MUNIYIELD
PENNSYLVANIA
FUND
STRATEGIC
Performance
Annual Report
October 31, 1997
<PAGE>
MuniYield Pennsylvania Fund
TO OUR SHAREHOLDERS
For the year ended October 31, 1997, the Common Shares of MuniYield Pennsylvania
Fund earned $0.893 per share income dividends, which included earned and unpaid
dividends of $0.075. This represents a net annualized yield of 5.63%, based on a
month-end per share net asset value of $15.86. Over the same period, the total
investment return on the Fund's Common Shares was +10.71%, based on a change in
per share net asset value from $15.32 to $15.86, and assuming reinvestment of
$0.894 per share income dividends and $0.094 per share capital gains
distributions.
For the six-month period ended October 31, 1997, the total investment return on
the Fund's Common Shares was +8.41%, based on a change in per share net asset
value from $15.07 to $15.86, and assuming reinvestment of $0.449 per share
income dividends.
For the six-month period ended October 31, 1997, the Fund's Auction Market
Preferred Stock had an average yield of 3.71%.
The Municipal Market Environment
Long-term interest rates generally declined during the six-month period ended
October 31, 1997. The general financial environment has remained one of solid
economic growth tempered by few or no inflationary pressures. While economic
growth has been conducive to declining bond yields, it has remained strong
enough to suggest that the Federal Reserve Board (FRB) might find it necessary
to raise short-term interest rates. This would be intended to slow economic
growth and ensure that any incipient inflationary pressures would be curtailed.
There were investor concerns that the FRB would be forced to raise interest
rates prior to year-end, thus preventing an even more dramatic decline in
interest rates. Long-term tax-exempt revenue bonds, as measured by the Bond
Buyer Revenue Bond Index, declined over 50 basis points (0.50%) to end the
six-month period ended October 31, 1997 at 5.60%.
Similarly, long-term US Treasury bond yields generally moved lower during most
of the six-month period ended October 31, 1997. However, the turmoil in the
world's equity markets during the last week in October has resulted in a
significant rally in the Treasury bond market. The US Treasury bond market was
the beneficiary of a flight to quality mainly by foreign investors whose own
domestic markets have continued to be very volatile. Prior to the initial
decline in Asian equity markets, long-term US Treasury bond yields were
essentially unchanged. By the end of October, US Treasury bond yields declined
80 basis points to 6.15%, their lowest level of 1997.
The tax-exempt bond market's continued underperformance as compared to its
taxable counterpart has been largely in response to its ongoing weakening
technical position. As municipal bond yields have declined, municipalities have
hurriedly rushed to refinance outstanding higher-couponed debt with new issues
financed at present low rates. During the last six months, over $118 billion in
new long-term tax-exempt issues were underwritten, an increase of over 25%
versus the comparable period a year ago. As interest rates have continued to
decline, these refinancings have intensified municipal bond issuance. During the
past three months, approximately $60 billion in new long-term municipal
securities were underwritten, an increase of over 34% as compared to the October
31, 1996 quarter.
The recent trend toward larger and larger bond issues has also continued.
However, issues of such magnitude usually must be attractively priced to ensure
adequate investor interest. Obviously, the yields of other municipal bond issues
are impacted by the yield premiums such large issuers have been required to pay.
Much of the municipal bond market's recent underperformance can be traced to
market pressures that these large bond issuances have exerted.
In our opinion, the recent correction in world equity markets has enhanced the
near-term prospects for continued low, if not declining, interest rates in the
United States. It is likely that the recent correction will result in slower US
domestic growth in the
1
<PAGE>
MuniYield Pennsylvania Fund October 31, 1997
coming months. This decline is likely to be generated in part by reduced US
export growth. Additionally, some decline in consumer spending also can be
expected in response to reduced consumer confidence. Perhaps more importantly,
it is likely that barring a dramatic and unexpected resurgence in domestic
growth, the FRB may be unwilling to raise interest rates until the full impact
of the equity market's corrections can be established.
