UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-07080
Name of Fund: MuniYield Michigan Insured Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
MuniYield Michigan Insured Fund, Inc., 800 Scudders Mill Road,
Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011,
Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 10/31/04
Date of reporting period: 11/01/03 - 10/31/04
Item 1 - Report to Stockholders
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
MuniYield Michigan
Insured Fund, Inc.
Annual Report
October 31, 2004
MuniYield Michigan Insured Fund, Inc. seeks to provide shareholders
with as high a level of current income exempt from federal income
tax and Michigan income taxes as is consistent with its investment
policies and prudent investment management by investing primarily in
a portfolio of long-term municipal obligations the interest on
which, in the opinion of bond counsel to the issuer, is exempt from
federal income tax and Michigan income taxes.
This report, including the financial information herein, is
transmitted to shareholders of MuniYield Michigan Insured Fund, Inc.
for their information. It is not a prospectus. Past performance
results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its
Common Stock and intends to remain leveraged 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.
A description of the policies and procedures that the Fund uses
to determine how to vote proxies relating to portfolio securities
is available (1) without charge, upon request, by calling toll-free
1-800-MER-FUND (1-800-637-3863); (2) at www.mutualfunds.ml.com;
and (3) on the Securities and Exchange Commission's Web site at
http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the
most recent 12-month period ended June 30 is available (1) at
www.mutualfunds.ml.com; and (2) on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
MuniYield Michigan Insured Fund, Inc.
Box 9011
Princeton, NJ 08543-9011
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MuniYield Michigan Insured Fund, Inc.
The Benefits and Risks of Leveraging
MuniYield Michigan Insured Fund, Inc. utilizes leveraging to seek
to enhance the yield and net asset value of its Common Stock.
However, these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues Preferred Stock, which
pays dividends at prevailing short-term interest rates, and invests
the proceeds in long-term municipal bonds. The interest earned on
these investments, net of dividends to Preferred Stock, is paid to
Common Stock shareholders in the form of dividends, and the value of
these portfolio holdings is reflected in the per share net asset
value of the Fund's Common Stock. However, in order to benefit
Common Stock shareholders, the yield curve must be positively
sloped; that is, short-term interest rates must be lower than long-
term interest rates. At the same time, a period of generally
declining interest rates will benefit Common Stock shareholders. If
either of these conditions change, then the risks of leveraging will
begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred
Stock for an additional $50 million, creating a total value of
$150 million available for investment in long-term municipal bonds.
If prevailing short-term interest rates are approximately 3% and
long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million
of Preferred Stock based on the lower short-term interest rates. At
the same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pickup on the
Common Stock will be reduced or eliminated completely. At the same
time, the market value of the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain
securities whose potential income return is inversely related to
changes in a floating interest rate ("inverse floaters"). In
general, income on inverse floaters will decrease when short-term
interest rates increase and increase when short-term interest rates
decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of
reduced or eliminated interest payments and losses of invested
principal. In addition, inverse floaters have the effect of
providing investment leverage and, as a result, the market value
of such securities will generally be more volatile than that of
fixed-rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the
net asset value of the Fund's shares may also be more volatile than
if the Fund did not invest in such securities. As of October 31,
2004, the percentage of the Fund's total net assets invested in
inverse floaters was 13.81%, before the deduction of Preferred
Stock.
Swap Agreements
The Fund may also invest in swap agreements, which are over-the-
counter contracts in which one party agrees to make periodic
payments based on the change in market value of a specified bond,
basket of bonds, or index in return for periodic payments based on a
fixed or variable interest rate or the change in market value of a
different bond, basket of bonds or index. Swap agreements may be
used to obtain exposure to a bond or market without owning or taking
physical custody of securities. Swap agreements involve the risk
that the party with whom the Fund has entered into the swap will
default on its obligation to pay the Fund and the risk that the Fund
will not be able to meet its obligations to pay the other party to
the agreement.
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
A Letter From the President
Dear Shareholder
As we ended the current reporting period, the financial markets were
facing a number of uncertainties. At the top of investors' minds
were questions about economic expansion, corporate earnings,
interest rates and inflation, politics, oil prices and terrorism.
After benefiting from aggressive monetary and fiscal policy
stimulus, some fear the U.S. economy has hit a "soft patch." In
fact, economic expansion has slowed somewhat in recent months, but
we believe it is easing into a pace of growth that is sustainable
and healthy. The favorable economic environment has served to
benefit American corporations, which have continued to post strong
earnings. Although the most impressive results were seen earlier in
the year, solid productivity, improved revenue growth and cost
discipline all point to a vital corporate sector.
In terms of inflation and interest rates, the Federal Reserve Board
(the Fed) has signaled its confidence in the economic recovery by
increasing the Federal Funds target rate four times in the past
several months, from 1% to 2% as of the November 10 Federal Open
Market Committee meeting. Inflation, for its part, has remained in
check. Investors and economists are focused on how quickly Fed
policy will move from here.
With the presidential election now behind us, any politically
provoked market angst should subside to some extent. The effect of
oil prices, however, is more difficult to predict. At around $50 per
barrel, the price of oil is clearly a concern. However, on an
inflation-adjusted basis and considering modern usage levels, the
situation is far from the crisis proportions we saw in the 1980s.
Finally, although terrorism and geopolitical tensions are realities
we are forced to live with today, history has shown us that the
financial effects of any single event tend to be short-lived.
Amid the uncertainty, the Lehman Brothers Municipal Bond Index
posted a 12-month return of +6.03% and a six-month return of
+4.79% as of October 31, 2004. Long-term bond yields were slightly
lower at October 31, 2004 than they were a year earlier. As always,
our investment professionals are closely monitoring the markets,
the economy and the overall environment in an effort to make
well-informed decisions for the portfolios they manage. For the
individual investor, the key during uncertain times is to remain
focused on the big picture. Investment success comes not from
reacting to short-term volatility, but from maintaining a long-term
perspective and adhering to the disciplines of asset allocation,
diversification and rebalancing. We encourage you to work with your
financial advisor to ensure these time-tested techniques are
incorporated into your investment plan.
We thank you for trusting Merrill Lynch Investment Managers with
your investment assets, and we look forward to serving you in the
months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
A Discussion With Your Fund's Portfolio Manager
With yields at historically low levels, we believe the prudent long-
term strategy is to emphasize higher-yielding bonds over more
interest rate sensitive investments.
Describe the recent market environment relative to municipal bonds.
Over the past 12 months, amid considerable monthly volatility, long-
term U.S. Treasury bond yields generally moved lower - despite an
increase in short-term interest rates by the Federal Reserve Board
(the Fed). On October 31, 2004, the 30-year Treasury bond yield
stood at 4.79%, a decline of 34 basis points (.34%) from a year
earlier. The yield on the 10-year U.S. Treasury note was 4.02%, a 27
basis point drop during the same 12-month period.
While tax-exempt bond yields followed the same pattern as their
taxable counterparts, volatility in the municipal market was more
subdued. Yields on long-term revenue bonds, as measured by the Bond
Buyer Revenue Bond Index, fell 27 basis points during the past 12
months. According to Municipal Market Data, yields on AAA-rated
issues maturing in 30 years declined 22 basis points to 4.60%, while
yields on 10-year AAA-rated issues dropped 28 basis points to 3.40%.
More than $360 billion in new long-term tax-exempt bonds was issued
in the past 12 months, a decline of approximately 6% compared to the
previous year. The declining supply amid favorable demand allowed
tax-exempt bond prices to perform in line with the taxable market.
Describe conditions in the State of Michigan.
At period end, Michigan maintained credit ratings of Aa1, AA+
and AA+ from rating agencies Moody's, Standard & Poor's (S&P) and
Fitch, respectively, all with stable trends. Both Moody's and S&P
downgraded Michigan debt in the fourth quarter of 2003, bringing
their ratings in line with Merrill Lynch Investment Managers'
evaluation of AA+. Of the 50 states, Michigan ranks 33rd in debt per
capita and 35th in debt as a percentage of personal income. These
ratios are quite low for a populous state and indicate Michigan's
flexibility in responding to economic downturns. The state's pension
system is well funded.
Although Michigan continues to lose manufacturing jobs, the state's
revenues are meeting projections. Personal income tax receipts for
the 2004 fiscal year are likely to show an increase from the prior
year for the first time since fiscal year 2000. While officials
expected to restore the state's Budget Stabilization Fund (BSF) over
the past few years, it remains at zero - down from $1 billion in
fiscal year 2001. The fiscal 2005 budget does not provide for
replenishment of the BSF, but closes a $1.3 billion gap through
miscellaneous tax increases and spending cuts. Although Michigan's
economy continues to emerge from its recession, the slow pace of the
recovery threatens the state's ability to successfully balance its
budget.
How did the Fund perform during the fiscal year in light of the
existing market conditions?
