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 811-6501
Name of Fund: MuniYield Michigan Insured Fund II, 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 II, 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: 04/30/03
Date of reporting period: 11/01/02 - 04/30/03
Item 1 - Attach shareholder report
(BULL LOGO)
Merrill Lynch Investment Managers
Semi-Annual Report
April 30, 2003
MuniYield
Michigan Insured
Fund II, Inc.
www.mlim.ml.com
MuniYield Michigan Insured Fund II, Inc. seeks to provide
shareholders with as high a level of current income exempt from
Federal 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 and Michigan income taxes.
This report, including the financial information herein, is
transmitted to shareholders of MuniYield Michigan Insured
Fund II, 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.
MuniYield Michigan Insured Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MUNIYIELD MICHIGAN INSURED FUND II, INC.
The Benefits
And Risks of
Leveraging
MuniYield Michigan Insured Fund II, Inc. utilizes leveraging to seek
to enhance the yield and net asset value of its Common Stock.
However, these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues Preferred Stock, which
pays dividends at prevailing short-term interest rates, and invests
the proceeds in long-term municipal bonds. The interest earned on
these investments is paid to Common Stock shareholders in the form
of dividends, and the value of these portfolio holdings is reflected
in the per share net asset value of the Fund's Common Stock.
However, in order to benefit Common Stock shareholders, the yield
curve must be positively sloped; that is, short-term interest rates
must be lower than long-term interest rates. At the same time, a
period of generally declining interest rates will benefit Common
Stock shareholders. If either of these conditions change, then the
risks of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred
Stock for an additional $50 million, creating a total value of
$150 million available for investment in long-term municipal bonds.
If prevailing short-term interest rates are approximately 3% and
long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million
of Preferred Stock based on the lower short-term interest rates. At
the same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pickup on the
Common Stock will be reduced or eliminated completely. At the same
time, the market value of the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain
securities whose potential income return is inversely related to
changes in a floating interest rate ("inverse floaters"). In
general, 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 these securities.
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.
MuniYield Michigan Insured Fund II, Inc., April 30, 2003
DEAR SHAREHOLDER
For the six months ended April 30, 2003, the Common Stock of
MuniYield Michigan Insured Fund II, Inc. had a net annualized yield
of 5.85%, based on a period-end per share net asset value of $15.42
and $.447 per share income dividends. Over the same period, the
total investment return on the Fund's Common Stock was +6.85%, based
on a change in per share net asset value from $14.91 to $15.42, and
assuming reinvestment of $.447 per share ordinary income dividends.
For the six-month period ended April 30, 2003, the Fund's Auction
Market Preferred Stock had an average yield of 1.09% for Series A
and 1.10% for Series B.
For a description of the Fund's total investment return based on a
change in the per share market value (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 the Financial Statements included in 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
Fund's market value can vary significantly from total investment
return based on changes in the Fund's net asset value.
The Municipal Market Environment
During the six-month period ended April 30, 2003, amid considerable
weekly and monthly volatility, long-term fixed income interest rates
generally declined. Geopolitical tensions and volatile equity
valuations continued to overshadow economic fundamentals as they
have for most of the last 12 months. Reacting to the strong U.S.
equity rally that began last October, fixed income bond yields
remained under pressure in November 2002, as U.S. equity markets
continued to strengthen. During November, the Standard & Poor's 500
(S&P 500) Index rose an additional 5.50%. Equity prices were
supported by further signs of U.S. economic recovery, especially
improving labor market activity. In late November, third-quarter
2002 U.S. gross domestic product growth was 4%, well above the
second-quarter 2002 rate of 1.30%. Financial conditions were also
strengthened by a larger-than-expected reduction in short-term
interest rates by the Federal Reserve Board in early November. The
Federal Funds target rate was lowered 50 basis points (0.50%) to
1.25%, its lowest level since the 1960s. This action by the Federal
Reserve Board was largely viewed as being taken to bolster the
sputtering U.S. economic recovery. Rebounding U.S. equity markets
and the prospects for a more substantial U.S. economic recovery
pushed long-term U.S. Treasury yield levels to 5.10% by late
November.
However, into early 2003, softer equity prices and renewed investor
concerns about U.S. military action against Iraq and North Korea
again pushed bond prices higher. Reacting to disappointing holiday
sales and corporate managements' attempts to scale back analysts'
expectation of future earnings, the S&P 500 Index declined more than
10% from December 2002 to February 2003. Fearing an eventual
U.S./Iraq military confrontation in 2003, investors again sought the
safety of U.S. Treasury obligations and the prices of fixed income
issues rose. By the end of February 2003, U.S. Treasury bond yields
had declined approximately 40 basis points to 4.67%.
Bond yields continued to fall into early March. Once direct U.S.
military action against Iraq began, bond yields quickly rose. Prior
uncertainty surrounding the Iraqi situation was obviously removed
and early U.S. military successes fostered the hope that the
conflict would be quickly and positively concluded. Concurrently,
the S&P 400 Index rose over 6% as investors, in part, sold fixed
income issues to purchase equities in anticipation of a strong
U.S. economic recovery once the Iraqi conflict was resolved. By
mid-March, U.S. Treasury bond yields again rose to above 5%.
However, as there was growing sentiment that hostilities may not be
resolved in a matter of weeks, U.S. Treasury bond yields again
declined to end the month at 4.81%.
For the six months ended April 30, 2003, long-term U.S. Treasury
bond yields ratcheted back to near 5% by mid-April, as U.S. equity
markets continued to improve and the safe-haven premium U.S.
Treasury issues had commanded prior to the beginning of the Iraqi
conflict continued to be withdrawn. However, with the quick positive
resolution of the Iraqi war, investors quickly resumed their focus
on the fragile U.S. economic recovery. Business activity in the
United States has remained sluggish, especially job creation.
