MUNIYIELD
MICHIGAN
INSURED
FUND, INC.
FUND LOGO
Annual Report
October 31, 1998
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
Printed on post-consumer recycled paper
MuniYield Michigan Insured Fund, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1998, the Common Stock of MuniYield
Michigan Insured Fund, Inc. earned $0.840 per share income
dividends, which included earned and unpaid dividends of $0.076.
This represents a net annualized yield of 5.28%, based on a month-
end per share net asset value of $15.93. Over the same period, the
total investment return on the Fund's Common Stock was +8.85%, based
on a change in per share net asset value from $15.51 to $15.93, and
assuming reinvestment of $0.835 per share income dividends and
$0.035 per share capital gains distributions.
For the six-month period ended October 31, 1998, the total
investment return on the Fund's Common Stock was +6.32%, based on a
change in per share net asset value from $15.40 to $15.93, and
assuming reinvestment of $0.415 per share income dividends.
For the six-month period ended October 31, 1998, the Fund's Auction
Market Preferred Stock had an average yield of 3.43%.
The Municipal Market Environment
During the six months ended October 31, 1998, long-term bond yields
declined significantly. The near absence of any inflationary
pressures in the United States continued to support historic low
interest rates. Additionally, foreign economic factors have
continued to outweigh US domestic fundamentals, as they have for
much of 1998. The economic crisis that began in Asia over a year ago
has spread both to Russia and South America. However, economic
factors in these countries have begun to negatively impact US
growth. For example, employment in the US manufacturing sector
declined in recent months as a result of reduced demand for export
goods. Concern that the modest decline in US economic growth seen
thus far would spread and intensify led the Federal Reserve Board to
lower short-term interest rates in late September, in mid-October
and in mid-November. These actions were taken to offset the drag of
foreign economies on future US growth.
US Treasury bond yields continued to benefit from a strong "flight
to quality" as foreign investors were drawn to the relative safe
haven of US Government securities. Additionally, the sharp equity
market correction, which began at the end of August, triggered a
further flight into US Treasury securities. Long-term US Treasury
bond yields fell over 90 basis points (0.90%) to approximately 5% by
the end of September. This is the lowest level since the US Treasury
reintroduced 30-year maturity bond auctions in 1977.
By early October, worldwide investor confidence began to rise,
reducing the demand for the safety and liquidity of US Treasury
securities. Investor confidence was restored by the belief that
major world governments, as well as the International Monetary Fund,
would take the necessary action to support weak domestic economies
in Asia and Latin America. Additionally, rapid recovery in US and
world equity markets caused some investors to reallocate funds from
US debt instruments back to various world equity markets. US
Treasury security yields rose for the remainder of the month to end
October at 5.15%. During the six-month period ended October 31,
1998, long-term Treasury security yields declined approximately 80
basis points.
During the past 12 months, the tax-exempt bond market has contended
with significant new-issue supply pressures. Over the past year,
more than $277 billion in new long-term tax-exempt bonds were
underwritten, an increase of almost 30% compared to the same period
a year ago. During the most recent six-month period, approximately
$140 billion in new long-term municipal bonds were underwritten,
representing an increase of more than 15% over the same six-month
period last year. This increased supply, coupled with the high
returns the US equity market generated for much of 1998, was one of
the major reasons municipal bond yields declined less than their
taxable counterparts during the period.
The continued increase in new bond issuance has required ever-lower
tax-exempt bond yields to generate the economic savings necessary
for additional municipal bond financings. Consequently, the pace of
new bond issuance has slowed in recent months. In fact, the trend
may be reversing. During the three months ended October 31, 1998,
just over $60 billion in new long-term municipal bonds were
underwritten, a decline of 4% compared to the same quarter a year
ago. During the month of October, there were less than $20 billion
in new municipal bond securities issued, a decline of over 10%
compared to October 1997. We will monitor this trend closely in the
coming months to determine if the supply pressures exerted thus far
in 1998 are abating and fostering a more balanced supply/demand
environment.
