MuniInsured
Fund, Inc.
[FUND LOGO]
STRATEGIC
Performance
Annual Report
September 30, 1997
Officers and Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
William R. Bock, Vice President
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian
State Street Bank and Trust Company
One Heritage Drive, P2N
North Quincy, MA 02171
Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02101
(617) 328-5000
ASE Symbol
MIF
This report, including the financial information herein, is transmitted
to the shareholders of MuniInsured Fund, Inc. for their information.
It is not a prospectus, circular or representation intended for use in
the purchase of shares of the Fund or any securities mentioned in the
report. Past performance results shown in this report should not be
considered a representation of future performance. Statements and
other information herein are as dated and are subject to change.
MuniInsured
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #10662 -- 9/97
[RECYCLE LOGO]
Printed on post-consumer recycled paper
MuniInsured Fund, Inc.
DEAR SHAREHOLDER
During the six-month period ended September 30, 1997, MuniInsured
Fund, Inc. earned $0.254 per share income dividends, representing a
net annualized yield of 5.05%, based on a month-end net asset value of
$10.02 per share. Over the same period, the Fund's total investment
return was +7.43%, based on a change in per share net asset value from
$9.59 to $10.02, and assuming reinvestment of $0.255 per share income
dividends.
For the year ended September 30, 1997, the Fund earned $0.522 per
share income dividends, representing a net annualized yield of 5.21%,
based on a month-end net asset value of $10.02 per share. Over the
same period, the Fund's total investment return was +9.33%, based on a
change in per share net asset value from $9.77 to $10.02, and assuming
reinvestment of $0.522 per share income dividends and $0.048 long-term
capital gains distributions.
The Municipal Market Environment
Long-term interest rates declined significantly during the six months
ended September 30, 1997. On both a weekly and monthly basis, bond
yields were buffeted by alternating strong and weak economic
indicators. However, the general financial environment has remained
one of moderate economic growth with little or no price inflation.
Through July 1997, bond yields had declined as economic growth
appeared to weaken and the Federal Reserve Board (FRB) held interest
rates steady. By the end of July, US Treasury bond yields had declined
by approximately 80 basis points (0.80%) to 6.30%. Long-term municipal
revenue bond yields, as measured by the Bond Buyer Revenue Bond Index,
declined by approximately 60 basis points to 5.50%. Interest rates
generally rose during August and September as investors reacted to
signs of potential economic recovery and concerns that the FRB would
raise interest rates before the end of 1997. At September 30, 1997, US
Treasury bond yields had risen to approximately 6.50% while long-term
municipal bond yields had increased to approximately 5.60%. During the
six-month period ended September 30, 1997, US Treasury bond yields
declined a total of 70 basis points, and long-term tax-exempt bond
yields fell 50 basis points.
The tax-exempt bond market's continued underperformance as compared to
its taxable counterpart has been largely in response to its ongoing
weakening technical position. As municipal bond yields have declined,
municipalities have hurriedly rushed to refinance outstanding higher-
couponed debt with new issues financed at present low rates. During
the last six months, over $112 billion in new long-term tax-exempt
issues were underwritten, an increase of over 25% versus the
comparable period a year ago. As interest rates have continued to
decline, these refinancings have intensified municipal bond issuance.
During the past three months, over $55 billion in new long-term
municipal securities were underwritten, an increase of over 45% as
compared to the September 30, 1996 quarter.
Additionally, there has been a recent trend toward larger bond issues.
These recent "mega-deals" have included $625 million in Massachusetts
general obligation bonds, $650 million in New York City transitional
finance authority notes, $660 million in Texas health resources
securities, $780 million in Colorado-E470 public highway issues, $1.4
billion in San Joaquin Hills, California transportation issues and
$1.5 billion in Massachusetts Turnpike Authority issues. However,
issues of such magnitude usually must be attractively priced to ensure
adequate investor interest. Obviously, the yields of other municipal
bond issues are impacted by the yield premiums such large issuers have
been required to pay. Much of the municipal bond market's recent
underperformance can be traced to the market pressures such mega-deals
have exerted.