Investors have also been concerned that the recent SARS outbreak
would have a material, negative impact on world economic conditions,
especially in China and Japan. First quarter 2003 U.S. gross
domestic product was released in late April initially estimating
U.S. economic activity to be growing at 1.60%, well below many
analysts' assessments. These factors, as well as the possibility
that the Federal Reserve Board could again lower short-term interest
rates to encourage more robust U.S. economic growth, pushed bond
prices higher during the last two weeks of the period. By April 30,
2003, long-term U.S. Treasury bond yields had declined to almost
4.75%. Over the past six months, long-term U.S. bond yields fell
more than 20 basis points.
For the six months ended April 30, 2003, long-term tax-exempt bond
yields also fell modestly. Yield volatility was reduced relative to
that seen in U.S. Treasury issues, as municipal bond prices were
much less sensitive to worldwide geopolitical pressures on a daily
and weekly basis. Tax-exempt bond yields generally followed their
taxable counterparts higher, responding to a more positive U.S.
fixed income environment and continued slow economic growth. After
rising approximately 10 basis points in November 2002 to 5.30%,
municipal bond yields generally declined through February 2003. At
February 28, 2003, long-term tax-exempt revenue bond yields, as
measured by the Bond Buyer Revenue Bond Index, fell to approximately
5.05%. However, similar to U.S. Treasury bond yields, once military
action began in Iraq, municipal bond yields rose sharply to nearly
5.20% before declining to approximately 5.10% by the end of April.
Over the past six months, long-term tax-exempt bond yields fell
approximately 11 basis points, slightly less than U.S. Treasury
obligations.
A number of factors have combined to generate consistently strong
demand for municipal bonds throughout the six-month period ended
April 30, 2003. Generally weak U.S. equity markets have supported
continued positive demand for tax-exempt products as investors have
sought the relative security of fixed income issues. Also, with tax-
exempt money market rates near 1%, the demand for longer maturity
municipal issues has increased as investors have opted to buy longer
maturity issues rather than remain in cash reserves. Additionally,
investors received approximately $30 billion in January 2003 from
bond maturities, coupon income and proceeds from early redemptions.
However, these positive demand factors were not totally able to
offset the increase in tax-exempt new-issue supply, preventing more
significant declines in tax-exempt bond yields. This modest
underperformance has served to make municipal bonds a particularly
attractive purchase relative to their taxable counterparts.
Throughout most of the yield curve, municipal bonds have been able
to be purchased at yields near or exceeding those of comparable
Treasury issues. Compared to their recent historical averages of
82% - 88% of U.S. Treasury yields, municipal bond yield ratios in
their current 95% - 105% range are likely to prove attractive to
long-term investors.
Declining U.S. equity markets and escalating geopolitical pressures
have resulted in reduced economic activity and consumer confidence.
It is important to note that, despite all the recent negative
factors impeding the growth of U.S. businesses, the U.S. economy
still grew at an approximate 2.50% rate for all of 2002, twice that
of 2001. Similar expansion is expected for early 2003. Lower oil
prices, reduced geopolitical uncertainties, increased Federal
spending for defense, and a likely Federal tax cut are all factors
which should promote stronger economic growth later this year.
However, it is questionable to expect that business and investor
confidence can be so quickly restored as to trigger dramatic,
explosive U.S. economic growth and engender associated, large-scale
interest rate increases. The resumption of solid economic growth is
likely to be a gradual process accompanied by equally graduated
increases in bond yields. Moderate economic growth, especially
within a context of negligible inflationary pressures, should not
greatly endanger the positive fixed income environments tax-exempt
products currently enjoy.
MuniYield Michigan Insured Fund II, Inc., April 30, 2003
Specific to Michigan, the state maintains the highest possible
credit ratings of Aaa and AAA from Moody's and Standard & Poor's,
respectively (although with a negative outlook from both), and is
rated AA+ by Fitch. Michigan ranks 33rd in debt per capita and 35th
in debt as a percentage of personal income nationally. These ratios
are quite low for a populous state and indicate flexibility in
responding to economic downturns relative to other states. In line
with the national economy, revenues have consistently fallen below
state projections with even recent projections off by 15% compared
to actual revenues. Accordingly, the state has resorted to drawing
down on its Budget Stabilization Fund, from $1 billion in fiscal
year 2001 to under $100 million to date, as well as revenue
enhancements, such as the sale of state property and expenditure
reductions, including delaying capital projects, in order to balance
its current budget. For the first time in six years, Michigan will
issue cash flow notes in the amount of more than $1.2 billion during
May 2003. The state's new governor, Jennifer Granholm, faces a
projected $1.6 billion budget shortfall for fiscal year 2004. This
fiscal deficit will likely be addressed by delaying scheduled state
employees' pay raises and a hiring freeze, utilizing the Michigan
Economic Development Corp. for revenue enhancement, further delaying
state capital projects, and repealing business tax cuts.
Portfolio Strategy
Portfolio activity during the six-month period ended April 30, 2003
was limited and largely focused on adding higher-yielding, corporate-
backed issues to the Fund's holdings. The resultant increase in
dividend income should allow the Fund to maintain its attractive
dividend throughout 2003. Current general market municipal bond
yields have not proven to be historically attractive long-term
investments. Our strategy has been to purchase insured state general
obligation bonds and their equivalents rather than unenhanced
general obligation bonds since virtually no spread is evidenced. As
Michigan's economy continues to weaken, we believe credit
deterioration will lead to better relative performance of the
insured bonds. This was another reason for our focus on lower-rated
issues, which continue to trade at historically attractive yield
spreads. When the U.S. economy recovers in the future, these higher-
yielding issues are expected to retain more of their market value
than higher-rated, general obligation issues. The overall credit
quality of the Fund remained high. At April 30, 2003, over 85% of
the Fund's assets were insured and rated AAA by at least one of the
major rating agencies.