For the 12-month period ended October 31, 2004, the Common Stock of
MuniYield Michigan Insured Fund, Inc. had net annualized yields of
6.29% and 6.53%, based on a year-end per share net asset value of
$15.96 and a per share market price of $15.37, respectively, and
$1.004 per share income dividends. Over the same period, the total
investment return on the Fund's Common Stock was +7.04%, based on a
change in per share net asset value from $15.94 to $15.96, and
assuming reinvestment of ordinary income dividends.
The Fund's total return, based on net asset value, trailed the
+8.52% average return of its comparable Lipper category of Michigan
Municipal Debt Funds for the 12-month period. (Funds in this Lipper
category limit their investment to securities exempt from taxation
in Michigan [double tax-exempt] or a city in Michigan [triple tax-
exempt]). It should be noted that this Lipper category includes a
number of funds that can purchase uninsured issues, which performed
strongly over the past 12 months. While the uninsured credits may
produce higher dividend yields, they also have lower credit quality
profiles than insured bonds.
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Fund performance reflected our premature adoption of a defensive
market stance in what happened to be a positive fixed income
environment. The defensive positioning, including a relatively short
duration, hindered the Fund's ability to fully participate in the
recent appreciation enjoyed by the municipal bond market. In
addition, lower-rated credits - such as A-rated hospital revenue
bonds and corporate-backed debt - were among the best-performing
securities in the Michigan tax-exempt market. Because the Fund is an
insured product, we were underweight in these types of investments
and, therefore, not able to benefit from their outperformance to the
same extent as some of our Lipper peers.
For the six-month period ended October 31, 2004, the total
investment return on the Fund's Common Stock was +6.31%, based on a
change in per share net asset value from $15.53 to $15.96, and
assuming reinvestment of ordinary income dividends.
For a description of the Fund's total investment return based on a
change in the per share market value of the Fund's Common Stock (as
measured by the trading price of the Fund's shares on the New York
Stock Exchange), and assuming reinvestment of dividends, please
refer to the Financial Highlights section of this report. As a
closed-end fund, the Fund's shares may trade in the secondary market
at a premium or discount to the Fund's net asset value. As a result,
total investment returns based on changes in the market value of the
Fund's Common stock may vary significantly from total investment
returns based on changes in the Fund's net asset value.
What changes were made to the portfolio during the year?
Portfolio activity was limited, as current market yields tended to
be unattractive relative to the yields of the securities already
held in the portfolio. To keep the Fund fully invested, we focused
on purchasing insured Michigan bonds with 25-year maturities. By
emphasizing this maturity range, we were able to capture more than
95% of the yield available from the longest-dated bonds while
assuming less interest rate risk. As bond yields rise, we will once
again look to add lower-rated bonds to the portfolio when we believe
they are attractively priced.
For the six-month period ended October 31, 2004, the Fund's Auction
Market Preferred Stock (AMPS) had an average yield of 1.12% for
Series A, .98% for Series B and .98% for Series C. It is important
to note that, even after the recent Fed interest rate increases,
the Fund's borrowing costs remained historically very low and
continued to generate a significant income benefit to the Fund's
Common Stock shareholders. While additional Fed interest rate hikes
are anticipated, the increases are not expected to be sizeable
or protracted. Most importantly, the spread between short-term
and long-term tax-exempt interest rates has remained historically
wide - wider, in fact, than it was at the end of October 2000. Of
course, should the spread narrow, the benefits of leverage will
decline, and as a result, reduce the yield on the Fund's Common
Stock. At the end of the period, the Fund's leverage amount,
due to AMPS, was 32.62% of total net assets. (For a more complete
explanation of the benefits and risks of leveraging, see page 2 of
this report to shareholders.)
How would you characterize the Fund's position at the close of the
period?
At period end, the Fund maintained a defensive position with respect
to future interest rate movements. With bond yields at historically
low levels, we believe it is more prudent to favor higher-yielding
securities over those with greater interest rate sensitivity.
Accordingly, we have structured the portfolio to fare best in stable
to rising interest rate environments. We also intend to keep the
portfolio's cash reserves at a minimum in order to maximize
shareholders' monthly dividend stream.
Looking ahead, we believe economic growth will remain moderate and
should eventually translate into modestly higher long-term interest
rates. If municipal bonds are able to maintain their favorable
supply/demand balance, as we anticipate, this should insulate the
tax-exempt market from much of the volatility associated with higher
interest rates.
Fred K. Stuebe
Vice President and Portfolio Manager
November 11, 2004
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Schedule of Investments (In Thousands)
S&P Moody's Face
Ratings++ Ratings++ Amount Municipal Bonds Value
Michigan--138.0%
Adrian, Michigan, City School District, GO (d):
AAA Aaa $ 2,000 5% due 5/01/2029 $ 2,064
AAA Aaa 1,600 5% due 5/01/2034 1,645
AAA Aaa 1,000 Allegan, Michigan, Public School District, GO, 5.75% due
5/01/2030 (d) 1,112
Belding, Michigan, Area Schools, GO, Refunding (c):
AAA Aaa 785 6.05% due 5/01/2006 (e) 841
AAA Aaa 215 6.05% due 5/01/2021 230
AAA Aaa 1,000 Central Montcalm, Michigan, Public Schools, GO, 5.90% due
5/01/2019 (b) 1,124
AAA Aaa 1,000 Comstock Park, Michigan, Public Schools, GO, 5.75% due 5/01/2029 (c) 1,099
Delta County, Michigan, Economic Development Corporation, Environmental
Improvement Revenue Refunding Bonds (Mead Westvaco--Escanaba):
BBB Baa2 1,500 AMT, Series B, 6.45% due 4/15/2023 1,587
BBB Baa2 2,000 Series A, 6.25% due 4/15/2027 2,129
AAA Aaa 1,000 Detroit, Michigan, City School District, GO, Series A, 5.50% due
5/01/2018 (d) 1,132
AAA Aaa 2,300 Detroit, Michigan, City School District, School Building and
Site Improvement, GO, Series A, 5.375% due 5/01/2024 (c) 2,488
Detroit, Michigan, GO (b):
AAA Aaa 1,400 5.50% due 4/01/2018 1,562
AAA Aaa 1,325 5.50% due 4/01/2020 1,479
AAA Aaa 2,705 Series B, 6.0% due 4/01/2010 (e) 3,155
AAA Aaa 1,545 Detroit, Michigan, Sewer Disposal Revenue Refunding Bonds, Senior
Lien, Series C, 5.25% due 7/01/2022 (d) 1,750
Detroit, Michigan, Water Supply System Revenue Bonds:
AAA NR* 4,375 DRIVERS, Series 200, 5.75% due 7/01/2011 (c)(e)(g) 5,857
AAA Aaa 1,250 Senior Lien, Series A, 5.875% due 1/01/2010 (c)(e) 1,444
AAA Aaa 6,900 Senior Lien, Series A, 5% due 7/01/2034 (b) 7,070
AAA Aaa 14,790 Series B, 5.25% due 7/01/2032 (b) 15,595
AAA Aaa 3,500 Series B, 5% due 7/01/2034 (b) 3,586
AAA Aaa 1,415 Detroit, Michigan, Water Supply System Revenue Refunding Bonds,
6.25% due 7/01/2012 (c)(h) 1,476
BBB Baa2 3,900 Dickinson County, Michigan, Economic Development Corporation,
Environmental Improvement Revenue Refunding Bonds (International
Paper Company Project), Series A, 5.75% due 6/01/2016 4,197
A NR* 3,100 Dickinson County, Michigan, Healthcare System, Hospital Revenue
Refunding Bonds, 5.80% due 11/01/2024 (i) 3,265
AAA Aaa 1,610 East Grand Rapids, Michigan, Public School District, GO, 5.75%
due 5/01/2009 (d)(e) 1,824
Eastern Michigan University Revenue Bonds, Series B (c):
AAA Aaa 1,500 5.60% due 6/01/2025 1,650
AAA Aaa 1,310 5.625% due 6/01/2030 1,444
