MUNIYIELD
MICHIGAN
FUND, INC.
FUND LOGO
Annual Report
October 31, 2000
MuniYield Michigan Fund, Inc. seeks to provide shareholders with as
high a level of current income exempt from Federal and Michigan
income taxes as is consistent with its investment policies and
prudent investment management by investing primarily in a portfolio
of long-term municipal obligations the interest on which, in the
opinion of bond counsel to the issuer, is exempt from Federal and
Michigan income taxes.
This report, including the financial information herein, is
transmitted to shareholders of MuniYield Michigan Fund, Inc. for
their information. It is not a prospectus. Past performance results
shown in this report should not be considered a representation of
future performance. The Fund has leveraged its Common Stock 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.
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, 2000
DEAR SHAREHOLDER
For the year ended October 31, 2000, the Common Stock of MuniYield
Michigan Fund, Inc. earned $0.763 per share income dividends, which
included earned and unpaid dividends of $0.063. This represents a
net annualized yield of 5.52%, based on a month-end net asset value
of $13.83 per share. Over the same period, the total investment
return on the Fund's Common Stock was +10.76%, based on a change in
per share net asset value from $13.34 to $13.83, and assuming
reinvestment of $0.768 per share income dividends.
For the six-month period ended October 31, 2000, the total
investment return on the Fund's Common Stock was +7.11%, based on a
change in per share net asset value from $13.33 to $13.83, and
assuming reinvestment of $0.379 per share income dividends.
For the six-month period ended October 31, 2000, the Fund's Auction
Market Preferred Stock had an average yield of 4.19%.
The Municipal Market Environment
During the six months ended October 31, 2000, long-term US Treasury
bond yields generally drifted lower. A number of economic
indicators, particularly employment, new home sales and consumer
spending, have suggested that US economic growth, while still
strong, has moderated from 1999's robust levels. Preliminary
estimates for third-quarter 2000 US gross domestic product growth
were recently released at 2.7%, well below the first-quarter 2000
rate of 4.8% and the second-quarter 2000 rate of 5.6%. This decline
in economic growth suggests to some analysts that the Federal
Reserve Board has finished raising interest rates for its current
interest rate cycle. The Federal Reserve Board increased short-term
interest rates at its May meeting and has since kept monetary policy
steady at its subsequent meetings. Given the potential for stable
short-term interest rates in the coming months, investor emphasis
focused on the continuing US Treasury debt reduction program and
forecasts of sizeable Federal budgetary surpluses going forward.
Many investors have concluded that there will be a significant
future shortage of longer-dated maturity US Treasury securities. By
late August, US Treasury bond yields declined 30 basis points
(0.30%) to 5.66%, their lowest level in more than a year.
However, for the remainder of the period, bond yields were unable to
maintain their earlier gains. Rising oil prices were the major focus
behind the decline in bond prices, as many investors feared that
higher oil prices would result in increased inflationary pressures.
Additionally, US corporations issued large amounts of taxable debt
in order to take advantage of the current low interest rate
environment. During the last three months, US corporations issued
more than $100 billion in investment-grade securities, offering
yields in the 7.25%--9% range. Many investors found these taxable
issues an attractive and more plentiful alternative to US Treasury
bonds. As the demand for US Treasury issues weakened, US bond yields
rose. Although US Treasury bond yields rose to 5.78% by the end of
October, overall they declined almost 20 basis points during the
last six months.
The six-month period ended October 31, 2000 was one of the few
periods in recent years in which the tax-exempt bond market
outperformed its taxable counterpart, the US Treasury bond market.
While municipal bond yields followed the similar seesaw pattern of
Treasury bond yields, tax-exempt bond price volatility was
significantly reduced. Municipal bond yields traded in a relatively
narrow range during much of October 2000. Overall investor demand
for municipal bonds remained strong, allowing tax-exempt bond
yields, as measured by the Bond Buyer Revenue Bond Index, to decline
30 basis points to end the period at 5.75%.
