-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O+vyKJiN4RPYEv7i5wZQr/rwqHbmjNmwT4gQzmJDZ0R93WdIasneChKktsyaEPxA ynl3nZ388CQ/hm5wjUt38A== 0000900092-98-000173.txt : 19981228 0000900092-98-000173.hdr.sgml : 19981228 ACCESSION NUMBER: 0000900092-98-000173 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNIYIELD FUND INC CENTRAL INDEX KEY: 0000879361 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06414 FILM NUMBER: 98774317 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08543-9011 BUSINESS PHONE: 6092822800 MAIL ADDRESS: STREET 1: PO BOX 9011 STREET 2: C/O MERRILL LYNCH ASSET MANAGEMENT CITY: PRINCETON STATE: NJ ZIP: 08543-9011 N-30D 1 ANNUAL REPORT MUNIYIELD FUND, INC. FUND LOGO Annual Report October 31, 1998 This report, including the financial information herein, is transmitted to the shareholders of MuniYield Fund, Inc. 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 Stock by issuing Preferred Stock to provide the Common Stock shareholders with a potentially higher rate of return. Leverage creates risks for Common Stock shareholders, including the likelihood of greater volatility of net asset value and market price of shares of the Common Stock, and the risk that fluctuations in the short-term dividend rates of the Preferred Stock may affect the yield to Common Stock shareholders. Statements and other information herein are as dated and are subject to change. MuniYield Fund, Inc. Box 9011 Princeton, NJ 08543-9011 Printed on post-consumer recycled paper MuniYield Fund, Inc. TO OUR SHAREHOLDERS For the year ended October 31, 1998, the Common Stock of MuniYield Fund, Inc. earned $1.095 per share income dividends, which included earned and unpaid dividends of $0.087. This represents a net annualized yield of 6.73%, based on a month-end per share net asset value of $16.27. Over the same period, the total investment return on the Fund's Common Stock was +9.15%, based on a change in per share net asset value from $16.09 to $16.27, and assuming reinvestment of $1.092 per share income dividends and $0.143 per share capital gains distributions. For the six-month period ended October 31, 1998, the total investment return on the Fund's Common Stock was +5.65%, based on a change in per share net asset value from $15.87 to $16.27, and assuming reinvestment of $0.487 per share income dividends. For the six-month period ended October 31, 1998, the Fund's Auction Market Preferred Stock had an average yield as follows: Series A, 2.82%; Series B, 2.80%; Series C, 3.62%, Series D, 3.62%; and Series E, 3.15%. 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 Fund, Inc. 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 As a result of our efforts to move from a neutral to a more constructive market strategy, the Fund generated a competitive return for the six months ended October 31, 1998. The shift in our outlook evolved early in the period as the prospect of escalating global economic and financial market turmoil set the stage for sharply lower interest rates. Much of the activity reflecting this shift centered around a reduction in the Fund's exposure to bonds possessing minimal call protection. Most of these securities were issued in a higher- interest rate environment and, consequently, we sold them at substantial premiums to face value. We invested the proceeds from these sales in high-quality issues that are well protected from early redemption and likely to perform well as interest rates decline. Through these restructuring efforts, the Fund is better positioned to withstand the likely onslaught of municipal bond redemptions as issuers reap the benefits of refinancing outstanding debt. We believe that this active approach to managing the Fund's average call protection is likely to provide a more stable dividend over time. In past reports to shareholders, we have discussed the extent to which credit spreads have narrowed in the municipal market. Earlier this year, the tax-exempt high-yield market exhibited few of the pressures that were emerging within the taxable market. We viewed this as an opportunity to reduce exposure to some of the Fund's more vulnerable positions at what proved to be quite favorable prices. In fact, selected municipal credit spreads have succumbed to financial market volatility and ensuing uncertainty regarding the health of the global economy. While the damage in the municipal market in no way compares to