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
Throughout the six-month period ended October 31, 1998, municipal
bond yields followed a pattern that was similar to US Treasury
securities, although the yield declines were more muted. As measured
by the unmanaged Bond Buyer Revenue Bond Index, long-term, uninsured
tax-exempt revenue bond yields declined over 40 basis points to
5.09% by the end of September, their lowest level since the early
1970s. Municipal bond yields rose during October to end the period
at 5.24%. Over the past six months, long-term tax-exempt bond yields
declined almost 30 basis points.
Although municipal bond yields declined during the six-month period,
recent supply pressures and the absence of the safe haven status
enjoyed by US securities caused municipal bond yields to rise
relative to US Treasury bond yields. At October 31, 1998, long-term
tax-exempt bond yield spreads were attractive relative to US
Treasury securities of comparable maturities (over 100%), well in
excess of their historic range of 85%--88%. Tax-exempt bond yield
ratios have rarely exceeded 90% in the 1980s and 1990s.
Historically, yield spreads have been wider than these levels when
there have been potential changes in Federal tax codes that would
have adversely affected the tax-favored status of municipal bonds.
Currently, municipal bond investors find themselves in a unique
investment environment. Previous opportunities to purchase tax-
exempt bonds with yields exceeding that of comparable US Treasury
issues have been limited to relatively brief episodes and then
further limited to a few municipal credits undergoing specific
financial pressures. At present, almost the entire municipal bond
universe, across nearly all maturity and credit sectors, can be
purchased at yields greater than their taxable counterparts.
However, the current opportunity may quickly disappear should tax-
exempt bond supply pressures diminish or the safe-haven status of US
Treasury securities become less desirable. Under these conditions,
municipal bond ratios should quickly revert to more normal historic
percentages, certainly well below their presently attractive levels.
Portfolio Strategy
During the six-month period ended October 31, 1998, we maintained
our constructive investment strategy toward the municipal bond
market that we adopted at the beginning of the period. We continued
to believe that the combination of negligible inflation and a
slowing domestic economy should result in a low interest rate
environment. We expect that this environment is likely to continue
well into 1999. Consequently, we anticipate little change to the
Fund's existing structure and composition. Furthermore, we intend to
maintain a fully invested position in order to seek to enhance the
Fund's dividend income.
Throughout the six months ended October 31, 1998, short-term tax-
exempt bond interest rates traded in a relatively narrow range
centered around 3.50%. Recent Federal Reserve Board actions to lower
short-term taxable interest rates in September, October, and again
in November have begun to be reflected in the tax-exempt market as
well. Interest rates paid to the Fund's Preferred Stock shareholders
have declined in recent weeks, which resulted in higher dividends to
the Fund's Common Stock shareholders. We anticipate that this
situation is likely to continue in the coming months, particularly
if the Federal Reserve Board lowers taxable short-term interest
rates further. However, should the spread between short-term and
long-term interest rates narrow, the benefits of the leverage will
decline and reduce the yield on the Fund's Common Stock. (For a
complete explanation of the benefits and risks of leveraging, see
page 4 of this report to shareholders.)
Looking ahead, we will closely monitor two areas of the Fund's
current portfolio composition. First, despite an already existing
high-credit quality structure (over 90% of the Fund is rated AA or
higher by at least one of the major rating agencies), we will
continue to emphasize higher-rated issues. The yield spread between
higher-quality and lower-rated tax-exempt issues has remained
historically narrow, and we can continue to purchase better quality
issues with little yield sacrifice. Also, while none of our current
holdings can be called within two years, we will continue to manage
the Fund's callable securities in order to limit the impact that the
loss of higher nominal coupon-bearing issues would have on the
Fund's income stream. We purchased higher-coupon issues at interest
rate levels that are significantly higher than presently available.
Since interest levels have declined, the market value of these
securities has increased dramatically. As these issues approach
their earliest call dates, we will monitor opportunities to sell
these bonds, capturing the existing market appreciation. As a
result, the proceeds of these sales will provide for us the
opportunity to purchase additional securities with greater call
protection and pose little disruption to the Fund's existing
dividend income stream.
