-----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, Lq22N/eqgHbD2BNKlH/SVww/XFlyWzvI3haOq0Npw61NaeWkCh/dwtWu/pK2tDTp eFFzupgoDQU5Zd6+9GN0Mg== 0000900092-95-000355.txt : 19951218 0000900092-95-000355.hdr.sgml : 19951218 ACCESSION NUMBER: 0000900092-95-000355 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19951215 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNIYIELD MICHIGAN INSURED FUND INC CENTRAL INDEX KEY: 0000890393 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [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: 95601908 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092822800 N-30D 1 ANNUAL REPORT MUNIYIELD MICHIGAN INSURED FUND, INC. FUND LOGO Annual Report October 31, 1995 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, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in the report. Past performance results shown in this report should not be considered a representation of future performance. The Fund has leveraged its Common Stock by issuing Preferred Stock to provide the Common Stock shareholders with a potentially higher rate of return. Leverage creates risks for Common Stock shareholders, including the likelihood of greater volatility of net asset value and market price of shares of the Common Stock, and the risk that fluctuations in the short-term dividend rates of the Preferred Stock may affect the yield to Common Stock shareholders. MuniYield Michigan Insured Fund, Inc. Box 9011 Princeton, NJ 08543-9011 MuniYield Michigan Insured Fund, Inc. TO OUR SHAREHOLDERS For the year ended October 31, 1995, the Common Stock of MuniYield Michigan Insured Fund, Inc. earned $0.859 per share income dividends, which included earned and unpaid dividends of $0.073. This represents a net annualized yield of 5.67%, based on a month- end net asset value of $15.13 per share. Over the same period, the total investment return on the Fund's Common Stock was +20.20%, based on a change in per share net asset value from $13.70 to $15.13 and assuming reinvestment of $0.861 per share income dividends and $0.264 per share capital gains distributions. For the six-month period ended October 31, 1995, the total investment return on the Fund's Common Stock was +8.28%, based on a change in per share net asset value from $14.42 to $15.13, and assuming reinvestment of $0.424 per share income dividends. For the six-month period ended October 31, 1995, the Fund's Auction Market Preferred Stock had an average yield of 3.92%. The Environment After losing momentum through the second calendar quarter of 1995, it now appears that the US economic expansion has resumed. Gross domestic product growth for the three months ended September 30 was reported to be 4.2%, higher than generally expected. September durable goods orders increased a surprisingly strong 3%, and existing home sales rose to a near-record level. At the same time, there is evidence that inflationary pressures remain subdued. Reflecting the trend of renewed economic growth--and continued good news on the inflation front--the Federal Reserve Board signaled no near-term shift in monetary policy following its September meeting. Thus, official interest rates may not be reduced further in the immediate future. Another significant development has been the strengthening of the US dollar relative to the yen and the Deutschemark. Improving interest rate differentials favoring the US currency, combined with coordinated central bank intervention and more positive investor sentiment, have helped to bolster the dollar in foreign exchange markets. Other factors that appear to be improving the US dollar's outlook in the near term are a pick-up in capital flows to the United States and the prospect of increased capital outflows from Japan. However, it remains to be seen if the US dollar's strengthening trend can continue without significant improvements in the US budget and trade deficits. In the weeks ahead, investor interest will continue to focus on US economic activity. Clear signs of a moderate, noninflationary expansion could further benefit the US stock and bond markets. In addition, should the current Federal budget deficit reduction efforts now underway in Washington prove successful, the implications would likely be positive for the US financial markets. The Municipal Market Tax-exempt bond yields continued to decline during the six-month period ended October 31, 1995. As measured