The present economic situation remains ideal. The combination of
moderate economic growth and minimal inflation have fostered an
extremely positive environment for low interest rates. Continued
economic growth has generated significant tax revenues thus far this
year. Increased revenues, when combined with reduced Federal outlays,
have resulted in a steadily declining Federal budget deficit. Any
material declines in the Federal budget positively impact the size of
future Federal debt issuance. This prospect for reduced Federal debt
issuance has further enhanced the prospects for a continued low interest
rate environment. Thus far this year any significant increase in
tax-exempt bond yields has been viewed as an opportunity to purchase
attractively priced municipal issues. Despite a greater than expected
supply of new tax-exempt bond issuance, overall favorable market
conditions have allowed municipal bond yields to decline over 30 basis
points thus far in 1997. More importantly, it can be expected that the
current environment will limit the potential for a significant interest
rate correction in the near future.
Portfolio Strategy
During the six months ended September 30, 1997, we attempted to
sustain an attractive level of tax-exempt income while seeking to
achieve a total return above the industry average of comparable
insured municipal bond funds. We began the period with a somewhat
negative market outlook. Our chief concern was that the strong
economic growth seen in the first quarter of 1997 would continue,
causing the FRB to raise interest rates further to ensure that the
rate of inflation would not increase significantly. During the second
quarter of 1997, US economic growth slowed, and inflation remained
subdued, allowing interest rates to decline. We subsequently modified
the Fund's portfolio strategy to become more aggressive by increasing
the duration of the portfolio, reducing our cash reserve position and
selling short call bonds. We replaced these issues with securities
that we believed would allow the Fund to perform well during periods
of market improvement.
We expect to maintain the Fund's cash reserve position at below 5% of
net assets in order to seek to enhance the Fund's dividend income.
During the 12 months ended September 30, 1997, the Fund's slightly
aggressive strategy, coupled with an essentially fully invested
position, generated a total return performance comparable to the
industry average.
Looking ahead, we expect to maintain our current strategy of
emphasizing a balance between higher-couponed issues and more interest
rate-sensitive securities. Should it become evident that the economy
is reaccelerating, it is likely that we would adopt a more defensive
portfolio structure. However, we expect the Fund to be in a fully
invested position during the upcoming months.
In Conclusion
We appreciate your ongoing interest in MuniInsured Fund, Inc., and we
look forward to assisting you with your financial needs in the months
and years to come.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/WILLIAM R. BOCK
William R. Bock
Vice President and Portfolio Manager
November 3, 1997
<TABLE>
<CAPTION>
PROXY RESULTS
During the six-month period ended September 30, 1997, MuniInsured Fund shareholders voted on the following proposals.
The proposals were approved at a shareholders' meeting on May 15, 1997. The description of each proposal and number of
shares voted are as follows:
Shares Shares Voted
Voted For Without Authority
<S> <C> <C> <C>
1. To elect two directors to serve until the year 2000
Annual Meeting of Stockholders: Melvin R. Seiden 5,258,728 115,311
Stephen B. Swensrud 5,258,728 115,311
<CAPTION>
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <C> <C> <C>
2. To select Deloitte & Touche LLP as the Fund's
independent auditors. 5,255,926 19,559 98,555
</TABLE>
IMPORTANT TAX INFORMATION (UNAUDITED)
All of the net investment income dividends paid
monthly by MuniInsured Fund, Inc. during its
taxable year ended September 30, 1997 qualify as
tax-exempt interest dividends for Federal income
tax purposes. Additionally, the following summarizes
the per share capital gain distributions paid by the
Fund during the year:
Record Payable Short-Term Long-Term
Date Date Capital Gains Capital Gains
12/20/96 12/30/96 $.016036 $.048086
Please retain this information for your records.
