N-30D 1 ml6640.txt MYMINS6640 Merrill Lynch Investment Managers Semi-Annual Report April 30, 2001 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 by issuing Preferred Stock to provide the Common Stock shareholders with a potentially higher rate of return. Leverage creates risks for Common Stock shareholders, including the likelihood of greater volatility of net asset value and market price of the Common Stock, and the risk that fluctuations in the short- term dividend rates of the Preferred Stock may affect the yield to Common Stock shareholders. Statements and other information herein are as dated and are subject to change. MuniYield Michigan Insured Fund, Inc. Box 9011 Princeton, NJ 08543-9011 Printed on post-consumer recycled paper MUNIYIELD MICHIGAN INSURED FUND, INC. The Benefits and Risks of Leveraging MuniYield Michigan Insured Fund, Inc. utilizes leveraging to seek to enhance the yield and net asset value of its Common Stock. However, these objectives cannot be achieved in all interest rate environments. To leverage, the Fund issues Preferred Stock, which pays dividends at prevailing short-term interest rates and invests the proceeds in long-term municipal bonds. The interest earned on these investments is paid to Common Stock shareholders in the form of dividends, and the value of these portfolio holdings is reflected in the per share net asset value of the Fund's Common Stock. However, in order to benefit Common Stock shareholders, the yield curve must be positively sloped; that is, short-term interest rates must be lower than long-term interest rates. At the same time, a period of generally declining interest rates will benefit Common Stock shareholders. If either of these conditions change, then the risks of leveraging will begin to outweigh the benefits. To illustrate these concepts, assume a fund's Common Stock capitalization of $100 million and the issuance of Preferred Stock for an additional $50 million, creating a total value of $150 million available for investment in long-term municipal bonds. If prevailing short-term interest rates are approximately 3% and long- term interest rates are approximately 6%, the yield curve has a strongly positive slope. The fund pays dividends on the $50 million of Preferred Stock based on the lower short-term interest rates. At the same time, the fund's total portfolio of $150 million earns the income based on long-term interest rates. Of course, increases in short-term interest rates would reduce (and even eliminate) the dividends on the Common Stock. In this case, the dividends paid to Preferred Stock shareholders are significantly lower than the income earned on the fund's long-term investments, and therefore the Common Stock shareholders are the beneficiaries of the incremental yield. However, if short-term interest rates rise, narrowing the differential between short-term and long-term interest rates, the incremental yield pickup on the Common Stock will be reduced or eliminated completely. At the same time, the market value of the fund's Common Stock (that is, its price as listed on the New York Stock Exchange) may, as a result, decline. Furthermore, if long-term interest rates rise, the Common Stock's net asset value will reflect the full decline in the price of the portfolio's investments, since the value of the fund's Preferred Stock does not fluctuate. In addition to the decline in net asset value, the market value of the fund's Common Stock may also decline. As a part of its investment strategy, the Fund may invest in certain securities whose potential income return is inversely related to changes in a floating interest rate ("inverse floaters"). In general, income on inverse floaters will decrease when short-term interest rates increase and increase when short-term interest rates decrease. Investments in inverse floaters may be characterized as derivative securities and may subject the Fund to the risks of reduced or eliminated interest payments and losses of invested principal. In addition, inverse floaters have the effect of providing investment leverage and, as a result, the market value of such securities will generally be more volatile than that of fixed- rate, tax-exempt securities. To the extent the Fund invests in inverse floaters, the market value of the Fund's portfolio and the net asset value of the Fund's shares may also be more volatile than if the Fund did not invest in such securities. MuniYield Michigan Insured Fund, Inc., April 30, 2001 DEAR SHAREHOLDER For the six-month period ended April 30, 2001, the Common Stock of MuniYield Michigan Insured Fund, Inc. earned $0.396 per share income dividends, which included earned and unpaid dividends of $0.069. This represents a net annualized yield of 5.34%, based on a month- end per share net asset value of $14.94. Over the same period, the total investment return on the Fund's Common Stock was +6.28%, based on a change in per share net asset value from $14.48 to $14.94, and assuming reinvestment of $0.392 per share income dividends. For the six-month period ended April 30, 2001, the Fund's Auction Market Preferred Stock had an average yield of 3.82% for Series A, 3.82% for Series B and 3.73% for Series C. The Municipal Market Environment During the six months ended April 30, 2001, the direction of long- term fixed-income bond yields was affected by the continued decline in US economic activity, volatile US equity markets, and most importantly, the reaction of the Federal Reserve Board to these