MUNIYIELD
MICHIGAN
FUND, INC.
FUND LOGO
Annual Report
October 31, 1999
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.
MuniYield
Michigan Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MuniYield Michigan Fund, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1999, the Common Stock of MuniYield
Michigan Fund earned $0.866 per share income dividends, which
included earned and unpaid dividends of $0.068. This represents a
net annualized yield of 6.49%, based on a month-end net asset value
of $13.34 per share. Over the same period, the total investment
return on the Fund's Common Stock was -8.12%, based on a change in
per share net asset value from $15.85 to $13.34, and assuming
reinvestment of $0.944 per share ordinary income dividends and
$0.372 capital gains distributions.
For the six-month period ended October 31, 1999, the total
investment return on the Fund's Common Stock was -8.50%, based on a
change in per share net asset value from $15.03 to $13.34, and
assuming reinvestment of $0.414 per share income dividends.
For the six-month period ended October 31, 1999, the Fund's Auction
Market Preferred Stock had an average yield of 3.29%.
The Municipal Market Environment
The combination of steady strong domestic economic growth,
improvement in foreign economies (most notably in Japan) and
increasing investor concerns regarding potential increases in US
inflation put upward pressure on bond yields throughout the 12-month
period ended October 31, 1999. Continued strong US employment
growth, particularly the decline in the US unemployment rate to 4.2%
in early June, was among the reasons the Federal Reserve Board cited
for raising short-term interest rates in late June and again in late
August. US Treasury bond yields reacted by climbing above 6.375% by
late October. However, by October 31, 1999, economic indicators were
released suggesting that despite strong economic and employment
growth in the third fiscal quarter of 1999, inflationary pressures
have remained extremely well-contained. This resulted in a
significant rally in the US Treasury bond market, pushing US
Treasury bond yields downward to approximately 6.15% by October 31,
1999. During the last six months, yields on 30-year US Treasury
bonds increased more than 50 basis points (0.50%).
Long-term tax-exempt bond yields also rose during the six months
ended October 31, 1999. Until early May, the municipal bond market
was able to withstand much of the upward pressure on bond yields.
However, investor concerns of additional moves by the Federal
Reserve Board to moderate US economic growth and, more importantly,
the loss of the strong technical support that the tax-exempt market
enjoyed in early 1999 helped push municipal bond yields
significantly higher for the remainder of the period. The yields on
long-term tax-exempt revenue bonds rose almost 90 basis points to
6.18% by October 31, 1999, as measured by the Bond Buyer Revenue
Bond Index.
In recent months, the significant decline in new tax-exempt bond
issuance has remained a positive factor within the municipal bond
market, as it had been for much of the past year. During the last
six months, more than $110 billion in long-term municipal bonds was
issued, a decline of almost 20% compared to the same period a year
ago. During the past three months, $55 billion in municipal bonds
was underwritten, representing a decline of nearly 10% compared to
the corresponding period in 1998. Additionally, in June and July,
investors received more than $40 billion in coupon income and
proceeds from bond maturities and early bond redemptions. These
proceeds have generated considerable retail investor interest, which
has helped absorb the recent diminished supply.
Although tax-exempt bond yields are at their highest level in over
two years and have attracted significant retail investor interest,
institutional demand has declined sharply. Long-term municipal
mutual funds have seen consistent outflows in recent months as the
yields of individual securities have risen faster than those of
larger, more diverse mutual funds. In addition, the demand from
property/casualty insurance companies has weakened as a result of
the losses, and anticipated losses, incurred as a result of the
series of damaging storms across much of the eastern United States.
Additionally, many institutional investors who were attracted to the
municipal bond market in recent years by historically attractive tax-
exempt bond yield ratios of over 90% have found other asset classes
even more attractive. Even with a reduced supply position, tax-
exempt issuers have been forced to repeatedly raise municipal bond
yields in the attempt to attract adequate demand.
MuniYield Michigan Fund, Inc.
