MUNIYIELD
MICHIGAN
INSURED
FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Annual Report
October 31, 1997
This report, including the financial information herein, is transmitted to
the shareholders of MuniYield Michigan Insured Fund, Inc. for their
information. It is not a prospectus, circular or representation intended
for use in the purchase of shares of the Fund or any securities mentioned
in the report. Past performance results shown in this report should not be
considered a representation of future performance. The Fund has leveraged
its Common Stock by issuing Preferred Stock to provide the Common Stock
shareholders with a potentially higher rate of return. Leverage creates
risks for Common Stock shareholders, including the likelihood of greater
volatility of net asset value and market price of shares of the Common
Stock, and the risk that fluctuations in the short-term dividend rates of
the Preferred Stock may affect the yield to Common Stock shareholders.
Statements and other information herein are as dated and are subject to
change.
MuniYield Michigan
Insured Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 16427 -- 10/97
[RECYCLE LOGO] Printed on post-consumer recycled paper
MuniYield Michigan Insured Fund, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1997, the Common Stock of MuniYield
Michigan Insured Fund, Inc. earned $0.842 per share income dividends,
which included earned and unpaid dividends of $0.071. This represents a
net annualized yield of 5.43%, based on a month-end per share net asset
value of $15.51. Over the same period, the total investment return on the
Fund's Common Stock was +8.58%, based on a change in per share net asset
value from $15.16 to $15.51, and assuming reinvestment of $0.845 per share
income dividends.
For the six-month period ended October 31, 1997, the total investment
return on the Fund's Common Stock was +7.16%, based on a change in per
share net asset value from $14.90 to $15.51, and assuming reinvestment of
$0.421 per share income dividends.
For the six-month period ended October 31, 1997, the Fund's Auction Market
Preferred Stock had an average yield of 3.37%.
The Municipal Market Environment
Long-term interest rates generally declined during the six-month period
ended October 31, 1997. The general financial environment has remained one
of solid economic growth tempered by few or no inflationary pressures.
While economic growth has been conducive to declining bond yields, it has
remained strong enough to suggest that the Federal Reserve Board (FRB)
might find it necessary to raise short-term interest rates. This would be
intended to slow economic growth and ensure that any incipient
inflationary pressures would be curtailed. There were investor concerns
that the FRB would be forced to raise interest rates prior to year-end,
thus preventing an even more dramatic decline in interest rates. Long-term
tax-exempt revenue bonds, as measured by the Bond Buyer Revenue Bond
Index, declined over 50 basis points (0.50%) to end the six-month period
ended October 31, 1997 at 5.60%.
Similarly, long-term US Treasury bond yields generally moved lower during
most of the six-month period ended October 31, 1997. However, the turmoil
in the world's equity markets during the last week in October has resulted
in a significant rally in the Treasury bond market. The US Treasury bond
market was the beneficiary of a flight to quality mainly by foreign
investors whose own domestic markets have continued to be very volatile.
Prior to the initial decline in Asian equity markets, long-term US
Treasury bond yields were essentially unchanged. By the end of October, US
Treasury bond yields declined 80 basis points to 6.15%, their lowest level
of 1997.
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
$118 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, approximately $60
billion in new long-term municipal securities were underwritten, an
increase of over 34% as compared to the October 31, 1996 quarter. Issuance
in Michigan has very closely mirrored national underwriting trends. During
the six months ended October 31, 1997, more than $3.5 billion in long-term
municipal bonds were issued by Michigan municipalities, an increase of 27%
versus the comparable period a year ago. During the three months ended
October 31, 1997, $1.8 billion in Michigan securities were issued, an
increase of 35% as compared to the October 31, 1996 quarter.
The recent trend toward larger and larger bond issues has also continued.
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 market pressures that these large
bond issuances have exerted.
In our opinion, the recent correction in world equity markets has enhanced
the near-term prospects for continued low, if not declining, interest
rates in the United States. It is likely that the recent correction will
result in slower US domestic growth in the coming months. This decline is
likely to be generated in part by reduced US export growth. Additionally,
some decline in consumer spending also can be expected in response to
reduced consumer confidence. Perhaps more importantly, it is likely that
barring a dramatic and unexpected resurgence in domestic growth, the FRB
may be unwilling to raise interest rates until the full impact of the
equity market's corrections can be established.