AAA Aaa 1,025 Eastern Michigan University, Revenue Refunding Bonds, 6% due
6/01/2020 (a) 1,181
Portfolio Abbreviations
To simplify the listings of MuniYield Michigan Insured Fund, Inc.'s
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DRIVERS Derivative Inverse Tax-Exempt Receipts
GO General Obligation Bonds
HDA Housing Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
Ratings++ Ratings++ Amount Municipal Bonds Value
Michigan (continued)
Eaton Rapids, Michigan, Public Schools, School Building and
Site, GO (d):
AAA Aaa $ 1,325 5.25% due 5/01/2020 $ 1,458
AAA Aaa 1,675 5.25% due 5/01/2021 1,834
AAA Aaa 1,700 5% due 5/01/2026 1,769
AAA Aaa 3,600 5% due 5/01/2029 3,715
A NR* 615 Flint, Michigan, Hospital Building Authority, Revenue Refunding
Bonds (Hurley Medical Center), Series A, 5.375% due 7/01/2020 (i) 634
AAA Aaa 2,700 Fowlerville, Michigan, Community Schools, School District GO, 5%
due 5/01/2030 (c) 2,782
AAA Aaa 1,000 Frankenmuth, Michigan, School District, GO, 5.75% due 5/01/2020 (c) 1,123
AAA Aaa 3,650 Gibraltar, Michigan, School District, GO (School Building and Site),
5% due 5/01/2028 (c) 3,778
AAA Aaa 1,100 Grand Blanc, Michigan, Community Schools, GO, 5.625% due 5/01/2020 (c) 1,251
Grand Rapids, Michigan, Building Authority Revenue Bonds,
Series A (a):
AAA Aaa 1,100 5.50% due 10/01/2019 1,247
AAA Aaa 1,500 5.50% due 10/01/2020 1,693
AAA Aaa 2,070 Grand Valley, Michigan, State University Revenue Bonds, 5.50% due
2/01/2018 (c) 2,404
AAA NR* 8,425 Greater Detroit, Michigan, Resource Recovery Authority Revenue
Bonds, DRIVERS, Series 167, 10.435% due 12/13/2008 (a)(g) 10,778
AAA Aaa 9,325 Hartland, Michigan, Consolidated School District, GO, 6% due
5/01/2010 (c)(e) 10,812
AA+ Aa1 1,475 Haslett, Michigan, Public School District, Building and Site,
GO, 5.625% due 5/01/2020 1,675
AAA Aaa 3,990 Hudsonville, Michigan, Public Schools, School Building and Site,
GO, 5% due 5/01/2029 (d) 4,118
AAA Aaa 1,575 Jenison, Michigan, Public Schools, Building and Site, GO, 5.50%
due 5/01/2019 (c) 1,781
AAA Aaa 3,305 Jonesville, Michigan, Community Schools, GO, 5.75% due 5/01/2029 (c) 3,633
NR* Aaa 6,850 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility
Revenue Refunding Bonds (Bronson Methodist Hospital), 5.50% due
5/15/2028 (b) 7,252
AAA Aaa 4,000 Kent, Michigan, Hospital Finance Authority, Hospital Revenue Refunding
Bonds (Butterworth Hospital), Series A, 7.25% due 1/15/2013 (b) 4,827
Kent, Michigan, Hospital Finance Authority Revenue Bonds (Spectrum
Health), Series A (b):
AA Aa3 1,000 5.50% due 1/15/2031 1,047
AAA Aaa 3,000 5.50% due 1/15/2031 3,191
AAA Aaa 1,510 Lansing, Michigan, Building Authority, GO, Series A, 5.375% due
6/01/2023 (b) 1,641
AAA Aaa 5,235 Lincoln Park, Michigan, School District, GO, 7% due 5/01/2006 (c)(e) 5,682
AAA Aaa 4,775 Livonia, Michigan, Public School District, GO (Building and Site),
5.75% due 5/01/2010 (c)(e) 5,476
BBB NR* 2,250 Michigan Higher Education Facilities Authority, Limited Obligation
Revenue Refunding Bonds (Hope College), Series A, 5.90% due 4/01/2032 2,355
Michigan Higher Education Facilities Authority, Revenue Refunding
Bonds (College for Creative Studies):
NR* Baa2 1,235 5.85% due 12/01/2022 1,275
NR* Baa2 1,145 5.90% due 12/01/2027 1,171
AAA Aaa 2,500 Michigan Higher Education Student Loan Authority, Student Loan
Revenue Bonds, AMT, Series XVII-B, 5.40% due 6/01/2018 (a) 2,610
AAA NR* 1,065 Michigan Municipal Bond Authority Revenue Bonds (Local Government
Loan Program), Group A, 5.50% due 11/01/2020 (a) 1,190
Michigan Municipal Bond Authority, Revenue Refunding Bonds (Local
Government Loan Program), Series A:
AAA Aaa 150 6.50% due 11/01/2012 (b) 151
AAA Aaa 1,000 6% due 12/01/2013 (c) 1,024
AAA Aaa 7,000 6.125% due 12/01/2018 (c) 7,166
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
Ratings++ Ratings++ Amount Municipal Bonds Value
Michigan (continued)
AA+ Aaa $ 7,000 Michigan State Building Authority Revenue Bonds, GO, RIB,
Series 481, 8.973% due 4/15/2009 (b)(g) $ 8,905
Michigan State Building Authority, Revenue Refunding Bonds:
AAA Aaa 2,500 (Facilities Program), Series I, 5.50% due 10/15/2018 (b) 2,811
AAA Aaa 3,000 (Facilities Program), Series II, 5% due 10/15/2029 (b) 3,092
NR* Aaa 11,140 RIB, Series 517X, 8.97% due 10/15/2010 (d)(g) 14,319
Michigan State COP (a):
AAA Aaa 3,000 5.40%** due 6/01/2022 1,307
AAA Aaa 3,000 5.50% due 6/01/2027 3,257
AAA Aaa 1,605 Michigan State, HDA, Rental Housing Revenue Bonds, AMT, Series A,
5.30% due 10/01/2037 (b) 1,637
AA+ NR* 2,690 Michigan State, HDA, Revenue Refunding Bonds, Series C, 5.90% due
12/01/2015 (f) 2,836
AAA Aaa 2,530 Michigan State Hospital Finance Authority, Hospital Revenue Bonds
(Mid-Michigan Obligation Group), Series A, 5.50% due 4/15/2018 (a) 2,769
Michigan State Hospital Finance Authority, Hospital Revenue
Refunding Bonds:
A+ A2 2,200 (Crittenton Hospital), Series A, 5.625% due 3/01/2027 2,306
A A1 2,000 (Sparrow Obligation Group), 5.625% due 11/15/2031 2,078
Michigan State Hospital Finance Authority, Revenue Refunding Bonds:
AAA Aaa 2,715 (Ascension Health Credit), Series A, 5.75% due 11/15/2009 (b)(e) 3,118
AAA Aaa 12,000 (Ascension Health Credit), Series A, 6.125% due 11/15/2009 (b)(e) 13,991
AAA Aaa 2,500 (Ascension Health Credit), Series A, 6.25% due 11/15/2009 (b)(e) 2,929
AAA Aaa 4,805 (Mercy Health Services), Series T, 6.50% due 8/15/2013 (b) 5,354
AAA Aaa 2,000 (Mercy Health Services), Series X, 6% due 8/15/2014 (b) 2,277
AAA Aaa 2,200 (Mercy Health Services), Series X, 5.75% due 8/15/2019 (b) 2,472
AAA Aaa 4,930 (Mercy Mount Clemens), Series A, 6% due 5/15/2014 (b) 5,591
AAA Aaa 3,000 (Saint John Hospital), Series A, 6% due 5/15/2013 (a)(h) 3,159
AAA Aaa 6,400 (Trinity Health), Series A, 6% due 12/01/2027 (a) 7,261
AA- Aa3 1,000 (Trinity Health Credit), Series C, 5.375% due 12/01/2023 1,056
AA- Aa3 5,255 (Trinity Health Credit), Series C, 5.375% due 12/01/2030 5,445
BBB- Baa1 5,000 Michigan State Strategic Fund, Limited Obligation Revenue Bonds
(Ford Motor Company Project), AMT, Series A, 6.55% due 10/01/2022 5,097
Michigan State Strategic Fund, Limited Obligation Revenue Refunding
Bonds:
AAA Aaa 7,250 (Detroit Edison Company), AMT, Series A, 5.55% due 9/01/2029 (b) 7,618
AAA Aaa 6,000 (Detroit Edison Company Fund--Pollution), Series AA, 6.95%
due 5/01/2011 (c) 7,299
A- A3 3,300 (Detroit Edison Pollution Control), Series C, 5.45% due 9/01/2029 3,415
A- A3 2,175 (Dow Chemical Company Project), AMT, 5.50% due 12/01/2028 2,343
NR* Aaa 5,750 RIB, Series 382, 10.72% due 9/01/2025 (b)(g) 6,387
BBB- Baa2 4,300 Michigan State Strategic Fund, PCR, Refunding (General Motors Corp.),
6.20% due 9/01/2020 4,530
AAA Aaa 1,000 Michigan State Trunk Line Revenue Refunding Bonds, 5.25% due
10/01/2021 (d) 1,081
AAA Aaa 15,000 Monroe County, Michigan, Economic Development Corp., Limited
Obligation Revenue Refunding Bonds (Detroit Edison Co. Project),
Series AA, 6.95% due 9/01/2022 (c) 19,902
AAA Aaa 1,000 Montrose Township, Michigan, School District, GO, 6.20% due
5/01/2017 (b) 1,228
NR* Aaa 1,830 Muskegon Heights, Michigan, Water System Revenue Bonds, Series A,
5.625% due 11/01/2025 (b) 2,030
AAA Aaa 235 Northview, Michigan, Public School District, GO, Refunding, 5.80%
due 5/01/2021 (b) 250
AAA Aaa 1,100 Norway Vulcan, Michigan, Area Schools, GO, 5.90% due 5/01/2025 (c) 1,220
AA+ Aaa 2,425 Oxford, Michigan, Area Community School District, GO, 5.50% due
5/01/2018 (d) 2,732
AAA Aaa 1,370 Pennfield, Michigan, School District, School Building and Site, GO,
5% due 5/01/2029 (c) 1,414
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
Ratings++ Ratings++ Amount Municipal Bonds Value
Michigan (concluded)
AAA Aaa $ 1,000 Plainwell, Michigan, Community Schools, School District, School
Building and Site, GO, 5.50% due 5/01/2020 (d) $ 1,126
A NR* 700 Pontiac, Michigan, Tax Increment Finance Authority, Tax Increment
Revenue Refunding Bonds (Development Area 2), 5.625% due 6/01/2022 (i) 741
AAA Aaa 1,425 Reed, Michigan, City Public Schools, School Building and Site, GO,
5% due 5/01/2026 (d) 1,483
