-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, R/MendWM+YYVUirzj4Tv/jx3GPsUd4LylgcfGr4hhElFIBkP2ZhYLCqppY6IfzEI vonjsfN7neDUY6ejTnhxkg== 0000900092-94-000324.txt : 19940708 0000900092-94-000324.hdr.sgml : 19940708 ACCESSION NUMBER: 0000900092-94-000324 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940430 FILED AS OF DATE: 19940617 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: 1940 Act SEC FILE NUMBER: 811-07080 FILM NUMBER: 94534592 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092822800 N-30D 1 SEMI-ANNUAL REPORT MuniYield Michigan Insured Fund, Inc. Semi-Annual Report April 30, 1994 Officers and Directors Arthur Zeikel, President and Director Donald Cecil, Director M. Colyer Crum, Director Edward H. Meyer, Director Jack B. Sunderland, Director J. Thomas Touchton, Director Terry K. Glenn, Executive Vice President Donald C. Burke, Vice President Vincent R. Giordano, Vice President Kenneth A. Jacob, Vice President Gerald M. Richard, Treasurer Mark B. Goldfus, Secretary Custodian The Bank of New York 110 Washington Street New York, New York 10286 Transfer Agents Common Stock: The Bank of New York 110 Washington Street New York, New York 10286 Preferred Stock: IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 NYSE Symbol MIY 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, cir- cular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in the report. Past performance results shown in this report should not be con- sidered 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, in- cluding the likelihood of greater volatility of net asset value and market price of shares of the Common Stock, and the risk that fluctuations in the short-term dividend rates of the Preferred Stock may affect the yield to Common Stock shareholders. MuniYield Michigan Insured Fund, Inc. Box 9011 Princeton, NJ 08543-9011 MuniYield Michigan Insured Fund, Inc. TO OUR SHAREHOLDERS For the six-month period ended April 30, 1994, the Common Stock of MuniYield Michigan Insured Fund, Inc. earned $0.540 per share income dividends, which includes earned and unpaid dividends of $0.075. This represents a net annualized yield of 7.41%, based on a month-end net asset value of $14.70 per share. Over the same period, the total investment return on the Fund's Common Stock was -7.97%, based on a change in per share net asset value from $16.55 to $14.70, and assuming reinvestment of $0.549 per share income dividends. The average yield on the Fund's Auction Market Preferred Stock for the six-month period ended April 30, 1994 was 3.15%. The Environment Inflationary expectations and investor sentiment changed for the worse during the three-month period ended April 30, 1994. Following stronger-than-expected economic results through year- end 1993, the Federal Reserve Board broke with tradition on Feb- ruary 4, 1994 and publicly announced a modest 25 basis point (0.25%) increase in short-term interest rates. At the March 22 meeting of the Federal Open Market Committee, the Federal Reserve Board again raised the Federal Funds rate by 25 basis points, followed by an- other 25 basis point increase on April 18. Rather than view the Federal Reserve Board's first tightening move as a preemptive strike against inflation, fixed-income in- vestors focused on Chairman Greenspan's implicit promise of fur- ther tightening should the rate of inflation accelerate, and bond prices declined sharply. The setback in the bond market was also reflected in greater stock market volatility. While the second and third increases in the Federal Funds rate were less of a surprise, investors remained concerned that interest rates would trend upward sharply as the central bank aggressively attempted to contain the in- flationary pressures of an improving economy. At the same time, high- ly leveraged investors were forced to liquidate positions in the face of declining stock and bond prices. Investor confidence was not res- tored with the announcement of the surprisingly slow 2.6% gross domes- tic product growth rate for the first calendar quarter of 1994. Instead, investors focused on the higher-than-expected (but still moderate) broad inflation measures and became concerned that business activity was beginning to stagnate as inflationary pressures were increasing. The volatility in the US capital markets was mirrored in interna- tional markets during the period. Political and economic developments, along with concerns of heightened global inflationary pressures, led to a sell-off in most capital markets, especially