MUNIYIELD
PENNSYLVANIA
FUND
FUND LOGO
Annual Report
October 31, 1998
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
Printed on post-consumer recycled paper
MuniYield Pennsylvania Fund
TO OUR SHAREHOLDERS
For the year ended October 31, 1998, the Common Shares of MuniYield
Pennsylvania Fund earned $0.989 per share income dividends, which
included earned and unpaid dividends of $0.083. This represents a
net annualized yield of 6.18%, based on a month-end per share net
asset value of $16.01. Over the same period, the total investment
return on the Fund's Common Shares was +8.58%, based on a change in
per share net asset value from $15.86 to $16.01, and assuming
reinvestment of $0.981 per share income dividends and $0.168 per
share capital gains distributions.
For the six-month period ended October 31, 1998, the total
investment return on the Fund's Common Shares was +5.90%, based on a
change in per share net asset value from $15.54 to $16.01, and
assuming reinvestment of $0.438 per share income dividends.
For the six-month period ended October 31, 1998, the Fund's Auction
Market Preferred Shares had an average yield of 3.91%.
The Municipal Market Environment
During the six months ended October 31, 1998, long-term bond yields
declined significantly. The near absence of any inflationary
pressures in the United States continued to support historic low
interest rates. Additionally, foreign economic factors have
continued to outweigh US domestic fundamentals, as they have for
much of 1998. The economic crisis that began in Asia over a year ago
has spread both to Russia and South America. However, economic
factors in these countries have begun to negatively impact US
growth. For example, employment in the US manufacturing sector
declined in recent months as a result of reduced demand for export
goods. Concern that the modest decline in US economic growth seen
thus far would spread and intensify led the Federal Reserve Board to
lower short-term interest rates in late September, in mid-October
and in mid-November. These actions were taken to offset the drag of
foreign economies on future US growth.
US Treasury bond yields continued to benefit from a strong "flight
to quality" as foreign investors were drawn to the relative safe
haven of US Government securities. Additionally, the sharp equity
market correction, which began at the end of August, triggered a
further flight into US Treasury securities. Long-term US Treasury
bond yields fell over 90 basis points (0.90%) to approximately 5% by
the end of September. This is the lowest level since the US Treasury
re-introduced 30-year maturity bond auctions in 1977.
By early October, worldwide investor confidence began to rise,
reducing the demand for the safety and liquidity of US Treasury
securities. Investor confidence was restored by the belief that
major world governments, as well as the International Monetary Fund,
would take the necessary action to support weak domestic economies
in Asia and Latin America. Additionally, rapid recovery in US and
world equity markets caused some investors to reallocate funds from
US debt instruments back to various world equity markets. US
Treasury security yields rose for the remainder of the month to end
October at 5.15%. During the six-month period ended October 31,
1998, long-term Treasury security yields declined approximately 80
basis points.
During the past 12 months, the tax-exempt bond market has contended
with significant new-issue supply pressures. Over the past year,
more than $277 billion in new long-term tax-exempt bonds were
underwritten, an increase of almost 30% compared to the same period
a year ago. During the most recent six-month period, approximately
$140 billion in new long-term municipal bonds were underwritten,
representing an increase of more than 15% over the same six-month
period last year. This increased supply, coupled with the high
returns the US equity market generated for much of 1998, was one of
the major reasons municipal bond yields declined less than their
taxable counterparts during the period.
The continued increase in new bond issuance has required ever-lower
tax-exempt bond yields to generate the economic savings necessary
for additional municipal bond financings. Consequently, the pace of
new bond issuance has slowed in recent months. In fact, the trend
may be reversing. During the three months ended October 31, 1998,
just over $60 billion in new long-term municipal bonds were
underwritten, a decline of 4% compared to the same quarter a year
ago. During the month of October, there were less than $20 billion
in new municipal bond securities issued, a decline of over 10%
compared to October 1997. We will monitor this trend closely in the
coming months to determine if the supply pressures exerted thus far
in 1998 are abating and fostering a more balanced supply/demand
environment.
MuniYield Pennsylvania Fund
October 31, 1998
Throughout the six-month period ended October 31, 1998, municipal
bond yields followed a pattern that was similar to US Treasury
securities, although the yield declines were more muted. As measured
by the unmanaged Bond Buyer Revenue Bond Index, long-term, uninsured
tax-exempt revenue bond yields declined over 40 basis points to
5.09% by the end of September, their lowest level since the early
1970s. Municipal bond yields rose during October to end the period
at 5.24%. Over the past six months, long-term tax-exempt bond yields
declined almost 30 basis points.