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,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Fred K. Stuebe)
Fred K. Stuebe
Vice President and Portfolio Manager
December 1, 1998
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
PROXY RESULTS
During the six-month period ended October 31, 1998, MuniYield
Michigan Insured Fund, Inc. Common Stock shareholders voted on the
following proposals. The proposals were approved at a shareholder's
meeting on September 14, 1998. The description of each proposal and
number of shares voted are as follows:
<TABLE>
<CAPTION>
Shares Shares Withheld
Voted For From Voting
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors: Edward H. Meyer 7,024,165 176,839
Jack B. Sunderland 7,024,282 176,722
J. Thomas Touchton 7,026,131 174,873
Fred G. Weiss 7,025,707 175,297
Arthur Zeikel 7,025,565 175,439
<CAPTION>
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP as the Fund's
independent auditors for the current fiscal year. 7,034,485 31,647 134,872
</TABLE>
During the six-month period ended October 31, 1998, MuniYield
Michigan Insured Fund, Inc. Preferred Stock shareholders voted on
the following proposals. The proposals were approved at a
shareholders' meeting on September 14, 1998. The description of each
proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
Shares Voted Shares Withheld
For From Voting
<S> <C> <C>
1. To elect the Fund's Board of Directors: Donald Cecil, M. Colyer Crum,
Edward H. Meyer, Jack B. Sunderland, J. Thomas Touchton,
Fred G. Weiss and Arthur Zeikel 1,813 18
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP as the Fund's
independent auditors for the current fiscal year. 1,705 23 103
</TABLE>
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
THE BENEFITS AND RISKS OF LEVERAGING
MuniYield Michigan Insured Fund, Inc. utilizes leveraging to seek to
enhance the yield and net asset value of its Common Stock. However,
these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues Preferred Stock, which
pays dividends at prevailing short-term interest rates and invests
the proceeds in long-term municipal bonds. The interest earned on
these investments is paid to Common Stock shareholders in the form
of dividends, and the value of these portfolio holdings is reflected
in the per share net asset value of the Fund's Common Stock.
However, in order to benefit Common Stock shareholders, the yield
curve must be positively sloped; that is, short-term interest rates
must be lower than long-term interest rates. At the same time, a
period of generally declining interest rates will benefit Common
Stock shareholders. If either of these conditions change, then the
risks of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred Stock
for an additional $50 million, creating a total value of $150
million available for investment in long-term municipal bonds. If
prevailing short-term interest rates are approximately 3% and long-
term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million
of Preferred Stock based on the lower short-term interest rates. At
the same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pickup on the
Common Stock will be reduced or eliminated completely. At the same
time, the market value of the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain
securities whose potential income return is inversely related to
changes in a floating interest rate ("inverse floaters"). In
general, interest rates on inverse floaters will decrease when short-
term interest rates increase and increase when short-term interest
rates decrease. Investments in inverse floaters may be characterized
as derivative securities and may subject the Fund to the risks of
reduced or eliminated interest payments and losses of invested
principal. In addition, inverse floaters have the effect of
providing investment leverage and, as a result, the market value of
such securities will generally be more volatile than that of fixed-
rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the
net asset value of the Fund's shares may also be more volatile than
if the Fund did not invest in such securities.