In the past three months, new long-term municipal bond issuance has
continued to decline, albeit at a slower rate than earlier this
year. Over this period, more than $53 billion in new long-term
municipal bonds was issued, a decline of 3% compared to the same
three-month period in 1999. During the last six months, more than
$105 billion in tax-exempt bonds was underwritten, a decline of 8%
compared to the same six-month period in 1999. Just under $200
billion in new municipal securities was marketed during the past
year, a decline of more than 16% compared to the same 12-month
period in 1999.
The demand for municipal bonds came from a number of non-traditional
and conventional sources. Derivative/arbitrage programs and
insurance companies remained the dominant institutional buyers,
while individual retail purchases also remained strong. Traditional,
open-end tax-exempt mutual funds have continued to see significant
disintermediation. It was recently reported that thus far during the
2000 calendar year, long-term municipal bond mutual funds
experienced net cash outflows of more than $15 billion. Fortunately,
the combination of reduced new bond issuance and ongoing demand from
non-traditional sources has been able to more than offset the
decline in demand from tax-exempt mutual funds. This favorable
balance has fostered a significant decline in municipal bond yields
in recent months.
Currently, there is no reason to expect that the positive technical
position of the municipal bond market will significantly
deteriorate. The steeply positive yield curve and the relatively
high credit quality that the tax-exempt bond market offers should
continue to attract different classes of institutional buyers.
Strong state and local governmental financial conditions also
suggest that issuance should remain manageable into next year.
However, the results of the presidential election may affect the tax-
exempt bond market. Various tax and spending programs proposed by
both candidates have obvious implications for state and local
governments as well as corporate and individual taxpayers. Political
history has shown that the enactment of campaign promises, both
Republican and Democratic, has very often been a long, laborious
process. This suggests that over the next few months US economic
factors will most likely have a greater effect on bond yields than
political considerations.
Portfolio Strategy
During the six months ended October 31, 2000, the reduction in
overall bond issuance and declining bond yields limited portfolio
activity. We attempted to maintain the market neutral position we
adopted late last year by adding some interest rate-sensitive issues
to the Fund. As tax-exempt bond yields declined in recent months,
the market value of many of the Fund's holdings appreciated to such
an extent that additional market gains were limited. Some of these
issues were sold both to capture recent gains to the Fund's net
asset value and prevent the Fund from developing an overtly
defensive structure. The purchase of the more aggressively
structured securities returned the Fund to a more neutral market
position.
The Fund remained fully invested throughout the six-month period
ended October 31, 2000. A strategy of maintaining significant cash
reserves remains undesirable as it reduces shareholder income and,
given recent and expected future declines in tax-exempt bond
issuance, becomes problematic to quickly reinvest. We do not expect
any additional tightening actions by the Federal Reserve Board.
Furthermore, recent signs of a moderating US economy suggests that a
significant and protracted increase in fixed-income bond yields is
unlikely before year-end. In such an environment, we expect to
remain fully invested and use any periods of volatility as
opportunities to seek to enhance the Fund's dividend yield.
The 125 basis point increase in short-term interest rates engineered
by the Federal Reserve Board during the past year resulted in an
increase in the Fund's borrowing cost into the 4%--4.125% range.
However, despite this increase, the tax-exempt yield curve remained
steeply positive, generating a material income benefit to the Fund's
Common Stock shareholders from leveraging of the Preferred Stock.
However, should the spread between short-term and long-term tax-
exempt interest rates narrow, the benefits of the leverage will
decline and, as a result, reduce the yield on the Fund's Common
Stock. (For a complete explanation of the benefits and risks of
leveraging, see page 1 of this report to shareholders.)
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 Director
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Fred K. Stuebe)
Fred K. Stuebe
Vice President and
Portfolio Manager
December 5, 2000
MuniYield Michigan Fund, Inc., October 31, 2000
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute all or a portion of its
net investment income to its shareholders on a monthly basis. In
order to provide shareholders with a more consistent yield to the
current trading price of shares of Common Stock of the Fund, the
Fund may at times pay out less than the entire amount of net
investment income earned in any particular month and may at times in
any month pay out such accumulated but undistributed income in
addition to net investment income earned in that month. As a result,
the dividends paid by the Fund for any particular month may be more
or less than the amount of net investment income earned by the Fund
during such month. The Fund's current accumulated but undistributed
net investment income, if any, is disclosed in the Statement of
Assets, Liabilities and Capital, which comprises part of the
Financial Information included in this report.