by the Bond Buyer Revenue Bond Index, the yield on uninsured, long-term municipal revenue bonds fell 30 basis points (0.30%) to end the October period at approximately 6%. While tax-exempt bond yields have declined dramatically from their highs one year ago, municipal bond yields have exhibited considerable yield volatility on a weekly basis. In recent months, tax-exempt bond yields have fluctuated by as much as 20 basis points on a week-to-week basis. US Treasury bond yields have displayed similar volatility, but the extent of their decline has been greater. By the end of October, long-term US Treasury bond yields had declined almost 100 basis points to 6.33%. Proposed Federal tax restructuring continued to weigh heavily on the tax- exempt bond market. Thus far in 1995, US Treasury bond yields have declined approximately 150 basis points. Municipal bond yields have fallen approximately 95 basis points as the uncertainty surrounding any changes to the existing Federal income tax structure has prevented the municipal bond market from rallying as strongly as its taxable counterpart. A general view of a moderately expanding domestic economy, supported by a very favorable inflationary environment, allowed interest rates to significantly decline from their recent highs in November 1994. However, this decline was not a smooth downward curve. Conflicting economic indicators were released during recent months that have prevented a clear consensus regarding the near-term direction of interest rates from being reached. The resultant uncertainty has promoted more of a saw-toothed pattern as interest rate declines were repeatedly interrupted by indications of stronger-than-expected economic growth. As these concerns were overcome by subsequent weaker economic releases, interest rate declines have resumed. These periods of volatility are likely to continue for the remainder of 1995, or until proposed Federal budget deficit reduction packages are resolved and any resultant responses by the Federal Reserve Board have occurred. However, the municipal bond market's technical position remained supportive throughout recent quarters. Approximately $82 billion in long-term municipal securities were issued during the six months ended October 31, 1995. While this issuance is virtually identical to underwritings during the October 31, 1994 quarter, tax-exempt bond issuance over the last 12 months remained approximately 25% below comparable 1994 levels. The municipal bond market should maintain this positive technical position well into 1996. Annual issuance for 1995 is now projected to be approximately $140 billion, significantly less than last year's already low level of $162 billion. Projected maturities and early redemptions for the remainder of 1995 and throughout 1996 will lead to a continued decline in the total outstanding municipal bond supply throughout 1996 and, perhaps, into 1998 should new bond issuance remain at historically low levels. Despite the municipal bond market's relative underperformance compared to the US Treasury market thus far in 1995, the extent of the tax-exempt bond market's rally was nonetheless quite impressive. Municipal bond yields have fallen 135 basis points from their highs reached in November 1994 and municipal bond prices rose accordingly. Most tax-exempt products recouped almost all of the losses incurred in 1994 and are well on their way to posting double-digit total returns for all of 1995. This relative underperformance so far in 1995 provided long-term investors with the rare opportunity to purchase tax-exempt securities at yield levels near those of taxable securities. Additionally, many of the factors that led to the relative underperformance of the tax-exempt bond market thus far in 1995, namely investor concern regarding Federal budget deficit reductions and proposed changes in the Federal income tax structure, are nearing resolution. The Federal budget reconciliation process has already begun, and may be essentially completed by year-end. Recent public opinion polls suggest that the majority of American taxpayers prefer the existing Federal income tax system compared to proposed changes, such as the flat tax or national sales tax. In an upcoming election year, neither party is likely to advocate a clearly unpopular position, particularly one that can be expected to negatively impact the Federal budget deficit reduction program