We recently adopted a slightly more defensive market position than
the one held in 2002. It is expected that a number of positive
economic factors, such as those previously mentioned, will result in
stronger U.S. economic activity later this year and into 2004. We
also expect that increased Federal borrowing, both to replenish
recent defense expenditures and offset reduced tax receipts, will
put modest upward pressure on interest rates in the coming months.
Upon signs of a material, sustainable economic recovery, a more
defensive portfolio strategy will be adopted to preserve recent
gains in the Fund's net asset value.
Throughout the period, the Fund's borrowing costs remained in the
1% - 1.5% range, with interest rates presently near 1%. These
attractive funding levels, in combination with a steep tax-exempt
yield curve, continued to generate significant income benefits to
the Fund's Common Stock shareholders. We do not expect any material
reduction in the Fund's borrowing costs in 2003 as no additional
easings by the Federal Reserve Board are anticipated. We expect the
Fund's short-term borrowing costs to remain at current attractive
levels for the coming months. However, should the spread between
short-term and long-term interest rates narrow, the benefits of
leverage will decline and, as a result, reduce the yield paid on the
Fund's Common Stock. (For a more complete explanation of the risks
and benefits of leveraging, see page 1 of this report to
shareholders.)
In Conclusion
We appreciate your ongoing interest in MuniYield Michigan Insured
Fund II, Inc., and we look forward to assisting you with your
financial needs in the months and years to come.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Kenneth A. Jacob)
Kenneth A. Jacob
Senior Vice President
(John M. Loffredo)
John M. Loffredo
Senior Vice President
(Fred K. Stuebe)
Fred K. Stuebe
Vice President and
Portfolio Manager
May 21, 2003
PROXY RESULTS
During the six-month period ended April 30, 2003, MuniYield Michigan
Insured Fund II, Inc.'s Common Stock shareholders voted on the
following proposal. The proposal was approved at a shareholders'
meeting on April 28, 2003. A description of the proposal and number
of shares voted are as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Directors: Terry K. Glenn 11,256,174 311,130
James H. Bodurtha 11,256,901 310,403
Joe Grills 11,248,944 318,360
Roberta Cooper Ramo 11,253,426 313,878
Robert S. Salomon, Jr. 11,257,212 310,092
Stephen B. Swensrud 11,247,293 320,011
During the six-month period ended April 30, 2003, MuniYield Michigan
Insured Fund II, Inc.'s Preferred Stock shareholders (Series A & B)
voted on the following proposal. The proposal was approved at a
shareholders' meeting on April 28, 2003. A description of the
proposal and number of shares voted are as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Board of Directors: Terry K. Glenn, James H. Bodurtha,
Joe Grills, Herbert I. London, Andre F. Perold, Roberta Cooper Ramo,
Robert S. Salomon, Jr. and Stephen B. Swensrud 3,237 11
MuniYield Michigan Insured Fund II, Inc., April 30, 2003
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
Michigan-- AAA Aaa $ 1,000 Anchor Bay, Michigan, School District, GO, Refunding (School
136.9% Building and Site), Series III, 5.50% due 5/01/2015 (c) $ 1,133
Anchor Bay, Michigan, School District, GO (School Building
and Site) (d)(f):
AAA Aaa 2,000 Series I, 6% due 5/01/2009 2,357
AAA Aaa 2,250 Series I, 6% due 5/01/2009 2,651
AAA Aaa 1,375 Series II, 5.70% due 5/01/2010 1,601
AAA Aaa 3,165 Series II, 5.75% due 5/01/2010 3,696
AAA Aaa 2,150 Bullock Creek, Michigan, School District, GO, 5.50% due 5/01/2026 (c) 2,330
Carman-Ainsworth, Michigan, Community School, GO (d):
AAA Aaa 2,175 5.50% due 5/01/2018 2,416
AAA Aaa 500 5.50% due 5/01/2020 548
AAA Aaa 1,000 Central Montcalm, Michigan, Public Schools, GO, 5.75% due
5/01/2024 (c) 1,116
AAA Aaa 3,850 Charlotte, Michigan, Public School District, GO, 5.375% due
5/01/2029 (d) 4,111
AAA Aaa 1,500 Comstock Park, Michigan, Public Schools, GO, 5.75% due 5/01/2029 (d) 1,679
BBB Baa2 2,420 Delta County, Michigan, Economic Development Corporation,
Environmental Improvement Revenue Refunding Bonds (Mead
Westvaco--Escanaba), Series A, 6.25% due 4/15/2027 2,444
Detroit, Michigan, City School District, GO, Series A:
AAA Aaa 2,250 5.50% due 5/01/2013 (e) 2,566
AAA Aaa 1,480 (School Building and Site Improvement), 5.375% due 5/01/2024 (d) 1,587
AAA Aaa 1,000 Detroit, Michigan, Sewer Disposal Revenue Bonds, Series A, 5.75%
due 1/01/2010 (d)(f) 1,171
AAA Aaa 1,600 Detroit, Michigan, Sewer Disposal Revenue Refunding Bonds,
Senior Lien, Series A, 5.125% due 7/01/2031 (d) 1,649
Detroit, Michigan, Water Supply System Revenue Bonds:
AAA NR* 1,000 DRIVERS, Series 200, 9.84% due 7/01/2011 (d)(f)(g) 1,364