QUALITY PROFILE
The quality ratings of securities in the Fund as of October 31, 2000
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 74.3%
AA/Aa 5.3
A/A 16.2
BBB/Baa 1.5
Other++ 2.8
++Temporary investments in short-term municipal securities.
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
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <S> <S> <C> <S> <C>
Michigan--98.5% AAA Aaa $ 3,165 Anchor Bay, Michigan, School District, GO (School Building and
Site), Series II, 5.75% due 5/01/2020 (d) $ 3,232
Battle Creek, Michigan, Tax Increment Finance Authority (f):
A- NR* 1,320 7.10% due 5/01/2004 1,449
A- NR* 1,000 7.40% due 5/01/2004 1,107
AAA Aaa 1,625 Brighton Township, Michigan, Sanitation Sewer Drainage
District, GO, 5.25% due 10/01/2020 (e) 1,576
AAA Aaa 3,545 Capital Region Airport Authority, Michigan, Airport Revenue
Bonds, AMT, 6.60% due 7/01/2012 (c) 3,706
AAA Aaa 2,465 Clarkston, Michigan, Community Schools, GO, 5.25% due
5/01/2023 (c) 2,365
NR* P1 4,300 Delta County, Michigan, Economic Development Corporation,
Environmental Improvement Revenue Refunding Bonds (Mead-
Escanaba Paper), DATES, Series E, 4.60% due 12/01/2023 (a) 4,300
AAA Aaa 1,000 Detroit, Michigan, Sewer Disposal Revenue Bonds, Series A,
5.75% due 7/01/2026 (d) 1,012
AAA Aaa 1,610 East Grand Rapids, Michigan, Public School District, GO,
5.75% due 5/01/2021 (e) 1,639
AAA Aaa 1,995 Eaton Rapids, Michigan, Public Schools, GO, Refunding, 5%
due 5/01/2022 (c) 1,828
AAA Aaa 2,000 Elkton Pigeon Bay Port, Michigan, GO, 5.375% due 5/01/2025 1,933
AAA Aaa 2,000 Grand Ledge, Michigan, Public Schools District, GO, 6.45%
due 5/01/2004 (c)(f) 2,159
A1+ VMIG1++ 1,600 Grand Rapids, Michigan, Water Supply Revenue Refunding
Bonds, VRDN, 4.20% due 1/01/2020 (a)(d) 1,600
AAA NR* 3,320 Grand Valley, Michigan, State University Revenue Bonds,
5.25% due 12/01/2025 (d) 3,169
AAA Aaa 2,295 Grand Valley, Michigan, State University Revenue Refunding
Bonds, 5.20% due 2/01/2024 (c) 2,175
Hartland, Michigan, Consolidated School District, GO (d):
AAA Aaa 1,075 6% due 5/01/2014 1,148
AAA Aaa 3,425 6% due 5/01/2016 3,620
Holly, Michigan, Area School District, GO, Refunding (d):
AAA Aaa 1,970 5% due 5/01/2019 1,830
AAA Aaa 1,770 5% due 5/01/2022 1,622
AAA Aaa 1,000 Holton, Michigan, Public Schools, GO, 5% due 5/01/2028 (d) 902
NR* Aaa 7,550 Kalamazoo, Michigan, Hospital Finance Authority, Hospital
Facility Revenue Refunding Bonds (Bronson Methodist Hospital),
5.50% due 5/15/2028 (c) 7,315
</TABLE>
MuniYield Michigan Fund, Inc., October 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <S> <S> <C> <S> <C>
Michigan Kalamazoo, Michigan, Hospital Finance Authority, Hospital
(concluded) Facility Revenue Refunding and Improvement Bonds (Bronson
