(BULL LOGO)
Merrill Lynch Investment Managers
Annual Report
October 31, 2002
MuniYield
Michigan
Insured
Fund, Inc.
www.mlim.ml.com
MuniYield Michigan Insured Fund, Inc. seeks to provide shareholders
with as high a level of current income exempt from Federal and
Michigan income taxes as is consistent with its investment policies
and prudent investment management by investing primarily in a
portfolio of long-term municipal obligations the interest on which,
in the opinion of bond counsel to the issuer, is exempt from Federal
and Michigan income taxes.
This report, including the financial information herein, is
transmitted to the shareholders of MuniYield Michigan Insured Fund,
Inc. for their information. It is not a prospectus. Past performance
results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its
Common Stock 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 the Common Stock, and the risk that
fluctuations in the short-term dividend rates of the Preferred Stock
may affect the yield to Common Stock shareholders. Statements and
other information herein are as dated and are subject to change.
MuniYield Michigan Insured Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MUNIYIELD MICHIGAN INSURED FUND, INC.
The Benefits
And Risks of
Leveraging
MuniYield Michigan Insured Fund, Inc. utilizes leveraging to seek to
enhance the yield and net asset value of its Common Stock. However,
these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues Preferred Stock, which
pays dividends at prevailing short-term interest rates, and invests
the proceeds in long-term municipal bonds. The interest earned on
these investments is paid to Common Stock shareholders in the form
of dividends, and the value of these portfolio holdings is reflected
in the per share net asset value of the Fund's Common Stock.
However, in order to benefit Common Stock shareholders, the yield
curve must be positively sloped; that is, short-term interest rates
must be lower than long-term interest rates. At the same time, a
period of generally declining interest rates will benefit Common
Stock shareholders. If either of these conditions change, then the
risks of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred Stock
for an additional $50 million, creating a total value of $150
million available for investment in long-term municipal bonds. If
prevailing short-term interest rates are approximately 3% and long-
term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million
of Preferred Stock based on the lower short-term interest rates. At
the same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pickup on the
Common Stock will be reduced or eliminated completely. At the same
time, the market value of the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain
securities whose potential income return is inversely related to
changes in a floating interest rate ("inverse floaters"). In
general, income on inverse floaters will decrease when short-term
interest rates increase and increase when short-term interest rates
decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of
reduced or eliminated interest payments and losses of invested
principal. In addition, inverse floaters have the effect of
providing investment leverage and, as a result, the market value of
such securities will generally be more volatile than that of fixed-
rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the
net asset value of the Fund's shares may also be more volatile than
if the Fund did not invest in such securities.
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., October 31, 2002
DEAR SHAREHOLDER
For the year ended October 31, 2002, the Common Stock of MuniYield
Michigan Insured Fund, Inc. earned $.943 per share income dividends,
which included earned and unpaid dividends of $.080. This represents
a net annualized yield of 5.95%, based on a year-end net asset value
of $15.74 per share. During the same period, the total investment
return on the Fund's Common Stock was +6.33%, based on a change in
per share net asset value from $15.81 to $15.74, and assuming
reinvestment of $.937 per share income dividends.
For the six-month period ended October 31, 2002, the total
investment return on the Fund's Common Stock was +5.47%, based on a
change in per share net asset value from $15.42 to $15.74, and
assuming reinvestment of $.477 per share income dividends.
For the six-month period ended October 31, 2002, the Fund's Auction
Market Preferred Stock had an average yield of 1.33% for Series A,
1.41% for Series B and 1.18% for Series C.
The Municipal Market Environment
During the six-month period ended October 31, 2002, the direction of
long-term fixed income interest rates was driven as much by volatile
U.S. equity markets and continued worldwide political tensions as by
economic fundamentals. After rising steadily early in 2002, bond
yields reversed course to move sharply lower throughout most of the
October period. Positive economic fundamentals repeatedly were
overwhelmed by falling equity valuations and declines in investor
confidence. U.S. gross domestic product (GDP) activity for the first
quarter of 2002 measured at 5%, considerably above the level of
economic growth seen at the end of 2001. During May and June, a
number of economic indicators, such as housing activity, consumer
spending and weekly unemployment claims, all pointed to at least a
modest economic recovery by the end of 2002. However, steady
dramatic declines in U.S. equity markets led the majority of
investors to conclude that the Federal Reserve Board was unlikely to
increase short-term interest rates for the remainder of the year.
U.S. Treasury issue prices were also boosted by erupting Middle East
and India/Pakistan conflicts that led many international investors
to seek the safe-haven status of U.S. Treasury securities. By the
end of June 2002, long-term U.S. Treasury bond yields had declined
to 5.50%, a decline of almost 35 basis points (.35%) from their
recent highs in mid-March.
In late July, second quarter U.S. GDP growth was initially estimated
at 1.1%. While subject to revision, this estimate suggested that
continued declines in U.S. equity prices were negatively affecting
not only consumer but business confidence as well and undermining
much of the economic growth witnessed earlier this year. Some
analysts extrapolated that recent weakness would continue, if not
accelerate. This brought about forecasts that the Federal Reserve
Board would soon be obliged to lower short-term interest rates both
to offset equity market declines and boost consumer and business
spending. The possibility of lower short-term interest rates helped
push longer-term bond yields lower still during July and August. The
dramatic decline in U.S. equity prices in late August and September
triggered a significant fixed income rally as investors again sought
the safe-haven status of U.S. Treasury securities. By the end of
September, U.S. Treasury bond yields fell to 4.66%.
Bolstered by an unexpected decline in the national unemployment rate
to 5.6% in early October, U.S. equity markets staged a strong rally
throughout much of the month. The Standard & Poor's 500 Index rose
more than 8% for the month, triggered by stronger-than-expected
earnings reports from a large number of companies, such as General
Electric Company, International Business Machines Corporation and
Microsoft Corporation. Bond prices continued to trade in an inverse
relationship to equity prices. Consequently, as stocks rallied, bond
yields rose in October, despite generally weak economic releases.
During October, the U.S. housing sector remained quite robust, but
retail sales and industrial production slowed. By October 31, 2002,
long-term U.S. Treasury bond yields rose to almost 5%, a monthly
increase of more than 30 basis points. During the past six months,
the yield on 30-year U.S. Treasury bonds declined over 60 basis
points.
For the six-month period ended October 31, 2002, municipal bond
prices also generally increased. Similar to their taxable
counterparts, municipal bond yields rose in early 2002, largely on
the expectation of short-term interest rate increases by the Federal
Reserve Board. By late March, long-term municipal revenue bond
yields, as measured by the Bond Buyer Revenue Bond Index, rose to
5.67%, their highest level in more than a year. During recent
months, tax-exempt bond yields have generally declined largely in
response to the positive fixed income environment engendered by
falling equity valuations. The municipal bond market's price
advances in tax-exempt issues, however, have not been able to keep
pace with U.S. Treasury issues as municipal bonds cannot offer
foreign investors the safe-haven status U.S. Treasury issues enjoy
in periods of economic and financial instability. The municipal bond
market's recent price advances have also been supported by the
continued improvement in the tax-exempt market's technical position.
