MUNIYIELD
MICHIGAN
FUND, INC.
FUND LOGO
Semi-Annual Report
April 30, 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 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
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., April 30, 2000
DEAR SHAREHOLDER
For the six-month period ended April 30, 2000, the Common Stock of
MuniYield Michigan Fund, Inc. earned $0.385 per share income
dividends, which included earned and unpaid dividends of $0.064.
This represents a net annualized yield of 5.80%, based on a month-
end per share net asset value of $13.33. Over the same period, the
total investment return on the Fund's Common Stock was +3.40%, based
on a change in per share net asset value from $13.34 to $13.33, and
assuming reinvestment of $0.390 per share income dividends.
For the six-month period ended April 30, 2000, the Fund's Auction
Market Preferred Stock had an average yield of 4.00%.
The Municipal Market
Environment
Since October 1999 through mid-January 2000, fixed-income bond
yields rose steadily higher. US economic growth, in part intensified
by Year 2000 preparations, grew at a 7.3% rate in the fourth quarter
of 1999 and at a 4.2% annual rate for all of 1999. Initial estimates
for the first quarter of 2000 were reported at 5.4%. However,
despite these significant growth rates, no price measure indicator
has shown any considerable signs of future price pressures at the
consumer level, despite the lowest unemployment rates since January
1970. Given no signs of an economic slowdown, the Federal Reserve
Board continued to raise short-term interest rates in November 1999
and again in February and March 2000. In each instance, the Federal
Reserve Board cited both the continued growth of US employment and
the impressive strength of the US equity markets as reasons for
attempting to moderate US economic growth before inflationary price
increases are realized. By mid-January 2000, US Treasury bond yields
rose 60 basis points (0.60%) to 6.75%. Similarly, as measured by the
Bond Buyer Revenue Bond Index, long-term tax-exempt bond yields rose
approximately 20 basis points to 6.35%.
Since mid-January, fixed-income markets have largely ignored strong
economic fundamentals and concentrated on very positive technical
supply factors. Declining bond issuance, both current, and more
importantly, expected future issuance, helped push bond yields lower
from mid-January to mid-April 2000. In late January and early
February 2000, the US Treasury announced its intention to reduce the
number of issues to be auctioned in the quarterly Treasury note and
bond auctions. Furthermore, budgetary surpluses would allow the US
Treasury to repurchase outstanding, higher-couponed Treasury issues,
primarily in the 15-year and longer-term maturity sectors. Both
these actions would result in a significant reduction in the
outstanding supply of long-term US Treasury debt. Domestic and
international investors quickly began to accumulate what was
expected to become a scarce commodity and bond prices quickly rose.
By mid-April 2000, US Treasury bond yields had declined over 100
basis points to 5.67%. However, bond yields rose somewhat during the
last two weeks of the period as economic statistics were released,
indicating that the economic strength seen in late 1999 was
continuing into early 2000. The decline in long-term US Treasury
bond yields resulted in an inverted taxable yield curve as short-
term and intermediate-term interest rates have not fallen
proportionately since the Federal Reserve Board is expected to
continue to raise short-term interest rates. The current inversion
has had much more to do with debt reduction and Treasury buybacks
than with investor expectations of slower economic growth. Over the
last six months, long-term US Treasury bond yields have fallen
almost 20 basis points to close the six-month period ended April 30,
2000 at 5.96%.
Tax-exempt bond yields have also declined in recent months. The
decline has largely been in response to the rally in US Treasury
securities, as well as a continued positive technical supply
environment. States such as California and Maryland have announced
that their large current and anticipated future budget surpluses
will permit the cancellation or postponement of expected bond
issuance. Additionally, some issuers have also initiated tenders to
repurchase existing debt, reducing the supply of tax-exempt bonds in
the secondary market as well. Since their recent peak in January
2000, long-term municipal bond yields declined over 25 basis points
to finish the six-month period ended April 30, 2000 at 6.07%. During
the last six months, municipal bond yields declined just 10 basis
points overall.
The relative underperfomance of the municipal bond market in recent
months has been especially disappointing given the strong technical
position the tax-exempt bond market enjoyed. The issuance of long-
term tax-exempt securities has dramatically declined. Over the last
year, $203 billion in new long-term municipal securities was issued,
a decline of almost 25% compared to the same period a year earlier.
