MUNIYIELD
INSURED
FUND, INC.
FUND LOGO
Annual Report
October 31, 1996
This report, including the financial information herein, is
transmitted to the shareholders of MuniYield Insured Fund, Inc. for
their information. It is not a prospectus, circular or
representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its
Common Stock by issuing Preferred Stock to provide the Common Stock
shareholders with a potentially higher rate of return. Leverage
creates risks for Common Stock shareholders, including the
likelihood of greater volatility of net asset value and market price
of shares of the Common Stock, and the risk that fluctuations in the
short-term dividend rates of the Preferred Stock may affect the
yield to Common Stock shareholders. Statements and other information
herein are as dated and are subject to change.
<PAGE>
MuniYield
Insured Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield Insured Fund, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1996, the Common Stock of MuniYield
Insured Fund, Inc. earned $0.976 per share income dividends, which
included earned and unpaid dividends of $0.078. This represents a
net annualized yield of 6.29%, based on a month-end per share net
asset value of $15.52. Over the same period, the total investment
return on the Fund's Common Stock was +7.76%, based on a change in
per share net asset value from $15.46 to $15.52, and assuming
reinvestment of $0.976 per share income dividends and $0.022 per
share capital gains distributions.
For the six-month period ended October 31, 1996, the total
investment return on the Fund's Common Stock was +6.66%, based on a
change in per share net asset value from $15.03 to $15.52, and
assuming reinvestment of $0.451 per share income dividends.
For the six-month period ended October 31, 1996, the Fund's Auction
Market Preferred Stock had an average yield as follows: Series A,
3.75%; Series B, 3.75%; Series C, 3.75%; Series D, 3.99%; and Series
E, 3.44%.
<PAGE>
The Municipal Market Environment
Municipal bond yields generally moved lower during the six-month
period ended October 31, 1996. Long-term tax-exempt revenue bond
yields, as measured by the Bond Buyer Revenue Bond Index, declined
approximately 35 basis points (0.35%) to end the October period at
approximately 5.94%. The municipal bond market exhibited
considerable weekly yield volatility over the last six months with
bond yields vacillating as much as 20 basis points. This ongoing
volatility was in response to fluctuating evidence regarding the
degree to which recent economic growth will result in any
significant increase in inflationary pressures. Much of the evidence
supporting stronger growth centered around the strong employment
growth seen in April and June and bond yields rose in response.
Other, more recent, economic indicators suggested that economic
growth will not be excessive and inflationary pressures will remain
well-contained. This continued benign inflationary environment
supported lower tax-exempt bond yields in recent months. US Treasury
bond yields exhibited similar, albeit greater, volatility during the
period ended October 31, 1996 falling over 20 basis points to end
the period at 6.64%. Over the past six months, tax-exempt bond
yields registered significantly greater declines than shown by the
US Treasury bond market. This relative outperformance by the
municipal bond market was largely the result of the strong technical
support the tax-exempt market enjoyed throughout most of 1996.
Perhaps most significantly, the pace of new bond issuance recently
slowed.
Over the last year, approximately $180 billion in long-term
municipal securities was issued, an increase of over 25% compared to
the same period a year ago. Much of this increase was the result of
issuers seeking to refinance their existing higher-couponed debt as
interest rates declined in 1995 and early 1996. As interest rates
rose, these financings became increasingly economically impractical,
and issuance declined. Over the last six months, approximately $90
billion in long-term tax-exempt securities was underwritten, an
increase of 5% versus the comparable period a year earlier. Only $41
billion in tax-exempt securities was issued in the last three
months, a 3% decline in issuance compared to the October 31, 1995
quarter.
At the same time, investor demand remained consistently strong. With
nominal new-issue yields generally above 6%, retail investor
interest was steady. Additionally, investors received over $50
billion this June and July in assets derived from coupon income,
bond maturities, and proceeds from early redemptions. Annual new
bond issuance declined in recent years and is expected to remain
below levels seen in the early 1990s. Consequently, as the higher-
couponed bonds issued in the early-to-mid 1980s were redeemed at
their first optional call dates, the total number of outstanding tax-
exempt bonds has declined. This combination of a declining net
supply and significant amounts of assets available for investment
helped maintain investor demand in recent months.
<PAGE>
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance led to the yield
ratio between long-term taxable and tax-exempt securities falling
from in excess of 90% to approximately 85%. While historically still
very attractive, some institutional investors, particularly short-
term traders, began to view the tax-exempt bond market's recent
outperformance as an opportunity to sell a relatively expensive
asset. However, to the long-term investor, such a sale would
represent the loss of an attractively priced asset which may not be
easily replaced given the relative scarcity of municipal bonds under
present supply conditions.
Looking ahead, no clear consensus for the direction of interest
rates currently exists. Perhaps, the primary focus going forward
will be the extent to which the increase in interest rates seen thus
far in 1996 will negatively impact future economic growth. Should
growth slow in the interest rate-sensitive sectors of the economy,
like housing, auto, and consumer spending, as many economists assert
is likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of US Treasury bond market.
Portfolio Strategy
Our portfolio strategy changed markedly over the course of the
fiscal year ended October 31, 1996. As we entered the last half of
the fiscal year, indications of stronger economic growth were
released, particularly strong employment reports. Investor fears of
inflationary pressures mounted, and municipal bond yields rose in
response. We adopted a more defensive portfolio strategy by adding
high-coupon issues and selling lower-coupon, performance-oriented
bonds. We also raised the cash reserve level of the Fund in order to
seek to protect principal.
We continued this strategy until the last two months of the fiscal
year when we became constructive toward the market, because current
economic data indicated moderate growth and few inflationary
pressures. Therefore, we reduced our cash reserves level and
extended the average maturity of the Fund. This investment strategy
benefited the Fund's total return for the fiscal year ended October
31, 1996 as well as provided an attractive yield for shareholders
during the 12 months ended October 31, 1996.