Despite sizeable advances in the rate of new municipal bond
issuance, investor demand has increased, allowing tax-exempt bond
prices to rise. By the end of October 2002, long-term municipal
revenue bond yields stood at 5.20%, a decline of more than
30 basis points during the past six months.
Investor demand has remained very positive throughout the period.
The Investment Company Institute reported that thus far in 2002,
municipal bond fund net cash flows remained very strong at over
$17.5 billion, up nearly 80% compared to the same period in 2001.
Additionally, investors received from June to August 2002
approximately $75 billion from bond maturities, proceeds from early
redemptions and coupon income. Given the current weakness in U.S.
equity markets, much of these monies were likely reinvested in tax-
exempt products. Perhaps more importantly, short-term municipal
rates have continued to move lower in response to Federal Reserve
Board actions. In reaction to Federal Reserve Board interest rate
reductions, short-term municipal rates have declined to the 1% -
1.50% range. As interest rates have declined, investors have
extended maturities to take advantage of the steep municipal bond
yield curve. The significant income sacrifice incurred by remaining
in cash reserves has resulted in ongoing strong demand for municipal
securities, especially in the 5-year - 15-year maturity range.
Recent performance by the tax-exempt market has been even more
impressive considering the increase in new bond issuance seen thus
far in 2002. Nationwide, municipalities have used present low
interest rate levels both to refinance older debt and fund new
capital projects. Over the past six months, more than $200 billion
in new long-term municipal bonds was issued, an increase of nearly
40% compared to the same period in 2001. Nearly $100 billion in long-
term tax-exempt securities was underwritten during the October
quarter of 2002, an increase of over 40% compared to the October
quarter of 2001 level.
In the coming months, interest rates are likely to remain volatile,
with an expected upward bias. However, until equity market
conditions stabilize, interest rates should remain near their
current historically low levels. While recent stock market declines
appear to have negatively affected economic growth in recent months,
business activity is likely to accelerate going forward. While
governmental stimulus in response to the September 11, 2001 attacks
has been significant, the recent 50 basis point decrease in interest
rates by the Federal Reserve Board should provide additional
incentive to the sluggish U.S. economy. The ongoing U.S. military
response to worldwide terrorism has reduced a once-sizeable Federal
surplus to a material deficit. Further military action in early 2003
would likely result in higher Federal spending, deficits and
increased Treasury financing. Increased Federal borrowings can be
expected to put upward pressure on interest rates going forward.
Equity market declines helped push interest rates to lower levels
than economic fundamentals alone would support. When U.S. equity
markets stabilize and economic activity resumes, associated interest
rate increases should not be extreme. Inflationary pressures have
remained subdued, meaning that significant interest rate increases
are unlikely. As equity valuations are likely to only gradually
recover, U.S. economic recovery is also likely to be a moderate
process. This suggests that the pace of any interest rate increases
will be gradual. As the municipal bond market's strong technical
position can be expected to remain supportive in the coming months,
future tax-exempt rate increases should be more restrained than
their taxable counterparts.
Specific to Michigan, the state maintains the highest possible
credit ratings (Aaa/AAA) from Moody's and Standard & Poor's,
respectively, and is rated AA+ by Fitch. Michigan ranks 33rd in debt
per capita and 35th in debt as a percentage of personal income.
These ratios are quite low for a populous state and indicate
flexibility in responding to economic downturns relative to other
states. Nevertheless, tax revenue collections are exhibiting a
downward trend, in line with the national economy. Accordingly, the
state has resorted to drawing down on its Budget Stabilization Fund
as well as revenue enhancements, such as the sale of state property,
and expenditure reductions, including delaying capital projects, in
order to balance its current budget. Additional uncertainty
surrounding the credit outlook for Michigan came from the
gubernatorial election that took place on November 5, 2002 in which
a new candidate was elected governor. Voters approved only one of
three important referendums--the $1 billion in general obligation
bonding authority for water and sewer projects--while the
referendums for the right to collective bargaining for state
employees and diversion of revenues from the tobacco Master
Settlement Agreement to health care providers were defeated. Despite
these results, we expect that Michigan will remain among the highest-
rated states for credit because of its economic diversity, low debt
levels and strong reserves. Any ratings downgrade is likely to have
only a limited impact on the Fund's holdings as the Fund's insured
structure greatly insulates it from any downward price reaction to a
downgrade. It also should be noted that if a downgrade occurs, it is
likely to be to Aa+/AA+. Such a minor ratings adjustment, especially
given the current strong financial environment, is unlikely to
result in a significant price adjustment to state-supported issues.
Portfolio Strategy
During the six months ended October 31, 2002, we maintained the
Fund's neutral market position adopted earlier this year. While tax-
exempt bond yields declined more than anticipated, the Fund's
leveraged structure and fully invested position allowed it to
completely participate in the significant market appreciation seen
in recent months. The combination of the U.S. equity markets
decline, corporate disclosure issues and the prospect of further
military action have driven bond prices higher than economic
fundamentals alone would have supported in the past. As current tax-
exempt rates are at historically low levels, we will carefully
continue to monitor business conditions. Should signs of a renewed,
sustainable economic recovery appear, we will adopt a more defensive
portfolio strategy in an effort to preserve recent gains in the
Fund's net asset value. As we focused on further enchancing the
Fund's current high level of coupon income, we purchased lower-rated
investment-grade issues whenever they were attractively priced.
Recently, many corporate-backed municipal bond issues have come
under considerable pressure, creating a historically attractive
investment opportunity. The addition of these higher-yielding issues
should help the Fund continue to provide its current dividend going
forward. However, we were able to maintain the Fund's historically
high credit quality profile. At October 31, 2002, 83.1% of the
Fund's holdings were insured and rated AAA by at least one of the
major rating agencies.
Throughout the period, the Fund's borrowing costs remained in the 1%
- 1.25% range. These attractive funding levels, in combination with
a steep tax-exempt yield curve, generated a material income benefit
to the Fund's Common Stock shareholders. Further declines in the
Fund's borrowing costs would require significant easing of monetary
policy by the Federal Reserve Board. We expect the Fund's short-term
borrowing costs to remain near current levels for the remainder of
this year and into 2003. However, should the spread between short-
term and long-term interest rates narrow, the benefits of leverage
will decline and, as a result, reduce the yield paid on the Fund's
Common Stock. (For a more complete explanation of the risks and
benefits of leveraging, see page 1 of this report to shareholders.)