AAA Aaa 7,600 Senior Lien, Series A, 5.75% due 1/01/2010 (d)(f) 8,892
AAA Aaa 1,000 Senior Lien, Series A, 5% due 7/01/2026 (c) 1,031
AAA Aaa 1,600 Senior Lien, Series A, 5% due 7/01/2034 (c) 1,637
AAA Aaa 1,300 Series B, 5.25% due 7/01/2032 (c) 1,367
BBB Baa2 2,500 Dickinson County, Michigan, Economic Development Corporation,
Environmental Improvement Revenue Refunding Bonds (International
Paper Company Project), Series A, 5.75% due 6/01/2016 2,596
BBB Baa2 1,500 Dickinson County, Michigan, Economic Development Corporation, PCR,
Refunding (Champion International Corporation Project), 5.85% due
10/01/2018 1,525
NR* Baa3 2,170 Dickinson County, Michigan, Healthcare System, Hospital Revenue
Refunding Bonds, 5.80% due 11/01/2024 2,116
East Grand Rapids, Michigan, Public School District, GO (e)(f):
AAA Aaa 1,610 5.75% due 5/01/2009 1,875
AAA Aaa 6,300 6% due 5/01/2009 7,424
AAA Aaa 2,630 Eastern Michigan University, General Revenue Refunding Bonds,
Series A, 5% due 6/01/2028 (d) 2,702
NR* Baa2 385 Flint, Michigan, Hospital Building Authority, Revenue Refunding
Bonds (Hurley Medical Center), Series A, 5.375% due 7/01/2020 344
Grand Blanc, Michigan, Community Schools, GO (d):
AAA Aaa 1,000 5.625% due 5/01/2017 1,124
AAA Aaa 1,000 5.625% due 5/01/2018 1,119
AAA Aaa 1,100 5.625% due 5/01/2019 1,222
AAA Aaa 1,600 Grand Ledge, Michigan, Public Schools District, GO, Refunding,
5.375% due 5/01/2024 (c) 1,712
Grand Rapids, Michigan, Building Authority Revenue Bonds,
Series A (b):
AAA Aaa 1,340 5.50% due 10/01/2018 1,494
AAA Aaa 320 5.50% due 10/01/2019 354
AAA Aaa 1,500 Grand Rapids, Michigan, Sanitation Sewer System, Revenue Refunding
and Improvement Bonds, Series A, 5.50% due 1/01/2022 (d) 1,704
Hartland, Michigan, Consolidated School District, GO (d)(f):
AAA Aaa 2,925 6% due 5/01/2010 (j) 3,463
AAA Aaa 1,075 6% due 5/01/2010 1,273
AAA Aaa 3,425 6% due 5/01/2010 4,055
AAA Aaa 1,275 Haslett, Michigan, Public School District, Building and Site, GO,
5.625% due 5/01/2018 1,426
AAA Aaa 2,000 Howell, Michigan, Public Schools, GO, 5.875% due 5/01/2009 (c)(f) 2,343
AAA Aaa 3,975 Jackson, Michigan, Public Schools, GO, 5.375% due 5/01/2022 (d) 4,284
AAA Aaa 3,750 Kalamazoo, Michigan, Hospital Finance Authority, Hospital
Facility Revenue Refunding and Improvement Bonds (Bronson
Methodist Hospital), 5.875% due 5/15/2026 (c) 4,125
NR* Aaa 7,550 Kalamazoo, Michigan, Hospital Finance Authority, Hospital
Facility Revenue Refunding Bonds (Bronson Methodist Hospital),
5.50% due 5/15/2028 (c) 7,919
AAA NR* 3,000 Kent, Michigan, Hospital Finance Authority Revenue Bonds
(Spectrum Health), Series A, 5.50% due 1/15/2031 (c) 3,175
BBB NR* 1,000 Michigan Higher Education Facilities Authority, Limited
Obligation Revenue Refunding Bonds (Hope College), Series A,
5.90% due 4/01/2032 1,033
Michigan Higher Education Facilities Authority, Revenue Refunding
Bonds (College for Creative Studies):
NR* Baa2 550 5.85% due 12/01/2022 549
NR* Baa2 1,000 5.90% due 12/01/2027 992
Portfolio
Abbreviations
To simplify the listings of MuniYield Michigan Insured Fund II,
Inc.'s portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DRIVERS Derivative Inverse Tax-Exempt Receipts
GO General Obligation Bonds
HDA Housing Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
MuniYield Michigan Insured Fund II, Inc., April 30, 2003
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
Michigan AAA NR* $ 3,000 Michigan Higher Education Student Loan Authority, Student Loan
(concluded) Revenue Bonds, AMT, Series XVII-B, 5.40% due 6/01/2018 (b) $ 3,122
AAA Aa1 2,500 Michigan Municipal Bond Authority, Revenue Refunding Bonds
(Local Government--Qualified School), Series A, 6.50% due 5/01/2016 2,561
Michigan State Building Authority Revenue Bonds:
AAA Aaa 1,185 (Facilities Program), Series II, 4.67%** due 10/15/2009 (b) 963
AAA Aaa 1,675 (Facilities Program), Series II, 4.77%** due 10/15/2010 (b) 1,282
AA+ Aaa 2,675 GO, RIB, Series 481, 9.353% due 4/15/2009 (c)(g) 3,503
NR* Aaa 3,500 Michigan State Building Authority, Revenue Refunding Bonds, RIB,
Series 517X, 9.35% due 10/15/2010 (e)(g) 4,563
Michigan State, COP:
AAA Aaa 3,870 5.50% due 6/01/2027 (b) 4,196
AAA NR* 5,380 RIB, Series 530, 9.81% due 9/01/2011 (c)(g) 7,179
AAA Aaa 1,500 Michigan State Comprehensive Transportation Revenue Refunding
Bonds, Series A, 5.50% due 11/01/2018 (e) 1,659
AAA Aaa 1,385 Michigan State, HDA, Rental Housing Revenue Bonds, AMT, Series A,
5.30% due 10/01/2037 (c) 1,412
Michigan State, HDA, Revenue Refunding Bonds:
AAA Aaa 1,000 AMT, Series B, 5.50% due 6/01/2030 (c) 1,041
AA+ NR* 695 Series C, 6.50% due 6/01/2016 (h) 698
AAA NR* 1,465 Michigan State, HDA, S/F Housing Revenue Bonds, AMT, Series B,
5.20% due 12/01/2018 (b) 1,507
AAA Aaa 2,000 Michigan State Hospital Finance Authority Revenue Bonds