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
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
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Michigan--95.3%
<S> <S> <C> <S> <C>
AAA Aaa $1,000 Bay City, Michigan, Electric Utility Revenue Bonds, 6.60% due 1/01/2001 (b)(f) $ 1,081
AAA Aaa 5,000 Bay City, Michigan, School District, UT, 6.50% due 5/01/2002 (b)(f) 5,524
AAA Aaa 2,500 Brighton, Michigan, Area School District, Refunding Bonds, UT, Series II,
4.90%** due 5/01/2015 (b) 1,119
AAA Aaa 1,250 Chelsea, Michigan, School District, UT, 5.875% due 5/01/2005 (c)(f) 1,394
Detroit, Michigan, Sewage Disposal Revenue Bonds:
AAA Aaa 2,500 6.625% due 7/01/2001 (c)(f) 2,737
AAA Aaa 1,000 Series A, 5% due 7/01/2027 (d) 985
Detroit, Michigan, Water Supply System Revenue Bonds:
AAA Aaa 5,000 Refunding, 6.25% due 7/01/2012 (c)(g) 5,505
AAA Aaa 3,220 Series A, 5% due 7/01/2021 (d) 3,177
AAA Aaa 2,500 Series A, 5% due 7/01/2027 (d) 2,459
AAA Aaa 1,000 Eastern Michigan University, Revenue Refunding Bonds, 6.375% due 6/01/2014 (b) 1,087
AAA Aaa 2,000 Ferris State University, Michigan Revenue Refunding Bonds, 5% due 10/01/2023 (b) 1,972
AAA Aaa 4,500 Grand Ledge, Michigan, Public Schools District, UT, 6.60% due 5/01/2004 (d)(f) 5,167
AAA Aaa 7,200 Grand Rapids, Michigan, Sanitary Sewer System, Revenue Refunding and Improvement
Bonds, Series A, 4.75% due 1/01/2028 (c) 6,851
AAA Aaa 3,000 Grand Rapids, Michigan, Water Supply System, Revenue Refunding Bonds, 6.25% due
1/01/2011 (c) 3,201
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) 5,458
AAA Aaa 1,000 Grandville, Michigan, Public Schools District, Refunding Bonds, UT, 6.60% due
5/01/2005 (c)(f) 1,157
AAA Aaa 2,500 Greenville, Michigan, Public Schools Building, GO, UT, 5.75% due 5/01/2004 (d)(f) 2,746
AAA Aaa 1,700 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue
Bonds (Borgess Medical Center), Series A, 5.625% due 6/01/2014 (b) 1,824
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) 1,599
AAA Aaa 2,000 Kent, Michigan, Hospital Finance Authority, Health Care Revenue Bonds
(Butterworth Health Systems), Series A, 5.625% due 1/15/2006 (d)(f) 2,222
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) 2,492
</TABLE>
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (In Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Michigan (continued)
<S> <S> <C> <S> <C>
AAA Aaa $4,000 Lakeshore, Michigan, Public Schools (Berrien County), UT, 5.70% due
5/01/2022 (d) $ 4,270
AAA Aaa 1,000 Leslie, Michigan, Public Schools (Ingham and Jackson Counties), Refunding
Bonds, Building and Site, UT, 6% due 5/01/2005 (b)(f) 1,122
AAA Aaa 2,000 Lincoln Park, Michigan, School District, UT, 7% due 5/01/2006 (c)(f) 2,393
Michigan Higher Education Student Loan Authority Revenue Bonds, VRDN, AMT (a)(b):
A1+ VMIG1++ 100 Series XII-D, 3.15% due 10/01/2015 100
AAA VMIG1++ 400 Series XII-F, 3.15% due 10/01/2020 400
AA+ Aa1 1,500 Michigan Municipal Bond Authority Revenue Bonds (Drinking Water Revolving
Fund), 4.75% due 10/01/2020 1,437
Michigan Municipal Bond Authority Revenue Bonds, Series A:
AAA Aaa 5,000 (Local Government Loan Program), 6.125% due 12/01/2018 (c) 5,590
AAA Aaa 1,035 Refunding (Local Government Loan Program), 6.50% due 5/01/2012 (b) 1,147
AAA Aaa 1,870 Refunding (Local Government Loan Program), 6.50% due 11/01/2012 (d) 2,073
