-----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, K0hz/rrA0O/ranoQfw/5RKsFX4NwV7ODmNruC9AtXnPIYHp48n2AQgjnZrmRYoZ/ uDo+JgWmeDSOrAJdo/kqSw== 0000900092-04-000073.txt : 20040628 0000900092-04-000073.hdr.sgml : 20040628 20040625174239 ACCESSION NUMBER: 0000900092-04-000073 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 INC CENTRAL INDEX KEY: 0000890393 IRS NUMBER: 223196060 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-07080 FILM NUMBER: 04882953 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092822800 FORMER COMPANY: FORMER CONFORMED NAME: MUNIYIELD MICHIGAN INSURED FUND II INC DATE OF NAME CHANGE: 20020620 FORMER COMPANY: FORMER CONFORMED NAME: MUNIYIELD MICHIGAN INSURED FUND INC DATE OF NAME CHANGE: 19920929 N-CSR 1 ml7146.txt MUNIYIELD MICHIGAN INSURED 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 811-7080 Name of Fund: MuniYield Michigan Insured Fund, Inc. Fund Address: P.O. Box 9011 Princeton, NJ 08543-9011 Name and address of agent for service: Terry K. Glenn, President, MuniYield Michigan Insured Fund, Inc., 800 Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543-9011 Registrant's telephone number, including area code: (609) 282-2800 Date of fiscal year end: 10/31/04 Date of reporting period: 11/01/03 - 04/30/04 Item 1 - Report to Stockholders (BULL LOGO) Merrill Lynch Investment Managers www.mlim.ml.com MuniYield Michigan Insured Fund, Inc. Semi-Annual Report April 30, 2004 MuniYield Michigan Insured Fund, 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, 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, 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, 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, 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 13.89%. 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, 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, 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 typically 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, municipal bond supply 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 because of 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 6.46% and 7.04%, based on a period-end per share net asset value of $15.53 and a per share market price of $14.25, respectively, and $.500 per share income dividends. Over the same period, the total investment return on the Fund's Common Stock was +.69%, based on a change in per share net asset value from $15.94 to $15.53, and assuming reinvestment of $.498 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 .89% for Series A, .88% for Series B and .83% for Series C. 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, 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. Recent increases in coupon income allowed the Fund to increase its dividend earlier in 2004. In terms of leverage, the Fund's borrowing costs remained around 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 33.18% 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, INC., APRIL 30, 2004 Schedule of Investments (In Thousands)