what transpired in the corporate high-yield bond and emerging markets, a modest widening of credit spreads has nonetheless occurred. Looking ahead, it seems likely that the historical imbalance between supply and demand will prevail, limiting the degree to which tax-exempt high-yield securities are impacted by global trends. MuniYield Fund, Inc. October 31, 1998 Leverage continues to benefit the Fund's Common Stock shareholders, as the Fund's cost of borrowing, as reflected by short-term tax- exempt interest rates, remains well below the yields available on long-term municipal bonds. In fact, borrowing costs actually declined with the general move toward lower short-term interest rates brought on by the recent shift toward easier monetary policy. However, should the spread between short-term and long-term interest rates narrow, the benefits of leverage will decline, and as a result reduce the yield to the Fund's Common Stock. (For a complete explanation of the benefits and risks of leveraging, see the description provided below.) Sincerely, (Arthur Zeikel) Arthur Zeikel President (Vincent R. Giordano) Vincent R. Giordano Senior Vice President (Theodore R. Jaeckel Jr.) Theodore R. Jaeckel Jr. Vice President and Portfolio Manager December 14, 1998 THE BENEFITS AND RISKS OF LEVERAGING MuniYield Fund, Inc. utilizes leveraging to seek to enhance the yield and net asset value of its Common Stock. However, these objectives cannot be achieved in all interest rate environments. To leverage, the Fund issues Preferred Stock, which pays dividends at prevailing short-term interest rates, and invests the proceeds in long-term municipal bonds. The interest earned on these investments is paid to Common Stock shareholders in the form of dividends, and the value of these portfolio holdings is reflected in the per share net asset value of the Fund's Common Stock. However, in order to benefit Common Stock shareholders, the yield curve must be positively sloped; that is, short-term interest rates must be lower than long-term interest rates. At the same time, a period of generally declining interest rates will benefit Common Stock shareholders. If either of these conditions change, then the risks of leveraging will begin to outweigh the benefits. To illustrate these concepts, assume a fund's Common Stock capitalization of $100 million and the issuance of Preferred Stock for an additional $50 million, creating a total value of $150 million available for investment in long-term municipal bonds. If prevailing short-term interest rates are approximately 3% and long- term interest rates are approximately 6%, the yield curve has a strongly positive slope. The fund pays dividends on the $50 million of Preferred Stock based on the lower short-term interest rates. At the same time, the fund's total portfolio of $150 million earns the income based on long-term interest rates. Of course, increases in short-term interest rates would reduce (and even eliminate) the dividends of the Common Stock. In this case, the dividends paid to Preferred Stock shareholders are significantly lower than the income earned on the fund's long-term investments, and therefore the Common Stock shareholders are the beneficiaries of the incremental yield. However, if short-term interest rates rise, narrowing the differential between short-term and long-term interest rates, the incremental yield pickup on the Common Stock will be reduced or eliminated completely. At the same time, the market value of the fund's Common Stock (that is, its price as listed on the New York Stock Exchange) may, as a result, decline. Furthermore, if long-term interest rates rise, the Common Stock's net asset value will reflect the full decline in the price of the portfolio's investments, since the value of the fund's Preferred Stock does not fluctuate. In addition to the decline in net asset value, the market value of the fund's Common Stock may also decline. As a part of its investment strategy, the Fund may invest in certain securities whose potential income return is inversely related to changes in a floating interest rate ("inverse floaters"). In general, 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 Fund, Inc. October 31, 1998 PROXY RESULTS During the six-month period ended October 31, 1998, MuniYield Fund, Inc. Common Stock shareholders voted on the following proposals. The proposals were approved at a shareholders' meeting on September 24, 1998. The description of each proposal and number of shares voted are as follows:
Shares Shares Withheld Voted For From Voting 1. To elect the Fund's Board of Directors: Herbert I. London 36,161,804 579,327 Robert R. Martin 36,149,266 591,865 Andre F. Perold 36,162,738 578,393 Arthur Zeikel 36,152,305 588,826 Shares Shares Voted Shares Voted Voted For Against Abstain 2. To ratify the selection of Deloitte & Touche LLP as the Fund's independent auditors. 36,071,522 178,985 490,623
During the six-month period ended October 31, 1998, MuniYield Fund, Inc. Preferred Stock shareholders (Series A, B, C, D and E) voted on the following proposals. The proposals were approved at a shareholders' meeting on September 24, 1998. The description of each proposal and number of shares voted are as follows:
Shares Shares Withheld Voted For From Voting 1. To elect the Fund's Board of Directors: James H. Bodurtha, Herbert I. London, Joseph L. May, Robert R. Martin, Andre F. Perold and Arthur Zeikel as follows: Series A 1,766 1 Series B 1,747 7 Series C 1,594 0 James H. Bodurtha, Joseph L. May and Andre F. Perold Series D 1,596 0 Herbert I. London, Robert R. Martin and Arthur Zeikel Series D 1,592 4 James H. Bodurtha, Joseph L. May and Andre F. Perold Series E 2,227 0 Herbert I. London, Robert R. Martin and Arthur Zeikel Series E 2,223 4 Shares Shares Voted Shares Voted Voted For Against Abstain 2. To select Deloitte & Touche LLP as the Fund's independent auditors as follows: Series A 1,767 0 0 Series B 1,747 7 0 Series C 1,594 0 0 Series D 1,596 0 0 Series E 2,227 0 0
MuniYield Fund, Inc. October 31, 1998 PORTFOLIO ABBREVIATIONS To simplify the listings of MuniYield Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list below and at right. AMT Alternative Minimum Tax (subject to) COP Certificates of Participation EDA Economic Development Authority GO General Obligation Bonds HDA Housing Development Authority HFA Housing Finance Agency IDA Industrial Development Authority IDB Industrial Development Board IDR Industrial Development Revenue Bonds PCR Pollution Control Revenue Bonds RITR Residual Interest Trust Receipts S/F Single-Family UT Unlimited Tax VRDN Variable Rate Demand Notes SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value State Ratings Ratings Amount Issue (Note 1a) Alabama--0.2% A1 VMIG1++ $ 1,800 Mobile, Alabama, IDB, PCR, Refunding (Alabama Power Co. Project), VRDN, 3.70% due 6/01/2015 (a) $ 1,800 Alaska--2.0% NR* NR* 10,050 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (Amerada Hess Pipeline Corporation), 6.10% due 2/01/2024 10,683 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (Exxon Pipeline Co. Project), VRDN (a): A1+ P1 2,900 Series A, 3.70% due 12/01/2033 2,900 A1+ P1 4,000 Series C, 3.70% due 12/01/2033 4,000 Arizona--4.8% Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding (Arizona Public Service Co.): BB+ Ba1 5,275 Series A, 5.75% due 11/01/2022 5,374 A1+ P1 1,500 VRDN, Series A, 3.70% due 5/01/2029 (a) 1,500 A1+ P1 1,000 VRDN, Series F, 3.70% due 5/01/2029 (a) 1,000 BB+ Ba1 9,000 Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding (Public Service Company of New Mexico Project), Series A, 6.30% due 12/01/2026 9,627 NR* B1 5,300 Phoenix, Arizona, IDA, Airport Facilities Revenue Refunding Bonds (America West Airlines Inc.), AMT, 6.30% due 4/01/2023 5,495 B B2 18,500 Pima County, Arizona, IDA, Industrial Revenue Bonds (Tucson Electric Power Co. Project), Series B, 6% due 9/01/2029 18,652 Arkansas--0.3% NR* NR* 2,815 Little Rock, Arkansas, Capital Improvement Revenue Bonds (Parks and Recreation Projects), Series A, 5.70% due 1/01/2018 2,852 California--4.1% California Foothill/Eastern Transportation Corridor Agency, Toll Road Revenue Bonds, Senior Lien, Series A**: AAA Aaa 10,000 5.75% due 1/01/2018 (i) 3,837 AAA Aaa 10,000 5.791% due 1/01/2020 (i) 3,444 BBB- Baa 34,165 6.33% due 1/01/2020 11,150 AAA Aaa 10,000 5.788% due 1/01/2021 (i) 3,260 BBB- Baa 20,245 6.24% due 1/01/2021 6,267 AAA Aaa 10,000 5.783% due 1/01/2022 3,100 BBB- Baa 15,000 6.25% due 1/01/2022 4,404 Colorado--3.1% Denver, Colorado, City and County Airport Revenue Bonds: BBB Aaa 700 AMT, Series D, 7.75% due 11/15/2001 (b) 794 BBB Baa1 8,000 AMT, Series D, 7.75% due 11/15/2013 10,220 BBB Baa1 2,610 AMT, Series D, 7.75% due 11/15/2021 2,900 AAA NR* 4,900 Series A, 7.25% due 11/15/2002 (b) 5,620