AA+ Aa1 2,950 (State Revolving Fund), 6.55% due 10/01/2002 (f) 3,303
AA+ Aa1 2,000 (State Revolving Fund), 6.60% due 10/01/2002 (f) 2,243
Michigan State Hospital Finance Authority, Revenue Refunding Bonds:
AAA Aaa 2,500 (Mercy Health Services), Series T, 6.50% due 8/15/2013 (d) 2,871
AAA Aaa 1,250 (Mid-Michigan Obligation Group), Series A, 5.375% due 6/01/2027 (e) 1,280
AAA Aaa 1,100 (Sisters of Mercy Health Corp.), Series M, 6.25% due 2/15/2022 (e) 1,193
Michigan State Strategic Fund, Limited Obligation Revenue Bonds:
A A1 5,000 (Ford Motor Co. Project), AMT, Series A, 6.55% due 10/01/2022 5,383
AAA Aaa 2,500 Refunding (Detroit Edison Company), Series CC, 6.95% due 9/01/2021 (c) 2,735
BBB+ Baa1 2,500 (Waste Management Inc. Project), AMT, 6.625% due 12/01/2012 2,701
NR* P1 2,300 Michigan State Strategic Fund, PCR, Refunding (Consumers Power Project),
VRDN, Series A, 3.70% due 4/15/2018 (a) 2,300
AAA Aaa 5,000 Michigan State Trunk Line, Refunding Bonds, Series A, 4.75% due 11/01/2020 (d) 4,815
AAA Aaa 7,500 Monroe County, Michigan, Economic Development Corp., Limited Obligation,
Revenue Refunding Bonds (Detroit Edison Co. Project), Series AA, 6.95% due
9/01/2022 (c) 9,585
Monroe County, Michigan, PCR (Detroit Edison Co. Project), AMT (d):
AAA Aaa 4,500 Series CC, 6.55% due 6/01/2024 4,983
AAA Aaa 1,500 Series I-B, 6.55% due 9/01/2024 1,667
AAA Aaa 4,000 Northern Michigan University, Revenue Refunding Bonds, 5% due 12/01/2025 (d) 3,941
AAA Aaa 1,000 Oakland University, Michigan, General Revenue Bonds, 5.75% due 5/15/2026 (d) 1,079
AAA Aaa 1,870 Redford, Michigan, Unified School District No. 001, UT, 5.90% due 5/01/2006 (c)(f) 2,107
AAA Aaa 5,925 Riverview, Michigan, Community School District Building, UT, 6.70% due
5/01/2002 (c)(f) 6,584
Royal Oak, Michigan, Hospital Finance Authority Revenue Bonds:
AA- Aa3 2,620 Refunding (Beaumont Properties, Inc.), Series E, 6.625% due 1/01/2019 2,846
A1+ VMIG1++ 600 (William Beaumont Hospital), VRDN, Series J, 3.70% due 1/01/2003 (a) 600
</TABLE>
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Michigan (concluded)
<S> <S> <C> <S> <C>
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) $ 7,946
AAA Aaa 5,000 Wayne Charter County, Michigan, Airport Revenue Bonds (Detroit Metropolitan--
Wayne County), AMT, Series A, 5.375% due 12/01/2017 (d) 5,159
AAA Aaa 5,500 Wyandotte, Michigan, Electric Revenue Refunding Bonds, 6.25% due 10/01/2017 (d) 6,039
Puerto Rico--2.3%
AAA Aaa 3,500 Puerto Rico, RITR, Series 14, 7.02% due 7/01/2027 (d)(h) 3,776
Total Investments (Cost--$149,548)--97.6% 163,425
Other Assets Less Liabilities--2.4% 4,086
--------
Net Assets--100.0% $167,511
========
<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, 1998.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)FSA Insured.
(f)Prerefunded.
(g)Escrowed to maturity.
(h)The interest is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at October 31, 1998.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
++Highest short-term rating issued by Moody's Investors Service,
Inc.
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
</TABLE>
QUALITY PROFILE
The quality ratings of securities in the Fund as of October 31, 1998
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 84.9%
AA/Aa 5.9
A/A 3.2
BBB/Baa 1.6
Other++ 2.0
[FN]
++Temporary investments in short-term municipal securities.