In Conclusion
We appreciate your ongoing interest in MuniYield Michigan Insured
Fund, Inc., and we look forward to assisting you with your financial
needs in the months and years to come.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Kenneth A. Jacob)
Kenneth A. Jacob
Senior Vice President
(John M. Loffredo)
John M. Loffredo
Senior Vice President
(Fred K. Stuebe)
Fred K. Stuebe
Vice President and Portfolio Manager
November 26, 2002
MuniYield Michigan Insured Fund, Inc., October 31, 2002
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
VRDN Variable Rate Demand Notes
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings+++ Ratings+++ Amount Issue Value
Michigan AAA Aaa $ 1,000 Allegan, Michigan, Public School District, GO, 5.75% due 5/01/2030 (d) $ 1,066
--140.2%
Belding, Michigan, Area Schools, GO, Refunding (c):
AAA Aaa 785 6.05% due 5/01/2006 (e) 889
AAA Aaa 215 6.05% due 5/01/2021 238
AAA Aaa 1,000 Caledonia, Michigan, Community Schools, GO, Refunding, 6.625% due
5/01/2014 (a) 1,033
AAA Aaa 1,500 Carman-Ainsworth, Michigan, Community School, GO, 5.50% due 5/01/2020 (c) 1,603
AAA Aaa 1,625 Central Michigan University Revenue Bonds, 5.50% due 4/01/2007 (c)(e) 1,830
AAA Aaa 1,000 Central Montcalm, Michigan, Public Schools, GO, 5.90% due 5/01/2019 (b) 1,103
AAA Aaa 1,250 Chelsea, Michigan, School District, GO, 5.875% due 5/01/2005 (c)(e) 1,378
AAA Aaa 1,000 Coldwater, Michigan, Community Schools, GO, 6.30% due 5/01/2004 (b)(e) 1,087
AAA Aaa 1,000 Comstock Park, Michigan, Public Schools, GO, 5.75% due 5/01/2029 (c) 1,078
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 1,477
BBB Baa2 500 Series A, 6.25% due 4/15/2027 496
Detroit, Michigan, City School District, GO, Series A:
AAA Aaa 1,500 6.50% due 5/01/2011 (a) 1,805
AAA Aaa 1,000 5.50% due 5/01/2018 (d) 1,081
AAA Aaa 2,300 (School Building and Site Improvement), 5.375% due 5/01/2024 (c) 2,393
Detroit, Michigan, GO (b):
AAA Aaa 1,400 5.50% due 4/01/2018 1,498
AAA Aaa 1,325 5.50% due 4/01/2020 1,400
AAA Aaa 2,705 Series B, 6% due 4/01/2015 3,090
AAA Aaa 1,000 Detroit, Michigan, Sewer Disposal Revenue Bonds, Series A, 5.75%
due 1/01/2010 (c)(e) 1,153
AAA NR* 4,375 Detroit, Michigan, Water Supply System Revenue Bonds, DRIVERS,
Series 200, 9.31% due 7/01/2028 (c)(g) 5,083
Detroit, Michigan, Water Supply System Revenue Bonds, Senior Lien,
Series A (c)(e):
AAA Aaa 4,875 5.75% due 1/01/2010 5,619
AAA Aaa 1,250 5.875% due 1/01/2010 1,451
AAA Aaa 1,415 Detroit, Michigan, Water Supply System, Revenue Refunding Bonds,
6.25% due 7/01/2012 (c)(e)(h) 1,512
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 3,943
MuniYield Michigan Insured Fund, Inc., October 31, 2002
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings+++ Ratings+++ Amount Issue Value
Michigan BBB Baa2 $ 2,500 Dickinson County, Michigan, Economic Development Corporation, PCR,
(continued) Refunding (Champion International Corporation Project), 5.85% due
10/01/2018 $ 2,519
AAA Aaa 1,610 East Grand Rapids, Michigan, Public School District, GO, 5.75%
due 5/01/2009 (d)(e) 1,848
Eastern Michigan University Revenue Bonds, Series B (c):
AAA Aaa 1,500 5.60% due 6/01/2025 1,575
AAA Aaa 1,310 5.625% due 6/01/2030 1,377
Eastern Michigan University, Revenue Refunding Bonds:
AAA Aaa 1,025 6% due 6/01/2020 (a) 1,160
A1+ NR* 1,500 VRDN, 1.95% due 6/01/2027 (c)(i) 1,500
AAA Aaa 1,000 Frankenmuth, Michigan, School District, GO, 5.75% due 5/01/2020 (c) 1,083
AAA Aaa 1,100 Grand Blanc, Michigan, Community Schools, GO, 5.625% due 5/01/2020 (c) 1,186
AAA Aaa 12,500 Grand Ledge, Michigan, Public Schools District, GO, 6.60% due
5/01/2004 (b)(e) 13,641
AAA Aaa 2,090 Grand Rapids, Michigan, Building Authority, GO, 5.375% due 8/01/2017 (a) 2,232
Grand Rapids, Michigan, Building Authority Revenue Bonds, Series A:
AAA Aaa 1,100 5.50% due 10/01/2019 (a) 1,187
AAA Aaa 1,500 5.50% due 10/01/2020 1,606
AAA NR* 1,070 Grand Valley, Michigan, State University Revenue Bonds, 5.50% due
2/01/2018 (c) 1,183
AAA Aaa 2,570 Grandville, Michigan, Public Schools District, GO, Refunding, 6.60%
due 5/01/2005 (c)(e) 2,880
AAA NR* 8,425 Greater Detroit, Michigan, Resource Recovery Authority Revenue
Bonds, DRIVERS, Series 167, 10.32% due 12/13/2008 (a)(g) 11,119
AAA Aaa 2,250 Greenville, Michigan, Public Schools, GO, 5.75% due 5/01/2004 (b)(e) 2,406
AAA Aaa 1,500 Greenville, Michigan, Public Schools, GO, Refunding, 5% due 5/01/2024 (d) 1,502
Hartland, Michigan, Consolidated School District, GO (c)(e):
AAA Aaa 3,250 6% due 5/01/2010 3,796
AAA Aaa 3,575 6% due 5/01/2010 (j) 4,175
AAA Aaa 2,500 6% due 5/01/2010 2,920
AAA Aaa 1,475 Haslett, Michigan, Public School District, Building and Site, GO,
5.625% due 5/01/2020 1,591
AAA Aaa 1,575 Jenison, Michigan, Public Schools, Building and Site, GO, 5.50% due
5/01/2019 (c) 1,697
AAA Aaa 3,305 Jonesville, Michigan, Community Schools, GO, 5.75% due 5/01/2029 (c) 3,559
