-----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, T53JI2YXAAV9eHbZ7Zhp/RVbksO23AW/qhGPz5GtO4V0XZ74Vnrzjk5hV6nYLZ7l Mnf741er262Tcxn1+DVsFg== /in/edgar/work/20000619/0000900092-00-000095/0000900092-00-000095.txt : 20000919 0000900092-00-000095.hdr.sgml : 20000919 ACCESSION NUMBER: 0000900092-00-000095 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000430 FILED AS OF DATE: 20000619 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNIYIELD MICHIGAN INSURED FUND INC CENTRAL INDEX KEY: 0000890393 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07080 FILM NUMBER: 656766 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092822800 N-30D 1 0001.txt SEMI-ANNUAL MUNIYIELD MICHIGAN INSURED FUND, INC. FUND LOGO Semi-Annual Report April 30, 2000 MuniYield Michigan Insured Fund, Inc. seeks to provide shareholders with as high a level of current income exempt from Federal 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 and Michigan income taxes. This report, including the financial information herein, is transmitted to the shareholders of MuniYield Michigan Insured Fund, Inc. for their information. It is not a prospectus. Past performance results shown in this report should not be considered a representation of future performance. The Fund has leveraged its Common Stock 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 the Common Stock, and the risk that fluctuations in the short- term dividend rates of the Preferred Stock may affect the yield to Common Stock shareholders. Statements and other information herein are as dated and are subject to change. MuniYield Michigan Insured Fund, Inc. Box 9011 Princeton, NJ 08543-9011 Printed on post-consumer recycled paper MUNIYIELD MICHIGAN INSURED FUND, INC. The Benefits and Risks of Leveraging MuniYield Michigan Insured Fund, Inc. utilizes leveraging to seek to enhance the yield and net asset value of its Common Stock. However, these objectives cannot be achieved in all interest rate environments. To leverage, the Fund issues Preferred Stock, which pays dividends at prevailing short-term interest rates and invests the proceeds in long-term municipal bonds. The interest earned on these investments 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. MuniYield Michigan Insured Fund, Inc., April 30, 2000 DEAR SHAREHOLDER For the six-month period ended April 30, 2000, the Common Stock of MuniYield Michigan Insured Fund, Inc. earned $0.399 per share income dividends, which included earned and unpaid dividends of $0.066. This represents a net annualized yield of 5.77%, based on a month- end per share net asset value of $13.89. Over the same period, the total investment return on the Fund's Common Stock was +3.25%, based on a change in per share net asset value from $13.91 to $13.89, and assuming reinvestment of $0.404 per share income dividends. For the six-month period ended April 30, 2000, the Fund's Auction Market Preferred Stock had an average yield of 5.57% for Series A, 4.03% for Series B and 3.69% for Series C. The Municipal Market Environment Since October 1999 through mid-January 2000, fixed-income bond yields rose steadily higher. US economic growth, in part intensified by Year 2000 preparations, grew at a 7.3% rate in the fourth quarter of 1999 and at a 4.2% annual rate for all of 1999. Initial estimates for the first quarter of 2000 were reported at 5.4%. However, despite these significant growth rates, no price measure indicator has shown any considerable signs of future price pressures at the consumer level, despite the lowest unemployment rates since January 1970. Given no signs of an economic slowdown, the Federal Reserve Board continued to raise short-term interest rates in November 1999 and again in February and March 2000. In each instance, the Federal Reserve Board cited both the continued growth of US employment and the impressive strength of the US equity markets as reasons for attempting to moderate US economic growth before inflationary price increases are realized. By mid-January 2000, US Treasury bond yields rose 60 basis points (0.60%) to 6.75%. Similarly, as measured by the Bond Buyer Revenue Bond Index, long-term tax-exempt bond yields rose approximately 20 basis points to 6.35%. Since mid-January, fixed-income markets have largely ignored strong economic fundamentals and concentrated on very positive technical supply factors. Declining bond issuance, both current, and more importantly, expected future issuance, helped push bond yields lower from mid-January to mid-April 2000. In late January and early February 2000, the US Treasury announced its intention to reduce the number of issues to be auctioned in the quarterly Treasury note and bond auctions. Furthermore, budgetary surpluses would allow the US Treasury to repurchase outstanding, higher-couponed Treasury issues, primarily in the 15-year and longer-term maturity sectors. Both these