factors. A preliminary estimate for the first quarter of 2001 gross national product growth was recently released at 2%, much higher than expected by most economic analysts. While this estimate is subject to revision in the coming months, its initial level denotes that US economic activity remains far below its growth potential. Additionally, inflationary pressures have remained well contained, largely in the 2%--3% range. These factors combined to promote a very favorable financial environment for bonds, and when coupled with significant declines in US equity markets in late 2000, especially the NASDAQ, pushed US Treasury bond yields lower. By mid-December, the Federal Reserve Board announced that economic conditions warranted the cessation of the series of short-term interest rate increases. Given a supportive economic environment and, at least, a neutral Federal Reserve Board, investors were free again to focus on the ongoing US Treasury debt reduction programs and forecasts of sizable Federal budgetary surpluses going forward. Many analysts and investors concluded that there would be a significant future shortage of longer-maturing US Treasury securities. These factors combined to help push US Treasury bond yields significantly lower. In early January 2001, the Federal Reserve Board lowered short-term interest rates by 50 basis points (0.50%), citing declining consumer confidence and weakening industrial production and retail sales growth. Similar reasons were given for an additional 50 basis point reduction in short-term interest rates by the Federal Reserve Board at the end of January 2001. These interest rate cuts triggered a significant rebound in many US equity indexes, reducing the appeal of a large number of US fixed-income securities. Additionally, many investors, believing that the Federal Reserve Board's actions in January 2001 as well as those anticipated in the coming months would quickly restore US economic growth to earlier levels, sold US Treasury bonds to realize recent profits. At the end of January 2001, long-term US Treasury bonds yielded approximately 5.50%, a decline of more than 25 basis points since the end of October 2000. In response to weakening employment, a decline in business investments and profits, and fears of ongoing weak consumer spending, the Federal Reserve Board continued to lower short-term interest rates in March and April in an effort to foster higher US economic activity. Long-term taxable fixed-income interest rates responded by declining to recent historic lows. By late March 2001, long-term US Treasury bond yields declined an additional 25 basis points to 5.26%. However, in April, US equity markets, particularly the NASDAQ, rallied strongly on the expectation that the Federal Reserve Board would take steps to restore economic activity and corporate profitability. Throughout much of April many investors reallocated assets out of US Treasury securities into equities. Corporate bond issuance remained heavy, providing an additional investment alternative to US Treasury issues. Under these various pressures, US Treasury bond prices declined sharply and yields rose to 5.78% by the end of April. During the past six months, long-term US Treasury bond yields, although exhibiting considerable volatility, remained unchanged. By April 2001, the tax-exempt bond market also reacted to the Federal Reserve Board's actions and equity market volatility, but its reaction was muted in both intensity and degree. Throughout most of the past six months, long-term municipal bond yields traded in a range between 5.45%--5.60%. In mid-March, the tax-exempt bond market rallied to 5.40%, following the Federal Reserve Board's most recent monetary easing. With tax-exempt bond yield ratios in excess of 95% relative to their US Treasury counterparts during most of the period, investor demand was particularly strong during periods of declining equity prices. Strong equity markets in April 2001, as well as the possibility that the Federal Reserve Board was close to the end of its interest rate reduction cycle, lowered much of the investor demand and long-term tax-exempt bond yields rose throughout April. As measured by the Bond Buyer Revenue Bond Index, long-term, uninsured tax-exempt bond yields rose to approximately 5.63% at the end of the period. Despite the price reversal in April, long-term municipal bond yields declined more than 10 basis points. The recent relative outperformance of the tax-exempt bond market was particularly impressive given the dramatic increase in long-term municipal bond issuance during April 2001. Historically low municipal bond yields continued to allow municipalities to refund outstanding, higher-couponed debt. Also, as yields rose in early April, tax-exempt issuers rushed to issue new financing, fearing higher yields in the coming months. During the past six months, more than $115 billion in long-term tax-exempt bonds was issued, an increase of over 25% compared to the same period a year ago. During the three-month period ended April 30, 2001, tax-exempt bond issuance was particularly heavy with more than $66 billion in long- term municipal bonds underwritten, an increase of over 40% compared to the same period ended April 30, 2000. More than $20 billion in municipal securities was issued in April 2001, a 20% increase compared to April 2000. Historically, April has been a period of weak demand for tax-exempt products as investors are often forced to liquidate bond positions