MuniYield Fund, Inc. October 31, 1998 SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Value State Ratings Ratings Amount Issue (Note 1a) Colorado NR* NR* $ 5,000 Denver, Colorado, Urban Renewal Authority, Tax Increment (concluded) Revenue Bonds (Downtown Denver), AMT, Series A, 7.75% due 9/01/2016 $ 5,598 Mountain Village, Colorado, Metropolitan District, Refunding (San Miguel County), UT: NR* NR* 240 7.95% due 12/01/2002 (b) 279 NR* NR* 1,410 7.95% due 12/01/2003 1,536 Connecticut B+ Ba3 19,750 Connecticut State Developmemt Authority, PCR, Refunding - --4.5% (Connecticut Light & Power Co.), Series A, 5.85% due 9/01/2028 19,825 A+ NR* 15,000 Connecticut State Development Authority, Water Facility Revenue Bonds (Bridgeport Hydraulic Co. Project), AMT, 6% due 9/01/2036 15,973 NR* B1 2,510 New Haven, Connecticut, Facility Revenue Bonds (Hill Health Corporation Project), 9.25% due 5/01/2017 2,785 Florida--1.3% AAA Aaa 10,000 Hillsborough County, Florida, School Board, COP, RITR, Series 31, 7.02% due 7/01/2021 (e)(k) 10,763 Georgia--3.6% NR* Aaa 5,450 Atlanta, Georgia, Urban Residential Finance Authority, College Facilities Revenue Bonds (Morris Brown College Project), 9.50% due 12/01/2001 (b) 6,502 A+ NR* 2,030 Columbia County, Georgia, Courthouse Detention Center Projects, UT, 5.625% due 2/01/2021 2,134 BBB- Baa2 12,700 Effingham County, Georgia, Development Authority, Solid Waste Disposal Revenue Bonds (Fort James Project), AMT, 5.625% due 7/01/2018 12,753 Fulton County, Georgia, Development Authority, Special Facilities Revenue Bonds (Delta Airlines Inc. Project), AMT: BBB- Baa3 3,750 5.45% due 5/01/2023 3,697 BBB- Baa3 6,300 5.50% due 5/01/2033 6,148 Idaho--0.4% AA NR* 3,485 Idaho Housing Agency, S/F Mortgage, AMT, Senior Series C-2, 7.15% due 7/01/2023 3,697 Illinois--3.1% NR* Aaa 4,715 Chicago, Illinois, S/F Mortgage Revenue Bonds, AMT, Series B, 7.625% due 9/01/2027 (f)(g) 5,412 BBB Baa1 2,750 Illinois Development Finance Authority, PCR, Refunding (Illinois Power Company Project), Series A, 7.375% due 7/01/2021 3,169 NR* NR* 2,500 Illinois Educational Facilities Authority Revenue Bonds (Chicago Osteopathic Health Systems), 7.25% due 11/15/2019 (b) 3,173 Illinois Health Facilities Authority Revenue Bonds (b): A+ A2 1,500 (Edward Hospital Association Project), 7% due 2/15/2002 1,676 NR* NR* 2,625 Refunding (Saint Elizabeth's Hospital--Chicago), 7.75% due 7/01/2004 3,157 BBB- NR* 8,000 Metropolitan Pier and Exposition Authority, Illinois, Hospitality Facilities Revenue Bonds (McCormick Place Convention), 7% due 7/01/2026 9,921 Indiana--0.6% NR* A2 1,150 Indiana Health Facilities Financing Authority, Refunding Bonds (Saint Anthony Medical Center), Series A, 7% due 10/01/2017 1,251 BBB- Baa3 3,930 Indiana State Development Financial Authority, Environmental Revenue Refunding and Improvement Bonds (USX Corporation Project), 6.25% due 7/15/2030 4,228 A1+ Aaa 100 Rockport, Indiana, PCR, Refunding (AEP Generating Co. Project), VRDN, Series A, 3.70% due 7/01/2025 (a)(c) 100
MuniYield Fund, Inc. October 31, 1998 SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Value State Ratings Ratings Amount Issue (Note 1a) Kentucky--1.2% AAA Aaa $ 5,000 Jefferson County, Kentucky, Health System Revenue Bonds (Alliant Health Systems Inc.), 5.125% due 10/01/2018 (e) $ 5,011 BBB- Baa3 500 Kenton County, Kentucky, Airport Board, Special Facilities Airport Revenue Bonds (Delta Airlines Project), AMT, Series A, 6.125% due 2/01/2022 508 NR* NR* 4,000 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds (TJ International Project), AMT, 7% due 6/01/2024 4,419 Louisiana--6.5% NR* A3 30,500 Lake Charles, Louisiana, Harbor and Terminal District, Port Facilities Revenue Refunding Bonds (Trunkline Long Company Project), 7.75% due 8/15/2022 35,108 B+ NR* 20,000 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain Co. Project), 6.50% due 1/01/2017 20,530 Maryland--0.9% NR* NR* 7,050 Maryland State Energy Financing Administration, Limited Obligation Revenue Bonds (Cogeneration--AES Warrior Run), AMT, 7.40% due 9/01/2019 7,324 Massachusetts-- A+ Aa 5,970 Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT, 1.3% Series 38, 7.20% due 12/01/2026 6,522 BBB NR* 4,350 Massachusetts State Industrial Finance Agency, Resource Recovery Revenue Refunding Bonds (Ogden Haverhill Project), AMT, Series A, 5.60% due 12/01/2019 4,354 Michigan--3.1% Detroit, Michigan, GO, UT, Series A (b): BBB+ Aaa 2,500 6.70% due 4/01/2005 