actions would result in a significant reduction in the outstanding supply of long-term US Treasury debt. Domestic and international investors quickly began to accumulate what was expected to become a scarce commodity and bond prices quickly rose. By mid-April 2000, US Treasury bond yields had declined over 100 basis points to 5.67%. However, bond yields rose somewhat during the last two weeks of the period as economic statistics were released, indicating that the economic strength seen in late 1999 was continuing into early 2000. The decline in long-term US Treasury bond yields resulted in an inverted taxable yield curve as short- term and intermediate-term interest rates have not fallen proportionately since the Federal Reserve Board is expected to continue to raise short-term interest rates. The current inversion has had much more to do with debt reduction and Treasury buybacks than with investor expectations of slower economic growth. Over the last six months, long-term US Treasury bond yields have fallen almost 20 basis points to close the six-month period ended April 30, 2000 at 5.96%. Tax-exempt bond yields have also declined in recent months. The decline has largely been in response to the rally in US Treasury securities, as well as a continued positive technical supply environment. States such as California and Maryland have announced that their large current and anticipated future budget surpluses will permit the cancellation or postponement of expected bond issuance. Additionally, some issuers have also initiated tenders to repurchase existing debt, reducing the supply of tax-exempt bonds in the secondary market as well. Since their recent peak in January 2000, long-term municipal bond yields declined over 25 basis points to finish the six-month period ended April 30, 2000 at 6.07%. During the last six months, municipal bond yields declined just 10 basis points overall. The relative underperfomance of the municipal bond market in recent months has been especially disappointing given the strong technical position the tax-exempt bond market enjoyed. The issuance of long- term tax-exempt securities has dramatically declined. Over the last year, $203 billion in new long-term municipal securities was issued, a decline of almost 25% compared to the same period a year earlier. For the six months ended April 30, 2000, approximately $90 billion in new tax-exempt bonds was underwritten, a decline of more than 25% compared to the same period in 1999. Although investors received over $30 billion in coupon payments, bond maturities, and the proceeds from early bond redemptions, coupled with the highest municipal bond yields in three years, overall investor demand has diminished. Long-term municipal bond mutual funds have seen consistent outflows in recent months as the yields of individual securities have risen faster than those of larger, more diverse mutual funds. Over the last four months, tax-exempt mutual funds have had net redemptions of more than $8 billion. Also, the demand from property and casualty insurance companies has weakened as a result of the losses and anticipated losses incurred from a series of damaging storms across much of the eastern United States. Additionally, many institutional investors who have in recent years been attracted to the municipal bond market by historically attractive tax-exempt bond yield ratios of over 90% found other asset classes even more attractive. Even with a favorable supply position, tax-exempt municipal bond yields have underperformed their taxable counterparts. Any significantly lower municipal bond yields are still likely to require weaker US employment growth and consumer spending. The actions taken in recent months by the Federal Reserve Board should eventually slow US economic growth. The recent declines in US home sales are perhaps the first sign that consumer spending is being slowed by higher interest rates. Until further signs develop, it is likely that the municipal bond market's current favorable technical position will dampen significant tax-exempt interest rate volatility and provide a stable environment for eventual improvement in municipal bond prices. Portfolio Strategy As the US economy remained far stronger than we anticipated in late 1999, we adopted a more neutral portfolio structure for the Fund. We sold several interest rate-sensitive issues and replaced them with higher-couponed issues in the 15-year maturity range. Given the steepness of the tax-exempt yield curve, bonds in this maturity range can capture approximately 95% of the yield available in the entire municipal yield curve. Bonds with this structure are significantly less sensitive to interest rate changes than bonds maturing in 25 years--30 years, thereby still allowing the Fund to maintain an attractive income dividend stream. However, reduced new bond issuance in recent months has hampered