S&P Moody's Face Ratings Ratings Amount Municipal Bonds Value Michigan--140.1% AAA Aaa $ 1,000 Allegan, Michigan, Public School District, GO, 5.75% due 5/01/2030 (d) $ 1,073 Belding, Michigan, Area Schools, GO, Refunding (c): AAA Aaa 785 6.05% due 5/01/2006 (e) 857 AAA Aaa 215 6.05% due 5/01/2021 231 AAA Aaa 1,000 Central Montcalm, Michigan, Public Schools, GO, 5.90% due 5/01/2019 (b) 1,114 AAA Aaa 1,000 Comstock Park, Michigan, Public Schools, GO, 5.75% due 5/01/2029 (c) 1,072 Delta County, Michigan, Economic Development Corporation, Environmental Improvement Revenue Refunding Bonds (Mead Westvaco--Escanaba): BBB Baa2 1,500 AMT, Series B, 6.45% due 4/15/2023 1,554 BBB Baa2 2,000 Series A, 6.25% due 4/15/2027 2,081 Detroit, Michigan, City School District, GO: AAA Aaa 2,300 (School Building and Site Improvement), Series A, 5.375% due 5/01/2024 (c) 2,404 AAA Aaa 2,100 (School Building and Site Improvement), Series B, 5% due 5/01/2028 (c) 2,100 AAA Aaa 5,155 (School Building and Site Improvement), Series B, 5% due 5/01/2033 (c) 5,116 AAA Aaa 1,000 Series A, 5.50% due 5/01/2018 (d) 1,084 Detroit, Michigan, GO (b): AAA Aaa 1,400 5.50% due 4/01/2018 1,510 AAA Aaa 1,325 5.50% due 4/01/2020 1,418 AAA Aaa 2,705 Series B, 6% due 4/01/2015 3,054 AAA Aaa 1,000 Detroit, Michigan, Sewer Disposal Revenue Bonds, Series A, 5.75% due 1/01/2010 (c)(e) 1,139 Detroit, Michigan, Sewer Disposal Revenue Refunding Bonds, Senior Lien (d): AAA Aaa 3,000 Series A, 5% due 7/01/2024 3,020 AAA Aaa 4,075 Series A, 5% due 7/01/2032 4,047 AAA Aaa 1,545 Series C, 5.25% due 7/01/2022 1,646 Detroit, Michigan, Water Supply System Revenue Bonds: AAA NR* 4,375 DRIVERS, Series 200, 10.14% due 7/01/2011 (c)(e)(g) 5,675 AAA Aaa 4,875 Senior Lien, Series A, 5.75% due 1/01/2010 (c)(e) 5,553 AAA Aaa 1,250 Senior Lien, Series A, 5.875% due 1/01/2010 (c)(e) 1,432 AAA Aaa 15,490 Series B, 5.25% due 7/01/2032 (b) 15,822 AAA Aaa 9,490 Series B, 5% due 7/01/2034 (b) 9,406 AAA Aaa 1,415 Detroit, Michigan, Water Supply System Revenue Refunding Bonds, 6.25% due 7/01/2012 (c)(h) 1,426 BBB Baa2 3,900 Dickinson County, Michigan, Economic Development Corporation, Environmental Improvement Revenue Refunding Bonds (International Paper Company Project), Series A, 5.75% due 6/01/2016 4,154 BBB Baa2 2,500 Dickinson County, Michigan, Economic Development Corporation, PCR, Refunding (Champion International Corporation Project), 5.85% due 10/01/2018 2,566 A NR* 3,100 Dickinson County, Michigan, Healthcare System, Hospital Revenue Refunding Bonds, 5.80% due 11/01/2024 (i) 3,193 AAA Aaa 1,610 East Grand Rapids, Michigan, Public School District, GO, 5.75% due 5/01/2009 (d)(e) 1,815 Eastern Michigan University Revenue Bonds, Series B (c): AAA Aaa 1,500 5.60% due 6/01/2025 1,583 AAA Aaa 1,310 5.625% due 6/01/2030 1,383
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) 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, 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 $ 1,025 Eastern Michigan University, Revenue Refunding Bonds, 6% due 6/01/2020 (a) $ 1,148 A NR* 615 Flint, Michigan, Hospital Building Authority, Revenue Refunding Bonds (Hurley Medical Center), Series A, 5.375% due 7/01/2020 (i) 617 AAA Aaa 1,000 Frankenmuth, Michigan, School District, GO, 5.75% due 5/01/2020 (c) 1,104 NR* Aa1 3,650 Gibraltar, Michigan, School District, GO (School Building and Site), 5% due 5/01/2028 (c) 3,659 Grand Blanc, Michigan, Community Schools, GO: AAA Aaa 1,100 5.625% due 5/01/2020 (c) 1,198 AAA Aaa 2,600 (School Building and Site), 5% due 5/01/2028 (d) 2,607 Grand Rapids, Michigan, Building Authority Revenue