October 31, 1999
The recent relative underperformance of the municipal bond market
has resulted in an opportunity for long-term investors to purchase
tax-exempt issues whose yields are nearly identical to taxable US
Treasury securities. At October 31, 1999, long-term uninsured
municipal revenue bond yields were 100% of comparable US Treasury
securities. In recent months, many taxable asset classes, such as
corporate bonds, mortgage-backed securities and US agency debt, have
all accelerated debt issuance. This acceleration was initiated
largely to avoid issuing securities at year-end and to minimize any
associated Year 2000 (Y2K) problems that may develop. However, this
increased issuance has also resulted in higher yield levels in the
various asset classes as lower bond prices became necessary to
attract sufficient investor demand. Going forward, it is believed
that the pace of non-US Government debt issuance is likely to slow
significantly. As the supply of this debt declines, we would expect
many institutional investors to return to the municipal bond market
and the attractive yield ratios available.
Looking ahead, it appears to us that long-term municipal bond yields
will remain under pressure, trading in a broad range centered near
current levels. Investors are likely to remain concerned about
future action by the Federal Reserve Board. Y2K considerations may
prohibit any further Federal Reserve Board moves through the end of
the year and the beginning of 2000. Any improvement in bond prices
will probably be contingent upon weakening in both US employment
growth and consumer spending. The 100 basis point rise in US
Treasury bond yields seen thus far this year may negatively affect
US economic growth. The US housing market will be among the first
sectors likely to be affected, as some declines have already been
evidenced in response to higher mortgage rates. We believe that it
is also unrealistic to expect double-digit returns in US equity
markets to continue indefinitely. Much of the US consumer's wealth
is tied to recent stock market appreciation. Any slowing in these
incredible growth rates is likely to reduce consumer spending. We
believe that these factors suggest that the worst of the recent
increase in bond yields has passed and stable, if not slightly
improving, bond prices may be expected.
Portfolio Strategy
With tax-exempt bond yields at their highest levels in more than two
years, we viewed the recent rise in tax-exempt interest rates as an
opportunity to add higher-yielding issues to the portfolio and to
seek to enhance the Fund's dividend into the coming years. The
ability to purchase municipal bonds at yields equal to, or in some
cases above, taxable US Treasury yields has not been available since
late 1994. Past history suggests that whenever tax-exempt bond
yields rise near or above US Treasury bond yields for an extended
period of time, municipal bond portfolios generate significant total
returns during the following six months--twelve months.
Recent interest rate increases by the Federal Reserve Board have
largely restored investor confidence that US inflation will not be
allowed to rise significantly. Some decline in economic growth,
particularly in the housing and retail sectors, can already be seen
in response to interest rate increases in recent months.
Consequently, we adopted a slightly above neutral portfolio
structure in an effort to take advantage of the expected decline in
interest rates in the coming months and to recapture much of the
losses incurred recently.
During most of the period, short-term tax-exempt bond yields
averaged approximately 3.375%. Short-term municipal bond yields have
been much more stable than those associated with 25-year--30-year
maturity issues. This has resulted in a significant incremental
yield paid to Common Stock shareholders. As the Federal Reserve
Board is believed to be near the end of its current interest rate
tightening cycle, short-term tax-exempt bond rates are expected to
remain near their current levels. However, should the spread between
long-term and short-term tax-exempt rates narrow, the benefits of
the leverage will decline and the yield on the Common Stock will
decline. (For a complete explanation of the benefits and risks of
leveraging, see page 4 of this report to shareholders.)
MuniYield Michigan Fund, Inc.
