MUNIYIELD
MICHIGAN
FUND, INC.
FUND LOGO
Annual Report
October 31, 1996
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. Statements and other information
herein are as dated and are subject to change.
<PAGE>
MuniYield
Michigan Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield Michigan Fund, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1996, the Common Stock of MuniYield
Michigan Fund, Inc. earned $0.930 per share income dividends, which
included earned and unpaid dividends of $0.077. This represents a
net annualized yield of 6.09%, based on a month-end net asset value
of $15.29 per share. Over the same period, the total investment
return on the Fund's Common Stock was +7.28%, based on a change in
per share net asset value from $15.23 to $15.29, and assuming
reinvestment of $0.928 per share income dividends and $0.041 per
share capital gains distributions.
For the six-month period ended October 31, 1996, the total
investment return on the Fund's Common Stock was +6.35%, based on a
change in per share net asset value from $14.84 to $15.29, and
assuming reinvestment of $0.467 per share income dividends.
<PAGE>
For the six-month period ended October 31, 1996, the Fund's Auction
Market Preferred Stock had an average yield of 3.46%.
The Municipal Market Environment
Municipal bond yields generally moved lower during the six months
ended October 31, 1996. Long-term tax-exempt revenue bond yields, as
measured by the Bond Buyer Revenue Bond Index, declined
approximately 35 basis points (0.35%) to close the six-month period
ended October 31, 1996 at approximately 5.94%. The municipal bond
market exhibited considerable weekly yield volatility over the six
months ended October 31, 1996 with bond yields vacillating as much
as 20 basis points. This ongoing volatility was in response to
fluctuating evidence regarding the degree to which recent economic
growth would result in any significant increase in inflationary
pressures. Much of the evidence supporting stronger growth centered
around the strong employment growth seen in April and June with bond
yields rising in response. Other more recent economic indicators
have suggested that economic growth will not be excessive and
inflationary pressures will remain well-contained. This continued
benign inflationary environment has supported lower tax-exempt bond
yields in recent months. US Treasury bond yields have exhibited
similar, albeit greater, volatility during the six-month period
ended October 31, 1996, falling more than 20 basis points to end the
period at 6.64%. Over the past six months, tax-exempt bond yields
registered significantly greater declines than those shown by the US
Treasury bond. This relative outperformance by the municipal bond
market was largely the result of the strong technical support the
tax-exempt market has enjoyed throughout most of 1996. Perhaps most
significantly, the pace of new bond issuance has recently slowed.
Over the last year, approximately $180 billion in long-term
municipal securities was issued, an increase of over 25% versus the
same period a year ago. Much of this increase was the result of
issuers seeking to refinance their existing higher-couponed debt as
interest rates declined in 1995 and early 1996. As interest rates
rose, these financings became increasingly economically impractical
and issuance declined. Over the last six months, approximately $90
billion in long-term tax-exempt securities was underwritten, an
increase of 5% versus the comparable period a year earlier. Only $41
billion in tax-exempt securities was issued in the last three
months, a 3% decline in issuance versus the October 31, 1995
quarter.
<PAGE>
At the same time, investor demand remained consistently strong. With
nominal new-issue yields generally above 6%, retail investor
interest was steady. Additionally, investors received over $50
billion this June and July in assets derived from coupon income,
bond maturities, and proceeds from early redemptions. Annual new
bond issuance has declined in recent years and is expected to remain
below levels seen in the early 1990s. Consequently, as the higher-
couponed bonds issued in the early-to-mid 1980s were redeemed at
their first optional call date, the total number of outstanding tax-
exempt bonds has declined. This combination of a declining net
supply and significant amounts of assets helped maintain investor
demand in recent months.
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance has led to the yield
ratio between long-term taxable and tax-exempt securities falling
from in excess of 90% to approximately 85%. While still historically
very attractive, some institutional investors, particularly short-
term traders, began to view the tax-exempt bond market's recent
outperformance as an opportunity to sell a relatively expensive
asset. However, to the long-term investor, such a sale would
represent the loss of an attractively priced asset which may not be
easily replaced given the relative scarcity of municipal bonds under
present supply conditions.