Looking ahead, we expect the municipal market to continue to
experience volatility within a narrow trading range with interest
rates trending lower. Therefore, our investment strategy will still
emphasize the purchase of current-coupon securities during periods
of market weakness.
In Conclusion
We thank you for your support of MuniYield Insured Fund, Inc., and
we look forward to serving your investment needs in the months and
years ahead.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(William R. Bock)
William R. Bock
Vice President and Portfolio Manager
December 6, 1996
THE BENEFITS AND RISKS OF LEVERAGING
MuniYield 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.
<PAGE>
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 of 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 on the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield 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 below and at
right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama--0.7% AA Aa $ 3,500 Birmingham, Alabama, Special Care Facilities, Financing
Authority, Revenue Refunding Bonds (Daughter's of Charity--
Saint Vincent's), 5% due 11/01/2025 $ 3,109
AAA Aaa 3,500 Huntsville, Alabama, Health Care Authority, Health Care
Facilities Revenue Bonds, Series B, 6.625% due 6/01/2023 (d) 3,795
Alaska--1.9% AAA Aaa 19,000 Alaska State Housing Finance Corporation, Refunding,
Series A, 5.875% due 12/01/2024 (d)(f)(i) 19,037
Arizona--0.6% NR* VMIG1++ 200 Arizona Educational Loan Marketing Corporation, Educational
Loan Revenue Bonds, VRDN, AMT, Series A, 3.65%
due 12/01/2020 (a) 200
A1+ P1 100 Coconino County, Arizona, Pollution Control Corporation
Revenue Bonds (Arizona Public Service--Navajo Project),
VRDN, AMT, Series A, 3.65% due 10/01/2029 (a) 100
NR* NR* 3,500 Mohave County, Arizona, IDA, IDR (North Star Steel Company
Project), AMT, 6.70% due 3/01/2020 3,737
A1+ NR* 1,400 Pima County, Arizona, IDA, Revenue Refunding Bonds
(Guaranteed Mortgage Obligation), VRDN, AMT, Series A, 3.85%
due 6/30/2021 (a) 1,400
A1+ P1 200 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont Mining
Corporation), VRDN, 3.60% due 12/01/2009 (a) 200
California-- California HFA, Revenue Bonds, AMT:
20.1% AA- Aa 3,850 RIB, 8.856% due 8/01/2023 (k) 4,072
AAA Aaa 1,595 Series E, 7% due 8/01/2026 (d) 1,673
California Pollution Control Financing Authority, PCR,
Refunding (Pacific Gas and Electric), VRDN (a):
A1 NR* 200 AMT, Series G, 3.60% due 2/01/2016 200
A1+ NR* 600 Series C, 3.55% due 11/01/2026 600
California State, GO:
AAA Aaa 10,000 5.25% due 6/01/2021 (b) 9,484
AAA Aaa 3,475 5.375% due 6/01/2026 (c) 3,338
California State Public Works Board, Lease Revenue Bonds:
A A 8,500 (Department of Corrections--Monterey County
Soledad II), Series A, 7% due 11/01/2004 (g) 9,946
AAA Aaa 6,500 Refunding (Department of Corrections--Monterey County
Soledad II), Series B, 5.625% due 11/01/2019 (d) 6,430
AAA Aaa 3,000 (Various California State University Projects), Series A,
6.40% due 12/01/2016 (b) 3,213
A A 2,750 (Various University of California Projects), Series A,
6.375% due 10/01/2019 2,883
A A1 4,000 (Various University of California Projects), Series B,
6.625% due 12/01/2019 4,316
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
California AAA Aaa $ 7,000 California State, Various Purpose, 5.90% due 3/01/2025 (b) $ 7,069
(concluded) AAA Aaa 5,000 Contra Costa, California, Water District, Water Revenue
Bonds, Series D, 6.375% due 10/01/2022 (b) 5,330
Los Angeles, California, Harbor Department Revenue Bonds,
AMT, Series B (b):
AAA Aaa 3,000 6.625% due 8/01/2019 3,234
AAA Aaa 8,725 6.625% due 8/01/2025 9,406
AAA Aaa 8,980 Los Angeles, California, M/F Revenue Refunding Bonds
(Housing), Senior Series G, 5.75% due 1/01/2024 (e) 8,882
AAA Aaa 9,000 Los Angeles, California, Wastewater System Revenue
Refunding Bonds, Series A, 5.80% due 6/01/2021 (d) 9,018
Los Angeles County, California, Metropolitan Transportation
Authority, Sales Tax Revenue Bonds:
AAA Aaa 8,000 (Proposition A--First Tier), Senior Series A, 6% due
7/01/2026 (d) 8,229
AAA Aaa 10,000 (Proposition C) Second Senior Series B, 5.25% due 7/01/2023 (b) 9,321
AAA Aaa 3,420 Refunding (Proposition A--Second Tier), 6% due 7/01/2026 (d) 3,518
AAA Aaa 6,315 Los Angeles County, California, Public Works Financing
Authority, Lease Revenue Refunding Bonds, Series B, 5.25%
due 9/01/2014 (d) 6,054
AAA Aaa 5,000 Los Angeles County, California, Transportation Commission,
Sales Tax Revenue Refunding Bonds, AMT, Series B, 6.50%
due 7/01/2015 (c) 5,396