October 31, 1999
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,
(Terry K. Glenn)
Terry K. Glenn
President and Trustee
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Fred K. Stuebe)
Fred K. Stuebe
Vice President and Portfolio Manager
November 30, 1999
<TABLE>
PROXY RESULTS
<CAPTION>
During the six-month period ended October 31, 1999, MuniYield
Michigan Fund, Inc.'s Common Stock shareholders voted on the
following proposal. Proposal 1 was approved at a shareholders'
meeting on June 23, 1999. A description of the proposal and number
of shares voted are as follows:
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <C> <C> <C>
1. To approve an amendment to the Articles Supplementary of the Fund. 4,108,225 321,216 298,574
<CAPTION>
During the six-month period ended October 31, 1999, MuniYield
Michigan Fund, Inc.'s Preferred Stock shareholders voted on the
following proposal. Proposal 1 was not approved at the shareholders'
meeting on June 23, 1999. A description of the proposal and number
of shares voted are as follows:
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <C> <C> <C>
1. To approve an amendment to the Articles Supplementary of the Fund. 699 232 23
</TABLE>
QUALITY PROFILE
The quality ratings of securities in the Fund as of October 31, 1999
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 58.5%
AA/Aa 17.7
A/A 12.4
BBB/Baa 1.6
NR (Not Rated) 6.0
Other++ 5.0
[FN]
++Temporary investments in short-term municipal securities.
MuniYield Michigan Fund, Inc.
October 31, 1999
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.
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.
MuniYield Michigan Fund, Inc.
October 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Michigan--97.1%
<S> <S> <C> <S> <C>
AAA Aaa $ 1,500 Avondale, Michigan, School District, GO, Refunding, 4.75% due 5/01/2022 (b) $ 1,252
Battle Creek, Michigan, Tax Increment Finance Authority (f):
A- NR* 1,320 7.10% due 5/01/2004 1,466
A- NR* 1,000 7.40% due 5/01/2004 1,123
AA+ Aa2 3,500 Birmingham, Michigan, City School District, GO, 5.25% due 11/01/2012 3,426
AAA Aaa 3,545 Capital Region Airport Authority, Michigan, Airport Revenue Bonds, AMT, 6.60% due
7/01/2012 (c) 3,755
AAA Aaa 2,465 Clarkston, Michigan, Community Schools, GO, 5.25% due 5/01/2023 (c) 2,225
Delta County, Michigan, Economic Development Corporation, Environmental Improvement
Revenue Refunding Bonds (Mead-Escanaba Paper), DATES (a):
NR* P1 1,200 Series D, 3.50% due 12/01/2023 1,200
NR* P1 1,500 Series E, 3.50% due 12/01/2023 1,500
AAA Aaa 1,995 Eaton Rapids, Michigan, Public Schools, GO, Refunding, 5% due 5/01/2022 (c) 1,733
NR* Aaa 1,600 Fruitport, Michigan, Community Schools, GO, 5.30% due 5/01/2022 (d) 1,461
AAA Aaa 2,000 Grand Ledge, Michigan, Public Schools District, GO, 6.45% due 5/01/2004 (c)(f) 2,177
A1+ VMIG1++ 1,600 Grand Rapids, Michigan, Water Supply Revenue Refunding Bonds, VRDN, 3.35% due
1/01/2020 (a)(d) 1,600
AAA Aaa 1,500 Grand Traverse County, Michigan, Hospital Revenue Refunding Bonds (Munson Healthcare),
Series A, 5.50% due 7/01/2018 (b) 1,410
AAA Aaa 2,295 Grand Valley, Michigan, State University Revenue Refunding Bonds,
5.20% due 2/01/2024 (c) 2,043
Holly, Michigan, Area School District, GO, Refunding (d):
AAA Aaa 1,970 5% due 5/01/2019 1,725
AAA Aaa 1,770 5% due 5/01/2022 1,537
AAA Aaa 1,000 Holton, Michigan, Public Schools, GO, 5% due 5/01/2028 (d) 852
AAA Aaa 2,290 Kalamazoo, Michigan, Building Authority Revenue Bonds, 5.50% due 10/01/2026 (c) 2,132
AAA Aaa 2,000 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue Bonds
(Borgess Medical Center), Series A, 5.625% due 6/01/2014 (b)(i) 1,995
Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue
Refunding and Improvement Bonds (Bronson Methodist Hospital):
AAA Aaa 1,250 5.875% due 5/15/2026 (c) 1,228
A A1 2,500 Series A, 6.25% due 5/15/2012 2,678
A A1 1,750 Series A, 6.375% due 5/15/2017 1,881
</TABLE>
PORTFOLIO ABBREVIATIONS
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)
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HDA Housing Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
MuniYield Michigan Fund, Inc.