<TABLE>
<CAPTION>
MuniInsured Fund, Inc. September 30, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Alaska -- 3.9% AAA Aaa $2,000 Alaska State Housing Finance Corporation,
Refunding, Series A, 5.875% due 12/01/2024 (b)(g) $2,034
AAA Aaa 1,000 Ketchikan, Alaska, Municipal Utility Revenue Bonds,
Series R, 6.65% due 12/01/2012 (e) 1,111
Arizona -- 2.0% A1+ P1 1,600 Coconino County, Arizona, Pollution Control
Corporation, Public Service Revenue Bonds (Navajo
Project), VRDN, AMT, Series A, 4.15% due 10/01/2029
(c) 1,600
California -- 18.4% AAA Aaa 1,405 California Educational Facilities Authority Revenue
Bonds (Loyola Marymount University), Series 1996, 5.90%
due 10/01/2021 (b) 1,465
AAA Aaa 1,500 California HFA, Home Mortgage Revenue Bonds, Series F,
6% due 8/01/2017 (b) 1,555
AAA Aaa 3,025 California State Revenue Refunding Bonds, 5.375% due
6/01/2026 (d) 2,996
AAA Aaa 2,670 California State Variable Purpose Bonds, 5.90% due
3/01/2025 (a) 2,771
AAA Aaa 1,000 Los Angeles, California, Harbor Department Revenue
Bonds, RITR, AMT, 7.895% due 11/01/2026 (b)(f) 1,210
AAA Aaa 1,605 Los Angeles County, California, Metropolitan
Transportation Authority, Sales Tax Revenue Bonds
(Proposition A - First Tier), Senior Series A, 6% due
7/01/2026 (b) 1,694
AAA Aaa 1,000 San Francisco, California, Bay Area Rapid Transit
District, Sales Tax Revenue Bonds, 5.50% due 7/01/2020
(d) 1,003
AAA Aaa 2,000 San Francisco, California, City and County Public
Safety Improvement Projects, UT, Series B, 6.30% due
6/15/2014 (d) 2,171
Colorado -- 3.2% AA Aa2 1,000 Colorado Springs, Colorado, Utilities Revenue Bonds,
Series A, 6.10% due 11/15/2005 (h) 1,108
A1+ VMIG1+ 1,500 Moffat County, Colorado, PCR, Refunding (Pacificorp
Projects), VRDN, 4% due 5/01/2013 (a)(c) 1,500
Connecticut -- 1.3% AA Aa 1,000 Connecticut State, HFA (Housing Mortgage Finance Program),
AMT, Series A, Sub-Series A-2, 6.45% due 5/15/2022 1,046
Illinois -- 15.2% AAA Aaa 2,000 Chicago, Illinois, Board of Education (Chicago School
Reform), UT, 5.75% due 12/01/2020 (a) 2,060
AAA Aaa 1,000 Chicago, Illinois, Wastewater Transmission Revenue Bonds,
6.375% due 1/01/2024 (b) 1,093
AAA Aaa 1,000 Decatur, Illinois, Hospital Revenue Refunding Bonds
(Decatur Memorial Hospital), Series A, 7.75% due 10/01/2021
(b) 1,129
AA Aa3 1,000 Illinois HDA, Homeowner Mortgage Revenue Bonds,
Sub-Series D-1, 6.40% due 8/01/2017 1,045
AAA Aaa 3,000 Illinois Health Facilities Authority Revenue Bonds
(Ingalls Health System Project), 6.25% due 5/15/2024
(b) 3,199
AAA Aaa 1,000 Regional Transportation Authority, Illinois, GO, UT, Series
C, 7.75% due 6/01/2020 (d) 1,316
AAA Aaa 2,180 Waukegan, Illinois, GO, UT, Series A, 6.75% due 11/15/2013
(d) 2,471
Indiana -- 3.2% AAA Aaa 1,360 Hammond, Indiana, Multi-School Building Corp., Revenue
Refunding Bonds (First Mortgage), 6.125% due 7/15/2019 (b) 1,445
AAA NR* 1,000 Indiana Bond Bank Revenue Bonds (State Revolving Fund
Program), Series A, 6.75% due 2/01/2017 1,122
Kansas -- 3.4% AAA Aaa 2,500 Burlington, Kansas, PCR, Refunding (Kansas Gas and Electric
Company Project), 7% due 6/01/2031 (b) 2,740
Maine -- 1.3% NR* Aa2 1,000 Maine State Housing Authority, Mortgage Purchase Revenue
Bonds, AMT, Series C-2, 6.875% due 11/15/2023 1,062
Maryland -- 2.3% AAA Aaa 1,000 Baltimore, Maryland, COP (Emergency Telecommunication
Facilities), Series A, 5% due 10/01/2017 (a) 966
NR* VMIG1+ 900 Maryland State Health and Higher Educational Facilities