Methodist), Series A (f):
A A1 $ 2,500 6.25% due 5/15/2012 $ 2,664
A A1 1,750 6.375% due 5/15/2017 1,874
AAA Aaa 4,600 Kent, Michigan, Hospital Finance Authority, Health Care
Revenue Bonds (Butterworth Health Systems), Series A, 5.625%
due 1/15/2006 (c)(f) 4,873
AAA Aaa 2,500 Kent, Michigan, Hospital Finance Authority, Hospital Revenue
Refunding Bonds (Pine Rest Christian Hospital), 6.50% due
11/01/2010 (d) 2,586
AAA Aaa 3,800 Lincoln Park, Michigan, School District, GO, Refunding, 5% due
5/01/2026 (d) 3,490
NR* VMIG1++ 300 Michigan Higher Education Student Loan Authority, Student Loan
Revenue Bonds, VRDN, AMT, Series XII-D, 4.35% due 10/01/2015 (a)(b) 300
Michigan Municipal Bond Authority Revenue Bonds:
A NR* 1,100 (Local Government Loan-Revenue Sharing), Series B, 5.80%
due 11/01/2013 1,121
AAA Aaa 3,650 (State Revolving Fund), Series A, 6.55% due 10/01/2002 (f) 3,860
AAA Aa1 2,500 Michigan Municipal Bond Authority, Revenue Refunding Bonds
(Local Government-Qualified School), Series A, 6.50% due
5/01/2016 2,618
Michigan State Building Authority Revenue Bonds (Facilities
Program), Series II (b):
AAA Aaa 1,185 4.67%** due 10/15/2009 760
AAA Aaa 1,675 4.77%** due 10/15/2010 1,017
AAA Aaa 2,245 Michigan State, HDA, Rental Housing Revenue Bonds, AMT, Series A,
5.30% due 10/01/2037 (c) 2,019
Michigan State, HDA, Revenue Refunding Bonds:
AA+ NR* 1,000 Series A, 6.80% due 12/01/2012 1,016
AA+ NR* 2,500 Series C, 6.50% due 6/01/2016 (h) 2,598
Michigan State Hospital Finance Authority Revenue Bonds:
AAA Aaa 2,000 (Mercy Health Services), Series R, 5.375% due 8/15/2026 (b)(i) 1,943
AAA Aaa 1,000 (Mid-Michigan Obligation Group), 6.90% due 12/01/2002 (f) 1,067
Michigan State Hospital Finance Authority, Revenue Refunding
Bonds:
AAA Aaa 3,760 (Ascension Health Credit), Series A, 6.25% due 11/15/2014 (c) 4,008
AAA Aaa 5,000 (Ascension Health Credit), Series A, 6.125% due 11/15/2023 (c) 5,130
AA Aa2 2,500 (Ascension Health Credit), Series A, 6.125% due 11/15/2026 2,521
NR* A1 3,000 (McLaren Health Care Corp.), Series A, 5% due 6/01/2028 2,425
AAA Aaa 1,000 (Mercy Health Services), Series X, 6% due 8/15/2014 (c) 1,055
AAA Aaa 1,000 (Mercy Mount Clemens), Series A, 6% due 5/15/2014 (c) 1,057
AAA Aaa 1,250 (Mid-Michigan Obligation Group), Series A, 5.375% due
6/01/2027 (e) 1,182
Michigan State Strategic Fund, Limited Obligation Revenue
Bonds:
A1+ P1 4,000 VRDN, Reserve 1, 4.55% due 9/01/2030 (a) 4,000
BBB Ba1 2,500 (Waste Management Inc. Project), AMT, 6.625% due 12/01/2012 2,502
Michigan State Strategic Fund, Limited Obligation Revenue
Refunding Bonds:
AAA Aaa 4,500 (Detroit Edison Company), AMT, Series A, 5.55% due
9/01/2029 (c) 4,342
A A1 5,000 (Ford Motor Co. Project), Series A, 7.10% due 2/01/2006 5,550