Although municipal bond yields declined during the six-month period,
recent supply pressures and the absence of the safe haven status
enjoyed by US securities caused municipal bond yields to rise
relative to US Treasury bond yields. At October 31, 1998, long-term
tax-exempt bond yield spreads were attractive relative to US
Treasury securities of comparable maturities (over 100%), well in
excess of their historic range of 85%--88%. Tax-exempt bond yield
ratios have rarely exceeded 90% in the 1980s and 1990s.
Historically, yield spreads have been wider than these levels when
there have been potential changes in Federal tax codes that would
have adversely affected the tax-favored status of municipal bonds.
Currently, municipal bond investors find themselves in a unique
investment environment. Previous opportunities to purchase tax-
exempt bonds with yields exceeding that of comparable US Treasury
issues have been limited to relatively brief episodes and then
further limited to a few municipal credits undergoing specific
financial pressures. At present, almost the entire municipal bond
universe, across nearly all maturity and credit sectors, can be
purchased at yields greater than their taxable counterparts.
However, the current opportunity may quickly disappear should tax-
exempt bond supply pressures diminish or the safe-haven status of US
Treasury securities become less desirable. Under these conditions,
municipal bond ratios should quickly revert to more normal historic
percentages, certainly well below their presently attractive levels.
Portfolio Strategy
We continued to maintain a constructive strategy during the six-
month period ended October 31, 1998. We believed that the robust
economic growth seen in late 1997 and the first quarter of 1998
would be tempered by deteriorating Asian and Latin American
economies and an absence of inflation. Consequently, we expected tax-
exempt bond yields to trade in a relatively narrow range with a bias
toward lower bond yields as 1998 progressed. We maintained a fully
invested position in order to seek to enhance total return.
Looking ahead, we expect to remain fully invested over the coming
months with little change to the Fund's present structure. Our
outlook calls for a substantial slowdown in the growth of the
economy in the coming year as consumption growth slows along with
capital spending and a further trade drag. We believe that the
Federal Reserve Board will respond with an easier monetary policy,
which is likely to cause interest rates on intermediate-term and
long-term municipal bonds to fall further.
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,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(William R. Bock)
William R. Bock
Vice President and Portfolio Manager
December 7, 1998
MuniYield Pennsylvania Fund
October 31, 1998
PROXY RESULTS
During the six-month period ended October 31, 1998, MuniYield
Pennsylvania Fund Common Shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on
September 14, 1998. The description of each proposal and number of
shares voted are as follows:
<TABLE>
<CAPTION>
Shares Shares Withheld
Voted For From Voting
<S> <S> <C> <C>
1. To elect the Fund's Board of Trustees: Edward H. Meyer 5,476,988 114,629
Jack B. Sunderland 5,476,088 115,529
J. Thomas Touchton 5,478,674 112,943
Fred G. Weiss 5,481,998 109,619
Arthur Zeikel 5,475,163 116,454
<CAPTION>
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the
independent auditors for the current fiscal year. 5,510,932 41,251 39,435
</TABLE>
During the six-month period ended October 31, 1998, MuniYield
Pennsylvania Fund Preferred Shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on
September 14, 1998. The description of each proposal and number of
shares voted are as follows:
<TABLE>
<CAPTION>
Shares Shares Withheld
Voted For From Voting
<S> <S> <C> <C>
1. To elect the Fund's Board of Trustees: Donald Cecil 1,599 1
M. Colyer Crum 1,599 1
Edward H. Meyer 1,599 1
Jack B. Sunderland 1,599 1
J. Thomas Touchton 1,599 1
Fred G. Weiss 1,599 1
Arthur Zeikel 1,599 1
<CAPTION>
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the
independent auditors for the current fiscal year. 1,599 0 1
</TABLE>
MuniYield Pennsylvania Fund
October 31, 1998
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.
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, interest rates 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 such securities.
