bonds (Detroit Metropolitan Wayne County), AMT, Series A, 5.375% due 12/01/2015 (e) 6,828 AAA Aaa 1,180 Wayne Charter County, Michigan, Detroit Metropolitan Airport, GO, Airport Hotel, Series A, 5% due 12/01/2030 (e) 1,180 AAA Aaa 1,830 Wayne County, Michigan, COP, 5.625% due 5/01/2011 (a) 1,996 AAA NR* 1,000 West Ottawa, Michigan, Public School District, School Buildings, GO, Refunding, 5% due 5/01/2022 (d) 1,018 Guam--0.9% AAA Aaa 1,440 A.B. Won Guam International Airport Authority, General Revenue Refunding Bonds, Series A, 5.25% due 10/01/2019 1,527
MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Schedule of Investments (concluded) (In Thousands)
S&P Moody's Face Ratings Ratings Amount Municipal Bonds Value Puerto Rico--4.6% BBB Baa3 $ 2,300 Children's Trust Fund Project of Puerto Rico, Tobacco Settlement Revenue Refunding Bonds, 5.625% due 5/15/2043 $ 2,154 AAA Aaa 2,270 Puerto Rico Electric Power Authority, Power Revenue Bonds, Trust Receipts, Class R, Series 16 HH, 10.07% due 7/01/2013 (d)(g) 2,931 BBB+ Baa3 2,900 Puerto Rico Public Finance Corporation, Commonwealth Appropriation Revenue Bonds, Series E, 5.75% due 8/01/2030 3,058 Total Municipal Bonds (Cost--$239,654)--145.0% 258,523 Shares Held Short-Term Securities 13,242 CMA Michigan Municipal Money Fund (i) 13,242 Total Short-Term Securities (Cost--$13,242)--7.4% 13,242 Total Investments (Cost--$252,896)--152.4% 271,765 Liabilities in Excess of Other Assets--(2.5%) (4,379) Preferred Stock, at Redemption Value--(49.9%) (89,010) --------- Net Assets Applicable to Common Stock--100.0% $ 178,376 ========= *Not Rated. **Represents a zero coupon bond; the interest rate shown reflects the effective yield at the time of purchase by the Fund. (a)AMBAC Insured. (b)Escrowed to maturity. (c)FGIC Insured. (d)FSA Insured. (e)MBIA Insured. (f)Prerefunded. (g)The interest rate is subject to change periodically and inversely based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 2004. (h)ACA Insured. (i)Investments in companies considered to be an affiliate of the Fund (such companies are defined as "Affiliated Companies" in Section 2(a)(3) of the Investment Company Act of 1940) are as follows: (in Thousands) Net Dividend Affiliate Activity Income CMA Michigan Municipal Money Fund 4,733 $15 Forward interest rate swaps entered into as of April 30, 2004 were as follows: (in Thousands) Notional Unrealized Amount Depreciation Receive a variable rate equal to 7-Day Bond Market Association Municipal Swap Index Rate and pay a fixed rate equal to 3.926% Broker, J.P. Morgan Chase Bank Expires August 2014 $13,500 $(12) See Notes to Financial Statements.
MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Statement of Net Assets
As of April 30, 2004 Assets Investments in unaffiliated securities, at value (identified cost--$239,653,397) $ 258,522,577 Investments in affiliated securities, at value (identified cost--$13,242,233) 13,242,233 Cash 63,941 Receivables: Interest $ 4,980,445 Securities sold 400,000 Dividends from affiliates 185 5,380,630 --------------- Prepaid expenses 6,287 --------------- Total assets 277,215,668 --------------- Liabilities Unrealized depreciation on forward interest rate swaps 11,758 Payables: Securities purchased 9,525,936 Dividends to Common Stock shareholders 131,955 Investment adviser 125,526 Other affiliates 1,889 9,785,306 --------------- Accrued expenses 32,672 --------------- Total liabilities 9,829,736 --------------- Preferred Stock Preferred Stock, at redemption value, par value $.05 per share on Series A Shares and $.10 per share on Series B Shares (2,200 Series A Shares and 1,360 Series B Shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) 89,009,504 --------------- Net Assets Applicable to Common Stock Net assets applicable to Common Stock $ 178,376,428 =============== Analysis of Net Assets Applicable to Common Stock Common Stock, par value $.10 per share (12,046,592 shares issued and outstanding) $ 1,204,659 Paid-in capital in excess of par 164,038,928 Undistributed investment income--net $ 2,569,179 Accumulated realized capital losses on investments--net (8,293,760) Unrealized appreciation on investments--net 18,857,422 --------------- Total accumulated earnings--net 13,132,841 --------------- Total--Equivalent to $14.81 net asset value per share of Common Stock (market price--$13.10) $ 178,376,428 =============== *Auction Market Preferred Stock. See Notes to Financial Statements.
MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Statement of Operations
For the Six Months Ended April 30, 2004 Investment Income Interest $ 6,983,595 Dividends from affiliates 14,839 --------------- Total income 6,998,434 --------------- Expenses Investment advisory fees $ 684,841 Commission fees 111,410 Accounting services 51,869 Transfer agent fees 28,843 Professional fees 27,973 Printing and shareholder reports 23,485 Listing fees 10,484 Directors' fees and expenses 9,132 Custodian fees 8,696 Pricing fees 6,113 Other 15,466 --------------- Total expenses before reimbursement 978,312 Reimbursement of expenses (17,952) --------------- Total expenses after reimbursement 960,360 --------------- Investment income--net 6,038,074 --------------- Realized & Unrealized Loss on Investments--Net Realized loss on investments--net (105,707) Change in unrealized appreciation on investments--net (4,911,048) --------------- Total realized and unrealized loss on investments--net (5,016,755) --------------- Dividends to Preferred Stock Shareholders Investment income--net (370,595) --------------- Net Increase in Net Assets Resulting from Operations $ 650,724 =============== See Notes to Financial Statements.
MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Statements of Changes in Net Assets
For the Six For the Months Ended Year Ended April 30, October 31, Increase (Decrease) in Net Assets: 2004 2003 Operations Investment income--net $ 6,038,074 $ 12,369,484 Realized gain (loss) on investments--net (105,707) 431,296 Change in unrealized appreciation on investments--net (4,911,048) 2,466,510 Dividends to Preferred Stock shareholders (370,595) (867,422) --------------- --------------- Net increase in net assets resulting from operations 650,724 14,399,868 --------------- --------------- Dividends to Common Stock Shareholders Investment income--net (5,511,316) (10,769,653) --------------- --------------- Net decrease in net assets resulting from dividends to Common Stock shareholders (5,511,316) (10,769,653) --------------- --------------- Net Assets Applicable to Common Stock Total increase (decrease) in net assets (4,860,592) 3,630,215 Beginning of period 183,237,020 179,606,805 --------------- --------------- End of period* $ 178,376,428 $ 183,237,020 =============== =============== *Undistributed investment income--net $ 2,569,179 $ 2,413,016 =============== =============== See Notes to Financial Statements.
MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Financial Highlights
The following per share data and ratios have been derived For the Six from information provided in the financial statements. Months Ended April 30, For the Year Ended October 31, Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001+++ 2000+++ Per Share Operating Performance Net asset value, beginning of period $ 15.21 $ 14.91 $ 14.97 $ 13.83 $ 13.34 ----------- ---------- ---------- ---------- ---------- Investment income--net .50+++++ 1.02+++++ 1.00 1.00 1.04 Realized and unrealized gain (loss) on investments--net (.41) .24 (.07) 1.15 .51 Dividends to Preferred Stock shareholders from investment income--net (.03) (.07) (.10) (.22) (.29) ----------- ---------- ---------- ---------- ---------- Total from investment operations .06 1.19 .83 1.93 1.26 ----------- ---------- ---------- ---------- ---------- Less dividends to Common Stock shareholders from investment income--net (.46) (.89) (.89) (.79) (.77) ----------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 14.81 $ 15.21 $ 14.91 $ 14.97 $ 13.83 =========== ========== ========== ========== ========== Market price per share, end of period $ 13.10 $ 13.75 $ 13.45 $ 13.85 $ 11.75 =========== ========== ========== ========== ========== Total Investment Return** Based on market price per share (1.60%)++++ 9.06% 3.70% 25.13% 2.47% =========== ========== ========== ========== ========== Based on net asset value per share .57%++++ 8.82% 6.36% 14.91% 10.76% =========== ========== ========== ========== ========== Ratios Based on Average Net Assets of Common Stock Total expenses, net of reimbursement*** 1.03%* 1.01% 1.12% 1.15% 1.15% =========== ========== ========== ========== ========== Total expenses*** 1.05%* 1.02% 1.12% 1.15% 1.15% =========== ========== ========== ========== ========== Total investment income--net*** 6.49%* 6.73% 6.91% 6.96% 7.62% =========== ========== ========== ========== ========== Amount of dividends to Preferred Stock shareholders .40%* .47% .66% 1.53% 2.12% =========== ========== ========== ========== ========== Investment income--net, to Common Stock shareholders 6.09%* 6.26% 6.25% 5.43% 5.50% =========== ========== ========== ========== ========== Ratios Based on Average Net Assets of Common & Preferred Stock*** Total expenses, net of reimbursement .70%* .68% .75% .77% .75% =========== ========== ========== ========== ========== Total expenses .71%* .69% .75% .77% .75% =========== ========== ========== ========== ========== Total investment income--net 4.39%* 4.53% 4.65% 4.70% 5.02% =========== ========== ========== ========== ========== Ratios Based on Average Net Assets of Preferred Stock Dividends to Preferred Stock shareholders .84%* .97% 1.36% 3.19% 4.09% =========== ========== ========== ========== ==========
MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Financial Highlights (concluded)
For the Six Months Ended The following per share data and ratios have been derived April 30, For the Year Ended October 31, from information provided in the financial statements. 2004 2003 2002 2001+++ 2000+++ Supplemental Data Net assets applicable to Common Stock, end of period (in thousands) $ 178,376 $ 183,237 $ 179,607 $ 118,508 $ 109,398 =========== ========== ========== ========== ========== Preferred Stock outstanding, end of period (in thousands) $ 89,000 $ 89,000 $ 89,000 $ 55,000 $ 55,000 =========== ========== ========== ========== ========== Portfolio turnover 18.05% 30.84% 41.77% 72.58% 75.11% =========== ========== ========== ========== ========== Leverage Asset coverage per $1,000 $ 3,004 $ 3,059 $ 3,018 $ 3,155 $ 2,989 =========== ========== ========== ========== ========== Dividends Per Share on Preferred Stock Outstanding++ Series A--Investment income--net $ 101 $ 243 $ 343 $ 798 $ 1,026 =========== ========== ========== ========== ========== Series B--Investment income--net $ 109 $ 245 $ 136 -- -- =========== ========== ========== ========== ========== *Annualized. **Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales charges. ***Do not reflect the effect of dividends to Preferred Stock shareholders. ++The Fund's Preferred Stock was issued on April 10, 1992 (Series A) and May 31, 2002 (Series B). ++++Aggregate total investment return. +++Certain prior year amounts have been reclassified to conform to current year presentation. +++++Based on average shares outstanding. See Notes to Financial Statements.
MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Notes to Financial Statements 1. Significant Accounting Policies: MuniYield Michigan Insured Fund II, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended, as a non- diversified, closed-end management investment company. The Fund's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require the use of management accruals and estimates. Actual results may differ from these estimates. These unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal, recurring nature. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MYM. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the last available bid price in the over-the-counter market or on the basis of yield equivalents as obtained by the Fund's pricing service from one or more dealers that make markets in the securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options written or purchased are valued at the last sale price in the case of exchange-traded options. In the case of options traded in the over-the-counter market, valuation is the last asked price (options written) or the last bid price (options purchased). Swap agreements are valued by quoted fair values received daily by the Fund from the counterparty. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost, which approximates market value. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio investment strategies both to increase the return of the Fund and to hedge, or protect, its exposure to interest rate movements and movements in the securities markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund may write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Notes to Financial Statements (continued) * Forward interest rate swaps--The Fund may enter into forward interest rate swaps. In a forward interest rate swap, the Fund and the counterparty agree to make periodic net payments on a specified notional contract amount, commencing on a specified future effective date, unless terminated earlier. When the agreement is closed, the Fund records a realized gain or loss in an amount equal to the value of the agreement. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on security transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend dates. Interest income is recognized on the accrual basis. The Fund amortizes all premiums and discounts on debt securities. (e) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of .50% of the Fund's average weekly net assets, including proceeds from the issuance of Preferred Stock. For the six months ended April 30, 2004, FAM reimbursed the Fund in the amount of $17,952. For the six months ended April 30, 2004, the Fund reimbursed FAM, $2,768 for certain accounting services. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended April 30, 2004 were $50,479,033 and $47,720,578, respectively. Net realized gains (losses) for the six months ended April 30, 2004 and net unrealized appreciation/depreciation as of April 30, 2004 were as follows: Unrealized Realized Appreciation/ Gains (Losses) Depreciation Long-term investments $ 615,088 $ 18,869,180 Financial futures contracts (720,795) -- Forward interest rate swaps -- (11,758) ------------- ------------- Total $ (105,707) $ 18,857,422 ============= ============= As of April 30, 2004, net unrealized appreciation for Federal income tax purposes aggregated $19,007,275, of which $20,040,792 related to appreciated securities and $1,033,517 related to depreciated securities. The aggregate cost of investments at April 30, 2004 for Federal income tax purposes was $252,757,535. 4. Stock Transactions: The Fund is authorized to issue 200,000,000 shares of stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of stock without approval of the holders of Common Stock. Preferred Stock Auction Market Preferred Stock are shares of Preferred Stock of the Fund, with a par value of $.05 per share for Series A and $.10 per share for Series B, and a liquidation preference of $25,000 per share, plus accrued and unpaid dividends, that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yields in effect at April 30, 2004 were .90% for Series A and 1.00% for Series B. MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Notes to Financial Statements (concluded) The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from .25% to .375%, calculated on the proceeds of each auction. For the six months ended April 30, 2004, Merrill Lynch, Pierce Fenner & Smith Incorporated, an affiliate of FAM, earned $52,967 as commissions. 5. Capital Loss Carryforward: On October 31, 2003, the Fund had a net capital loss carryforward of $5,390,016, of which $4,339,763 expires in 2008 and $1,050,253 expires in 2010. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: The Fund paid a tax-exempt income dividend to holders of Common Stock in the amount of $.078000 per share on May 27, 2004 to shareholders of record on May 14, 2004. Dividend Policy The Fund's dividend policy is to distribute all or a portion of its net investment income to its shareholders on a monthly basis. In order to provide shareholders with a more stable level of dividend distributions, the Fund may at times pay out less than the entire amount of net investment income earned in any particular month and may at times in any month pay out such accumulated but undistributed income in addition to net investment income earned in that month. As a result, the dividends paid by the Fund for any particular month may be more or less than the amount of net investment income earned by the Fund during such month. The Fund's current accumulated but undistributed net investment income, if any, is disclosed in the Statement of Net Assets, which comprises part of the Financial Information included in this report. MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Officers and Directors Terry K. Glenn, President and Director James H. Bodurtha, Director Joe Grills, Director Herbert I. London, Director Andre F. Perold, Director Roberta Cooper Ramo, Director Robert S. Salomon, Jr., Director Stephen B. Swensrud, Director Kenneth A. Jacob, Senior Vice President John M. Loffredo, Senior Vice President Fred K. Stuebe, Vice President Donald C. Burke, Vice President and Treasurer Phillip S. Gillespie, Secretary Custodian The