(BULL LOGO)
Merrill Lynch Investment Managers
Semi-Annual Report
April 30, 2002
MuniYield
Michigan Fund, Inc.
www.mlim.ml.com
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 and
intends to remain leveraged 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.
The Fund may also invest in swap agreements, which are over-the-
counter contracts in which one party agrees to make periodic
payments based on the change in market value of a specified bond,
basket of bonds or index in return for periodic payments based on a
fixed or variable interest rate or the change in market value of a
different bond, basket of bonds or index. Swap agreements may be
used to obtain exposure to a bond or market without owning or taking
physical custody of securities.
MuniYield Michigan Fund, Inc., April 30, 2002
DEAR SHAREHOLDER
For the six-month period ended April 30, 2002, the Common Stock of
MuniYield Michigan Fund, Inc. earned $0.441 per share income
dividends, which included earned and unpaid dividends of $0.075.
This represents a net annualized yield of 6.09%, based on a month-
end per share net asset value of $14.58. Over the same period, the
total investment return on the Fund's Common Stock was +0.66%, based
on a change in per share net asset value from $14.97 to $14.58, and
assuming reinvestment of $0.437 per share income dividends.
For the six-month period ended April 30, 2002, the Fund's Auction
Market Preferred Stock had an average yield of 1.48%.
The Municipal Market Environment
During the six months ended April 30, 2002, long-term fixed-income
bond yields generally rose, while exhibiting considerable monthly
volatility. However, throughout the period, tax-exempt bond yield
volatility was appreciably lower and the overall increase in
municipal bond yields was lower than its taxable counterpart. This
relative outperformance by the tax-exempt market largely reflected
an improving technical position in recent months. Despite additional
decreases in the short-term interest rate target to 1.75% by the
Federal Reserve Board, long-term fixed-income markets were unable to
hold their October 2001 gains. Rapid, significant US military
success in Afghanistan, stronger-than-expected retail sales and
recovering US equity markets combined to suggest to many investors
that US economic recovery was far more imminent than had been
anticipated earlier in the fall of 2001. Bond yields rose during
November and December 2001 as investors sold securities both to
realize recent profits and in anticipation of an early reversal of
the Federal Reserve Board's policy. By the end of December, long-
term US Treasury bond yields rose more than 50 basis points (0.50%)
to approximately 5.45%.
During January and February 2002, economic indicators were mixed,
signaling some strength in consumer spending and housing-related
industries, but with continued declines in manufacturing employment.
Interest rates remained in a narrow but volatile range as weak US
equity markets generally supported fixed-income products. By the end
of January 2002, the Federal Reserve Board ended its aggressive
series of short-term interest rate reductions by maintaining its
overnight rate target at 1.75%, a 40-year low. The Federal Reserve
Board noted that while US economic activity was beginning to
strengthen, earlier weakness could easily resume should consumer
spending falter. In recent months, however, the index of leading
economic indicators has risen, suggesting that economic activity is
likely to expand later this year. In its final revision, fourth
quarter 2001 US gross domestic product growth was revised higher to
1.6%, signaling improving economic conditions relative to earlier in
2001. By the end of February 2002, long-term US Treasury bond yields
stood at 5.42%.
In early March, a number of economic indicators, including surging
existing home sales, solid consumer spending and positive nonfarm
payroll growth following several months of job losses, suggested US
economic activity was continuing to strengthen. Also, in
Congressional testimony, Federal Reserve Board Chairman Alan
Greenspan was cautiously optimistic regarding future US economic
growth noting, while any increase in activity was likely to be
moderate, "an economic expansion (was) well underway." These factors
combined to push US equity prices higher and bond prices sharply
lower in expectation of a reversal of the Federal Reserve Board
actions taken during the past 15 months. By the end of March 2002,
long-term US Treasury bond yields stood at 5.80%, their highest
level in more than 18 months.