All of these factors suggest that for at least the near term, interest
rates, including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable that municipal bond yields will remain
under some pressure as a result of continued strong new-issue supply.
However, the recent pace of municipal bond issuance is likely to be
unsustainable. Continued increases in bond issuance will require lower
tax-exempt bond yields to generate the economic savings necessary for
additional municipal bond refinancing. With tax-exempt bond yields at
already attractive yield ratios relative to US Treasury bonds
(approximately 90% at the end of October), any further pressure on the
municipal market may represent an attractive investment opportunity.
Portfolio Strategy
During the six months ended October 31, 1997, we largely maintained the
defensive posture we had adopted earlier in the year. Our principal
concern was that economic growth would remain strong enough to force the
FRB to raise interest rates prior to year-end. We believed that as long as
the potential for FRB action remained, it was more likely that interest
rates would be raised rather than lowered. We believed that the Fund's
core position of interest rate-sensitive securities would allow the Fund
to remain competitive should economic growth weaken and interest rates
fall.
However, the turmoil in the world's equity markets during October has
removed almost all concerns regarding any additional action by the FRB in
the near term. Additionally, it is likely that economic growth in the
United States will be slower than expected as a result of the recent stock
market correction. Consequently, we adopted a more neutral position until
the full economic impact of the world equity markets' correction can be
determined. Looking ahead, we expect to remain fully invested going into
1998 in order to seek to enhance yield for Common Stock shareholders.
Short-term tax-exempt interest rates have continued to trade in a
relatively narrow range, mostly between 3.50% and 3.75%. During the period
ended October 31, 1997, the leverage of the Preferred Stock was very
favorable and significantly augmented the yield paid to the Common Stock
shareholders. However, should the spread between short-term and long-term
tax-exempt interest rates narrow, the benefits of the leverage will
decline and the yield on the Common Stock will be reduced. (For a complete
explanation of the benefits and risks of leveraging, see page 4 of this
report to shareholders.)
In Conclusion
We appreciate your ongoing interest in MuniYield Michigan Insured Fund,
Inc., and we look forward to assisting you with your financial needs in
the months and years ahead.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/FRED K. STUEBE
Fred K. Stuebe
Vice President and Portfolio Manager
November 28, 1997
PROXY RESULTS
During the six-month period ended October 31, 1997, MuniYield Michigan
Insured Fund, Inc. Common Stock shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on
September 11, 1997. The description of each proposal and number of shares
voted are as follows:
Shares Shares Withheld
Voted For From Voting
1. To elect the Fund's
Board of Directors: Edward H. Meyer 6,909,220 186,196
Jack B. Sunderland 6,922,525 172,891
J. Thomas Touchton 6,925,242 170,174
Arthur Zeikel 6,915,291 180,125
Shares Shares Voted Shares Voted
Voted For Against Abstain
2. To ratify the selection
of Ernst & Young LLP as the
Fund's independent auditors
for the current fiscal year. 6,905,968 26,163 163,285
During the six-month period ended October 31, 1997, MuniYield Michigan
Insured Fund, Inc. Preferred Stock shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on
September 11, 1997. The description of each proposal and number of shares
voted are as follows:
Shares Shares Withheld
Voted For From Voting
1. To elect the Fund's
Board of Directors: Donald Cecil 1,859 17
M. Colyer Crum 1,859 17
Edward H. Meyer 1,859 17
Jack B. Sunderland 1,859 17
J. Thomas Touchton 1,859 17
Arthur Zeikel 1,859 17
Shares Shares Voted Shares Voted
Voted For Against Abstain
2. To ratify the selection
of Ernst & Young llp as the
Fund's independent auditors
for the current fiscal year. 1,850 16 10
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 differen-tial 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.