October 31, 1999
<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>
Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue
Refunding Bonds (Bronson Methodist Hospital) (c):
NR* Aaa $ 1,680 5.50% due 5/15/2013 $ 1,645
NR* Aaa 1,750 5.25% due 5/15/2018 1,588
NR* Aaa 3,250 RIB, Series 138, 7.17% due 5/15/2028 (g) 2,704
Kent County, Michigan, Airport Facility Revenue Refunding Bonds (Kent County
International Airport):
AAA Aa1 1,205 4.50% due 1/01/2008 1,144
AAA Aa1 1,305 4.50% due 1/01/2010 1,206
AAA Aaa 7,100 Kent, Michigan, Hospital Finance Authority, Health Care Revenue Bonds (Butterworth
Health Systems), Series A, 5.625% due 1/15/2006 (c)(f) 7,477
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) 2,631
AAA Aaa 1,425 Madison, Michigan, District Public Schools, GO, Refunding, 5.50% due 5/01/2013 (d) 1,406
Michigan Higher Education, Student Loan Revenue Bonds, AMT:
NR* A 1,250 Series XIV-A, 6.75% due 10/01/2006 1,299
AAA VMIG1++ 300 VRDN, Series XII-D, 3.55% due 10/01/2015 (a)(b) 300
Michigan Municipal Bond Authority Revenue Bonds:
AA+ Aa1 2,000 (Clean Water Revolving Fund), 5.50% due 10/01/2021 1,879
A NR* 1,100 (Local Government Loan--Revenue Sharing), Series B, 5.80% due 11/01/2013 1,105
AA+ Aa1 3,650 (State Revolving Fund), Series A, 6.55% due 10/01/2002 (f) 3,925
AA+ Aa2 2,500 Michigan Municipal Bond Authority, Revenue Refunding Bonds (Local
Government--Qualified School), Series A, 6.50% due 5/01/2016 2,646
Michigan State Building Authority Revenue Bonds (Facilities Program), Series II (b):
AAA Aaa 1,185 4.67%** due 10/15/2009 694
AAA Aaa 1,675 4.77%** due 10/15/2010 920
Michigan State, HDA, Rental Housing Revenue Bonds:
AA- NR* 810 AMT, Series A, 7.15% due 4/01/2010 852
AA- NR* 2,245 Series B, 7.10% due 4/01/2021 2,346
Michigan State, HDA, Revenue Refunding Bonds:
AA+ NR* 1,000 Series A, 6.80% due 12/01/2012 1,019
AA+ NR* 1,070 Series A, 6.875% due 6/01/2023 1,083
AA+ NR* 2,500 Series C, 6.50% due 6/01/2016 (h) 2,528
Michigan State Hospital Finance Authority Revenue Bonds:
AAA Aaa 2,000 (Mercy Health Services), Series R, 5.375% due 8/15/2026 (b) 1,800
AAA Aaa 1,000 (Mid-Michigan Obligation Group), 6.90% due 12/01/2002 (f) 1,088
Michigan State Hospital Finance Authority, Revenue Refunding Bonds:
AAA Aaa 5,000 (Ascension Health Credit), Series A, 6.125% due 11/15/2023 (c) 5,018
NR* A1 3,000 (McLaren Health Care Corp.), Series A, 5% due 6/01/2028 2,398
AAA Aaa 1,250 (Mid-Michigan Obligation Group), Series A, 5.375% due 6/01/2027 (e) 1,123
BBB Ba1 2,500 Michigan State Strategic Fund, Limited Obligation Revenue Bonds (Waste
Management Inc. Project), AMT, 6.625% due 12/01/2012 2,518
Michigan State Strategic Fund, Limited Obligation Revenue Refunding Bonds:
AAA Aaa 5,000 (Detroit Edison Company), AMT, Series A, 5.55% due 9/01/2029 (c) 4,554
A A1 5,000 (Ford Motor Co. Project), Series A, 7.10% due 2/01/2006 5,554
A A2 2,500 Michigan State Strategic Fund, PCR, Refunding (General Motors Corp.),
6.20% due 9/01/2020 2,420
Michigan State Trunk Line Revenue Bonds, Series A (f):
AA- Aa3 1,000 5.625% due 11/15/2004 1,057
AA- Aa3 1,370 5.70% due 11/15/2004 1,453
AAA Aaa 5,000 Michigan State Trunk Line, Revenue Refunding Bonds, Series A, 4.75%
due 11/01/2020 (c) 4,207
</TABLE>
MuniYield Michigan Fund, Inc.