AAA Aaa 8,210 M-S-R Public Power Agency, California, Revenue Bonds
(San Juan Project), Series E, 6.75% due 7/01/2011 (d) 9,010
AAA Aaa 2,190 Northern California Transmission Revenue Bonds
(California--Oregon Transmission Project), Series A,
6.50% due 5/01/2016 (d) 2,370
AAA Aaa 3,000 Orange County, California, Financing Authority, Tax
Allocation Revenue Refunding Bonds, Series A, 6.25% due
9/01/2014 (d) 3,158
AAA Aaa 7,000 San Francisco, California, Bay Area Rapid Transit District,
Sales Tax Revenue Bonds, 5.50% due 7/01/2020 (c) 6,810
San Francisco, California, City and County Airports Commission,
Revenue Bonds (International Airport), Second Series:
AAA Aaa 6,000 AMT, Issue 6, 6.60% due 5/01/2024 (b) 6,485
AAA Aaa 13,500 Issue 9B, 5.25% due 5/01/2020 (c) 12,786
AAA Aaa 10,000 San Francisco, California, City and County Sewer
Revenue Bonds, Series A, 5.95% due 10/01/2025 (c) 10,123
AAA Aaa 7,000 San Joaquin, California, Area Flood Control Agency (Improvement
Bond Act of 1915), 6% due 9/02/2014 (e) 7,215
AAA Aaa 5,000 San Jose, California, Redevelopment Agency, Tax Allocation
<PAGE> Refunding Bonds (Merged Area Redevelopment Project),
5% due 8/01/2020 (d) 4,547
AAA Aaa 5,375 San Mateo County, California, Joint Powers Financing Authority,
Lease Revenue Bonds (San Mateo County Health Care Center),
Series A, 5.75% due 7/15/2022 (e) 5,360
AAA Aaa 3,000 Santa Rosa, California, Wastewater Revenue Refunding Bonds,
Series A, 5.25% due 9/01/2016 (c) 2,913
AAA Aaa 7,000 Tracy, California, Area Public Facilities Financing Agency,
Special Tax Refunding (Community Facilities District No. 87-1-H),
5.875% due 10/01/2013 (d) 7,117
AAA Aaa 5,000 University of California Revenue Bonds (Multiple Purpose
Projects), Series D, 6.375% due 9/01/2024 (d) 5,340
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Colorado--1.8% AA Aa $ 9,000 Colorado Springs, Colorado, Utilities Revenue Bonds,
Series A, 6.10% due 11/15/2024 $ 9,264
AAA Aaa 6,200 Denver, Colorado, City and County Airport Revenue Refunding
Bonds, Series D, 5.50% due 11/15/2025 (d) 5,999
AAA Aaa 2,500 Douglas County, Colorado, School District No. Re-1 (Douglas
and Elbert Counties Improvement Project), Series A,
6.50% due 12/15/2016 (d) 2,724
Connecticut-- AA- A1 5,000 Connecticut State Health and Educational Facilities Authority
0.9% Revenue Bonds (Nursing Home Program--AHF/Hartford),
7.125% due 11/01/2024 5,658
AAA Aaa 3,500 Connecticut State, HFA (Housing Mortgage Finance Program),
Series B, 6.75% due 11/15/2023 (d) 3,672
Delaware--1.3% AAA Aaa 8,490 Delaware State, EDA, PCR, Refunding (Delmarva Power Project),
Series B, 7.15% due 7/01/2018 (c) 9,530
AAA Aaa 3,525 Delaware Transportation Authority, Transportation System
Revenue Bonds, 7% due 7/01/2013 (c) 4,029
District of A1 VMIG1++ 3,200 District of Columbia Revenue Bonds (American Association
Columbia--3.1% for the Advancement of Science--Issue Project), VRDN,
3.60% due 10/01/2022 (a) 3,200
AAA Aaa 7,000 District of Columbia Revenue Bonds (American University),
5.625% due 10/01/2026 (b) 6,827
AAA Aaa 20,100 Metropolitan Washington, DC, Virginia Airports Authority,
General Airport Revenue Bonds, AMT, Series A,
6.625% due 10/01/2019 (d) 21,551
Florida--3.7% AAA Aaa 4,000 Broward County, Florida Professional Sports Facilities,
Tax Revenue Bonds (Civic Arena Project), Series A,
5.625% due 9/01/2028 (d) 3,959
A1+ VMIG1++ 2,250 Dade County, Florida, IDA, IDR (Dolphins Stadium Project),
VRDN, Series D, 3.55% due 1/01/2016 (a) 2,250
A1+ VMIG1++ 1,200 Dade County, Florida, Water and Sewer System Revenue Bonds,
VRDN, 3.50% due 10/05/2022 (a)(c) 1,200
AAA Aaa 8,750 Florida State Board of Education, Capital Outlay
(Public Education), Series F, 5.50% due 6/01/2026 (c) 8,574
AAA Aaa 9,940 Orange County, Florida, Tourist Development, Tax Revenue Bonds,
Series B, 6.50% due 10/01/2019 (b) 10,811
A1 VMIG1++ 10,600 Pinellas County, Florida, Health Facilities Authority, Revenue
Refunding Bonds (Pooled Hospital Loan Program), DATES,
3.65% due 12/01/2015 (a) 10,600
Georgia--2.7% AAA Aaa 10,000 Georgia Municipal Electric Authority, Power Revenue Bonds,
Series EE, 6.40% due 1/01/2023 (b) 10,707
Metropolitan Atlanta Rapid Transportation Authority, Georgia,
Sales Tax Revenue Bonds:
AAA Aaa 6,500 Second Indenture, Series A, 6.90% due 7/01/2020 (d) 7,318
AAA Aaa 8,955 Series O, 6.55% due 7/01/2020 (c) 9,672
Hawaii--1.8% AAA Aaa 17,145 Hawaii State Airports Systems Revenue Bonds, AMT, Second
Series, 6.75% due 7/01/2021 (d) 18,480