through reduced tax revenues. As these factors are resolved, we believe that much of the resistance that the municipal bond market met this year should dissipate. This should allow municipal bond yields to significantly decline from current levels in order to return to more normal historic yield relationships. Portfolio Strategy Over the past 12 months, the Fund's portfolio strategy and performance can be divided into two periods. From November through mid-December 1994, we believed that most of the rise in interest rates seen during the latter half of 1994 was unwarranted. Consequently, we maintained the Fund's earlier aggressive portfolio structure, causing the Fund to underperform market averages through late 1994. Beginning in mid-December 1994 and through October 31, 1995, the Fund's fiscal year-end, our positive outlook toward interest rates was rewarded as bond yields began a significant correction. Since their highs in November 1994, tax-exempt bond yields have fallen over 100 basis points and bond prices have risen accordingly. During this period, the Fund recouped almost all of the losses it incurred in 1994. Given the extent of the municipal bond market's recent rally, we adopted a more neutral outlook toward interest rates. The Fund's cash reserves will remain limited in order to enhance the Fund's current income, but no significant additional purchase of interest rate-sensitive securities will be made. The Fund's present structure will allow it to fully participate in any additional market improvement. Our primary focus will continue to seek to provide as high a level as possible of tax-exempt income. Short-term tax-exempt interest rates traded in the 3.25%-4.00% range throughout most of the last six months. This scenario continued to generate significant beneficial impact upon the yield paid to the Fund's Common Stock shareholders. However, should the spread between short-term and long-term interest rates narrow, the benefits of the leverage will decline, and, as a result, reduce the yield of the Fund's Common Stock. (For a complete explanation of the benefits and risks of leveraging, see page 5 of this report to shareholders.) In Conclusion We appreciate your ongoing interest in MuniYield Michigan Insured Fund, Inc., and we look forward to assisting you with your financial needs in the months and years ahead. Sincerely, (Arthur Zeikel) Arthur Zeikel President (Vincent R. Giordano) Vincent R. Giordano Vice President (Fred K. Stuebe) Fred K. Stuebe Portfolio Manager November 29, 1995 We are pleased to announce that Fred K. Stuebe is responsible for the day-to-day management of MuniYield Michigan Insured Fund, Inc. Mr. Stuebe has been employed by Merrill Lynch Asset Management, L.P. (an affiliate of the Fund's investment adviser) since 1989 as Vice President and Portfolio Manager in the Tax-Exempt Bond Department. Prior thereto, he was employed by Old Republic Insurance Company since 1984 as Vice President-Tax-Exempt Investments. PROXY RESULTS
During the six-month period ended October 31, 1995, MuniYield Michigan Insured Fund, Inc. Common Stock shareholders voted on the following proposals. The proposals were approved at a special shareholders' meeting on May 12, 1995. The description of each proposal and number of shares voted are as follows: Shares Shares Voted Voted For Without Authority 1. To elect the Fund's Board of Directors: Edward H. Meyer 6,830,769 166,466 Jack B. Sunderland 6,834,688 162,547 J. Thomas Touchton 6,835,526 161,709 Arthur Zeikel 6,830,807 166,428 Shares Shares Voted Shares Voted Voted For Against Abstain 2. To ratify the selection of Ernst & Young LLP as the Fund's independent auditors for the current fiscal year. 6,818,866 29,954 148,415 During the six-month period ended October 31, 1995, MuniYield Michigan Insured Fund, Inc. Preferred Stock shareholders voted on the following proposals. The proposals were approved at a special shareholders' meeting on May 12, 1995. The description of each proposal and number of shares voted are as follows: Shares Shares Voted Voted For Without Authority 1. To elect the Fund's Board of Directors: Donald Cecil 2,000 0 M. Colyer Crum 2,000 0 Edward H. Meyer 2,000 0 Jack B. Sunderland 2,000 0 J. Thomas Touchton 2,000 0 Arthur Zeikel 2,000 0 Shares Shares Voted Shares Voted Voted For Against Abstain 2. To ratify the selection of Ernst & Young LLP as the Fund's independent auditors for