October 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Michigan (concluded)
<S> <S> <C> <S> <C>
AAA Aaa $ 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) $ 7,332
AAA Aaa 5,000 Oxford, Michigan, Area Community School District, GO, 5.40% due 5/01/2025 (d) 4,600
AA+ Aa2 1,370 Plymouth-Canton, Michigan, Community School District, Refunding, GO,
Series A, 6.625% due 5/01/2001 (f) 1,431
AAA Aaa 1,160 Ravenna, Michigan, Public Schools, GO, 5.25% due 5/01/2024 (d) 1,041
AA+ Aa2 2,250 Reeths-Puffer, Michigan, Schools Building, GO, Series Q, 6.625% due 5/01/2002 (f) 2,407
AAA Aaa 2,000 Romulus, Michigan, Community Schools, Series I, 6.75% due 5/01/2001 (e)(f) 2,111
Royal Oak, Michigan, Hospital Finance Authority, Hospital Revenue Bonds (William
Beaumont Hospital), VRDN (a):
A1+ VMIG1++ 1,500 Series J, 3.50% due 1/01/2003 1,500
AA VMIG1++ 100 Series L, 3.50% due 1/01/2027 100
AAA Aaa 1,825 Sault Sainte Marie, Michigan, Area Public Schools, GO, 5.375% due 5/01/2019 (d) 1,695
AAA Aaa 1,050 Tri County, Michigan, Area School District, GO, 5.125% due 5/01/2020 (e) 972
A1+ VMIG1++ 1,650 University of Michigan, University Hospital Revenue Refunding Bonds, VRDN, Series A,
3.50% due 12/01/2019 (a) 1,650
AA Aa1 2,510 University of Michigan, University Housing Revenue Bonds, Series A,
5.50% due 11/15/2017 2,413
Wayne Charter County, Michigan, Airport Revenue Bonds (c):
AAA Aaa 2,800 (Detroit Metropolitan--Wayne County Airport), AMT, Series A, 5% due 12/01/2028 2,337
AAA Aaa 1,000 (Detroit Metropolitan--Wayne County Airport), Series B, 5% due 12/01/2028 845
NR* NR* 3,750 RIB, AMT, Series 68, 6.845% due 12/01/2017 (g) 3,171
Wayne State University, Michigan, University Revenue Refunding Bonds (d):
AAA Aaa 1,625 5.25% due 11/15/2019 1,480
AAA Aaa 2,500 5.125% due 11/15/2029 2,172
AAA Aaa 2,500 West Branch-Rose City, Michigan, GO, 5.50% due 5/01/2024 (d) 2,410
AAA Aaa 2,500 Zeeland, Michigan, Public Schools, GO, 5.25% due 5/01/2019 (d) 2,281
Puerto Rico--4.1%
A1+ VMIG1++ 100 Puerto Rico Commonwealth, Highway and Transportation Authority, Transportation
Revenue Refunding Bonds, VRDN, Series A, 3.10% due 7/01/2028 (a)(b) 100
NR* NR* 7,500 Puerto Rico, Insured Trust Receipts, RITR, 7.02% due 7/01/2027 (c)(g) 6,478
Total Investments (Cost--$166,065)--101.2% 162,512
Liabilities in Excess of Other Assets--(1.2%) (1,938)
--------
Net Assets--100.0% $160,574
========
<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, 1999.