to meet Federal and state tax payments. In April 2001, there was no appreciable selling by retail accounts. It has been noted that thus far in 2001, new net cash inflows into municipal bond mutual funds have exceeded $4 billion compared to net new cash outflows of nearly $9 billion for the same period a year ago. This suggests that the positive technical structure of the municipal market has remained intact. Also, the coming months of June and July tend to be periods of strong retail demand in response to the larger-coupon income payments and proceeds from bond maturities these months generate. Additionally, short-term tax-exempt interest rates are poised to move lower. Seasonal tax pressures have kept short-term municipal rates artificially high, although not as high as in recent years. We believe all of these factors should enhance the tax-exempt market's technical position in the coming months. Looking forward, the municipal market's direction appears uncertain. Should the US economy materially weaken into late summer, the Federal Reserve Board may be forced to ease monetary policy to a greater extent than investors currently expect. The prospect of two or three additional interest rate easings may push fixed-income bond yields, including municipal bond yields, lower. However, should the cumulative 200 basis point reduction in short-term interest rates by the Federal Reserve Board and the proposed Federal tax reform combine to quickly restore consumer confidence and economic activity, tax-exempt bond rates may not decline further. Given the strong technical position of the municipal market, we believe the tax-exempt market is poised to continue to outperform its taxable counterpart in the coming months. Portfolio Strategy We held a market neutral position at the end of October 2000, which was largely maintained throughout the six-month period ended April 30, 2001. As long-term Michigan tax-exempt bond yields declined in December 2000, we again added more interest rate-sensitive issues to the Fund's holdings in order to maintain the Fund's neutral position. Addition of these issues to the Fund allowed us to more fully participate in the bond market rally and enhance the Fund's net asset value. As bond yields rose in early 2001, we sold most of these interest rate-sensitive issues and replaced them with higher- couponed securities maturing in 10 years - 16 years. These longer intermediate issues captured approximately 90% of the yield available in the entire municipal yield curve but had appreciably less interest rate sensitivity than bonds maturing in 25 years--30 years. Such intermediate issues, particularly when noncallable, also can generate more dividend coupon income than longer maturity, deeper- discounted issues. This enhancement of dividend income represents our current focus. While more declines in long-term tax-exempt bond yields are possible, we believe that the bulk of these declines have already occurred. The Federal Reserve Board's easing of monetary policy should eventually restore US economic growth. We expect resulting economic growth to eventually promote higher bond yields as companies turn to the capital markets for money to increase production. Increasing the Fund's coupon structure should help preserve the market appreciation realized in recent months as well as enhance the Fund's already attractive dividend yield. We do not expect current declines in US economic activity to have a significant impact on the state's budgetary finances and surpluses. While Michigan's economy is no longer as dependent on the automobile industry for the bulk of its growth, the ongoing strength exhibited by this industry in recent months bodes well for the state. Going forward, we will continue to monitor the state's economic condition. The Federal Reserve Board's 200 basis point decrease in short-term interest rates by April 30, 2001 provided a beneficial effect on the Fund's borrowing costs. Despite recent seasonal tax pressures on short-term interest rates, borrowing costs have been in the 3.50%-- 3.75% range for much of the period. As we discussed, short-term Michigan tax-exempt rates are expected to fall into the 3% range. This decline in borrowing costs is expected to generate a significant yield enhancement to benefit the Fund's Common Stock shareholders from the leveraging of the Preferred Stock. 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 on the Fund's Common stock. (See page 1 of this report to shareholders for a complete explanation of the benefits and risks of leveraging.) In Conclusion We appreciate your ongoing interest in MuniYield Michigan Insured Fund, Inc., and we look forward to assisting you with your financial needs in the months and years ahead. Sincerely, (Terry K. Glenn) Terry K. Glenn President and Director (Vincent R. Giordano) Vincent R. Giordano Senior Vice President (Fred K. Stuebe) Fred K. Stuebe Vice President and Portfolio Manager May 29, 2001 MuniYield Michigan Insured Fund, Inc., April 30, 2001 PROXY RESULTS During the six-month period ended April 30, 2001, MuniYield Michigan Insured Fund, Inc.'s Common Stock shareholders voted on the following proposal. The proposal was approved at a shareholders' meeting on April 25, 2001. The description of the proposal and number of shares voted are as follows:
Shares Voted Shares Withheld For From Voting 1. To elect the Fund's Directors: Terry K. Glenn 17,223,260 613,735 Stephen B. Swensrud 17,200,163 636,832 J. Thomas Touchton 17,209,113 627,882 Fred G. Weiss 17,210,228 626,767