the current fiscal year. 2,000 0 0 THE BENEFITS AND RISKS OF LEVERAGING MuniYield Michigan Insured Fund, Inc. utilizes leveraging to seek to enhance the yield and net asset value of its Common Stock. However, these objectives cannot be achieved in all interest rate environments. To leverage, the Fund issues Preferred Stock, which pays dividends at prevailing short-term interest rates, and invests the proceeds in long-term municipal bonds. The interest earned on these investments is paid to Common Stock shareholders in the form of dividends, and the value of these portfolio holdings is reflected in the per share net asset value of the Fund's Common Stock. However, in order to benefit Common Stock shareholders, the yield curve must be positively sloped; that is, short-term interest rates must be lower than long-term interest rates. At the same time, a period of generally declining interest rates will benefit Common Stock shareholders. If either of these conditions change, then the risks of leveraging will begin to outweigh the benefits. To illustrate these concepts, assume a fund's Common Stock capitalization of $100 million and the issuance of Preferred Stock for an additional $50 million, creating a total value of $150 million available for investment in long-term municipal bonds. If prevailing short-term interest rates are approximately 3% and long- term interest rates are approximately 6%, the yield curve has a strongly positive slope. The fund pays dividends on the $50 million of Preferred Stock based on the lower short-term interest rates. At the same time, the fund's total portfolio of $150 million earns the income based on long-term interest rates. Of course, increases in short-term interest rates would reduce (and even eliminate) the dividends on the Common Stock. In this case, the dividends paid to Preferred Stock shareholders are significantly lower than the income earned on the fund's long-term investments, and therefore the Common Stock shareholders are the beneficiaries of the incremental yield. However, if short-term interest rates rise, narrowing the differential between short-term and long-term interest rates, the incremental yield pick-up on the Common Stock will be reduced or eliminated completely. At the same time, the market value of the fund's Common Stock (that is, its price as listed on the New York Stock Exchange) may, as a result, decline. Furthermore, if long-term interest rates rise, the Common Stock's net asset value will reflect the full decline in the price of the portfolio's investments, since the value of the fund's Preferred Stock does not fluctuate. In addition to the decline in net asset value, the market value of the fund's Common Stock may also decline. PORTFOLIO ABBREVIATIONS To simplify the listings of MuniYield Michigan Insured Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) DATES Daily Adjustable Tax-Exempt Securities GO General Obligation Bonds 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--100.5% AAA Aaa $1,000 Bay City, Michigan, Electric Utility Revenue Bonds, 6.60% due 1/01/2012 (b) $ 1,074 AAA Aaa 5,000 Bay City, Michigan, School District Revenue Bonds, UT, 6.50% due 5/01/2008 (b) 5,379 AAA Aaa 1,750 Brighton, Michigan, Area School District, Revenue Refunding Bonds, UT, Series II, 6% due 5/01/2020 (b) 1,777 AAA Aaa 1,250 Chelsea, Michigan, School District Revenue Bonds, UT, 5.875% due 5/01/2025 (c) 1,258 AAA Aaa 3,785 Chippewa Valley, Michigan, School Refunding Bonds, UT, 5.125% due 5/01/2015 (c) 3,565 AAA Aaa 2,000 City of Muskegon, Michigan, Public Schools District, GO, 5.25% due 5/01/2016 (c) 1,904 AAA Aaa 1,525 Dearborn, Michigan, Economic Development Corporation, Hospital Revenue Bonds (Oakwood Obligation Group), Series A, 5.30% due 11/15/2006 (c) 1,554 AAA Aaa 2,000 Dearborn, Michigan, Sewage Disposal Revenue Bonds, Series A, 5.125% due 4/01/2016 (d) 1,881 NR* P1 500 Delta County, Michigan, Economic Development Corp., Environmental Improvement Revenue Bonds (Mead Escambia Paper), DATES, Series E, 4.10% due 12/01/2023 (a) 500 Detroit, Michigan, Sewage Disposal Revenue Bonds (c): AAA Aaa 7,200 6.625% due 7/01/2021 7,724 AAA Aaa 1,000 Refunding, Series A, 5.10% due 7/01/2004 1,019 AAA Aaa 5,000 Detroit, Michigan, Water Supply System, Revenue Refunding Bonds, 6.25% due 7/01/2012 (c) 5,259 AAA Aaa 1,000 Eastern Michigan University, GO, Revenue Refunding Bonds, 6.375% due 6/01/2014 (b) 1,051 AAA Aaa 1,500 Eaton Rapids, Michigan, Public Schools Building and Site Revenue Bonds, UT, 5.50% due 5/01/2020 (d) 1,467 AAA Aaa 1,750 Ferndale, Michigan, School District, Revenue Refunding Bonds, UT, 5.375% due 5/01/2016 (c) 1,684 AAA Aaa 4,500 Grand Ledge, Michigan, Public Schools District Revenue Bonds, UT, 6.60% due 5/01/2004 (f) 5,158