(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 rate shown is the
rate in effect at October 31, 1999.
(h)FHA Insured.
(i)Escrowed to maturity.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
MuniYield Michigan Fund, Inc.
October 31, 1999
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets, Liabilities and Capital as of October 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$166,064,645) (Note 1a) $162,512,282
Cash 44,805
Interest receivable 3,337,007
Prepaid expenses and other assets 8,831
------------
Total assets 165,902,925
------------
Liabilities: Payables:
Securities purchased $ 5,000,000
Distributions to shareholders (Note 1e) 177,361
Investment adviser (Note 2) 77,569 5,254,930
------------
Accrued expenses and other liabilities 73,955
------------
Total liabilities 5,328,885
------------
Net Assets: Net assets $160,574,040
============
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 (7,911,326 shares issued
and outstanding) $ 791,133
Paid-in capital in excess of par 110,584,058
Undistributed investment income--net 1,294,836
Accumulated distributions in excess of realized capital gains on
investments--net (Note 1e) (3,543,624)
Unrealized depreciation on investments--net (3,552,363)
------------
Total--Equivalent to $13.34 net asset value per share of
Common Stock (market price--$12.25) 105,574,040
------------
Total capital $160,574,040
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
MuniYield Michigan Fund, Inc.
October 31, 1999
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statement of Operations
For the Year Ended
October 31, 1999
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 9,397,355
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 853,741
Commission fees (Note 4) 139,568
Professional fees 80,324
Accounting services (Note 2) 60,234
Transfer agent fees 58,350
Printing and shareholder reports 27,014
Directors' fees and expenses 23,326
Listing fees 16,350
Custodian fees 15,005
Pricing fees 11,223
Other 17,680
------------
Total expenses 1,302,815
------------
Investment income--net 8,094,540
------------
Realized & Realized loss on investments--net (68,591)
Unrealized Change in unrealized appreciation/depreciation on investments--net (15,504,183)
Loss on ------------
Investments--Net Net Decrease in Net Assets Resulting from Operations $ (7,478,234)
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
MuniYield Michigan Fund, Inc.
October 31, 1999
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 8,094,540 $ 8,721,288
Realized gain (loss)on investments--net (68,591) 4,168,067
Change in unrealized appreciation/depreciation on investments--net (15,504,183) (1,309,899)
------------ ------------
Net increase (decrease) in net assets resulting from operations (7,478,234) 11,579,456
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (6,926,141) (6,872,146)
Shareholders Preferred Stock (1,400,806) (1,633,213)
(Note 1e): Realized gain on investments--net:
Common Stock (348,926) (601,394)
Preferred Stock (57,950) (385,924)
In excess of realized gain on investments--net:
Common Stock (3,036,609) --
Preferred Stock (504,326) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (12,274,758) (9,492,677)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends and distributions 2,208,114 640,468
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (17,544,878) 2,727,247
Beginning of year 178,118,918 175,391,671
------------ ------------
End of year* $160,574,040 $178,118,918
============ ============
<FN>
*Undistributed investment income--net (Note 1f) $ 1,294,836 $ 1,523,306
============ ============
See Notes to Financial Statements.
</TABLE>
MuniYield Michigan Fund, Inc.