During April 2002, bond yields reversed to move lower as US economic
conditions, especially employment trends, weakened and US equity
markets solidly declined. Also, first quarter 2002 US gross domestic
product growth was initially estimated to have grown 0.6%. This
decline in US economic activity from the fourth quarter of 2001
suggested that earlier US economic strength was weakening and the
Federal Reserve Board would be unlikely to raise interest rates for
much of 2002. US Treasury issue prices were also boosted by erupting
Middle East politics that led many international investors to seek
the safe haven of US Treasury securities. By April 30, 2002, long-
term US Treasury bond yields declined to 5.59%. During the past six
months, US Treasury bond yields rose more than 70 basis points.
The municipal bond market displayed a similar pattern to its taxable
counterpart during the six-month period ended April 2002. The tax-
exempt bond market was also unable to maintain the gains made in
late September and October 2001. In addition to a modestly stronger
financial environment, increased tax-exempt new bond issuance in
late 2001 also put upward pressure on municipal bond yields. By year-
end 2001, long-term tax-exempt revenue bond yields as measured by
the Bond Buyer Revenue Bond Index stood at 5.60%, an increase of
approximately 25 basis points during the last two months of 2001. In
early 2002, tax-exempt bond yields traded in a relatively narrow
range as an increasingly positive technical position supported
existing municipal bond prices. However, in March, increased
economic activity and associated concerns regarding near-term
Federal Reserve Board actions also pushed tax-exempt bond prices
lower. By late March, long-term municipal revenue bond yields rose
to 5.67%, their highest level in more than a year. Similar to US
Treasury issues, tax-exempt bond yields declined throughout April as
economic conditions weakened. The municipal bond market's
improvement was bolstered by a continued improvement in the market's
technical environments. Investor demand strengthened, in part aided
by declining equity prices, as issuance levels declined. At April
30, 2002, long-term tax-exempt bond yields stood at 5.52%, an
increase of approximately 30 basis points during the last six
months.
Interest rates are likely to remain near current levels as US
economic conditions are expected to remain relatively weak. However,
going forward, business activity appears likely to accelerate,
perhaps significantly. Immediately after the September 11 attacks,
the Federal Government announced a $45 billion package to aid New
York City, Washington DC and the airline industry, with additional
fiscal aid packages expected. The military response to these attacks
will continue to require sizable increases in Defense Department
spending. Eventually, this governmental spending should result in
increased US economic activity, particularly in the construction and
defense industries. This governmental stimulus, in conjunction with
the actions already taken by the Federal Reserve Board, can be
expected to generate significant increases in US gross domestic
product growth some time in mid-to-late 2002.
As inflationary pressures are expected to remain well contained
going forward, increased economic activity need not result in
significant increases in long-term bond yields. Also, throughout
much of 2001, the municipal bond market exhibited far less
volatility than its taxable counterparts. Since the strong technical
position that has supported the tax-exempt bond market's performance
for much of 2001 can be expected to continue, any potential
increases in municipal bond yields can also be expected to be
limited.
Portfolio Strategy
For the six-month period ended April 30, 2002, the economic
environment remained very favorable for fixed-income investments,
and we believe that the majority of recent interest rate declines
has already occurred. The Federal Reserve Board's actions taken in
2001, combined with recent and potential additional Federal fiscal
stimulus, should eventually restore US economic activity.
Consequently, we maintained the neutral position we adopted last
year. While this position prevented us from taking advantage of
potential short-term trading opportunities, it allowed us to avoid
widely fluctuating asset valuations associated with market
volatility. However, the Fund's fully invested position allowed us
to participate in recent market appreciation and enhanced
shareholder income that otherwise might have been jeopardized by
market-timing strategies. The Fund's fully invested position also
proved beneficial as Michigan's new-issue volume declined in recent
months. For the three months ended April 30, 2002, Michigan
municipalities issued approximately $1.1 billion, a decline of
nearly 30% compared to the same three-month period a year earlier.
Recent Michigan underwriting has been in marked contrast to national
supply trends, which were stable during the last three months.
Finally, our fully invested position was advantageous, as short-term
municipal bond interest rates have recently declined to
approximately 1.25% - 1.50%. We are likely to maintain the Fund's
present neutral position in the coming months as no significant
economic recovery is expected until some time later in 2002. Should
business activity improve throughout 2002, we will adopt a more
defensive position, anticipating an increase in long-term interest
rates.