NR* Aaa 6,850 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility
Revenue Refunding Bonds (Bronson Methodist Hospital), 5.50% due
5/15/2028 (b) 7,064
AAA Aaa 4,660 Kent, Michigan, Hospital Finance Authority, Health Care Revenue
Bonds (Butterworth Health Systems), Series A, 5.625% due 1/15/2006 (b)(e) 5,215
AAA Aaa 4,000 Kent, Michigan, Hospital Finance Authority, Hospital Revenue
Refunding Bonds (Butterworth Hospital), Series A, 7.25% due 1/15/2013 (b) 4,917
Kent, Michigan, Hospital Finance Authority Revenue Bonds (Spectrum
Health), Series A:
AAA NR* 3,000 5.50% due 1/15/2031 (b) 3,114
AA Aa3 1,000 5.50% due 1/15/2031 1,007
AAA Aaa 1,000 Leslie, Michigan, Public Schools, Ingham and Jackson Counties, GO,
Refunding, 6% due 5/01/2005 (a)(e) 1,106
AAA Aaa 5,235 Lincoln Park, Michigan, School District, GO, 7% due 5/01/2006 (c)(e) 6,098
AAA Aaa 4,775 Livonia, Michigan, Public School District, GO (Building and Site),
5.75% due 5/01/2022 (c) 5,117
AAA Aaa 1,900 Lowell, Michigan, Area Schools, GO, Refunding, 4.91%** due 5/01/2016 (c) 1,003
BBB NR* 2,250 Michigan Higher Education Facilities Authority, Limited
Obligation Revenue Refunding Bonds (Hope College), Series A,
5.90% due 4/01/2032 2,286
Michigan Higher Education Facilities Authority, Revenue Refunding
Bonds (College for Creative Studies):
NR* Baa2 1,235 5.85% due 12/01/2022 1,225
NR* Baa2 1,145 5.90% due 12/01/2027 1,127
AAA NR* 2,500 Michigan Higher Education Student Loan Authority, Student Loan Revenue
Bonds, AMT, Series XVII-B, 5.40% due 6/01/2018 (a) 2,564
AAA NR* 1,065 Michigan Municipal Bond Authority Revenue Bonds (Local Government
Loan Program), Group A, 5.50% due 11/01/2020 (a) 1,129
Michigan Municipal Bond Authority, Revenue Refunding Bonds (Local
Government Loan Program), Series A:
AAA Aaa 1,035 6.50% due 5/01/2012 (a) 1,060
AAA Aaa 1,870 6.50% due 11/01/2012 (b) 1,914
AAA Aaa 1,000 6% due 12/01/2013 (c) 1,095
AAA Aaa 7,000 6.125% due 12/01/2018 (c) 7,664
AA+ Aaa 7,000 Michigan State Building Authority Revenue Bonds, GO, RIB, Series 481,
8.843% due 4/15/2009 (b)(g) 8,907
Michigan State Building Authority, Revenue Refunding Bonds:
AAA NR* 2,500 (Facilities Program), Series I, 5.50% due 10/15/2018 (b) 2,702
NR* Aa1 11,140 RIB, Series 517X, 8.84% due 10/15/2010 (g) 14,162
Michigan State, COP (a):
AAA Aaa 3,000 5.40%** due 6/01/2022 1,051
AAA Aaa 3,000 5.50% due 6/01/2027 3,112
AAA Aaa 965 Michigan State Comprehensive Transportation Revenue Bonds, Series B,
5.25% due 5/15/2012 (d) 1,079
AAA Aaa 4,795 Michigan State, HDA, Rental Housing Revenue Bonds, AMT, Series A,
5.30% due 10/01/2037 (b) 4,797
Michigan State, HDA, Revenue Refunding Bonds (f):
AA+ NR* 365 AMT, Series B, 6.20% due 6/01/2027 380
AA+ NR* 2,690 Series C, 5.90% due 12/01/2015 2,835
Michigan State Hospital Finance Authority, Hospital Revenue Refunding Bonds:
A+ A2 2,200 (Crittenton Hospital), Series A, 5.625% due 3/01/2027 2,201
NR* Baa3 2,000 (Sinai Hospital), 6.625% due 1/01/2016 2,015
A A1 2,000 (Sparrow Obligation Group), 5.625% due 11/15/2031 2,005
BBB- Baa3 2,000 Michigan State Hospital Finance Authority Revenue Bonds (Detroit
Medical Center), Series A, 5.25% due 8/15/2023 1,708
Michigan State Hospital Finance Authority, Revenue Refunding Bonds:
AAA Aaa 2,500 (Ascension Health Credit), Series A, 6.25% due 11/15/2014 (b) 2,828
AAA Aaa 2,715 (Ascension Health Credit), Series A, 5.75% due 11/15/2017 (b) 2,893
AAA Aaa 12,000 (Ascension Health Credit), Series A, 6.125% due 11/15/2023 (b) 13,177
AA Aa2 1,500 (Ascension Health Credit), Series A, 6.125% due 11/15/2026 1,581
AAA Aaa 4,805 (Mercy Health Services), Series T, 6.50% due 8/15/2013 (b) 5,536
AAA Aaa 2,000 (Mercy Health Services), Series X, 6% due 8/15/2014 (b) 2,225
AAA Aaa 2,200 (Mercy Health Services), Series X, 5.75% due 8/15/2019 (b) 2,349
AAA Aaa 4,930 (Mercy Mount Clemens), Series A, 6% due 5/15/2014 (b) 5,469
AAA Aaa 3,000 (Saint John Hospital), Series A, 6% due 5/15/2013 (a)(h) 3,120
AAA Aaa 6,400 (Trinity Health), Series A, 6% due 12/01/2027 (a) 7,014
Michigan State Strategic Fund, Limited Obligation Revenue Bonds, AMT:
BBB Baa1 5,000 (Ford Motor Company Project), Series A, 6.55% due 10/01/2022 5,047
BBB Ba1 3,000 (WMX Technologies Inc. Project), 6% due 12/01/2013 3,021
BBB Ba1 2,500 (Waste Management Inc. Project), 6.625% due 12/01/2012 2,552
MuniYield Michigan Insured Fund, Inc., October 31, 2002
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings+++ Ratings+++ Amount Issue Value
Michigan Michigan State Strategic Fund, Limited Obligation Revenue Refunding
(concluded) Bonds:
AAA Aaa $ 7,250 (Detroit Edison Company), AMT, Series A, 5.55% due 9/01/2029 (b) $ 7,516
AAA Aaa 6,000 (Detroit Edison Company Fund--Pollution), Series AA, 6.95% due
5/01/2011 (c) 7,426
NR* Aaa 5,750 RIB, Series 382, 10.59% due 9/01/2025 (b)(g) 7,135
Michigan State Strategic Fund, PCR, Refunding:
NR* VMIG1++ 2,200 (Consumers Power Project), VRDN, 1.90% due 4/15/2018 (a)(i) 2,200