AA+ Aa1 1,800 Rochester, Michigan, Community School District, GO, Series II,
5.50% due 5/01/2015 (c) 2,031
AAA Aaa 2,500 Saginaw, Michigan, Hospital Finance Authority, Revenue Refunding
Bonds (Covenant Medical Center), Series E, 5.625% due 7/01/2013 (b) 2,797
Saginaw Valley State University, Michigan, General Revenue
Refunding Bonds (c):
NR* Aaa 2,100 5% due 7/01/2024 2,212
NR* Aaa 1,445 5% due 7/01/2034 1,486
NR* Aaa 8,900 Saint Clair County, Michigan, Economic Revenue Refunding Bonds
(Detroit Edison Company), RIB, Series 282, 10.72% due 8/01/2024 (a)(g) 11,484
AAA Aaa 1,300 Southfield, Michigan, Library Building Authority, GO, 5.50% due
5/01/2018 (d) 1,446
Southfield, Michigan, Public Schools, School Building and Site,
GO, Series A (d):
AAA Aaa 2,900 5.25% due 5/01/2027 3,100
AAA Aaa 3,500 5% due 5/01/2029 3,612
AAA Aaa 1,325 Sparta, Michigan, Area Schools, School Building and Site, GO, 5%
due 5/01/2030 (c) 1,363
Sturgis, Michigan, Public School District, GO (School Building
and Site):
AA+ Aa1 1,900 5.50% due 5/01/2021 2,106
AA+ Aa1 2,545 5.625% due 5/01/2030 2,802
AAA Aaa 1,000 Three Rivers, Michigan, Community Schools GO, 6% due 5/01/2006 (b)(e) 1,071
AAA Aaa 1,100 Waverly, Michigan, Community School, GO, 5.50% due 5/01/2021 (c) 1,219
AAA Aaa 10,660 Wayne Charter County, Michigan, Airport Revenue Bonds (Detroit
Metropolitan Wayne County), AMT, Series A, 5.375% due 12/01/2015 (b) 11,389
AAA Aaa 1,750 Wayne Charter County, Michigan, Detroit Metropolitan Airport, GO,
Airport Hotel, Series A, 5% due 12/01/2030 (b) 1,794
West Bloomfield, Michigan, School District, GO Refunding (c):
AAA Aaa 1,710 5.50% due 5/01/2017 1,935
AAA Aaa 1,225 5.50% due 5/01/2018 1,386
AAA Aaa 2,405 West Branch-Rose City, Michigan, Area School District, GO, 5.50%
due 5/01/2024 (c) 2,637
AAA Aaa 1,600 Zeeland, Michigan, Public Schools, School Building and Site, GO,
5% due 5/01/2029 (b) 1,651
Puerto Rico--4.6%
AAA Aaa 1,270 Puerto Rico Electric Power Authority, Power Revenue Bonds, Trust
Receipts, Class R, Series 16 HH, 9.358% due 7/01/2013 (d)(g) 1,656
AAA Aaa 3,790 Puerto Rico Municipal Finance Agency Revenue Bonds, Series A, 5%
due 8/01/2027 (d) 3,948
Puerto Rico Public Finance Corporation, Commonwealth Appropriation
Revenue Bonds (e):
AAA Aaa 1,000 Series A, 5.375% due 8/01/2011 (b) 1,140
BBB+ Baa2 2,900 Series E, 5.75% due 2/01/2007 3,134
BBB+ Baa2 1,000 Series E, 5.70% due 2/01/2010 1,134
AAA Aaa 2,150 University of Puerto Rico, University Revenue Refunding Bonds,
Series O, 5.375% due 6/01/2030 (b) 2,205
Total Municipal Bonds (Cost--$376,594)--142.6% 413,133
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Schedule of Investments (concluded) (In Thousands)
Shares Held Short-Term Securities Value
7,190 CMA Michigan Municipal Money Fund (j) $ 7,190
Total Short-Term Securities (Cost--$7,190)--2.5% 7,190
Total Investments (Cost--$383,784***)--145.1% 420,323
Other Assets Less Liabilities--3.2% 9,387
Preferred Stock, at Redemption Value--(48.3%) (140,015)
---------
Net Assets Applicable to Common Stock--100.0% $ 289,695
=========
++ Ratings of issues shown are unaudited.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
*** The cost and unrealized appreciation/depreciation of investments as
of October 31, 2004, as computed for federal income tax purposes,
were as follows:
(in Thousands)
Aggregate cost $ 383,608
==============
Gross unrealized appreciation $ 36,715
Gross unrealized depreciation --
--------------
Net unrealized appreciation $ 36,715
==============
(a) AMBAC Insured.
(b) MBIA Insured.
(c) FGIC Insured.
(d) FSA Insured.
(e) Prerefunded.
(f) FHA Insured.
(g) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at October 31, 2004.
(h) Escrowed to maturity.
(i) ACA Insured.
(j) Investments in companies considered to be an affiliate of the Fund
(such companies are defined as "Affiliated Companies" in Section
2(a)(3) of the Investment Company Act of 1940) were as follows:
(in Thousands)
Net Dividend
Affiliate Activity Income
CMA Michigan Municipal
Money Fund (3,646) $56
Forward interest rate swaps outstanding as of October 31, 2004
were as follows:
(in Thousands)
Notional Unrealized
Affiliate Amount Depreciation
Receive a variable rate equal to
7-Day Bond Market Association
Municipal Swap Index Rate and
pay a fixed rate of 3.515% interest
Broker, J.P. Morgan Chase Bank
Expires, January 2015 $21,500 $ (75)
Receive a variable rate equal to
7-Day Bond Market Association
Municipal Swap Index Rate and
pay a fixed rate of 3.671% interest
Broker, J.P. Morgan Chase Bank
Expires, November 2014 $10,100 (198)
--------
Total $ (273)
========
See Notes to Financial Statements.
Quality Profile (unaudited)
The quality ratings of securities in the Fund as of October 31, 2004
were as follows:
Percent of
Total
S&P Rating/Moody's Rating Investments
AAA/Aaa 83.9%
AA/Aa 4.5
A/A 3.5
BBB/Baa 6.4
Other* 1.7
* Includes portfolio holdings in short-term securities.
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Statement of Net Assets
As of October 31, 2004
Assets
Investments in unaffiliated securities, at value (identified cost--$376,593,689) $ 413,132,689
Investments in affiliated securities, at value (identified cost--$7,189,942) 7,189,942
Cash 64,905
Receivables:
Interest $ 7,484,597
Securities sold 2,549,688
Dividends from affiliates 208 10,034,493
---------------
Prepaid expenses and other assets 21,991
---------------
Total assets 430,444,020
---------------
Liabilities
Unrealized depreciation on forward interest rate swaps 273,060
Payables:
Investment adviser 201,486
Dividends to Common Stock shareholders 181,112
Other affiliates 2,992 385,590
---------------
Accrued expenses and other liabilities 75,499
---------------
Total liabilities 734,149
---------------
Preferred Stock
Preferred Stock, at redemption value, par value $.05 per share
(2,000 Series A Shares, 2,000 Series B Shares and 1,600 Series C Shares of AMPS*
authorized, issued and outstanding at $25,000 per share liquidation preference) 140,014,860
---------------
Net Assets Applicable to Common Stock
Net assets applicable to Common Stock $ 289,695,011
===============
Analysis of Net Assets Applicable to Common Stock
Common Stock, par value $.10 per share (18,155,932 shares issued and
outstanding) $ 1,815,593
Paid-in capital in excess of par 268,391,966
Undistributed investment income--net $ 4,275,835
Accumulated realized capital losses--net (21,054,323)
Unrealized appreciation--net 36,265,940
---------------
Total accumulated earnings--net 19,487,452
---------------
Total--Equivalent to $15.96 net asset value per share of Common Stock
(market price--$15.37) $ 289,695,011
===============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Statement of Operations
For the Year Ended October 31, 2004
Investment Income
Interest $ 22,044,948
Dividends from affiliates 55,734
---------------
Total income 22,100,682
---------------
Expenses
Investment advisory fees $ 2,129,991
Commission fees 355,812
Accounting services 145,166
Transfer agent fees 69,744
Professional fees 62,631
Printing and shareholder reports 33,944
Directors' fees and expenses 26,667
Custodian fees 24,737
Listing fees 20,800
Pricing fees 16,236
Other 46,745
---------------
Total expenses before reimbursement 2,932,473
Reimbursement of expenses (59,472)
---------------
Total expenses after reimbursement 2,873,001
---------------
Investment income--net 19,227,681
---------------
Realized & Unrealized Gain (Loss)--Net
Realized loss on:
Investments--net (451,858)
Forward interest rate swaps--net (3,258,638) (3,710,496)
---------------
Change in unrealized appreciation/depreciation on:
Investments--net 4,438,822
Forward interest rate swaps--net (105,902) 4,332,920
--------------- ---------------
Total realized and unrealized gain--net 622,424
---------------
Dividends to Preferred Stock Shareholders
Investment income--net (1,327,132)
---------------
Net Increase in Net Assets Resulting from Operations $ 18,522,973
===============
See Notes to Financial Statements.