Bonds, Series A (a): AAA Aaa 1,100 5.50% due 10/01/2019 1,191 AAA Aaa 1,500 5.50% due 10/01/2020 1,615 AAA Aaa 2,070 Grand Valley, Michigan, State University Revenue Bonds, 5.50% due 2/01/2018 (c) 2,292 AAA NR* 8,425 Greater Detroit, Michigan, Resource Recovery Authority Revenue Bonds, DRIVERS, Series 167, 11.11% due 12/13/2008 (a)(g) 10,778 AAA Aaa 9,325 Hartland, Michigan, Consolidated School District, GO, 6% due 5/01/2010 (c)(e) 10,705 AA+ Aa1 1,475 Haslett, Michigan, Public School District, Building and Site, GO, 5.625% due 5/01/2020 1,603 AAA Aaa 1,575 Jenison, Michigan, Public Schools, Building and Site, GO, 5.50% due 5/01/2019 (c) 1,702 AAA Aaa 3,305 Jonesville, Michigan, Community Schools, GO, 5.75% due 5/01/2029 (c) 3,543 NR* Aaa 6,850 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue Refunding Bonds (Bronson Methodist Hospital), 5.50% due 5/15/2028 (b) 6,977 AAA Aaa 4,000 Kent, Michigan, Hospital Finance Authority, Hospital Revenue Refunding Bonds (Butterworth Hospital), Series A, 7.25% due 1/15/2013 (b) 4,806 Kent, Michigan, Hospital Finance Authority Revenue Bonds (Spectrum Health), Series A: AA Aa3 1,000 5.50% due 1/15/2031 1,019 AAA Aaa 3,000 5.50% due 1/15/2031 (b) 3,120 AAA Aaa 1,035 Lansing, Michigan, Building Authority, GO, Series A, 5.375% due 6/01/2023 (b) 1,092 AAA Aaa 5,235 Lincoln Park, Michigan, School District, GO, 7% due 5/01/2006 (c)(e) 5,812 AAA Aaa 4,775 Livonia, Michigan, Public School District, GO (Building and Site), 5.75% due 5/01/2010 (c)(e) 5,417 Livonia, Michigan, Public School District, GO, Refunding, Series A (b): AAA Aaa 2,850 5% due 5/01/2024 2,877 AAA Aaa 2,840 5% due 5/01/2025 2,860 BBB NR* 2,250 Michigan Higher Education Facilities Authority, Limited Obligation Revenue Refunding Bonds (Hope College), Series A, 5.90% due 4/01/2032 2,296 Michigan Higher Education Facilities Authority, Revenue Refunding Bonds (College for Creative Studies): NR* Baa2 1,235 5.85% due 12/01/2022 1,242 NR* Baa2 1,145 5.90% due 12/01/2027 1,148 AAA Aaa 2,500 Michigan Higher Education Student Loan Authority, Student Loan Revenue Bonds, AMT, Series XVII-B, 5.40% due 6/01/2018 (a) 2,571 AAA NR* 1,065 Michigan Municipal Bond Authority Revenue Bonds (Local Government Loan Program), Group A, 5.50% due 11/01/2020 (a) 1,157 Michigan Municipal Bond Authority, Revenue Refunding Bonds (Local Government Loan Program), Series A: AAA Aaa 265 6.50% due 11/01/2012 (b) 269 AAA Aaa 1,000 6% due 12/01/2013 (c) 1,045 AAA Aaa 7,000 6.125% due 12/01/2018 (c) 7,314 AA+ Aaa 7,000 Michigan State Building Authority Revenue Bonds, GO, RIB, Series 481, 9.633% due 4/15/2009 (b)(g) 8,662
MUNIYIELD MICHIGAN INSURED FUND, INC., APRIL 30, 2004 Schedule of Investments (continued) (In Thousands)
S&P Moody's Face Ratings Ratings Amount Municipal Bonds Value Michigan (continued) Michigan State Building Authority, Revenue Refunding Bonds: AAA Aaa $ 2,500 (Facilities Program), Series I, 5.50% due 10/15/2018 (b) $ 2,708 NR* Aaa 11,140 RIB, Series 517X, 9.63% due 10/15/2010 (d)(g) 13,716 Michigan State, COP (a): AAA Aaa 3,000 5.40%** due 6/01/2022 1,169 AAA Aaa 3,000 5.50% due 6/01/2027 3,120 AAA Aaa 2,665 Michigan State, HDA, Rental Housing Revenue Bonds, AMT, Series A, 5.30% due 10/01/2037 (b) 2,667 AA+ NR* 2,690 Michigan State, HDA, Revenue Refunding Bonds, Series C, 5.90% due 