Looking ahead, no clear consensus for the direction of interest
rates currently exists. Perhaps, the primary focus going forward
will be the extent to which the increase in interest rates seen thus
far in 1996 will negatively impact future economic growth. Should
growth slow in the interest rate-sensitive sectors of the economy,
like housing, auto, and consumer spending, as many economists assert
is likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of the US Treasury bond market.
Portfolio Strategy
During the six months ended October 31, 1996, we continued to
maintain the neutral strategy we had adopted earlier this year. We
preferred income-oriented issues over more interest rate-sensitive
securities whenever possible. However, attractively priced, higher-
couponed, tax-exempt bonds continued to be scarce, making such
purchases difficult despite ongoing yield volatility. Consequently,
we chose to remain essentially fully invested during the six-month
period ended October 31, 1996. Until the near-term direction of tax-
exempt interest rates becomes clearer, we expect to maintain the
Fund's current strategy. Over the last 12 months, this strategy
greatly benefited the Fund's total return.
Short-term tax-exempt interest rates traded in a narrow range,
centered around 3.50% for most of the six-month period ended October
31, 1996. Concerns over interest rate tightening by the Federal
Reserve Board have had little, if any, impact on short-term
municipal interest rates. Consequently, the leverage of the Common
Stock has continued to have a material beneficial impact on the
yield paid to the Common Stock shareholders. However, should the
spread between short-term and long-term interest rates narrow, the
benefits of the leverage will decline, and the yield on the Common
Stock will be reduced. (For a complete explanation of the benefits
and risks of leveraging, see page 4 of this report to shareholders.)
<PAGE>
In Conclusion
We appreciate your ongoing interest in MuniYield Michigan Fund,
Inc., and we look forward to assisting you with your financial needs
in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Fred K. Stuebe)
Fred K. Stuebe
Vice President and Portfolio Manager
November 27, 1996
PROXY RESULTS
<PAGE>
<TABLE>
During the six-month period ended October 31, 1996, MuniYield
Michigan Fund, Inc. Common Stock shareholders voted on the following
proposals. The proposals were approved at a special shareholders'
meeting on September 19, 1996. The description of each proposal and
number of shares voted are as follows:
<CAPTION>
Shares Voted Shares Voted
For Without Authority
<S> <S> <C> <C>
1.To elect the Fund's Board of Directors: James H. Bodurtha 7,332,110 202,918
Herbert I. London 7,332,385 202,643
Robert R. Martin 7,329,909 205,119
Arthur Zeikel 7,324,725 210,303
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2.To select Deloitte & Touche LLP as the Fund's
independent auditors. 7,309,381 71,622 154,025
<CAPTION>
During the six-month period ended October 31, 1996, MuniYield
Michigan Fund, Inc. Preferred Stock shareholders voted on the
following proposals. The proposals were approved at a special
shareholders' meeting on September 19, 1996. The description
of each proposal and number of shares voted are as follows:
Shares Voted Shares Voted
For Without Authority
<S> <S> <C> <C>
1.To elect the Fund's Board of Directors: James H. Bodurtha 2,163 15
Herbert I. London 2,163 15
Robert R. Martin 2,163 15
Joseph L. May 2,163 15
Andre F. Perold 2,163 15
Arthur Zeikel 2,163 15
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2.To select Deloitte & Touche LLP as the Fund's
independent auditors. 2,155 19 4
</TABLE>
THE BENEFITS AND RISKS OF LEVERAGING
<PAGE>
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.
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.