During the six-month period ended April 30, 2001, MuniYield Michigan Insured Fund, Inc.'s Preferred Stock shareholders voted on the following proposal. The proposal was approved at a shareholders' meeting on April 25, 2001. The description of the proposal and number of shares voted are as follows:
Shares Voted Shares Withheld For From Voting 1. To elect the Fund's Directors: Terry K. Glenn, M. Colyer Crum, Laurie Simon Hodrick, Stephen B. Swensrud, J. Thomas Touchton and Fred G. Weiss as follows: Series A 1,996 0 Series B 1,953 0 Series C 1,337 0
MuniYield Michigan Insured Fund, Inc., April 30, 2001 MANAGED DIVIDEND POLICY The Fund's dividend policy is to distribute all or a portion of its net investment income to its shareholders on a monthly basis. In order to provide shareholders with a more consistent yield to the current trading price of Common Stock of the Fund, the Fund may at times pay out less than the entire amount of net investment income earned in any particular month and may at times in any month pay out such accumulated but undistributed income in addition to net investment income earned in that month. As a result, the dividends paid by the Fund for any particular month may be more or less than the amount of net investment income earned by the Fund during such month. The Fund's current accumulated but undistributed net investment income, if any, is disclosed in the Statement of Assets, Liabilities and Capital, which comprises part of the Financial Information included in this report. QUALITY PROFILE The quality ratings of securities in the Fund as of April 30, 2001 were as follows: Percent of S&P Rating/Moody's Rating Net Assets AAA/Aaa 89.8% AA/Aa 2.0 A/A 1.9 BBB/Baa 0.6 Other* 3.3 *Temporary investments in short-term municipal securities. Portfolio Abbreviations To simplify the listings of MuniYield Michigan Insured Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) COP Certificates of Participation DATES Daily Adjustable Tax-Exempt Securities DRIVERS Derivative Inverse Tax-Exempt Securities GO General Obligation Bonds HDA Housing Development Authority PCR Pollution Control Revenue Bonds RIB Residual Interest Bonds VRDN Variable Rate Demand Notes SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Issue Value Michigan AAA Aaa $ 1,000 Allegan, Michigan, Public School District, GO, 5.75% due --96.7% 5/01/2030 (e) $ 1,029 Belding, Michigan, Area Schools, GO, Refunding (c): AAA Aaa 785 6.05% due 5/01/2006 (f) 865 AAA Aaa 215 6.05% due 5/01/2021 226 AAA Aaa 6,555 Brighton, Michigan, Area School District, GO, Refunding, Series II, 5.25% due 5/01/2019 (b) 2,396 AAA Aaa 1,000 Caledonia, Michigan, Community Schools, GO, Refunding, 6.625% due 5/01/2014 (b) 1,046 AAA Aaa 1,625 Central Michigan University Revenue Bonds, 5.50% due 4/01/2007 (c)(f) 1,756 AAA Aaa 1,000 Central Montcalm, Michigan, Public Schools, GO, 5.90% due 5/01/2019 (d) 1,049 AAA Aaa 1,250 Chelsea, Michigan, School District, GO, 5.875% due 5/01/2005 (c)(f) 1,355 AAA Aaa 6,500 Chippewa Valley, Michigan, School Building and Site, GO, Series I, 5% due 5/01/2026 6,132 AAA Aaa 1,000 Coldwater, Michigan, Community Schools, GO, 6.30% due 5/01/2004 (d)(f) 1,092 AAA Aaa 1,000 Comstock Park, Michigan, Public Schools, GO, 5.75% due 5/01/2029 (c) 1,027 AAA Aaa 1,360 Decatur, Michigan, Public Schools, Van Burn--Cass Counties, GO, 5% due 5/01/2029 (e) 1,260 NR* P1 575 Delta County, Michigan, Economic Development Corporation, Environmental Improvement Revenue Refunding Bonds (Mead- Escanaba Paper), DATES, Series D, 4.50% due 12/01/2023 (a) 575 AAA Aaa 1,575 Detroit, Michigan, City School District, GO, Series B, 5% due 5/01/2021 (c) 1,495 AAA Aaa 2,705 Detroit, Michigan, GO, Series B, 6% due 4/01/2015 (d) 2,937 AAA Aaa 1,000 Detroit, Michigan, Sewer Disposal Revenue Bonds, Series A, 5.75% due 7/01/2026 (c) 1,036 Detroit, Michigan, Water Supply System Revenue Bonds, Senior Lien, Series A: AAA Aaa 3,000 5% due 7/01/2021 (d) 2,846 AAA Aaa 4,875 5.75% due 7/01/2026 (c) 5,052 AAA Aaa 6,200 5% due 7/01/2027 (d) 5,795 AAA Aaa 1,250 5.875% due 7/01/2029 (c) 1,306 AAA Aaa 5,000 Detroit, Michigan, Water Supply System Revenue Refunding Bonds, 6.25% due 7/01/2012 (c)(i) 5,259
MuniYield Michigan Insured Fund, Inc., April 30, 2001 SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Issue Value Michigan AAA Aaa $ 1,610 East Grand Rapids, Michigan, Public School District, GO, (continued) 5.75% due 5/01/2021 (e) $ 1,661 AAA Aaa 1,500 East Lansing, Michigan, School District, GO (School Building and Site), 5.50% due 5/01/2020 1,517 AAA Aaa 1,000 Eastern Michigan University, General Revenue Refunding Bonds, 6.375% due 6/01/2014 (b) 1,036 Eastern Michigan University Revenue Bonds, Series B (c): AAA Aaa 1,500 5.60% due 6/01/2025 1,523 AAA Aaa 1,310 5.625% due 6/01/2030 1,329 AAA Aaa 1,225 Elkton Pigeon Bay Port, Michigan, GO, 5.375% due 5/01/2025 1,228 AAA Aaa 1,000 Frankenmuth, Michigan, School District, GO, 5.75% due 5/01/2020 (c) 1,036 Grand Ledge, Michigan, Public Schools District, GO (d)(f): AAA Aaa 1,000 6.45% due 5/01/2004 1,096 AAA Aaa 12,500 6.60% due 5/01/2004 13,749 AAA Aaa 2,090 Grand Rapids, Michigan, Building Authority, GO, 5.375% due 8/01/2017 (b) 2,112 AAA Aaa 1,295 Grand Rapids, Michigan, Water Supply Revenue Refunding Bonds, 5.25% due 1/01/2018 (c) 1,289 AAA Aaa 3,110 Grand Traverse County, Michigan, Hospital Revenue Refunding Bonds (Munson Healthcare), Series A, 6.25% due 7/01/2022 (b) 3,193 AAA Aaa 2,570 