(Mercy Health Services), Series R, 5.375% due 8/15/2026 (b)(i) 2,140
Michigan State Hospital Finance Authority, Revenue Refunding Bonds:
AAA Aaa 7,000 (Ascension Health Credit), Series A, 6.125% due 11/15/2009 (c)(f) 8,445
AAA Aa2 2,500 (Ascension Health Credit), Series A, 6.125% due 11/15/2009 (f) 3,016
AAA Aaa 1,000 (Ascension Health Credit), Series A, 6.125% due 11/15/2009 (c)(f) 1,207
AAA Aaa 3,760 (Ascension Health Credit), Series A, 6.25% due 11/15/2009 (c)(f) 4,564
BBB- Ba1 1,200 (Detroit Medical Center Obligation Group), Series A, 6.25% due
8/15/2013 1,103
AAA Aaa 3,215 (Mercy Health Services), Series X, 6% due 8/15/2014 (c) 3,656
AAA Aaa 1,000 (Mercy Mount Clemens), Series A, 6% due 5/15/2014 (c) 1,135
AAA Aaa 2,000 (Mercy Mount Clemens), Series A, 5.75% due 5/15/2029 (c) 2,168
AAA Aaa 1,250 (Mid-Michigan Obligation Group), Series A, 5.375% due
6/01/2027 (e) 1,293
AAA Aaa 5,500 (Trinity Health), Series A, 6% due 12/01/2027 (b) 6,156
AA- Aa3 2,750 (Trinity Health Credit), Series C, 5.375% due 12/01/2030 2,813
AAA Aaa 1,000 Michigan State Hospital Finance Authority, Hospital Revenue Bonds
(Mid-Michigan Obligation Group), Series A, 5.50% due 4/15/2018 (b) 1,101
Michigan State Hospital Finance Authority, Hospital Revenue
Refunding Bonds:
A+ A2 1,300 (Crittenton Hospital), Series A, 5.625% due 3/01/2027 1,340
A A1 1,250 (Sparrow Obligation Group), 5.625% due 11/15/2031 1,276
BBB Baa3 1,000 Michigan State Strategic Fund, Limited Obligation Revenue Bonds
(WMX Technologies Inc. Project), AMT, 6% due 12/01/2013 1,015
Michigan State Strategic Fund, Limited Obligation Revenue
Refunding Bonds:
AAA Aaa 8,000 (Detroit Edison Company), AMT, Series A, 5.55% due 9/01/2029 (c) 8,371
AAA Aaa 2,000 (Detroit Edison Company Fund--Pollution), Series AA, 6.95% due
5/01/2011 (d) 2,484
A- A3 1,375 (Dow Chemical Company Project), AMT, 5.50% due 12/01/2028 1,384
BBB Baa1 2,200 (Ford Motor Co. Project), Series A, 7.10% due 2/01/2006 2,348
NR* Aaa 5,000 RIB, Series 382, 11.10% due 9/01/2025 (c)(g) 6,202
BBB A3 2,500 Michigan State Strategic Fund, PCR, Refunding (General Motors Corp.),
6.20% due 9/01/2020 2,594
AAA Aaa 1,500 Milan, Michigan, Area Schools, GO, Series A, 5.75% due
5/01/2010 (d)(f) 1,752
AAA Aaa 6,500 Monroe County, Michigan, Economic Development Corp., Limited
Obligation Revenue Refunding Bonds (Detroit Edison Co. Project),
Series AA, 6.95% due 9/01/2022 (d) 8,586
AAA Aaa 1,410 Morenci, Michigan, Area Schools, GO, 5.25% due 5/01/2021 (c) 1,511
AAA Aaa 2,500 Oxford, Michigan, Area Community School District, GO, 5.40%
due 5/01/2025 (d) 2,684
AAA Aaa 1,000 Plainwell, Michigan, Community Schools, School District, GO
(School Building and Site), 5.50% due 5/01/2018 (e) 1,116
A NR* 1,000 Pontiac, Michigan, Tax Increment Finance Authority, Revenue
Refunding Bonds (Tax Increment--Development Area Number 3),
5.375% due 6/01/2017 1,055
AAA Aaa 1,900 Rochester, Michigan, Community School District, GO, Series II,
5.50% due 5/01/2018 (c) 2,101
AAA Aaa 2,900 Romulus, Michigan, Community Schools, GO, 5.75% due 5/01/2009 (d)(f) 3,377
NR* Aaa 6,500 Saint Clair County, Michigan, Economic Revenue Refunding Bonds
(Detroit Edison Company), RIB, Series 282, 10.87% due
8/01/2024 (b)(g) 8,925
AAA Aaa 2,650 South Lyon, Michigan, Community Schools, GO, Series A, 5.75%
due 5/01/2023 (c) 2,968
AAA Aaa 1,975 Southgate, Michigan, Community School District, GO, Refunding,
4% due 5/01/2011 (c) 2,055
AAA Aaa 6,500 Wayne Charter County, Michigan, Airport Revenue Bonds (Detroit
Metropolitan Wayne County), AMT, Series A, 5.375% due 12/01/2015 (c) 6,919
AAA Aaa 2,230 Wayne County, Michigan, COP, 5.625% due 5/01/2011 (c) 2,495
Puerto Rico-- A- A3 2,700 Children's Trust Fund, Puerto Rico, Tobacco Settlement Revenue
5.2% Bonds, 5.625% due 5/15/2043 2,188
Puerto Rico Electric Power Authority, Power Revenue Bonds :
AAA Aaa 1,100 Series II, 5.25% due 7/01/2022 (a) 1,182
AAA Aaa 2,270 Trust Receipts, Class R, Series 16 HH, 9.81% due 7/01/2013 (e)(g) 3,107
BBB+ Baa3 2,900 Puerto Rico Public Finance Corporation, Commonwealth Appropriation
Revenue Bonds, Series E, 5.75% due 8/01/2030 3,180
Total Municipal Bonds (Cost--$236,743)--142.1% 263,992
MuniYield Michigan Insured Fund II, Inc., April 30, 2003
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
Shares
Held Short-Term Securities Value
6,209 CMA Michigan Municipal Money Fund (k) $ 6,209
Total Short-Term Securities (Cost--$6,209)--3.4% 6,209
Total Investments (Cost--$242,952)--145.5% 270,201
Unrealized Depreciation on Forward Interest Rate Swaps****--(0.1%) (208)
Variation Margin on Financial Futures Contracts***--(0.1%) (110)
Other Assets Less Liabilities--2.6% 4,860
Preferred Stock, at Redemption Value--(47.9%) (89,000)
--------
Net Assets Applicable to Common Stock--100.0% $185,743
========
(a) XL Capital Insured.