BBB A3 2,500 (General Motors Corp.), 6.20% due 9/01/2020 2,556
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) 19,059
Monroe County, Michigan, PCR (Detroit Edison Company Project), AMT (b):
AAA Aaa 9,000 Series CC, 6.55% due 6/01/2024 9,385
AAA Aaa 1,500 Series I-B, 6.55% due 9/01/2024 1,579
AAA Aaa 1,000 Montrose Township, Michigan, School District, GO, 6.20% due 5/01/2017 (b) 1,198
Morenci, Michigan, Area Schools, GO (b):
AAA Aaa 1,035 5.25% due 5/01/2017 1,110
AAA Aaa 1,255 5.25% due 5/01/2019 1,323
NR* Aaa 1,830 Muskegon Heights, Michigan, Water System Revenue Bonds, Series A,
5.625% due 11/01/2025 (b) 1,928
A1+ VMIG1++ 300 Northern Michigan University Revenue Bonds, VRDN, 1.95% due
6/01/2031 (c)(i) 300
Northview, Michigan, Public School District, GO, Refunding (b):
AAA NR* 2,265 5.80% due 5/01/2006 (e) 2,548
AAA Aaa 235 5.80% due 5/01/2021 255
AAA Aaa 1,100 Norway Vulcan, Michigan, Area Schools, GO, 5.90% due 5/01/2025 (c) 1,173
AAA Aaa 2,425 Oxford, Michigan, Area Community School District, GO, 5.50% due
5/01/2018 (d) 2,621
AAA Aaa 1,000 Plainwell, Michigan, Community Schools, School District, Building
and Site, GO, 5.50% due 5/01/2020 (d) 1,071
A NR* 700 Pontiac, Michigan, Tax Increment Finance Authority, Tax Increment
Revenue Refunding Bonds (Development Area 2), 5.625% due 6/01/2022 706
AAA Aaa 1,870 Redford, Michigan, Unified School District, GO, 5.90% due 5/01/2006 (c)(e) 2,110
AAA Aaa 1,000 Reeths-Puffer Schools, Michigan, GO, Refunding, 6% due 5/01/2005 (c)(e) 1,106
AAA Aaa 1,800 Rochester, Michigan, Community School District, GO, Series II,
5.50% due 5/01/2015 (c) 1,990
AAA Aaa 2,500 Saginaw, Michigan, Hospital Finance Authority, Revenue Refunding
Bonds (Covenant Medical Center), Series E, 5.625% due 7/01/2013 (b) 2,729
NR* Aaa 8,900 Saint Clair County, Michigan, Economic Revenue Refunding Bonds
(Detroit Edison Company), RIB, Series 282, 10.87% due 8/01/2024 (a)(g) 11,864
AAA Aaa 2,000 South Lake, Michigan, Schools, GO, 5.125% due 5/01/2014 (c) 2,202
AAA Aaa 1,300 Southfield, Michigan, Library Building Authority, GO, 5.50% due
5/01/2018 (b) 1,392
AAA Aaa 2,090 Southgate, Michigan, Community School District, GO, Refunding,
4% due 5/01/2012 (b) 2,128
Sturgis, Michigan, Public School District, GO (School Building
and Site):
AAA Aaa 1,900 5.50% due 5/01/2021 1,995
AAA Aaa 2,545 5.625% due 5/01/2030 2,674
AAA Aaa 1,000 Three Rivers, Michigan, Community Schools GO, 6% due 5/01/2006 (b)(e) 1,132
A1+ VMIG1++ 600 University of Michigan, University Hospital Revenue Refunding
Bonds, VRDN, Series A, 1.90% due 12/01/2019 (i) 600
AAA Aaa 1,350 Warren, Michigan, Consolidated School District, GO, 5.375% due
5/01/2016 (d) 1,466
AAA Aaa 1,500 Waterford, Michigan, School District, GO, 6.25% due 6/01/2004 (c)(e) 1,620
AAA Aaa 1,100 Waverly, Michigan, Community School, GO, 5.50% due 5/01/2021 (c) 1,155
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) 11,151
AAA Aaa 2,400 Wayne County, Michigan, COP, 5.625% due 5/01/2011 (a) 2,662
West Bloomfield, Michigan, School District, GO Refunding (c):
AAA Aaa 1,710 5.50% due 5/01/2017 1,867
AAA Aaa 1,225 5.50% due 5/01/2018 1,329
AAA Aaa 2,405 West Branch-Rose City, Michigan, Area School District, GO, 5.50%
due 5/01/2024 (c) 2,520
AAA Aaa 2,485 West Ottawa, Michigan, Public School District, GO, Refunding,
Series B, 5.375% due 5/01/2017 (c) 2,694
AAA Aaa 1,300 Ypsilanti, Michigan, School District, GO, Refunding, 5.75% due
5/01/2007 (c)(e) 1,469
Puerto A A1 2,000 Children's Trust Fund, Puerto Rico, Tobacco Settlement Revenue
Rico--5.6% Bonds, 5.625% due 5/15/2043 1,924
A A1 2,300 Children's Trust Fund, Puerto Rico, Tobacco Settlement Revenue
Refunding Bonds, 5.50% due 5/15/2039 2,209
AAA Aaa 1,270 Puerto Rico Electric Power Authority, Power Revenue Bonds, Trust
Receipts, Class R, Series 16 HH, 9.308% due 7/01/2013 (d)(g) 1,682
A- Baa1 2,500 Puerto Rico Public Buildings Authority, Government Facilities Revenue
Refunding Bonds, Series C, 5.75% due 7/01/2022 2,746
Puerto Rico Public Finance Corporation, Commonwealth Appropriation
Revenue Bonds:
AAA Aaa 1,000 Series A, 5.375% due 8/01/2024 (b) 1,051
BBB+ Baa3 2,900 Series E, 5.75% due 8/01/2030 3,125
BBB+ Baa3 1,000 Puerto Rico Public Finance Corporation Revenue Bonds, Commonwealth
Appropriation, Series E, 5.70% due 8/01/2025 1,056
AAA Aaa 2,150 University of Puerto Rico, University Revenue Refunding Bonds,
Series O, 5.375% due 6/01/2030 (b) 2,237
Total Investments (Cost--$385,055)--145.8% 416,493
Variation Margin on Financial Futures Contracts***--(0.1%) (136)
Other Assets Less Liabilities--3.3% 9,461
Preferred Stock, at Redemption Value--(49.0%) (140,016)
--------
Net Assets Applicable to Common Stock--100.0% $285,802
========
(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 October 31, 2002.
(h)Escrowed to maturity.
(i)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, 2002.