the emerging markets that had appreciated strongly in 1993. The Municipal Market During the six months ended April 30, 1994, tax-exempt bond yields exhibited considerable volatility as they rose to their highest lev- el in the past two years. As measured by the Bond Buyer Revenue Bond Index, the yield on newly issued municipal bonds maturing in 30 years rose over 90 basis points to 6.42% by the end of April. Yields on seasoned municipal revenue bonds rose by over 100 basis points in sympathy with the equally dramatic increase in long-term US Treasury bond yields. By the end of April, yields on US Treasury securities rose by over 95 basis points to approximately 7.30%. Long-term tax-exempt bond yields were essentially unchanged from the end of October 1993 to the end of January 1994. However, on a weekly basis, tax-exempt bond yields fluctuated by as much as 15 basis points as investors were unable to reconcile the rapid economic growth seen late last year with continued low inflation. Following the intitial interest rate increase by the Federal Reserve Board in early February, municipal bond prices began to erode in concert with taxable bond prices as investors began to sell securities in anticipation of further interest rate increas- es. This fear led investors to withdraw from the tax-exempt market. From early February to the end of March, total assets of all tax- exempt bond funds declined by $14 billion to $247 billion. This decline in investor demand, coupled with fears that the robust eco- nomic recovery seen during the fourth quarter of 1993 would con- tinue well into 1994, helped push municipal bond yields higher in February and March. Attracted by tax-exempt yields in excess of 6.25%, investor demand returned in April, allowing yields to de- cline approximately 15 basis points to end the April period at approximately 6.40%. The magnitude of the rise in tax-exempt bond yields experienced during the past six months has not been seen since 1987 when municipal bond rates rose 250 basis points between March and October of that year. It is very important to note that the recent municipal bond price declines were largely the result of consistent and insistent selling pressures over the last two months. In 1987, the tax-exempt bond market was much more vola- tile and, at times, chaotic as investors sought to liquidate positions without concern for fundamental value. For the most part, the recent price deterioration has been orderly, and the municipal bond market's liquidity and integrity have not been challenged or jeopardized. To a large extent, the municipal bond market has continued to be supported by its strong technical position. New-issue volume for the last six months has been less than $105 billion. This rep- resents a decline of approximately 20% versus the comparable period a year ago. This decline was expected and has been dis- cussed in previous shareholder reports. This reduced issuance has minimized potential selling pressure in recent months since institutional investors have been wary of selling appreciable amounts of securities that they may be unable to replace later this year at any price level. We expect this decline in issuance to continue since we anticipate recent yield increases to sig- nificantly impact future municipal bond issuance. Just as higher mortgage rates slow home mortgage refinancings, the recent rise in bond yields will prevent bond refinancings from becoming the driving force in bond issuance in 1994 as they were in 1993. Despite recent price declines, tax-exempt securities remain among the most attractive investment alternatives available. After the recent yield increases, longer-term municipal securities yield approximately 90% of comparable US Treasury yields. Purchasers of these municipal bonds also accrue substantial after-tax yield ad- vantages. To investors in the 39% marginal Federal income tax bracket, the purchase of a municipal bond yielding 6.50% repre- sents an after-tax equivalent of 10.65%. With prevailing esti- mates of 1994 inflation at no more than 3%--4%, real after-tax rates in excess of 6.50% easily compensate longer-term investors for much of the price volatility recently experienced. Portfolio Strategy We remain constructive on the municipal bond market and continue to believe that tax-exempt bond yields will decline by late 1994 and into 1995. However, we expect the volatility the tax-exempt bond market has exhibited in recent months to continue into mid- year. This volatility led the Fund to become more