MuniYield Michigan Fund, Inc., April 30, 2002
The 475 basis point decline in short-term interest rates engineered
by the Federal Reserve Board in 2001 resulted in a material decrease
in the Fund's borrowing cost into the 1% - 1.25% range. This
decline, in combination with a steep tax-exempt yield curve,
generated a material income benefit to the Fund's Common Stock
shareholders from the leveraging of the Preferred Stock. While
modest increases in short-term interest rates are expected later
this year, these increases are unlikely to result in significantly
higher borrowing costs for the Fund. However, should the spread
between short-term and long-term interest rates narrow, the benefits
of leverage will decline and, as a result, reduce the yield on the
Fund's Common Stock. (For a more 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
(Kenneth A. Jacob)
Kenneth A. Jacob
Senior Vice President
(John M. Loffredo)
John M. Loffredo
Senior Vice President
(Fred K. Stuebe)
Fred K. Stuebe
Vice President and Portfolio Manager
May 31, 2002
PROXY RESULTS
During the six-month period ended April 30, 2002, MuniYield Michigan
Fund, Inc.'s Common Stock shareholders voted on the following
proposals. Proposal 1 was approved at a shareholders' meeting on
April 8, 2002. The meeting was adjourned with respect to Proposal 2
until May 15, 2002. A description of Proposal 1 and number of shares
voted are as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Directors: Terry K. Glenn 7,478,771 252,960
James H. Bodurtha 7,477,840 253,891
Joe Grills 7,467,705 264,026
Roberta Cooper Ramo 7,471,963 259,768
Robert S. Salomon, Jr. 7,462,920 268,811
Melvin R. Seiden 7,458,576 273,155
Stephen B. Swensrud 7,467,419 264,312
During the six-month period ended April 30, 2002, MuniYield Michigan
Fund, Inc.'s Preferred Stock shareholders voted on the following
proposals. Proposal 1 was approved at a shareholders' meeting on
April 8, 2002. The meeting was adjourned with respect to Proposal 2
until May 15, 2002. A description of Proposal 1 and number of shares
voted are as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Board of Directors: Terry K. Glenn, James H. Bodurtha,
Joe Grills, Herbert I. London, Andre F. Perold, Roberta Cooper Ramo,
Robert S. Salomon, Jr., Melvin R. Seiden and Stephen B. Swensrud 2,071 0
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
Michigan--137.3% AAA Aaa $ 3,165 Anchor Bay, Michigan, School District, GO
(School Building and Site), Series II, 5.75% due
5/01/2010 (d)(f) $ 3,536
Battle Creek, Michigan, Tax Increment Finance Authority (f):
A- NR* 1,320 7.10% due 5/01/2004 1,462
A- NR* 1,000 7.40% due 5/01/2004 1,114
AAA Aaa 1,150 Bullock Creek, Michigan, School District, GO, 5.50% due
5/01/2026 1,175
AAA Aaa 3,545 Capital Region Airport Authority, Michigan, Airport Revenue
Bonds, AMT, 6.60% due 7/01/2002 (c)(f) 3,644
AAA Aaa 3,000 Clarkston, Michigan, Community Schools, GO, 5.8% due
5/01/2005 (d)(f) 3,279
AAA Aaa 1,000 Detroit, Michigan, Sewer Disposal Revenue Bonds, Series A,
5.75% due 1/01/2010 (d)(f) 1,123
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 below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DRIVERS Derivative Inverse Tax-Exempt Receipts
GO General Obligation Bonds
HDA Housing Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
MuniYield Michigan Fund, Inc., April 30, 2002