PORTFOLIO ABBREVIATIONS
<PAGE>
To simplify the listings 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 Minimum Tax (subject to)
HDA Housing Development Authority
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (In Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Michigan--98.3%
<S> <S> <C> <S> <C>
Battle Creek, Michigan, Tax Increment Finance Authority Revenue Bonds:
A- NR* $ 1,320 7.10% due 5/01/2010 $ 1,482
A- NR* 1,000 7.40% due 5/01/2016 1,113
AAA Aaa 3,545 Capital Region Airport Authority, Michigan, Airport Revenue Bonds, AMT, 6.60%
due 7/01/2012 (c) 3,808
AA+ P1 1,000 Delta County, Michigan, Economic Development Corp., Environmental Improvement
Revenue Refunding Bonds (Mead Escambia Paper), VRDN, Series D, 3.60% due
12/01/2023 (a) 1,000
Detroit, Michigan, Sewage Disposal Revenue Bonds (d)(f):
AAA Aaa 3,140 6.625% due 7/01/2001 3,474
AAA Aaa 1,900 6.625% due 7/01/2001 2,102
AAA Aaa 2,005 6.70% due 7/01/2001 2,224
AAA Aaa 1,500 Detroit, Michigan, Water Supply System, Revenue Refunding Bonds, 5% due
7/01/2023 (d) 1,357
AAA Aaa 2,220 Ferndale, Michigan, School District, Refunding, UT, 5.375% due 5/01/2021 (d) 2,134
AAA Aaa 2,000 Grand Ledge, Michigan, Public Schools District, UT, 6.45% due 5/01/2014 (c) 2,163
AAA Aaa 5,850 Grand Rapids, Michigan, Water Supply System Revenue Refunding Bonds, 6.50%
due 1/01/2015 (d) 6,280
<PAGE>
Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue
Refunding and Improvement Bonds (Bronson Methodist), Series A:
A A1 2,500 6.25% due 5/15/2012 2,611
A A1 1,750 6.375% due 5/15/2017 1,818
AAA Aaa 2,100 Kent, Michigan, Hospital Finance Authority, Health Care Revenue Bonds
(Butterworth Health Systems), Series A, 5.625% due 1/15/2026 (c) 2,060
AAA Aaa 2,500 Kent, Michigan, Hospital Finance Authority, Hospital Facility, Revenue
Refunding Bonds (Pine Rest Christian Hospital), 6.50% due 11/01/2010 (d) 2,688
Michigan Higher Education Student Loan Authority Revenue Bonds, AMT:
NR* A 1,250 Series XIV-A, 6.75% due 10/01/2006 1,319
A-1 VMIG1++ 300 VRDN, Series XII-D, 3.60% due 10/01/2015 (a)(b) 300
Michigan Hospital Finance Authority Revenue Bonds:
AAA Aa 1,750 (Henry Ford Health Systems), Series A, 7% due 7/01/2000 (f) 1,931
A A 1,000 (Mid-Michigan Obligation Group), 6.90% due 12/01/2024 1,060
AAA Aaa 2,000 (Oakwood Hospital Obligated Group), 7.10% due 7/01/2000 (d)(f) 2,213
A A 2,000 Refunding (Detroit Medical Center Obligation Group), Series A, 6.25%
due 8/15/2013 2,064
A A 5,875 Refunding (Detroit Medical Center Obligation Group), Series A, 6.50%
due 8/15/2018 6,138
AA Aa 2,500 Refunding (Henry Ford Health Systems), Series A, 5.25% due 11/15/2020 2,369
AA Aa 3,500 Refunding (Henry Ford Health Systems), Series A, 5.25% due 11/15/2025 3,292
AA- Aaa 1,250 (Sisters of Mercy Health Corp.), Series J, 7.50% due 2/15/2001 (f) 1,402
Michigan Municipal Bond Authority Revenue Bonds:
A NR* 1,100 (Local Government Loan Program--Revenue Sharing), Series B, 5.80% due
11/01/2013 1,113
AA Aa 2,500 Refunding (Local Government-Qualified School), Series A, 6.50% due 5/01/2016 2,647