2,892 BBB+ Aaa 1,500 6.80% due 4/01/2005 1,749 A1+ VMIG1++ 1,000 University of Michigan, University Revenue Refunding Bonds (Medical Service Plan), VRDN, Series A-1, 3.75% due 12/01/2021 (a) 1,000 AAA Aaa 20,005 Wayne Charter County, Michigan, Airport Revenue Bonds (Detroit Metropolitan Wayne County), AMT, Series A, 5.375% due 12/01/2016 (e) 20,752 Minnesota--0.4% AA Aa2 3,350 Minnesota State, HFA, S/F Mortgage, AMT, Series A, 7.05% due 7/01/2022 3,507 Mississippi A A2 17,750 Lowndes County, Mississippi, Solid Waste Disposal and PCR, - --3.1% Refunding (Weyerhaeuser Company Project), Series A, 6.80% due 4/01/2022 21,791 BBB- Ba1 5,000 Mississippi Business Finance Corporation, PCR (System Energy Resource Inc. Project), 5.875% due 4/01/2022 4,988 Missouri--0.8% AAA NR* 5,965 Missouri State Housing Development Commission, S/F Mortgage Revenue Bonds, AMT, Series B, 7.55% due 9/01/2027 (f)(g) 6,853 New Jersey BB Ba2 6,000 New Jersey EDA, Special Facility Revenue Bonds (Continental - --0.7% Airlines Inc. Project), AMT, 5.50% due 4/01/2028 5,905 New Mexico A1+ P1 1,000 Farmington, New Mexico, PCR, Refunding (Arizona Public Service - --2.9% Company), VRDN, Series B, 3.70% due 9/01/2024 (a) 1,000 Farmington, New Mexico, PCR, Refunding (Public Service Co.): BB+ Ba1 13,500 Series A, 5.80% due 4/01/2022 13,800 BB+ Ba1 10,000 Series B, 5.80% due 4/01/2022 10,222 New York AAA Aaa 3,075 Dutchess County, New York Resource Recovery Agency Revenue - --12.3% Bonds (Solid Waste Systems), Series A, 5.25% due 1/01/2011 (e) 3,169 Long Island Power Authority, New York, Electric System Revenue Bonds: A- Baa1 10,000 Series A, 5.50% due 12/01/2023 10,435 AAA Aaa 17,750 Series A, 5.50% due 12/01/2029 (e) 18,592 A1+ VMIG1++ 5,100 VRDN, Sub-Series 5, 3.70% due 5/01/2033 (a) 5,100
MuniYield Fund, Inc. October 31, 1998 SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Value State Ratings Ratings Amount Issue (Note 1a) New York AAA Aaa $ 5,595 Metropolitan Transportation Authority, New York, Commuter (concluded) Facilities Revenue Bonds, RITR, Series 9, 8.47% due 7/01/2026 (k) $ 7,272 New York City, New York, GO, UT: A- A3 1,555 Series B, 7.75% due 2/01/2002 (b) 1,766 A- A3 13,850 Series B, Fiscal 92, 7.75% due 2/01/2002 (b) 15,709 A- A3 1,150 Series B, Fiscal 92, 7.75% due 2/01/2010 1,295 A- Aaa 325 Series C, Sub-Series C-1, 7.50% due 8/01/2002 (b) 372 A- A3 60 Series C, Sub-Series C-1, 7.50% due 8/01/2021 68 A A 5,500 New York City, New York, IDA, Special Facilities Revenue Bonds, RITR, AMT, Series RI-5, 8.195% due 1/01/2024 (k) 6,257 New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Bonds, VRDN (a)(h): A1+ VMIG1++ 600 Series A, 3.70% due 6/15/2025 600 A1+ VMIG1++ 300 Series G, 3.70% due 6/15/2024 300 AA NR* 3,000 New York State Dormitory Authority Revenue Bonds (Hebrew Home for the Aged--Riverdale), 6.125% due 2/01/2037 (d) 3,281 New York State Environmental Facilities Corporation, PCR: A- Aa 17,525 RITR, Series RI-1, 7.895% due 6/15/2014 (k) 20,784 AA+ Aaa 1,700 (State Water Revolving Fund), Series E, 6.875% due 6/15/2010 1,860 AA- A1 8,000 Port Authority of New York and New Jersey, Consolidated Revenue Bonds, 93rd Series, 6.125% due 6/01/2094 9,381 North North Carolina HFA, S/F Revenue Bonds: Carolina--2.2% AA Aa 4,680 AMT, Series T, 7.05% due 9/01/2020 4,983 AA Aa 13,180 Refunding, Series S, 6.95% due 3/01/2017 14,141 North A+ Aa2 3,270 North Dakota State, HFA, S/F Mortgage Revenue Bonds, Series A, Dakota--0.4% 7% due 7/01/2023 3,480 Ohio--7.8% NR* A2 5,000 Butler County, Ohio, Hospital Facilities Revenue Refunding and Improvement Bonds (Middletown Hospital), 5% due 11/15/2028 4,834 AAA Aaa 5,250 Cleveland, Ohio, Public Power System, Revenue Refunding Bonds (First Mortgage), Series 1, 5% due 11/15/2024 (e) 5,190 Ohio State Solid Waste Disposal Revenue Bonds (USG Corporation Project), AMT: BBB P1 15,000 5.60% due 8/01/2032 15,026 BBB Ba1 16,500 5.65% due 3/01/2033 16,306 AAA Aaa 8,000 Ohio State Water Development Authority, Pollution Control Facilities Revenue Bonds (Water Control Loan Fund--Water Quality), 5.125% due 6/01/2019 (e) 8,057 NR* NR* 11,500 Ohio State Water Development Authority, Solid Waste Disposal Revenue Bonds (Bay Shore Power Project), AMT, Series A, 5.875% due 9/01/2020 11,601 A- NR* 6,000 Parma, Ohio, Hospital Improvement Revenue Refunding Bonds (Parma Community General Hospital Association), 5.375% due 11/01/2029 6,040 Oklahoma--1.1% AAA Baa 3,250 Holdenville, Oklahoma, Industrial Authority, Correctional Facility Revenue Bonds, 6.70% due 7/01/2006 (b)(j) 3,863 BBB- Baa2 5,050 Tulsa, Oklahoma, Municipal Airport Trust, Revenue Refunding Bonds (American Airlines Project), 6.25% due 6/01/2020 5,384 Oregon--1.2% AAA Aaa 14,000 Oregon Health Sciences University Revenue Bonds, Series A, 5.16%** due 7/01/2021 (e) 4,469 NR* Baa2 2,330 Oregon State Economic Development Revenue Refunding Bonds (Georgia-Pacific Corporation Project), Series 183, 5.70% due 12/01/2025 2,380