(b) AMBAC Insured.
(c) MBIA Insured.
(d) FGIC Insured.
(e) FSA Insured.
(f) Prerefunded.
(g) The interest rate is subject to change periodically and
inversely based upon prevailing market rates. The interest rates
shown are the rates in effect at April 30, 2003.
(h) FHA Insured.
(i) Escrowed to maturity.
(j) All or a portion of security held as collateral in connection
with open financial futures contracts.
(k) 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) are as
follows:
(in Thousands)
Net Dividend
Affiliate Activity Income
CMA Michigan Municipal
Money Fund 6,209 $17
*Not Rated.
**Represents a zero coupon bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
***Financial futures contracts sold as of April 30, 2003 were as
follows:
(in Thousands)
Number of Expiration
Contracts Issue Date Value
185 U.S. Treasury Notes June 2003 $ 21,298
---------
Total Financial Futures Contracts Sold
(Total Contract Price--$21,450) $ 21,298
=========
****Forward interest rate swaps entered into as of April 30, 2003
were as follows:
(in Thousands)
Notional Unrealized
Amount Depreciation
Receive a variable rate equal to 7-Day
Bond Market Association rate at
quarterly reset date and pay a fixed
rate equal to 3.704%
Broker, JP Morgan Chase
Expires June 25, 2013 9,000 (208)
---------
$ (208)
=========
See Notes to Financial Statements.
STATEMENT OF NET ASSETS
As of April 30, 2003
Assets: Investments, at value (identified cost--$242,951,820) $ 270,201,348
Cash 65,173
Receivables:
Interest $ 5,124,872
Dividends 131 5,125,003
-------------
Prepaid expenses 16,072
-------------
Total assets 275,407,596
-------------
Liabilities: Unrealized depreciation on forward interest rate swaps 207,900
Payables:
Dividends to Common Stock shareholders 143,994
Investment adviser 112,468
Variation margin 109,844
Reorganization costs 47,164
Other affiliates 2,112 415,582
-------------
Accrued expenses 41,031
-------------
Total liabilities 664,513
-------------
Preferred Stock: Preferred Stock, par value $.05 per share (2,200 Series A shares
and 1,360 Series B shares of AMPS* issued and outstanding at
$25,000 per share liquidation preference) 89,000,000
-------------
Net Assets Net assets applicable to Common Stock $ 185,743,083
Applicable To =============
Common Stock:
Analysis of Net Common Stock, par value $.10 per share (12,046,591 shares issued
Assets Applicable and outstanding) $ 1,204,659
to Common Paid-in capital in excess of par 163,993,013
Stock: Undistributed investment income--net $ 1,953,650
Accumulated realized capital losses on investments--net (8,601,625)
Unrealized appreciation on investments--net 27,193,386
-------------
Total accumulated earnings--net 20,545,411
-------------
Total--Equivalent to $15.42 net asset value per share of
Common Stock (market price--$13.97) $ 185,743,083
=============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
MuniYield Michigan Insured Fund II, Inc., April 30, 2003
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 2003
Investment Interest $ 7,024,102
Income: Dividends 16,645
-------------
Total income 7,040,747
-------------
Expenses: Investment advisory fees $ 670,759
Commission fees 112,335
Accounting services 51,948
Professional fees 27,937
Transfer agent fees 23,363
Printing and shareholder reports 16,919
Listing fees 14,407
Directors' fees and expenses 11,181
Custodian fees 9,287
Pricing fees 7,283
Other 13,795
-------------
Total expenses before reimbursement 959,214
Reimbursement of expenses (14,178)
-------------
Total expenses after reimbursement 945,036
-------------
Investment income--net 6,095,711
-------------
Realized & Realized gain on investments--net 17,725
Unrealized Change in unrealized appreciation on investments--net 5,891,425
Gain on -------------
Investments--Net: Total realized and unrealized gain on investments--net 5,909,150
-------------
Dividends to Investment income--net (483,757)
Preferred -------------
Stock Net Increase in Net Assets Resulting from Operations $ 11,521,104
Shareholders: =============
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 2003 2002
Operations: Investment income--net $ 6,095,711 $ 9,812,846
Realized gain (loss) on investments--net 17,725 (929,471)
Change in unrealized appreciation/depreciation on investments--net 5,891,425 1,530,416
Dividends to Preferred Stock shareholders (483,757) (939,553)
------------- -------------
Net increase in net assets resulting from operations 11,521,104 9,474,238
------------- -------------
Dividends to Investment income--net (5,384,826) (8,229,879)
Common Stock ------------- -------------
Shareholders: Net decrease in net assets resulting from dividends to
Common Stock shareholders (5,384,826) (8,229,879)
------------- -------------
Common Stock Proceeds from issuance of Common Stock resulting from reorganization -- 59,863,668
Transactions: ------------- -------------
Net Assets Total increase in net assets 6,136,278 61,108,027
Applicable To Beginning of period 179,606,805 118,498,778
Common Stock: ------------- -------------
End of period* $ 185,743,083 $ 179,606,805
============= =============
*Undistributed investment income--net $ 1,953,650 $ 1,726,522
============= =============
See Notes to Financial Statements.