<TABLE>
<CAPTION>
MuniYield Michigan Insured Fund, Inc. October 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Michigan - 98.4%
AAA Aaa $1,000 Bay City, Michigan, Electric Utility Revenue Bonds, 6.60% due 1/01/2001 (b)(f) $1,089
AAA Aaa 5,000 Bay City, Michigan, School District, UT, 6.50% due 5/01/2008 (b) 5,484
AAA Aaa 1,250 Chelsea, Michigan, School District, UT, 5.875% due 5/01/2025 (c) 1,297
AAA Aaa 2,000 Coldwater, Michigan, Community Schools, Refunding, 5.125% due 5/01/2023 (d) 1,946
AAA Aaa 1,600 Detroit, Michigan, City School District, UT, 7.10% due 5/01/2001 (d)(f) 1,778
Detroit, Michigan, Sewage Disposal Revenue Bonds:
AAA Aaa 7,200 6.625% due 7/01/2001 (c)(f) 7,916
AAA Aaa 3,410 Series A, 5% due 7/01/2027 (d) 3,253
Detroit, Michigan, Water Supply System Revenue Bonds, Series A (d):
AAA Aaa 3,220 5% due 7/01/2021 3,082
AAA Aaa 1,250 5% due 7/01/2027 1,192
AAA Aaa 5,000 Detroit, Michigan, Water Supply System, Revenue Refunding Bonds, 6.25% due
7/01/2012 (c) 5,421
AAA Aaa 1,000 Eastern Michigan University, GO, Revenue Refunding Bonds, 6.375% due 6/01/2014 (b) 1,080
AAA Aaa 4,500 Grand Ledge, Michigan, Public Schools District, UT, 6.60% due 5/01/2004 (d)(f) 5,117
Grand Rapids, Michigan, Water Supply System, Revenue Refunding Bonds (c):
AAA Aaa 3,000 6.25% due 1/01/2011 3,204
AAA Aaa 3,490 6.50% due 1/01/2015 3,755
AAA Aaa 5,000 Grand Traverse County, Michigan, Hospital Finance Authority, Hospital Revenue
Refunding Bonds (Munson Healthcare), Series A, 6.25% due 7/01/2022 (b) 5,306
AAA Aaa 1,000 Grandville, Michigan, Public Schools District, Refunding, UT, 6.60% due 5/01/2005 (c)(f) 1,142
AAA Aaa 2,500 Greenville, Michigan, Public Schools Building, GO, UT, 5.75% due 5/01/2024 (d) 2,568
AAA Aaa 1,100 Gull Lake, Michigan, Community School District, GO, UT, 6.80% due 5/01/2001 (c)(f) 1,212
AAA Aaa 1,500 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility, Revenue Refunding
and Improvement Bonds (Bronson Methodist), 5.75% due 5/15/2016 (d) 1,549
AAA Aaa 2,000 Kent, Michigan, Hospital Finance Authority, Health Care Revenue Bonds (Butterworth
Health Systems), Series A, 5.625% due 1/15/2026 (d) 2,021
AAA Aaa 2,000 Kent, Michigan, Hospital Finance Authority, Hospital Facility, Revenue Refunding Bonds
(Butterworth Hospital), Series A, 7.25% due 1/15/2013 (d) 2,451
AAA Aaa 4,000 Lakeshore, Michigan, Public Schools District (Berrien County), UT, 5.70% due
5/01/2022 (d) 4,103
AAA Aaa 1,000 Leslie, Michigan, Public Schools Building and Site Revenue Refunding Bonds
(Ingham and Jackson Counties), UT, 6% due 5/01/2015 (b) 1,058
AAA Aaa 2,000 Lincoln Park, Michigan, School District, UT, 7% due 5/01/2006 (c)(f) 2,361
Michigan Higher Education Student Loan Authority Revenue Bonds, VRDN, AMT (a)(b):
A1 VMIG1+ 100 Series XII-D, 3.70% due 10/01/2015 100
AAA VMIG1+ 400 Series XII-F, 3.70% due 10/01/2020 400
Michigan Municipal Bond Authority Revenue Bonds, Series A:
AAA Aaa 5,000 (Local Government Loan Program), 6.125% due 12/01/2018 (c) 5,357
AAA Aaa 1,035 Refunding (Local Government Loan Program), 6.50% due 5/01/2012 (b) 1,140