Authority Revenue Bonds (Pooled Loan Program), VRDN, Series
A, 4.10% due 4/01/2035 (c) 900
Massachusetts -- 8.6% AAA Aaa 1,025 Massachusetts Education Loan Authority, Educational Loan
Revenue Bonds, AMT, Issue E, Series A, 7.375% due 1/01/2012
(a) 1,108
AAA Aaa 2,000 Massachusetts State, HFA, M/F Housing Revenue Refunding
Bonds, Series A, 6.10% due 7/01/2015 (b) 2,070
A+ Aa 985 Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT,
Series 32, 6.60% due 12/01/2026 1,038
AAA Aaa 2,985 Massachusetts State Turnpike Authority, Metropolitan
Highway System Revenue Bonds, Series A, 5% due 1/01/2037
(b) 2,755
Michigan -- 1.0% NR* P1 800 Michigan State Strategic Fund, PCR, Refunding (Consumers
Power Project), VRDN, Series A, 4% due 4/15/2018 (c) 800
Nevada -- 2.7% A1+ P1 2,200 Washoe County, Nevada, Water Facility Revenue Bonds (Sierra
Pacific Power Co. Project), VRDN, AMT, 4.10% due 12/01/2020
(c) 2,200
New York -- 8.0% New York City, New York, City Municipal Water Finance
Authority, Water and Sewer System Revenue Bonds:
AAA Aaa 1,500 RITR, 6.995% due 6/15/2026 (b)(f) 1,583
A- A2 1,000 Series B, 5.25% due 6/15/2029 960
New York City, New York, GO, UT:
BBB+ Aaa 1,410 Series F, 7.625% due 2/01/2002 (h) 1,615
BBB+ Baa1 160 Series F, 7.625% due 2/01/2015 180
BBB+ Baa1 2,000 Series I, 6% due 4/15/2009 2,134
Oregon -- 1.5% AAA Aaa 1,000 Port of Portland, Oregon, International Airport Revenue
Bonds (Portland International Airport), AMT, Series 11,
5.625% due 7/01/2026 (d) 1,007
A1+ A3 200 Port Saint Helens, Oregon, PCR (Portland General Electric
Company Project), VRDN, AMT, Series A, 4.05% due 8/01/2014
(c) 200
Texas -- 9.5% AAA Aaa 1,150 Brazos River Authority, Texas, Revenue Refunding Bonds
(Houston Light and Power), Series A, 6.70% due 3/01/2017
(a) 1,266
AAA Aaa 2,500 Dallas-Fort Worth, Texas, Regional Airport Revenue
Refunding Bonds (JT Dallas-Fort Worth International), AMT,
5.75% due 11/01/2024 (b) 2,522
AAA Aaa 1,500 Harris County, Texas, Health Facilities Development Corp.,
Hospital Revenue Bonds, RITR, Series 12, 8.17% due
10/01/2024 (b)(f) 1,736
AAA Aaa 1,000 Houston, Texas, Airport System Revenue Bonds (Sub-Lien),
AMT, Series A, 6.75% due 7/01/2021 (d) 1,083
A+ A2 1,000 Port Corpus Christi Authority, Texas, Nueces County, PCR
(Hoechst Celanese Corporation Project), AMT, 6.875% due
4/01/2017 1,083
Utah -- 4.4% AAA Aaa 3,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals, Inc.), INFLOS, 9.54% due 5/15/2020 (a)(f) 3,536
Virginia -- 2.6% Virginia State, HDA, Commonwealth Mortgage:
AAA Aaa 1,000 AMT, Series A, Sub-Series A-4, 6.45% due 7/01/2028 (b) 1,058
AA+ Aa1 1,000 Series J, Sub-Series J-2, 6.75% due 7/01/2017 1,072
Washington -- 7.1% AAA Aaa 2,275 Tacoma, Washington, Sewer Revenue Bonds, Series B, 6.375%
due 12/01/2015 (d) 2,467
AAA Aaa 2,240 Washington State, COP, 5.80% due 10/01/2015 (a) 2,329
AAA Aaa 1,000 Washington State Public Power Supply Systems, Revenue
Refunding Bonds (Nuclear Project No. 1), Series B, 5.125%
due 7/01/2017 (a) 966
West Virginia -- 2.0% AAA Aaa 1,500 Harrison County, West Virginia, Commonwealth Solid Waste
Disposal Revenue Bonds (Monongahela Power), AMT, Series C,
6.75% due 8/01/2024 (a) 1,666
Wisconsin -- 1.5% AAA Aaa 1,120 Wisconsin Public Power Inc., Power Supply System Revenue
Bonds, Series A, 6% due 7/01/2015 (b) 1,199
--------
Total Investments (Cost -- $78,476) -- 103.1% 83,445
Liabilities in Excess of Other Assets -- (3.1%) (2,482)
--------
Net Assets -- 100.0% $80,963
========
(a) AMBAC Insured.