AA Aa 4,700 (State Revolving Fund), Series A, 6.55% due 10/01/2002 (f) 5,241
AA- A1 10,150 Michigan State Building Authority Revenue Bonds, Series II, 6.75% due
10/01/2011 10,859
Michigan State, HDA, Rental Housing Revenue Bonds:
A+ NR* 4,085 AMT, Series A, 7.15% due 4/01/2010 4,301
A+ NR* 5,370 Series B, 7.10% due 4/01/2021 5,649
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (In Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<PAGE>
Michigan (concluded)
<S> <S> <C> <S> <C>
Michigan State, HDA, S/F Mortgage Revenue Bonds:
AA+ NR* $ 2,500 Refunding, Series C, 6.50% due 6/01/2016 $ 2,580
AA+ NR* 1,000 Series A, 6.80% due 12/01/2012 1,054
AA+ NR* 3,325 Series A, 6.875% due 6/01/2023 3,468
Michigan State Strategic Fund, Limited Obligation Revenue Bonds, AMT:
A+ A1 2,500 (Ford Motor Co. Project), Series A, 6.55% due 10/01/2022 2,620
A+ A1 2,500 (Waste Management Inc. Project), 6.625% due 12/01/2012 2,697
Michigan State Strategic Fund, Limited Obligation, Revenue Refunding Bonds:
A1+ Aa3 100 (Consumers Power Company Project), VRDN, Series A, 3.50% due 6/15/2010 (a) 100
AAA Aaa 7,500 (Detroit Edison Co. Plantation Project), 6.875% due 12/01/2021 (d) 8,291
AAA Aaa 2,500 (Detroit Edison Co. Project), Series CC, 6.95% due 9/01/2021 (d) 2,735
A+ A1 8,000 (Ford Motor Co. Project), Series A, 7.10% due 2/01/2006 9,142
A- A3 2,500 Michigan State Strategic Fund, PCR, Refunding (General Motors Corp.), 6.20%
due 9/01/2020 2,552
Michigan State Trunk Line, Series A:
AA- A1 1,000 5.625% due 11/15/2013 1,003
AA- A1 6,370 5.70% due 11/15/2016 6,325
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) 7,811
BBB Baa1 2,500 Monroe County, Michigan, PCR (Detroit Edison Co. Project), AMT, Series A,
7.75% due 12/01/2019 2,709
AAA Aaa 1,960 Muskegon, Michigan, Public Schools, UT, Series 95, 5.25% due 5/01/2018 (d) 1,854
AA Aa 1,370 Plymouth-Canton, Michigan, Community School District, Refunding, UT, Series A,
6.625% due 5/01/2016 1,474
AA Aa 2,250 Reeths-Puffer, Michigan, Schools Building, UT, 6.625% due 5/01/2002 (f) 2,498
AAA Aaa 2,000 Romulus, Michigan, Community Schools, UT, Series I, 6.75% due 5/01/2001 (e)(f) 2,217
Royal Oak, Michigan, Hospital Finance Authority, Hospital Revenue Bonds
(William Beaumont Hospital):
AA Aa 2,250 Refunding, Series G, 5.25% due 11/15/2019 2,107
AA Aa 6,250 Series D, 6.75% due 1/01/2001 (f) 6,885
AA Aaa 6,000 Series D, 6.75% due 1/01/2001 (f) 6,609
A1+ VMIG1++ 200 University of Michigan, University Hospital Revenue Refunding Bonds, VRDN,
Series A, 3.60% due 12/01/2019 (a) 200
AA Aa1 2,510 University of Michigan, University Housing Revenue Bonds, Series A, 5.50% due
11/15/2017 2,494
AAA Aaa 2,400 Western Michigan University, Revenue Refunding Bonds, Series B, 6.50% due
7/15/2021 (b) 2,580
<PAGE>
Total Investments (Cost--$158,570)--98.3% 170,217
Other Assets Less Liabilities--1.7% 2,929
--------
Net Assets--100.0% $173,146
========
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at October 31, 1996.
(b)AMBAC Insured.
(c)MBIA Insured.
(d)FGIC Insured.
(e)FSA Insured.
(f)Prerefunded.
++Highest short-term rating by Moody's Investors Service, Inc.