For the six months ended April 30, 2000, approximately $90 billion
in new tax-exempt bonds was underwritten, a decline of more than 25%
compared to the same period in 1999. Although investors received
over $30 billion in coupon payments, bond maturities, and the
proceeds from early bond redemptions, coupled with the highest
municipal bond yields in three years, overall investor demand has
diminished. Long-term municipal bond 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. Over the last four months, tax-exempt mutual funds
have had net redemptions of more than $8 billion. Also, the demand
from property and casualty insurance companies has weakened as a
result of the losses and anticipated losses incurred from a series
of damaging storms across much of the eastern United States.
Additionally, many institutional investors who have in recent years
been attracted to the municipal bond market by historically
attractive tax-exempt bond yield ratios of over 90% found other
asset classes even more attractive. Even with a favorable supply
position, tax-exempt municipal bond yields have underperformed their
taxable counterparts.
Any significantly lower municipal bond yields are still likely to
require weaker US employment growth and consumer spending. The
actions taken in recent months by the Federal Reserve Board should
eventually slow US economic growth. The recent declines in US home
sales are perhaps the first sign that consumer spending is being
slowed by higher interest rates. Until further signs develop, it is
likely that the municipal bond market's current favorable technical
position will dampen significant tax-exempt interest rate volatility
and provide a stable environment for eventual improvement in
municipal bond prices.
Portfolio Strategy
As the US economy remained far stronger than we anticipated in late
1999, we adopted a more neutral portfolio structure for the Fund. We
sold several interest rate-sensitive issues and replaced them with
higher-couponed issues in the 15-year maturity range. Given the
steepness of the tax-exempt yield curve, bonds in this maturity
range can capture approximately 95% of the yield available in the
entire municipal yield curve. Bonds with this structure are
significantly less sensitive to interest rate changes than bonds
maturing in 25 years--30 years, thereby still allowing the Fund to
maintain an attractive income dividend stream. However, reduced new
bond issuance in recent months has hampered our efforts to return
the Fund to a neutral stance.
MuniYield Michigan Fund, Inc., April 30, 2000
For the majority of the six-months ended April 30, 2000, short-term
tax-exempt bond yields averaged approximately 3.75%, resulting in a
significant incremental yield paid to the Fund's Common Stock
shareholder. However, the combination of Federal income tax season
and an ongoing Federal Reserve Board tightening cycle has pushed
municipal short-term interest rates to above 4%. The steepness of
the tax-exempt bond yield curve still generates a positive yield
advantage from the leveraging of the Fund's Preferred Stock.
However, should the spread between long-term tax-exempt interest
rates and short-term tax-exempt interest rates narrow, the benefits
of the leverage will decline and the yield on the Fund's Common
Stock will decline. (For an explanation on 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 Trustee
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Fred K. Stuebe)
Fred K. Stuebe
Vice President and
Portfolio Manager
May 30, 2000
PROXY RESULTS
During the six-month period ended April 30, 2000, MuniYield Michigan
Fund, Inc.'s Common Stock shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on
April 27, 2000. The description of each proposal and number of
shares voted are as follows:
<TABLE>
<CAPTION>
Shares Voted Shares Withheld
For From Voting
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn 5,153,042 122,572
James H. Bodurtha 5,154,236 121,378
Herbert I. London 5,153,067 122,547
Roberta Cooper Ramo 5,151,127 124,487
Arthur Zeikel 5,149,209 126,405
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2. To select Deloitte & Touche LLP as the Fund's independent auditors: 5,199,874 12,645 63,095
</TABLE>
During the six-month period ended April 30, 2000, MuniYield Michigan
Fund, Inc.'s Preferred Stock shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on
April 27, 2000. The description of each proposal and number of
shares voted are as follows:
<TABLE>
<CAPTION>
Shares Voted Shares Withheld
For From Voting
<S> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn,
James H. Bodurtha, Herbert I. London, Joseph L. May,
Andre F. Perold, Roberta Cooper Ramo and Arthur Zeikel 1,124 0
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C>
2. To select Deloitte & Touche LLP as the Fund's independent auditors: 1,122 2 0
</TABLE>
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 April 30, 2000
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 62.4%
AA/Aa 16.0
A/A 12.3
BBB/Baa 1.5
Other++ 5.8
[FN]
++Temporary investments in short-term municipal securities.