Grandville, Michigan, Public Schools District, GO, Refunding, 6.60% due 5/01/2005 (c)(f) 2,854 AAA NR* 8,425 Greater Detroit, Michigan, Resource Recovery Authority Revenue Bonds, DRIVERS, Series 167, 3.863% due 12/13/2008 (b)(g) 10,458 AAA Aaa 2,250 Greenville, Michigan, Public Schools, GO, 5.75% due 5/01/2004 (d)(f) 2,401 AAA Aaa 1,500 Greenville, Michigan, Public Schools, GO, Refunding, 5% due 5/01/2024 (e) 1,417 AAA Aaa 8,325 Hartland, Michigan, Consolidated School District, GO, 6% due 5/01/2010 (c)(f) 9,268 AAA Aaa 1,000 Huron Valley, Michigan, School District, GO, 5.75% due 5/01/2006 (c) 1,074 AAA Aaa 3,305 Jonesville, Michigan, Community Schools, GO, 5.75% due 5/01/2029 (c) 3,394 AAA Aaa 1,180 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue Refunding and Improvement Bonds (Bronson Methodist Hospital), Series A, 6.375% due 5/15/2017 (d) 1,290 NR* Aaa 6,850 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue Refunding Bonds (Bronson Methodist Hospital), 5.50% due 5/15/2028 (d) 6,858 AAA Aaa 1,000 Kent County, Michigan, Airport Facility Revenue Bonds (Kent County International Airport), AMT, 5% due 1/01/2028 (d) 913 AAA Aaa 4,660 Kent, Michigan, Hospital Finance Authority, Health Care Revenue Bonds (Butterworth Health Systems), Series A, 5.625% due 1/15/2006 (d)(f) 5,057 AAA Aaa 4,000 Kent, Michigan, Hospital Finance Authority, Hospital Revenue Refunding Bonds (Butterworth Hospital), Series A, 7.25% due 1/15/2013 (d) 4,748 AAA Aaa 1,000 Leslie, Michigan, Public Schools, Ingham and Jackson Counties, GO, Refunding, 6% due 5/01/2005 (b)(f) 1,088 AAA Aaa 5,235 Lincoln Park, Michigan, School District, GO, 7% due 5/01/2006 (c)(f) 5,979 AAA Aaa 5,000 Livonia, Michigan, Municipal Building Authority, GO, 5% due 5/01/2027 (c) 4,701 AAA Aaa 4,775 Livonia, Michigan, Public School District, GO (Building and Site), 5.75% due 5/01/2022 (c) 4,938 AAA Aaa 1,900 Lowell, Michigan, Area Schools, GO, Refunding, 4.91%** due 5/01/2016 (c) 843 Michigan Higher Education Student Loan Authority, Student Loan Revenue Bonds, AMT (b): AAA NR* 2,500 Series XVII-B, 5.40% due 6/01/2018 2,419 NR* VMIG1++ 600 VRDN, Series XII-D, 4.20% due 10/01/2015 (a) 600 Michigan Municipal Bond Authority Revenue Bonds: AAA NR* 1,065 (Local Government Loan Program), Group A, 5.50% due 11/01/2020 (b) 1,078 AAA Aaa 2,000 (State Revolving Fund), Series A, 6.60% due 10/01/2002 (f) 2,127 Michigan Municipal Bond Authority, Revenue Refunding Bonds (Local Government Loan Program), Series A: AAA Aaa 1,035 6.50% due 5/01/2012 (b) 1,091 AAA Aaa 1,870 6.50% due 11/01/2012 (d) 1,972 AAA Aaa 1,000 6% due 12/01/2013 (c) 1,072 AAA Aaa 7,000 6.125% due 12/01/2018 (c) 7,368 AA+ Aaa 7,000 Michigan State Building Authority Revenue Bonds, GO, RIB, Series 481, 6.46% due 4/15/2009 (d)(g) 8,025 AAA Aaa 4,335 Michigan State Building Authority, Revenue Refunding Bonds (Facilities Program), Series I, 6% due 10/01/2005 (b) 4,690 AAA Aaa 3,000 Michigan State, COP, 5.40%** due 6/01/2022 (b) 899 Michigan State, HDA, Rental Housing Revenue Bonds (d): AAA Aaa 5,000 AMT, Series A, 5.30% due 10/01/2037 4,663 AAA Aaa 1,500 Series B, 5.10% due 10/01/2019 1,461 AAA Aaa 3,885 Michigan State, HDA, Rental Housing Revenue Refunding Bonds, Series A, 6.50% due 4/01/2023 (e) 4,049 Michigan State, HDA, Revenue Refunding Bonds (h): AA+ NR* 1,095 AMT, Series B, 6.20% due 6/01/2027 1,130 AA+ NR* 2,690 Series C, 5.90% due 12/01/2015 2,808 Michigan State Hospital Finance Authority, Revenue Refunding Bonds: AAA Aaa 2,500 (Ascension Health Credit), Series A, 6.25% due 11/15/2014 (d) 2,724 AAA Aaa 2,715 (Ascension Health Credit), Series A, 5.75% due 11/15/2017 (d) 2,789 AAA Aaa 12,000 (Ascension Health Credit), Series A, 6.125% due 11/15/2023 (d) 12,551 AA Aa2 1,500 (Ascension Health Credit), Series A, 6.125% due 11/15/2026 1,541 AAA Aaa 4,805 (Mercy Health Services), Series T, 6.50% due 8/15/2013 (d) 5,326 AAA Aaa 2,000 (Mercy Health Services), Series X, 6% due 8/15/2014 (d) 2,152 AAA Aaa 2,200 (Mercy Health Services), Series X, 5.75% due 8/15/2019 (d) 2,257 AAA Aaa 4,930 (Mercy Mount Clemens), Series A, 6% due 5/15/2014 (d) 5,303 NR* VMIG1++ 1,000 (Mount Clemens Hospital), VRDN, 4.25% due 8/15/2015 (a) 1,000 AAA Aaa 3,000 (Saint John Hospital), Series A, 6.0% due 5/15/2013 (b)(i) 3,148 AAA Aaa 1,100 (Sisters of Mercy Health Corp.), Series M, 6.25% due 2/15/2002 (e)(f) 1,148 AAA Aaa 1,460 (Sparrow Obligated Group), 6.50% due 11/15/2011 (d) 1,512 AAA Aaa 6,400 (Trinity Health), Series A, 6% due 12/01/2027 (b) 6,712
MuniYield Michigan Insured Fund, Inc., April 30, 2001 SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Issue Value Michigan Michigan State Strategic Fund, Limited Obligation Revenue (concluded) Bonds, AMT: A A2 $ 5,000 (Ford Motor Company Project), Series A, 6.55% due 10/01/2022 $ 5,116 BBB Ba1 2,500 (Waste Management Inc. Project), 6.625% due 12/01/2012 2,548 Michigan State Strategic Fund, Limited Obligation Revenue Refunding Bonds: AAA Aaa 7,250 (Detroit Edison Company), AMT, Series A, 5.55% due 9/01/2029 (d) 7,255 AAA Aaa 6,000 (Detroit Edison Company Fund--Pollution), Series AA, 6.95% due 5/01/2011 (c) 7,068 NR* Aaa 5,750 RIB, Series 382, 8.21% due 9/01/2025 (d)(g) 6,509 Michigan State Strategic Fund, PCR, Refunding: NR* VMIG1++ 8,100 (Consumers Power Project), VRDN, 4.55% due 4/15/2018 (a)(b) 8,100 A A2 2,500 (General Motors Corp.), 6.20% due 9/01/2020 2,592 AAA Aaa 15,000 Monroe County, Michigan, Economic Development Corp., Limited Obligation Revenue Refunding Bonds (Detroit Edison Co. Project), Series