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Statements of Changes in Net Assets
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 2004 2003
Operations
Investment income--net $ 19,227,681 $ 19,930,690
Realized gain (loss)--net (3,710,496) 1,528,951
Change in unrealized appreciation/depreciation--net 4,332,920 1,157,612
Dividends to Preferred Stock shareholders (1,327,132) (1,325,488)
--------------- ---------------
Net increase in net assets resulting from operations 18,522,973 21,291,765
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (18,192,244) (17,729,268)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common
Stock shareholders (18,192,244) (17,729,268)
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase in net assets applicable to Common Stock 330,729 3,562,497
Beginning of year 289,364,282 285,801,785
--------------- ---------------
End of year* $ 289,695,011 $ 289,364,282
=============== ===============
* Undistributed investment income--net $ 4,275,835 $ 4,585,110
=============== ===============
See Notes to Financial Statements.
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
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,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 15.94 $ 15.74 $ 15.81 $ 14.48 $ 13.91
---------- ---------- ---------- ---------- ----------
Investment income--net 1.06+++ 1.10+++ 1.10+++ 1.08 .99
Realized and unrealized gain (loss)--net .03 .15 (.12) 1.30 .67
Dividends to Preferred Stock shareholders
from investment income--net (.07) (.07) (.11) (.24) (.30)
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.02 1.18 .87 2.14 1.36
---------- ---------- ---------- ---------- ----------
Less dividends to Common Stock shareholders
from investment income--net (1.00) (.98) (.94) (.81) (.79)
Capital charge resulting from issuance of
Common Stock -- -- -- --++ --
---------- ---------- ---------- ---------- ----------
Total dividends to Common Stock shareholders (1.00) (.98) (.94) (.81) (.79)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 15.96 $ 15.94 $ 15.74 $ 15.81 $ 14.48
========== ========== ========== ========== ==========
Market price per share, end of year $ 15.37 $ 14.69 $ 13.95 $ 14.22 $ 11.9375
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 7.04% 8.26% 6.33% 15.89% 11.19%
========== ========== ========== ========== ==========
Based on market price per share 11.85% 12.57% 4.77% 26.44% 4.62%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of reimbursement and
excluding reorganization expenses** 1.00% 1.01% 1.04% 1.05% 1.10%
========== ========== ========== ========== ==========
Total expenses, excluding reorganization
expenses** 1.02% 1.03% 1.04% 1.05% 1.10%
========== ========== ========== ========== ==========
Total expenses** 1.02% 1.03% 1.04% 1.05% 1.33%
========== ========== ========== ========== ==========
Total investment income--net** 6.69% 6.83% 7.10% 7.10% 7.49%
========== ========== ========== ========== ==========
Amount of dividends to Preferred Stock
shareholders .46% .45% .70% 1.59% 2.18%
========== ========== ========== ========== ==========
Investment income--net, to Common Stock
shareholders 6.23% 6.38% 6.40% 5.51% 5.31%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common & Preferred Stock**
Total expenses, net of reimbursement and
excluding reorganization expenses .67% .68% .70% .70% .72%
========== ========== ========== ========== ==========
Total expenses, excluding reorganization expenses .69% .69% .70% .70% .72%
========== ========== ========== ========== ==========
Total expenses .69% .69% .70% .70% .86%
========== ========== ========== ========== ==========
Total investment income--net 4.50% 4.61% 4.75% 4.71% 4.87%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders .95% .94% 1.40% 3.14% 4.06%
========== ========== ========== ========== ==========
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Financial Highlights (concluded)
The following per share data and ratios have been derived For the Year Ended October 31,
from information provided in the financial statements. 2004 2003 2002 2001 2000
Supplemental Data
Net assets applicable to Common Stock,
end of year (in thousands) $ 289,695 $ 289,364 $ 285,802 $ 286,982 $ 262,864
========== ========== ========== ========== ==========
Preferred Stock outstanding, end of year
(in thousands) $ 140,000 $ 140,000 $ 140,000 $ 140,000 $ 140,000
========== ========== ========== ========== ==========
Portfolio turnover 36.63% 33.39% 32.68% 68.17% 51.41%
========== ========== ========== ========== ==========
Leverage
Asset coverage per $1,000 $ 3,069 $ 3,067 $ 3,041 $ 3,050 $ 2,878
========== ========== ========== ========== ==========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 250 $ 240 $ 354 $ 792 $ 1,023
========== ========== ========== ========== ==========
Series B++++--Investment income--net $ 232 $ 230 $ 362 $ 783 $ 653
========== ========== ========== ========== ==========
Series C++++--Investment income--net $ 226 $ 240 $ 333 $ 782 $ 678
========== ========== ========== ========== ==========
* Total investment returns based on market value, which can be significantly greater
or lesser than the net asset value, may result in substantially different returns.
Total investment returns exclude the effects of sales charges.
** Do not reflect the effect of dividends to Preferred Stock shareholders.
++ Amount is less than $(.01) per share.
++++ The Fund's Preferred Stock was issued on March 6, 2000 for Series B and Series C.
+++ Based on average shares outstanding.
See Notes to Financial Statements.
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Notes to Financial Statements
1. Significant Accounting Policies:
MuniYield Michigan Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified,
closed-end management investment company. The Fund's financial
statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management
accruals and estimates. Actual results may differ from these
estimates. The Fund determines and makes available for publication
the net asset value of its Common Stock on a daily 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 last available
bid price in the over-the-counter market or on the basis of values
as obtained by a pricing service. Pricing services use valuation
matrixes that incorporate both dealer-supplied valuations and
valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the
general direction of the Board of Directors. Such valuations and
procedures will be reviewed periodically by the Board of Directors
of the Fund. 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). Swap agreements are valued by quoted fair
values received daily by the Fund's pricing service. Short-term
investments with a remaining maturity of 60 days or less are valued
at amortized cost, which approximates market value, under which
method the investment is valued at cost and any premium or discount
is amortized on a straight line basis to maturity. Investments in
open-end investment companies are valued at their net asset value
each business day. Securities and other 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.
(b) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies both to increase the return of the
Fund and to hedge, or protect, its exposure to interest rate
movements and movements in the securities 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.
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 may 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.
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Notes to Financial Statements (continued)
* Forward interest rate swaps--The Fund may enter into forward
interest rate swaps. In a forward interest rate swap, the Fund and
the counterparty agree to make periodic net payments on a specified
notional contract amount, commencing on a specified future effective
date, unless terminated earlier. When the agreement is closed, the
Fund records a realized gain or loss in an amount equal to the value
of the agreement.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost basis. Interest
income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(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.
(f) Reclassifications--U.S. generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, during the current year, $17,580 has been reclassified
between undistributed net investment income and accumulated net
realized capital losses as a result of permanent differences
attributable to the amortization methods for premiums and discounts
on fixed income securities. This reclassification has no effect on
net assets or net asset values 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 .50% of
the Fund's average weekly net assets, including proceeds from the
issuance of Preferred Stock. The Investment Adviser has agreed to
reimburse its management fee by the amount of management fees the
Fund pays to FAM indirectly through its investment in CMA Michigan
Municipal Money Fund. For the year ended October 31, 2004, FAM
reimbursed the Fund in the amount of $59,472.
For the year ended October 31, 2004, the Fund reimbursed FAM $8,564
for certain accounting services.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 2004 were $151,533,959 and
$152,211,747, respectively.
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.
Preferred Stock
Auction Market Preferred Stock 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, plus accrued and unpaid dividends,
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, 2004 were as follows: Series A, 1.60%;
Series B, 1.20%; and Series C, 1.00%.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from .25% to .375%,
calculated on the proceeds of each auction. For the year ended
October 31, 2004, Merrill Lynch, Pierce Fenner & Smith Incorporated,
an affiliate of FAM, earned $185,130 as commissions.
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Notes to Financial Statements (concluded)
5. Distributions to Shareholders:
The Fund paid a tax-exempt income dividend to holders of Common
Stock in the amount of $0.084000 per share on November 29, 2004 to
shareholders of record on November 12, 2004.