our efforts to return the Fund to a neutral stance. MuniYield Michigan Insured Fund, Inc., April 30, 2000 For the majority of the six-months ended April 30, 2000, short-term tax-exempt bond yields averaged approximately 3.75%, resulting in a significant incremental yield paid to the Fund's Common Stock shareholder. However, the combination of Federal income tax season and an ongoing Federal Reserve Board tightening cycle has pushed municipal short-term interest rates to above 4%. The steepness of the tax-exempt bond yield curve still generates a positive yield advantage from the leveraging of the Fund's Preferred Stock. However, should the spread between long-term tax-exempt interest rates and short-term tax-exempt interest rates narrow, the benefits of the leverage will decline and the yield on the Fund's Common Stock will decline. (For an explanation on the benefits and risks of leveraging, see page 1 of this report to shareholders.) In Conclusion We appreciate your ongoing interest in MuniYield Michigan Insured Fund, Inc., and we look forward to assisting you with your financial needs in the months and years ahead. Sincerely, (Terry K. Glenn) Terry K. Glenn President and Director (Vincent R. Giordano) Vincent R. Giordano Senior Vice President (Fred K. Stuebe) Fred K. Stuebe Vice President and Portfolio Manager May 31, 2000 PROXY RESULTS During the six-month period ended April 30, 2000, MuniYield Michigan Insured Fund, Inc.'s Common Stock shareholders voted on the following proposals. Proposals 1 and 2 were approved at a shareholders' meeting on April 27, 2000. Proposal 3 was approved on December 15, 1999. The description of each proposal and number of shares voted are as follows:
Shares Voted Shares Withheld For From Voting 1. To elect the Fund's Board of Directors: Terry K. Glenn 4,864,529 99,061 Jack B. Sunderland 4,849,368 114,222 Stephen B. Swensrud 4,861,259 102,331 J. Thomas Touchton 4,864,629 98,961 Fred G. Weiss 4,858,940 104,650 Arthur Zeikel 4,853,501 110,089 Shares Voted Shares Voted Shares Voted For Against Abstain 2. To ratify the selection of Ernst & Young LLP as the Fund's independent auditors for the current fiscal year. 4,845,061 19,826 98,703 3. To approve the Agreement and Plan of Reorganization among the Fund, MuniHoldings Michigan Insured Fund, Inc. and MuniVest Michigan Insured Fund, Inc. 4,085,897 148,765 161,644
During the six-month period ended April 30, 2000, MuniYield Michigan Insured Fund, Inc.'s Common Stock shareholders voted on the following proposals. Proposals 1 and 2 were approved at a shareholders' meeting on April 27, 2000. Proposal 3 was approved on December 15, 1999. The description of each proposal and number of shares voted are as follows:
Shares Voted Shares Withheld For From Voting 1. To elect the Fund's Board of Directors: Terry K. Glenn, M. Colyer Crum, Laurie Simon Hodrick, Jack B. Sunderland, Stephen B. Swensrud, J. Thomas Touchton, Fred G. Weiss and Arthur Zeikel 1,051 0 Shares Voted Shares Voted Shares Voted For Against Abstain 2. To ratify the selection of Ernst & Young LLP as the Fund's independent auditors for the current fiscal year. 1,050 0 1 3. To approve the Agreement and Plan of Reorganization among the Fund, MuniHoldings Michigan Insured Fund, Inc. and MuniVest Michigan Insured Fund, Inc. 1,966 4 30
MuniYield Michigan Insured Fund, Inc., April 30, 2000 MANAGED DIVIDEND POLICY The Fund's dividend policy is to distribute all or a portion of its net investment income to its shareholders on a monthly basis. In order to provide shareholders with a more consistent yield to the current trading price of Common Stock of the Fund, the Fund may at times pay out less than the entire amount of net investment income earned in any particular month and may at times in any month pay out such accumulated but undistributed income in addition to net investment income earned in that month. As a result, the dividends paid by the Fund for any particular month may be more or less than the amount of net investment income earned by the Fund during such month. The Fund's current accumulated but undistributed net investment income, if any, is disclosed in the Statement of Assets, Liabilities and Capital, which comprises part of the Financial Information included in this report. QUALITY PROFILE The quality ratings of securities in the Fund as of April 30, 2000 were as follows: Percent of S&P Rating/Moody's Rating Net Assets AAA/Aaa 87.0% AA/Aa 3.1 A/A 1.9 BBB/Baa 0.6 NR (Not Rated) 1.4 Other* 3.7 [FN] *Temporary investments in short-term municipal securities. Portfolio Abbreviations To simplify the listings of MuniYield Michigan Insured Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) DATES Daily Adjustable Tax-Exempt Securities GO General Obligation Bonds HDA Housing Development Authority PCR Pollution Control Revenue Bonds RIB Residual Interest Bonds VRDN Variable Rate Demand Notes SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Issue Value Michigan--97.7% AAA Aaa $ 2,500 Anchor Bay, Michigan, School District, GO (School Building and Site), Series I, 6% due 5/01/2023 (c) $ 2,521 AAA Aaa 1,000 Avondale, Michigan, School District, GO, Refunding, 4.75% due 5/01/2022 (b) 838 Belding, Michigan, Area Schools, GO, Refunding (c): AAA NR* 785 6.05% due 5/01/2006 (f) 830 AAA Aaa 215 6.05% due 5/01/2021 218 AAA Aaa 1,000 Caledonia, Michigan, Community Schools, GO, Refunding, 6.625% due 5/01/2014 (b) 1,048 AAA Aaa 1,625 Central Michigan University Revenue Bonds, 5.50% due 4/01/2007 (c)(f) 1,673 Central Michigan University, Revenue Refunding Bonds (c): AAA Aaa 3,000 5% due 10/01/2023 2,615 AAA Aaa 2,500 5% due 10/01/2027 2,155 AAA Aaa 1,250 Chelsea, Michigan, School District, GO, 5.875% due 5/01/2005 (c)(f) 1,306 AAA Aaa 4,795 Clarkston, Michigan, Community Schools, GO, 5.25% due 5/01/2023 (d) 4,366 AAA Aaa 1,000 Coldwater, Michigan, Community Schools, GO, 6.30% due 5/01/2004 (d)(f) 1,063 AAA Aaa 2,500 Comstock Park, Michigan, Public Schools, GO, 5.75% due 5/01/2029 (c) 2,441 Decatur, Michigan, Public Schools, Van Burn-Cass Counties, GO (e): AAA Aaa 2,765 5% due 5/01/2024 2,400 AAA Aaa 1,360 5% due 5/01/2029 1,164 NR* P1 3,500 Delta County, Michigan, Economic Development Corporation, Environmental Improvement Revenue Refunding Bonds (Mead- Escanaba Paper), DATES, Series D, 5.40% due 12/01/2023 (a) 3,500 AAA Aaa 3,500 Detroit, Michigan, City School District, GO, Series B, 5% due 5/01/2021 (c) 3,081 Detroit, Michigan, Sewage Disposal Revenue Bonds, Series A: AAA Aaa 4,000 5% due 7/01/2022 (d) 3,504 AAA Aaa 1,000 5.75% due 7/01/2026 (c) 981 AAA Aaa 1,000 5% due 7/01/2027 (d) 863 Detroit, Michigan, Water Supply System Revenue Bonds, Senior Lien, Series A: AAA Aaa 6,320 5% due 7/01/2021 (d) 5,560 AAA Aaa 4,875 5.75% due 7/01/2026 (c) 4,784 AAA Aaa 6,700 5% due 7/01/2027 (d) 5,779 AAA Aaa 1,250 5.875% due 7/01/2029 (c) 1,239 AAA Aaa 5,000 Detroit, Michigan, Water Supply System, Revenue Refunding Bonds, 6.25% due 7/01/2012 (c)(f) 5,235
MuniYield Michigan Insured Fund, Inc., April 30, 2000 SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Issue Value Michigan AAA NR* $ 1,610 East Grand Rapids, Michigan, Public School District, GO, (continued) 5.75% due 5/01/2021 (e) $ 1,594 AAA Aaa 1,000 Eastern Michigan University, General Revenue Refunding Bonds, 6.375% due 6/01/2014 (b) 1,036 AAA Aaa 1,995 Eaton Rapids, Michigan, Public Schools, GO, Refunding, 5% due 5/01/2022 (d) 1,746 AAA Aaa 4,000 Fenton, Michigan, Area Public Schools, GO, 5% due 5/01/2021 (c) 3,517 AAA Aaa 2,000 Ferris State University, Michigan, Revenue Refunding Bonds, 5% due 10/01/2023 (b) 1,743 Grand Ledge, Michigan, Public Schools District, GO (d)(f): AAA Aaa 1,000 6.45% due 5/01/2004 1,069 AAA Aaa 12,500 6.60% due 5/01/2004 13,423 Grand Rapids, Michigan, Water Supply Revenue Refunding Bonds (c): AAA Aaa 3,000 6.25% due 1/01/2011 3,076 A1+ VMIG1++ 2,600 VRDN, 4.95% due 1/01/2020 (a) 2,600 Grand Traverse County, Michigan, Hospital Revenue Refunding Bonds (Munson Healthcare), Series A (b): AAA Aaa 4,000 6.25% due 7/01/2002 (f) 4,187 AAA Aaa 2,500 5.50% due 7/01/2018 2,373 AAA Aaa 3,110 6.25% due 7/01/2022 3,138 AAA Aaa 2,570 Grandville, Michigan, Public Schools District, GO, Refunding, 6.60% due 5/01/2005 (c)(f) 2,767 AAA Aaa 4,750 Greenville, Michigan, Public Schools, GO, 5.75% due 5/01/2004 (d)(f) 4,919 AAA Aaa 1,500 Greenville, Michigan, Public Schools, GO, Refunding, 5% due 5/01/2024 (e) 1,302 NR* Aaa 3,000 Holt, Michigan, Public Schools, GO, Refunding, 5.125% due 5/01/2021 (d) 2,696 AAA Aaa 3,305 Jonesville, Michigan, Community Schools, GO, 5.75% due 5/01/2029 (c) 3,228 AAA Aaa 1,080 Kalamazoo, Michigan, Building Authority Revenue Bonds, 5.375% due 10/01/2019 (d) 1,022 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue Refunding and Improvement Bonds (Bronson Methodist Hospital)(d): AAA Aaa 2,935 5.75% due 5/15/2016 2,920 AAA Aaa 1,000 5.875% due 5/15/2026 975 AAA Aaa 1,180 Series A, 6.375% due 5/15/2017 1,246 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue Refunding Bonds (Bronson Methodist Hospital)(d): NR* Aaa 4,250 5.25% due 5/15/2018 3,888 NR* Aaa 6,950 RIB, Series 138, 5.59% due 5/15/2028 (g) 5,858 AAA Aaa 1,000 Kent County, Michigan, Airport Facility Revenue Bonds (Kent County International Airport), AMT, 5% due 1/01/2028 (d) 836 AAA Aaa 4,660 Kent, Michigan, Hospital Finance Authority, Health Care Revenue Bonds (Butterworth Health Systems), Series A, 5.625% due 1/15/2006 (d)(f) 4,845 AAA Aaa 4,000 Kent, Michigan, Hospital Finance Authority, Hospital Revenue Refunding Bonds (Butterworth Hospital), Series A, 7.25% due 1/15/2013 (d) 4,580 AAA Aaa 2,500 Lakeshore, Michigan, Public Schools, GO, 5.70% due 5/01/2022 (d) 2,442 AAA Aaa 1,000 Leslie, Michigan, Public Schools, Ingham and Jackson Counties, GO, Refunding, 6% due 5/01/2005 (b)(f) 1,050 AAA Aaa 5,235 Lincoln Park, Michigan, School District, GO, 7% due 5/01/2006 (c)(f) 5,791 AAA Aaa 1,900 Lowell, Michigan, Area Schools, GO, Refunding, 4.91%** due 5/01/2016 (c) 747 Michigan Higher Education Student Loan Authority, Student Loan Revenue Bonds, AMT (b): AAA Aaa 2,000 Series XII-Q, 5.20% due 9/01/2010 1,899 AAA NR* 2,500 Series XVII-B, 5.40% due 6/01/2018 2,286 AAA VMIG1++ 600 VRDN, Series XII-D, 5.10% due 10/01/2015 (a) 600 AA+ Aa1 2,000 Michigan Municipal Bond Authority Revenue Bonds (State Revolving Fund), Series A, 6.60% due 10/01/2002 (f) 2,115 Michigan Municipal Bond Authority, Revenue Refunding Bonds (Local Government Loan Program), Series A: AAA Aaa 1,035 6.50% due 5/01/2012 (b) 1,087 AAA Aaa 1,870 6.50% due 11/01/2012 (d) 1,963 AAA Aaa 1,000 6% due 12/01/2013 (c) 1,034 AAA Aaa 7,000 6.125% due 12/01/2018 (c) 7,146 AA+ Aa1 1,500 Michigan State, GO, 5% due 12/01/2005 1,499 AAA Aaa 6,500 Michigan State, HDA, Rental Housing Revenue Bonds, Series B, 5.10% due 10/01/2019 (d) 5,848 AAA Aaa 3,885 Michigan State, HDA, Rental Housing Revenue Refunding Bonds, Series A, 6.50% due 4/01/2023 (e) 4,008 Michigan State, HDA, Revenue Refunding Bonds (h): AA+ NR* 1,125 AMT, Series B, 6.20% due 6/01/2027 1,128 AA+ NR* 2,690 Series C, 5.90% due 12/01/2015 2,729 Michigan State Hospital Finance Authority, Revenue Refunding Bonds: AAA Aaa 1,500 (Ascension Health Credit), Series A, 6.25% due 11/15/2014 (d) 1,572 AAA Aaa 2,715 (Ascension Health Credit), Series A, 5.75% due 11/15/2017 (d) 2,685 AAA Aaa 12,000 (Ascension Health Credit), Series A, 6.125% due 11/15/2023 (d) 12,050 AA Aa2 1,000 (Ascension Health Credit), Series A, 6.125% due 11/15/2026 984 AAA Aaa 4,000 (Detroit Medical Group), Series A, 5.25% due 8/15/2027 (b) 3,506 AAA Aaa 4,805 (Mercy Health Services), Series T, 6.50% due 8/15/2013 (d) 5,093 AAA Aaa 2,000 (Mercy Health Services), Series X, 6% due 8/15/2014 (d) 2,051 AAA Aaa 2,200 (Mercy Health Services), Series X, 5.75% due 8/15/2019 (d) 2,150 AAA Aaa 2,715 (Mercy Mount Clemens), Series A, 6% due 5/15/2014 (d) 2,777 NR* VMIG1++ 1,000 (Mount Clemens Hospital), VRDN, 5% due 8/15/2015 (a) 1,000 AAA Aaa 2,500 (Oakwood Obligation Group), Series A, 5% due 8/15/2026 (e) 2,107 AAA Aaa 3,000 (Saint John Hospital), Series A, 6.0% due 5/15/2013 (b)(i) 3,076 AAA Aaa 1,100 (Sisters of Mercy Health Corp.), Series M, 6.25% due 2/15/2022 (e) 1,109 AAA Aaa 1,460 (Sparrow Obligated Group), 6.50% due 11/15/2011 (d) 1,517 Michigan State Strategic Fund, Limited Obligation Revenue Bonds, AMT: A A1 5,000 (Ford Motor Company Project), Series A, 6.55% due 10/01/2022 5,049 BBB Ba1 2,500 (Waste Management Inc. Project),6.625% due 12/01/2012 2,412 Michigan State Strategic Fund, Limited Obligation Revenue Refunding Bonds (Detroit Edison Company): AAA Aaa 7,250 AMT, Series A, 5.55% due 9/01/2029 (d) 6,689 A1+ P1 400 VRDN, Series CC, 5.85% due 9/01/2030 (a) 400 A A2 2,500 Michigan State Strategic Fund, PCR, Refunding (General Motors Corp.), 6.20% due 9/01/2020 2,506 AA Aa3 1,000 Michigan State Trunk Line Revenue Bonds, Series A, 5.25% due 11/15/2002 1,009
MuniYield Michigan Insured Fund, Inc., April 30, 2000 SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Issue Value Michigan Michigan State Trunk Line, Revenue Refunding Bonds, Series (concluded) A (d): AAA Aaa $ 2,750 4.75% due 11/01/2020 $ 2,330 AAA Aaa 2,800 5% due 11/01/2026 2,417 AAA Aaa 1,250 Michigan State Underground Storage, Tank Financial Assurance Authority, Revenue Refunding Bonds, Series I, 5.50% due 5/01/2002 (b) 1,265 AAA Aaa 2,435 Michigan State University Revenue Bonds, Series A, 5% due 2/15/2026 (b) 2,097 AAA Aaa 15,000 Monroe County, Michigan, Economic Development Corp., Limited Obligation Revenue Refunding Bonds (Detroit Edison Co. Project), Series AA, 6.95% due 9/01/2022 (c) 17,086 Monroe County, Michigan, PCR (Detroit Edison Company Project), AMT (d): AAA Aaa 9,000 Series CC, 6.55% due 6/01/2024 9,329 AAA Aaa 1,500 Series I-B, 6.55% due 9/01/2024 1,557 AAA Aaa 2,000 Montrose Township, Michigan, School District, GO, 5.60% due 5/01/2026 (d) 1,921 AAA Aaa 7,000 Northern Michigan University, Revenue Refunding Bonds, 5% due 12/01/2025 (d) 6,065 Northview, Michigan, Public Schools District, GO, Refunding (d): AAA NR* 2,265 5.80% due 5/01/2006 (f) 2,366 AAA Aaa 235 5.80% due 5/01/2021 233 AAA Aaa 2,600 Novi, Michigan, Community School District, GO, 6.125% due 5/01/2003 (c)(f) 2,730 AAA Aaa 1,870 Redford, Michigan, Unified School District, GO, 5.90% due 5/01/2006 (c)(f) 1,963 AAA Aaa 1,000 Reeths-Puffer Schools, Michigan, GO, Refunding, 6% due 5/01/2005 (c)(f) 1,050 AAA Aaa 5,925 Riverview, Michigan, Community School District, GO, 6.70% due 5/01/2002 (c)(f) 6,219 AAA Aaa 4,000 Rockford, Michigan, Public Schools, GO, 5.25% due 5/01/2022 (c) 3,659 AA Aa3 2,620 Royal Oak, Michigan, Hospital Finance Authority Revenue Bonds (Beaumont Properties, Inc.), Series E, 