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Illinois--9.1% AAA Aaa $ 9,160 Chicago, Illinois, Midway Airport Revenue Bonds, AMT,
Series A, 6.25% due 1/01/2024 (d) $ 9,475
AAA Aaa 12,000 Chicago, Illinois, Public Building Commission, Building
Revenue Bonds, Series A, 6.50% due 1/01/2018 (d)(h) 12,646
Cook County, Illinois, GO, UT:
AAA Aaa 24,500 Refunding (Capital Improvement), 5.875% due 11/15/2022 (c) 24,510
AAA Aaa 15,000 Series A, 6.60% due 11/15/2022 (d) 16,411
Illinois Health Facilities Authority Revenue Bonds:
AAA Aaa 6,000 Refunding (Carle Foundation), Series A,
6.75% due 1/01/2010 (c) 6,448
AAA Aaa 8,545 (Rockford Memorial Hospital), Series B, 6.75% due 8/15/2018 (b) 9,267
Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Refunding Bonds (McCormick Place
Expansion Project), Series A:
AAA Aaa 5,500 6.08% due 12/15/2019 (d)(j) 1,405
AAA Aaa 19,305 6.18% due 6/15/2022 (d)(j) 4,250
AAA Aaa 3,000 5.25% due 6/15/2027 (b) 2,785
AAA Aaa 6,000 Northern Illinois, University Revenue Bonds (Auxiliary
Facilities Systems), 5.75% due 4/01/2022 (c) 5,960
Indiana--0.7% AAA Aaa 5,000 Indianapolis, Indiana, Gas Utility Revenue Bonds, Series A,
6.20% due 6/01/2023 (c) 5,171
AAA Aaa 2,000 Monroe County, Indiana, Hospital Authority Revenue Bonds
(Bloomington Hospital Project), 6.70% due 5/01/2012 (d) 2,154
Kansas--2.3% AAA Aaa 20,250 Burlington, Kansas, PCR, Refunding (Kansas Gas and Electric
Company Project), 7% due 6/01/2031 (d) 22,318
AAA Aaa 1,300 Kansas City, Kansas, Utility System Revenue Refunding
and Improvement Bonds, 6.375% due 9/01/2023 (c) 1,389
Louisiana--1.3% AAA Aaa 13,000 Louisiana State, Refunding, Series A, 6% due 8/01/2001 (c) 13,802
Maryland--0.2% NR* Aa 1,985 Maryland State Community Development Administration,
Department of Housing and Community Development, S/F
Program, AMT, Second Series, 6.55% due 4/01/2026 2,047
Massachusetts--1.9% Massachusetts State Health and Higher Educational Facilities
Authority Revenue Bonds (c):
AAA Aaa 6,400 (Bay State Medical Center), Series D, 5.50% due 7/01/2016 6,205
AAA Aaa 7,130 (New England Medical Center Hospitals), Series F,
6.625% due 7/01/2025 7,725
AAA Aaa 5,000 Massachusetts State Industrial Finance Agency Revenue Bonds
(Brandeis University), Series C, 6.80% due 10/01/2019 (d) 5,389
Michigan--3.4% AAA Aaa 21,750 Michigan State Strategic Fund, Limited Obligation Revenue
Refunding Bonds (Detroit Edison Company Pollution Project),
6.875% due 12/01/2021 (c) 24,043
Monroe County, Michigan, PCR (Detroit Edison Co. Project),
AMT (d):
AAA Aaa 5,000 Series CC, 6.55% due 6/01/2024 5,355
AAA Aaa 5,000 Series I-B, 6.55% due 9/01/2024 5,379
Minnesota--0.7% Minnesota State, HFA, S/F Mortgage Revenue Bonds, AMT:
AA+ Aa 3,800 Series H, 6.50% due 1/01/2026 3,879
AA+ Aa 2,965 Series L, 6.70% due 7/01/2020 3,067
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Missouri--0.7% AAA Aaa $ 4,000 Kansas City, Missouri, Airport General Revenue Improvement
Bonds, Series B, 6.875% due 9/01/2014 (e) $ 4,489
AAA Aaa 2,775 Missouri State Health and Educational Facilities Authority,
Health Facilities Revenue Refunding Bonds (SSM Health Care),
Series AA, 6.25% due 6/01/2016 (d) 2,890
<PAGE>
Nevada--7.3% AAA Aaa 6,250 Clark County, Nevada, GO, Public Safety, 5.25% due
6/01/2017 (c) 5,992
AAA Aaa 15,000 Clark County, Nevada, GO, School District, 6% due
6/15/2014 (c) 15,450
AAA Aaa 4,570 Clark County, Nevada, Refunding (Las Vegas Convention and
Visitors Authority), 5.50% due 7/01/2021 (d) 4,449
AAA Aaa 9,250 Humboldt County, Nevada, PCR, Refunding (Sierra Pacific Power
Company Project), 6.55% due 10/01/2013 (b) 10,033
AAA Aaa 18,755 Nevada State, GO, Nos. 49 and 50, 5.50% due 11/01/2025 (c) 18,226
AAA Aaa 2,400 Reno, Nevada, Hospital Revenue Bonds (Saint Mary's
Regional Medical Center), Series A, 6.70% due 7/01/2021 (d) 2,592
AAA Aaa 15,000 Washoe County, Nevada, Gas Facilities Revenue Bonds
(Sierra Pacific Power Co.), AMT, 6.65% due 12/01/2017 (b) 16,086
A1+ P1 1,400 Washoe County, Nevada, Water Facility Revenue Bonds (Sierra
Pacific Power Co. Project), VRDN, AMT, 3.65% due 12/01/2020 (a) 1,400
New Hampshire-- AAA Aaa 7,660 New Hampshire Higher Educational and Health Facilities
0.8% Authority Revenue Bonds (Elliot Hospital of Manchester),
6.25% due 10/01/2021 (b) 7,867
New Jersey-- AAA Aaa 4,695 New Jersey State Housing and Mortgage Finance Agency Revenue
0.5% Bonds (Home Buyer), AMT, Series K, 6.375% due 10/01/2026 (d) 4,815
New Mexico-- A1+ P1 800 Farmington, New Mexico, PCR (Arizona Public Service Co.),
1.3% VRDN, AMT, Series C, 3.65% due 9/01/2024 (a) 800