MuniYield Pennsylvania Fund
October 31, 1998
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
RITR Residual Interest Trust Receipts
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Pennsylvania--101.2%
<S> <S> <C> <S> <C>
Allegheny County, Pennsylvania, Hospital Developement Authority Revenue
Bonds, Series A:
AAA Aaa $ 2,000 (Allegheny General Hospital Project), 6.25% due 9/01/2020 (d) $ 2,068
NR* A2 3,000 (South Hills Health System), 6.50% due 5/01/2014 3,315
BBB- Baa2 2,680 Allegheny County, Pennsylvania, IDA, Environmental Improvement Revenue
Refunding Bonds (USX Corp.), 5.60% due 9/01/2030 2,700
AAA Aaa 5,750 Allegheny County, Pennsylvania, Sanitation Authority, Sewer Revenue Bonds,
RITR, Series 20, 7.02% due 12/01/2024 (d)(h) 6,172
NR* P1 200 Beaver County, Pennsylvania, IDA, Environmental Improvement Recreation Revenue
Bonds (BASF Corporation Project), VRDN, AMT, 3.80% due 9/01/2032 (g) 200
NR* Aaa 2,500 Berks County, Pennsylvania, GO, UT, 5% due 11/15/2025 (a) 2,463
AAA Aaa 1,100 Delaware County, Pennsylvania, Interboro School District, UT, 5.375% due
8/15/2025 (d) 1,132
NR* Aaa 4,000 Delaware County, Pennsylvania, University Authority Revenue Bonds (Villanova
University), Series A, 5% due 12/01/2028 (d) 3,939
AAA Aaa 1,750 Greater Johnstown, Pennsylvania, School District, Refunding, GO, UT, 5%
due 2/01/2019 (d) 1,748
AAA Aaa 1,000 Lancaster, Pennsylvania, Area Sewer Authority Revenue Bonds, 4.50% due
4/01/2018 (d) 941
AAA Aaa 4,000 Lehigh County, Pennsylvania, General Purpose Authority Revenue Bonds (Saint
Lukes Hospital--Bethlehem), 6.25% due 7/01/2022 (a) 4,366
AAA Aaa 3,000 Lehigh County, Pennsylvania, IDA, PCR, Refunding (Pennsylvania Power and
Light Company Project), Series A, 6.40% due 11/01/2021 (d) 3,315
AAA Aaa 4,570 Lower Providence Township, Pennsylvania, Sewer Authority, Sewer Revenue
Refunding Bonds, 5.25% due 5/01/2022 (d) 4,635
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 2,754
AAA Aaa 2,000 Series A, 7% due 12/01/2017 (a) 2,300
A- A3 1,500 Series B, 7.125% due 12/01/2022 1,650
AAA Aaa 3,700 McGuffey School District, Pennsylvania, GO, 4.75% due 8/01/2028 (a) 3,557
Montgomery County, Pennsylvania, IDA, PCR, Refunding (Philadelphia Electric
Company):
BBB+ Baa2 1,800 AMT, Series A, 7.60% due 4/01/2021 1,939
AAA Aaa 4,400 Series B, 6.70% due 12/01/2021 (d) 4,801
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 (a) 2,017
</TABLE>
MuniYield Pennsylvania Fund
October 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Pennsylvania (continued)
<S> <S> <C> <S> <C>
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 $ 4,653
AAA Aaa 4,000 Pennsylvania HFA, Refunding (Rental Housing), 6.50% due 7/01/2023 (e) 4,279
Pennsylvania HFA, S/F Mortgage, Revenue Bonds, AMT:
AA+ Aa 3,000 Refunding, Series 41B, 6.65% due 4/01/2025 3,228
AA+ Aa2 1,720 Refunding, Series 60A, 5.85% due 10/01/2027 1,786
AA+ Aa 2,630 Series 34B, 7% due 4/01/2024 2,752
AA+ Aa2 1,000 Series 62A, 5.50% due 10/01/2022 1,019
AA+ Aa2 1,500 Series 64, 5% due 10/01/2017 1,485
A NR* 2,000 Pennsylvania State Finance Authority, Revenue Refunding Bonds (Municipal
Capital Improvements Program), 6.60% due 11/01/2009 2,237
AAA Aaa 2,500 Pennsylvania State, GO, Second Series, 5% due 8/01/2018 (b) 2,506
AAA Aaa 2,000 Pennsylvania State Higher Educational Assistance Agency, Student Loan Revenue
Bonds, AMT, Series C, 7.15% due 9/01/2021 (a) 2,159
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 (d) 1,335
Pennsylvania State Higher Educational Facilities Authority, Revenue Refunding
Bonds:
A1+ NR* 800 (Carnegie Mellon University), VRDN, Series B, 3.70% due 11/01/2027 (g) 800
AAA Aaa 1,600 (University of Pennsylvania--Health Services), Series A, 5.375% due
1/01/2015 (d) 1,670
Pennsylvania State Turnpike Commission, Tax Revenue Bonds (Oil Franchise)(a):
AAA Aaa 2,075 Senior Series A, 4.75% due 12/01/2027 1,984
