MUNIYIELD
MICHIGAN
FUND, INC.
FUND LOGO
Annual Report
October 31, 1994
This report, including the financial information herein, is
transmitted to the shareholders of MuniYield Michigan Fund, Inc. for
their information. It is not a prospectus, circular or
representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its
Common Stock by issuing Preferred Stock to provide the Common Stock
shareholders with a potentially higher rate of return. Leverage
creates risks for Common Stock shareholders, including the
likelihood of greater volatility of net asset value and market price
of shares of the Common Stock, and the risk that fluctuations in the
short-term dividend rates of the Preferred Stock may affect the
yield to Common Stock shareholders.
MuniYield
Michigan Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MuniYield Michigan Fund, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1994, the Common Stock of MuniYield
Michigan Fund, Inc. earned $1.052 per share income dividends, which
includes earned and unpaid dividends of $0.081. This represents a
net annualized yield of 7.49%, based on a month-end net asset value
of $14.05 per share. Over the same period, the total investment
return on the Fund's Common Stock was -9.00%, based on a change in
per share net asset value from $16.59 to $14.05, and assuming
reinvestment of $1.056 per share income dividends.
For the six-month period ended October 31, 1994, the total
investment return on the Fund's Common Stock was -1.75%, based on a
change in per share net asset value from $14.80 to $14.05, and
assuming reinvestment of $0.469 per share income dividends.
The average yield on the Fund's Auction Market Preferred Stock for
the six months ended October 31, 1994 was 3.19%.
The Environment
As discussed in our last report to shareholders, the Federal Reserve
Board moved to counteract inflationary pressures by tightening
monetary policy. This trend continued during the May--October
period. Despite the series of preemptive strikes against inflation
by the central bank, concerns of increasing inflationary pressures
continued to prompt volatility in the US capital markets during the
period. In addition, the weakness of the US dollar in foreign
exchange markets prolonged stock and bond market declines.
Ongoing strength in the manufacturing sector and better-
than-expected economic results continue to fuel speculation that the
Federal Reserve Board will continue to raise short-term interest
rates in the months ahead. However, although consumer spending is
increasing, it is doing so at a lower rate than has been the case in
recent economic recoveries. In the weeks ahead, investors will
continue to assess economic data and inflationary trends in order to
gauge whether further increases in short-term interest rates are
imminent. Continued indications of moderate and sustainable levels
of economic growth would be positive for the US capital markets. At
the same time, greater US dollar stability in foreign exchange
markets would help to dampen expectations of significantly higher
short-term interest rates.
<PAGE>
The Municipal Market
The long-term tax-exempt market continued to erode throughout the
three months ended October 31, 1994. As measured by the Bond Buyer
Revenue Bond Index, yields on A-rated municipal revenue bonds
maturing in 30 years rose by almost 50 basis points (0.50%) to 6.95%
during the October 31, 1994 quarter. This represents the highest
level in tax-exempt bond yields in over two years. US Treasury bonds
suffered even greater declines during the quarter as Treasury bond
yields rose approximately 60 basis points to end the quarter at
8.00%.
The tax-exempt bond market reacted negatively throughout the October
quarter to indications that, despite a series of interest rate
increases by the Federal Reserve Board, the strength of the domestic
economy seen in recent quarters has not yet been significantly
reduced. While inflationary pressures have remained well contained,
additional Federal Reserve Board actions have been expected both to
ensure that domestic economic growth is eventually confined to
current levels and to assure nervous financial markets of its
anti-inflationary intentions.
Fortunately, while the demand for tax-exempt bonds has declined
somewhat in recent months, new bond issuance has remained greatly
reduced. During the quarter ended October 31, 1994, only $32 billion
in long-term tax-exempt securities were issued, a decline of over
50% versus the October 31, 1993 quarter. Similarly, for the six
months ended October 31, 1994, only $75 billion in municipal
securities were underwritten, a decline of over 50% versus the
comparable period a year earlier. This reduction in issuance in
recent quarters has allowed the municipal bond market to react to
both the decline in investor demand and the rise in fixed-income
yields in a more orderly fashion than in similar situations in the
past, particularly during 1987.
Long-term tax-exempt revenue bonds currently yield approximately 7%,
or almost 11.5% on an after-tax equivalent basis, to an investor in
the 39.6% Federal income tax bracket. As inflation has only
marginally increased in the past year, real tax-exempt interest
rates have risen dramatically. The Federal Reserve Board appears
committed to maintaining inflation at or below its current levels.