defensive dur- ing March and April. This defensive posture will be maintained until either the Federal Reserve Board concludes its current round of interest rate increases or until there are consistent indica- tions that recent yield increases have had a negative impact on economic growth. It is likely that until either of these two con- ditions are met, the financial markets' current uncertainty will continue and interest rates will remain volatile. During the April period, we increased the Fund's cash reserve position to approximately 10% of net assets. This defensive position has two principal benefits. First, additional capital depreciation in response to rising interest rates will be limited to some degree. Second, this increased liquidity will enable the Fund to more quickly respond to those attractive market oppor- tunities recent periods of volatility have presented. These episodes of market uncertainty have allowed the Fund to add attractively priced higher-coupon, noncallable issues to its holdings. These issues should enhance the Fund's current yield in the coming years. Also, while we reduced the Fund's position in more performance-oriented issues, the Fund remains well-position- ed to take advantage of expected interest rate declines later this year. Short-term tax-exempt interest rates continue to trade in the 2.25%--3.00% range, despite the increases in short-term taxable rates by the Federal Reserve Board in recent months. The demand for municipal cash equivalents has been very strong for much of the past year and is expected to remain strong. The leverage of the Preferred Stock continues to have a positive impact on the yield spread to the Common Stock shareholder. 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. Should the interest rate differential between short-term and long-term interest rates narrow because of a rise in short-term interest rates, the incremental yield "pick up" on the Common Stock will be reduced. Furthermore, if long-term interest rates rise, the Common Stock's net asset value will reflect the full decline in the entire portfolio holdings, since the value of the Fund's Preferred Stock does not fluctuate. During the six-month period ended April 30, 1994, long-term interest rates rose, reflected in the decline in the net asset value of the Fund's Common Stock. For a complete explanation of leveraging, see the description below. We appreciate your ongoing interest in MuniYield Michigan Insured Fund, Inc., and we look forward to assisting you with your finan- cial needs in the months and years ahead. Sincerely, (Arthur Zeikel) Arthur Zeikel President (Vincent R. Giordano) Vincent R. Giordano Vice President and Portfolio Manager May 31, 1994 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. In this case, the dividends paid to Preferred Stock shareholders are significantly lower than the income earned on the fund's long-term investments, and therefore the Common Stock shareholders are the beneficiaries of the incremental yield. However, if short- term interest rates rise, narrowing the differential between short- term and long-term interest rates, the incremental yield pick-up on the Common Stock will be reduced. At the same time, the market value of the fund's Common Stock (that is, its price as listed on the New York Stock Exchange) may, as a result, decline. Furthermore, if long-term interest rates rise, the Common Stock's net asset value will reflect the full decline in the price of the portfolio's in- vestments, since the value of the fund's Preferred Stock does not fluctuate. In addition to the decline in net asset value, the market value of the fund's Common Stock may also decline. PORTFOLIO ABBREVIATIONS To simplify the listings of MuniYield Michigan Insured Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of some of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) PCR Pollution Control Revenue Bonds UT Unlimited Tax VRDN Variable Rate Demand Notes SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) Michigan--97.1% AAA Aaa $ 1,000 Bay City, Michigan, Electric Utility Revenue Bonds, 6.60% due 1/01/2012 (b) $ 1,030 AAA Aaa 5,000 Bay City, Michigan, School District, Revenue Bonds, UT, 6.50% due 5/01/2008 (b) 5,199 AAA Aaa 3,355 Brighton, Michigan, Area School District Refunding Bonds, UT, Series II, 6% due 5/01/2020 (b) 3,244 AAA Aaa 1,000 Chippewa Valley, Michigan, Schools Revenue Bonds (School Building and Site), UT, 6.375% due 5/01/2001 (c)(f) 1,076 AAA Aaa 4,700 Detroit, Michigan, Sewage Disposal Revenue