(b) MBIA Insured.
(c) The interest rate is subject to change periodically based upon
the prevailing market rates. The interest rate shown is
the rate in effect at September 30, 1997.
(d) FGIC Insured.
(e) FSA Insured.
(f) 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 September 30, 1997.
(g) FNMA/GNMA Collateralized.
(h) Prerefunded.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings shown have not been audited by Deloitte & Touche LLP.
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniInsured Fund, Inc.'s portfolio holdings
in the Schedule of Investments, we have abbreviated the names of many
of the securities according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
INFLOS Inverse Floating Rate Municipal Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RITR Residual Interest Tax Receipts
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of September 30, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $78,475,819) (Note 1a) $83,445,063
Cash 49,255
Interest receivable 1,322,052
Prepaid expenses and other assets 27,321
-------------
Total assets 84,843,691
-------------
Liabilities: Payables:
Securities purchased $3,714,882
Dividends to shareholders (Note 1e) 62,997
Investment adviser (Note 2) 32,076 3,809,955
-------------
Accrued expenses and other liabilities 70,514
-------------
Total liabilities 3,880,469
-------------
Net Assets: Net assets $80,963,222
=============
Capital: Common Stock, par value $.10 per share; 150,000,000 shares authorized;
8,079,388 shares issued and outstanding (Note 4) $807,939
Paid-in capital in excess of par 74,515,276
Undistributed investment income -- net 336,473
Undistributed realized capital gains on investments -- net 334,290
Unrealized appreciation on investments -- net 4,969,244
-------------
Total capital -- Equivalent to $10.02 net asset value per share of Common
Stock (market price -- $9.50) $80,963,222
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations for the Year Ended September 30, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $4,702,882
(Note 1d):
Expenses: Investment advisory fees (Note 2) $397,002
Professional fees 63,136
Transfer agent fees 37,554
Accounting services (Note 2) 35,711
Directors' fees and expenses 25,206
Printing and shareholder reports 17,896
Listing fees 10,250
Pricing fees 8,570
Custodian fees 5,783
Other 16,345
-------------
Total expenses 617,453
-------------
Investment income -- net 4,085,429
-------------
Realized & Realized gain on investments -- net 1,031,451
Unrealized Gain on Change in unrealized appreciation on investments -- net 1,532,475
Investments -- Net -------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $6,649,355
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended Sept. 30,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $4,085,429 $4,093,949
Realized gain on investments -- net 1,031,451 711,533
Change in unrealized appreciation on investments -- net 1,532,475 338,231
------------- -------------
Net increase in net assets resulting from operations 6,649,355 5,143,713
------------- -------------
Dividends & Investment income -- net (4,083,840) (4,085,981)
Distributions to Realized gain on investments -- net (518,066) --
Shareholders ------------- -------------
(Note 1e): Net decrease in net assets resulting from dividends and distributions
to shareholders (4,601,906) (4,085,981)
------------- -------------
Net Assets: Total increase in net assets 2,047,449 1,057,732
Beginning of year 78,915,773 77,858,041
------------- -------------
End of year* $80,963,222 $78,915,773
============= =============
*Undistributed investment income -- net $336,473 $334,884
============= =============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended September 30,
1997 1996 1995 1994 1993
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $9.77 $9.64 $9.50 $10.72 $10.26
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .51 .51 .52 .57 .60
Realized and unrealized gain (loss) on
investments -- net .31 .13 .34 (.99) .68
--------- --------- --------- --------- ---------
Total from investment operations .82 .64 .86 (.42) 1.28
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.51) (.51) (.53) (.57) (.60)
Realized gain on investments -- net (.06) -- (.19) (.23) (.22)
In excess of realized gain on investments -- net -- -- --** -- --
--------- --------- --------- --------- ---------
Total dividends and distributions (.57) (.51) (.72) (.80) (.82)
--------- --------- --------- --------- ---------
Net asset value, end of year $10.02 $9.77 $9.64 $9.50 $10.72
========= ========= ========= ========= =========
Market price per share, end of year $9.50 $8.75 $8.75 $8.75 $10.875
========= ========= ========= ========= =========
Total Investment Based on market price per share 15.73% 5.91% 8.46% (12.93%) 8.27%
Return:* ========= ========= ========= ========= =========