MuniYield Michigan Fund, Inc., April 30, 2000
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)
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--98.0% AAA Aaa $ 1,500 Avondale, Michigan, School District, GO, Refunding, 4.75%
due 5/01/2022 (b) $ 1,256
Battle Creek, Michigan, Tax Increment Finance Authority (f):
A- NR* 1,320 7.10% due 5/01/2004 1,437
A- NR* 1,000 7.40% due 5/01/2004 1,099
AAA Aaa 3,545 Capital Region Airport Authority, Michigan, Airport Revenue
Bonds, AMT, 6.60% due 7/01/2012 (c) 3,707
AAA Aaa 2,465 Clarkston, Michigan, Community Schools, GO, 5.25% due
5/01/2023 (c) 2,245
AAA Aaa 5,000 Detroit, Michigan, Sewer Disposal Revenue Bonds, Series A,
5.875% due 7/01/2027 (d) 4,966
AAA NR* 1,610 East Grand Rapids, Michigan, Public School District, GO,
5.75% due 5/01/2021 (e) 1,594
AAA Aaa 1,995 Eaton Rapids, Michigan, Public Schools, GO, Refunding, 5%
due 5/01/2022 (c) 1,746
AAA Aaa 2,000 Grand Ledge, Michigan, Public Schools District, GO, 6.45%
due 5/01/2004 (c)(f) 2,137
A1+ VMIG1++ 1,600 Grand Rapids, Michigan, Water Supply Revenue Refunding Bonds,
VRDN, 4.95% 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) 1,424
AAA Aaa 2,295 Grand Valley, Michigan, State University Revenue
Refunding Bonds, 5.20% due 2/01/2024 (c) 2,070
Holly, Michigan, Area School District, GO, Refunding (d):
AAA Aaa 1,970 5% due 5/01/2019 1,762
AAA Aaa 1,770 5% due 5/01/2022 1,549
AAA Aaa 1,000 Holton, Michigan, Public Schools, GO, 5% due 5/01/2028 (d) 859
AAA Aaa 2,290 Kalamazoo, Michigan, Building Authority Revenue Bonds,
5.50% due 10/01/2026 (c) 2,168
Kalamazoo, Michigan, Hospital Finance Authority, Hospital
Facility Revenue Refunding Bonds (Bronson Methodist Hospital) (c):
NR* Aaa 1,750 5.25% due 5/15/2018 1,601
NR* Aaa 3,250 RIB, Series 138, 5.59% due 5/15/2028 (g) 2,740
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) 1,218
A A1 2,500 Series A, 6.25% due 5/15/2012 2,624
A A1 1,750 Series A, 6.375% due 5/15/2017 1,847
Kent County, Michigan, Airport Facility Revenue Refunding
Bonds (Kent County International Airport):
AAA Aaa 1,205 4.50% due 1/01/2008 1,134
AAA Aaa 1,305 4.50% due 1/01/2010 1,200
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) 7,381
AAA Aaa 2,500 Kent, Michigan, Hospital Finance Authority, Hospital
Revenue Refunding Bonds (Pine Rest Christian Hospital),
6.50% due 11/01/2010 (d) 2,596
Michigan Higher Education, Student Loan Revenue Bonds, AMT:
NR* A 1,250 Series XIV-A, 6.75% due 10/01/2006 1,284
AAA VMIG1++ 300 VRDN, Series XII-D, 5.10% 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 1,917
A NR* 1,100 (Local Government Loan-Revenue Sharing), Series B, 5.80%
due 11/01/2013 1,103
AA+ Aa1 3,650 (State Revolving Fund), Series A, 6.55% due 10/01/2002 (f) 3,855
AA+ Aa2 2,500 Michigan Municipal Bond Authority, Revenue Refunding Bonds
(Local Government-Qualified School), Series A, 6.50% due
5/01/2016 2,603
Michigan State Building Authority Revenue Bonds
(Facilities Program), Series II (b):
AAA Aaa 1,185 4.67%** due 10/15/2009 708
AAA Aaa 1,675 4.77%** due 10/15/2010 944
AAA Aaa 1,745 Michigan State Building Authority, Revenue Refunding Bonds
(Facilities Program), Series I, 6% due 10/01/2004 (b) 1,813
Michigan State, HDA, Rental Housing Revenue Bonds:
AA- NR* 810 AMT, Series A, 7.15% due 4/01/2010 844
AA- NR* 2,245 Series B, 7.10% due 4/01/2021 2,329
Michigan State, HDA, Revenue Refunding Bonds:
AA+ NR* 1,000 Series A, 6.80% due 12/01/2012 1,012
AA+ NR* 405 Series A, 6.875% due 6/01/2023 406
AA+ NR* 2,500 Series C, 6.50% due 6/01/2016 (h) 2,507
AA+ NR* 1,500 Series D, 5.95% due 12/01/2016 1,521
Michigan State Hospital Finance Authority Revenue Bonds:
AAA Aaa 2,000 (Mercy Health Services), Series R, 5.375% due 8/15/2026 (b) 1,801
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) 3,940
AAA Aaa 5,000 (Ascension Health Credit), Series A, 6.125% due 11/15/2023 (c) 5,021
AA Aa2 2,500 (Ascension Health Credit), Series A, 6.125% due 11/15/2026 2,460
NR* A1 3,000 (McLaren Health Care Corp.), Series A, 5% due 6/01/2028 2,353
AAA Aaa 1,000 (Mercy Health Services), Series X, 6% due 8/15/2014 (c) 1,025
AAA Aaa 1,000 (Mercy Mount Clemens), Series A, 6% due 5/15/2014 (c) 1,023
AAA Aaa 1,250 (Mid-Michigan Obligation Group), Series A, 5.375% due
6/01/2027 (e) 1,124
Michigan State Strategic Fund, Limited Obligation Revenue
Bonds:
A1+ P1 100 VRDN, Reserve 1, 6.05% due 9/01/2030 (a) 100
BBB Ba1 2,500 (Waste Management Inc. Project), AMT, 6.625% due 12/01/2012 2,412
Michigan State Strategic Fund, Limited Obligation Revenue
Refunding Bonds:
AAA Aaa 4,000 (Detroit Edison Company), AMT, Series A, 5.55% due
9/01/2029 (c) 3,691
A A1 5,000 (Ford Motor Co. Project), Series A, 7.10% due 2/01/2006 5,464
Michigan State Strategic Fund, PCR, Refunding:
NR* VMIG1++ 500 (Consumers Power Project), VRDN, 6.10% due 4/15/2018 (a)(b) 500
A A2 2,500 (General Motors Corp.), 6.20% due 9/01/2020 2,506
</TABLE>
MuniYield Michigan Fund, Inc., April 30, 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 Michigan State Trunk Line Revenue Bonds, Series A (f):
(concluded) AA Aa3 $ 1,000 5.625% due 11/15/2004 $ 1,039
AA Aa3 1,370 5.70% due 11/15/2004 1,428
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) 7,404
AAA Aaa 5,000 Oxford, Michigan, Area Community School District, GO, 5.40%
due 5/01/2025 (d) 4,644
AA+ Aa2 1,370 Plymouth-Canton, Michigan, Community School District, Refunding,
GO, Series A, 6.625% due 5/01/2001 (f) 1,412
AA+ Aa2 2,250 Reeths-Puffer, Michigan, Schools Building, GO, Series Q,
6.625% due 5/01/2002 (f) 2,367
AAA Aaa 2,000 Romulus, Michigan, Community Schools, GO, Series I, 6.75% due
5/01/2001 (e)(f) 2,084
A1+ VMIG1++ 200 Royal Oak, Michigan, Hospital Finance Authority, Hospital Revenue
Bonds (William Beaumont Hospital), VRDN, Series L, 5.40% due
1/01/2027 (a) 200
NR* Aaa 1,000 Saint Clair County, Michigan, Ecomomic Revenue Refunding
Bonds (Detroit Edison Company), RIB, Series 282, 7.37% due
8/01/2024 (b)(g) 1,094
AAA Aaa 1,825 Sault Sainte Marie, Michigan, Area Public Schools, GO,
5.375% due 5/01/2019 (d) 1,730
AAA Aaa 1,050 Tri County, Michigan, Area School District, GO, 5.125% due
5/01/2020 (e) 968
A1+ VMIG1++ 500 University of Michigan, University Hospital Revenue Bonds,
VRDN, Series A, 5.85% due 12/01/2027 (a) 500
A1+ VMIG1++ 4,800 University of Michigan, University Hospital Revenue Refunding
Bonds, VRDN, Series A, 5.85% due 12/01/2019 (a) 4,800
A1+ VMIG1++ 1,400 University of Michigan, University Revenue Bonds (Medical
Service Plan), VRDN, Series A, 5.85% due 12/01/2027(a) 1,400
AAA Aaa 7,500 Wayne Charter County, Michigan, Airport Revenue Bonds
(Detroit Metropolitan Wayne County), AMT, Series A, 5.375%
due 12/01/2015 (c) 7,124
Wayne State University, Michigan, University Revenue
Refunding Bonds (d):
AAA Aaa 1,625 5.25% due 11/15/2019 1,505
AAA Aaa 1,500 5.125% due 11/15/2029 1,318
AAA Aaa 2,500 West Branch-Rose City, Michigan, GO, Area School District,
5.50% due 5/01/2024 (d) 2,382
AAA Aaa 2,500 Zeeland, Michigan, Public Schools, GO, 5.25% due 5/01/2019 (d) 2,326
Total Investments (Cost--$156,939)--98.0% 157,318
Other Assets Less Liabilities--2.0% 3,155
--------
Net Assets--100.0% $160,473
========
<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 April 30, 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 April 30, 2000.