AAA Aaa 1,870 Refunding (Local Government Loan Program), 6.50% due 11/01/2012 (d) 2,060
AA+ Aa1 2,950 (State Revolving Fund), 6.55% due 10/01/2002 (f) 3,288
AA+ Aa1 2,000 (State Revolving Fund), 6.60% due 10/01/2002 (f) 2,233
AAA Aaa 3,000 Michigan State Building Authority, Revenue Refunding Bonds, Series I, 6.25% due
10/01/2020 (d) 3,233
Michigan State Hospital Finance Authority Revenue Bonds (Mercy Health Services):
AAA Aaa 2,500 Refunding, Series T, 6.50% due 8/15/2013 (d) 2,766
AAA Aaa 4,000 Series Q, 5.375% due 8/15/2026 (b) 3,951
AAA Aaa 1,100 Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Sisters of Mercy
Health Corp.), Series M, 6.25% due 2/15/2022 (e) 1,164
Michigan State Strategic Fund, Limited Obligation Revenue Bonds:
A A1 7,250 (Ford Motor Co. Project), AMT, Series A, 6.55% due 10/01/2022 7,779
AAA Aaa 2,500 Refunding (Detroit Edison Co. Project), Series CC, 6.95% due 9/01/2021 (c) 2,738
A1+ P1 1,900 Refunding (Detroit Edison Co. Project), VRDN, Series CC, 4% due 9/01/2030 (a) 1,900
A- A1 2,500 (Waste Management Inc. Project), AMT, 6.625% due 12/01/2012 2,696
NR* P1 100 Michigan State Strategic Fund, PCR, Refunding (Consumers Power Project), VRDN,
Series A, 3.65% due 4/15/2018 (a) 100
Monroe County, Michigan, Economic Development Corp., Limited Obligation, Revenue
Refunding Bonds (Detroit Edison Co. Project):
AAA Aaa 7,500 Series AA, 6.95% due 9/01/2022 (c) 9,234
NR* P1 100 VRDN, Series CC, 3.75% due 10/01/2024 (a) 100
Monroe County, Michigan, PCR (Detroit Edison Co. Project), AMT:
AAA Aaa 2,500 (Monroe and Fermi Plants), Series 1, 7.65% due 9/01/2020 (c) 2,738
AAA Aaa 4,500 Series CC, 6.55% due 6/01/2024 (d) 4,895
AAA Aaa 1,500 Series I-B, 6.55% due 9/01/2024 (d) 1,636
AAA Aaa 3,980 Northern Michigan University, Revenue Refunding Bonds, 5.125% due 12/01/2020 (d) 3,877
AAA Aaa 1,000 Oakland University, Michigan, General Revenue Bonds, 5.75% due 5/15/2026 (d) 1,030
AAA Aaa 1,870 Redford, Michigan, Unified School District No. 001, UT, 5.90% due 5/01/2014 (c) 1,979
AAA Aaa 5,925 Riverview, Michigan, Community School District Building, UT, 6.70% due
5/01/2002 (c)(f) 6,585
Royal Oak, Michigan, Hospital Finance Authority, Hospital Revenue Bonds:
AA- Aa3 2,620 Refunding (Beaumont Properties, Inc.), Series E, 6.625% due 1/01/2019 2,830
AA Aaa 1,000 (William Beaumont Hospital), Series D, 6.75% due 1/01/2001 (f) 1,092
AAA Aaa 7,000 Saint Clair County, Michigan, Economic Development Corp., PCR, Refunding (Detroit
Edison Co. Project), Series AA, 6.40% due 8/01/2024 (b) 7,808
A1+ VMIG1+ 100 University of Michigan, University Hospital Revenue Refunding Bonds, VRDN, Series A,
3.65% due 12/01/2019 (a) 100
AAA Aaa 1,625 Western Michigan University, General Revenue Refunding Bonds, 5.125% due
11/15/2022 (c) 1,579
AAA Aaa 5,500 Wyandotte, Michigan, Electric Revenue Refunding Bonds, 6.25% due 10/01/2017 (d) 5,920
------------
Total Investments (Cost -- $149,005) -- 98.4% 161,693
Other Assets Less Liabilities -- 1.6% 2,699
------------
Net Assets -- 100.0% $164,392
============
(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, 1997.