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
Michigan Detroit, Michigan, Water Supply System Revenue Bonds (d):
(concluded) AAA NR* $ 1,000 DRIVERS, Series 200, 9.51% due 7/01/2028 (g) $ 1,110
AAA Aaa 1,600 Senior Lien, Series A, 5.75% due 1/01/2010 (f) 1,793
AAA Aaa 1,610 East Grand Rapids, Michigan, Public School District, GO,
5.75% due 5/01/2010 (e)(f) 1,798
A1+ NR* 550 Eastern Michigan University Revenue Refunding Bonds, VRDN,
1.70% due 6/01/2027 (a)(d) 550
AAA Aaa 1,990 Eaton Rapids, Michigan, Public Schools, GO, 5.50% due
5/01/2004 (c)(f) 2,126
Grand Blanc, Michigan, Community Schools, GO (d):
AAA Aaa 1,000 5.625% due 5/01/2018 1,062
AAA Aaa 1,100 5.625% due 5/01/2019 1,160
AAA Aaa 2,000 Grand Ledge, Michigan, Public Schools District, GO, 6.45%
due 5/01/2004 (c)(f) 2,193
AAA Aaa 4,500 Hartland, Michigan, Consolidated School District, GO, 6%
due 5/01/2010 (d)(f)(j) 5,115
AAA Aaa 1,275 Haslett, Michigan, Public School District, Building and
Site, GO, 5.625% due 5/01/2018 1,354
Kalamazoo, Michigan, Hospital Finance Authority, Hospital
Facility Revenue Refunding and Improvement Bonds (Bronson
Methodist Hospital), Series A (f):
A A1 2,500 6.25% due 5/15/2005 2,659
A A1 1,750 6.375% due 5/15/2005 1,864
NR* Aaa 7,550 Kalamazoo, Michigan, Hospital Finance Authority, Hospital
Facility Revenue Refunding Bonds (Bronson Methodist Hospital),
5.50% due 5/15/2028 (c) 7,601
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) 5,070
AAA NR* 3,000 Kent, Michigan, Hospital Finance Authority Revenue Bonds
(Spectrum Health), Series A, 5.50% due 1/15/2031 (c) 3,018
BBB NR* 1,000 Michigan Higher Education Facilities Authority, Limited
Obligation Revenue Refunding Bonds (Hope College), Series A,
5.90% due 4/01/2032 998
NR* VMIG1++ 300 Michigan Higher Education Student Loan Authority, Student
Loan Revenue Bonds, VRDN, AMT, Series XII-D, 1.75% due
10/01/2015 (a)(b) 300
Michigan Municipal Bond Authority Revenue Bonds:
AAA Aaa 1,000 (Clean Water Revolving Fund), 5.50% due 10/01/2021 1,038
A NR* 1,100 (Local Government Loan-Revenue Sharing), Series B,
5.80% due 11/01/2013 1,136
AAA Aa1 2,500 Michigan Municipal Bond Authority, Revenue Refunding Bonds
(Local Government-Qualified School), Series A, 6.50% due
5/01/2016 2,599
Michigan State Building Authority Revenue Bonds:
AAA Aaa 1,185 (Facilities Program), Series II, 4.67%** due 10/15/2009 (b) 859
AAA Aaa 1,675 (Facilities Program), Series II, 4.77%** due 10/15/2010 (b) 1,149
AA+ Aaa 2,675 GO, RIB, Series 481, 9.01% due 4/15/2009 (c)(g) 3,216
NR* Aa1 2,500 Michigan State Building Authority, Revenue Refunding Bonds,
RIB, Series 517X, 9.01% due 10/15/2010 (g) 3,011
Michigan State, COP:
AAA Aaa 1,250 5.50% due 6/01/2027 (b) 1,271
AAA NR* 5,380 RIB, Series 530, 9.49% due 9/01/2011 (c)(g) 6,613
AAA Aaa 2,180 Michigan State, COP, Refunding (New Center Development, Inc.),
5.25% due 9/01/2009 (c) 2,357
AAA Aaa 2,245 Michigan State, HDA, Rental Housing Revenue Bonds, AMT,
Series A, 5.30% due 10/01/2037 (c) 2,128
Michigan State, HDA, Revenue Refunding Bonds:
AA+ NR* 150 Series A, 6.80% due 12/01/2012 152
AA+ NR* 2,500 Series C, 6.50% due 6/01/2016 (h) 2,628
Michigan State Hospital Finance Authority Revenue Bonds:
AAA Aaa 2,000 (Mercy Health Services), Series R, 5.375% due 8/15/2026 (b)(i) 2,019
AAA Aaa 1,000 (Mid-Michigan Obligation Group), 6.90% due 12/01/2002 (f) 1,050