The tax character of distributions paid during the fiscal years
ended October 31, 2004 and October 31, 2003 was as follows:
10/31/2004 10/31/2003
Distributions paid from:
Tax-exempt income $ 19,519,376 $ 19,054,756
--------------- ---------------
Total distributions $ 19,519,376 $ 19,054,756
=============== ===============
As of October 31, 2004, the components of accumulated earnings on a
tax basis were as follows:
Undistributed tax-exempt income--net $ 4,100,061
Undistributed long-term capital gains--net --
---------------
Total undistributed earnings--net 4,100,061
Capital loss carryforward (17,222,707)*
Unrealized gains--net 32,610,098**
---------------
Total accumulated earnings--net $ 19,487,452
===============
* On October 31, 2004, the Fund had a net capital loss carryforward
of $17,222,707, of which $679,274 expires in 2006, $3,974,932
expires in 2007, $7,490,629 expires in 2008, $1,124,652 expires
in 2010 and $3,953,220 expires in 2012. This amount will be
available to offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
straddles and the difference between book and tax amortization
methods for premiums and discounts on fixed income securities.
6. Subsequent Event:
On November 22, 2004, the Fund issued 1,000 shares of Series D
Preferred Stock for net proceeds of $24,750,000.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
of MuniYield Michigan Insured Fund, Inc.:
We have audited the accompanying statement of net assets of
MuniYield Michigan Insured Fund, Inc., including the schedule of
investments, as of October 31, 2004, 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 the standards of the
Public Company Accounting Oversight Board (United States). 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, 2004, by correspondence with the custodian and
others. 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, 2004, 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 the financial highlights for each of the
years indicated, in conformity with U.S. generally accepted
accounting principles.
(Ernst & Young LLP)
Philadelphia, Pennsylvania
December 16, 2004
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Dividend Policy (unaudited)
The Fund's dividend policy is to distribute all or a portion of its
net investment income to its shareholders on a monthly basis. In
order to provide shareholders with a more stable level of dividend
distributions, 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 Net Assets, which comprises part of the Financial
Information included in this report.
Important Tax Information (unaudited)
All of the net investment income distributions paid by MuniYield
Michigan Insured Fund, Inc. during the taxable year ended October
31, 2004 qualify as tax-exempt interest dividends for federal income
tax purposes.
Please retain this information for your records.
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Automatic Dividend Reinvestment Plan (unaudited)
The following description of the Fund's Automatic Dividend
Reinvestment Plan (the "Plan") is sent to you annually as required
by federal securities laws.
Pursuant to the Fund's Plan, unless a holder of Common Stock
otherwise elects, all dividend and capital gains distributions
will be automatically reinvested by The Bank of New York (the
"Plan Agent"), as agent for shareholders in administering the
Plan, in additional shares of Common Stock of the Fund. Holders
of Common Stock who elect not to participate in the Plan will
receive all distributions in cash paid by check mailed directly to
the shareholder of record (or, if the shares are held in street or
other nominee name then to such nominee) by The Bank of New York,
as dividend paying agent. Such participants may elect not to
participate in the Plan and to receive all distributions of
dividends and capital gains in cash by sending written instructions
to The Bank of New York, as dividend paying agent, at the address
set forth below. Participation in the Plan is completely voluntary
and may be terminated or resumed at any time without penalty by
written notice if received by the Plan Agent not less than ten days
prior to any dividend record date; otherwise such termination will
be effective with respect to any subsequently declared dividend or
distribution.
Whenever the Fund declares an income dividend or capital gains
distribution (collectively referred to as "dividends") payable
either in shares or in cash, non-participants in the Plan will
receive cash and participants in the Plan will receive the
equivalent in shares of Common Stock. The shares will be acquired by
the Plan Agent for the participant's account, depending upon the
circumstances described below, either (i) through receipt of
additional unissued but authorized shares of Common Stock from the
Fund ("newly issued shares") or (ii) by purchase of outstanding
shares of Common Stock on the open market ("open-market purchases")
on the New York Stock Exchange or elsewhere. If on the payment date
for the dividend, the net asset value per share of the Common Stock
is equal to or less than the market price per share of the Common
Stock plus estimated brokerage commissions (such conditions being
referred to herein as "market premium"), the Plan Agent will invest
the dividend amount in newly issued shares on behalf of the
participant. The number of newly issued shares of Common Stock to be
credited to the participant's account will be determined by dividing
the dollar amount of the dividend by the net asset value per share
on the date the shares are issued, provided that the maximum
discount from the then current market price per share on the date of
issuance may not exceed 5%. If, on the dividend payment date, the
net asset value per share is greater than the market value (such
condition being referred to herein as "market discount"), the Plan
Agent will invest the dividend amount in shares acquired on behalf
of the participant in open-market purchases.
In the event of a market discount on the dividend payment date, the
Plan Agent will have until the last business day before the next
date on which the shares trade on an "ex-dividend" basis or in no
event more than 30 days after the dividend payment date (the "last
purchase date") to invest the dividend amount in shares acquired in
open-market purchases. It is contemplated that the Fund will pay
monthly income dividends. Therefore, the period during which open-
market purchases can be made will exist only from the payment date
on the dividend through the date before the next "ex-dividend" date,
which typically will be approximately ten days. If, before the Plan
Agent has completed its open-market purchases, the market price of a
share of Common Stock exceeds the net asset value per share, the
average per share purchase price paid by the Plan Agent may exceed
the net asset value of the Fund's shares, resulting in the
acquisitions of fewer shares than if the dividend had been paid in
newly issued shares on the dividend payment date. Because of the
foregoing difficulty with respect to open-market purchases, the Plan
provides that if the Plan Agent is unable to invest the full
dividend amount in open-market purchases during the purchase period
or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market
purchases and will invest the uninvested portion of the dividend
amount in newly issued shares at the close of business on the last
purchase date determined by dividing the uninvested portion of the
dividend by the net asset value per share.
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
The Plan Agent maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the account,
including information needed by shareholders for tax records. Shares
in the account of each Plan participant will be held by the Plan
Agent in non-certificated form in the name of the participant, and
each shareholder's proxy will include those shares purchased or
received pursuant to the Plan. The Plan Agent will forward all proxy
solicitation materials to participants and vote proxies for shares
held pursuant to the Plan in accordance with the instructions of the
participants.
In the case of shareholders such as banks, brokers or nominees which
hold shares of others who are the beneficial owners, the Plan Agent
will administer the Plan on the basis of the number of shares
certified from time to time by the record shareholders as
representing the total amount registered in the record shareholder's
name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued
directly by the Fund as a result of dividends or capital gains
distributions payable either in shares or in cash. However, each
participant will pay a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open-market purchases in
connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not
relieve participants of any federal, state or local income tax that
may be payable (or required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not
available to shareholders not participating in the Plan. If the
market price plus commissions of the Fund's shares is above the net
asset value, participants in the Plan will receive shares of the
Fund at less than they could otherwise purchase them and will have
shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market
price plus commissions is below the net asset value, participants
will receive distributions in shares with a net asset value greater
than the value of any cash distribution they would have received on
their shares. However, there may be insufficient shares available in
the market to make distributions in shares at prices below the net
asset value. Also, since the Fund does not redeem shares, the price
on resale may be more or less than the net asset value.
The value of shares acquired pursuant to the Plan will generally be
excluded from gross income to the extent that the cash amount
reinvested would be excluded from gross income. If, when the Fund's
shares are trading at a premium over net asset value, the Fund
issues shares pursuant to the Plan that have a greater fair market
value than the amount of cash reinvested, it is possible that all or
a portion of such discount (which may not exceed 5% of the fair
market value of the Fund's shares) could be viewed as a taxable
distribution. If the discount is viewed as a taxable distribution,
it is also possible that the taxable character of this discount
would be allocable to all the shareholders, including shareholders
who do not participate in the Plan. Thus, shareholders who do not
participate in the Plan might be required to report as ordinary
income a portion of their distributions equal to their allocable
share of the discount.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the
Plan. There is no direct service charge to participants in the Plan;
however, the Fund reserves the right to amend the Plan to include a
service charge payable by the participants.
All correspondence concerning the Plan should be directed to the
Plan Agent at The Bank of New York, Church Street Station, P.O. Box
11258, New York, NY 10286-1258, Telephone: 800-432-8224.
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Officers and Directors (unaudited)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Terry K. Glenn* President 1999 to President of the Merrill Lynch Investment 124 Funds None
P.O. Box 9011 and present Managers, L.P. ("MLIM")/Fund Asset 157 Portfolios
Princeton, Director Management, L.P. ("FAM")-advised funds
NJ 08543-9011 since 1999; Chairman (Americas Region)
Age: 64 of MLIM from 2000 to 2002; Executive Vice
President of MLIM and FAM (which terms as
used herein include their corporate
predecessors) from 1983 to 2002; President
of FAM Distributors, Inc. ("FAMD") from
1986 to 2002 and Director thereof from 1991
to 2002; Executive Vice President and
Director of Princeton Services, Inc.