(h)FHA Insured.
*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.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of April 30, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$156,938,887) $157,318,277
Cash 69,298
Interest receivable 3,370,277
Prepaid expenses and other assets 8,830
------------
Total assets 160,766,682
------------
Liabilities: Payables:
Dividends to shareholders $ 169,625
Investment adviser 62,121 231,746
------------
Accrued expenses 62,261
------------
Total liabilities 294,007
------------
Net Assets: Net assets $160,472,675
============
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 1,162,016
Accumulated realized capital losses on investments--net (3,900,298)
Accumulated distributions in excess of realized capital
gains on investments--net (3,543,624)
Unrealized appreciation on investments--net 379,390
------------
Total--Equivalent to $13.33 net asset value per share of
Common Stock (market price--$11.0625) 105,472,675
------------
Total capital $160,472,675
============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
MuniYield Michigan Fund, Inc., April 30, 2000
<TABLE>
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 2000
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 4,658,978
Income:
Expenses: Investment advisory fees $ 398,523
Commission fees 69,267
Professional fees 39,727
Transfer agent fees 25,105
Accounting services 24,223
Printing and shareholder reports 14,738
Directors' fees and expenses 12,212
Listing fees 9,593
Custodian fees 5,950
Pricing fees 5,826
Other 7,756
------------
Total expenses 612,920
------------
Investment income--net 4,046,058
------------
Realized & Realized loss on investments--net (3,900,298)
Unrealized Change in unrealized appreciation/depreciation on investments--net 3,931,753
Gain (Loss) on ------------
Investments--Net: Net Increase in Net Assets Resulting from Operations $ 4,077,513
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 2000 1999
<S> <S> <C> <C>
Operations: Investment income--net $ 4,046,058 $ 8,094,540
Realized loss on investments--net (3,900,298) (68,591)
Change in unrealized appreciation/depreciation on
investments--net 3,931,753 (15,504,183)
------------ ------------
Net increase (decrease) in net assets resulting from
operations 4,077,513 (7,478,234)
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (3,082,530) (6,926,141)
Shareholders: Preferred Stock (1,096,348) (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 (4,178,878) (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 decrease in net assets (101,365) (17,544,878)
Beginning of period 160,574,040 178,118,918
------------ ------------
End of period* $160,472,675 $160,574,040
============ ============
*Undistributed investment income--net $ 1,162,016 $ 1,294,836
============ ============
See Notes to Financial Statements.