AA, 6.95% due 9/01/2022 (c) 18,165 Monroe County, Michigan, PCR (Detroit Edison Company Project), AMT (d): AAA Aaa 9,000 Series CC, 6.55% due 6/01/2024 9,501 AAA Aaa 1,500 Series I-B, 6.55% due 9/01/2024 1,589 NR* Aaa 1,830 Muskegon Heights, Michigan, Water System Revenue Bonds, Series A, 5.625% due 11/01/2025 (d) 1,863 Northview, Michigan, Public School District, GO, Refunding (d): AAA NR* 2,265 5.80% due 5/01/2006 (f) 2,470 AAA Aaa 235 5.80% due 5/01/2021 242 AAA Aaa 1,100 Norway Vulcan, Michigan, Area Schools, GO, 5.90% due 5/01/2025 (c) 1,154 AAA Aaa 2,600 Novi, Michigan, Community School District, GO, 6.125% due 5/01/2003 (c)(f) 2,781 AAA Aaa 1,870 Redford, Michigan, Unified School District, GO, 5.90% due 5/01/2006 (c)(f) 2,048 AAA Aaa 1,000 Reeths-Puffer Schools, Michigan, GO, Refunding, 6% due 5/01/2005 (c)(f) 1,088 AAA Aaa 5,925 Riverview, Michigan, Community School District, GO, 6.70% due 5/01/2002 (c)(f) 6,215 AA- Aa3 2,620 Royal Oak, Michigan, Hospital Finance Authority Revenue Bonds (Beaumont Properties, Inc.), Series E, 6.625% due 1/01/2019 2,700 AAA Aaa 2,500 Saginaw, Michigan, Hospital Finance Authority, Revenue Refunding Bonds (Covenant Medical Center), Series E, 5.625% due 7/01/2013 (d) 2,621 NR* Aaa 7,400 Saint Clair County, Michigan, Ecomomic Revenue Refunding Bonds (Detroit Edison Company), RIB, Series 282, 8.21% due 8/01/2024 (b)(g) 8,853 AAA Aaa 1,300 Southfield, Michigan, Library Building Authority, GO, 5.50% due 5/01/2018 (d) 1,322 Sturgis, Michigan, Public School District, GO (School Building and Site): AAA Aaa 1,900 5.50% due 5/01/2021 1,932 AAA Aaa 2,545 5.625% due 5/01/2030 2,604 AAA Aaa 1,000 Three Rivers, Michigan, Community Schools, GO, 6% due 5/01/2006 (d)(f) 1,100 AAA Aaa 3,725 Three Rivers, Michigan, Community Schools, GO, Refunding, 5% due 5/01/2023 (e) 3,533 A1+ VMIG1++ 3,500 University of Michigan, University Hospital Revenue Bonds, VRDN, Series A, 4.40% due 12/01/2027 (a) 3,500 AAA Aaa 1,500 Waterford, Michigan, School District, GO, 6.25% due 6/01/2004 (c)(f) 1,625 AAA Aaa 1,100 Waverly, Michigan, Community School, GO, 5.50% due 5/01/2021 (c) 1,111 AAA Aaa 10,660 Wayne Charter County, Michigan, Airport Revenue Bonds (Detroit Metropolitan Wayne County), AMT, Series A, 5.375% due 12/01/2015 (d) 10,734 AAA Aaa 3,500 Wayne Charter County, Michigan, Detroit Metropolitan Airport, GO, Airport Hotel, Series A, 5% due 12/01/2030 (d) 3,270 Wayne State University, Michigan, University Revenue Refunding Bonds (c): AAA Aaa 2,000 5.375% due 11/15/2015 2,047 AAA Aaa 13,875 5.125% due 11/15/2029 13,264 AAA Aaa 2,405 West Branch-Rose City, Michigan, Area School District, GO, 5.50% due 5/01/2024 (c) 2,420 AAA Aaa 2,000 Western Michigan, University Revenue Bonds, Series B, 6.50% due 7/19/2001 (b)(f) 2,053 AAA Aaa 5,500 Wyandotte, Michigan, Electric Revenue Refunding Bonds, 6.25% due 10/01/2017 (d) 5,760 AAA Aaa 1,300 Ypsilanti, Michigan, School District, GO, Refunding, 5.75% due 5/01/2007 (c)(f) 1,413 AAA Aaa 2,500 Zeeland, Michigan, Public Schools, GO, 5.25% due 5/01/2019 (c) 2,477 Puerto AAA Aaa 1,270 Puerto Rico Electric Power Authority, Power Revenue Bonds, Rico--0.9% Trust Receipts, Class R, Series 16 HH, 7.122% due 7/01/2013 (g) 1,473 AAA Aaa 2,150 University of Puerto Rico, University Revenue Refunding Bonds, Series O, 5.375% due 6/01/2030 (d) 2,157 Total Investments (Cost--$384,251)--97.6% 401,472 Other Assets Less Liabilities--2.4% 9,753 -------- Net Assets--100.0% $411,225 ======== (a)The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 2001. (b)AMBAC Insured. (c)FGIC Insured. (d)MBIA Insured. (e)FSA Insured. (f)Prerefunded. (g)The interest rate is subject to change periodically and inversely based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 2001. (h)FHA Insured. (i)Escrowed to maturity. *Not Rated. **Represents a zero coupon bond; the interest rate shown is the effective yield at the time of purchase by the Fund. ++Highest short-term rating by Moody's Investors Service, Inc. See Notes to Financial Statements.
MuniYield Michigan Insured Fund, Inc., April 30, 2001 STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of April 30, 2001 Assets: Investments, at value (identified cost--$384,250,559) $401,472,286 Cash 33,773 Receivables: Interest $ 8,046,397 Securities sold 3,489,097 11,535,494 ------------ Prepaid expenses and other assets 7,132 ------------ Total assets 413,048,685 ------------ Liabilities: Payables: Securities purchased 1,413,815 Dividends to shareholders 226,984 Investment adviser 164,612 1,805,411 ------------ Accrued expenses and other liabilities 18,096 ------------ Total liabilities 1,823,507 ------------ Net Assets: Net assets $411,225,178 ============ Capital: Capital Stock (200,000,000 shares authorized): Preferred Stock, par value $.05 per share (5,600 shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) $140,000,000 Common Stock, par value $.10 per share (18,155,932 shares issued and outstanding) $ 1,815,593 Paid-in capital in excess of par 272,394,972 Undistributed investment income--net 1,571,390 Accumulated realized capital losses on investments--net (19,977,129) Accumulated distributions in excess of realized capital gains on investments--net (1,801,375) Unrealized appreciation on investments--net 17,221,727 ------------ Total--Equivalent to $14.94 net asset value per share of Common Stock (market price--$13.48) 271,225,178 ------------ Total capital $411,225,178 ============ *Auction Market Preferred Stock. See Notes to Financial Statements.