NR* Aaa 5,000 RIB, Series 382, 8.09% due 9/01/2025 (c)(g) 5,589
A A2 2,500 Michigan State Strategic Fund, PCR, Refunding (General
Motors Corp.), 6.20% due 9/01/2020 2,560
Michigan State Trunk Line, Revenue Bonds, Series A (d)(f):
AA Aa3 1,000 5.625% due 11/15/2004 1,056
AA Aa3 1,370 5.70% due 11/15/2004 1,451
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) 7,713
AAA Aaa 2,500 Oxford, Michigan, Area Community School District, GO, 5.40% due
5/01/2025 (d) 2,434
AAA Aa1 1,370 Plymouth-Canton, Michigan, Community School District, Refunding,
GO, Series A, 6.625% due 5/01/2001 (f) 1,399
AAA Aa1 2,250 Reeths-Puffer, Michigan, Schools Building, GO, Series Q, 6.625%
due 5/01/2002 (f) 2,363
AAA Aaa 1,250 Romeo, Michigan, Community School District, GO (Building and
Site Bonds), 5.375% due 5/01/2020 (c) 1,224
AAA Aaa 2,000 Romulus, Michigan, Community Schools, GO, Series I, 6.75% due
5/01/2001 (e)(f) 2,063
A1+ VMIG1++ 1,300 Royal Oak, Michigan, Hospital Finance Authority, Hospital
Revenue Bonds (William Beaumont Hospital), VRDN, Series L,
4.60% due 1/01/2027 (a) 1,300
NR* Aaa 1,000 Saint Clair County, Michigan, Ecomomic Revenue Refunding
Bonds (Detroit Edison Company), RIB, Series 282, 8.09% due
8/01/2024 (b)(g) 1,162
AAA Aaa 1,825 Sault Sainte Marie, Michigan, Area Public Schools, GO, 5.375%
due 5/01/2019 (d) 1,795
AAA Aaa 1,050 Tri County, Michigan, Area School District, GO, 5.125% due
5/01/2020 (e) 995
A1+ VMIG1++ 1,000 University of Michigan, University Hospital Revenue Bonds,
VRDN, Series A, 4.60% due 12/01/2027 (a) 1,000
AAA Aaa 1,250 Van Buren County, Michigan, GO, 5% due 5/01/2020 (b) 1,172
AAA Aaa 2,175 Warren, Michigan, Water and Sewer Revenue Bonds, 5.25% due
11/01/2021 (e) 2,097
AAA Aaa 2,500 Wayne Charter County, Michigan, Airport Revenue Bonds (Detroit
Metropolitan Wayne County), AMT, Series A, 5.375% due
12/01/2015 (c) 2,458
Wayne State University, Michigan, University Revenue
Refunding Bonds (d):
AAA Aaa 1,625 5.25% due 11/15/2019 1,579
AAA Aaa 2,500 5.125% due 11/15/2029 2,334
AAA Aaa 1,000 Zeeland, Michigan, Public Schools, GO, 5.25% due 5/01/2022 (d) 961
Puerto Rico NR* Aaa 2,270 Puerto Rico Electric Power Authority, Power Revenue Bonds,
--1.6% Trust Receipts, Class R, Series 16 HH, 7.346% due 7/01/2013 (g) 2,558
Total Investments (Cost--$159,413)--100.1% 164,528
Liabilities in Excess of Other Assets--(0.1%) (130)
--------
Net Assets--100.0% $164,398
========
(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, 2000.
(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, 2000.
(h)FHA Insured.
(i)Escrowed to maturity.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issue shown have not been audited by Deloitte & Touch
LLP.
See Notes to Financial Statements.