12/01/2015 (f) 2,814 AAA Aaa 2,530 Michigan State Hospital Finance Authority, Hospital Revenue Bonds (Mid-Michigan Obligation Group), Series A, 5.50% due 4/15/2018 (a) 2,685 Michigan State Hospital Finance Authority, Hospital Revenue Refunding Bonds: A+ A2 2,200 (Crittenton Hospital), Series A, 5.625% due 3/01/2027 2,240 A A1 2,000 (Sparrow Obligation Group), 5.625% due 11/15/2031 2,025 Michigan State Hospital Finance Authority, Revenue Refunding Bonds: AAA Aaa 2,715 (Ascension Health Credit), Series A, 5.75% due 11/15/2009 (b)(e) 3,102 AAA Aaa 12,000 (Ascension Health Credit), Series A, 6.125% due 11/15/2009 (b)(e) 13,940 AAA Aaa 2,500 (Ascension Health Credit), Series A, 6.25% due 11/15/2009 (b)(e) 2,920 AAA Aaa 4,805 (Mercy Health Services), Series T, 6.50% due 8/15/2013 (b) 5,379 AAA Aaa 2,000 (Mercy Health Services), Series X, 6% due 8/15/2014 (b) 2,226 AAA Aaa 2,200 (Mercy Health Services), Series X, 5.75% due 8/15/2019 (b) 2,382 AAA Aaa 4,930 (Mercy Mount Clemens), Series A, 6% due 5/15/2014 (b) 5,476 AAA Aaa 3,000 (Saint John Hospital), Series A, 6.0% due 5/15/2013 (a)(h) 3,070 AA- Aa3 1,000 (Trinity Health Credit), Series C, 5.375% due 12/01/2023 1,022 AA- Aa3 2,255 (Trinity Health Credit), Series C, 5.375% due 12/01/2030 2,287 AAA Aaa 6,400 (Trinity Health), Series A, 6% due 12/01/2027 (a) 6,962 Michigan State Strategic Fund, Limited Obligation Revenue Bonds: BBB- Baa1 5,000 (Ford Motor Company Project), AMT, Series A, 6.55% due 10/01/2022 5,036 BBB+ NR* 3,000 (Republic Services Inc.), AMT, 4.25% due 8/01/2031 2,832 Michigan State Strategic Fund, Limited Obligation Revenue Refunding Bonds: AAA Aaa 7,250 (Detroit Edison Company), AMT, Series A, 5.55% due 9/01/2029 (b) 7,458 AAA Aaa 6,000 (Detroit Edison Company Fund--Pollution), Series AA, 6.95% due 5/01/2011 (c) 7,181 A- A3 2,175 (Dow Chemical Company Project), AMT, 5.50% due 12/01/2028 2,311 NR* Aaa 5,750 RIB, Series 382, 11.38% due 9/01/2025 (b)(g) 6,598 BBB Baa1 2,500 Michigan State Strategic Fund, PCR, Refunding (General Motors Corp.), 6.20% due 9/01/2020 2,557 AAA Aaa 1,000 Michigan State Trunk Line Revenue Refunding Bonds, 5.25% due 10/01/2021 (d) 1,047 Michigan Technological University, General Revenue Bonds, Series A (b): AAA Aaa 1,850 5% due 10/01/2029 1,853 AAA Aaa 1,650 5% due 10/01/2034 1,642 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) 18,974 AAA Aaa 9,000 Monroe County, Michigan, PCR (Detroit Edison Company Project), AMT, Series CC, 6.55% due 6/01/2024 (b) 9,128 AAA Aaa 1,000 Montrose Township, Michigan, School District, GO, 6.20% due 5/01/2017 (b) 1,173 NR* Aaa 1,830 Muskegon Heights, Michigan, Water System Revenue Bonds, Series A, 5.625% due 11/01/2025 (b) 1,937 AAA Aaa 235 Northview, Michigan, Public School District, GO, Refunding, 5.80% due 5/01/2021 (b) 251 AAA Aaa 1,100 Norway Vulcan, Michigan, Area Schools, GO, 5.90% due 5/01/2025 (c) 1,210 AA+ Aaa 2,425 Oxford, Michigan, Area Community School District, GO, 5.50% due 5/01/2018 (d) 2,628 AAA Aaa 1,000 Plainwell, Michigan, Community Schools, School District, Building and Site, GO, 5.50% due 5/01/2020 (d) 1,075
MUNIYIELD MICHIGAN INSURED FUND, INC., APRIL 30, 2004 Schedule of Investments (continued) (In Thousands)