Bank of New York 100 Church Street New York, NY 10286 Transfer Agents Common Stock: The Bank of New York 101 Barclay Street New York, NY 10286 Preferred Stock: The Bank of New York 101 Barclay Street - 7 West New York, NY 10286 NYSE Symbol MYM Electronic Delivery The Fund offers electronic delivery of communications to its shareholders. In order to receive this service, you must register your account and provide us with e-mail information. To sign up for this service, simply access this website http://www.icsdelivery.com/live and follow the instructions. When you visit this site, you will obtain a personal identification number (PIN). You will need this PIN should you wish to update your e-mail address, choose to discontinue this service and/or make any other changes to the service. This service is not available for certain retirement accounts at this time. MUNIYIELD MICHIGAN INSURED FUND II, INC., APRIL 30, 2004 Item 2 - Code of Ethics - Not Applicable to this semi-annual report Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual report Item 4 - Principal Accountant Fees and Services - Not Applicable to this semi-annual report Item 5 - Audit Committee of Listed Registrants - Not Applicable to this semi-annual report Item 6 - Schedule of Investments - Not Applicable Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies - Not Applicable to this semi-annual report Item 8 - Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers - Not Applicable Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable Item 10 - Controls and Procedures 10(a) - The registrant's certifying officers have reasonably designed such disclosure controls and procedures to ensure material information relating to the registrant is made known to us by others particularly during the period in which this report is being prepared. The registrant's certifying officers have determined that the registrant's disclosure controls and procedures are effective based on our evaluation of these controls and procedures as of a date within 90 days prior to the filing date of this report. 10(b) - There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11 - Exhibits attached hereto 11(a)(1) - Code of Ethics - Not Applicable to this semi-annual report 11(a)(2) - Certifications - Attached hereto 11(a)(3) - Not Applicable 11(b) - Certifications - Attached hereto Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MuniYield Michigan Insured Fund II, Inc. By: _/s/ Terry K. Glenn_______ Terry K. Glenn, President of MuniYield Michigan Insured Fund II, Inc. Date: June 18, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: _/s/ Terry K. Glenn________ Terry K. Glenn, President of MuniYield Michigan Insured Fund II, Inc. Date: June 18, 2004 By: _/s/ Donald C. Burke________ Donald C. Burke, Chief Financial Officer of MuniYield Michigan Insured Fund II, Inc. Date: June 18, 2004 EX-99.CERT 2 ex99cert.txt EX-99 CERT EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Terry K. Glenn, President of MuniYield Michigan Insured Fund II, Inc., certify that: 1. I have reviewed this report on Form N-CSR of MuniYield Michigan Insured Fund II, Inc. (the "Fund"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Fund as of, and for, the periods presented in this report; 4. The Fund's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Fund and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Fund, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Fund's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) disclosed in this report any change in the Fund's internal control over financial reporting that occurred during the Fund's most recent fiscal half-year (the Fund's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting; and 5. The Fund's other certifying officer(s) and I have disclosed to the Fund's auditors and the audit committee of the Fund's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Fund's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal control over financial reporting. Date: June 18, 2004 /s/ Terry K. Glenn Terry K. Glenn, President of MuniYield Michigan Insured Fund II, Inc. EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Donald C. Burke, Chief Financial Officer of MuniYield Michigan Insured Fund II, Inc., certify that: 1. I have reviewed this report on Form N-CSR of MuniYield Michigan Insured Fund II, Inc. (the "Fund"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Fund as of, and for, the periods presented in this report; 4. The Fund's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Fund and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Fund, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Fund's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) disclosed in this report any change in the Fund's internal control over financial reporting that occurred during the Fund's most recent fiscal half-year (the Fund's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting; and 5. The Fund's other certifying officer(s) and I have disclosed to the Fund's auditors and the audit committee of the Fund's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Fund's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal control over financial reporting. Date: June 18, 2004 /s/ Donald C. Burke Donald C. Burke, Chief Financial Officer of MuniYield Michigan Insured Fund II, Inc. Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Terry K. Glenn, President of MuniYield Michigan Insured Fund II, Inc. (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: June 18, 2004 /s/ Terry K. Glenn Terry K. Glenn, President of MuniYield Michigan Insured Fund II, Inc. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to MuniYield Michigan Insured Fund II, Inc. and will be retained by MuniYield Michigan Insured Fund II, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Donald C. Burke, Chief Financial Officer of MuniYield Michigan Insured Fund II, Inc. (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: June 18, 2004 /s/ Donald C. Burke Donald C. Burke, Chief Financial Officer of MuniYield Michigan Insured Fund II, Inc. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to MuniYield Michigan Insured Fund II, Inc. and will be retained by MuniYield Michigan Insured Fund II, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----