Indeed, most forecasts expect inflation to remain in its present
range of 3%--4% throughout 1995 and, potentially, for the remainder
of the 1990s. Real after-tax equivalent interest rates exceeding 7%
represent historically attractive municipal investments for
long-term investors.
<PAGE>
Federal Reserve Board actions taken thus far have yet to fully
impact US domestic growth and expected additional actions should
promote only a modest economic expansion within a benign
inflationary context beginning sometime early in 1995. Within such
an environment, it is unlikely that tax-exempt interest rates will
remain at their current attractive levels. Tax-exempt bond issuance
is unlikely to return to the historic high levels seen in 1992 and
1993, while investor demand should return as markets stabilize. As
we have discussed in earlier reports, the total number of tax-exempt
bonds outstanding is scheduled to decline dramatically in 1994 and
1995 as a result of both regular bond maturities and early
redemptions. Investors seeking tax-advantaged issues are likely to
find it very difficult to obtain currently available tax-exempt
yields as the current supply/demand balance is unlikely to be
maintained in the coming quarters.
Portfolio Strategy
During the six-month period ended October 31, 1994, we maintained
the defensive posture we had adopted for the Fund earlier in the
year. Throughout most of the last six months, we essentially
maintained cash reserves in the 7.5%--10% range and purchased more
defensive, higher-couponed issues whenever the Fund was able to sell
more aggressively structured securities. This strategy has been
difficult to implement as the appropriate defensive issues have
remained scarce. Issuance by Michigan municipalities totaled only $1
billion during the last six months, a decrease of over 70% versus
issuance of one year ago. This relative scarcity of Michigan paper
has only exacerbated the difficulty in finding higher-couponed
Michigan issues. However, the Fund remains well structured to
recapture much of the capital appreciation lost earlier this year
should municipal bond prices rise as expected in 1995. Additionally,
in recent weeks we reduced the Fund's cash position to the 5%--7.5%
range as the supply of historically attractive issues has
temporarily increased. These issues bear coupons in the 6.75%--7.25%
range and provide relatively limited price volatility in response to
changes in interest rate levels.
<PAGE>
Short-term tax-exempt interest rates traded in a range between
2.75%--3.375% over the last six months, despite the series of taxable
short-term interest rate increases engineered by the Federal Reserve
Board. The demand for tax-exempt cash equivalents has been very
strong for most of this year and is expected to remain so in the
coming quarters. The tax-exempt yield curve has remained very
positive throughout this year. Consequently, the leverage of the
Fund's Preferred Stock has continued to have a very positive impact
on the yield paid to the Fund's Common Stock shareholder. However,
should the spread between short-term and long-term interest rates
narrow, the benefits of the leverage will decline and, as a result,
reduce the yield of the Common Stock. (See page 3 of this report to
shareholders for a complete explanation of the benefits and risks of
leveraging.)
In Conclusion
We appreciate your interest in MuniYield Michigan Fund, Inc., and we
look forward to assisting you with your financial needs in the
months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
December 6, 1994
THE BENEFITS AND RISKS OF LEVERAGING
MuniYield Michigan Fund, Inc. utilizes leveraging to seek to enhance
the yield and net asset value of its Common Stock. However, these
objectives cannot be achieved in all interest rate environments. To
leverage, the Fund issues Preferred Stock, which pays dividends at
prevailing short-term interest rates, and invests the proceeds in
long-term municipal bonds. The interest earned on these investments
is paid to Common Stock shareholders in the form of dividends, and
the value of these portfolio holdings is reflected in the per share
net asset value of the Fund's Common Stock. However, in order to
benefit Common Stock shareholders, the yield curve must be
positively sloped; that is, short-term interest rates must be lower
than long-term interest rates. At the same time, a period of
generally declining interest rates will benefit Common Stock
shareholders. If either of these conditions change, then the risks
of leveraging will begin to outweigh the benefits.
<PAGE>
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred Stock
for an additional $50 million, creating a total value of $150
million available for investment in long-term municipal bonds. If
prevailing short-term interest rates are approximately 3% and long-
term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million
of Preferred Stock based on the lower short-term interest rates. At
the same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates.