Bonds, 6.625% due 7/01/2021 (c) 4,808 Detroit, Michigan, Water and Supply Systems Revenue Refunding Bonds (c): AAA Aaa 5,000 6.25% due 7/01/2012 5,022 AAA Aaa 2,000 4.75% due 7/01/2019 1,611 Grand Rapids, Michigan, Water Supply Systems Revenue Refunding Bonds (c): AAA Aaa 3,000 6.25% due 1/01/2011 3,040 AAA Aaa 1,245 6.50% due 1/01/2015 1,267 AAA Aaa 1,250 5.75% due 1/01/2018 1,167 A1+ VMIG1 8,000 VRDN, 2.95% due 1/01/2020 (a) 8,000 AAA Aaa 17,600 Grand Traverse County, Michigan, Hospital Finance Authority, Revenue Refunding Bonds (Munson Healthcare), Series A, 6.25% due 7/01/2022 (b) 17,391 AAA Aaa 1,500 Kalamazoo, Michigan, Hospital Finance Authority, Revenue Refunding Bonds, Series A, 6.25% due 6/01/2014 (c) 1,512 AAA Aaa 1,550 Kellogsville, Michigan, Public School District Revenue Bonds, UT, 5.75% due 5/01/2018 (c) 1,447 AAA Aaa 1,000 Livonia, Michigan, Public School District Revenue Bonds, Series II, UT, 6.30% due 5/01/2002 (c)(f) 1,072 AAA VMIG1 1,300 Michigan Higher Education Student Loan Authority, Revenue Refunding Bonds, Series XII-F, AMT, VRDN, 3.15% due 10/01/2020 (a)(b) 1,300 Michigan Municipal Bond Authority Revenue Bonds (Local Government Loan): AAA Aaa 4,000 Series A, 6.125% due 12/01/2018 3,937 A NR 1,100 Series B, 5.80% due 11/01/2013 1,030 Michigan Municipal Bond Authority Revenue Bonds, Series A: AAA Aaa 1,035 Refunding, 6.50% due 5/01/2012 (b) 1,062 AAA Aaa 1,870 Refunding, 6.50% due 11/01/2012 (d) 1,919 AA Aa 2,950 (Revolving Fund), 6.55% due 10/01/2013 2,989 AA Aa 2,000 (Revolving Fund), 6.60% due 10/01/2018 2,028
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) Michigan (concluded) Michigan State Building Authority, Revenue Refunding Bonds, Series I: AA- A $ 1,500 6.75% due 10/01/2011 $ 1,562 AAA Aaa 3,500 6.25% due 10/01/2020 (d) 3,477 Michigan State Hospital Finance Authority, Revenue Refunding Bonds: AAA Aaa 1,000 (Henry Ford Health Systems), 6% due 9/01/2011 (b) 985 AAA Aaa 2,000 (Henry Ford Health Systems), 6% due 9/01/2012 (b) 1,969 AAA Aaa 1,515 (Henry Ford Health Systems), 5.75% due 9/01/2017 (e) 1,412 AAA Aaa 1,100 (Sisters of Mercy Health Corp.), Series M, 6.25% due 2/15/2022 (e) 1,091 AAA Aaa 2,000 Michigan State Housing Development Authority, Rental Housing Revenue Refunding Bonds, Series A, 5.90% due 4/01/2023 (b) l,830 Michigan State Strategic Fund, Limited Obligation Revenue Bonds: NR P1 1,100 (Dow Chemical Company Project), VRDN, AMT, 3.30% due 12/01/2014 (a) 1,100 A A2 9,750 (Ford Motor Company Project), Series A, AMT, 6.55% due 10/01/2022 9,786 AAA Aaa 1,500 Refunding (Detroit Edison Co.), Series BB, 6.05% due 10/01/2023 (d) 1,456 AA- A1 5,000 (Waste Management Inc. Project), AMT, 6.625% due 12/01/2012 5,028 A P1 1,600 Midland County, Michigan, Economic Development Corporation, Limited Obligation Revenue Refunding Bonds (Dow Chemical Company Project), VRDN, Series B, 3.15% due 2/01/2015 (a) 1,600 Monroe County, Michigan, Economic Development Corporation, Limited Obligation Revenue Refunding Bonds (Detroit Edison Co.): AAA Aaa 5,500 Series AA, 6.95% due 9/01/2022 (c) 6,062 NR P1 600 Series CC, VRDN, 3% due 10/01/2024 (a) 600 Monroe County, Michigan, PCR (Detroit Edison Co., Project), AMT (d): AAA Aaa 4,500 Series CC, 6.55% due 6/01/2024 4,571 AAA Aaa 1,500 Series I-B, 6.55% due 9/01/2024 1,524 AAA Aaa 1,250 Mount Clemens, Michigan, Community School District Revenue Bonds, UT, 6.60% due 5/01/2002 (d)(f) 1,361 AAA Aaa 5,925 Riverview, Michigan, Community School District Building Revenue Bonds, UT, 6.70% due 5/01/2002 (c) 6,488 Royal Oak, Michigan, Hospital Finance Authority, Hospital Revenue Bonds: AA- Aa 3,000 (Beaumont Properties Inc.), Series E, 6.625% due 1/01/2019 3,039 AA Aa l,000 (William Beaumont Hospital), Series D, 6.75% due 1/01/2020 1,020 AAA Aaa 7,375 West Ottawa, Michigan, Public School District, Revenue Refunding Bonds, UT, 6% due 5/01/2020 (c) 7,139 Western Michigan University, General Revenue Bonds (c): AAA Aaa 13,500 6.125% due 11/15/2022 13,223 AAA Aaa 1,000 Refunding, Series A, 5% due 7/15/2021 834 AAA Aaa 5,500 Wyandotte, Michigan, Electric Revenue Refunding Bonds, 6.25% due 10/01/2017 (d) 5,500 Total Investments (Cost--$151,689)--97.1% 153,808 Other Assets Less Liabilities--2.9% 4,612 -------- Net Assets--100.0% $158,420 ======== (a) The interest rate is subject to change periodically based upon prevailing market rates. The interest rates shown are the rates in effect at April 30, 1994. (b) AMBAC Insured. (c) FGIC Insured. (d) MBIA Insured. (e) FSA Insured. (f) Prerefunded. See Notes to Financial Statements.