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) Michigan (continued) Grand Rapids, Michigan, Water Supply System, Revenue Refunding Bonds (c): AAA Aaa $3,000 6.25% due 1/01/2011 $ 3,153 AAA Aaa 3,490 6.50% due 1/01/2015 3,681 AAA Aaa 5,000 Grand Traverse County, Michigan, Hospital Finance Authority, Hospital Revenue Refunding Bonds (Munson Healthcare), Series A, 6.25% due 7/01/2022 (b) 5,137 AAA Aaa 1,000 Grandville, Michigan, Public Schools District, Revenue Refunding Bonds, UT, 6.60% due 5/01/2015 (c) 1,087 AAA Aaa 2,500 Greenville, Michigan, Public Schools Building, GO, UT, 5.75% due 5/01/2024 (d) 2,493 AAA Aaa 1,300 Gull Lake, Michigan, Community School District, GO, UT, 6.80% due 5/01/2001 (c)(f) 1,468 AAA Aaa 2,000 Kent, Michigan, Hospital Finance Authority, Michigan Hospital Facility, Revenue Refunding Bonds (Butterworth Hospital), Series A, 7.25% due 1/15/2013 (d) 2,351 AAA Aaa 4,000 Lakeshore, Michigan, Public Schools District (Berrien County), UT, 5.70% due 5/01/2022 (d) 3,973 AAA Aaa 1,000 Leslie, Michigan, Public Schools Building and Site Revenue Refunding Bonds (Ingham and Jackson Counties), UT, 6% due 5/01/2015 (b) 1,023 AAA VMIG1++ 400 Michigan Higher Education Student Loan Authority Revenue Bonds, VRDN, AMT, Series XII-F, 4.05% due 10/01/2020 (a)(b) 400 Michigan Municipal Bond Authority Revenue Bonds, Series A: AAA Aaa 5,000 (Local Government Loan Program), 6.125% due 12/01/2018 (c) 5,168 AAA Aaa 1,035 Refunding (Local Government Loan Program), 6.50% due 5/01/2012 (b) 1,112 AAA Aaa 1,870 Refunding (Local Government Loan Program), 6.50% due 11/01/2012 (d) 2,008 AA Aa 2,950 (State Revolving Fund), 6.55% due 10/01/2013 3,172 AA Aa 2,000 (State Revolving Fund), 6.60% due 10/01/2018 2,122 Michigan State Building Authority, Revenue Refunding Bonds, Series I: AAA Aaa 3,000 5.20% due 10/01/2010 (b) 2,922 AA- A1 1,500 6.75% due 10/01/2011 1,630 AAA Aaa 3,000 6.25% due 10/01/2020 (d) 3,108 AAA Aaa 1,100 Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Sisters of Mercy Health Corp.), Series M, 6.25% due 2/15/2022 (e) 1,129 Michigan State Strategic Fund, Limited Obligation Revenue Bonds: A+ A1 7,250 (Ford Motor Co. Project), AMT, Series A, 6.55% due 10/01/2022 7,476 AAA Aaa 2,500 Refunding (Detroit Edison Co. Project), Series CC, 6.95% due 9/01/2021 (c) 2,720 A+ A1 2,500 (Waste Management Inc. Project), AMT, 6.625% due 12/01/2012 2,603 NR* P1 1,400 Michigan State Strategic Fund, PCR, Refunding (Consumers Power Project), VRDN, Series A, 3.50% due 4/15/2018 (a) 1,400 NR* VMIG1++ 700 Michigan State Strategic Fund, Solid Waste Disposal Revenue Bonds (Grayling Generating Project), VRDN, AMT, 4.05% due 1/01/2014 (a) 700 AAA Aaa 7,500 Monroe County, Michigan, Economic Development Corporation, Limited Obligation Revenue Refunding Bonds (Detroit Edison Co. Project), Series AA, 6.95% due 9/01/2022 (c) 8,826 Monroe County, Michigan, PCR (Detroit Edison Co. Project), AMT: AAA Aaa 2,500 (Monroe and Fermi Plants), Series 1, 7.65% due 9/01/2020 (c) 2,822 AAA Aaa 4,500 Series CC, 6.55% due 6/01/2024 (d) 4,708 AAA Aaa 1,500 Series I, 7.30% due 9/01/2019 (b) 1,672 AAA Aaa 1,500 Series I-B, 6.55% due 9/01/2024 (d) 1,580 AAA Aaa 5,000 Plymouth-Canton, Michigan, Community School District, Revenue Refunding Bonds, UT, 5.50% due 5/01/2017 (b) 4,913
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) Michigan (concluded) AAA Aaa $5,925 Riverview, Michigan, Community School District, Building Revenue Bonds, UT, 6.70% due 5/01/2002 (c)(f) $ 6,701 Royal Oak, Michigan, Hospital Finance Authority Revenue Bonds: AA- Aa 3,000 Refunding (Beaumont Properties, Inc.), Series E, 6.625% due 1/01/2019 3,135 AA Aa 1,000 (William Beaumont Hospital), Series D, 6.75% due 1/01/2020 1,054 AAA Aaa 7,000 Saint Clair County, Michigan, Economic Development Corp., PCR, Refunding (Detroit Edison), Series AA, 6.40% due 8/01/2024 (b) 7,491 University of Michigan, University Hospital Revenue Bonds, VRDN, Series A (a): NR* VMIG1++ 1,800 4% due 12/01/2027 1,800 NR* VMIG1++ 500 Refunding, 4% due 12/01/2019 500 AAA Aaa 2,760 Western Michigan School