AAA Aaa 3,670 Sub-Series B, 4.75% due 12/01/2027 3,508
AA- Aa3 2,500 Pennsylvania State University, Refunding, 6.25% due 3/01/2011 2,710
AAA Aaa 1,500 Philadelphia, Pennsylvania, Airport Revenue Bonds (Philadelphia Airport System),
AMT, Series B, 5.40% due 6/15/2027 (b) 1,534
AA Aa3 2,000 Philadelphia, Pennsylvania, Authority for Industrial Development, Industrial
and Commercial Revenue Bonds (Girard Estates Facilities Leasing Project), 5%
due 5/15/2027 1,950
AAA Aaa 4,000 Philadelphia, Pennsylvania, Authority for Industrial Development, Lease Revenue
Bonds (City of Philadelphia Project), Series A, 5.375% due 2/15/2027 (d) 4,135
AAA Aaa 2,000 Philadelphia, Pennsylvania, Gas Works Revenue Bonds (First), Series B, 5% due
7/01/2028 (c) 1,966
Philadelphia, Pennsylvania, Hospitals and Higher Educational Facilities
Authority, Hospital Revenue Bonds:
A- NR* 1,000 (Children's Seashore House), Series B, 7% due 8/15/2022 1,101
AAA NR* 3,000 Refunding (Presbyterian Medical Center), 6.65% due 12/01/2019 (i) 3,646
AAA NR* 1,630 Philadelphia, Pennsylvania, Hospitals and Higher Educational Facilities
Authority Revenue Bonds (Northwestern Corporation), 7% due 6/01/2003 (f) 1,859
AAA Aaa 4,820 Pittsburgh, Pennsylvania, Water and Sewer Authority, Water and Sewer System
Revenue Bonds, Sub-Series C, 5.05% due 9/01/2025 (c) 4,771
</TABLE>
MuniYield Pennsylvania Fund
October 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Pennsylvania (concluded)
<C> <C> <S> <S> <C>
A1+ NR* $ 3,800 Schuylkill County, Pennsylvania, IDA, Resource Recovery Revenue Refunding
Bonds (Northeastern Power Company), VRDN, AMT, Series B, 3.85% due 12/01/2022 (g) $ 3,800
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 2,706
NR* Aaa 5,000 Somerset County, Pennsylvania, GO, UT, Series A, 5% due 10/01/2027 (b) 4,925
AA+ Aaa 3,985 Swarthmore Borough Authority, Pennsylvania, College Revenue Refunding Bonds,
6% due 9/15/2020 4,337
AA Aa3 3,500 Upper Saint Clair Township, Pennsylvania, School District, Refunding, UT,
5.20% due 7/15/2027 3,526
Total Investments (Cost--$126,036)--101.2% 134,379
Liabilities in Excess of Other Assets--(1.2%) (1,612)
--------
Net Assets--100.0% $132,767
========
<FN>
(a)AMBAC Insured.
(b)FGIC Insured.
(c)FSA Insured.
(d)MBIA Insured.
(e)FNMA Collateralized.
(f)Prerefunded.
(g)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, 1998.
(h)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at October 31, 1998.
(i)Escrowed to maturity.
*Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
QUALITY PROFILE
The quality ratings of securities in the Fund as of October 31, 1998
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 66.3%
AA/Aa 13.9
A/A 10.4
BBB/Baa 7.0
Other++ 3.6
[FN]
++Temporary investments in short-term municipal securities.
MuniYield Pennsylvania Fund
October 31, 1998
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$126,036,032) (Note 1a) $134,378,983
Cash 3,826,673
Interest receivable 2,117,911
Prepaid expenses and other assets 6,504
------------
Total assets 140,330,071
------------
Liabilities: Payables:
Securities purchased $ 7,371,713
Investment adviser (Note 2) 58,504
Dividends to shareholders (Note 1e) 42,368 7,472,585
------------
Accrued expenses and other liabilities 90,653
------------
Total liabilities 7,563,238
------------
Net Assets: Net assets $132,766,833
------------
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 (5,792,744 shares
issued and outstanding) $ 579,274
Paid-in capital in excess of par 80,808,153
Undistributed investment income--net 1,160,698
Undistributed realized capital gains on investments--net 1,875,757
Unrealized appreciation on investments--net 8,342,951
------------
Total--Equivalent to $16.01 net asset value per Common Share
(market price--$16.50) 92,766,833
------------
Total capital $132,766,833
============
<FN>
*Auction Market Preferred Shares.