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 pick-up on the
Common Stock will be reduced. 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.
PORTFOLIO ABBREVIATIONS
To simplify the listing of MuniYield Michigan 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 Minimun Tax (subject to)
CP Commercial Paper
GO General Obligation Bonds
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Michigan--98.1%
<S> <S> <C> <S> <C>
AAA Aaa $ 3,545 Capital Region Airport Authority, Michigan, Airport Revenue Bonds, AMT, 6.60%
due 7/01/2012 (c) $ 3,508
AAA Aaa 3,545 Central Michigan University, Revenue Refunding Bonds, 6% due 10/01/2013 (c) 3,331
AA A1 1,325 Clarkston, Michigan, Community Schools, Revenue Refunding Bonds, UT, 5.90%
due 5/01/2016 1,189
Delta County, Michigan, Economic Development Corporation, Environmental
Improvement Revenue Refunding Bonds (Mead Escambia Paper):
NR* P1 500 Series C, CP, 3.55% due 12/01/2023 500
NR* P1 200 VRDN, Series D, 3.70% due 12/01/2023 (a) 200
Detroit, Michigan, Sewer Disposal Revenue Bonds (d):
AAA Aaa 2,005 6.70% due 7/01/2008 2,056
AAA Aaa 3,140 6.625% due 7/01/2011 3,159
AAA Aaa 1,400 6.625% due 7/01/2021 1,387
A1 NR* 100 Detroit, Michigan, Tax Increment Finance Authority, Reserve Fund (Central
Industrial Park Project), VRDN, 3.55% due 10/01/2010 (a) 100
AAA Aaa 1,000 Detroit, Michigan, Water Supply System, Revenue Refunding Bonds, 6.25% due
7/01/2012 (d) 963
BBB Baa1 2,000 Dickinson County, Michigan, Economic Development Corporation, PCR, Refunding
(Champion International Corporation Project), 5.85% due 10/01/2018 1,678
AAA Aaa 2,000 Grand Ledge, Michigan, Public School District Revenue Bonds, UT, 6.45% due
5/01/2014 (c) 1,946
AA- A1 1,000 Grand Rapids, Michigan, Sanitation Sewer Systems Revenue Bonds, 6% due 1/01/2022 890
Grand Rapids, Michigan, Water Supply Systems, Revenue Refunding Bonds (d):
AAA Aaa 5,850 6.50% due 1/01/2015 5,740
A1+ VMIG1 1,300 VRDN, 3.70% due 1/01/2020 (a) 1,300
Kalamazoo, Michigan, Hospital Finance Authority, Revenue Refunding and
Improvement Bonds (Bronson Methodist), Series A:
A+ A1 2,500 6.25% due 5/15/2012 2,342
A+ A1 1,750 6.375% due 5/15/2017 1,608
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Michigan (continued)
<S> <S> <C> <S> <C>
AAA Aaa $ 2,500 Kent Hospital Financing Authority, Michigan, Hospital Facility, GO, Revenue
Refunding Bonds (Pine Rest Christian Hospital), 6.50% due 11/01/2010 (d) $ 2,495
Michigan Higher Education Student Loan Authority Revenue Bonds, AMT:
A1+ VMIG1 700 Refunding, VRDN, Series XII-B, 3.40% due 10/01/2013 (a)(b) 700
NR* A 1,250 Series XIV-A, 6.75% due 10/01/2006 1,290
AAA VMIG1 400 VRDN, Series XII-F, 3.40% due 10/01/2020 (a)(b) 400
Michigan Municipal Bond Authority Revenue Bonds:
A NR* 1,100 (Local Government Loan), Series B, 5.80% due 11/01/2013 978
AA A1 2,500 Refunding (Local Government--Qualified School), Series A, 6.50% due 5/01/2016 2,416
AA Aa 4,700 Revolving Fund, Series A, 6.55% due 10/01/2013 4,600
AA- A1 3,500 Michigan Public Power Agency, Revenue Refunding Bonds (Belle River Project),
Series A, 5.25% due 1/01/2018 2,833
AA- A 10,150 Michigan State Building Authority Revenue Bonds, Series II, 6.75% due 10/01/2011 10,183
Michigan State Hospital Finance Authority Revenue Bonds:
NR* VMIG1 900 (Chelsea Community Hospital), VRDN, 3.60% due 12/01/2011 (a) 900
A A 1,000 (Mid-Michigan Obligation Group), 6.90% due 12/01/2024 1,002