Michigan State Hospital Finance Authority, Revenue
Refunding Bonds:
AAA Aaa 3,760 (Ascension Health Credit), Series A, 6.25% due 11/15/2014 (c) 4,081
AAA Aaa 5,000 (Ascension Health Credit), Series A, 6.125% due 11/15/2023 (c) 5,249
AA Aa2 2,500 (Ascension Health Credit), Series A, 6.125% due 11/15/2026 2,616
AAA Aaa 1,000 (Mercy Health Services), Series X, 6% due 8/15/2014 (c) 1,088
AAA Aaa 1,000 (Mercy Mount Clemens), Series A, 6% due 5/15/2014 (c) 1,086
AAA Aaa 1,250 (Mid-Michigan Obligation Group), Series A, 5.375% due
6/01/2027 (e) 1,248
AAA Aaa 4,500 (Trinity Health), Series A, 6% due 12/01/2027 (b) 4,748
AAA Aaa 1,500 Michigan State House of Representatives COP, 5.25% due
8/15/2008 (b) 1,624
Michigan State Strategic Fund, Limited Obligation
Revenue Bonds:
A1+ NR* 1,000 (Detroit Symphony Orchestra Project), VRDN, Series B,
1.70% due 6/01/2031 (a) 1,000
BBB Ba1 1,000 (WMX Technologies Inc. Project), AMT, 6% due 12/01/2013 993
BBB Ba1 2,500 (Waste Management Inc. Project), AMT, 6.625% due 12/01/2012 2,553
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) 4,549
AAA Aaa 2,000 (Detroit Edison Company Fund--Pollution), Series AA,
6.95% due 5/01/2011 (d) 2,405
BBB+ Baa1 5,000 (Ford Motor Co. Project), Series A, 7.10% due 2/01/2006 5,525
NR* Aaa 5,000 RIB, Series 382, 10.76% due 9/01/2025 (c)(g) 5,931
BBB+ A3 2,500 Michigan State Strategic Fund, PCR, Refunding
(General Motors Corp.), 6.20% due 9/01/2020 2,562
Michigan State Trunk Line Revenue Bonds, Series A (f):
AAA Aa3 1,000 5.625% due 11/15/2004 1,096
AAA Aa3 1,370 5.70% due 11/15/2004 1,504
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) 8,033
A1+ VMIG1++ 1,000 Northern Michigan University Revenue Bonds, VRDN, 1.70%
due 6/01/2031 (a)(d) 1,000
AAA Aaa 2,500 Oxford, Michigan, Area Community School District, GO, 5.40%
due 5/01/2025 (d) 2,528
A NR* 1,000 Pontiac, Michigan, Tax Increment Finance Authority, Revenue
Refunding Bonds (Tax Increment-Development Area Number 3),
5.375% due 6/01/2017 995
AAA Aaa 1,900 Rochester, Michigan, Community School District, GO, Series II,
5.50% due 5/01/2018 (c) 1,992
AAA Aaa 1,400 Romulus, Michigan, Community Schools, GO, 5.75% due
5/01/2009 (d)(f) 1,564
NR* Aaa 1,000 Saint Clair County, Michigan, Economic Revenue Refunding
Bonds (Detroit Edison Company), RIB, Series 282, 10.76%
due 8/01/2024 (b)(g) 1,231
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) 2,559
AAA Aaa 2,230 Wayne County, Michigan, COP, 5.625% due 5/01/2011 (b) 2,405
Puerto Rico-- A Baa1 2,500 Puerto Rico Commonwealth, Highway and Transportation Authority,
7.4% Transportation Revenue Bonds, Series D, 5.75% due 7/01/2041 2,635
AAA Aaa 2,270 Puerto Rico Electric Power Authority, Power Revenue Bonds, Trust
Receipts, Class R, Series 16 HH, 9.542% due 7/01/2013 (e)(g) 2,889
MuniYield Michigan Fund, Inc., April 30, 2002
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
Puerto Rico A- Baa3 $ 2,900 Puerto Rico Public Finance Corporation, Commonwealth
(concluded) Appropriation Revenue Bonds, Series E, 5.75% due 8/01/2030 $ 3,016
Total Investments (Cost--$157,836)--144.7% 167,035
Variation Margin on Financial Futures Contracts***--0.0% (19)
Other Assets Less Liabilities--3.0% 3,406
Preferred Stock, at Redemption Value--(47.7%) (55,000)
---------
Net Assets Applicable to Common Stock--100.0% $ 115,422
=========
(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, 2002.