See Notes to Financial Statements.
</TABLE>
MuniYield Pennsylvania Fund
October 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
October 31, 1998
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 7,431,283
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 655,306
Commission fees (Note 4) 101,488
Professional fees 69,429
Accounting services (Note 2) 48,818
Transfer agent fees 41,216
Trustees' fees and expenses 26,197
Printing and shareholder reports 21,511
Listing fees 16,170
Custodian fees 9,442
Pricing fees 8,296
Other 14,990
------------
Total expenses 1,012,863
------------
Investment income--net 6,418,420
------------
Realized & Realized gain on investments--net 3,150,329
Unrealized Gain Change in unrealized appreciation on investments--net (402,818)
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 9,165,931
(Notes 1b, ============
1d & 3):
See Notes to Financial Statements.
</TABLE>
MuniYield Pennsylvania Fund
October 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 6,418,420 $ 6,545,559
Realized gain on investments--net 3,150,329 2,016,285
Change in unrealized appreciation on investments--net (402,818) 1,698,298
------------ ------------
Net increase in net assets resulting from operations 9,165,931 10,260,142
------------ ------------
Dividends & Investment income--net:
Distributions to Common Shares (5,040,266) (5,129,565)
Shareholders Preferred Shares (1,048,448) (1,364,112)
(Note 1e): Realized gain on investments--net:
Common Shares (1,574,973) (544,213)
Preferred Shares (592,048) (152,208)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (8,255,735) (7,190,098)
------------ ------------
Beneficial Value of shares issued to Common Shareholders in reinvestment
Interest of dividends and distributions 785,969 --
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase in net assets 1,696,165 3,070,044
Beginning of year 131,070,668 128,000,624
------------ ------------
End of year* $132,766,833 $131,070,668
============ ============
<FN>
*Undistributed investment income--net (Note 1f) $ 1,160,698 $ 830,471
============ ============
See Notes to Financial Statements.
</TABLE>
MuniYield Pennsylvania Fund
October 31, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended
October 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.86 $ 15.32 $ 15.36 $ 13.86 $ 16.37
Operating -------- -------- -------- -------- --------
Performance: Investment income--net 1.12 1.13 1.15 1.17 1.15
Realized and unrealized gain (loss) on
investments--net .46 .66 (.03) 1.53 (2.41)
-------- -------- -------- -------- --------
Total from investment operations 1.58 1.79 1.12 2.70 (1.26)
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Shareholders:
Investment income--net (.88) (.89) (.91) (.89) (.91)
Realized gain on investments--net (.27) (.09) -- -- (.12)
In excess of realized gain on invest-
ments--net -- -- -- (.05) --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Shareholders (1.15) (.98) (.91) (.94) (1.03)
-------- -------- -------- -------- --------
Effect of Preferred Share activity:
Dividends and distributions to Preferred
Shareholders:
Investment income--net (.18) (.24) (.25) (.25) (.20)
Realized gain on investments--net (.10) (.03) -- -- (.02)
In excess of realized gain on
investments--net -- -- -- (.01) --
-------- -------- -------- -------- --------
Total effect of Preferred Share activity (.28) (.27) (.25) (.26) (.22)
======== ======== ======== ======== ========
Net asset value, end of year $ 16.01 $ 15.86 $ 15.32 $ 15.36 $ 13.86
======== ======== ======== ======== ========
Market price per share, end of year $ 16.50 $14.8125 $ 14.125 $ 13.75 $ 11.00
======== ======== ======== ======== ========
Total Investment Based on market price per share 19.82% 12.15% 9.48% 34.17% (27.82%)
Return:* ======== ======== ======== ======== ========
Based on net asset value per share 8.58% 10.71% 6.30% 18.95% (9.02%)
======== ======== ======== ======== ========
Ratios to Average Expenses .77% .79% .78% .82% .82%
Net Assets:** ======== ======== ======== ======== ========
Investment income--net 4.90% 5.07% 5.14% 5.44% 5.12%
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Shares, end of
Data: year (in thousands) $ 92,767 $ 91,071 $ 88,001 $ 88,226 $ 79,609
======== ======== ======== ======== ========
Preferred Shares outstanding, end of
year (in thousands) $ 40,000 $ 40,000 $ 40,000 $ 40,000 $ 40,000
======== ======== ======== ======== ========
Portfolio turnover 60.52% 70.14% 75.83% 43.59% 18.64%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,319 $ 3,277 $ 3,200 $ 3,206 $ 2,990