(j)All or a portion of security held as collateral in connection
with open financial futures contracts.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
***Financial futures contracts sold as of October 31, 2002 were as
follows:
(in Thousands)
Number of Expiration
Contracts Issue Date Value
300 U.S. Treasury Notes December 2002 $ 34,416
----------------
Total Financial Futures Contracts Sold
(Total Contract Price--$33,753) $ 34,416
================
++Highest short-term rating by Moody's Investors Service, Inc.
+++Ratings of issues shown are unaudited.
See Notes to Financial Statements.
MuniYield Michigan Insured Fund, Inc., October 31, 2002
STATEMENT OF NET ASSETS
As of October 31, 2002
Assets: Investments, at value (identified cost--$385,054,878) $416,493,098
Cash 177,359
Receivables:
Interest $ 7,958,945
Securities sold 5,220,069 13,179,014
------------
Prepaid expenses 20,881
------------
Total assets 429,870,352
------------
Liabilities: Payables:
Securities purchased 3,465,371
Dividends to Common Stock shareholders 211,323
Investment adviser 187,885
Variation margin 135,938 4,000,517
------------
Accrued expenses and other liabilities 52,230
------------
Total liabilities 4,052,747
------------
Preferred Stock: Preferred Stock, 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) 140,015,820
------------
Net Assets Net assets applicable to Common Stock $285,801,785
Applicable ============
To Common Stock:
Analysis of Common Stock, par value $.10 per share (18,155,932 shares issued
Net Assets and outstanding) $ 1,815,593
Applicable to Paid-in capital in excess of par 268,391,966
Common Stock: Undistributed investment income--net $ 3,709,176
Accumulated realized capital losses on investments--net (18,890,358)
Unrealized appreciation on investments--net 30,775,408
------------
Total accumulated earnings--net 15,594,226
------------
Total--Equivalent to $15.74 net asset value per share of
Common Stock (market price--$13.95) $285,801,785
============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
For the Year Ended October 31, 2002
Investment Interest $ 22,995,142
Income:
Expenses: Investment advisory fees $ 2,112,281
Commission fees 357,064
Accounting services 150,566
Professional fees 86,252
Transfer agent fees 67,791
Directors' fees and expenses 30,751
Listing fees 28,293
Custodian fees 23,626
Printing and shareholder reports 21,128
Pricing fees 21,078
Other 40,226
------------
Total expenses 2,939,056
------------
Investment income--net 20,056,086
------------
Realized & Realized loss on investments--net (1,708,542)
Unrealized Change in unrealized appreciation on investments--net (555,321)
Loss on ------------
Investments--Net: Total realized and unrealized loss on investments--net (2,263,863)
------------
Dividends to Investment income--net (1,965,080)
Preferred ------------
Stock Net Increase in Net Assets Resulting from Operations $ 15,827,143
Shareholders: ============
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 2002 2001++
Operations: Investment income--net $ 20,056,086 $ 19,641,438
Realized gain (loss) on investments--net (1,708,542) 1,578,519
Change in unrealized appreciation/depreciation on
investments--net (555,321) 22,042,066
Dividends to Preferred Stock shareholders (1,965,080) (4,401,028)
------------ ------------
Net increase in net assets resulting from operations 15,827,143 38,860,995
------------ ------------
Dividends to Investment income--net (17,007,569) (14,726,730)
Common Stock ------------ ------------
Shareholders: Net decrease in net assets resulting from dividends to
Common Stock shareholders (17,007,569) (14,726,730)
------------ ------------
Common Stock Offering costs resulting from the issuance of Common Stock -- (15,881)
Transactions:
Net decrease in net assets derived from Common Stock
transactions -- (15,881)
------------ ------------
Net Assets Total increase (decrease) in net assets applicable to
Applicable To Common Stock (1,180,426) 24,118,384
Common Stock: Beginning of year 286,982,211 262,863,827
------------ ------------
End of year* $285,801,785 $286,982,211
============ ============
*Undistributed investment income--net $ 3,709,176 $ 2,496,957
============ ============
++Certain prior year amounts have been reclassified to conform to
current year presentation.
See Notes to Financial Statements.
MuniYield Michigan Insured Fund, Inc., October 31, 2002
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998
Per Share Net asset value, beginning of year $ 15.81 $ 14.48 $ 13.91 $ 15.93 $ 15.51
Operating --------- --------- --------- --------- ---------
Performance:++++++ Investment income--net 1.10+++ 1.08 .99 1.04 1.07
Realized and unrealized gain (loss)
on investments--net (.12) 1.30 .67 (1.79) .46
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.11) (.24) (.30) (.18) (.21)
In excess of realized gain on
investments--net -- -- -- (.03) (.03)
--------- --------- --------- --------- ---------
Total from investment operations .87 2.14 1.36 (.96) 1.29
--------- --------- --------- --------- ---------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net (.94) (.81) (.79) (.85) (.83)
In excess of realized gain on
investments--net -- -- -- (.21) (.04)
--------- --------- --------- --------- ---------
Capital charge resulting from issuance
of Common Stock -- --++ -- -- --
--------- --------- --------- --------- ---------
Total dividends and distributions to
Common Stock shareholders (.94) (.81) (.79) (1.06) (.87)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 15.74 $ 15.81 $ 14.48 $ 13.91 $ 15.93
========= ========= ========= ========= =========
Market price per share, end of year $ 13.95 $ 14.22 $11.9375 $12.1875 $ 15.875
========= ========= ========= ========= =========
Total Investment Based on market price per share 4.77% 26.44% 4.62% (17.47%) 16.03%
Return:* ========= ========= ========= ========= =========
Based on net asset value per share 6.33% 15.89% 11.19% (6.13%) 8.85%
========= ========= ========= ========= =========
Ratios Based on Total expenses, excluding
Average Net reorganization expenses** 1.04% 1.05% 1.10% 1.09% 1.06%
Assets of ========= ========= ========= ========= =========
Common Stock: Total expenses** 1.04% 1.05% 1.33% 1.09% 1.06%
========= ========= ========= ========= =========
Total investment income--net** 7.10% 7.10% 7.49% 6.85% 6.90%
========= ========= ========= ========= =========
Amount of dividends to Preferred Stock
shareholders .70% 1.59% 2.18% 1.18% 1.36%
========= ========= ========= ========= =========
Investment income--net, to Common Stock
shareholders 6.40% 5.51% 5.31% 5.67% 5.54%
========= ========= ========= ========= =========
Ratios Based Total expenses, excluding reorganization
on Average expenses .70% .70% .72% .76% .74%
Net Assets ========= ========= ========= ========= =========
Of Common & Total expenses .70% .70% .86% .76% .74%
Preferred Stock:** ========= ========= ========= ========= =========
Total investment income--net 4.75% 4.71% 4.87% 4.75% 4.79%
========= ========= ========= ========= =========
Ratios Based on Dividends to Preferred Stock
Average Net shareholders 1.40% 3.14% 4.06% 2.66% 3.13%
Assets Of ========= ========= ========= ========= =========
Preferred Stock:
Supplemental Net assets applicable to Common Stock,
Data: end of year (in thousands) $ 285,802 $ 286,982 $262,864 $103,364 $ 117,511
========= ========= ========= ========= =========
Preferred Stock outstanding, end of
year (in thousands) $ 140,000 $ 140,000 $140,000 $ 50,000 $ 50,000
========= ========= ========= ========= =========
Portfolio turnover 32.68% 68.17% 51.41% 42.71% 41.65%
========= ========= ========= ========= =========
Leverage: Asset coverage per $1,000 $ 3,041 $ 3,050 $ 2,878 $ 3,067 $ 3,350
========= ========= ========= ========= =========
Dividends Series A--Investment income--net $ 354 $ 792 $ 1,023 $ 663 $ 782
Per Share ========= ========= ========= ========= =========
On Preferred Series B--Investment income--net $ 362 $ 783 $ 653 -- --
Stock ========= ========= ========= ========= =========
Outstanding:++++ Series C--Investment income--net $ 333 $ 782 $ 678 -- --
========= ========= ========= ========= =========
*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.