</TABLE>
MuniYield Michigan Fund, Inc., April 30, 2000
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
April 30, 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 period $ 13.34 $ 15.85 $ 15.58 $ 15.29 $ 15.23
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .52 1.02 1.12 1.16 1.18
Realized and unrealized gain (loss) on
investments--net --++++ (1.96) .38 .28 .11
-------- -------- -------- -------- --------
Total from investment operations .52 (.94) 1.50 1.44 1.29
-------- -------- -------- -------- --------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net (.39) (.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 (.39) (1.32) (.97) (.90) (.97)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.14) (.18) (.21) (.25) (.25)
Realized gain on investments--net -- (.01) (.05) -- --
In excess of realized gain on
investments--net -- (.06) -- -- (.01)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.14) (.25) (.26) (.25) (.26)
-------- -------- -------- -------- --------
Net asset value, end of period $ 13.33 $ 13.34 $ 15.85 $ 15.58 $ 15.29
======== ======== ======== ======== ========
Market price per share, end of period $11.0625 $ 12.25 $ 16.00 $ 15.125 $ 14.50
======== ======== ======== ======== ========
Total Investment Based on market price per share (6.55%)+++(16.42%) 12.56% 10.92% 11.67%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 3.40%+++ (8.12%) 8.25% 8.35% 7.28%
======== ======== ======== ======== ========
Ratios Based on Total expenses*** 1.17%* 1.12% 1.05% 1.08% 1.10%
Average ======== ======== ======== ======== ========
Net Assets of Total investment income--net*** 7.71%* 6.96% 7.20% 7.46% 7.76%
Common Stock: ======== ======== ======== ======== ========
Amount of dividends to Preferred Stock
shareholders 2.09%* 1.20% 1.35% 1.63% 1.66%
======== ======== ======== ======== ========
Investment income--net, to Common Stock
shareholders 5.62%* 5.76% 5.85% 5.83% 6.10%
======== ======== ======== ======== ========
Ratios Based on Total expenses .77%* .76% .72% .74% .75%
Total Average ======== ======== ======== ======== ========
Net Assets:***++ Total investment income--net 5.06%* 4.73% 4.96% 5.15% 5.26%
======== ======== ======== ======== ========
Ratios Based on Dividends to Preferred Stock shareholders 4.00%* 2.55% 2.97% 3.57% 3.52%
Average Net ======== ======== ======== ======== ========
Assets of
Preferred Stock:
Supplemental Net assets, net of Preferred Stock,
Data: end of period (in thousands) $105,473 $105,574 $123,119 $120,392 $118,146
======== ======== ======== ======== ========
Preferred Stock outstanding, end
of period (in thousands) $ 55,000 $ 55,000 $ 55,000 $ 55,000 $ 55,000
======== ======== ======== ======== ========
Portfolio turnover 30.24% 63.64% 40.41% 16.06% 19.73%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 2,918 $ 2,920 $ 3,239 $ 3,189 $ 3,148
======== ======== ======== ======== ========
Dividends Investment income--net $ 498 $ 637 $ 742 $ 894 $ 880
Per Share on ======== ======== ======== ======== ========
Preferred Stock
Outstanding:
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales charges.
***Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Includes Common and Preferred Stock average net assets.
++++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Michigan Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. The Fund's financial statements are
prepared in accordance with accounting principles generally accepted
in the United States of America, which may require the use of
management accruals and estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of
management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal
recurring nature.The Fund determines and makes available for
publication the net asset value of its Common Stock on a weekly
basis. The Fund's Common Stock is listed on the New York Stock
Exchange under the symbol MYM. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing price as of the close of such
exchanges. Options written or purchased are valued at the last sale
price in the case of exchange-traded options. In the case of options
traded in the over-the-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.
MuniYield Michigan Fund, Inc., April 30, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
* 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 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 six months ended April 30, 2000 were $45,035,777 and
$51,733,691, respectively.
Net realized losses for the six months ended April 30, 2000 and net
unrealized gains as of April 30, 2000 were as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (3,900,298) $ 379,390
------------ -----------
Total $ (3,900,298) $ 379,390
============ ===========
As of April 30, 2000, net unrealized appreciation for Federal income
tax purposes aggregated $379,390, of which $3,847,689 related to
appreciated securities and $3,468,299 related to depreciated
securities. The aggregate cost of investments at April 30, 2000 for
Federal income tax purposes was $156,938,887.
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 six months ended April 30,
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
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 April
30, 2000 was 4.60%.
Shares issued and outstanding during the six months ended April 30,
2000 and during the year ended 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 six months ended
April 30, 2000, Merrill Lynch, Pierce Fenner & Smith Incorporated,
an affiliate of FAM, earned $52,009 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 May 5, 2000, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.063635 per share, payable on May 30, 2000 to shareholders of
record as of May 16, 2000.
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
Robert R. Martin, Director of MuniYield Michigan Fund, Inc., has
recently retired. The Fund's Board of Directors wishes Mr. Martin
well in his retirement.