S&P Moody's Face Ratings Ratings Amount Municipal Bonds Value Michigan (concluded) A NR* $ 700 Pontiac, Michigan, Tax Increment Finance Authority, Tax Increment Revenue Refunding Bonds (Development Area 2), 5.625% due 6/01/2022 (i) $ 718 AA+ Aa1 1,800 Rochester, Michigan, Community School District, GO, Series II, 5.50% due 5/01/2015 (c) 1,960 AAA Aaa 2,500 Saginaw, Michigan, Hospital Finance Authority, Revenue Refunding Bonds (Covenant Medical Center), Series E, 5.625% due 7/01/2013 (b) 2,711 NR* Aaa 8,900 Saint Clair County, Michigan, Economic Revenue Refunding Bonds (Detroit Edison Company), RIB, Series 282, 11.42% due 8/01/2024 (a)(g) 11,453 AAA Aaa 1,300 Southfield, Michigan, Library Building Authority, GO, 5.50% due 5/01/2018 (b) 1,410 Sturgis, Michigan, Public School District, GO (School Building and Site): AA+ Aa1 1,900 5.50% due 5/01/2021 2,049 AA+ Aa1 2,545 5.625% due 5/01/2030 2,680 AAA Aaa 1,000 Three Rivers, Michigan, Community Schools, GO, 6% due 5/01/2006 (b)(e) 1,091 AAA Aaa 1,100 Waverly, Michigan, Community School, GO, 5.50% due 5/01/2021 (c) 1,186 AAA Aaa 10,660 Wayne Charter County, Michigan, Airport Revenue Bonds (Detroit Metropolitan Wayne County), AMT, Series A, 5.375% due 12/01/2015 (b) 11,198 AAA Aaa 1,750 Wayne Charter County, Michigan, Detroit Metropolitan Airport, GO, Airport Hotel, Series A, 5% due 12/01/2030 (b) 1,750 AAA Aaa 2,070 Wayne County, Michigan, COP, 5.625% due 5/01/2011 (a) 2,257 West Bloomfield, Michigan, School District, GO, Refunding (c): AAA Aaa 1,710 5.50% due 5/01/2017 1,858 AAA Aaa 1,225 5.50% due 5/01/2018 1,327 AAA Aaa 2,405 West Branch-Rose City, Michigan, Area School District, GO, 5.50% due 5/01/2024 (c) 2,534 Puerto Rico--4.4% Children's Trust Fund Project of Puerto Rico, Tobacco Settlement Revenue Refunding Bonds: BBB Baa3 2,300 5.50% due 5/15/2039 2,129 BBB Baa3 1,400 5.625% due 5/15/2043 1,311 AAA Aaa 1,270 Puerto Rico Electric Power Authority, Power Revenue Bonds, Trust Receipts, Class R, Series 16 HH, 10.07% due 7/01/2013 (d)(g) 1,640 Puerto Rico Public Finance Corporation, Commonwealth Appropriation Revenue Bonds: AAA Aaa 1,000 Series A, 5.375% due 8/01/2024 (b) 1,053 BBB+ Baa3 1,000 Series E, 5.70% due 8/01/2025 1,048 BBB+ Baa3 2,900 Series E, 5.75% due 8/01/2030 3,058 AAA Aaa 2,150 University of Puerto Rico, University Revenue Refunding Bonds, Series O, 5.375% due 6/01/2030 (b) 2,225 Total Municipal Bonds (Cost--$382,291)--144.5% 407,421
MUNIYIELD MICHIGAN INSURED FUND, INC., APRIL 30, 2004 Schedule of Investments (concluded) (In Thousands)
Shares Held Short-Term Securities Value 15,355 CMA Michigan Municipal Money Fund (j) $ 15,355 Total Short-Term Securities (Cost--$15,355)--5.4% 15,355 Total Investments (Cost--$397,646)--149.9% 422,776 Liabilities in Excess of Other Assets--(0.3%) (790) Preferred Stock, at Redemption Value--(49.6%) (140,010) --------- Net Assets Applicable to Common Stock--100.0% $ 281,976 ========= *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)MBIA Insured. (c)FGIC Insured. (d)FSA Insured. (e)Prerefunded. (f)FHA Insured. (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)Escrowed to maturity. (i)ACA Insured. (j)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 4,519 $22 Forward interest rate swaps entered into as of April 30, 2004 were as follows: (in Thousands) Notional Unrealized Affiliate 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 $21,500 $ (19) See Notes to Financial Statements.