MuniYield Fund, Inc. October 31, 1998 SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Value State Ratings Ratings Amount Issue (Note 1a) Oregon AA- NR* $ 3,245 Salem, Oregon, Hospital Authority, Facility Revenue Bonds (concluded) (Salem Hospital), 5.25% due 8/15/2014 $ 3,340 Pennsylvania A NR* 2,975 Berks County, Pennsylvania, Municipal Authority, College - --6.2% Revenue Bonds (Alvernia College Project), 6% due 11/15/2018 3,199 NR* NR* 3,500 Lehigh County, Pennsylvania, General Purpose Authority, Revenue Refunding Bonds (Kidspeace Obligation Group), 6% due 11/01/2023 3,504 Pennsylvania Convention Center Authority, Revenue Refunding Bonds, Series A: BBB Baa 9,675 6.70% due 9/01/2014 10,805 BBB Baa 5,000 6.75% due 9/01/2019 5,607 AA+ Aa 5,250 Pennsylvania HFA, S/F Mortgage, AMT, Series 42, 6.85% due 4/01/2025 5,713 AAA Aaa 16,270 Pennsylvania State Higher Educational Facilities Authority, Health Services Revenue Refunding Bonds (Allegheny, Delaware Valley), Series C, 5.875% due 11/15/2016 (e) 16,482 A1+ NR* 550 Pennsylvania State Higher Educational Facilities Authority, Revenue Refunding Bonds (Carnegie Mellon University), VRDN, Series B, 3.70% due 11/01/2027 (a) 550 Philadelphia, Pennsylvania, Authority for IDR, Refunding (Commercial Development): NR* NR* 3,650 (Days Inn), Series B, 6.50% due 10/01/2027 3,945 NR* NR* 3,000 (Doubletree), Series A, 6.50% due 10/01/2027 3,242 South Carolina A- A1 2,500 Richland County, South Carolina, PCR, Refunding (Union Camp - --2.0% Corporation Project), Series C, 6.55% due 11/01/2020 2,747 NR* NR* 3,735 South Carolina Jobs, EDA, Health Facilities Revenue Refunding Bonds (First Mortgage--Lutheran Homes), 5.70% due 5/01/2026 3,742 South Carolina, State Housing Finance and Development Authority, S/F Mortgage: NR* Aaa 5,000 5.50% due 7/01/2025 5,400 NR* Aaa 5,000 5% due 7/01/2034 5,006 South BBB Baa2 2,500 South Dakota State Health and Educational Facilities Authority, Dakota--0.3% Revenue Refunding Bonds (Prairie Lakes Health Care), 7.25% due 4/01/2003 (b) 2,854 Tennessee NR* NR* 3,000 Hardeman County, Tennessee, Correctional Facilities Revenue - --0.4% Bonds (Correctional Facilities Corp.), 7.75% due 8/01/2017 3,383 Texas--7.7% AA- Aa3 5,000 Guadalupe-Blanco River Authority, Texas, Sewage and Solid Waste Disposal Facility Revenue Bonds (du Pont (E.I.) de Nemours and Company Project), AMT, 6.40% due 4/01/2026 5,525 AAA VMIG1++ 3,600 Gulf Coast, Texas, Waste Disposal Authority, PCR, Refunding (Amoco Oil Co. Project), VRDN, 3.70% due 10/01/2017 (a) 3,600 A1+ NR* 8,100 Harris County, Texas, Health Facilities Development Corporation, Hospital Revenue Bonds (Methodist Hospital), VRDN, 3.70% due 12/01/2025 (a) 8,100 BB Ba2 8,305 Harris County, Texas, Industrial Development Corporation, Airport Facilities Revenue Refunding Bonds (Continental Airlines Project), AMT, 5.375% due 7/01/2019 7,960 A1+ Aa 10,900 Harris County, Texas, Industrial Development Corporation, PCR, Refunding (Shell Oil Company Project), VRDN, 3.70% due 4/01/2027 (a) 10,900
MuniYield Fund, Inc. October 31, 1998 SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Value State Ratings Ratings Amount Issue (Note 1a) Texas Houston, Texas, Airport System Revenue Bonds, Special (concluded) Facilities, AMT: BB Baa3 $ 9,200 (Continental Airlines Airport Improvement), Series C, 6.125% due 7/15/2027 $ 9,464 BB Baa3 10,300 (Continental Airlines Terminal Improvement), Series B, 6.125% due 7/15/2017 10,596 A1+ VMIG1++ 5,700 Lubbock, Texas, Health Facilities Development Corporation Revenue Bonds (Saint Joseph Health System), VRDN, Series A, 3.70% due 7/01/2013 (a) 5,700 AAA Aaa 3,500 Odessa, Texas, Junior College District, Revenue Refunding Bonds, Series A, 8.125% due 6/01/2005 (b) 4,350 Utah--0.6% NR* NR* 3,900 Carbon County, Utah, Solid Waste Disposal Revenue Refunding Bonds (Laidlaw Environmental), AMT, Series A, 7.45% due 7/01/2017 4,308 AAA NR* 1,035 