October 31, 1999
<TABLE>
FINANCIAL INFORMATION (concluded)
<CAPTION>
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.85 $ 15.58 $ 15.29 $ 15.23 $ 14.05
Operating -------- -------- -------- -------- --------
Performance: Investment income--net 1.02 1.12 1.16 1.18 1.19
Realized and unrealized gain (loss) on
investments--net (1.96) .38 .28 .11 1.47
-------- -------- -------- -------- --------
Total from investment operations (.94) 1.50 1.44 1.29 2.66
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.88) (.89) (.90) (.93) (.92)
Realized gain on investments--net (.05) (.08) -- -- (.27)
In excess of realized gain on investments--net (.39) -- -- (.04) --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (1.32) (.97) (.90) (.97) (1.19)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.18) (.21) (.25) (.25) (.23)
Realized gain on investments--net (.01) (.05) -- -- (.06)
In excess of realized gain on investments--net (.06) -- -- (.01) --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.25) (.26) (.25) (.26) (.29)
-------- -------- -------- -------- --------
Net asset value, end of year $ 13.34 $ 15.85 $ 15.58 $ 15.29 $ 15.23
======== ======== ======== ======== ========
Market price per share, end of year $ 12.25 $ 16.00 $ 15.125 $ 14.50 $ 13.875
======== ======== ======== ======== ========
Total Investment Based on market price per share (16.42%) 12.56% 10.92% 11.67% 19.93%
Return:* ======== ======== ======== ======== ========
Based on net asset value per share (8.12%) 8.25% 8.35% 7.28% 18.29%
======== ======== ======== ======== ========
Ratios Based on Total expenses** 1.12% 1.05% 1.08% 1.10% 1.13%
Average Net Assets ======== ======== ======== ======== ========
Of Common Stock: Total investment income--net** 6.96% 7.20% 7.46% 7.76% 8.21%
======== ======== ======== ======== ========
Amount of dividends to
Preferred Stock shareholders 1.20% 1.35% 1.63% 1.66% 1.58%
======== ======== ======== ======== ========
Investment income--net, to Common Stock
shareholders 5.76% 5.85% 5.83% 6.10% 6.63%
======== ======== ======== ======== ========
Ratios Based on Total expenses .76% .72% .74% .75% .76%
Total Average ======== ======== ======== ======== ========
Net Assets:++** Total investment income--net 4.73% 4.96% 5.15% 5.26% 5.50%
======== ======== ======== ======== ========
Ratios Based on Dividends to Preferred Stock shareholders 2.55% 2.97% 3.57% 3.52% 3.22%
Average Net Assets ======== ======== ======== ======== ========
Of Preferred Stock:
Supplemental Net assets, net of Preferred Stock,
Data: end of year (in thousands) $105,574 $123,119 $120,392 $118,146 $117,600
======== ======== ======== ======== ========
Preferred Stock outstanding, end of year
(in thousands) $ 55,000 $ 55,000 $ 55,000 $ 55,000 $ 55,000
======== ======== ======== ======== ========
Portfolio turnover 63.64% 40.41% 16.06% 19.73% 15.47%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 2,920 $ 3,239 $ 3,189 $ 3,148 $ 3,138
======== ======== ======== ======== ========
Dividends Per Investment income--net $ 637 $ 742 $ 894 $ 880 $ 806
Share On ======== ======== ======== ======== ========
Preferred Stock
Outstanding:
<FN>
*Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales charges.
**Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Includes Common and Preferred Stock average net assets.
See Notes to Financial Statements.
</TABLE>
MuniYield Michigan Fund, Inc.
October 31, 1999
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's financial statements are
prepared in accordance with generally accepted accounting
principles, which may require the use of management accruals and
estimates. 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 strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. Distributions in excess of
realized capital gains are due primarily to differing tax treatments
for futures transactions.
MuniYield Michigan Fund, Inc.
October 31, 1999
(f) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of $1,248
have been reclassified between paid-in capital in excess of par and
undistributed net investment income and $2,689 between accumulated
distributions in excess of net realized capital gains and
undistributed net investment income. These reclassifications have no
effect on net assets or net asset value per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of .50% of
the Fund's average weekly net assets, including proceeds from the
issuance of Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1999 were $105,984,658 and
$100,262,377, respectively.
Net realized losses for the year ended October 31, 1999 and net
unrealized losses as of October 31, 1999 were as follows:
Realized Unrealized
Losses Losses
Long-term investments $ (68,591) $ (3,552,363)
---------- ------------
Total $ (68,591) $ (3,552,363)
========== ============
As of October 31, 1999, net unrealized depreciation for Federal
income tax purposes aggregated $3,552,363, of which $4,171,345
related to appreciated securities and $7,723,708 related to
depreciated securities. The aggregate cost of investments at October
31, 1999 for Federal income tax purposes was $166,064,645.