("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P.
from 1989 to 2002; Director of Financial
Data Services, Inc. since 1985.
* Mr. Glenn is a director, trustee or member of an advisory board of
certain other investment companies for which MLIM or FAM acts as
investment adviser. Mr. Glenn is an "interested person," as
described in the Investment Company Act, of the Fund based on his
present and former positions with MLIM, FAM, FAMD, Princeton
Services and Princeton Administrators, L.P. The Director's term is
unlimited. Directors serve until their resignation, removal or
death, or until December 31 of the year in which they turn 72. As
Fund President, Mr. Glenn serves at the pleasure of the Board of
Directors.
Independent Directors*
Donald W. Burton Director 2002 to General Partner of The Burton Partnership, 23 Funds ITC DeltaCom,
P.O. Box 9095 present Limited Partnership (an Investment 36 Portfolios Inc.; ITC Holding
Princeton, Partnership) since 1979; Managing General Company, Inc.;
NJ 08543-9095 Partner of The South Atlantic Venture Funds Knology, Inc.;
Age: 60 since 1983; Member of the Investment Advisory MainBancorp
Committee of the Florida State Board of N.A.; PriCare,
Administration since 2001. Inc.; Symbion,
Inc.
M. Colyer Crum Director 1992 to James R. Williston Professor of Investment 24 Funds Cambridge
P.O. Box 9095 present Management Emeritus, Harvard Business School 37 Portfolios Bancorp
Princeton, since 1996; James R. Williston Professor of
NJ 08543-9095 Investment Management, Harvard Business
Age: 72 School from 1971 to 1996.
Laurie Simon Hodrick Director 1999 to Professor of Finance and Economics, Graduate 23 Funds None
P.O. Box 9095 present School of Business, Columbia University 36 Portfolios
Princeton, since 1998; Associate Professor of Finance
NJ 08543-9095 and Economics, Graduate School of Business,
Age: 42 Columbia University from 1996 to 1998.
David H. Walsh Director 2003 to Consultant with Putnam Investments since 23 Funds None
P.O. Box 9095 present 1998 and employed in various capacities 36 Portfolios
Princeton, therewith from 1973 to 1992; Director,
NJ 08543-9095 The National Audubon Society since 1998;
Age: 63 Director, The American Museum of Fly
Fishing since 1997.
Fred G. Weiss Director 1998 to Managing Director of FGW Advisors, Inc. 23 Funds Watson
P.O. Box 9095 present since 1997; Vice President, Planning, 36 Portfolios Pharmaceuticals,
Princeton, Investment and Development of Warner Inc.
NJ 08543-9095 Lambert Co. from 1979 to 1997; Director
Age: 63 of the Michael J. Fox Foundation for
Parkinson's Research since 2000; Director of
BTG International PLC (a global technology
commercialization company) since 2001.
* The Director's term is unlimited. Directors serve until their
resignation, removal or death, or until December 31 of the year in
which they turn 72.
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Officers and Directors (unaudited)(concluded)
Position(s) Length of
Held with Time
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since
P.O. Box 9011 President present 1999; Senior Vice President and Treasurer of Princeton Services since 1999
Princeton, and and and Director since 2004; Vice President of FAMD since 1999; Vice President
NJ 08543-9011 Treasurer 1999 to of MLIM and FAM from 1990 to 1997; Director of MLIM Taxation since 1990.
Age: 44 present
Kenneth A. Jacob Senior 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
P.O. Box 9011 Vice present Management) of MLIMfrom 1997 to 2000.
Princeton, President
NJ 08543-9011
Age: 53
John M. Loffredo Senior 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
P.O. Box 9011 Vice present Management) of MLIM from 1998 to 2000.
Princeton, President
NJ 08543-9011
Age: 40
Fred K. Steube Vice 1995 to Director (Municipal Tax-Exempt Fund Management) of MLIM since 2000; Vice
P.O. Box 9011 President present President of MLIM from 1994 to 2000.
Princeton,
NJ 08543-9011
Age: 54
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice
P.O. Box 9011 Compliance present President and Chief Compliance Officer of MLIM since 2004; Global Director
Princeton, Officer of Compliance at Morgan Stanley Investment Management from 2002 to 2004;
NJ 08543-9011 Managing Director and Global Director of Compliance at Citigroup Asset
Age: 53 Management from 2000 to 2002; Chief Compliance Officer at Soros Fund
Management in 2000; Chief Compliance Officer at Prudential Financial from
1995 to 2000.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from
P.O. Box 9011 present 1999 to 2002; Attorney associated with MLIM since 1997.
Princeton,
NJ 08543-9011
Age: 44
* Officers of the Fund serve at the pleasure of the Board of Directors.
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street - 11 East
New York, NY 10286
Preferred Stock:
The Bank of New York
101 Barclay Street - 7 West
New York, NY 10286
NYSE Symbol
MIY
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third
quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are
available on the SEC's Web site at http://www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
MUNIYIELD MICHIGAN INSURED FUND, INC., OCTOBER 31, 2004
Item 2 - Code of Ethics - The registrant has adopted a code of
ethics, as of the end of the period covered by this report, that
applies to the registrant's principal executive officer, principal
financial officer and principal accounting officer, or persons
performing similar functions. A copy of the code of ethics
is available without charge upon request by calling toll-free
1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board
of directors has determined that (i) the registrant has the
following audit committee financial experts serving on its audit
committee and (ii) each audit committee financial expert is
independent: (1) Donald W. Burton, (2) M. Colyer Crum, (3)
Laurie Simon Hodrick, (4) David H. Walsh and (5) Fred G. Weiss.
The registrant's board of directors has determined that Laurie Simon
Hodrick and M. Colyer Crum qualify as financial experts pursuant to
Item 3(c)(4) of Form N-CSR.
Ms. Hodrick has a thorough understanding of generally accepted
accounting principals, financial statements, and internal controls
and procedures for financial reporting. Ms. Hodrick earned a Ph.D.
in economics and has taught courses in finance for over 15 years.
Her M.B.A.-level course centers around the evaluation and analysis
of firms' corporate financial statements. She has also taught in
financial analysts' training programs. Ms. Hodrick has also worked
with several prominent corporations in connection with the analysis
of financial forecasts and projections and analysis of the financial
statements of those companies, serving on the Financial Advisory
Council of one of these major corporations. She has also served
as the Treasurer and Finance Chair of a 501(c)(3) organization.
Ms. Hodrick has published a number of articles in leading economic
and financial journals and is the associate editor of two leading
finance journals.
M. Colyer Crum also possesses a thorough understanding of generally
accepted accounting principals, financial statements, and internal
controls and procedures for financial reporting through a
combination of education and experience. Professor Crum was a
professor of investment management at the Harvard Business School
for 25 years. The courses taught by Professor Crum place a heavy
emphasis on the analysis of underlying company financial statements
with respect to stock selection and the analysis of credit risk in
making loans. Professor Crum has also served on a number of boards
of directors and has served on the audit committees, and in some
cases chaired the audit committee, for several major corporations
and financial institutions. For two such organizations, Professor
Crum has performed extensive investment analysis of financial
statements in connection with investment management decisions. From
these experiences, he has gained significant experience with the
establishment of reserves and accounting policies, differences
between U.S. GAAP and Canadian GAAP and executive compensation
issues.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending October 31, 2004 - $31,500
Fiscal Year Ending October 31, 2003 - $30,550
(b) Audit-Related Fees -
Fiscal Year Ending October 31, 2004 - $3,000
Fiscal Year Ending October 31, 2003 - $3,000
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
(c) Tax Fees - Fiscal Year Ending October 31, 2004 - $5,200
Fiscal Year Ending October 31, 2003 - $5,000
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending October 31, 2004 - $0
Fiscal Year Ending October 31, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services provided
to the registrant on an annual basis require specific pre-approval
by the Committee. The Committee also must approve other non-audit
services provided to the registrant and those non-audit services
provided to the registrant's affiliated service providers that
relate directly to the operations and the financial reporting of the
registrant. Certain of these non-audit services that the Committee
believes are a) consistent with the SEC's auditor independence rules
and b) routine and recurring services that will not impair the
independence of the independent accountants may be approved by the
Committee without consideration on a specific case-by-case basis
("general pre-approval"). However, such services will only be
deemed pre-approved provided that any individual project does not
exceed $5,000 attributable to the registrant or $50,000 for all of
the registrants the Committee oversees. Any proposed services
exceeding the pre-approved cost levels will require specific pre-
approval by the Committee, as will any other services not subject to
general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to
general pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending October 31, 2004 - $8,200
Fiscal Year Ending October 31, 2003 - $8,000
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant that were not pre-
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation
S-X is compatible with maintaining the principal accountant's
independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
Item 5 - Audit Committee of Listed Registrants - The following
individuals are members of the registrant's separately-designated
standing audit committee established in accordance with Section
3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)):
Donald W. Burton
M. Colyer Crum
Laurie Simon Hodrick
David H. Walsh
Fred G. Weiss
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies -
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill
Lynch Investment Managers, L.P. and/or Fund Asset Management, L.P.