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 2001 Investment Interest and amortization of premium and discount earned $ 11,213,134 Income: Expenses: Investment advisory fees $ 1,026,739 Commission fees 171,706 Accounting services 63,000 Professional fees 42,305 Transfer agent fees 27,241 Printing and shareholder reports 21,133 Listing fees 15,121 Directors' fees and expenses 14,366 Custodian fees 11,568 Pricing fees 8,181 Other 7,794 ------------ Total expenses 1,409,154 ------------ Investment income--net 9,803,980 ------------ Realized & Realized gain on investments--net 466,092 Unrealized Change in unrealized appreciation on investments--net 7,856,308 Gain on ------------ Investments--Net: Net Increase in Net Assets Resulting from Operations $ 18,126,380 ============ See Notes to Financial Statements.
MuniYield Michigan Insured Fund, Inc., April 30, 2001 STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the Months Ended Year Ended April 30, October 31, Increase (Decrease) in Net Assets: 2001 2000 Operations: Investment income--net $ 9,803,980 $ 15,266,386 Realized gain (loss) on investments--net 466,092 (5,852,407) Change in unrealized appreciation/depreciation on investments--net 7,856,308 18,083,066 ------------ ------------ Net increase in net assets resulting from operations 18,126,380 27,497,045 ------------ ------------ Dividends to Investment income--net: Shareholders: Common Stock (7,114,856) (10,714,943) Preferred Stock (2,634,292) (4,435,180) ------------ ------------ Net decrease in net assets resulting from dividends to shareholders (9,749,148) (15,150,123) ------------ ------------ Capital Stock Proceeds from issuance of Common Stock resulting from Transactions: reorganization -- 147,153,267 Proceeds from issuance of Preferred Stock resulting from reorganization -- 90,000,000 Offering costs resulting from the issuance of Common Stock (15,881) -- ------------ ------------ Net increase (decrease) in net assets derived from capital stock transactions (15,881) 237,153,267 ------------ ------------ Net Assets: Total increase in net assets 8,361,351 249,500,189 Beginning of period 402,863,827 153,363,638 ------------ ------------ End of period* $411,225,178 $402,863,827 ============ ============ *Undistributed investment income--net $ 1,571,390 $ 1,516,558 ============ ============ See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived For the Six from information provided in the financial statements. Months Ended April 30, For the Year Ended October 31, Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997 Per Share Net asset value, beginning of period $ 14.48 $ 13.91 $ 15.93 $ 15.51 $ 15.16 Operating -------- -------- -------- -------- -------- Performance: Investment income--net .55 .99 1.04 1.07 1.09 Realized and unrealized gain (loss) on investments--net .45 .67 (1.79) .46 .33 -------- -------- -------- -------- -------- Total from investment operations 1.00 1.66 (.75) 1.53 1.42 -------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.39) (.79) (.85) (.83) (.84) In excess of realized gain on investments--net -- -- (.21) (.04) -- -------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (.39) (.79) (1.06) (.87) (.84) -------- -------- -------- -------- -------- Effect of Preferred Stock activity: Dividends and distributions to Preferred Stock shareholders: Investment income--net (.15) (.30) (.18) (.21) (.23) In excess of realized gain on invest- ments--net -- -- (.03) (.03) -- -------- -------- -------- -------- -------- Total effect of Preferred Stock activity (.15) (.30) (.21) (.24) (.23) -------- -------- -------- -------- -------- Net asset value, end of period $ 14.94 $ 14.48 $ 13.91 $ 15.93 $ 15.51 ======== ======== ======== ======== ======== Market price per share, end of period $ 13.48 $11.9375 $12.1875 $ 15.875 $ 14.50 ======== ======== ======== ======== ======== Total Investment Based on market price per share 16.32%+++ 4.62% (17.47%) 16.03% 8.00% Return:** ======== ======== ======== ======== ======== Based on net asset value per share 6.28%+++ 11.19% (6.13%) 8.85% 8.58% ======== ======== ======== ======== ======== Ratios Based on Total expenses, excluding reorganization Average Net expenses*** 1.04%* 1.10% 1.09% 1.06% 1.06% Assets of ======== ======== ======== ======== ======== Common Stock: Total expenses*** 1.04%* 1.33% 1.09% 1.06% 1.06% ======== ======== ======== ======== ======== Total investment income--net*** 7.22%* 7.49% 6.85% 6.90% 7.09% ======== ======== ======== ======== ======== Amount of dividends to Preferred Stock shareholders 1.94%* 2.18% 1.18% 1.36% 1.48% ======== ======== ======== ======== ======== Investment income--net, to Common Stock shareholders 5.28%* 5.31% 5.67% 5.54% 5.61% ======== ======== ======== ======== ======== Ratios Based on Total expenses, excluding reorganization Total Average Net expenses .69%* .72% .76% .74% .74% Assets:***++ ======== ======== ======== ======== ======== Total expenses .69%* .86% .76% .74% .74% ======== ======== ======== ======== ======== Total investment income--net 4.78%* 4.87% 4.75% 4.79% 4.96% ======== ======== ======== ======== ======== Ratios Based on Dividends to Preferred Stock shareholders 3.79%* 4.06% 2.66% 3.13% 3.39% Average ======== ======== ======== ======== ======== Net Assets of Preferred Stock: Supplemental Net assets, net of Preferred Stock, end of Data: period (in thousands) $271,225 $262,864 $103,364 $117,511 $114,392 ======== ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) $140,000 $140,000 $ 50,000 $ 50,000 $ 50,000 ======== ======== ======== ======== ======== Portfolio turnover 40.55% 51.41% 42.71% 41.65% 16.68% ======== ======== ======== ======== ======== Leverage: Asset coverage per $1,000 $ 2,937 $ 2,878 $ 3,067 $ 3,350 $ 3,288 ======== ======== ======== ======== ======== Dividends Series A--Investment income--net $ 473 $ 1,023 $ 663 $ 782 $ 849 Per Share ======== ======== ======== ======== ======== On Preferred Series B--Investment income--net $ 474 $ 653 -- -- -- Stock ======== ======== ======== ======== ======== Outstanding:++++ Series C--Investment income--net $ 463 $ 678 -- -- -- ======== ======== ======== ======== ======== *Annualized. **Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales charges. ***Do not reflect the effect of dividends to Preferred Stock shareholders. ++Includes Common and Preferred Stock average net assets. ++++The Fund's Preferred Stock was issued on November 19, 1992 (Series A) and March 6, 2000 (Series B and Series C). +++Aggregate total investment return. See Notes to Financial Statements.