All of these factors suggest that for at least the near term, interest rates,
including tax-exempt bond yields, are unlikely to rise by any appreciable
amount. It is probable that municipal bond yields will remain under some
pressure as a result of continued strong new-issue supply. However, the recent
pace of municipal bond issuance is likely to be unsustainable. Continued
increases in bond issuance will require lower tax-exempt bond yields to generate
the economic savings necessary for additional municipal bond refinancing. With
tax-exempt bond yields at already attractive yield ratios relative to US
Treasury bonds (approximately 90% at the end of October), any further pressure
on the municipal market may represent an attractive investment opportunity.
Portfolio Strategy
During the first part of the six-month period ended October 31, 1997, we
basically maintained the strategy we had adopted in the six-month period ended
July 31, 1997. This was because the US economy was growing at an above-average
pace, with no signs that a slowdown was imminent. The FRB chose not to raise
interest rates, which would have resulted in higher short-term interest rates.
This decision was based on strong economic growth, with no visible signs of
inflationary pressures.
During the last two months of the six-month period, the Fund's structure allowed
it to perform well during periods of market improvement. In addition, we were
able to take advantage of buying opportunities that occurred as a result of
large increases in new-issue supply that started coming to market in August.
We continued our strategy of purchasing higher-quality, current coupon,
income-oriented securities with extended call protection and selling short-call
bonds. Through mid-September when our outlook became positive toward the market,
we believed that risk was biased toward lower rather than higher interest rates.
We adopted a more aggressive portfolio strategy by reducing the Fund's cash
reserve level, selling prerefunded bonds and increasing the Fund's duration with
the purchase of performance-oriented securities.
Looking ahead, we expect to remain fully invested in the coming months in order
to seek to enhance the Fund's dividend yield and performance. We believe that
the turmoil in the world's equity markets in October is likely to alleviate
concerns regarding the FRB's raising interest rates during the remainder of 1997
and early 1998.
In Conclusion
We appreciate your ongoing interest in MuniYield Pennsylvania Fund, and we look
forward to assisting you with your financial needs in the months and years
ahead.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ William R. Bock
William R. Bock
Vice President and Portfolio Manager
November 28, 1997
We are pleased to announce that William R. Bock is responsible for the
day-to-day management of MuniYield Pennsylvania Fund. Mr. Bock has been employed
by Merrill Lynch Asset Management, L.P. (an affiliate of the Fund's investment
adviser) since 1989 as Vice President and Portfolio Manager. Prior thereto, Mr.
Bock was employed by Bear Stearns and E.F. Hutton in the Tax-Exempt Bond
Division from 1978 to 1989.
2
<PAGE>
MuniYield Pennsylvania Fund October 31, 1997
PROXY RESULTS
During the six-month period ended October 31, 1997, MuniYield Pennsylvania Fund
Common Shareholders voted on the following proposals. The proposals were
approved at a shareholders' meeting on September 11, 1997. 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> <C>
1. To elect the Fund's Board of Trustees: Edward H. Meyer 5,529,350 81,834
Jack B. Sunderland 5,530,350 80,834
J. Thomas Touchton 5,530,635 80,549
Arthur Zeikel 5,528,636 82,548
- -------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Withheld Shares Voted
For From Voting Abstain
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte &
Touche LLP as the Fund's independent
auditors for the current fiscal year. 5,496,777 43,018 71,389
- -------------------------------------------------------------------------------------------
</TABLE>
During the six-month period ended October 31, 1997, MuniYield Pennsylvania Fund
Preferred Shareholders voted on the following proposals. The proposals were
approved at a shareholders' meeting on September 11, 1997. 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> <C>
1. To elect the Fund's Board of Trustees: Donald Cecil 1,524 0
M. Colyer Crum 1,524 0
Edward H. Meyer 1,524 0
Jack B. Sunderland 1,524 0
J. Thomas Touchton 1,524 0
Arthur Zeikel 1,524 0
- -------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Withheld Shares Voted
For From Voting Abstain
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte &
Touche LLP as the Fund's independent
auditors for the current fiscal year. 1,524 0 0
- -------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
MuniYield Pennsylvania Fund October 31, 1997
THE BENEFITS AND RISKS OF LEVERAGING
MuniYield Pennsylvania Fund utilizes leveraging to seek to enhance the yield and
net asset value of its Common Shares. However, these objectives cannot be
achieved in all interest rate environments. To leverage, the Fund issues
Preferred Shares, which pay 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 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 Shares. However, in order to benefit Common
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 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 Share capitalization of
$100 million and the issuance of Preferred Shares 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
Pre-ferred Shares 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 Shares.