(b) AMBAC Insured.
(c) FGIC Insured.
(d) MBIA Insured.
(e) FSA Insured.
(f) Prerefunded.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Ernst & Young LLP.
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)
GO General Obligation Bonds
PCR Pollution Control Revenue Bonds
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 October 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $149,004,797) (Note 1a) $161,692,710
Cash 43,407
Interest receivable 2,954,647
Prepaid expenses and other assets 4,826
------------
Total assets 164,695,590
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) $151,944
Investment adviser (Note 2) 74,038 225,982
------------
Accrued expenses and other liabilities 77,239
------------
Total liabilities 303,221
------------
Net Assets: Net assets $164,392,369
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (2,000 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) $50,000,000
Common Stock, par value $.10 per share (7,374,470 shares issued
and outstanding) $737,447
Paid-in capital in excess of par 102,771,407
Undistributed investment income -- net 1,114,543
Accumulated realized capital losses on investments -- net (2,918,941)
Unrealized appreciation on investments -- net 12,687,913
------------
Total -- Equivalent to $15.51 net asset value per share of Common Stock
(market price -- $14.50) 114,392,369
------------
Total capital $164,392,369
============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
October 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $9,320,424
(Note 1d):
Expenses: Investment advisory fees (Note 2) $816,973
Commission fees (Note 4) 126,860
Professional fees 82,531
Accounting services (Note 2) 62,134
Transfer agent fees 31,204
Directors' fees and expenses 22,260
Printing and shareholder reports 20,480
Listing fees 16,170
Custodian fees 9,704
Amortization of organization expenses (Note 1e) 7,736
Pricing fees 6,652
Other 12,690
------------
Total expenses 1,215,394
------------
Investment income -- net 8,105,030
------------
Realized & Realized gain on investments -- net 5,299
Unrealized Gain on Change in unrealized appreciation on investments -- net 2,374,425
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $10,484,754
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Year Ended October 31,
1997 1996
Increase (Decrease) in Net Assets:
<S> <C> <C> <C>
Operations: Investment income -- net $8,105,030 $8,128,933
Realized gain (loss) on investments -- net 5,299 (668,623)
Change in unrealized appreciation on investments -- net 2,374,425 920,658
------------ ------------
Net increase in net assets resulting from operations 10,484,754 8,380,968
------------ ------------
Dividends to Investment income -- net:
Shareholders Common Stock (6,228,883) (6,383,408)
(Note 1f): Preferred Stock (1,697,060) (1,764,240)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (7,925,943) (8,147,648)
------------ ------------
Net Assets: Total increase in net assets 2,558,811 233,320
Beginning of year 161,833,558 161,600,238
------------ ------------
End of year* $164,392,369 $161,833,558
============ ============
* Undistributed investment income -- net $1,114,543 $935,456
============ ============
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 October 31,
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 $15.16 $15.13 $13.70 $16.55 $14.14
Operating -------- -------- -------- -------- --------
Performance: Investment income -- net 1.09 1.11 1.13 1.13 1.13
Realized and unrealized gain (loss) on
investments -- net .33 .03 1.71 (2.76) 2.47
-------- -------- -------- -------- --------
Total from investment operations 1.42 1.14 2.84 (1.63) 3.60
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income -- net (.84) (.87) (.86) (.91) (.86)
Realized gain on investments -- net -- -- (.26) (.08) --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.84) (.87) (1.12) (.99) (.86)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income -- net (.23) (.24) (.23) (.21) (.19)
Realized gain on investments -- net -- -- (.06) (.02) --
Capital charge resulting from issuance of
Preferred Stock -- -- -- -- (.14)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.23) (.24) (.29) (.23) (.33)
-------- -------- -------- -------- --------
Net asset value, end of year $15.51 $15.16 $15.13 $13.70 $16.55
======== ======== ======== ======== ========
Market price per share, end of year $14.50 $14.25 $13.50 $11.875 $16.625
======== ======== ======== ======== ========
Total Investment Based on market price per share 8.00% 12.14% 23.73% (23.52%) 17.03%
Return:* ======== ======== ======== ======== ========
Based on net asset value per share 8.58% 6.45% 20.20% (11.36%) 23.59%
======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .74% .75% .78% .78% .61%
Net Assets:** ======== ======== ======== ======== ========
Expenses .74% .75% .78% .78% .70%
======== ======== ======== ======== ========
Investment income -- net 4.96% 5.03% 5.44% 5.07% 5.24%
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of year
Data: (in thousands) $114,392 $111,834 $111,600 $101,047 $122,069
======== ======== ======== ======== ========
Preferred Stock outstanding, end of year
(in thousands) $50,000 $50,000 $50,000 $50,000 $50,000
======== ======== ======== ======== ========
Portfolio turnover 16.68% 21.82% 41.11% 21.76% 12.73%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $3,288 $3,237 $3,232 $3,021 $3,441
======== ======== ======== ======== ========
Dividends Per Share Investment income -- net $849 $882 $836 $771 $695
On Preferred Stock ======== ======== ======== ======== ========
Outstanding:+
* 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.