6.625% due 1/01/2019 2,679 AAA Aaa 2,500 Saginaw, Michigan, Hospital Finance Authority, Revenue Refunding Bonds (Covenant Medical Center), Series E, 5.625% due 7/01/2013 (d) 2,501 NR* Aaa 5,250 Saint Clair County, Michigan, Ecomomic Revenue Refunding Bonds (Detroit Edison Company), RIB, Series 282, 7.37% due 8/01/2024 (b)(g) 5,744 AAA Aaa 5,250 Southgate, Michigan, Community School District, GO, 5% due 5/01/2025 (c) 4,544 AAA Aaa 2,975 Tecumseh, Michigan, Public Schools, GO, 5% due 5/01/2021 (c) 2,616 AAA Aaa 1,000 Three Rivers, Michigan, Community Schools, GO, 6% due 5/01/2006 (d)(f) 1,055 AAA Aaa 3,725 Three Rivers, Michigan, Community Schools, GO, Refunding, 5% due 5/01/2023 (e) 3,244 A1+ VMIG1++ 1,200 University of Michigan, University Hospital Revenue Bonds, VRDN, Series A, 5.85% due 12/01/2027 (a) 1,200 A1+ VMIG1++ 1,700 University of Michigan, University Hospital Revenue Refunding Bonds, VRDN, Series A, 5.85% due 12/01/2019 (a) 1,700 A1+ VMIG1++ 3,600 University of Michigan, University Revenue Bonds (Medical Service Plan), VRDN, Series A, 5.85% due 12/01/2027 (a) 3,600 AAA Aaa 3,000 Warren, Michigan, Water and Sewer Revenue Bonds, 5.125% due 11/01/2023 (e) 2,669 AAA Aaa 1,500 Waterford, Michigan, School District, GO, 6.25% due 6/01/2004 (c)(f) 1,581 Wayne Charter County, Michigan, Airport Revenue Bonds, AMT (d): AAA Aaa 14,660 (Detroit Metropolitan Wayne County), Series A, 5.375% due 12/01/2015 13,925 NR* NR* 6,235 RIB, Series 68, 5.265% due 12/01/2017 (g) 5,566 Wayne State University, Michigan, University Revenue Refunding Bonds (c): AAA Aaa 1,600 5.25% due 11/15/2019 1,482 AAA Aaa 10,275 5.125% due 11/15/2029 9,026 AAA Aaa 4,905 West Branch-Rose City, Michigan, GO, 5.50% due 5/01/2024 (c) 4,673 AAA Aaa 2,000 Western Michigan, University Revenue Bonds, Series B, 6.50% due 7/15/2021 (b) 2,041 AAA Aaa 5,500 Wyandotte, Michigan, Electric Revenue Refunding Bonds, 6.25% due 10/01/2017 (d) 5,623 AAA Aaa 1,300 Ypsilanti, Michigan, School District, GO, Refunding, 5.75% due 5/01/2007 (c)(f) 1,348 AAA Aaa 1,500 Zeeland, Michigan, Public Schools, GO, 5.375% due 5/01/2025 (c) 1,388 Total Investments (Cost--$387,955)--97.7% 383,354 Other Assets Less Liabilities--2.3% 8,832 -------- Net Assets--100.0% $392,186 ======== (a)The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 2000. (b)AMBAC Insured. (c)FGIC Insured. (d)MBIA Insured. (e)FSA 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, 2000. (h)FHA Insured. (i)Escrowed to maturity. *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. See Notes to Financial Statements.
MuniYield Michigan Insured Fund, Inc., April 30, 2000 STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of April 30, 2000 Assets: Investments, at value (identified cost--$387,954,966) $383,354,176 Cash 1,054,208 Interest receivable 8,519,734 Prepaid expenses and other assets 8,826 ------------ Total assets 392,936,944 ------------ Liabilities: Payables: Dividends to shareholders $ 227,046 Reorganization costs 215,111 Investment adviser 151,963 Offering costs 11,120 605,240 ------------ Accrued expenses and other liabilities 146,198 ------------ Total liabilities 751,438 ------------ Net Assets: Net assets $392,185,506 ============ Capital: Capital Stock (200,000,000 shares authorized): Preferred Stock, par value $.05 per share (5,600 shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) $140,000,000 Common Stock, par value $.10 per share (18,155,932 shares issued and outstanding) $ 1,815,593 Paid-in capital in excess of par 272,405,292 Undistributed investment income--net 1,708,522 Accumulated realized capital losses on investments--net (17,341,736) Accumulated distributions in excess of realized capital gains on investments--net (1,801,375) Unrealized depreciation on investments--net (4,600,790) ------------ Total--Equivalent to $13.89 net asset value per share of Common Stock (market price--$11.5625) 252,185,506 ------------ Total capital $392,185,506 ============ *Auction Market Preferred Stock. See Notes to Financial Statements.
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 2000 Investment Interest and amortization of premium and discount earned $ 6,608,813 Income: Expenses: Investment advisory fees $ 564,441 Reorganization expenses 368,991 Commission fees 106,044 Transfer agent fees 41,240 Professional fees 30,334 Accounting services 25,827 Printing and shareholder reports 15,254 Directors' fees and expenses 12,749 Custodian fees 9,251 Listing fees 7,245 Pricing fees 4,285 Other 7,169 ------------ Total expenses 1,192,830 ------------ Investment income--net 5,415,983 ------------ Realized & Realized loss on investments--net (2,756,485) Unrealized Change in unrealized appreciation/depreciation on investments--net 4,116,859 Gain (Loss) on ------------ Investments Net Increase in Net Assets Resulting from Operations $ 6,776,357 - --Net: ============ See Notes to Financial Statements.