In this case, the dividends paid to Preferred Shareholders are significantly
lower than the income earned on the fund's long-term investments, and therefore
the Common 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 Shares
will be reduced or eliminated completely. At the same time, the market value of
the fund's Common Shares (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 Shares' net asset value will reflect the full decline in the
price of the portfolio's investments, since the value of the fund's Preferred
Shares does not fluctuate. In addition to the decline in net asset value, the
market value of the fund's Common Shares may also decline.
4
<PAGE>
MuniYield Pennsylvania Fund October 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<C> <C> <C> <S> <C>
- ---------------------------------------------------------------------------------------------------------
Pennsylvania--101.9%
- ---------------------------------------------------------------------------------------------------------
Allegheny County, Pennsylvania, Hospital Development Authority
Revenue Bonds:
AAA Aaa $2,000 (Allegheny General Hospital Project), Series A, 6.25% due
9/01/2020 (c) $2,163
NR* A3 3,000 (South Hills Health System), Series A, 6.50% due 5/01/2014 3,261
AAA Aaa 1,500 (University of Pittsburgh Medical Center), Series B, 5.125% due
7/01/2022 (c) 1,444
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 6,500 Allegheny County, Pennsylvania, Sanitation Authority, Sewer
Revenue Bonds, 5.375% due 12/01/2024 (c) 6,486
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Beaver County, Pennsylvania, Hospital Authority, Revenue
Refunding Bonds (Medical Center of Beaver County, Inc.), 6.625%
due 7/01/2010 (b) 5,475
- ---------------------------------------------------------------------------------------------------------
BBB+ NR* 1,000 Cumberland County, Pennsylvania, Municipal Authority Revenue
Bonds (Presbyterian Homes Inc. Project), 6% due 12/01/2026 1,024
- ---------------------------------------------------------------------------------------------------------
A- NR* 2,250 Delaware County, Pennsylvania, Hospital Authority Revenue Bonds
(Riddle Memorial Hospital), 6.50% due 1/01/2022 2,362
- ---------------------------------------------------------------------------------------------------------
A1+ P1 2,500 Delaware County, Pennsylvania, IDA, PCR (BP Oil Inc. Project),
UPDATES, 3.70% due 12/01/2009 (a) 2,500
- ---------------------------------------------------------------------------------------------------------
A1+ P1 600 Delaware County, Pennsylvania, IDA, PCR, Refunding (Philadelphia
Electric Company), VRDN, Series A, 3.65% due 8/01/2016 (a) 600
- ---------------------------------------------------------------------------------------------------------
A Baa1 2,000 Delaware County, Pennsylvania, IDA, Revenue Refunding Bonds
(Resource Recovery Facility), Series A, 6.10% due 7/01/2013 2,137
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 1,100 Delaware County, Pennsylvania, Interboro School District, UT,
5.375% due 8/15/2025 (c) 1,098
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Hollidaysburg, Pennsylvania, Area School District, Refunding, UT,
Series A, 5.25% due 6/01/2020 (c) 986
- ---------------------------------------------------------------------------------------------------------
NR* Baa1 1,785 Latrobe, Pennsylvania, IDA, College Revenue Bonds (Saint Vincent
College Project), 6.75% due 5/01/2014 1,934
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Lehigh County, Pennsylvania, General Purpose Authority, Revenue
Bonds (Saint Luke's Hospital of Bethlehem), 6.25% due 7/01/2022
(b) 4,247
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Lehigh County, Pennsylvania, IDA, PCR, Refunding (Pennsylvania
Power and Light Company Project), Series A, 6.40% due 11/01/2021 (c) 3,279
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 4,570 Lower Providence Township, Pennsylvania, Sewer Authority, Sewer
Revenue Refunding Bonds, 5.25% due 5/01/2022 (c) 4,484
- ---------------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield Pennsylvania Fund'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