District, Revenue Refunding Bonds, UT, 5.50% due 5/01/2020 (d) 2,698 AAA Aaa 3,470 Western Michigan University, General Revenue Bonds, 6.125% due 11/15/2022 (c) 3,575 AAA Aaa 1,000 Western Michigan University, Revenue Refunding Bonds, Series A, 5.50% due 7/15/2016 (c) 983 AAA Aaa 5,500 Wyandotte, Michigan, Electric Revenue Refunding Bonds, 6.25% due 10/01/2017 (d) 5,736 Total Investments (Cost--$153,091)--100.5% 162,484 Liabilities in Excess of Other Assets--(0.5%) (884) -------- Net Assets--100.0% $161,600 ======== (a)The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at October 31, 1995. (b)AMBAC Insured. (c)FGIC Insured. (d)MBIA Insured. (e)FSA Insured. (f)Prerefunded. *Not Rated. ++Highest short-term rating by Moody's Investors Service, Inc. Ratings of issues shown have not been audited by Ernst & Young LLP. See Notes to Financial Statements.
FINANCIAL INFORMATION Statement of Assets, Liabilities and Capital as of October 31, 1995 Assets: Investments, at value (identified cost--$153,091,134) (Note 1a) $162,483,964 Cash 58,645 Interest receivable 2,949,383 Deferred organization expenses (Note 1e) 15,471 Prepaid expenses and other assets 7,429 ------------ Total assets 165,514,892 ------------ Liabilities: Payables: Securities purchased $ 3,581,084 Dividends to shareholders (Note 1f) 221,311 Investment adviser (Note 2) 70,395 3,872,790 ------------ Accrued expenses and other liabilities 41,864 ------------ Total liabilities 3,914,654 ------------ Net Assets: Net assets $161,600,238 ============ Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.10 per share (2,000 shares of AMPS* issued and outstanding at $25,000 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 954,171 Accumulated realized capital losses on investments--net (Note 5) (2,255,617) Unrealized appreciation on investments--net 9,392,830 ------------ Total--Equivalent to $15.13 net asset value per share of Common Stock (market price--$13.50) 111,600,238 ------------ Total capital $161,600,238 ============ *Auction Market Preferred Stock. See Notes to Financial Statements.
FINANCIAL INFORMATION (continued) Statement of Operations
For the Year Ended October 31, 1995 Investment Income Interest and amortization of premium and discount earned $ 9,483,700 (Note 1d): Expenses: Investment advisory fees (Note 2) $ 780,360 Commission fees (Note 4) 132,007 Professional fees 81,183 Accounting services (Note 2) 42,294 Transfer agent fees 39,412 Printing and shareholder reports 38,204 Directors' fees and expenses 22,945 Listing fees 16,420 Custodian fees 11,033 Amortization of organization expenses (Note 1e) 7,735 Pricing fees 7,153 Other 7,651 ------------ Total expenses 1,186,397 ------------ Investment income--net 8,297,303 ------------ Realized & Realized loss on investments--net (2,255,586) Unrealized Gain Change in unrealized appreciation/depreciation on investments--net 14,921,938 (Loss) on ------------ Investments--Net Net Increase in Net Assets Resulting from Operations $ 20,963,655 (Notes 1b, 1d ============ & 3):
Statements of Changes in Net Assets
For the Year Ended Oct. 31, Increase (Decrease) in Net Assets: 1995 1994 Operations: Investment income--net $ 8,297,303 $ 8,305,690 Realized gain (loss) on investments--net (2,255,586) 2,392,886 Change in unrealized appreciation/depreciation on investments--net 14,921,938 (22,741,883) ------------ ------------ Net increase (decrease) in net assets resulting from operations 20,963,655 (12,043,307) ------------ ------------ Dividends & Investment income--net: Distributions to Common Stock (6,346,344) (6,701,446) Shareholders Preferred Stock (1,671,220) (1,540,930) (Note 1f): Realized gain on investments--net: Common Stock (1,948,948) (604,972) Preferred Stock (443,960) (122,510) ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders (10,410,472) (8,969,858) ------------ ------------ Capital Stock Offering costs resulting from the issuance of Common Stock -- (9,200) Transactions ------------ ------------ (Notes 1e & 4): Net decrease in net assets derived from capital stock transactions -- (9,200) ------------ ------------ Net Assets: Total increase (decrease) in net assets 10,553,183 (21,022,365) Beginning of year 151,047,055 172,069,420 ------------ ------------ End of year* $161,600,238 $151,047,055 ============ ============ *Undistributed investment income--net $ 954,171 $ 674,432 ============ ============ See Notes to Financial Statements.