MuniYield Michigan Insured Fund, Inc., April 30, 2000 STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the Months Ended Year Ended April 30, October 31, Increase (Decrease) in Net Assets: 2000 1999 Operations: Investment income--net $ 5,415,983 $ 7,713,511 Realized loss on investments--net (2,756,485) (124,051) Change in unrealized appreciation/depreciation on investments--net 4,116,859 (13,181,186) ------------ ------------ Net increase (decrease) in net assets resulting from operations 6,776,357 (5,591,726) ------------ ------------ Dividends & Investment income--net: Distributions to Common Stock (3,611,200) (6,322,552) Shareholders: Preferred Stock (1,496,556) (1,326,180) Realized gain on investments--net: Common Stock -- (1,552,255) Preferred Stock -- (249,120) ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders (5,107,756) (9,450,107) ------------ ------------ Capital Stock Proceeds from issuance of Common Stock resulting from Transactions: reorganization 147,153,267 -- Proceeds from issuance of Preferred Stock resulting from reorganization 90,000,000 -- Value of shares issued to Common Stock Shareholders in reinvestment of dividends and distributions -- 894,471 ------------ ------------ Net increase in net assets derived from capital stock transactions 237,153,267 894,471 ------------ ------------ Net Assets: Total increase (decrease) in net assets 238,821,868 (14,147,362) Beginning of period 153,363,638 167,511,000 ------------ ------------ End of period* $392,185,506 $153,363,638 ============ ============ *Undistributed investment income--net $ 1,708,522 $ 1,400,295 ============ ============ See Notes to Financial Statements.
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: 2000 1999 1998 1997 1996 Per Share Net asset value, beginning of period $ 13.91 $ 15.93 $ 15.51 $ 15.16 $ 15.13 Operating -------- -------- -------- -------- -------- Performance: Investment income--net .43 1.04 1.07 1.09 1.11 Realized and unrealized gain (loss) on investments--net .08 (1.79) .46 .33 .03 -------- -------- -------- -------- -------- Total from investment operations .51 (.75) 1.53 1.42 1.14 -------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.40) (.85) (.83) (.84) (.87) -------- -------- -------- -------- -------- In excess of realized gain on investments--net -- (.21) (.04) -- -- -------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (.40) (1.06) (.87) (.84) (.87) -------- -------- -------- -------- -------- Effect of Preferred Stock activity:++++ Dividends and distributions to Preferred Stock shareholders: Investment income--net (.13) (.18) (.21) (.23) (.24) Realized gain on investments--net -- -- -- -- -- In excess of realized gain on investments--net -- (.03) (.03) -- -- -------- -------- -------- -------- -------- Total effect of Preferred Stock activity (.13) (.21) (.24) (.23) (.24) -------- -------- -------- -------- -------- Net asset value, end of period $ 13.89 $ 13.91 $ 15.93 $ 15.51 $ 15.16 ======== ======== ======== ======== ======== Market price per share, end of period $11.5625 $12.1875 $ 15.875 $ 14.50 $ 14.25 ======== ======== ======== ======== ======== Total Investment Based on market price per share (1.91%)+++(17.47%) 16.03% 8.00% 12.14% Return:** ======== ======== ======== ======== ======== Based on net asset value per share 3.25%+++ (6.13%) 8.85% 8.58% 6.45% ======== ======== ======== ======== ======== Ratios Based on Total expenses, excluding reorganization Average Net expenses*** 1.11%* 1.09% 1.06% 1.06% 1.09% Assets of ======== ======== ======== ======== ======== Common Stock: Total expenses*** 1.29%* 1.09% 1.06% 1.06% 1.09% ======== ======== ======== ======== ======== Total investment income--net*** 7.60%* 6.85% 6.90% 7.09% 7.28% ======== ======== ======== ======== ======== Amount of dividends to Preferred Stock shareholders 2.01%* 1.18% 1.36% 1.48% 1.58% ======== ======== ======== ======== ======== Investment income--net, to Common Stock shareholders 5.59%* 5.67% 5.54% 5.61% 5.70% ======== ======== ======== ======== ======== Ratios Based on Total expenses, excluding reorganization Total Average Net expenses .73%* .76% .74% .74% .75% Assets:***++ ======== ======== ======== ======== ======== Total expenses .85%* .76% .74% .74% .75% ======== ======== ======== ======== ======== Total investment income--net 4.99%* 4.75% 4.79% 4.96% 5.03% ======== ======== ======== ======== ======== Ratios Based on Dividends to Preferred Stock shareholders 3.86%* 2.66% 3.13% 3.39% 3.53% Average Net ======== ======== ======== ======== ======== Assets of Preferred Stock: Supplemental Net assets, net of Preferred Stock, end of Data: period (in thousands) $252,186 $103,364 $117,511 $114,392 $ 11,834 ======== ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) $140,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 ======== ======== ======== ======== ======== Portfolio turnover 20.28% 42.71% 41.65% 16.68% 21.82% ======== ======== ======== ======== ======== Leverage: Asset coverage per $1,000 $ 2,801 $ 3,067 $ 3,350 $ 3,288 $ 3,237 ======== ======== ======== ======== ======== Dividends Series A--Investment income--net $ 480 $ 663 $ 782 $ 849 $ 882 Per Share ======== ======== ======== ======== ======== On Preferred Series B--Investment income--net $ 154 -- -- -- -- Stock ======== ======== ======== ======== ======== Outstanding: Series C--Investment income--net $ 142 -- -- -- -- ======== ======== ======== ======== ======== *Annualized. **Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales charges. ***Do not reflect the effect of dividends to Preferred Stock shareholders. ++Includes Common and Preferred Stock average net assets. ++++The Fund's Preferred Stock was issued on November 19, 1992 (Series A) and March 6, 2000 (Series B and Series C). +++Aggregate total investment return. See Notes to Financial Statements.