+ Dividends per share have been adjusted to reflect a two-for-one stock split that occurred on
December 1, 1994.
See Notes to Financial Statements.
</TABLE>
MuniYield Michigan Insured Fund, Inc. October 31, 1997
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Michigan Insured Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund determines and makes available for
publication the net asset value of its Common Stock on a weekly basis. The
Fund's Common Stock is listed on the New York Stock Exchange under the
symbol MIY. The following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments -- Municipal bonds are traded primarily in
the over-the-counter markets and are valued at the most recent bid price
or yield equivalent as obtained by the Fund's pricing service from dealers
that make markets in such securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
closing prices as of the close of such exchanges. Options, which are
traded on exchanges, are valued at their last sale price as of the close
of such exchanges or, lacking any sales, at the last available bid price.
Securities with remaining maturities of sixty days or less are valued at
amortized cost, which approximates market value. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund, including valuations furnished by a pricing service
retained by the Fund, which may utilize a matrix system for valuations.
The procedures of the pricing service and its valuations are reviewed by
the officers of the Fund under the general supervision of the Board of
Directors.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses
may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
[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).
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.
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 October 31, 1997 were $25,795,917 and $26,442,938,
respectively.
Net realized and unrealized gains (losses) as of October 31, 1997 were as
follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $852,643 $12,687,913
Financial futures contracts (847,344) --
----------- -----------
Total $5,299 $12,687,913
=========== ===========
As of October 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $12,687,913, all of which related to appreciated
securities. The aggregate cost of investments at October 31, 1997 for
Federal income tax purposes was $149,004,797.
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 years ended October 31, 1997 and
October 31, 1996 remained constant.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of
the Fund that entitle their holders to receive cash dividends at an annual
rate that may vary for the successive dividend periods. The yield in
effect at October 31, 1997 was 3.55%.
As of October 31, 1997, there were 2,000 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, 1997, Merrill
Lynch, Pierce, Fenner & Smith Inc., an affiliate of FAM, earned $94,562 as
commissions.
5. Subsequent Event:
On November 6, 1997, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of $.070713 per
share, payable on November 26, 1997 to shareholders of record as of
November 17, 1997.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors, MuniYield Michigan Insured
Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and
capital of MuniYield Michigan Insured Fund, Inc., including the schedule
of investments, as of October 31, 1997, and the related statement of
operations for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended and financial
highlights for each of the years indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our
procedures included confirmation of securities owned as of October 31,
1997 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of MuniYield Michigan Insured Fund, Inc. at October 31, 1997, the results
of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and financial
highlights for each of the indicated years, in conformity with
generally accepted accounting principles.
/S/ERNST & YOUNG LLP
Princeton, New Jersey
November 26, 1997
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniYield Michigan
Insured Fund, Inc. during its taxable year ended October 31, 1997 qualify
as tax-exempt interest dividends for Federal income tax purposes.
Additionally, there were no capital gains distributed by the Fund during
the year.
Please retain this information for your records.
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Donald Cecil, Director
M. Colyer Crum, Director
Edward H. Meyer, Director
Jack B. Sunderland, Director
J. Thomas Touchton, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Fred K. Stuebe, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, 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:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MIY