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 81.4% AA/Aa 4.5 A/A 2.6 BBB/Baa 7.8 NR (Not Rated) 3.7 MUNIYIELD MICHIGAN INSURED FUND, INC., APRIL 30, 2004 Statement of Net Assets
As of April 30, 2004 Assets Investments in unaffiliated securities, at value (identified cost--$382,291,020) $ 407,421,360 Investments in affiliated securities, at value (identified cost--$15,354,873) 15,354,873 Cash 25,177 Receivables: Interest $ 7,603,301 Securities sold 100,000 Dividends from affiliates 214 7,703,515 --------------- Prepaid expenses 4,360 --------------- Total assets 430,509,285 --------------- Liabilities Unrealized depreciation on forward interest rate swaps 18,727 Payables: Securities purchased 8,085,526 Investment adviser 198,810 Dividends to Common Stock shareholders 181,321 Other affiliates 2,976 8,468,633 --------------- Accrued expenses and other liabilities 35,728 --------------- Total liabilities 8,523,088 --------------- Preferred Stock Preferred Stock, at redemption value, par value $.05 per share (2,000 Series A Shares, 2,000 Series B Shares and 1,600 Series C Shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) 140,009,780 --------------- Net Assets Applicable to Common Stock Net assets applicable to Common Stock $ 281,976,417 =============== Analysis of Net Assets Applicable to Common Stock Common Stock, par value $.10 per share (18,155,932 shares issued and outstanding) $ 1,815,593 Paid-in capital in excess of par 268,391,966 Undistributed investment income--net $ 4,570,847 Accumulated realized capital losses on investments--net (17,913,602) Unrealized appreciation on investments--net 25,111,613 --------------- Total accumulated earnings--net 11,768,858 --------------- Total--Equivalent to $15.53 net asset value per share of Common Stock (market price--$14.25) $ 281,976,417 =============== *Auction Market Preferred Stock. See Notes to Financial Statements.
MUNIYIELD MICHIGAN INSURED FUND, INC., APRIL 30, 2004 Statement of Operations
For the Six Months Ended April 30, 2004 Investment Income Interest $ 11,071,875 Dividends from affiliates 21,596 --------------- Total income 11,093,471 --------------- Expenses Investment advisory fees $ 1,078,884 Commission fees 178,617 Accounting services 74,117 Transfer agent fees 38,013 Professional fees 32,210 Printing and shareholder reports 17,969 Directors' fees and expenses 13,114 Custodian fees 11,771 Listing fees 10,665 Pricing fees 8,851 Other 21,340 --------------- Total expenses before reimbursement 1,485,551 Reimbursement of expenses (28,379) --------------- Total expenses after reimbursement 1,457,172 --------------- Investment income--net 9,636,299 --------------- Realized & Unrealized Loss on Investments--Net Realized loss on investments--net (552,195) Change in unrealized appreciation/depreciation on investments--net (6,821,407) --------------- Total realized and unrealized loss on investments--net (7,373,602) --------------- Dividends to Preferred Stock Shareholders Investment income--net (608,908) --------------- Net Increase in Net Assets Resulting from Operations $ 1,653,789 =============== See Notes to Financial Statements.
MUNIYIELD MICHIGAN INSURED FUND, 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 $ 9,636,299 $ 19,930,690 Realized gain (loss) on investments--net (552,195) 1,528,951 Change in unrealized appreciation/depreciation on investments--net (6,821,407) 1,157,612 Dividends to Preferred Stock shareholders (608,908) (1,325,488) --------------- --------------- Net increase in net assets resulting from operations 1,653,789 21,291,765 --------------- --------------- Dividends to Common Stock Shareholders Investment income--net (9,041,654) (17,729,268) --------------- --------------- Net decrease in net assets resulting from dividends to Common Stock shareholders (9,041,654) (17,729,268) --------------- --------------- Net Assets Applicable to Common Stock Total increase (decrease) in net assets applicable to Common Stock (7,387,865) 3,562,497 Beginning of period 289,364,282 285,801,785 --------------- --------------- End of period* $ 281,976,417 $ 289,364,282 =============== =============== *Undistributed investment income--net $ 4,570,847 $ 4,585,110 =============== =============== See Notes to Financial Statements.