Based on net asset value per share 9.33% 7.34% 10.06% (4.10%) 13.12%
========= ========= ========= ========= =========
Ratios to Average Expenses .78% .78% .79% .77% .80%
Net Assets: ========= ========= ========= ========= =========
Investment income -- net 5.15% 5.15% 5.55% 5.58% 5.81%
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $80,963 $78,916 $77,858 $76,662 $85,535
Data: ========= ========= ========= ========= =========
Portfolio turnover 73.22% 94.61% 83.52% 47.17% 27.89%
========= ========= ========= ========= =========
* Total investment returns based on market value, which can be significantly greater or lesser than the net asset value,
may result in substantially different returns. Total investment returns exclude the effects of sales loads.
** Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
MuniInsured Fund, Inc. September 30, 1997
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniInsured Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund determines and makes available for
publication the net asset value of its Common Stock on a weekly basis.
The Fund's Common Stock is listed on the American Stock Exchange under
the symbol MIF. 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. Municipal bonds for
which quotations are not readily available are valued at fair value on
a consistent basis as determined by the pricing service using a matrix
system to determine valuations. The Board of Directors has determined
in good faith that the use of a pricing service is a fair method of
determining the valuation of portfolio securities. Obligations with
remaining maturities of sixty days or less are valued at amortized
cost, which approximates market value. Financial futures contracts and
related options, which are traded on exchanges, are valued at their
closing prices as of the close of such exchanges. Options, which are
traded on exchanges, are valued at their last sale price as of the
close of such exchanges or, lacking any sales, at the last available
bid price. Securities for which market quotations are not readily
available are valued at their fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund,
including valuations furnished by a pricing service retained by the
Fund, which may utilize a matrix system for valuations. The procedures
of the pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Board of Directors.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses
may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
[bullet] Financial futures contracts -- The Fund may purchase or sell
interest rate futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and
are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was
opened and the value at the time it was closed.
[bullet] 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).
(c) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income -- Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Dividends and distributions -- Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended September 30, 1997 were $55,013,530 and
$57,026,446, respectively.
Net realized and unrealized gains as of September 30, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $1,031,451 $4,969,244
----------- -----------
Total $1,031,451 $4,969,244
=========== ===========
As of September 30, 1997, net unrealized appreciation for Federal
income tax purposes aggregated $4,969,244, all of which was related to
appreciated securities. The aggregate cost of investments at September
30, 1997 for Federal income tax purposes was $78,475,819.
4. Common Stock Transactions:
At September 30, 1997, the Fund had one class of shares of Common
Stock, par value $.10 per share, of which 150,000,000 shares were
authorized. Shares issued and outstanding during the years ended
September 30, 1997 and September 30, 1996 remained constant.
5. Subsequent Event:
On October 9, 1997, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of $.041645
per share, payable on October 30, 1997 to shareholders of record as of
October 20, 1997.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MuniInsured Fund, Inc.
We have audited the accompanying statement of assets, liabilities and
capital, including the schedule of investments, of MuniInsured Fund,
Inc. as of September 30, 1997, the related statements of operations
for the year then ended and changes in net assets for each of the
years in the two-year period then ended, and the financial highlights
for each of the years in the five-year period then ended. These
financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and the 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. Our procedures
included confirmation of securities owned at September 30, 1997 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
MuniInsured Fund, Inc. as of September 30, 1997, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
November 3, 1997