AAA Aaa 2,000 (Oakwood Hospital-Obligated Group), 7.10% due 7/01/2000 (d)(f) 2,182
A- A 2,000 Refunding (Detroit Medical Center Obligation), Series A, 6.25% due 8/15/2013 1,827
A- A 4,375 Refunding (Detroit Medical Center Obligation), Series A, 6.50% due 8/15/2018 3,996
A- A 1,250 (Sisters of Mercy Health Corp.), Series J, 7.50% due 2/15/2001 (f) 1,388
Michigan State Hospital Finance Authority Revenue Bonds (Henry Ford Health Systems):
AA Aa 2,500 (Mercy Mount Clemens Corp.), 6.25% due 5/15/2011 2,362
AA Aa 1,750 Series A, 7% due 7/01/2010 1,769
Michigan State Housing Development Authority, Rental Housing Revenue Bonds:
A+ NR* 5,000 AMT, Series A, 7.15% due 4/01/2010 5,049
AAA Aaa 2,000 Refunding, Series A, 5.90% due 4/01/2023 (b) 1,763
A+ NR* 6,000 Series B, 7.10% due 4/01/2021 6,000
Michigan State Housing Development Authority, S/F Mortgage Revenue Bonds:
AA+ NR* 1,000 Series A, 6.80% due 12/01/2012 991
AA+ NR* 3,325 Series A, 6.875% due 6/01/2023 3,282
AA+ NR* 2,500 Series C, 6.50% due 6/01/2016 2,394
<PAGE>
Michigan State Strategic Fund, Limited Obligation Revenue Bonds:
NR* P1 1,700 (Dow Chemical Co. Project), VRDN, AMT, 3.80% due 12/01/2014 (a) 1,700
A A2 2,500 (Ford Motor Co. Project), AMT, Series A, 6.55% due 10/01/2022 2,360
A1+ Aa3 900 Refunding (Consumers Power Co. Project), VRDN, Series A, 3.60% due 6/15/2010 (a) 900
AAA Aaa 7,500 Refunding (Detroit Edison Co. Pollution Project), 6.875% due 12/01/2021 (d) 7,598
A A2 8,000 Refunding (Ford Motor Co. Project), Series A, 7.10% due 2/01/2006 8,372
AA- A1 2,500 (Waste Management Inc. Project), AMT, 6.625% due 12/01/2012 2,404
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Michigan (concluded)
<S> <S> <C> <S> <C>
NR* P1 $ 2,100 Michigan State Strategic Fund, PCR, Refunding (Consumers Power Project), VRDN,
Series A, 3.60% due 4/15/2018 (a) $ 2,100
Midland County, Michigan, Economic Development Corp., Limited Obligation
Revenue Bonds (Dow Chemical Co. Project), VRDN (a):
A1 P1 1,000 AMT, Series A, 3.80% due 12/01/2023 1,000
A P1 700 Refunding, Series B, 3.75% due 12/01/2015 700
AAA Aaa 6,500 Monroe County, Michigan, Economic Development Corp., Limited Obligation Revenue
Refunding Bonds (Detroit Edison Co.), Series AA, 6.95% due 9/01/2022 (d) 6,678
BBB Baal 2,500 Monroe County, Michigan, PCR (Detroit Edison Co. Project), AMT, Series A,
7.75% due 12/01/2019 2,625
AA A1 1,370 Plymouth/Canton, Michigan, Community School District, GO, UT, Refunding Bonds,
Series A, 6.625% due 5/01/2016 1,336
AA A1 2,250 Reeths-Puffer, Michigan, School Building, GO, UT, 6.625% due 5/01/2012 2,233
AA A1 2,500 Rockford, Michigan, Public Schools, GO, Refunding Bonds, 5.875% due 5/01/2012 2,306
AAA Aaa 2,000 Romulus Township, Michigan, Community School District, GO, Series I, UT, 6.75%
due 5/01/2001 (e)(f) 2,155
Royal Oak, Michigan, Hospital Finance Authority, Hospital Revenue Bonds
(William Beaumont Hospital):
AA Aa 6,250 Series D, 6.75% due 1/01/2011 6,261
AA Aa 6,000 Series D, 6.75% due 1/01/2020 5,878
AA Aa 2,250 Series G, 5.25% due 11/15/2019 1,810
AA Aa 7,500 University of Michigan, University Hospital Revenue Bonds, 6.375% due 12/01/2024 6,985
AAA Aaa 2,400 Western Michigan University, Revenue Refunding Bonds, Series B, 6.50% due
7/15/2021 (b) 2,317
<PAGE>
Total Investments (Cost--$163,770)--98.1% 160,415
Other Assets Less Liabilities--1.9% 3,052
--------
Net Assets--100.0% $163,467
========
<FN>
*Not Rated.