FINANCIAL INFORMATION (concluded) Financial Highlgihts
For the Period The following per share data and ratios have been derived Oct. 30, from information provided in the financial statements. For the Year Ended 1992++ to October 31, Oct. 31, Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 Per Share Net asset value, beginning of period $ 13.70 $ 16.55 $ 14.14 $ 14.18 Operating -------- -------- -------- -------- Performance: Investment income--net 1.13 1.13 1.13 -- Realized and unrealized gain (loss) on investments--net 1.71 (2.76) 2.47 -- -------- -------- -------- -------- Total from investment operations 2.84 (1.63) 3.60 -- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.86) (.91) (.86) -- Realized gain on investments--net (.26) (.08) -- -- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (1.12) (.99) (.86) -- -------- -------- -------- -------- Capital charge resulting from issuance of Common Stock -- -- -- (.04) -------- -------- -------- -------- Effect of Preferred Stock activity:++++ Dividends and distributions to Preferred Stock shareholders: Investment income--net (.23) (.21) (.19) -- Realized gain on investments--net (.06) (.02) -- -- Capital charge resulting from issuance of Preferred Stock -- -- (.14) -- -------- -------- -------- -------- Total effect of Preferred Stock activity (.29) (.23) (.33) -- -------- -------- -------- -------- Net asset value, end of period $ 15.13 $ 13.70 $ 16.55 $ 14.14 ======== ======== ======== ======== Market price per share, end of period $ 13.50 $ 11.875 $ 16.625 $ 15.00 ======== ======== ======== ======== Total Investment Based on market price per share 23.73% (23.52%) 17.03% .00%+++ Return:** ======== ======== ======== ======== Based on net asset value per share 20.20% (11.36%) 23.59% (.28%)+++ ======== ======== ======== ======== Ratios to Expenses, net of reimbursement .78% .78% .61% --%* Average ======== ======== ======== ======== Net Assets:*** Expenses .78% .78% .70% --%* ======== ======== ======== ======== Investment income--net 5.44% 5.07% 5.24% --%* ======== ======== ======== ======== Supplemental Net assets, net of Preferred Stock, end of period Data: (in thousands) $111,600 $101,047 $122,069 $101,736 ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) $ 50,000 $ 50,000 $ 50,000 $ -- ======== ======== ======== ======== Portfolio turnover 41.11% 21.76% 12.73% .00% ======== ======== ======== ======== Dividends Per Investment income--net $ 836 $ 771 $ 695 $ -- Share on Preferred Stock Outstanding:++++++ *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 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. ++++++Dividends per share have been adjusted to reflect a two-for- one stock split. +++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 primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options, which are traded on exchanges, are valued at their last sale price as of the close of such exchanges or, lacking any sales, at the last available bid price. Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell interest rate futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired, or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. Discounts and market premiums are amortized into interest income. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Deferred organization expenses and offering expenses--Deferred organization expenses are amortized on a straight-line basis over a five-year period. Direct expenses relating to the public offering of the Common and Preferred Stock were charged to capital at the time of issuance. (f) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of 0.50% of the Fund's average weekly net assets. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended October 31, 1995 were $65,024,339 and $60,439,777, respectively. Net realized and unrealized gains (losses) as of October 31, 1995 were as follows: Realized Unrealized Losses Gains Long-term investments $ (125,297) $ 9,392,830 Financial futures contracts (2,130,289) -- ----------- ------------ Total $(2,255,586) $ 9,392,830 =========== ============ As of October 31, 1995, net unrealized appreciation for Federal income tax purposes aggregated $9,392,830, of which $9,396,811 related to appreciated securities and $3,981 related to depreciated securities. The aggregate cost of investments at October 31, 1995 for Federal income tax purposes was $153,091,134. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of holders of Common Stock. Common Stock For the year ended October 31, 1995, shares issued and outstanding remained constant at 7,374,470. At October 31, 1995, 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 dividends at an annual rate that may vary for the successive dividend periods. The yield in effect at October 31, 1995 was 3.82%. A two-for-one stock split occurred on December 1, 1994. As a result, as of October 31, 1995, there were 2,000 AMPS shares authorized, issued and outstanding with a liquidation preference of $25,000 per share, plus accumulated and unpaid dividends of $281,840. The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of each auction. For the year ended October 31, 1995, MLPF&S, an affiliate of FAM, earned $107,432 as commissions. 5. Capital Loss Carryforward: At October 31, 1995, the Fund had a net capital loss carryforward of approximately $125,000, all of which expires in 2003. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: On November 13, 1995, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $0.073114 per share, payable on November 29, 1995 to shareholders of record as of November 24, 1995. INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors, MuniYield Michigan Insured Fund, Inc. We have audited the accompanying statement of assets, liabilities and capital of MuniYield Michigan Insured Fund, Inc., including the schedule of investments, as of October 31, 1995, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material mis- statement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of MuniYield Michigan Insured Fund, Inc. at October 31, 1995, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and financial highlights for each of the indicated periods, in conformity with generally accepted accounting principles. (Ernst & Young LLP) Princeton, New Jersey December 1, 1995 IMPORTANT TAX INFORMATION (UNAUDITED) All of the net investment income distributions paid monthly by MuniYield Michigan Insured Fund, Inc. during its taxable year ended October 31, 1995 qualify as tax-exempt interest dividends for Federal income tax purposes. Additionally, the following table summarizes the per share capital gains distributions paid by the Fund during the year:
Payable Short-Term Long-Term Date Capital Gains Capital Gains Common Stock Shareholders 12/09/94 -- $ 0.264283 Preferred Stock Shareholders 11/30/94 -- $206.20 12/07/94 -- $ 29.08 12/14/94 -- $ 24.62 12/21/94 -- $ 29.08 12/28/94 -- $ 35.87 1/04/95 -- $ 0.23 Please retain this information for your records.
PER SHARE INFORMATION (UNAUDITED) Per Share Selected Quarterly Financial Data*
Dividends/Distributions Net Realized Unrealized Investment Gains Gains Net Investment Income Capital Gains For the Quarter Income (Losses) (Losses) Common Preferred Common Preferred 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 -- -- May 1, 1994 to July 31, 1994 .28 -- .31 .22 .05 -- -- August 1, 1994 to October 31, 1994 .28 .03 (1.35) .22 .06 -- -- November 1, 1994 to January 31, 1995 .29 (.26) .96 .22 .03 .26 .06 February 1, 1995 to April 30, 1995 .27 (.03) .34 .22 .06 -- -- May 1, 1995 to July 31, 1995 .29 .01 .20 .21 .07 -- -- August 1, 1995 to October 31, 1995 .28 (.02) .51 .21 .07 -- -- Net Asset Value Market Price** For the Quarter High Low High Low Volume*** 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 May 1, 1994 to July 31, 1994 15.28 14.35 15.00 14.25 323 August 1, 1994 to October 31, 1994 15.02 13.69 14.375 11.875 843 November 1, 1994 to January 31, 1995 14.10 12.68 13.375 10.625 1,479 February 1, 1995 to April 30, 1995 14.78 14.13 13.75 12.875 402 May 1, 1995 to July 31, 1995 15.31 14.41 14.125 12.875 497 August 1, 1995 to October 31, 1995 15.18 14.41 13.625 13.00 440 *Calculations are based upon shares of Common Stock outstanding at the end of each quarter. **As reported in the consolidated transaction reporting system. ***In thousands.
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 90 Washington Street New York, New York 10286 Transfer Agents Common Stock: The Bank of New York 101 Barclay Street New York, New York 10286 Preferred Stock: IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 NYSE Symbol MIY -----END PRIVACY-ENHANCED MESSAGE-----