MuniYield Michigan Insured Fund II, Inc., April 30, 2003
FINANCIAL HIGHLIGHTS
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
April 30, For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
Per Share Net asset value, beginning of period $ 14.91 $ 14.97 $ 13.83 $ 13.34 $ 15.85
Operating --------- --------- --------- --------- ---------
Performance:+++ Investment income--net .51+++++ 1.00 1.00 1.04 1.02
Realized and unrealized gain (loss)
on investments--net .49 (.07) 1.15 .51 (1.96)
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.04) (.10) (.22) (.29) (.18)
Realized gain on investments--net -- -- -- -- (.01)
In excess of realized gain on
investments--net -- -- -- -- (.06)
--------- --------- --------- --------- ---------
Total from investment operations .96 .83 1.93 1.26 (1.19)
--------- --------- --------- --------- ---------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net (.45) (.89) (.79) (.77) (.88)
Realized gain on investments--net -- -- -- -- (.05)
In excess of realized gain on
investments--net -- -- -- -- (.39)
--------- --------- --------- --------- ---------
Total dividends and distributions to
Common Stock shareholders (.45) (.89) (.79) (.77) (1.32)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 15.42 $ 14.91 $ 14.97 $ 13.83 $ 13.34
========= ========= ========= ========= =========
Market price per share, end of period $ 13.97 $ 13.45 $ 13.85 $ 11.75 $ 12.25
========= ========= ========= ========= =========
Total Investment Based on market price per share 7.31%++++ 3.70% 25.13% 2.47% (16.42%)
Return:** ========= ========= ========= ========= =========
Based on net asset value per share 6.85%++++ 6.36% 14.91% 10.76% (8.12%)
========= ========= ========= ========= =========
Ratios Based on Total expenses, net of reimbursement*** 1.05%* 1.12% 1.15% 1.15% 1.12%
Average Net ========= ========= ========= ========= =========
Assets of Total expenses*** 1.07%* 1.12% 1.15% 1.15% 1.12%
Common Stock: ========= ========= ========= ========= =========
Total investment income--net*** 6.78%* 6.91% 6.96% 7.62% 6.96%
========= ========= ========= ========= =========
Amount of dividends to Preferred
Stock shareholders .54%* .66% 1.53% 2.12% 1.20%
========= ========= ========= ========= =========
Investment income--net, to Common
Stock shareholders 6.24%* 6.25% 5.43% 5.50% 5.76%
========= ========= ========= ========= =========
Ratios Based on Total expenses, net of reimbursement .71%* .75% .77% .75% .76%
Average Net ========= ========= ========= ========= =========
Assets of Total expenses .72%* .75% .77% .75% .76%
Common & ========= ========= ========= ========= =========
Preferred Total investment income--net 4.55%* 4.65% 4.70% 5.02% 4.73%
Stock:*** ========= ========= ========= ========= =========
Ratios Based on Dividends to Preferred Stock shareholders 1.10%* 1.36% 3.19% 4.09% 2.55%
Average Net ========= ========= ========= ========= =========
Assets of
Preferred Stock:
Supplemental Net assets applicable to Common Stock,
Data: end of period (in thousands) $ 185,743 $ 179,607 $ 118,508 $ 109,398 $ 105,574
========= ========= ========= ========= =========
Preferred Stock outstanding, end of
period (in thousands) $ 89,000 $ 89,000 $ 55,000 $ 55,000 $ 55,000
========= ========= ========= ========= =========
Portfolio turnover 12.63% 41.77% 72.58% 75.11% 63.64%
========= ========= ========= ========= =========
Leverage: Asset coverage per $1,000 $ 3,087 $ 3,018 $ 3,155 $ 2,989 $ 2,920
========= ========= ========= ========= =========
Dividends Per Series A--Investment income--net $ 135 $ 343 $ 798 $ 1,026 $ 637
Share On ========= ========= ========= ========= =========
Preferred Stock Series B--Investment income--net $ 137 $ 136 -- -- --
Outstanding:++ ========= ========= ========= ========= =========
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales charges.
***Do not reflect the effect of dividends to Preferred Stock
shareholders.
++The Fund's Preferred Stock was issued on April 10, 1992 (Series A)
and May 31, 2002 (Series B).
++++Aggregate total investment return.
+++Certain prior year amounts have been reclassified to conform to
current year presentation.
+++++Based on average shares outstanding.
See Notes to Financial Statements.
MuniYield Michigan Insured Fund II, Inc., April 30, 2003
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Michigan Insured Fund II, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified,
closed-end management investment company. The Fund's financial
statements are prepared in conformity with accounting principles
generally accepted in the United States of America, which may
require the use of management accruals and estimates. These
unaudited financial statements reflect all adjustments, which are,
in the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are
of a normal, recurring nature. The Fund determines and makes
available for publication the net asset value of its Common Stock on
a weekly basis. The Fund's Common Stock is listed on the New York
Stock Exchange under the symbol MYM. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing price 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-counter-market, valuation is the last asked price
(options written) or the last bid price (options purchased).
Securities with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at their fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund,
including valuations furnished by a pricing service retained by the
Fund, which may utilize a matrix system for valuations. The
procedures of the pricing service and its valuations are reviewed by
the officers of the Fund under general supervision of the Board of
Directors.
(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
movement and movements in the securities market. 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 is authorized to write covered call options
and purchase put options. When the Fund writes an option, an
amount equal to the premium received by the Fund is reflected as an
asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
* Forward interest rate swaps--The Fund is authorized to enter into
forward interest rate swaps. In a forward interest rate swap, the
Fund and the counterparty agree to pay or receive interest on a
specified notional contract amount, commencing on a specified future
effective date, unless terminated earlier. The value of the
agreement is determined by quoted fair values received daily by the
Fund from the counterparty. 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. Dividend
income is recorded on the ex-dividend dates. 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.