HFA Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
S/F Single-Family
UPDATES Unit Priced Demand Adjustable
Tax-Exempt Securities
UT Unlimited Tax
VRDN Variable Rate Demand Notes
5
<PAGE>
MuniYield Pennsylvania Fund October 31, 1997
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<C> <C> <C> <S> <C>
- ---------------------------------------------------------------------------------------------------------
Pennsylvania (continued)
- ---------------------------------------------------------------------------------------------------------
Luzerne County, Pennsylvania, IDA, Exempt
Facilities Revenue Bonds (Pennsylvania Gas and
Water Company Project), AMT:
A- A3 $ 2,500 Refunding, Series A, 7.20% due 10/01/2017 $2,745
AAA Aaa 2,000 Refunding, Series A, 7% due 12/01/2017 (b) 2,260
A- A3 1,500 Series B, 7.125% due 12/01/2022 1,643
- ---------------------------------------------------------------------------------------------------------
BBB NR* 2,050 Montgomery County, Pennsylvania, Higher Education and Health
Authority Revenue Bonds (Northwestern Corporation), 7.125% due
6/01/2018 2,193
- ---------------------------------------------------------------------------------------------------------
Montgomery County, Pennsylvania, IDA, PCR, Refunding
(Philadelphia Electric Company):
BBB+ Baa2 1,800 AMT, Series A, 7.60% due 4/01/2021 1,960
AAA Aaa 4,400 Series B, 6.70% due 12/01/2021 (c) 4,806
- ---------------------------------------------------------------------------------------------------------
NR* Aaa 2,000 North Allegheny, Pennsylvania, School District, Series D, 5% due
5/01/2021 (d) 1,920
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 1,260 North Penn, Pennsylvania, Water Authority, Water Revenue Bonds,
6.875% due 11/01/2004 (d)(e) 1,454
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 North Wales, Pennsylvania, Water Authority, Water Revenue Bonds,
6.75% due 11/01/2004 (d)(e) 1,139
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Northeastern, Pennsylvania, Hospital and Education Authority,
Health Care Revenue Bonds (Wyoming Valley Health Care), Series A,
5.25% due 1/01/2026 (b) 1,943
- ---------------------------------------------------------------------------------------------------------
BBB- Baa2 1,500 Pennsylvania Economic Development Financing Authority, Exempt
Facilities Revenue Bonds (MacMillan Limited Partnership Project),
AMT, 7.60% due 12/01/2020 1,740
- ---------------------------------------------------------------------------------------------------------
BBB Baa3 4,000 Pennsylvania Economic Development Financing Authority, Wastewater
Treatment Revenue Bonds (Sun Company Inc., R & M Project), AMT,
Series A, 7.60% due 12/01/2024 4,621
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Pennsylvania HFA, Refunding (Rental Housing), 6.50% due 7/01/2023 (f) 4,211
- ---------------------------------------------------------------------------------------------------------
Pennsylvania HFA, S/F Mortgage, AMT:
AA+ Aa2 1,720 Refunding, Series 60A, 5.85% due 10/01/2027 1,746
AA+ Aa 2,630 Series 34B, 7% due 4/01/2024 2,792
AA+ Aa 3,000 Series 41B, 6.65% due 4/01/2025 3,207
- ---------------------------------------------------------------------------------------------------------
A NR* 2,000 Pennsylvania State Finance Authority, Revenue Refunding Bonds
(Municipal Capital Improvements Program), 6.60% due 11/01/2009 2,197
- ---------------------------------------------------------------------------------------------------------
Pennsylvania State, GO, UT:
AA- Aa3 2,500 Second Series, 5% due 10/15/2016 2,434
AAA Aa3 3,000 Second Series A, 6.60% due 11/01/2001 (e) 3,303
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Pennsylvania State Higher Education Assistance Agency, Student
Loan Revenue Bonds, AMT, Series C, 7.15% due 9/01/2021 (b) 2,117
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 1,255 Pennsylvania State Higher Educational Facilities Authority,
College and University Revenue Refunding Bonds (Duquesne
University), Series A, 6.75% due 4/01/2020 (c) 1,340
- ---------------------------------------------------------------------------------------------------------
Pennsylvania State Higher Educational Facilities