(the "Investment Adviser") authority to vote all proxies relating to
the Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("Proxy Voting Procedures") with respect to
the voting of proxies related to the portfolio securities held in
the account of one or more of its clients, including a Fund.
Pursuant to these Proxy Voting Procedures, the Investment Adviser's
primary objective when voting proxies is to make proxy voting
decisions solely in the best interests of each Fund and its
shareholders, and to act in a manner that the Investment Adviser
believes is most likely to enhance the economic value of the
securities held by the Fund. The Proxy Voting Procedures are
designed to ensure that that the Investment Adviser considers the
interests of its clients, including the Funds, and not the interests
of the Investment Adviser, when voting proxies and that real (or
perceived) material conflicts that may arise between the Investment
Adviser's interest and those of the Investment Adviser's clients are
properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment
professionals appointed by the CIO, portfolio managers and
investment analysts appointed by the CIO and any other personnel the
CIO deems appropriate. The Committee will also include two non-
voting representatives from the Investment Adviser's Legal
department appointed by the Investment Adviser's General Counsel.
The Committee's membership shall be limited to full-time employees
of the Investment Adviser. No person with any investment banking,
trading, retail brokerage or research responsibilities for the
Investment Adviser's affiliates may serve as a member of the
Committee or participate in its decision making (except to the
extent such person is asked by the Committee to present information
to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser
might be asked to do so). The Committee determines how to vote the
proxies of all clients, including a Fund, that have delegated proxy
voting authority to the Investment Adviser and seeks to ensure that
all votes are consistent with the best interests of those clients
and are free from unwarranted and inappropriate influences. The
Committee establishes general proxy voting policies for the
Investment Adviser and is responsible for determining how those
policies are applied to specific proxy votes, in light of each
issuer's unique structure, management, strategic options and, in
certain circumstances, probable economic and other anticipated
consequences of alternate actions. In so doing, the Committee may
determine to vote a particular proxy in a manner contrary to its
generally stated policies. In addition, the Committee will be
responsible for ensuring that all reporting and recordkeeping
requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires
a case-by-case determination. In such cases, the Committee may
elect not to adopt a specific voting policy applicable to that
issue. The Investment Adviser believes that certain proxy voting
issues require investment analysis - such as approval of mergers and
other significant corporate transactions - akin to investment
decisions, and are, therefore, not suitable for general guidelines.
The Committee may elect to adopt a common position for the
Investment Adviser on certain proxy votes that are akin to
investment decisions, or determine to permit the portfolio manager
to make individual decisions on how best to maximize economic value
for a Fund (similar to normal buy/sell investment decisions made by
such portfolio managers). While it is expected that the Investment
Adviser will generally seek to vote proxies over which the
Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in
conjunction with a Fund's portfolio manager, may determine that the
Fund's specific circumstances require that its proxies be voted
differently.
To assist the Investment Adviser in voting proxies, the Committee
has retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address
special circumstances that can arise in connection with proxy
voting. For instance, under the Proxy Voting Procedures, the
Investment Adviser generally will not seek to vote proxies related
to portfolio securities that are on loan, although it may do so
under certain circumstances. In addition, the Investment Adviser
will vote proxies related to securities of foreign issuers only on a
best efforts basis and may elect not to vote at all in certain
countries where the Committee determines that the costs associated
with voting generally outweigh the benefits. The Committee may at
any time override these general policies if it determines that such
action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote
proxies in respect of an issuer where an affiliate of the Investment
Adviser (each, an "Affiliate"), or a money management or other
client of the Investment Adviser (each, a "Client") is involved.
The Proxy Voting Procedures and the Investment Adviser's adherence
to those procedures are designed to address such conflicts of
interest. The Committee intends to strictly adhere to the Proxy
Voting Procedures in all proxy matters, including matters involving
Affiliates and Clients. If, however, an issue representing a non-
routine matter that is material to an Affiliate or a widely known
Client is involved such that the Committee does not reasonably
believe it is able to follow its guidelines (or if the particular
proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes
of ensuring that an independent determination is reached, retain an
independent fiduciary to advise the Committee on how to vote or to
cast votes on behalf of the Investment Adviser's clients.
In the event that the Committee determines not to retain an
independent fiduciary, or it does not follow the advice of such an
independent fiduciary, the powers of the Committee shall pass to a
subcommittee, appointed by the CIO (with advice from the Secretary
of the Committee), consisting solely of Committee members selected
by the CIO. The CIO shall appoint to the subcommittee, where
appropriate, only persons whose job responsibilities do not include
contact with the Client and whose job evaluations would not be
affected by the Investment Adviser's relationship with the Client
(or failure to retain such relationship). The subcommittee shall
determine whether and how to vote all proxies on behalf of the
Investment Adviser's clients or, if the proxy matter is, in their
judgment, akin to an investment decision, to defer to the applicable
portfolio managers, provided that, if the subcommittee determines to
alter the Investment Adviser's normal voting guidelines or, on
matters where the Investment Adviser's policy is case-by-case, does
not follow the voting recommendation of any proxy voting service or
other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies
relating to the Client may be voted unless the Secretary, or in the
Secretary's absence, the Assistant Secretary of the Committee
concurs that the subcommittee's determination is consistent with the
Investment Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain
recurring proxy issues that are not expected to involve unusual
circumstances. These policies are guidelines only, and the
Investment Adviser may elect to vote differently from the
recommendation set forth in a voting guideline if the Committee
determines that it is in a Fund's best interest to do so. In
addition, the guidelines may be reviewed at any time upon the
request of a Committee member and may be amended or deleted upon the
vote of a majority of Committee members present at a Committee
meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
* Proposals related to the composition of the Board of Directors of
issuers other than investment companies. As a general matter, the
Committee believes that a company's Board of Directors (rather than
shareholders) is most likely to have access to important, nonpublic
information regarding a company's business and prospects, and is
therefore best-positioned to set corporate policy and oversee
management. The Committee, therefore, believes that the foundation
of good corporate governance is the election of qualified,
independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of
the corporation in a manner that will seek to maximize shareholder
value over time. In individual cases, the Committee may look at a
nominee's history of representing shareholder interests as a
director of other companies or other factors, to the extent the
Committee deems relevant.
* Proposals related to the selection of an issuer's independent
auditors. As a general matter, the Committee believes that
corporate auditors have a responsibility to represent the interests
of shareholders and provide an independent view on the propriety of
financial reporting decisions of corporate management. While the
Committee will generally defer to a corporation's choice of auditor,
in individual cases, the Committee may look at an auditors' history
of representing shareholder interests as auditor of other companies,
to the extent the Committee deems relevant.
* Proposals related to management compensation and employee
benefits. As a general matter, the Committee favors disclosure of
an issuer's compensation and benefit policies and opposes excessive
compensation, but believes that compensation matters are normally
best determined by an issuer's board of directors, rather than
shareholders. Proposals to "micro-manage" an issuer's compensation
practices or to set arbitrary restrictions on compensation or
benefits will, therefore, generally not be supported.
* Proposals related to requests, principally from management, for
approval of amendments that would alter an issuer's capital
structure. As a general matter, the Committee will support requests
that enhance the rights of common shareholders and oppose requests
that appear to be unreasonably dilutive.
* Proposals related to requests for approval of amendments to an
issuer's charter or by-laws. As a general matter, the Committee
opposes poison pill provisions.
* Routine proposals related to requests regarding the formalities of
corporate meetings.
* Proposals related to proxy issues associated solely with holdings
of investment company shares. As with other types of companies, the
Committee believes that a fund's Board of Directors (rather than its
shareholders) is best-positioned to set fund policy and oversee
management. However, the Committee opposes granting Boards of
Directors authority over certain matters, such as changes to a
fund's investment objective, that the Investment Company Act
envisions will be approved directly by shareholders.
* Proposals related to limiting corporate conduct in some manner
that relates to the shareholder's environmental or social concerns.
The Committee generally believes that annual shareholder meetings
are inappropriate forums for discussion of larger social issues, and
opposes shareholder resolutions "micromanaging" corporate conduct or
requesting release of information that would not help a shareholder
evaluate an investment in the corporation as an economic matter.
While the Committee is generally supportive of proposals to require
corporate disclosure of matters that seem relevant and material to
the economic interests of shareholders, the Committee is generally
not supportive of proposals to require disclosure of corporate
matters for other purposes.
Item 8 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 10 - Controls and Procedures
10(a) - The registrant's certifying officers have reasonably
designed such disclosure controls and procedures to ensure material
information relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
10(b) - There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MuniYield Michigan Insured Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
MuniYield Michigan Insured Fund, Inc.
Date: December 13, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
MuniYield Michigan Insured Fund, Inc.
Date: December 13, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
MuniYield Michigan Insured Fund, Inc.
Date: December 13, 2004