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. For the six months ended April 30,
2003, FAM reimbursed the Fund in the amount of $14,178.
For the six months ended April 30, 2003, the Fund reimbursed FAM
$3,097 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 six months ended April 30, 2003 were $32,889,428, and
$35,061,156, respectively.
Net realized gains (losses) for the six months ended April 30, 2003
and net unrealized gains (losses) as of April 30, 2003 were as
follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 1,150,821 $ 27,249,528
Financial futures contracts (1,133,096) 151,758
Forward interest rate swap -- (207,900)
------------ ------------
Total $ 17,725 $ 27,193,386
============ ============
As of April 30, 2003, net unrealized appreciation for Federal
income tax purposes aggregated $27,365,747, of which $27,867,327
related to appreciated securities and $501,580 related to
depreciated securities. The aggregate cost of investments at
April 30, 2003 for Federal income tax purposes was $242,835,601.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of 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 stock
without approval of the holders of Common Stock.
Common Stock
Shares issued and outstanding during the six months ended April 30,
2003 remained constant and for the year ended October 31, 2002
increased by 4,130,421 as a result of reorganization.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund, with a par value of $.05 per share for Series A
and $.10 per share for Series B, 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
April 30, 2003 were .90% for Series A and 1.05% for Series B.
Shares issued and outstanding during the six months ended April 30,
2003 remained constant and for the year ended October 31, 2002
increased by 1,360 as a result of reorganization.
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 six months ended
April 30, 2003, Merrill Lynch, Pierce Fenner & Smith Incorporated,
an affiliate of FAM, earned $60,871 as commissions.
5. Capital Loss Carryforward:
On October 31, 2002, the Fund had a net capital loss carryforward of
$6,084,642, of which $5,034,389 expires in 2008 and $1,050,253
expires in 2010. This amount will be available to offset like
amounts of any future taxable gains.
6. Subsequent Event:
The Fund paid a tax-exempt income dividend to holders of Common
Stock in the amount of $.074500 per share on May 29, 2003 to
shareholders of record on May 16, 2003.
MuniYield Michigan Insured Fund II, Inc., April 30, 2003
QUALITY PROFILE
The quality ratings of securities in the Fund as of April 30, 2003
were as follows:
Percent of
S&P Rating/Moody's Rating Total Investments
AAA/Aaa 85.6%
AA/Aa 1.3
A/A 3.7
BBB/Baa 7.1
NR (Not Rated) 2.3
MANAGED DIVIDEND POLICY
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 consistent yield to the
current trading price of shares of Common Stock of the Fund, the
Fund may at times pay out less than the entire amount of net
investment income earned in any particular month and may at times in
any month pay out such accumulated but undistributed income in
addition to net investment income earned in that month. As a result,
the dividends paid by the Fund for any particular month may be more
or less than the amount of net investment income earned by the Fund
during such month. The Fund's current accumulated but undistributed
net investment income, if any, is disclosed in the Statement of Net
Assets, which comprises part of the Financial Information included
in this report.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Joe Grills, Director
Herbert I. London, Director
Andre F. Perold, Director
Roberta Cooper Ramo, Director
Robert S. Salomon, Jr., Director
Stephen B. Swensrud, Director
Kenneth A. Jacob, Senior Vice President
John M. Loffredo, Senior Vice President
Fred K. Stuebe, Vice President
Donald C. Burke, Vice President and Treasurer
Brian D. Stewart, Secretary
Melvin R. Seiden, Director of MuniYield Michigan Insured Fund II,
Inc., has recently retired. The Fund's Board of Directors wishes
Mr. Seiden well in his retirement.
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
New York, NY 10286
Preferred Stock:
The Bank of New York
100Church Street
New York, NY 10286
NYSE Symbol
MYM
Item 2 - Did registrant adopt 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, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party? If not, why not? Briefly describe
any amendments or waivers that occurred during the period. State
here if code of ethics/amendments/waivers are on website and give
website address-. State here if fund will send code of ethics to
shareholders without charge upon request--N/A (not answered until
July 15, 2003 and only annually for funds)
Item 3 - Did the registrant's board of directors determine that the
registrant either: (i) has at least one audit committee financial
expert serving on its audit committee; or (ii) does not have an
audit committee financial expert serving on its audit committee? If
yes, disclose name of financial expert and whether he/she is
"independent," (fund may, but is not required, to disclose
name/independence of more than one financial expert) If no, explain
why not. -N/A (not answered until July 15, 2003 and only annually
for funds)
Item 4 - Disclose annually only (not answered until December 15,
2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements
for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of
the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising the fees disclosed
under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the
fees disclosed under this category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the
last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item. Registrants shall describe the nature
of the services comprising the fees disclosed under this category.
N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the
audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another 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. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-
3 under the Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d)
under the Exchange Act regarding an exemption from the listing
standards for audit committees.
(Listed issuers must be in compliance with the new listing rules by
the earlier of their first annual shareholders meeting after January
2004, or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in
their portfolio, describe the policies and procedures that it uses
to determine how to vote proxies relating to those portfolio
securities. N/A (not answered until July 1, 2003)
Item 8--Reserved
Item 9(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.
Item 9(b)--There were no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of
ethics or amendments/waivers is on website or offered to
shareholders upon request without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the
Sarbanes-Oxley Act. 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 II, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
MuniYield Michigan Insured Fund II, Inc.
Date: June 23, 2003
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 II, Inc.
Date: June 23, 2003
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
MuniYield Michigan Insured Fund II, Inc.
Date: June 23, 2003
Attached hereto as an exhibit are the certifications pursuant to
Section 906 of the Sarbanes-Oxley Act.