Authority, Revenue Refunding Bonds (Carnegie
Mellon University), VRDN (a):
A1+ NR* 1,500 Series A, 3.70% due 11/01/2025 1,500
A1+ NR* 1,000 Series C, 3.70% due 11/01/2029 1,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
MuniYield Pennsylvania Fund October 31, 1997
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<C> <C> <C> <S> <C>
- ---------------------------------------------------------------------------------------------------------
Pennsylvania (concluded)
- ---------------------------------------------------------------------------------------------------------
AA- Aa3 $ 2,500 Pennsylvania State University, Refunding, 6.25% due 3/01/2011 $ 2,680
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Philadelphia, Pennsylvania, Airport Revenue Bonds (Philadelphia
Airport System), AMT, Series B, 5.40% due 6/15/2027 (d) 1,463
- ---------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania, Hospitals and Higher Education
Facilities Authority, Hospital Revenue Bonds:
A- NR* 1,000 (Children's Seashore House), Series B, 7% due 8/15/2022 1,087
A- Baa1 2,000 Refunding (Chestnut Hill Hospital), 6.50% due 11/15/2022 2,123
AAA NR* 3,000 Refunding (Presbyterian Medical Center), 6.65% due 12/01/2019 (g) 3,478
- ---------------------------------------------------------------------------------------------------------
BBB NR* 1,630 Philadelphia, Pennsylvania, Hospitals and Higher Education
Facilities Authority Revenue Bonds (Northwestern Corporation), 7%
due 6/01/2012 1,753
- ---------------------------------------------------------------------------------------------------------
AA Aa3 2,000 Philadelphia, Pennsylvania, IDA, Industrial and Commercial
Revenue Bonds (Girard Estates Facilities Leasing Project), 5% due
5/15/2027 1,885
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Philadelphia, Pennsylvania, Industrial Development Lease
Authority Revenue Bonds, Series A, 5.375% due 2/15/2027 (c) 3,991
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 1,340 Philadelphia, Pennsylvania, Water and Wastewater Revenue Bonds,
Series A, 5% due 8/01/2022 (b) 1,281
- ---------------------------------------------------------------------------------------------------------
Schuylkill County, Pennsylvania, IDA, Resource
Recovery Revenue Refunding Bonds (Northeastern
Power Company), VRDN (a):
A1+ NR* 1,100 AMT, Series B, 3.75% due 12/01/2022 1,100
A1+ NR* 1,000 Series A, 3.65% due 12/01/2022 1,000
- ---------------------------------------------------------------------------------------------------------
A- NR* 2,520 Scranton--Lackawanna, Pennsylvania, Health and Welfare Authority,
Revenue Refunding Bonds (University of Scranton Project), Series
B, 6.50% due 3/01/2015 2,688
- ---------------------------------------------------------------------------------------------------------
BBB+ NR* 1,000 Sharon, Pennsylvania, Regional Health System Authority, Hospital
Revenue Refunding Bonds (Sharon Regional Health System Project),
Series A, 6.875% due 12/01/2009 1,075
- ---------------------------------------------------------------------------------------------------------
AAA Aaa 1,525 Southeastern, Pennsylvania, Transportation Authority,
Pennsylvania Special Revenue Bonds, 5.375% due 3/01/2022 (d) 1,522
- ---------------------------------------------------------------------------------------------------------
AA+ Aa1 4,900 Swarthmore Borough, Pennsylvania, College Authority Revenue
Refunding Bonds, 6% due 9/15/2020 5,167
- ---------------------------------------------------------------------------------------------------------
AA Aa3 3,500 Upper Saint Clair Township, Pennsylvania, School District,
Refunding, UT, 5.20% due 7/15/2027 3,463
- ---------------------------------------------------------------------------------------------------------
Total Investments (Cost -- $124,761) -- 101.9% 133,507
Liabilities in Excess of Other Assets -- (1.9%) (2,436)
--------
Net Assets -- 100.0% $131,071
========
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(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,
1997.
(b) AMBAC Insured.
(c) MBIA Insured.
(d) FGIC Insured.
(e) Prerefunded.
(f) FNMA Collateralized.
(g) Escrowed to maturity.
* Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
7
<PAGE>
MuniYield Pennsylvania Fund October 31, 1997
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Statement of Assets, Liabilities and Capital as of October 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$124,761,345) (Note 1a) ........... $133,507,114
Cash....................................................................... 27,659
Interest receivable........................................................ 2,421,547
Prepaid expenses and other assets.......................................... 6,790
------------
Total assets............................................................... 135,963,110
------------
- -------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased..................................................... $ 4,585,019
Dividends to shareholders (Note 1f)...................................... 167,190
Investment adviser (Note 2).............................................. 58,852 4,811,061
-----------
Accrued expenses and other liabilities..................................... 81,381
------------
Total liabilities ......................................................... 4,892,442
------------
- -------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets................................................................. $131,070,668
============
- -------------------------------------------------------------------------------------------------------------------
Capital: Capital Shares (unlimited number of shares of beneficial interest
authorized) (Note 4):
Preferred Shares, par value $.05 per share (1,600 shares of
AMPS* issued and outstanding at $25,000 per share liquidation
preference).............................................................. $ 40,000,000
Common Shares, par value $.10 per share (5,743,422 shares
issued and outstanding).................................................. $ 574,342
Paid-in capital in excess of par........................................... 80,027,116
Undistributed investment income--net ...................................... 830,471
Undistributed realized capital gains on investments--net .................. 892,970
Unrealized appreciation on investments--net................................ 8,745,769
-----------
Total--Equivalent to $15.86 net asset value per Common Share
(market price--$14.8125)................................................... 91,070,668
------------
Total capital.............................................................. $131,070,668
============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Auction Market Preferred Shares.
See Notes to Financial Statements.
8
<PAGE>
MuniYield Pennsylvania Fund October 31, 1997
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned................... $ 7,569,854
(Note 1d):
- ------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2).......................................... $ 645,840
Commission fees (Note 4)................................................... 101,504
Professional fees.......................................................... 75,777
Transfer agent fees........................................................ 49,581
Accounting services (Note 2)............................................... 43,440
Printing and shareholder reports........................................... 32,055
Trustees' fees and expenses................................................ 22,685
Listing fees............................................................... 16,245
Custodian fees............................................................. 8,146
Pricing fees............................................................... 7,953
Amortization of organization expenses (Note 1e)............................ 7,260
Other...................................................................... 13,809
---------
Total expenses ............................................................ 1,024,295
-----------
Investment income--net..................................................... 6,545,559
-----------
- ------------------------------------------------------------------------------------------------------------------------
Realized &
Unrealized
Gain on Realized gain on investments--net ......................................... 2,016,285
Investments--Net Change in unrealized appreciation on investments--net ..................... 1,698,298
-----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ...................... $10,260,142
===========
- ------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
9
<PAGE>
MuniYield Pennsylvania Fund October 31, 1997
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------
Increase (Decrease) in Net Assets: 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations: Investment income--net..................................................... $ 6,545,559 $ 6,597,091
Realized gain on investments--net.......................................... 2,016,285 865,693
Change in unrealized appreciation on investments--net...................... 1,698,298 (993,735)
------------ ------------
Net increase in net assets resulting from operations....................... 10,260,142 6,469,049
------------ ------------
- -----------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Common Shares............................................................ (5,129,565) (5,252,664)
Shareholders Preferred Shares......................................................... (1,364,112) (1,441,936)
(Note 1f): Realized gain on investments--net:
Common Shares............................................................ (544,213) --
Preferred Shares......................................................... (152,208) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders.............................................. (7,190,098) (6,694,600)
------------ ------------
- -----------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets.................................... 3,070,044 (225,551)
Beginning of year.......................................................... 128,000,624 128,226,175
------------ ------------
End of year*............................................................... $131,070,668 $128,000,624
============ ============
- -----------------------------------------------------------------------------------------------------------------------------