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
Shares issued and outstanding during the years ended October 31,
1999 and October 31, 1998 increased by 143,621 and 40,495,
respectively, as a result of dividend reinvestment.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund, with a par value of $.05 per share and a
liquidation preference of $25,000 per share, that entitle their
holders to receive cash dividends at an annual rate that may vary
for the successive dividend periods. The yield in effect at October
31, 1999 was 3.34%.
Shares issued and outstanding during the the years ended October 31,
1999 and October 31, 1998 remained constant.
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 the year ended
October 31, 1999, Merrill Lynch, Pierce Fenner & Smith Incorporated,
an affiliate of FAM, earned $104,803 as commissions.
5. Capital Loss Carryforward:
At October 31, 1999, the Fund had a net capital loss carryforward of
approximately $1,174,000, all of which expires in 2007. This amount
will be available to offset like amounts of any future taxable
gains.
6. Subsequent Event:
On November 8, 1999, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.068000 per share, payable on November 29, 1999 to shareholders
of record as of November 22, 1999.
MuniYield Michigan Fund, Inc.
October 31, 1999
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
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, 1999, 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 five-year period
then ended. 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 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, 1999 by correspondence with the custodian and broker. 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, 1999, 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, 1999
</AUDIT-REPORT>
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
<CAPTION>
All of the net investment income distributions paid by MuniYield
Michigan Fund, Inc. during its taxable year ended October 31, 1999
qualify as tax-exempt interest dividends for Federal income tax
purposes. Additionally, the following table summarizes the taxable
distributions paid by the Fund during the year:
Payable Ordinary Long-Term
Date Income Capital Gains*
<S> <C> <C> <C>
Common Stock Shareholders 12/30/98 $.063119 $.372114
Preferred Stock Shareholders 11/03/98 -- $ 24.91
11/10/98 -- $ 25.67
11/17/98 $ 6.11 $ 19.27
11/24/98 $ 5.94 $ 18.99
12/01/98 $ 5.73 $ 18.57
12/08/98 $ 6.20 $ 20.41
12/15/98 $ 5.75 $ 19.31
12/22/98 $ 5.99 $ 20.60
12/29/98 $ 5.49 $ 19.46
1/01/99 $ 7.33 $ 27.32
1/12/99 $ 2.88 $ 14.56
<FN>
*All of the distributions are subject to the 20% tax rate.
Please retain this information for your records.
</TABLE>
MuniYield Michigan Fund, Inc.
October 31, 1999
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to
designate years. These systems may not be able to distinguish the
Year 2000 from the Year 1900 (commonly known as the "Year 2000
Problem"). The Fund could be adversely affected if the computer
systems used by the Fund's management or other Fund service
providers do not properly address this problem before January 1,
2000. The Fund's management expects to have addressed this problem
before then, and does not anticipate that the services it provides
will be adversely affected. The Fund's other service providers have
told the Fund's management that they also expect to resolve the Year
2000 Problem, and the Fund's management will continue to monitor the
situation as the Year 2000 approaches. However, if the problem has
not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the
securities in which the Fund invests and this could hurt the Fund's
investment returns.
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its
net investment income to its shareholders on a monthly basis.
However, in order to provide shareholders with a more consistent
yield to the current trading price of shares of Common Stock of the
Fund, the Fund may at times pay out less than the entire amount of
net investment income earned in any particular month and may at
times in any month pay out such accumulated but undistributed income
in addition to net investment income earned in that month. As a
result, the dividends paid by the Fund for any particular month may
be more or less than the amount of net investment income earned
by the Fund during such month. The Fund's current accumulated but
undistributed net investment income, if any, is disclosed in the
Statement of Assets, Liabilities and Capital, which comprises part
of the Financial Information included in this report.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Fred K. Stuebe, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
MYM