Utah State, HFA, S/F Mortgage, AMT, Series E-2, 7.15% due 7/01/2024 1,092 Virginia--7.8% NR* NR* 4,030 Dulles Town Center Community Development Authority, Virginia, Special Assessment Tax Bonds (Dulles Town Center Project), 6.25% due 3/01/2026 4,137 AA Aa2 15,235 Fairfax County, Virginia, Water Authority, Water Revenue Refunding Bonds, 6% due 4/01/2022 16,849 NR* NR* 1,000 Pittsylvania County, Virginia, IDA, Revenue Bonds (Multi-trade), AMT, Series A, 7.55% due 1/01/2019 1,105 Pocahontas Parkway Association, Virginia, Connector Toll Road Revenue Bonds (Route 895): BBB- Baa3 16,600 Senior Series A, 5.50% due 8/15/2028 16,613 BBB- Baa3 24,600 Senior Series B, 5.90%** due 8/15/2019 7,528 BBB- Baa3 48,400 Senior Series B, 5.90%** due 8/15/2030 7,700 BBB- Baa3 70,500 Senior Series B, 5.95%** due 8/15/2035 8,285 AA+ Aa1 5,125 Virginia State, HDA, Commonwealth Mortgage, Series A, 7.10% due 1/01/2025 5,313 West NR* NR* 3,000 Upshur County, West Virginia, Solid Waste Disposal Revenue Virginia--0.4% Bonds (TJ International Project), AMT, 7% due 7/15/2025 3,357 Wisconsin NR* A2 2,710 Wisconsin State Health and Educational Facilities Authority - --0.3% Revenue Bonds (Mercy Hospital of Janesville Inc.), 6.60% due 8/15/2022 2,927 Wyoming--0.3% NR* P1 2,900 Uinta County, Wyoming, PCR, Refunding (Chevron USA Inc. Project), VRDN, 3.70% due 8/15/2020 (a) 2,900 Total Investments (Cost--$806,985)--99.9% 860,714 Other Assets Less Liabilities--0.1% 508 -------- Net Assets--100.0% $861,222 ======== (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, 1998. (b)Prerefunded. (c)AMBAC Insured. (d)FHA Insured. (e)MBIA Insured. (f)FNMA Collateralized. (g)GNMA Collateralized. (h)FGIC Insured. (i)FSA Insured. (j)Connie Lee Insured. (k)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. *Not Rated. **Represents a zero coupon bond; the interest rate shown is the effective yield at the time of purchase by the Fund. ++Highest short-term rating by Moody's Investors Service, Inc. Ratings of issues shown have not been audited by Deloitte & Touche LLP. See Notes to Financial Statements.
MuniYield Fund, Inc. October 31, 1998 FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of October 31, 1998 Assets: Investments, at value (identified cost--$806,985,168) (Note 1a) $860,713,817 Cash 35,647 Receivables: Interest $ 12,248,328 Securities sold 133,034 12,381,362 ------------ Prepaid expenses and other assets 24,531 ------------ Total assets 873,155,357 ------------ Liabilities: Payables: Securities purchased 11,415,267 Investment adviser (Note 2) 379,972 11,795,239 ------------ Accrued expenses and other liabilities 137,664 ------------ Total liabilities 11,932,903 ------------ Net Assets: Net assets $861,222,454 ============ Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.05 per share (10,000 shares of AMPS*issued and outstanding at $25,000 per share liquidation preference) $250,000,000 Common Stock, par value $.10 per share (37,574,124 shares issued and outstanding) $ 3,757,412 Paid-in capital in excess of par 527,235,890 Undistributed investment income--net 9,925,942 Undistributed realized capital gains on investments--net 16,574,561 Unrealized appreciation on investments--net 53,728,649 ------------ Total--Equivalent to $16.27 net asset value per share of Common Stock (market price--$16.875) 611,222,454 ------------ Total capital $861,222,454 ============ *Auction Market Preferred Stock. See Notes to Financial Statements.
MuniYield Fund, Inc. October 31, 1998 FINANCIAL INFORMATION (continued) Statement of Operations
For the Year Ended October 31, 1998 Investment Income Interest and amortization of premium and discount earned $ 50,162,251 (Note 1d): Expenses: Investment advisory fees (Note 2) $ 4,261,373 Commission fees (Note 4) 636,584 Transfer agent fees 90,618 Accounting services (Note 2) 86,625 Professional fees 81,808 Custodian fees 59,479 Directors' fees and expenses 45,665 Listing fees 32,401 Printing and shareholder reports 24,248 Pricing fees 22,159 Other 31,771 ------------ Total expenses 5,372,731 ------------ Investment income--net 44,789,520 ------------ Realized & Realized gain on investments--net 30,241,513 Unrealized Gain Change in unrealized appreciation on investments--net (12,286,231) (Loss) on ------------ Investments--Net Net Increase in Net Assets Resulting from Operations $ 62,744,802 (Notes 1b, ============ 1d & 3): See Notes to Financial Statements.