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$149,547,613) (Note 1a) $163,424,908
Cash 51,226
Receivables:
Securities sold $ 3,813,768
Interest 3,002,981 6,816,749
------------
Prepaid expenses and other assets 7,831
------------
Total assets 170,300,714
------------
Liabilities: Payables:
Securities purchased 2,489,639
Dividends to shareholders (Note 1e) 143,190
Investment adviser (Note 2) 73,830 2,706,659
------------
Accrued expenses and other liabilities 83,055
------------
Total liabilities 2,789,714
------------
Net Assets: Net assets $167,511,000
============
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 102,771,398
Undistributed investment income--net 1,335,516
Accumulated realized capital losses on investments--net (742,116)
Distributions in excess of realized capital gains on
investments--net (468,540)
Unrealized appreciation on investments--net 13,877,295
------------
Total--Equivalent to $15.93 net asset value per share of
Common Stock (market price--$15.875) 117,511,000
------------
Total capital $167,511,000
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
October 31, 1998
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 9,151,454
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 828,004
Commission fees (Note 4) 126,880
Professional fees 83,887
Accounting services (Note 2) 66,906
Transfer agent fees 32,905
Directors' fees and expenses 26,147
Listing fees 13,468
Custodian fees 10,863
Printing and shareholder reports 10,286
Pricing fees 7,661
Other 13,255
------------
Total expenses 1,220,262
------------
Investment income--net 7,931,192
------------
Realized & Realized gain on investments--net 2,178,434
Unrealized Change in unrealized appreciation on investments--net 1,189,382
Gain on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 11,299,008
(Notes 1b, ============
1d & 3):
See Notes to Financial Statements.
</TABLE>
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 7,931,192 $ 8,105,030
Realized gain on investments--net 2,178,434 5,299
Change in unrealized appreciation on investments--net 1,189,382 2,374,425
------------ ------------
Net increase in net assets resulting from operations 11,299,008 10,484,754
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (6,148,457) (6,228,883)
Shareholders Preferred Stock (1,563,380) (1,697,060)
(Note 1e): In excess of realized gain on investments--net:
Common Stock (266,100) --
Preferred Stock (202,440) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (8,180,377) (7,925,943)
------------ ------------
Net Assets: Total increase in net assets 3,118,631 2,558,811
Beginning of year 164,392,369 161,833,558
------------ ------------
End of year* $167,511,000 $164,392,369
============ ============
<FN>
*Undistributed investment income--net (Note 1f) $ 1,335,516 $ 1,114,543
============ ============
See Notes to Financial Statements.
</TABLE>
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.51 $ 15.16 $ 15.13 $ 13.70 $ 16.55
Operating -------- -------- -------- -------- --------
Performance: Investment income--net 1.07 1.09 1.11 1.13 1.13
Realized and unrealized gain (loss) on
investments--net .46 .33 .03 1.71 (2.76)
-------- -------- -------- -------- --------
Total from investment operations 1.53 1.42 1.14 2.84 (1.63)
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.83) (.84) (.87) (.86) (.91)
Realized gain on investments--net -- -- -- (.26) (.08)
In excess of realized gain on
investments--net (.04) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.87) (.84) (.87) (1.12) (.99)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.21) (.23) (.24) (.23) (.21)
Realized gain on investments--net -- -- -- (.06) (.02)
In excess of realized gain on
investments--net (.03) -- -- -- --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.24) (.23) (.24) (.29) (.23)
-------- -------- -------- -------- --------
Net asset value, end of year $ 15.93 $ 15.51 $ 15.16 $ 15.13 $ 13.70
======== ======== ======== ======== ========
Market price per share, end of year $ 15.875 $ 14.50 $ 14.25 $ 13.50 $ 11.875
======== ======== ======== ======== ========
Total Investment Based on market price per share 16.03% 8.00% 12.14% 23.73% (23.52%)
Return:* ======== ======== ======== ======== ========
Based on net asset value per share 8.85% 8.58% 6.45% 20.20% (11.36%)
======== ======== ======== ======== ========
Ratios to Average Expenses .74% .74% .75% .78% .78%
Net Assets:** ======== ======== ======== ======== ========
Investment income--net 4.79% 4.96% 5.03% 5.44% 5.07%
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of
Data: year (in thousands) $117,511 $114,392 $111,834 $111,600 $101,047
======== ======== ======== ======== ========
Preferred Stock outstanding, end of year
(in thousands) $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
======== ======== ======== ======== ========
Portfolio turnover 41.65% 16.68% 21.82% 41.11% 21.76%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,350 $ 3,288 $ 3,237 $ 3,232 $ 3,201
======== ======== ======== ======== ========
Dividends Investment income--net $ 782 $ 849 $ 882 $ 836 $ 771
Per Share on ======== ======== ======== ======== ========
Preferred Stock
Outstanding:++
<FN>
*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, 1998
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 written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of
options traded in the over-the-counter market, valuation is the last
asked price (options written) or the last bid price (options
purchased). Securities with remaining maturities of sixty days or
less are valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio 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
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired, or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. Distributions in excess of
realized capital gains are due primarily to differing tax treatments
for post-October losses.