AAA Aaa 10,000 Farmington, New Mexico, PCR, Refunding (Southern California
Edison Company), Series A, 5.875% due 6/01/2023 (d) 10,050
NR* A 2,635 New Mexico Educational Assistance Foundation, Student Loan
Revenue Bonds, AMT, First Sub-Series A-2, 6.65% due 11/01/2025 2,670
New York--6.7% AAA Aaa 3,500 Metropolitan Transportation Authority, New York, Commuter
Facilites Revenue Bonds, Series A, 6% due 7/01/2021 (c) 3,600
AAA Aaa 4,000 Metropolitan Transportation Authority, New York, Dedicated Tax
Fund, Series A, 5.25% due 4/01/2026 (d) 3,783
BBB Baa1 10,980 Metropolitan Transportation Authority, New York, Service
Contract Refunding Bonds (Transit Facilities), Series 5,
7% due 7/01/2012 11,847
AAA Aaa 3,700 Metropolitan Transportation Authority, New York, Transportation
Facilites Revenue Bonds (Transit Facilities), Series A, 6.10%
due 7/01/2026 (e) 3,837
New York City, New York, GO, UT:
BBB+ Baa1 2,210 Series C, Sub-Series C-1, 7.50% due 8/01/2019 2,459
BBB+ Baa1 370 Series D, 7.50% due 2/01/2002 (g) 422
BBB+ Baa1 630 Series D, 7.50% due 2/01/2016 692
BBB+ Baa1 12,000 Series D, 7.50% due 2/01/2019 13,262
AAA Aaa 4,000 New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Refunding Bonds, Series A,
5.375% due 6/15/2026 (e) 3,831
BBB+ Baa1 7,595 New York State Dormitory Authority, Revenue Refunding
Bonds (State University Educational Facilities), Series B,
7% due 5/15/2016 8,128
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New York AAA Aaa $ 6,250 New York State Energy Research and Development Authority,
(concluded) Solid Waste Disposal Revenue Bonds (New York State Electric
and Gas Co. Project), AMT, Series A, 5.70% due 12/01/2028 (d) $ 6,053
AA- Aa 9,000 New York State Power Authority, Revenue and General Purpose
Refunding Bonds, Series CC, 5% due 1/01/2014 8,371
BBB Baa1 2,000 New York State Urban Development Corporation, Revenue
Refunding Bonds (Correctional Facilities), Series A,
5.25% due 1/01/2021 1,789
North Dakota-- AAA Aaa 2,500 Grand Forks, North Dakota, Health Care Facilities Revenue Bonds
0.2% (United Hospital Obligated Group), 6.25% due 12/01/2024 (d) 2,628
Ohio--1.3% AAA Aaa 10,000 Cuyahoga County, Ohio, Hospital Revenue and Improvement
Refunding Bonds (University Hospital Health Systems),
Series A, 6.875% due 1/15/1999 (g)(l) 10,749
AAA Aaa 2,500 Ohio State Higher Educational Facilities Commission,
Mortgage Revenue Bonds (University of Dayton Project),
6.60% due 12/01/2017 (c) 2,743
Oklahoma--0.2% AAA Aaa 2,500 Central Oklahoma, Transportation and Parking Authority, Revenue
Refunding Bonds (Parking Systems), 5.25% due 7/01/2016 (e) 2,399
Oregon--0.5% AAA Aaa 5,000 Port of Portland International Airport Revenue Bonds
(Portland International Airport), Series 11, AMT,
5.625% due 7/01/2026 (c) 4,867
A1+ VMIG1++ 200 Port Saint Helen's, Oregon, PCR (Portland General Electric
Company Project), VRDN, Series B, 3.60% due 6/01/2010 (a) 200
Pennsylvania-- A1+ P1 400 Beaver County, Pennsylvania, IDA, PCR, Refunding (Duquesne
1.8% Light Company, Manfield), VRDN, Series B, 3.50% due
8/01/2009 (a) 400
A1 NR* 300 Emmaus, Pennsylvania, General Authority Revenue Bonds,
VRDN, Sub-Series B-12, 3.65% due 3/01/2024 (a) 300
AAA Aaa 16,000 Montgomery County, Pennsylvania, IDA, PCR, Refunding
(Philadelphia Electric Company), Series B, 6.70%
due 12/01/2021 (d) 17,486
South Carolina--2.7% South Carolina State Public Service Authority Revenue Bonds:
AAA Aaa 4,850 Refunding, Series B, 5.875% due 1/01/2023 (c) 4,891
AAA Aaa 9,900 (Santee Cooper), Series D, 6.50% due 7/01/2014 (b) 10,728
AAA Aaa 7,000 Spartanburg County, South Carolina, Hospital Facilities Revenue
Refunding Bonds (Spartanburg General Hospital System),
Series A, 6.625% due 4/15/2022 (e) 7,571
NR* NR* 4,200 Spartanburg County, South Carolina, Solid Waste Disposal
Facilities Revenue Bonds (BMW Project), AMT, 7.55% due
11/01/2024 4,569
<PAGE>
Tennessee--1.4% AAA Aaa 3,820 Johnson City, Tennessee, Health and Educational Facilities
Board, Hospital Revenue Refunding and Improvement Bonds
(Johnson City Medical Center), 6.75% due 7/01/2016 (d) 4,151
AAA Aaa 2,555 Metropolitan Government, Nashville and Davidson County,
Tennessee Sports Authority Revenue Bonds (Public
Improvement--Stadium Project), 5.875% due 7/01/2021 (b) 2,586
AAA Aaa 3,000 Metropolitan Government Nashville and Davidson County,
Tennessee, Water and Sewer Revenue Bonds, RIB, 8.317%
due 1/01/2022 (b)(k) 3,094
A+ A1 3,900 Tennessee HDA, Mortgage Finance, AMT, Series A,
6.90% due 7/01/2025 4,084
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Texas--4.4% AAA Aaa $ 3,200 Bexar, Texas, Metropolitan Water District, Waterworks System