(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, 2002.
(h)FHA Insured.
(i)Escrowed to maturity.
(j)All or a portion of security held as collateral in connection
with open financial futures contracts.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
***Financial futures contracts sold as of April 30, 2002 were as
follows:
Number of Expiration
Contracts Issue Date Value
170 US Treasury Notes June 2002 $ 17,945,625
------------
Total Financial Futures Contracts Sold
(Total Contract Price--$17,990,781) $ 17,945,625
============
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
STATEMENT OF NET ASSETS
As of April 30, 2002
Assets: Investments, at value (identified cost--$157,836,474) $167,035,298
Receivables:
Interest $ 3,296,194
Securities sold 2,465,000 5,761,194
------------
Prepaid expenses and other assets 40,885
------------
Total assets 172,837,377
------------
Liabilities: Payables:
Securities purchased 2,077,616
Dividends to shareholders 120,200
Custodian bank 116,264
Investment adviser 69,626
Variation margin 18,594 2,402,300
------------
Accrued expenses 13,005
------------
Total liabilities 2,415,305
------------
Preferred Preferred Stock, par value $.05 per share (2,200 shares of AMPS*
Stock: issued and outstanding at $25,000 per share liquidation preference) 55,000,000
------------
Net Assets Net assets applicable to Common Stock $115,422,072
Applicable To ============
Common Stock:
Analysis of Common Stock, par value $.10 per share (7,916,170 shares issued
Net Assets and outstanding) $ 791,617
Applicable to Paid-in capital in excess of par 110,655,798
Common Stock: Undistributed investment income--net 1,175,331
Accumulated realized capital losses on investments--net (6,444,655)
Unrealized appreciation on investments--net 9,243,981
------------
Total--Equivalent to $14.58 net asset value per share of Common Stock
(market price--$12.99) $115,422,072
============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 2002
Investment Interest $ 4,625,760
Income:
Expenses: Investment advisory fees $ 422,276
Commission fees 67,776
Professional fees 42,256
Accounting services 40,077
Transfer agent fees 18,981
Printing and shareholder reports 14,033
Listing fees 9,814
Directors' fees and expenses 8,420
Custodian fees 6,023
Pricing fees 5,624
Other 17,086
------------
Total expenses 652,366
------------
Investment income--net 3,973,394
------------
Realized & Realized gain on investments--net 58,244
Unrealized Change in unrealized appreciation on investments--net (3,242,023)
Gain (Loss) on ------------
Investments-- Total realized and unrealized loss on investments--net (3,183,779)
Net: ------------
Dividends to Investment income--net (404,976)
Preferred ------------
Stock Net Increase in Net Assets Resulting from Operations $ 384,639
Shareholders: ============
See Notes to Financial Statements.