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'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. The Fund
determines and makes available for publication the net asset value
of its Common Stock on a weekly basis. The Fund's Common Stock is
listed on the New York Stock Exchange under the symbol MIY. The
following is a summary of significant accounting policies followed
by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of
such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of
options traded in the over-counter-market, valuation is the last
asked price (options written) or the last bid price (options
purchased). Securities with remaining maturities of sixty days or
less are valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. Losses may arise due to
changes in the value of the contract or if the counterparty does not
perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
MuniYield Michigan Insured Fund, Inc., October 31, 2002
NOTES TO FINANCIAL STATEMENTS (concluded)
* 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). Realized gains and losses on security
transactions are determined on the identified cost basis. Interest
income is recognized on the accrual basis. As required, effective
November 1, 2001, the Fund has adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began
amortizing all premiums and discounts on debt securities. The
cumulative effect of this accounting change had no impact on total
net assets of the Fund, but resulted in a $76,757 increase in cost
of securities (which, in turn, resulted in a corresponding $76,757
decrease in net unrealized appreciation and a corresponding $76,757
increase in undistributed net investment income), based on
securities held by the Fund as of October 31, 2001.
The effect of this change for the year ended October 31, 2002 was to
increase net investment income by $47,799, decrease net unrealized
depreciation by $115,654 and increase net realized capital losses by
$8,902. The statement of changes in net assets and financial
highlights for prior periods have not been restated to reflect this
change in presentation.
(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.
(f) Change in financial statement classification for Auction Market
Preferred Stock ("AMPS")--In accordance with the provisions of the
Financial Accounting Standards Board's Emerging Issues Task Force D-
98 ("EITF D-98"), "Classification and Measurement of Redeemable
Securities," effective for the current period, the Fund has
reclassified its AMPS outside of permanent equity in the Net Assets
section of the Statement of Net Assets. In addition, dividends to
Preferred Stock shareholders are now classified as a component of
the "Net Increase in Net Assets Resulting from Operations" on the
Statements of Operations and Changes in Net Assets and as a
component of the "Total from investment operations" in the Financial
Highlights. Prior year amounts presented have been reclassified to
conform to this period's presentation. The application of EITF D-98
related entirely to presentation and had no impact on net asset
value or the allocation of net investment income or net realized
capital gains or losses to Common Stock shareholders.
(g) Reclassification--Accounting principles generally accepted in
the United States of America require that certain components of net
assets be adjusted to reflect permanent differences between
financial and tax reporting. Accordingly, the current year's
permanent book/tax differences of $3,062,807 have been reclassified
between paid-in capital in excess of par and accumulated net
realized capital losses and $52,026 has been reclassified between
accumulated net realized capital losses and undistributed net
investment income. These reclassifications have no effect on net
assets or net asset value per share.
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 year ended October 31, 2002, the Fund reimbursed FAM $15,287
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 year ended October 31, 2002 were $134,704,413 and
$139,319,924, respectively.
Net realized gains (losses) for the year ended October 31, 2002 and
net unrealized gains (losses) as of October 31, 2002 were as
follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 2,819,763 $ 31,438,220
Financial futures contracts (4,528,305) (662,812)
------------ ------------
Total $(1,708,542) $ 30,775,408
============ ============
As of October 31, 2002, net unrealized appreciation for Federal
income tax purposes aggregated $31,553,875, of which $31,697,125
related to appreciated securities and $143,250 related to
depreciated securities. The aggregate cost of investments at October
31, 2002 for Federal income tax purposes was $384,939,223.
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.
Common Stock
Shares issued and outstanding during the years ended October 31,
2002 and October 31, 2001 remained constant.
Preferred Stock
AMPS are redeemable 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 October
31, 2002 were as follows: Series A, 1.65%, Series B, 1.65% and
Series C, 1.65%.
Shares issued and outstanding during the years ended October 31,
2002 and October 31, 2001 remained constant.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from .25% to .375%,
calculated on the proceeds of each auction. For the year ended
October 31, 2002, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, an affiliate of FAM, earned $210,914 as commissions.
5. Distributions to Shareholders:
On November 7, 2002, a tax-exempt income dividend of $.079500
was declared. The dividend was paid on November 27, 2002, to
shareholders of record on November 14, 2002.
The tax character of distributions paid during the fiscal years
ended October 31, 2002 and October 31, 2001 was as follows:
10/31/2002 10/31/2001
Distributions paid from:
Tax-exempt income $ 18,972,649 $ 19,127,758
------------- -------------
Total distributions $ 18,972,649 $ 19,127,758
============= =============
As of October 31, 2002, the components of accumulated earnings
on a tax basis were as follows:
Undistributed tax-exempt income--net $ 3,593,523
Undistributed long-term capital gains--net --
-------------
Total undistributed earnings--net 3,593,523
Capital loss carryforward (14,795,324)*
Unrealized gains--net 26,796,027**
-------------
Total accumulated earnings--net $ 15,594,226
=============
*On October 31, 2002, the Fund had a net capital loss carryforward
of $14,795,324, of which $746,473 expires in 2003; $1,458,638
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.
**The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
straddles, the realization for tax purposes of unrealized gains
(losses) on certain futures contracts and the difference between
book and tax amortization methods for premiums and discounts on
fixed income securities.
MuniYield Michigan Insured Fund, Inc., October 31, 2002
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
MuniYield Michigan Insured Fund, Inc.