MUNIYIELD MICHIGAN INSURED FUND, 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 $ 15.94 $ 15.74 $ 15.81 $ 14.48 $ 13.91 ---------- ---------- ---------- ---------- ---------- Investment income--net .53+++ 1.10+++ 1.10+++ 1.08 .99 Realized and unrealized gain (loss) on investments--net (.41) .15 (.12) 1.30 .67 Dividends to Preferred Stock shareholders from investment income--net (.03) (.07) (.11) (.24) (.30) ---------- ---------- ---------- ---------- ---------- Total from investment operations .09 1.18 .87 2.14 1.36 ---------- ---------- ---------- ---------- ---------- Less dividends to Common Stock shareholders from investment income--net (.50) (.98) (.94) (.81) (.79) Capital charge resulting from issuance of Common Stock -- -- -- --++ -- ---------- ---------- ---------- ---------- ---------- Total dividends to Common Stock shareholders (.50) (.98) (.94) (.81) (.79) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 15.53 $ 15.94 $ 15.74 $ 15.81 $ 14.48 ========== ========== ========== ========== ========== Market price per share, end of period $ 14.25 $ 14.69 $ 13.95 $ 14.22 $ 11.9375 ========== ========== ========== ========== ========== Total Investment Return** Based on market price per share .25%+++++ 12.57% 4.77% 26.44% 4.62% ========== ========== ========== ========== ========== Based on net asset value per share .69%+++++ 8.26% 6.33% 15.89% 11.19% ========== ========== ========== ========== ========== Ratios Based on Average Net Assets of Common Stock Total expenses, net of reimbursement and excluding reorganization expenses*** 1.00%* 1.01% 1.04% 1.05% 1.10% ========== ========== ========== ========== ========== Total expenses, excluding reorganization expenses*** 1.01%* 1.03% 1.04% 1.05% 1.10% ========== ========== ========== ========== ========== Total expenses*** 1.01%* 1.03% 1.04% 1.05% 1.33% ========== ========== ========== ========== ========== Total investment income--net*** 6.58%* 6.83% 7.10% 7.10% 7.49% ========== ========== ========== ========== ========== Amount of dividends to Preferred Stock shareholders .41%* .45% .70% 1.59% 2.18% ========== ========== ========== ========== ========== Investment income--net, to Common Stock shareholders 6.17%* 6.38% 6.40% 5.51% 5.31% ========== ========== ========== ========== ========== Ratios Based on Average Net Assets of Common & Preferred Stock*** Total expenses, net of reimbursement and excluding reorganization expenses .67%* .68% .70% .70% .72% ========== ========== ========== ========== ========== Total expenses, excluding reorganization expenses .69%* .69% .70% .70% .72% ========== ========== ========== ========== ========== Total expenses .69%* .69% .70% .70% .86% ========== ========== ========== ========== ========== Total investment income--net 4.46%* 4.61% 4.75% 4.71% 4.87% ========== ========== ========== ========== ========== Ratios Based on Average Net Assets of Preferred Stock Dividends to Preferred Stock shareholders .87%* .94% 1.40% 3.14% 4.06% ========== ========== ========== ========== ==========
MUNIYIELD MICHIGAN INSURED FUND, 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) $ 281,976 $ 289,364 $ 285,802 $ 286,982 $ 262,864 ========== ========== ========== ========== ========== Preferred Stock outstanding, end of period (in thousands) $ 140,000 $ 140,000 $ 140,000 $ 140,000 $ 140,000 ========== ========== ========== ========== ========== Portfolio turnover 16.57% 33.39% 32.68% 68.17% 51.41% ========== ========== ========== ========== ========== Leverage Asset coverage per $1,000 $ 3,014 $ 3,067 $ 3,041 $ 3,050 $ 2,878 ========== ========== ========== ========== ========== Dividends Per Share on Preferred Stock Outstanding++++ Series A--Investment income--net $ 111 $ 240 $ 354 $ 792 $ 1,023 ========== ========== ========== ========== ========== Series B--Investment income--net $ 110 $ 230 $ 362 $ 783 $ 653 ========== ========== ========== ========== ========== Series C--Investment income--net $ 104 $ 240 $ 333 $ 782 $ 678 ========== ========== ========== ========== ========== *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. ++Amount is less than $(.01) per share. ++++The Fund's Preferred Stock was issued on November 19, 1992 (Series A) and March 6, 2000 (Series B and Series C). ++++++Certain prior year amounts have been reclassified to conform to current year presentation. +++Based on average shares outstanding. +++++Aggregate total investment return. See Notes to Financial Statements.