Revenue Refunding Bonds, 6.35% due 5/01/2025 (d) $ 3,428
Brazos River Authority, Texas, PCR (Texas Utilities Electric
Company Project), AMT (b):
A1 VMIG1++ 600 Refunding, Series C, VRDN, 3.65% due 6/01/2030 (a) 600
AAA Aaa 3,800 Series A, 6.75% due 4/01/2022 4,082
NR* VMIG1++ 500 Gulf Coast, Texas, IDA, Solid Waste Disposal Revenue Bonds
(Citgo Petroleum Corp. Project), VRDN, AMT, 3.75%
due 5/01/2025 (a) 500
A1+ VMIG1++ 4,100 Gulf Coast, Texas, Waste Disposal Authority, Solid Waste
Disposal Revenue Refunding Bonds (Amoco Oil Co.Project), VRDN,
AMT, 3.65% due 8/01/2023 (a) 4,100
A1+ VMIG1++ 100 Harris County, Texas, Health Facilities Development Corporation,
Special Facilities Revenue Bonds (Texas Medical Center Project),
VRDN, 3.65% due 2/15/2022 (a)(d) 100
AAA Aaa 6,885 Houston, Texas, Airport System Revenue Bonds (Sub-Lien),
AMT, Series A, 6.75% due 7/01/2021 (c) 7,409
AAA Aaa 11,795 Matagorda County, Texas, Navigation District No. 1,
Revenue Refunding Bonds (Houston Light and Power Co.),
Series A, 6.70% due 3/01/2027 (b) 12,904
NR* VMIG1++ 1,200 Port of Port Arthur, Texas, Navigational District, PCR,
Refunding (Texaco Inc. Project), VRDN, 3.65% due 10/01/2024 (a) 1,200
AAA Aaa 6,720 Texas State Turnpike Authority, Dallas North Thruway Revenue
Bonds (President George Bush Turnpike), 5.25% due 1/01/2023 (c) 6,381
A1+ Aa3 3,800 West Side Calhoun County, Texas, Navigation District, Sewer
and Solid Waste Disposal Revenue Bonds (BP Chemicals Inc.
Project), VRDN, AMT, 3.65% due 4/01/2031 (a) 3,800
Utah--0.7% A+ Aa 3,500 Intermountain Power Agency, Utah, Power Supply Revenue
Refunding Bonds, Series A, 6.15% due 7/01/2014 3,617
AAA Aaa 4,000 Salt Lake City, Utah, Airport Revenue Bonds, AMT, Series A,
6.125% due 12/01/2022 (c) 4,065
<PAGE>
Virginia--1.5% AAA Aaa 5,540 Loudon County, Virginia, COP, 6.90% due 3/01/2019 (e) 6,202
Virginia State, HDA, Commonwealth Mortgage, AMT:
AAA Aaa 6,500 Series A, Sub-Series A-4, 6.45% due 7/01/2028 (d) 6,671
AA+ Aa1 3,000 Series B, Sub-Series B-1, 6.375% due 7/01/2026 3,048
Washington--5.9% AAA Aaa 1,200 Douglas County, Washington, Public Utility District No. 001
Revenue Bonds (Electric Distribution System), 6% due 1/01/2015 (d) 1,223
AAA Aaa 9,495 Port Seattle, Washington, Revenue Bonds (Sub-Lien), Series C,
6.625% due 8/01/2017 (d) 10,370
Seattle, Washington, Metropolitan Seattle Municipality Sewer
Revenue Bonds:
AAA Aaa 10,560 Series U, 6.60% due 1/01/2032 (c) 11,376
AAA Aaa 1,750 Series W, 6.25% due 1/01/2022 (d) 1,818
AAA Aaa 5,000 Snohomish County, Washington, Public Utility District No. 001,
Electric Revenue Bonds (Generation System), AMT, Series B,
5.80% due 1/01/2024 (d) 4,919
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Washington AAA Aaa $ 3,500 Tacoma, Washington, Refuse Utility Revenue Bonds,
(concluded) 7% due 12/01/2019 (b) $ 4,020
AAA Aaa 2,000 University of Washington Alumni Association, Lease Revenue
Bonds (University of Washington Medical Center--Roosevelt II),
6.25% due 8/15/2012 (e) 2,118
A+ A1 8,300 Washington State Health Care Facilities Authority Revenue
Bonds (Children's Hospital and Medical Center), 6% due 10/01/2022 8,045
Washington State Public Power Supply Systems, Revenue
Refunding Bonds (Nuclear Project No. 1), Series A (d):
AAA Aaa 4,930 5.75% due 7/01/2012 4,946
AAA Aaa 11,175 6.25% due 7/01/2017 11,622
West Virginia-- AAA Aaa 4,425 Harrison County, West Virginia, County Commonwealth
0.8% Solid Waste Disposal Revenue Bonds (Monongahela Power),
AMT, Series C, 6.75% due 8/01/2024 (b) 4,869
AAA Aaa 2,800 West Virginia School Building Authority, Revenue and Capital
Improvement Bonds, Series B, 6.75% due 7/01/2017 (d) 3,040
Wisconsin--2.7% AA Aa 2,000 Wisconsin, Housing and EDA, Home Ownership Revenue Bonds,
AMT, Series B, 6.75% due 9/01/2025 2,068
Wisconsin Public Power Inc., Power Supply System
Revenue Bonds, Series A:
AAA Aaa 3,500 6% due 7/01/2015 (d) 3,624
AAA Aaa 9,950 5.75% due 7/01/2023 (d) 9,936
AAA Aaa 6,190 Refunding, 5.25% due 7/01/2021 (b) 5,823
Wisconsin State Health and Educational Facilities Authority,
Revenue Refunding Bonds (Wheaton--Franciscan Services) (d):
AAA Aaa 3,955 6.50% due 8/15/2011 4,158
AAA Aaa 2,000 6% due 8/15/2015 2,029
<PAGE>
Total Investments (Cost--$957,706)--99.6% 1,016,969
Other Assets Less Liabilities--0.4% 4,504
----------
Net Assets--100.0% $1,021,473
==========
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at October 31, 1996.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)FSA Insured.