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at October 31, 1994.
(b)AMBAC Insured.
(c)MBIA Insured.
(d)FGIC Insured.
(e)FSA Insured
(f)Prerefunded.
Ratings of issues shown have not been audited by Deloitte & Touche
LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$163,769,706) (Note 1a) $160,415,164
Cash 253,536
Receivables:
Interest $ 2,935,722
Securities sold 2,248,637 5,184,359
------------
Deferred organization expenses (Note 1e) 18,303
Prepaid expenses and other assets 54,659
------------
Total assets 165,926,021
------------
Liabilities: Payables:
Securities purchased 1,961,975
Dividends to shareholders (Note 1g) 356,439
Investment adviser (Note 2) 70,409 2,388,823
------------
Accrued expenses and other liabilities 70,680
------------
Total liabilities 2,459,503
------------
<PAGE>
Net Assets: Net assets $163,466,518
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (1,100 shares of AMPS*
issued and outstanding at $50,000 per share liquidation preference) $ 55,000,000
Common Stock, par value $.10 per share (7,719,431 shares issued
and outstanding) $ 771,943
Paid-in capital in excess of par 107,640,564
Undistributed investment income--net 894,379
Undistributed realized capital gains--net 2,514,174
Unrealized depreciation on investments--net (3,354,542)
------------
Total--Equivalent to $14.05 net asset value per share of Common
Stock (market price--$12.625) 108,466,518
------------
Total capital $163,466,518
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
October 31, 1994
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 10,495,061
Income
(Note 1d):
<PAGE>
Expenses: Investment advisory fees (Note 2) $ 872,381
Commission fees (Note 4) 196,045
Professional fees 72,173
Transfer agent fees 43,265
Printing and shareholder reports 34,548
Accounting services (Note 2) 23,515
Directors' fees and expenses 23,086
Custodian fees 13,121
Listing fees 9,808
Amortization of organization expenses (Note 1e) 7,878
Pricing fees 7,286
Other 18,253
------------
Total expenses 1,321,359
------------
Investment income--net 9,173,702
------------
Realized & Realized gain on investments--net 2,514,178
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net (21,380,168)
(Loss) on ------------
Investments-- Net Decrease in Net Assets Resulting from Operations $ (9,692,288)
Net (Notes 1d ============
(Notes 1d & 3):
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the
Year Ended
October 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 9,173,702 $ 9,254,546
Realized gain on investments--net 2,514,178 886,648
Change in unrealized appreciation/depreciation on investments--
net (21,380,168) 17,500,589
------------ ------------
Net increase (decrease) in net assets resulting from operations (9,692,288) 27,641,783
------------ ------------
<PAGE>
Dividends & Investment income--net:
Distributions to Common Stock (7,390,421) (7,654,103)
Shareholders Preferred Stock (1,682,428) (1,422,740)
(Note 1g): Realized gain on investments--net:
Common Stock (761,499) (407,102)
Preferred Stock (125,147) (94,952)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (9,959,495) (9,578,897)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends and distribution -- 3,077,074
(Notes 1e & 4): Offering costs resulting from the issuance of Common Stock 17,002 --
Offering costs resulting from the issuance of Preferred Stock 22,938 --
------------ ------------
Net increase in net assets derived from capital stock transactions 39,940 3,077,074
------------ ------------
Net Assets: Total increase (decrease) in net assets (19,611,843) 21,139,960
Beginning of year 183,078,361 161,938,401
------------ ------------
End of year* $163,466,518 $183,078,361
------------ ------------
<FN>
*Undistributed investment income--net $ 894,379 $ 793,526
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
For the
Period
The following per share data and ratios have been derived February 28,
from information provided in the financial statements. For the Year Ended 1992++ to
October 31, October 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 16.59 $ 14.22 $ 14.18
Operating ----------- ----------- -----------
Performance: Investment income--net 1.20 1.21 .77
Realized and unrealized gain (loss) on investments--net (2.44) 2.41 .14
----------- ----------- -----------
Total from investment operations (1.24) 3.62 .91
----------- ----------- -----------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net (.96) (1.00) (.56)
Realized gain on investments--net (.10) (.05) --
----------- ----------- -----------