FINANCIAL INFORMATION Statement of Assets, Liabilities and Capital as of April 30, 1994
Assets: Investments, at value (identified cost--$151,689,336) (Note 1a) $153,808,400 Cash 25,483 Receivables: Interest $ 2,800,268 Securities sold 2,137,016 4,937,284 ------------ Deferred organization expenses (Note 1e) 30,942 Prepaid expenses and other assets 76,426 ------------ Total assets 158,878,535 ------------ Liabilities: Payables: Dividends to shareholders (Note 1g) 395,451 Investment adviser (Note 2) 62,906 458,357 ------------ ------------ Total liabilities 458,357 ------------ Net Assets: Net assets $158,420,178 ============ Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.10 per share (1,000 shares of AMPS* issued and outstanding at $50,000 per share liquidation preference) $ 50,000,000 Common Stock, par value $.10 per share (7,374,470 shares issued and outstanding) $ 737,447 Paid-in capital in excess of par 102,771,407 Undistributed investment income--net 637,000 Undistributed realized capital gains--net 2,155,260 Unrealized appreciation on investments--net 2,119,064 ------------ Total--Equivalent to $14.70 net asset value per share of Common Stock (market price--$14.25) 108,420,178 ------------ Total capital $158,420,178 ============ * Auction Market Preferred Stock. See Notes to Financial Statements.
FINANCIAL INFORMATION (continued) Statement of Operations
For the Six Months Ended April 30, 1994 Investment Income Interest and amortization of premium and discount earned $ 4,828,491 (Note 1d): Expenses: Investment advisory fees (Note 2) $ 416,272 Commission fees (Note 4) 87,460 Professional fees 33,924 Accounting services (Note 2) 22,430 Printing and shareholder reports 15,438 Directors' fees and expenses 10,798 Transfer agent fees 10,346 Listing fees 9,324 Custodian fees 4,632 Amortization of organization expenses (Note 1e) 3,645 Pricing fees 2,579 Other 7,653 ------------ Total expenses 624,501 ------------ Investment income--net 4,203,990 ------------ Realized & Unreal- Realized gain on investments--net 2,155,268 ized Gain (Loss) on Change in unrealized appreciation on investments--net (15,093,711) Investments--Net ------------ (Notes 1d & 3): Net Decrease in Net Assets Resulting from Operations $ (8,734,453) ============
Statements of Changes in Net Assets
For the Six For the Year Months Ended Ended Increase (Decrease) in Net Assets: April 30, 1994 Oct. 31, 1993 Operations: Investment income--net $ 4,203,990 $ 8,252,117 Realized gain on investments--net 2,155,268 727,474 Change in unrealized appreciation on investments--net (15,093,711) 17,212,775 ------------ ------------ Net increase (decrease) in net assets resulting from operations (8,734,453) 26,192,366 ------------ ------------ Dividends & Investment income--net: Distributions to Common Stock (3,445,168) (6,251,359) Shareholders Preferred Stock (732,940) (1,389,640) (Note 1g): Realized gain on investments--net: Common Stock (604,972) -- Preferred Stock (122,510) -- ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders (4,905,590) (7,640,999) ------------ ------------ Common & Preferred Net proceeds from issuance of Common Stock -- -- Stock Transactions Proceeds from issuance of Preferred Stock -- 50,000,000 (Notes 1e & 4): Value of shares issued to Common Stock shareholders in reinvestment of dividends -- 2,798,535 Offering and underwriting costs resulting from the issuance of Preferred Stock (9,199) (1,016,699) ------------ ------------ Net increase (decrease) in net assets derived from capital stock transactions (9,199) 51,781,836 ------------ ------------ Net Assets: Total increase (decrease) in net assets (13,649,242) 70,333,203 Beginning of period 172,069,420 101,736,217 ------------ ------------ End of period* $158,420,178 $172,069,420 ============ ============ * Undistributed investment income--net $ 637,000 $ 611,118 ============ ============ See Notes to Financial Statements.