</TABLE>
MuniYield Michigan Fund, Inc., October 31, 2000
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of October 31, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$159,413,163) $164,528,227
Cash 117,621
Interest receivable 3,167,552
Prepaid expenses and other assets 23,218
------------
Total assets 167,836,618
------------
Liabilities: Payables:
Securities purchased $ 3,164,460
Dividends to shareholders 110,948
Investment adviser 66,977 3,342,385
------------
Accrued expenses 96,417
------------
Total liabilities 3,438,802
------------
Net Assets: Net assets $164,397,816
============
Capital: Capital Stock (200,000,000 shares authorized):
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 1,078,951
Accumulated realized capital losses on investments--net (4,627,766)
Accumulated distributions in excess of realized capital gains on
investments--net (3,543,624)
Unrealized appreciation on investments--net 5,115,064
------------
Total--Equivalent to $13.83 net asset value per share of Common
Stock (market price--$11.75) 109,397,816
------------
Total capital $164,397,816
============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended October 31, 2000
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 9,339,080
Income:
Expenses: Investment advisory fees $ 806,270
Commission fees 142,230
Professional fees 77,529
Transfer agent fees 45,002
Accounting services 42,062
Printing and shareholder reports 29,880
Directors' fees and expenses 19,808
Listing fees 19,329
Custodian fees 12,170
Pricing fees 10,792
Other 14,830
------------
Total expenses 1,219,902
------------
Investment income--net 8,119,178
------------
Realized & Realized loss on investments--net (4,627,766)
Unrealized Change in unrealized appreciation/depreciation on
Gain (Loss) on investments--net 8,667,427
Investments--Net: ------------
Net Increase in Net Assets Resulting from Operations $ 12,158,839
============
See Notes to Financial Statements.
</TABLE>
MuniYield Michigan Fund, Inc., October 31, 2000
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 2000 1999
<S> <S> <C> <C>
Operations: Investment income--net $ 8,119,178 $ 8,094,540
Realized loss on investments--net (4,627,766) (68,591)
Change in unrealized appreciation/depreciation on
investments--net 8,667,427 (15,504,183)
------------ ------------
Net increase (decrease) in net assets resulting from operations 12,158,839 (7,478,234)
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (6,077,291) (6,926,141)
Shareholders: Preferred Stock (2,257,772) (1,400,806)
Realized gain on investments--net:
Common Stock -- (348,926)
Preferred Stock -- (57,950)
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 (8,335,063) (12,274,758)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions: reinvestment of dividends and distributions -- 2,208,114
------------ ------------
Net Assets: Total increase (decrease) in net assets 3,823,776 (17,544,878)
Beginning of year 160,574,040 178,118,918
------------ ------------
End of year* $164,397,816 $160,574,040
============ ============
*Undistributed investment income--net $ 1,078,951 $ 1,294,836
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
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: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.34 $ 15.85 $ 15.58 $ 15.29 $ 15.23
Operating --------- -------- -------- -------- --------
Performance: Investment income--net 1.04 1.02 1.12 1.16 1.18
Realized and unrealized gain (loss) on
investments--net .51 (1.96) .38 .28 .11
--------- -------- -------- -------- --------
Total from investment operations 1.55 (.94) 1.50 1.44 1.29
--------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.77) (.88) (.89) (.90) (.93)
Realized gain on investments--net -- (.05) (.08) -- --
In excess of realized gain on
investments--net -- (.39) -- -- (.04)
--------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.77) (1.32) (.97) (.90) (.97)
--------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.29) (.18) (.21) (.25) (.25)
Realized gain on investments--net -- (.01) (.05) -- --
In excess of realized gain on invest-
ments--net -- (.06) -- -- (.01)
--------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.29) (.25) (.26) (.25) (.26)
--------- -------- -------- -------- --------
Net asset value, end of year $ 13.83 $ 13.34 $ 15.85 $ 15.58 $ 15.29
========= ======== ======== ======== ========
Market price per share, end of year $ 11.75 $ 12.25 $ 16.00 $ 15.125 $ 14.50
========= ======== ======== ======== ========
Total Investment Based on market price per share 2.47% (16.42%) 12.56% 10.92% 11.67%
Return:* ========= ======== ======== ======== ========
Based on net asset value per share 10.76% (8.12%) 8.25% 8.35% 7.28%
========= ======== ======== ======== ========
Ratios Based on Total expenses** 1.15% 1.12% 1.05% 1.08% 1.10%
Average ========= ======== ======== ======== ========