*Not Rated.
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, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$158,570,401) (Note 1a) $170,216,994
Cash 30,159
Interest receivable 3,202,503
Deferred organization expenses (Note 1e) 2,525
Prepaid expenses and other assets 8,888
------------
Total assets 173,461,069
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) $ 175,287
Investment adviser (Note 2) 73,096 248,383
------------
Accrued expenses and other liabilities 66,521
------------
Total liabilities 314,904
------------
<PAGE>
Net Assets: Net assets $173,146,165
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (2,200 shares
of AMPS* issued and outstanding at $25,000 per share
liquidation preference) $ 55,000,000
Common Stock, par value $.10 per share (7,727,210 shares
issued and outstanding) $ 772,721
Paid-in capital in excess of par 107,755,155
Undistributed investment income--net 1,205,465
Accumulated realized capital losses on investments--net (Note 5) (2,842,379)
Accumulated distributions in excess of realized capital gains
--net (Note 1f) (391,390)
Unrealized appreciation on investments--net 11,646,593
------------
Total--Equivalent to $15.29 net asset value per share of
Common Stock(market price--$14.50) 118,146,165
------------
Total capital $173,146,165
============
<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, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 10,364,693
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 860,617
Commission fees (Note 4) 141,868
Professional fees 76,438
Transfer agent fees 45,117
Printing and shareholder reports 43,710
Accounting services (Note 2) 36,376
Directors' fees and expenses 23,070
Listing fees 19,240
Custodian fees 14,018
Amortization of organization expenses (Note 1e) 7,900
Pricing fees 7,213
Other 14,491
------------
Total expenses 1,290,058
------------
Investment income--net 9,074,635
------------
<PAGE>
Realized & Realized loss on investments--net (985,746)
Unrealized Gain Change in unrealized appreciation on investments--net 1,836,470
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 9,925,359
(Notes 1b, 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: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 9,074,635 $ 9,188,829
Realized loss on investments--net (985,746) (1,856,607)
Change in unrealized appreciation/depreciation on investments
--net 1,836,470 13,164,665
------------ ------------
Net increase in net assets resulting from operations 9,925,359 20,496,887
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (7,166,707) (7,076,009)
Shareholders Preferred Stock (1,936,440) (1,773,222)
(Note 1f): Realized gain on investments--net:
Common Stock -- (2,053,090)
Preferred Stock -- (461,109)
In excess of realized gain on investments--net:
Common Stock (315,864) --
Preferred Stock (75,526) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (9,494,537) (11,363,430)
------------ ------------
<PAGE>
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends and distributions 115,368 --
(Note 4): ------------ ------------
Net increase in net assets derived from capital stock
transactions 115,368 --
------------ ------------
Net Assets: Total increase in net assets 546,190 9,133,457
Beginning of year 172,599,975 163,466,518
------------ ------------
End of year* $173,146,165 $172,599,975
============ ============
<FN>
*Undistributed investment income--net $ 1,205,465 $ 1,233,977
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. For the Feb. 28, 1992++
Year Ended October 31, to Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.23 $ 14.05 $ 16.59 $ 14.22 $ 14.18
Operating -------- -------- -------- -------- --------
Performance: Investment income--net 1.18 1.19 1.20 1.21 .77
Realized and unrealized gain (loss) on
investments--net .11 1.47 (2.44) 2.41 .14
-------- -------- -------- -------- --------
Total from investment operations 1.29 2.66 (1.24) 3.62 .91
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.93) (.92) (.96) (1.00) (.56)
Realized gain on investments--net -- (.27) (.10) (.05) --
In excess of realized gain on investments
--net (.04) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.97) (1.19) (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 (.25) (.23) (.22) (.19) (.13)
Realized gain on investments--net -- (.06) (.02) (.01) --
In excess of realized gain on investments
--net (.01) -- -- -- --
Capital charge resulting from issuance of
Preferred Stock -- -- -- -- (.15)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.26) (.29) (.24) (.20) (.28)
-------- -------- -------- -------- --------
Net asset value, end of period $ 15.29 $ 15.23 $ 14.05 $ 16.59 $ 14.22
======== ======== ======== ======== ========
Market price per share, end of period $ 14.50 $ 13.875 $ 12.625 $ 16.625 $ 14.875
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on market price per share 11.67% 19.93% (18.40%) 19.54% 3.05%+++
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 7.28% 18.29% (9.00%) 24.78% 4.21%+++