FINANCIAL INFORMATION (concluded) Financial Highlights
For the Period The following per share data and ratios have been derived For the Six For the Oct. 30, from information provided in the financial statements. Months Ended Year Ended 1992++ to April 30, October 31, Oct. 31, Increase (Decrease) in Net Asset Value: 1994 1993 1992 Per Share Net asset value, beginning of period $ 16.55 $ 14.14 $ 14.18 Operating ---------- ---------- ---------- Performance: Investment income--net .57 1.13 -- Realized and unrealized gain (loss) on investments--net (1.75) 2.47 -- ---------- ---------- ---------- Total from investment operations (1.18) 3.60 -- ---------- ---------- ---------- Less dividends and distributions to Common Stock share- holders: Investment income--net (.47) (.86) -- Realized gain on investments--net (.08) -- -- ---------- ---------- ---------- Total dividends and distributions to Common Stock shareholders (.55) (.86) -- ---------- ---------- ---------- Capital charge resulting from issuance of Common Stock -- -- (.04) ---------- ---------- ---------- Effect of Preferred Stock activity++++: Dividends and distributions to Preferred Stock: Investment income--net (.10) (.19) -- Realized gain on investments--net (.02) -- -- Capital charge resulting from issuance of Preferred Stock -- (.14) -- ---------- ---------- ---------- Total effect of Preferred Stock activity (.12) (.33) -- ---------- ---------- ---------- Net asset value, end of period $ 14.70 $ 16.55 $ 14.14 ========== ========== ========== Market price per share, end of period $ 14.25 $ 16.625 $ 15.00 ========== ========== ========== Total Investment Based on market price per share (11.19%)+++ 17.03% 0.00%+++ Return:** ========== ========== ========== Based on net asset value per share (7.97%)+++ 23.59% (0.28%)+++ ========== ========== ========== Ratios to Average Expenses, net of reimbursement .75%* .61% --%* Net Assets:*** ========== ========== ========== Expenses .75%* .70% --%* ========== ========== ========== Investment income--net 5.03%* 5.24% --%* ========== ========== ========== Supplemental Net assets, net of Preferred Stock, end of period Data: (in thousands) $ 108,420 $ 122,069 $ 101,736 ========== ========== ========== Preferred Stock outstanding, end of period (in thousands) $ 50,000 $ 50,000 $ -- ========== ========== ========== Portfolio turnover 9.95% 12.73% 0% ========== ========== ========== Dividends Per Share Investment income--net $ 733 $ 1,390 $ -- On Preferred Stock Outstanding: * Annualized. ** Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, result in substantially different returns. Total investment returns exclude the effects of sales loads. *** Do not reflect the effect of dividends to Preferred Stock shareholders. ++ Commencement of Operations. ++++ The Fund's Preferred Stock was issued on November 19, 1992. +++ Aggregate total investment return. See Notes to Financial Statements.