(f)FNMA Collateralized.
(g)Prerefunded.
(h)Escrowed to maturity.
(i)GNMA Collateralized.
(j)Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
(k)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, 1996.
(l)BIG Insured.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$957,706,325) (Note 1a) $1,016,969,313
Cash 98,577
Interest receivable 18,399,691
Deferred organization expenses (Note 1e) 2,542
Prepaid expenses and other assets 317,862
--------------
Total assets 1,035,787,985
--------------
Liabilities: Payables:
Securities purchased $ 12,692,964
Dividends to shareholders (Note 1f) 1,075,987
Investment adviser (Note 2) 431,245 14,200,196
--------------
Accrued expenses and other liabilities 115,267
--------------
Total liabilities 14,315,463
--------------
<PAGE>
Net Assets: Net assets $1,021,472,522
==============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (12,800 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) $ 320,000,000
Common Stock, par value $.10 per share (45,187,339 shares
issued and outstanding) $ 4,518,734
Paid-in capital in excess of par 630,233,103
Undistributed investment income--net 8,382,551
Accumulated realized capital losses on investments--net (11,297)
Accumulated distributions in excess of realized capital gains--net
(Note 1f) (913,557)
Unrealized appreciation on investments--net 59,262,988
--------------
Total--Equivalent to $15.52 net asset value per share of Common
Stock (market price--$14.00) 701,472,522
--------------
Total capital $1,021,472,522
==============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
October 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 59,725,062
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 5,078,705
Commission fees (Note 4) 812,282
Transfer agent fees 123,767
Accounting services (Note 2) 105,528
Professional fees 96,168
Directors' fees and expenses 79,436
Custodian fees 56,113
Printing and shareholder reports 55,029
Listing fees 46,044
Pricing fees 22,542
Amortization of organization expenses (Note 1e) 6,330
Other 58,843
--------------
Total expenses 6,540,787
--------------
Investment income--net 53,184,275
--------------
<PAGE>
Realized & Realized gain on investments--net 7,245,480
Unrealized Gain Change in unrealized appreciation on investments--net (391,582)
(Loss) on --------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 60,038,173
(Notes 1b, 1d & 3): ==============
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 53,184,275 $ 54,442,202
Realized gain (loss) on investments--net 7,245,480 (1,207,134)
Change in unrealized appreciation/depreciation on
investments--net (391,582) 76,204,182
-------------- --------------
Net increase in net assets resulting from operations 60,038,173 129,439,250
-------------- --------------
Dividends & Investment income--net:
Distributions to Common Stock (41,238,191) (41,768,871)
Shareholders Preferred Stock (10,788,626) (12,703,005)
(Note 1f): Realized gain on investments--net:
Common Stock (3,872,510) (158,132)
Preferred Stock (1,178,380) (26,101)
In excess of realized gain on investments--net:
Common Stock -- (1,631,693)
Preferred Stock -- (269,320)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (57,077,707) (56,557,122)
-------------- --------------
Net Assets: Total increase in net assets 2,960,466 72,882,128
Beginning of year 1,018,512,056 945,629,928
-------------- --------------
End of year* $1,021,472,522 $1,018,512,056
============== ==============
<FN>
*Undistributed investment income--net (Note 1g) $ 8,382,551 $ 7,213,796
============== ==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the Period
The following per share data and ratios have been derived March 27,
from information provided in the financial statements. 1992++ to
For the Year Ended October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.46 $ 13.85 $ 16.76 $ 14.27 $ 14.18
Operating -------- -------- -------- -------- --------
Performance: Investment income--net 1.18 1.20 1.20 1.21 .66
Realized and unrealized gain (loss) on
investments--net .15 1.66 (2.66) 2.59 .16
-------- -------- -------- -------- --------
Total from investment operations 1.33 2.86 (1.46) 3.80 .82
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.91) (.92) (.98) (1.00) (.48)
Realized gain on investments--net (.09) --+++ (.26) (.10) --
In excess of realized gains on
investments--net -- (.04) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (1.00) (.96) (1.24) (1.10) (.48)
-------- -------- -------- -------- --------
Capital charge resulting from issuance of
Common Stock -- -- -- -- (.01)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:++++
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.24) (.28) (.17) (.19) (.10)
Realized gain on investments--net (.03) --+++ (.04) (.02) --
In excess of realized gains on
investments--net -- (.01) -- -- --
Capital charge resulting from issuance of
Preferred Stock -- -- -- -- (.14)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.27) (.29) (.21) (.21) (.24)
-------- -------- -------- -------- --------
Net asset value, end of period $ 15.52 $ 15.46 $ 13.85 $ 16.76 $ 14.27
======== ======== ======== ======== ========
Market price per share, end of period $ 14.00 $ 13.625 $ 11.625 $ 15.875 $ 14.875
======== ======== ======== ======== ========
Total Investment Based on market price per share 10.30% 26.09% (20.23%) 14.51% 2.46%+++++
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 7.76% 20.09% (9.98%) 26.01% 3.97%+++++
======== ======== ======== ======== ========
<PAGE>
Ratios to Average Expenses, net of reimbursement .64% .65% .66% .65% .47%*
Net Assets:*** ======== ======== ======== ======== ========
Expenses .64% .65% .66% .65% .66%*
======== ======== ======== ======== ========
Investment income--net 5.22% 5.55% 5.35% 5.35% 5.69%*
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of
Data: period (in thousands) $701,473 $698,512 $625,630 $757,138 $638,150
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $320,000 $320,000 $320,000 $320,000 $320,000
======== ======== ======== ======== ========
Portfolio turnover 100.49% 59.71% 45.71% 39.93% 21.89%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,192 $ 3,183 $ 2,955 $ 3,366 $ 2,994
======== ======== ======== ======== ========
Dividends Per Series A--Investment income--net $ 832 $ 1,043 $ 1,184 $ 1,150 $ 688
Share on ======== ======== ======== ======== ========
Preferred Stock Series B--Investment income--net $ 835 $ 1,043 $ 1,090 $ 1,253 $ 656