Net Assets of Total investment income--net** 7.62% 6.96% 7.20% 7.46% 7.76%
Common Stock: ========= ======== ======== ======== ========
Amount of dividends to Preferred Stock
shareholders 2.12% 1.20% 1.35% 1.63% 1.66%
========= ======== ======== ======== ========
Investment income--net, to Common Stock
shareholders 5.50% 5.76% 5.85% 5.83% 6.10%
========= ======== ======== ======== ========
Ratios Based on Total expenses .75% .76% .72% .74% .75%
Total Average ========= ======== ======== ======== ========
Net Assets:**++ Total investment income--net 5.02% 4.73% 4.96% 5.15% 5.26%
========= ======== ======== ======== ========
Ratios Based on Dividends to Preferred Stock shareholders 4.09% 2.55% 2.97% 3.57% 3.52%
Average Net ========= ======== ======== ======== ========
Assets of
Preferred Stock:
Supplemental Net assets, net of Preferred Stock, end of
Data: year (in thousands) $ 109,398 $105,574 $123,119 $120,392 $118,146
========= ======== ======== ======== ========
Preferred Stock outstanding, end of year
(in thousands) $ 55,000 $ 55,000 $ 55,000 $ 55,000 $ 55,000
========= ======== ======== ======== ========
Portfolio turnover 75.11% 63.64% 40.41% 16.06% 19.73%
========= ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 2,989 $ 2,920 $ 3,239 $ 3,189 $ 3,148
========= ======== ======== ======== ========
Dividends Investment income--net $ 1,026 $ 637 $ 742 $ 894 $ 880
Per Share on ========= ======== ======== ======== ========
Preferred Stock
Outstanding:
*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, 2000
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 conformity with accounting principles generally accepted
in the United States of America, 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 investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. 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.
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.
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, 2000 were $113,225,496 and
$119,840,887, respectively.
Net realized losses for the year ended October 31, 2000 and net
unrealized gains as of October 31, 2000 were as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (4,627,766) $ 5,115,064
------------ -----------
Total $ (4,627,766) $ 5,115,064
============ ===========
As of October 31, 2000, net unrealized appreciation for Federal
income tax purposes aggregated $5,115,064, of which $6,074,588
related to appreciated securities and $959,524 related to
depreciated securities. The aggregate cost of investments at October
31, 2000 for Federal income tax purposes was $159,413,163.
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 year ended October 31, 2000
remained constant and during the year ended October 31, 1999,
increased by 143,621 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 liquida-
tion 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, 2000
was 4.13%.
Shares issued and outstanding during the years ended October 31,
2000 and October 31, 1999 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 year ended
October 31, 2000, Merrill Lynch, Pierce Fenner & Smith Incorporated,
an affiliate of FAM, earned $104,476 as commissions.
5. Capital Loss Carryfoward:
At October 31, 2000, the Fund had a net capital loss carryforward of
approximately $5,873,000, of which $1,174,000 expires in 2007 and
$4,699,000 expires in 2008. This amount will be available to offset
like amounts of any future taxable gains.
6. Subsequent Event:
On November 8, 2000, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.062908 per share, payable on November 29, 2000 to shareholders
of record as of November 20, 2000.
MuniYield Michigan Fund, Inc., October 31, 2000
<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, 2000, 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 auditing standards
generally accepted in the United States of America. 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, 2000 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, the financial statements and financial highlights
present fairly, in all material respects, the financial position of
MuniYield Michigan Fund, Inc. as of October 31, 2000, the results of
its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Princeton, New Jersey
December 6, 2000
</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, 2000
qualify as tax-exempt interest dividends for Federal income tax
purposes. Additionally, there were no capital gains distributions
paid by the Fund during the year.
Please retain this information for your records.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Joseph L. May, Director
Andre F. Perold, Director
Roberta Cooper Ramo, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Fred D. 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
100Church Street
New York, NY 10286
NYSE Symbol
MYM