MuniYield Michigan Insured Fund, Inc., April 30, 2000 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: MuniYield Michigan Insured Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which may require the use of management accruals and estimates. These unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal recurring nature. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MIY. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options written or purchased are valued at the last sale price in the case of exchange-traded options. In the case of options traded in the over-the-counter market, valuation is the last asked price (options written) or the last bid price (options purchased). Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio investment strategies to increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired, or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). 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) 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. 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. 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, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended April 30, 2000 were $55,384,296 and $42,400,523 respectively. Net realized losses for the six months ended April 30, 2000 and net unrealized losses as of April 30, 2000 were as follows: Realized Unrealized Losses Losses Long-term investments $ (2,634,207) $ (4,600,790) Financial futures contracts (122,278) -- ------------ ------------ Total $ (2,756,485) $ (4,600,790) ============ ============ As of April 30, 2000, net unrealized depreciation for Federal income tax purposes aggregated $4,600,790, of which $8,399,027 related to appreciated securities and $12,999,817 related to depreciated securities. The aggregate cost of investments at April 30, 2000 for Federal income tax purposes was $387,954,966. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of holders of Common Stock. Common Stock Shares issued and outstanding during the six months ended April 30, 2000, increased by 10,724,298 as a result of issuance of Common Stock from reorganization. Shares issued and outstanding during the year ended October 31, 1999 increased by 57,164 as a result of dividend reinvestment. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund, with a par value of $.05 per share and a liquidation preference of $25,000 per share, that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yields in effect at April 30, 2000 were as follows: Series A, 4.29%; Series B, 4.70%; and Series C, 4.35%. Shares issued and outstanding during the six months ended April 30, 2000, increased by 3,600 as a result of issuance of Preferred Stock from reorganization. Shares issued and outstanding during the year ended October 31, 1999 remained constant. The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from .25% to .375%, calculated on the proceeds of each auction. For the six months ended April 30, 2000, Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of FAM, earned $68,811 as commissions. 5. Capital Loss Carryforward: At October 31, 1999, the Fund had a net capital loss carryforward of approximately $1,364,000, all of which expires in 2007. This amount will be available to offset like amounts of any future taxable gains. 6. Acquisition of Other FAM-Managed Investment Companies: On March 6, 2000, the Fund acquired all of the net assets of MuniHoldings Michigan Insured Fund, Inc. and MuniVest Michigan Insured Fund, Inc. pursuant to a plan of reorganization. The acquisition was accomplished by a tax-free exchange of the following capital shares: Common Stock AMPS Shares Shares Exchanged Exchanged MuniHoldings Michigan Insured Fund, Inc. 4,458,344 1,600 MuniVest Michigan Insured Fund, Inc. 7,387,697 2,000 MuniYield Michigan Insured Fund, Inc., April 30, 2000 NOTES TO FINANCIAL STATEMENTS (concluded) In exchange for these shares, the Fund issued 10,724,298 Common Stock shares and 3,600 AMPS shares. As of that date, net assets of the acquired funds, including unrealized depreciation and accumulated net realized capital losses, were as follows: Accumulated Net Unrealized Net Realized Assets Depreciation Capital Losses MuniHoldings Michigan Insured Fund, Inc. $ 94,380,719 $8,690,297 $ 3,145,585 MuniVest Michigan Insured Fund, Inc. $142,772,548 $ 723,461 $10,104,959 The aggregate net assets of the Fund immediately after the acquisition amounted to $389,126,226. 7. Subsequent Event: On May 5, 2000, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $.065796 per share, payable on May 30, 2000 to shareholders of record as of May 16, 2000. OFFICERS AND DIRECTORS Terry K. Glenn, President and Director M. Colyer Crum, Director Laurie Simon Hodrick, Director Jack B. Sunderland, Director Stephen B. Swensrud, Director J. Thomas Touchton, Director Fred G. Weiss, Director Arthur Zeikel, Director Vincent R. Giordano, Senior Vice President Kenneth A. Jacob, Vice President Fred K. Stuebe, Vice President Donald C. Burke, Vice President and Treasurer Alice A. Pellegrino, Secretary Custodian The Bank of New York 90 Washington 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 100 Church Street New York, NY 10286 NYSE Symbol MIY Donald Cecil and Edward H. Meyer, Directors of MuniYield Michigan Insured Fund, Inc., have recently retired. The Fund's Board of Directors wishes Mr. Cecil and Mr. Meyer well in their retirements. -----END PRIVACY-ENHANCED MESSAGE-----