Outstanding:++++++ ======== ======== ======== ======== ========
Series C--Investment income--net $ 841 $ 1,042 $ 1,278 $ 1,175 $ 659
======== ======== ======== ======== ========
Series D--Investment income--net $ 865 $ 950 $ 1,144 $ 1,426 $ 767
======== ======== ======== ======== ========
Series E--Investment income--net $ 842 $ 933 $ 1,282 $ 1,492 $ 766
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
***Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Commencement of Operations.
++++The Fund's Preferred Stock was issued on May 22, 1992.
++++++Dividends per share have been adjusted to reflect a two-for-
one stock split that occurred on December 31, 1994.
+++Amount is less than $.01 per share.
+++++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
<PAGE>
1. Significant Accounting Policies:
MuniYield Insured Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. The Fund determines and makes
available for publication the net asset value of its Common Stock on
a weekly basis. The Fund's Common Stock is listed on the New York
Stock Exchange under the symbol MYI. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of
such exchanges. Options, which are traded on exchanges, are valued
at their last sale price as of the close of such exchanges or,
lacking any sales, at the last available bid price. Securities with
remaining maturities of sixty days or less are valued at amortized
cost, which approximates market value. Securities for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund, including valuations furnished by a pricing
service retained by the Fund, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
<PAGE>
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired, or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the
accrual basis. Discounts and market premiums are amortized into
interest income. Realized gains and losses on security transactions
are determined on the identified cost basis.
(e) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. Distributions in excess of
realized capital gains are due primarily to differing tax treatments
for future transactions.
(g) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$11,297 have 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.
<PAGE>
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 offi-cers and/or
directors of FAM, PSI, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1996 were $972,142,894 and
$978,971,983, respectively.
Net realized and unrealized gains as of October 31, 1996 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 5,615,129 $59,262,988
Short-term investments 3,007 --
Financial futures contracts 1,627,344 --
------------ -----------
Total $ 7,245,480 $59,262,988
============ ===========
As of October 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $59,097,448, of which $59,247,383
related to appreciated securities and $149,935 related to
depreciated securities. The aggregate cost of October 31, 1996 for
Federal income tax purposes was $957,871,865.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.
Common Stock
For the year ended October 31, 1996, shares issued and outstanding
remained constant at 45,187,339. At October 31, 1996, total paid-in
capital amounted to $634,751,837.
<PAGE>
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund that entitle their holders to receive cash
dividends at an annual rate that may vary for the successive
dividend periods. The yields in effect at October 31, 1996 were as
follows: Series A, 3.425%; Series B, 3.425%; Series C, 3.43%; Series
D, 3.74%; and Series E, 3.40%.
As of October 31, 1996, there were 12,800 AMPS shares authorized,
issued and outstanding with a liquidation preference of $25,000 per
share.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from 0.25% to 0.375%,
calculated on the proceeds of each auction. For the year ended
October 31, 1996, MLPF&S, an affiliate of FAM, earned $411,822 as
commissions.
5. Reorganization Plan:
On November 14, 1996, shareholders approved a plan of reorganization
whereby the Fund would acquire substantially all of the assets and
liabilities of MuniYield Insured Fund II, Inc. in exchange for newly
issued shares of the Fund. MuniYield Insured Fund II, Inc. is a
registered, non-diversified, closed-end management investment
company, with a similar investment objective to the Fund, and is
managed by FAM.
6. Subsequent Event:
On November 8, 1996, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.078287 per share, payable on November 27, 1996, to shareholders
of record as of November 18, 1996.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
MuniYield Insured Fund, Inc.:
We have audited the accompanying statement of assets, liabilities
and capital, including the schedule of investments, of MuniYield
Insured Fund, Inc. as of October 31, 1996, 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 four-year period
then ended and the period March 27, 1992 (commencement of
operations) to October 31, 1992. 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.
<PAGE>
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 October
31, 1996 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
MuniYield Insured Fund, Inc. as of October 31, 1996, 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
December 6, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
<TABLE>
All of the net investment income distributions paid by MuniYield
Insured Fund, Inc. during its taxable year ended October 31, 1996
qualify as tax-exempt interest dividends for Federal income tax
purposes. Additionally, the following table summarizes the per share
capital gain distributions paid by the Fund during the year:
<CAPTION>
Payable Short-Term Long-Term
Date Capital Gains Capital Gains
<S> <S> <S> <C> <C>
Common Stock Shareholders 12/28/95 $ .063251 $ .022448
Preferred Stock Shareholders: Series A 11/30/95 $71.43 $25.35
Series B 11/30/95 $71.38 $25.33
Series C 11/30/95 $71.34 $25.32
Series D 11/24/95 $65.06 $23.09
Series E 11/24/95 $25.78 $ 8.51
11/30/95 $18.99 $ 6.57
12/07/95 $19.09 $ 7.59
</TABLE>
<PAGE>
Please retain this information for your records.
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
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachussets 02110
Transfer Agents
Common Stock:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachussets 02110
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
NYSE Symbol
MYI