* Undistributed investment income--net..................................... $ 830,471 $ 778,589
============ ============
- -----------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
10
<PAGE>
MuniYield Pennsylvania Fund October 31, 1997
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the
from information provided in the financial statements. Year Ended October 31,
---------------------------------------------------
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year.................... $ 15.32 $ 15.36 $ 13.86 $ 16.37 $ 14.13
Operating -------- -------- --------- ------- -------
Performance: Investment income--net................................. 1.13 1.15 1.17 1.15 1.12
Realized and unrealized gain (loss) on
investments--net....................................... .66 (.03) 1.53 (2.41) 2.30
-------- -------- --------- ------- -------
Total from investment operations...................... 1.79 1.12 2.70 (1.26) 3.42
-------- -------- --------- ------- -------
Less dividends and distributions to Common
Shareholders:
Investment income--net............................... (.89) (.91) (.89) (.91) (.85)
Realized gain on investments--net.................... (.09) -- -- (.12) --
In excess of realized gain on investments--net..... -- -- (.05) -- --
-------- -------- --------- ------- -------
Total dividends and distributions to Common
Shareholders.......................................... (.98) (.91) (.94) (1.03) (.85)
-------- -------- --------- ------- -------
Effect of Preferred Share activity+:
Dividends and distributions to Preferred
Shareholders:
Investment income--net............................. (.24) (.25) (.25) (.20) (.18)
Realized gain on investments--net.................. (.03) -- -- (.02) --
In excess of realized gain on
investments--net................................... -- -- (.01) -- --
Capital charge resulting from issuance of
Preferred Shares.................................... -- -- -- -- (.15)
-------- -------- --------- ------- -------
Total effect of Preferred Share activity......... (.27) (.25) (.26) (.22) (.33)
-------- -------- --------- ------- -------
Net asset value, end of year.......................... $ 15.86 $ 15.32 $ 15.36 $ 13.86 $ 16.37
======== ======== ========= ======= =======
Market price per share, end of year................... $14.8125 $ 14.125 $ 13.75 $ 11.00 $16.375
======== ======== ========= ======= =======
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share....................... 12.15% 9.48% 34.17% (27.82%) 15.30%
Return:* ======== ======== ========= ======= =======
Based on net asset value per share.................... 10.71% 6.30% 18.95% (9.02%) 22.36%
======== ======== ========= ======= =======
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement........................ .79% .78% .82% .82% .64%
Net Assets:** ======== ======== ========= ======= =======
Expenses.............................................. .79% .78% .82% .82% .78%
======== ======== ========= ======= =======
Investment income--net................................. 5.07% 5.14% 5.44% 5.12% 5.20%
======== ======== ========= ======= =======
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Shares, end of
Data: year (in thousands)................................... $ 91,071 $ 88,001 $ 88,226 $79,609 $92,654
======== ======== ========= ======= =======
Preferred Shares outstanding, end of
year (in thousands)................................... $ 40,000 $ 40,000 $ 40,000 $40,000 $40,000
======== ======== ========= ======= =======
Portfolio turnover.................................... 70.14% 75.83% 43.59% 18.64% 14.03%
======== ======== ========= ======= =======
- --------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000............................. $ 3,277 $ 3,200 $ 3,206 $ 2,990 $ 3,316
======== ======== ========= ======= =======
- --------------------------------------------------------------------------------------------------------------------------------
Dividends Per Investment income--net................................. $ 853 $ 901 $ 902 $ 688 $ 644
Share On ======== ======== ========= ======= =======
Preferred Shares
Outstanding:++
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns based on market value, which can
be significantly greater or lesser than the net asset
value, may result in substantially different returns.
Total investment returns exclude the effects of sales
loads.
** Do not reflect the effect of dividends to Preferred
Shareholders.
+ The Fund's Preferred Shares were issued on November 30,
1992.
++ Dividends per share have been adjusted to reflect a
two-for-one stock split that occurred on December 1, 1994.
See Notes to Financial Statements.
11
<PAGE>
MuniYield Pennsylvania Fund October 31, 1997
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Pennsylvania Fund (the "Fund") is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end management investment
company. The Fund determines and makes available for publication the net asset
value of its Common Shares on a weekly basis. The Fund's Common Shares are
listed on the New York Stock Exchange under the symbol MPA. 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 prices as of the
close of such exchanges. Options, which are traded on exchanges, are valued at
their last sale price as of the close of such exchanges or, lacking any sales,
at the last available bid price. Securities with remaining maturities of sixty
days or less are valued at amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued at
their fair value as determined in good faith by or under the direction of the
Board of Trustees 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 the general supervision of the Board of Trustees.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell interest rate
futures contracts and options on such futures contracts for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. Futures contracts are contracts for delayed delivery of securities
at a specific future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount of cash
equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o 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) Deferred organization expenses--Deferred organization expenses are amortized
on a straight-line basis over a five-year period.