======== ======== ======== ======== ========
Dividends Investment income--net $ 655 $ 853 $ 901 $ 902 $ 688
Per Share on ======== ======== ======== ======== ========
Preferred Shares
Outstanding:++
<FN>
*Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
**Do not reflect the effect of dividends to Preferred Shareholders.
++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.
</TABLE>
MuniYield Pennsylvania Fund
October 31, 1998
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 written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of
options traded in the over-the-counter market, valuation is the last
asked price (options written) or the last bid price (options
purchased). Securities with remaining maturities of sixty days or
less are valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at their fair value as determined in good faith
by or under the direction of the Board of 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.
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
MuniYield Pennsylvania Fund
October 31, 1998
(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) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of $521
have been reclassified between undistributed net realized capital
gains and undistributed net investment income. These
reclassifications have no effect on net assets or net asset value
per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets, including proceeds from the
issuance of Preferred Shares.
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, 1998 were $78,090,125 and
$77,069,722, respectively.
Net realized gains for the year ended October 31, 1998 and net
unrealized gains as of October 31, 1998 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $ 3,150,329 $8,342,951
----------- ----------
Total $ 3,150,329 $8,342,951
=========== ==========
As of October 31, 1998, net unrealized appreciation for Federal
income tax purposes aggregated $8,342,951, of which $8,362,443
related to appreciated securities and $19,492 related to depreciated
securities. The aggregate cost of investments at October 31, 1998
for Federal income tax purposes was $126,036,032.
4. Beneficial Interest 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 year ended October 31, 1998
increased by 49,322 as a result of dividend reinvestment and during
the year ended October 31, 1997 remained constant.
Preferred Shares
Auction Market Preferred Stock ("AMPS") are Preferred Shares of the
Fund, with a par value of $.05 per share and a liquidation
preference of $25,000 per share, that entitle their holders to
receive cash dividends at an annual rate that may vary for the
successive dividend periods. The yield in effect at October 31, 1998
was 3.23%.
Shares issued and outstanding during the years ended October 31,
1998 and October 31, 1997 remained constant.
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, 1998, Merrill Lynch, Pierce, Fenner & Smith Inc., an
affiliate of FAM, earned $67,303 as commissions.
5. Subsequent Event:
On November 5, 1998, the Fund's Board of Trustees declared an
ordinary income dividend to holders of Common Shares in the amount
of $.083059 per share, payable on November 27, 1998 to shareholders
of record as of November 20, 1998.
MuniYield Pennsylvania Fund
October 31, 1998
<AUDIT-REPORT>
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, 1998, the related statement 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
and financial highlights. Our procedures included confirmation of
securities owned at October 31, 1998 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, 1998, 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 7, 1998
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniYield
Pennsylvania Fund during its taxable year ended October 31, 1998
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.
<TABLE>
<CAPTION>
Payable Short-Term Long-Term
Date Capital Gains Capital Gains
<S> <C> <C> <C>
Common Shareholders 12/03/97 $ .105927 $ .168295*
Preferred Shareholders 11/12/97 $13.11 $20.84*
11/18/97 $10.05 $15.95*
11/25/97 $11.71 $18.61*
12/02/97 $11.71 $18.61*
12/09/97 $12.03 $19.11*
12/16/97 $11.55 $18.36*
12/23/97 $12.67 $20.12*
12/30/97 $12.03 $19.11*
1/06/98 $ 5.25 $ 8.33**
10/13/98 -- $28.68**
10/20/98 -- $28.27**
10/27/98 -- $27.45**
<FN>
*Of this distribution, 42.47% is subject to the 28% tax rate and
57.53% is subject to the 20% tax rate.
**The entire distribution is subject to the 20% tax rate.
Please retain this information for your records.
</TABLE>
MuniYield Pennsylvania Fund
October 31, 1998
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its
net investment income to its shareholders on a monthly basis.
However, in order to provide shareholders with a more consistent
yield to the current trading price of Common Shares 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 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
Fred G. Weiss, 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