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
(f) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of $1,618
have been reclassified between accumulated net realized capital
losses and undistributed net investment income and $9 has been
reclassified between paid-in capital in excess of par and
accumulated net realized capital losses. These reclassifications
have no effect on net assets or net asset value per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets, including proceeds from the
issuance of Preferred Stock.
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, 1998 were $66,102,353 and
$68,409,524, respectively.
Net realized gains for the year ended October 31, 1998 and net
unrealized gains as of October 31, 1998 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $2,178,434 $13,877,295
---------- -----------
Total $2,178,434 $13,877,295
========== ===========
As of October 31, 1998, net unrealized appreciation for Federal
income tax purposes aggregated $13,877,295, of which $13,947,402
related to appreciated securities and $70,107 related to depreciated
securities. The aggregate cost of investments at October 31, 1998
for Federal income tax purposes was $149,547,613.
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,
1998 and October 31, 1997 remained constant.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund, with a par value of $.05 per share and a
liquidation preference of $25,000 per share, that entitle their
holders to receive cash dividends at an annual rate that may vary
for the successive dividend periods. The yield in effect at October
31, 1998 was 2.50%.
Shares issued and outstanding during the years ended October 31,
1998 and October 31, 1997 remained constant.
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, 1998, Merrill Lynch, Pierce, Fenner & Smith Inc., an
affiliate of FAM, earned $93,113 as commissions.
5. Subsequent Event:
On November 5, 1998, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.076165 per share, payable on November 27, 1998 to shareholders
of record as of November 20, 1998.
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
<AUDIT-REPORT>
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 invest-ments, as of October 31, 1998, and the related
statement of operations for the year then ended, the statement 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, 1998 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, 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, 1998, 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.
Ernst & Young LLP
Princeton, New Jersey
December 1, 1998
</AUDIT-REPORT>
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, 1998 qualify as tax-exempt interest dividends for Federal income
tax purposes. Additionally, the following table summarizes the
taxable distributions paid by the Fund during the year:
<TABLE>
<CAPTION>
Payable Ordinary Long-Term
Date Income Capital Gains
<S> <C> <C> <C>
Common Stock Shareholders 12/30/97 $.001175 $ .034909*
Preferred Stock Shareholders: 11/26/97 $.95 $25.56*
12/03/97 $.20 $ 8.52*
10/14/98 -- $24.53**
10/21/98 -- $18.88**
10/28/98 -- $22.58**
<FN>
*Of this distribution, 66.02% is subject to the 28% tax rate and
33.98% is subject to the 20% tax rate.
**The entire distribution is subject to the 20% tax rate.
Please retain this information for your records.
</TABLE>
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
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
Fred G. Weiss, 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
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its
net investment income to its shareholders on a monthly basis.
However, in order to provide shareholders with a more consistent
yield to the current trading price of shares of Common Stock of the
Fund, the Fund may at times pay out less than the entire amount of
net investment income earned in any particular month and may at
times in any month pay out such accumulated but undistributed income
in addition to net investment income earned in that month. As a
result, the dividends paid by the Fund for any particular month may
be more or less than the amount of net investment income earned by
the Fund during such month. The Fund's current accumulated but
undistributed net investment income, if any, is disclosed in the
Statement of Assets, Liabilities and Capital, which comprises part
of the Financial Information included in this report.