12
<PAGE>
MuniYield Pennsylvania Fund October 31, 1997
(f) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.50% of the Fund's average weekly net assets.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees 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, 1997 were $88,085,765 and $85,690,610, respectively.
Net realized and unrealized gains as of October 31, 1997 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments...... $2,016,285 $8,745,769
---------- ----------
Total...................... $2,016,285 $8,745,769
========== ==========
- --------------------------------------------------------------------------------
As of October 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $8,745,769, of which $8,751,702 related to appreciated
securities and $5,933 related to depreciated securities. The aggregate cost of
investments at October 31, 1997 for Federal income tax purposes was
$124,761,345.
4. Capital Share Transactions:
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, including Preferred Shares, par value $.10 per share, all of which
were initially classified as Common Shares. The Board of Trustees is authorized,
however, to reclassify any unissued shares of beneficial interest without
approval of the holders of Common Shares.
Common Shares
Shares issued and outstanding during the years ended October 31, 1997 and
October 31, 1996 remained constant.
Preferred Shares
Auction Market Preferred Shares ("AMPS") are Preferred Shares of the Fund that
entitle their holders to receive cash dividends at an annual rate that may vary
for the successive dividend periods. The yield in effect at October 31, 1997 was
3.55%.
As of October 31, 1997, there were 1,600 AMPS shares authorized, issued and
outstanding with a liquidation preference of $25,000 per share.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the year ended October 31, 1997, Merrill Lynch, Pierce, Fenner
& Smith Inc., an affiliate of FAM, earned $53,530 as commissions.
5. Subsequent Event:
On November 6, 1997, the Fund's Board of Trustees declared an ordinary income
dividend to holders of Common Shares in the amount of $.075243 per share,
payable on November 26, 1997 to shareholders of record as of November 17, 1997.
13
<PAGE>
MuniYield Pennsylvania Fund October 31, 1997
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders, MuniYield Pennsylvania Fund:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniYield Pennsylvania Fund as of
October 31, 1997, the related statements of operations for the year then ended
and changes in net assets for each of the years in the two-year period then
ended and the financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1997 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MuniYield
Pennsylvania Fund as of October 31, 1997, the results of its operations, the
changes in its net assets and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 3, 1997
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniYield Pennsylvania
Fund during its taxable year ended October 31, 1997 qualify as tax-exempt
interest dividends for Federal income tax purposes. Additionally, the following
table summarizes the per share capital gains distributions paid by the Fund
during the year.
- --------------------------------------------------------------------------------
Payable Short-Term Long-Term
Date Capital Gains Capital Gains
- --------------------------------------------------------------------------------
Common Shareholders 12/30/96 $0.000382 $ 0.094372
- --------------------------------------------------------------------------------
Preferred Shareholders 11/12/96 $ .10 $27.26
11/19/96 $ .12 $27.91
11/26/96 $ .10 $26.85
12/03/96 $ .06 $12.73
- --------------------------------------------------------------------------------
Please retain this information for your records.
14
<PAGE>
MuniYield Pennsylvania Fund October 31, 1997
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Donald Cecil, Trustee
M. Colyer Crum, Trustee
Edward H. Meyer, Trustee
Jack B. Sunderland, Trustee
J. Thomas Touchton, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
William R. Bock, Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Transfer Agents
Common Shares:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Preferred Shares:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MPA
15
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of MuniYield Pennsylvania Fund for their information. It is not a
prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a representation of future
performance. The Fund has leveraged its Common Shares by issuing Preferred
Shares to provide the Common Shareholders with a potentially higher rate of
return. Leverage creates risks for Common Shareholders, including the likelihood
of greater volatility of net asset value and market price of the Common Shares,
and the risk that fluctuations in the short-term dividend rates of the Preferred
Shares may affect the yield to Common Shareholders. Statements and other
information herein are as dated and are subject to change.
MuniYield
Pennsylvania Fund
Box 9011
Princeton, NJ
08543-9011 #16499 -- 10/97
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