Total dividends and distributions (1.06) (1.05) (.56)
----------- ----------- -----------
Capital charge resulting from issuance of
Common Stock -- -- (.03)
----------- ----------- -----------
Effect of Preferred Stock activity:++++
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net (.22) (.19) (.13)
Realized gain on investments--net (.02) (.01) --
Capital charge resulting from issuance of
Preferred Stock -- -- (.15)
----------- ----------- -----------
Total effect of Preferred Stock activity (.24) (.20) (.28)
----------- ----------- -----------
Net asset value, end of period $ 14.05 $ 16.59 $ 14.22
=========== =========== ===========
Market price per share, end of period $ 12.625 $ 16.625 $ 14.875
=========== =========== ===========
Total Based on market price per share (18.40%) 19.54% 3.05%+++
Investment =========== =========== ===========
Return:** Based on net asset value per share (9.00%) 24.78% 4.21%+++
=========== =========== ===========
Ratios to Expenses, net of reimbursement .76% .74% .54%*
Average =========== =========== ===========
Net Assets:*** Expenses .76% .74% .72%*
=========== =========== ===========
Investment income--net 5.25% 5.32% 5.66%*
=========== =========== ===========
<PAGE>
Supplemental Net assets, net of Preferred Stock, end of
Data: period (in thousands) $ 108,467 $ 128,078 $ 106,938
=========== =========== ===========
Preferred Stock outstanding, end of period
(in thousands) $ 55,000 $ 55,000 $ 55,000
=========== =========== ===========
Portfolio turnover 18.88% 12.88% 22.49%
=========== =========== ===========
Dividends Per Investment income--net $ 1,529 $ 1,293 $ 888
Share On
Preferred Stock
Outstanding:
<FN>
*Annualized.
**Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, result in substantially different
returns. Total investment returns exclude the effects of sales loads.
***Do not reflect the effect of dividends to Preferred Stock shareholders.
++Commencement of Operations.
++++The Fund's Preferred Stock was issued on April 10, 1992.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Michigan Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. The Fund determines and makes
available for publication the net asset value of its Common Stock on
a weekly basis. The Fund's Common Stock is listed on the New York
Stock Exchange under the symbol 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, which are traded on exchanges, are valued at
their closing prices as of the close of such exchanges. Options,
which are traded on exchanges, are valued at their last sale price
as of the close of such exchanges or, lacking any sales, at the last
available bid price. Securities with remaining maturities of sixty
days or less are valued at amortized cost, which approximates market
value. Securities for which market quotations are not readily
available are valued at their fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund.
<PAGE>
(b) Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses and offering expenses--Deferred
organization expenses are amortized on a straight-line basis over a
five-year period. Direct expenses relating to the public offering of
the Common and Preferred Stock were charged to capital at the time
of issuance.
(f) Non-income producing investments--Written and purchased options
are non-income producing investments.
(g) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
<PAGE>
2. Investment Advisory Agreement
and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). Effective January 1, 1994, the
investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Fund
Asset Management, Inc. ("FAMI"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets.
NOTES TO FINANCIAL STATEMENTS (concluded)
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, FAMI, PSI, Merrill Lynch, Pierce, Fenner & Smith
Inc. ("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1994 were $30,606,460 and
$39,923,418, respectively.
Net realized and unrealized gains (losses) as of October 31, 1994
were as follows:
Realized Unrealized
Gains Losses
Long-term investments $ 2,300,125 $(3,354,542)
Financial futures contracts 214,053 --
------------ -----------
Total $ 2,514,178 $(3,354,542)
============ ===========
As of October 31, 1994, net unrealized depreciation for Federal
income tax purposes aggregated $3,354,542, of which $522,334 related
to appreciated securities and $3,876,876 related to depreciated
securities. The aggregate cost of investments at October 31, 1994
for Federal income tax purposes was $163,769,706.