MuniYield Michigan Fund, Inc., April 30, 2002
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 2002 2001++
Operations: Investment income--net $ 3,973,394 $ 7,974,332
Realized gain on investments--net 58,244 1,668,490
Change in unrealized appreciation/depreciation on investments--net (3,242,023) 7,409,558
Dividends to Preferred Stock shareholders (404,976) (1,754,676)
------------ ------------
Net increase in net assets resulting from operations 384,639 15,297,704
------------ ------------
Dividends to Investment income--net (3,461,345) (6,268,966)
Common Stock ------------ ------------
Shareholders: Net decrease in net assets resulting from dividends to Common Stock
shareholders (3,461,345) (6,268,966)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in reinvestment
Transactions: of dividends -- 72,224
------------ ------------
Net Assets Total increase (decrease) in net assets applicable to Common Stock (3,076,706) 9,100,962
Applicable To Beginning of period 118,498,778 109,397,816
Common Stock: ------------ ------------
End of period* $115,422,072 $118,498,778
============ ============
*Undistributed investment income--net $ 1,175,331 $ 1,029,641
============ ============
++Certain prior year amounts have been reclassified to conform to
current year presentation.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
The following per share data and ratios For the
have been derived from information Six Months
provided in the financial statements. Ended
April 30, For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998
Per Share Net asset value, beginning of period $ 14.97 $ 13.83 $ 13.34 $ 15.85 $ 15.58
Operating --------- --------- --------- --------- ---------
Performance:+++ Investment income--net .51 1.00 1.04 1.02 1.12
Realized and unrealized gain (loss)
on investments--net (.41) 1.15 .51 (1.96) .38
Dividends and distributions to
Preferred Stock shareholders:
Investment income--net (.05) (.22) (.29) (.18) (.21)
Realized gain on investments--net -- -- -- (.01) (.05)
In excess of realized gain on
investments--net -- -- -- (.06) --
--------- --------- --------- --------- ---------
Total from investment operations .05 1.93 1.26 (1.19) 1.24
--------- --------- --------- --------- ---------
Less dividends and distributions
to Common Stock shareholders:
Investment income--net (.44) (.79) (.77) (.88) (.89)
Realized gain on investments--net -- -- -- (.05) (.08)
In excess of realized gain on
investments--net -- -- -- (.39) --
--------- --------- --------- --------- ---------
Total dividends and distributions
to Common Stock shareholders (.44) (.79) (.77) (1.32) (.97)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 14.58 $ 14.97 $ 13.83 $ 13.34 $ 15.85
========= ========= ========= ========= =========
Market price per share, end of period $ 12.99 $ 13.85 $ 11.75 $ 12.25 $ 16.00
========= ========= ========= ========= =========
Total Based on market price per share (3.07%)++ 25.13% 2.47% (16.42%) 12.56%
Investment ========= ========= ========= ========= =========
Return:** Based on net asset value per share .66%++ 14.91% 10.76% (8.12%) 8.25%
========= ========= ========= ========= =========
Ratios Based Total expenses*** 1.14%* 1.15% 1.15% 1.12% 1.05%
on Average ========= ========= ========= ========= =========
Net Assets of Total investment income--net*** 6.94%* 6.96% 7.62% 6.96% 7.20%
Common Stock: ========= ========= ========= ========= =========
Amount of dividends to Preferred
Stock shareholders .71%* 1.53% 2.12% 1.20% 1.35%
========= ========= ========= ========= =========
Investment income--net, to Common
Stock shareholders 6.23%* 5.43% 5.50% 5.76% 5.85%
========= ========= ========= ========= =========
Ratios Based Total expenses .77%* .77% .75% .76% .72%
on Average ========= ========= ========= ========= =========
Net Assets of Total investment income--net 4.70%* 4.70% 5.02% 4.73% 4.96%
Common & ========= ========= ========= ========= =========
Preferred
Stock:***
Ratios Based on Dividends to Preferred Stock
Average Net shareholders 1.48%* 3.19% 4.09% 2.55% 2.97%
Assets of ========= ========= ========= ========= =========
Preferred Stock:
Supplemental Net assets, net of Preferred Stock,
Data: end of period (in thousands) $ 115,422 $ 118,508 $ 109,398 $ 105,574 $ 123,119
========= ========= ========= ========= =========
Preferred Stock outstanding, end of
period (in thousands) $ 55,000 $ 55,000 $ 55,000 $ 55,000 $ 55,000
========= ========= ========= ========= =========
Portfolio turnover 12.98% 72.58% 75.11% 63.64% 40.41%
========= ========= ========= ========= =========
Leverage: Asset coverage per $1,000 $ 3,099 $ 3,155 $ 2,989 $ 2,920 $ 3,239
========= ========= ========= ========= =========
Dividends Per Investment income--net $ 184 $ 798 $ 1,026 $ 637 $ 742
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.