MuniYield Michigan Insured Fund, Inc., April 30, 2001 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. These unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal, recurring nature. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MIY. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options written or purchased are valued at the last sale price in the case of exchange-traded options. In the case of options traded in the over-counter-market, valuation is the last asked price (options written) or the last bid price (options purchased). Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio investment strategies to increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired, or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on security transactions are determined on the identified cost basis. Interest income is recognized on the accrual basis. The Fund will adopt the provisions to amortize all premiums and discounts on debt securities effective November 1, 2001, as now required under the new AICPA Audit and Accounting Guide for Investment Companies. The cumulative effect of this accounting change will have no impact on the total net assets of the Fund. The impact of this accounting change has not been determined, but will result in an adjustment to the cost of securities and a corresponding adjustment to net unrealized appreciation/depreciation, based on debt securities held as of October 31, 2001. (e) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. Distributions in excess of realized capital gains are due primarily to differing tax treatments for futures transactions. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of .50% of the Fund's average weekly net assets, including proceeds from the issuance of Preferred Stock. Prior to January 1, 2001, FAM provided accounting services to the Fund at its cost and the Fund reimbursed FAM for these services. FAM continues to provide certain accounting services to the Fund. The Fund reimburses FAM at its cost for such services. For the six months ended April 30, 2001, the Fund reimbursed FAM an aggregate of $19,548 for the above-described services. The Fund entered into an agreement with State Street Bank and Trust Company ("State Street"), effective January 1, 2001, pursuant to which State Street provides certain accounting services to the Fund. The Fund pays a fee for these services. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended April 30, 2001 were $161,585,142 and $163,157,769, respectively. Net realized gains for the six months ended April 30, 2001 and net unrealized gains as of April 30, 2001 were as follows: Realized Unrealized Gains Gains Long-term investments $ 466,092 $ 17,221,727 ------------ ------------ Total $ 466,092 $ 17,221,727 ============ ============ As of April 30, 2001, net unrealized appreciation for Federal income tax purposes aggregated $17,221,727, of which $19,444,770 related to appreciated securities and $2,223,043 related to depreciated securities. The aggregate cost of investments at April 30, 2001 for Federal income tax purposes was $384,250,559. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of holders of Common Stock. Common Stock Shares issued and outstanding during the six months ended April 30, 2001 remained constant. Shares issued and outstanding during the year ended October 31, 2000, increased by 10,724,298 as a result of issuance of Common Stock from reorganization. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund, with a par value of $.05 per share and a liquidation preference of $25,000 per share, that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yields in effect at April 30, 2001 were as follows: Series A, 3.30%; Series B, 3.55%; and Series C, 3.50%. Shares issued and outstanding during the six months ended April 30, 2001 remained constant. Shares issued and outstanding during the year ended October 31, 2000 increased by 3,600 as a result of issuance of Preferred Stock from reorganization. The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from .25% to .375%, calculated on the proceeds of each auction. For the six months ended April 30, 2001, Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of FAM, earned $117,862 as commissions. 5. Capital Loss Carryforward: At October 31, 2000, the Fund had a net capital loss carryforward of approximately $18,795,000, of which $2,062,000 expires in 2001; $3,063,000 expires in 2002; $746,000 expires in 2003; $1,458,000 expires in 2006; $3,975,000 expires in 2007 and $7,491,000 expires in 2008. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: On May 8, 2001, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $.068500 per share, payable on May 30, 2001 to shareholders of record as of May 16, 2001. MuniYield Michigan Insured Fund, Inc., April 30, 2001 OFFICERS AND DIRECTORS Terry K. Glenn, President and Director M. Colyer Crum, Director Laurie Simon Hodrick, Director Stephen B. Swensrud, Director J. Thomas Touchton, Director Fred G. Weiss, Director Vincent R. Giordano, Senior Vice President Kenneth A. Jacob, Vice President Fred K. Stuebe, Vice President Donald C. Burke, Vice President and Treasurer Alice A. Pellegrino, Secretary Custodian The Bank of New York 90 Washington Street New York, NY 10286 Transfer Agents Common Stock: The Bank of New York 101 Barclay Street New York, NY 10286 Preferred Stock: The Bank of New York 100 Church Street New York, NY 10286 NYSE Symbol MIY Jack B. Sunderland and Arthur Zeikel, Directors of MuniYield Michigan Insured Fund, Inc., have recently retired. The Fund's Board of Directors wishes Messrs. Sunderland and Zeikel well in their retirements.