MUNIYIELD MICHIGAN INSURED FUND, INC., APRIL 30, 2004 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 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 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 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). MUNIYIELD MICHIGAN INSURED FUND, INC., APRIL 30, 2004 Notes to Financial Statements (continued) Written and purchased options are non-income producing investments. * 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. Interest income is recognized on the accrual basis. Dividend income is recorded on the ex-dividend dates. 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 $28,379. For the six months ended April 30, 2004, the Fund reimbursed MLIM $4,442 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 $72,416,452 and $69,036,674, 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 $ 580,346 $ 25,130,340 Forward interest rate swaps (1,132,541) -- Financial futures contracts -- (18,727) -------------- -------------- Total $ (552,195) $ 25,111,613 ============== ============== As of April 30, 2004, net unrealized appreciation for Federal income tax purposes aggregated $25,288,350, of which $27,056,713 related to appreciated securities and $1,768,363 related to depreciated securities. The aggregate cost of investments at April 30, 2004 for Federal income tax purposes was $397,487,883. 4. Stock Transactions: The Fund is authorized to issue 200,000,000 shares of stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of stock without approval of holders of Common Stock. MUNIYIELD MICHIGAN INSURED FUND, INC., APRIL 30, 2004 Notes to Financial Statements (concluded) Preferred Stock Auction Market Preferred Stock 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, 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 as follows: Series A, 1.02%, Series B, 1.02% and Series C, .75%. 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 $90,677 as commissions. 5. Capital Loss Carryforward: On October 31, 2003, the Fund had a net capital loss carryforward of $13,269,487, of which $679,274 expires in 2006; $3,974,932 expires in 2007; $7,490,629 expires in 2008; and $1,124,652 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 $.084000 per share on May 27, 2004 to shareholders of record on May 14, 2004. Proxy Results
During the six-month period ended April 30, 2004, MuniYield Michigan Insured Fund, 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: Donald W. Burton 17,016,533 635,326 David H. Walsh 17,022,560 629,299 Fred G. Weiss 17,025,159 626,700 During the six-month period ended April 30, 2004, MuniYield Michigan Insured Fund, Inc.'s Preferred Stock shareholders (Series A - C) 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: Donald W. Burton, M. Colyer Crum, Laurie Simon Hodrick, David H. Walsh and Fred G. Weiss 4,895 2
MUNIYIELD MICHIGAN INSURED FUND, INC., APRIL 30, 2004 Officers and Directors Terry K. Glenn, President and Director Donald W. Burton, Director M. Colyer Crum, Director Laurie Simon Hodrick, Director David H. Walsh, Director Fred G. Weiss, 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 MIY 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. 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, 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, Inc. By: _/s/ Terry K. Glenn_______ Terry K. Glenn, President of MuniYield Michigan Insured Fund, 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, Inc. Date: June 18, 2004 By: _/s/ Donald C. Burke________ Donald C. Burke, Chief Financial Officer of MuniYield Michigan Insured Fund, 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, Inc., certify that: 1. I have reviewed this report on Form N-CSR of MuniYield Michigan Insured Fund, 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, 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, Inc., certify that: 1. I have reviewed this report on Form N-CSR of MuniYield Michigan Insured Fund, 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, Inc. Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Terry K. Glenn, President of MuniYield Michigan Insured Fund, 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, 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, Inc. and will be retained by MuniYield Michigan Insured Fund, 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, 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, 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, Inc. and will be retained by MuniYield Michigan Insured Fund, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----