++Aggregate total investment return.
+++Certain prior year amounts have been reclassified to conform to
current year presentation.
See Notes to Financial Statements.
MuniYield Michigan Fund, Inc., April 30, 2002
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. 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-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). Realized gains and losses on security
transactions are determined on the identified cost basis. Interest
income is recognized on the accrual basis. As required, effective
November 1, 2001, the Fund has adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began
amortizing all premiums and discounts on debt securities. The
cumulative effect of this accounting change had no impact on total
net assets of the Fund, but resulted in a $38,199 addition in cost
of securites (which in return results in a corresponding $38,199
decrease in net unrealized appreciation and a corresponding $38,199
increase in undistributed net investment income), based on
securities held by the Fund as of October 31, 2001.
The effect of this change for the six months ended April 30, 2002
was to decrease net investment income by $10,180, increase net
unrealized appreciation by $38,199 and increase net realized capital
gains by $10,597. The statement of changes in net assets and
financial highlights for prior periods have not been restated to
reflect this change in presentation.
(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.
(f) Custodian bank--The Fund recorded an amount payable to the
Custodian Bank reflecting an overnight overdraft which resulted from
management estimates of available cash.
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.
For the six months ended April 30, 2002, the Fund reimbursed FAM
$4,433 for certain accounting services.
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, 2002 were $23,286,735 and
$21,423,882, respectively.
Net realized gains (losses) for the six months ended April 30, 2002
and net unrealized gains as of April 30, 2002 were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ 303,891 $ 9,198,825
Financial futures contracts (245,647) 45,156
------------ ------------
Total $ 58,244 $ 9,243,981
============ ============
As of April 30, 2002, net unrealized appreciation for Federal income
tax purposes aggregated $9,237,024, of which $9,381,611 related to
appreciated securities and $144,587 related to depreciated
securities. The aggregate cost of investments at April 30, 2002 for
Federal income tax purposes was $157,798,274.
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,
2002 remained constant and for the year ended October 31, 2001
increased by 4,844 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, 2002 was 1.55%.
Shares issued and outstanding during the six months ended April 30,
2002 and for the year ended October 31, 2001 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, 2002, Merrill Lynch, Pierce Fenner & Smith Incorporated,
an affiliate of FAM, earned $43,234 as commissions.
5. Capital Loss Carryfoward:
At October 31, 2001, the Fund had a net capital loss carryforward of
approximately $4,200,000, all of which expires in 2008. This amount
will be available to offset like amounts of any future taxable
gains.
6. Reorganization Plan:
On January 14, 2002, the Fund's Board of Directors approved a plan
of reorganization, subject to shareholder approval and certain other
conditions, whereby the Fund will acquire all of the assets and will
assume all of the liabilities of MuniHoldings Michigan Insured Fund
II, Inc. in exchange for newly-issued shares of the Fund.
7. Subsequent Event:
On May 8, 2002, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.074500 per share, payable on May 30, 2002 to shareholders of
record as of May 20, 2002.
MuniYield Michigan Fund, Inc., April 30, 2002
QUALITY PROFILE
The quality ratings of securities in the Fund as of April 30, 2002
were as follows:
Percent of
S&P Rating/Moody's Rating Total Assets
AAA/Aaa 74.2%
AA/Aa 4.9
A/A 10.1
BBB/Baa 5.8
Other++ 1.6
++Temporary investments in short-term municipal securities.
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.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Joe Grills, Director
James H. Bodurtha, Director
Herbert I. London, Director
Andre F. Perold, Director
Roberta Cooper Ramo, Director
Robert S. Salomon, Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Kenneth A. Jacob, Senior Vice President
John M. Loffredo, Senior Vice President
Fred K. Stuebe, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
Joseph L. May, Director and Vincent R. Giordano, Senior Vice
President of MuniYield Michigan Fund, Inc., have recently retired.
The Fund's Board of Directors wishes Messrs. May and Giordano well
in their retirements.
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