<PAGE>
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.
Common Stock
For the year ended October 31,1994, shares issued and outstanding
remained constant at 7,719,431. At October 31, 1994, total paid-in
capital amounted to $108,412,507.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund that entitle their holders to receive cash
dividends at an annual rate that may vary for the successive
dividend periods. The yield in effect at October 31, 1994 was 3.19%.
For the year ended October 31, 1994, there were 1,100 AMPS shares
authorized, issued and outstanding with a liquidation preference of
$50,000 per share, plus accumulated and unpaid dividends of $72,116.
Effective December 1, 1994, as a result of a two-for-one stock
split, there will be 2,200 AMPS shares with a liquidation preference
of $25,000 per share.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from 0.25% to 0.375%,
calculated on the proceeds of each auction.
5. Subsequent Event:
On November 8, 1994, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $0.080897 per share, payable on November 29, 1994 to shareholders
of record as of November 18, 1994.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
MuniYield Michigan Fund, Inc.:
We have audited the accompanying statement of assets, liabilities
and capital, including the schedule of investments, of MuniYield
Michigan Fund, Inc. as of October 31, 1994, the related statements
of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended and the
financial highlights for each of the years in the two-year period
then ended and for the period February 28, 1992 (commencement of
operations) to October 31, 1992. These financial statements and the
financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our
audits.
<PAGE>
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at October
31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
MuniYield Michigan Fund, Inc. as of October 31, 1994, the results of
its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 6, 1994
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
MuniYield Michigan Fund, Inc. during its taxable year ended October
31, 1994 qualify as tax-exempt interest dividends for Federal income
tax purposes.
Additionally, the following table summarizes the per share capital
gains distributions paid by the Fund during the year:
<TABLE>
Payable Short-Term Long-Term
Date Capital Gains Capital Gains
<S> <C> <C> <C>
Common Stock Shareholders 12/30/93 $ 0.098647 --
Preferred Stock Shareholders 12/01/93 $113.77 --
Please retain this information for your records.
</TABLE>
<PAGE>
PER SHARE INFORMATION (unaudited)
<TABLE>
Per Share Selected Quarterly Financial Data*
<CAPTION>
Net Realized Unrealized Dividends/Distributions
Investment Gains Gains Net Investment Income Capital Gains
For the Quarter Income (Losses) (Losses) Common Preferred Common Preferred
<S> <C> <C> <C> <C> <C> <C> <C>
November 1, 1992 to January 31, 1993 $.31 $.06 $ .75 $.25 $.05 $.05 $.01
February 1, 1993 to April 30, 1993 .30 .05 .59 .25 .04 -- --
May 1, 1993 to July 31, 1993 .30 .01 .36 .25 .05 -- --
August 1, 1993 to October 31, 1993 .30 -- .59 .25 .05 -- --
November 1, 1993 to January 31, 1994 .31 -- .15 .25 .05 .10 .02
February 1, 1994 to April 30, 1994 .29 .28 (2.12) .24 .05 -- --
May 1, 1994 to July 31, 1994 .29 .01 .25 .23 .06 -- --
August 1, 1994 to October 31, 1994 .31 .04 (1.05) .24 .06 -- --
<CAPTION>
Net Asset Value Market Price**
For the Quarter High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
November 1, 1992 to January 31, 1993 $14.98 $14.23 $15.625 $14.875 408
February 1, 1993 to April 30, 1993 16.06 14.97 16.375 15.125 588
May 1, 1993 to July 31, 1993 16.17 15.56 16.625 15.00 402
August 1, 1993 to October 31, 1993 16.83 16.01 17.125 16.00 430
November 1, 1993 to January 31, 1994 16.64 16.12 16.375 15.00 528
February 1, 1994 to April 30, 1994 16.60 14.30 16.625 13.75 548
May 1, 1994 to July 31, 1994 15.38 14.49 14.875 14.125 366
August 1, 1994 to October 31, 1994 15.07 14.04 14.50 12.25 861
<FN>
*Calculations are based upon shares of Common Stock outstanding at
the end of each quarter.
**As reported in the consolidated transaction reporting system.
***In thousands.
</TABLE>
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Kenneth S. Axelson, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
<PAGE>
Custodian
The Bank of New York
90 Washington Street
New York, New York 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, New York 10286
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
NYSE Symbol
MYM