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 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 pri- marily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options, which are traded on exchanges, are valued at their last sale price as of the close of such exchanges or, lacking any sales, at the last available bid price. Secur- ities with remaining maturities of sixty days or less are valued at amortized cost. Securities for which market quotations are not readily available are valued at their fair value as deter- mined in good faith by or under the direction of the Board of Directors of the Fund. (b) Financial futures contracts--The Fund may purchase or sell interest rate futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. (c) Income taxes--It is the Fund's policy to comply with the re- quirements 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 trans- actions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the ac- crual basis. Discounts and market premiums are amortized into in- terest income. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Deferred organization and offering expenses--Deferred or- ganization expenses are amortized on a straight-line basis over a five-year period. Direct expenses relating to the public offer- ing of the Common and Preferred Stock were charged to capital at the time of issuance of the stocks. (f) Non-income producing investments--Written and purchased options are non-income producing investments. (g) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). Effective January 1, 1994, the investment advisory business of FAM was reorganized from a corporation to a limited partnership. Both prior to and after the reorganization, ultimate control of FAM was vested with Merrill Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is Princeton Services, Inc., an indirect wholly-owned subsidiary of ML & Co. The limited partners are ML & Co. and Merrill Lynch Investment Management, Inc. ("MLIM"), which is also an indirect wholly-owned subsidiary of ML & Co. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of 0.50% of the Fund's average weekly net assets. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, MLIM, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term secur- ities, for the six months ended April 30, 1994 were $15,771,561 and $28,685,299, respectively. Net realized and unrealized gains as of April 30, 1994 were as follows: Realized Unrealized Gains Gains Long-term investments $ 2,155,268 $ 2,119,064 ----------- ----------- Total $ 2,155,268 $ 2,119,064 =========== =========== As of April 30, 1994, net unrealized appreciation for Federal income tax purposes aggregated $2,119,064, of which $2,947,454 related to appreciated securities and $828,390 related to depre- ciated securities. The aggregate cost of investments at April 30, 1994 for Federal income tax purposes was $151,689,336. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of the holders of Common Stock. Common Stock For the six months ended April 30, 1994, shares issued and out- standing remained constant at 7,374,470. At April 30, 1994, total paid-in capital amounted to $103,508,854. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund that entitle their holders to receive cash di- vidends at an annual rate that may vary for the successive divi- dend periods. The yield in effect at April 30, 1994 is 3.25%. For the six months ended April 30, 1994, there were 1,000 AMPS shares authorized, issued and outstanding with a liquidation preference of $50,000 per share, plus accumulated and unpaid dividends of $61,844. The Fund pays commissions to certain broker-dealers at the end of each auction at the annual rate of one-quarter of 1% calculated on the proceeds of each auction. For the six months ended April 30, 1994, MLPF&S, an affiliate of MLIM, earned $123,957 as commissions. 5. Subsequent Event: On May 6, 1994, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $0.067088 per share, payable on May 27, 1994 to shareholders of record as of May 17, 1994. PER SHARE INFORMATION Per Share Selected Quarterly Financial Data*
Net Unrealized Dividends/Distributions Investment Realized Gains Net Investment Income Capital Gains For the Period Income Gains (Losses) Common Preferred Common Preferred October 30, 1992++ to January 31, 1993 $.26 $.03 $ .75 $.14 $.05 -- -- February 1, 1993 to April 30, 1993 .29 .02 .61 .23 .05 -- -- May 1, 1993 to July 31, 1993 .29 .01 .31 .24 .05 -- -- August 1, 1993 to October 31, 1993 .29 .05 .69 .25 .04 -- -- November 1, 1993 to January 31, 1994 .34 -- .18 .24 .05 $.08 $.02 February 1, 1994 to April 30, 1994 .23 .29 (2.22) .23 .05 -- -- Net Asset Value Market Price** For the Period High Low High Low Volume*** October 30, 1992++ to January 31, 1993 $14.85 $14.14 $15.625 $15.00 237 February 1, 1993 to April 30, 1993 15.90 14.84 16.25 15.25 557 May 1, 1993 to July 31, 1993 16.00 15.42 16.375 15.25 474 August 1, 1993 to October 31, 1993 16.83 15.82 17.00 15.75 517 November 1, 1993 to January 31, 1994 16.65 15.99 16.75 15.125 537 February 1, 1994 to April 30, 1994 16.60 14.15 16.50 13.75 566 ++ Commencement of Operations. * Calculations are based upon shares of Common Stock outstanding at the end of each period. ** As reported in the consolidated transaction reporting system. *** In thousands.
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