We have audited the accompanying statement of net assets of
MuniYield Michigan Insured Fund, Inc., including the schedule of
investments, as of October 31, 2002, 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 years 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 auditing standards
generally accepted in the United States. 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 misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements and financial highlights. Our procedures
included confirmation of securities owned as of October 31, 2002 by
correspondence with the custodian and others. 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, 2002, 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 the financial highlights for each of the
years indicated, in conformity with accounting principles generally
accepted in the United States.
As discussed in Note 1F to the financial statements, in 2002 the
Fund changed its method of classifying Preferred Stock.
Ernst & Young LLP
MetroPark, New Jersey
December 9, 2002
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniYield
Michigan Insured Fund, Inc. during its taxable year ended October
31, 2002 qualify as tax-exempt interest dividends for Federal income
tax purposes.
Please retain this information for your records.
QUALITY PROFILE (unaudited)
The quality ratings of securities in the Fund as of October 31, 2002
were as follows:
Percent of
S&P Rating/Moody's Rating Total Investments
AAA/Aaa 83.1%
AA/Aa 4.8
A/A 3.4
BBB/Baa 7.6
Other++ 1.1
++Temporary investments in short-term municipal securities.
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute all or a portion of its
net investment income to its shareholders on a monthly basis. In
order to provide shareholders with a more consistent yield to the
current trading price of Common Stock of the Fund, the Fund may at
times pay out less than the entire amount of net investment income
earned in any particular month and may at times in any month pay out
such accumulated but undistributed income in addition to net
investment income earned in that month. As a result, the dividends
paid by the Fund for any particular month may be more or less than
the amount of net investment income earned by the Fund during such
month. The Fund's current accumulated but undistributed net
investment income, if any, is disclosed in the Statement of Net
Assets, which comprises part of the Financial Information included
in this report.
MuniYield Michigan Insured Fund, Inc., October 31, 2002
OFFICERS AND DIRECTORS
Number of Other
Portfolios in Director-
Position(s) Length Fund Complex ships
Held of Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Terry K. P.O. Box 9011 President 1999 to Chairman, Americas Region since 2001, and 117 Funds None
Glenn* Princeton, NJ and present Executive Vice President since 1983 of Fund Asset 162 Portfolios
08543-9011 Director and 1992 Management, L.P. ("FAM") and Merrill Lynch
Age: 62 to present Investment Managers, L.P. ("MLIM"); President of
Merrill Lynch Mutual Funds since 1999; President
of FAM Distributors, Inc. ("FAMD") since 1986
and Director thereof since 1991; Executive Vice
President and Director of Princeton Services, Inc.
("Princeton Services") since 1993; President of
Princeton Administrators, L.P. since 1988; Director
of Financial Data Services, Inc. since 1985.
*Mr. Glenn is a director, trustee or member of an advisory board of
certain other investment companies for which FAM or MLIM acts as
investment adviser. Mr. Glenn is an "interested person," as
described in the Investment Company Act, of the Fund based on his
positions as Chairman (Americas Region) and Executive Vice President
of FAM and MLIM; President of FAMD; Executive Vice President of
Princeton Services; and President of Princeton Administrators, L.P.
The Director's term is unlimited. Directors serve until their
resignation, removal or death, or until December 31 of the year
in which they turn 72. As Fund President, Mr. Glenn serves at
the pleasure of the Board of Directors.
Number of Other
Portfolios in Director-
Position(s) Length Fund Complex ships
Held of Time Overseen by Held by
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Director Director
Independent Directors
Donald P.O. Box 9011 Director 2002 to General Partner of The Burton Partnership, 23 Funds ITC Delta-
W. Princeton, NJ present Limited Partnership since 1979; Managing 34 Portfolios Com, Inc.;
Burton 08543-9011 General Partner of The South Atlantic Venture ITC Holding
Age: 58 Funds since 1983; Member of the Investment Company,
Advisory Committee of the Florida State Board Inc.;
of Administration since 2001. Knology,
Inc.; Main-
Bancorp,
N.A.; Pri-
Care, Inc.;
Sumbion,
Inc.
M. P.O. Box 9011 Director 1992 to James R. Williston Professor of Investment 23 Funds Cambridge
Colyer Princeton, NJ present Management Emeritus, Harvard Business 34 Portfolios Bancorp
Crum 08543-9011 School since 1996.
Age: 70
Laurie P.O. Box 9011 Director 1999 to Professor of Finance and Economics, Graduate 23 Funds None
Simon Princeton, NJ present School of Business, Columbia University since 34 Portfolios
Hodrick 08543-9011 1998; Associate Professor of Finance and
Age: 40 Economics, Graduate School of Business,
Columbia University from 1996 to 1998.
J. P.O. Box 9011 Director 1992 to Managing Partner of the Witt Touchton Company 23 Funds TECO
Thomas Princeton, NJ present since 1972. 34 Portfolios Energy, Inc.
Touchton 08543-9011
Age: 63
Fred G. P.O. Box 9011 Director 1998 to Managing Director of FGW Associates since 23 Funds Watson
Weiss Princeton, present 1997; Vice President, Planning, Investment and 34 Portfolios Pharmaceu-
NJ 08543-9011 Development of Warner Lambert Co. from 1979 ticals, Inc.
Age: 61 to 1997.
*The Director's term is unlimited. Directors serve until their
resignation, removal or death, or until December 31 of the year in
which they turn 72.
Position(s) Length
Held of Time
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
Fund Officers
Donald P.O. Box 9011 Vice 1993 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof
C. Princeton, NJ President present since 1999; Senior Vice President and Treasurer of Princeton Services since
Burke 08543-9011 and and 1999; Vice President of FAMD since 1999; Vice President of FAM and MLIM
Age: 42 Treasurer 1999 to from 1990 to 1997; Director of Taxation of MLIM since 1990.
present
Kenneth P.O. Box 9011 Senior 2002 to Managing Director of FAM and MLIM since 1997.
A. Princeton, NJ Vice present
Jacob 08543-9011 President
Age: 51
John P.O. Box 9011 Senior 2002 to Managing Director of FAM and MLIM since 2000; and First Vice President
M. Princeton, NJ Vice present from 1997 to 2000.
Loffredo 08543-9011 President
Age: 38
Fred K. P.O. Box 9011 Vice 1995 to Vice President of MLIM since 1989.
Stuebe Princeton, NJ President present
08543-9011
Age: 49
Brian D. P.O. Box 9011 Secretary 2002 to Vice President (Legal Advisory) of MLIM since 2002; Attorney with Reed
Stewart Princeton, NJ present Smith from 2001 to 2002 and Saul Ewing from 1999 to 2001.
08543-9011
Age: 33
*Officers of the Fund serve at the pleasure of the Board of
Directors.
Transfer Agent
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Preferred Stock:
The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
MIY