======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .75% .76% .76% .74% .54%*
Net Assets:*** ======== ======== ======== ======== ========
Expenses .75% .76% .76% .74% .72%*
======== ======== ======== ======== ========
Investment income--net 5.26% 5.50% 5.25% 5.32% 5.66%*
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of
Data: period (in thousands) $118,146 $117,600 $108,467 $128,078 $106,938
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $ 55,000 $ 55,000 $ 55,000 $ 55,000 $ 55,000
======== ======== ======== ======== ========
Portfolio turnover 19.73% 15.47% 18.88% 12.88% 22.49%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,148 $ 3,138 $ 2,972 $ 3,329 $ 2,944
======== ======== ======== ======== ========
Dividends Per Share Investment income--net $ 880 $ 806 $ 765 $ 647 $ 444
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, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
***Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Commencement of Operations.
++++The Fund's Preferred Stock was issued on April 10, 1992.
++++++Dividends per share have been adjusted to reflect a two-for-
one stock split that occurred on December 1, 1994.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
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 and options thereon, which are traded on exchanges,
are valued at their closing price 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,
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 strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
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.
<PAGE>
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
NOTES TO FINANCIAL STATEMENTS (concluded)
(e) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. Distributions in excess of
realized capital gains are due primarily to differing tax treatments
for futures transactions.
<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"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, 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, 1996 were $32,883,739 and
$34,780,170, respectively.
Net realized and unrealized gains (losses) as of October 31, 1996
were as follows:
Realized Unrealized
Losses Gains
Long-term investments $(182,734) $11,646,593
Financial futures contracts (803,012) --
--------- -----------
Total $(985,746) $11,646,593
========= ===========
As of October 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $11,646,593, all of which related to
appreciated securities. The aggregate cost of investments at October
31, 1996 for Federal income tax purposes was $158,570,401.
<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, 1996, shares issued and outstanding
increased by 7,779 to 7,727,210. At October 31, 1996, total paid-in
capital amounted to $108,527,876.
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, 1996 was 3.40%.
As of October 31, 1996, there were 2,200 AMPS shares authorized,
issued and outstanding with a liquidation preference of $25,000 per
share.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from 0.25% to 0.375%,
calculated on the proceeds of each auction. For the year ended April
30, 1996, MLPF&S, an affiliate of FAM, earned $93,273 as commissions.
5. Capital Loss Carryforward:
At October 31, 1996, the Fund had a net capital loss carryforward of
approximately $195,000, all of which expires in 2004. This amount
will be available to offset like amounts of any future taxable
gains.
6. Subsequent Event:
On November 8, 1996, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.077313 per share, payable on November 27, 1996 to shareholders
of record as of November 18, 1996.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
MuniYield Michigan Fund, Inc.:
<PAGE>
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, 1996, 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 four-year period
then ended and 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.
We conducted our audits in accordance with gener-ally 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, 1996 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
MuniYield Michigan Fund, Inc. as of October 31, 1996, 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 3, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniYield
Michigan Fund, Inc. during its taxable year ended October 31, 1996
qualify as tax-exempt interest dividends for Federal income tax
purposes.
<PAGE>
Additionally, the following table summarizes the per share capital
gain distributions paid by the Fund during
the year:
Payable Long-Term
Date Capital Gains
Common Stock Shareholders 12/28/95 $ 0.040918
Preferred Stock Shareholders 11/28/95 $28.69
12/05/95 $ 5.64
Please retain this information for your records.
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Fred K. Stuebe, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
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
<PAGE>