MuniYield Fund, Inc. October 31, 1998 FINANCIAL INFORMATION (continued) Statements of Changes in Net Assets
For the Year Ended October 31, Increase (Decrease) in Net Assets: 1998 1997 Operations: Investment income--net $ 44,789,520 $ 45,865,643 Realized gain on investments--net 30,241,513 7,007,842 Change in unrealized appreciation on investments--net (12,286,231) 17,329,366 ------------ ------------ Net increase in net assets resulting from operations 62,744,802 70,202,851 ------------ ------------ Dividends & Investment income--net: Distributions to Common Stock (36,306,077) (37,067,233) Shareholders Preferred Stock (6,658,668) (7,546,880) (Note 1e): Realized gain on investments--net: Common Stock (9,726,657) (7,968,243) Preferred Stock (3,428,543) (1,923,648) In excess of realized gain on investments--net: Common Stock -- (403,449) Preferred Stock -- (97,398) ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders (56,119,945) (55,006,851) ------------ ------------ Capital Stock Value of shares issued to Common Stock shareholders in Transactions reinvestment of dividends and distributions 8,278,056 -- (Note 4): ------------ ------------ Net increase in net assets derived from capital stock transactions 8,278,056 -- ------------ ------------ Net Assets: Total increase in net assets 14,902,913 15,196,000 Beginning of year 846,319,541 831,123,541 ------------ ------------ End of year* $861,222,454 $846,319,541 ============ ============ *Undistributed investment income--net (Note 1f) $ 9,925,942 $ 8,098,422 ============ ============ See Notes to Financial Statements.
MuniYield Fund, Inc. October 31, 1998 FINANCIAL INFORMATION (concluded) Financial Highlights
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 Per Share Net asset value, beginning of year $ 16.09 $ 15.68 $ 15.47 $ 14.35 $ 16.80 Operating -------- -------- -------- -------- -------- Performance: Investment income--net 1.19 1.24 1.26 1.27 1.29 Realized and unrealized gain (loss) on investments--net .49 .65 .23 1.34 (2.23) -------- -------- -------- -------- -------- Total from investment operations 1.68 1.89 1.49 2.61 (.94) -------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.97) (1.00) (1.04) (1.00) (1.07) Realized gain on investments--net (.26) (.22) -- (.22) (.23) In excess of realized gain on investments--net -- (.01) -- -- -- -------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (1.23) (1.23) (1.04) (1.22) (1.30) -------- -------- -------- -------- -------- Effect of Preferred Stock activity: Dividends and distributions to Preferred Stock shareholders: Investment income--net (.18) (.20) (.24) (.23) (.18) Realized gain on investments--net (.09) (.05) -- (.04) (.03) In excess of realized gain on investments--net -- --++++ -- -- -- -------- -------- -------- -------- -------- Total effect of Preferred Stock activity (.27) (.25) (.24) (.27) (.21) -------- -------- -------- -------- -------- Net asset value, end of year $ 16.27 $ 16.09 $ 15.68 $ 15.47 $ 14.35 ======== ======== ======== ======== ======== Market price per share, end of year $ 16.875 $ 15.875 $ 14.875 $ 14.375 $ 12.125 ======== ======== ======== ======== ======== Total Investment Based on market price per share 14.74% 15.56% 10.88% 29.76% (20.94%) Return:* ======== ======== ======== ======== ======== Based on net asset value per share 9.15% 11.11% 8.61% 18.00% (6.71%) ======== ======== ======== ======== ======== Average Net Expenses .63% .64% .64% .66% .66% Assets:** ======== ======== ======== ======== ======== Investment income--net 5.26% 5.48% 5.64% 5.91% 5.76% ======== ======== ======== ======== ======== Supplemental Net assets, net of Preferred Stock, end of Data: year (in thousands) $611,222 $596,320 $581,124 $573,400 $531,657 ======== ======== ======== ======== ======== Preferred Stock outstanding, end of year (in thousands) $250,000 $250,000 $250,000 $250,000 $250,000 ======== ======== ======== ======== ======== Portfolio turnover 91.63% 111.45% 96.74% 52.99% 44.27% ======== ======== ======== ======== ======== Leverage: Asset coverage per $1,000 $ 3,445 $ 3,385 $ 3,324 $ 3,294 $ 3,127 ======== ======== ======== ======== ======== Dividends Series A--Investment income--net $ 694 $ 747 $ 894 $ 887 $ 598 Per Share on ======== ======== ======== ======== ======== Preferred Stock Series B--Investment income--net $ 687 $ 751 $ 897 $ 850 $ 733 Outstanding:++ ======== ======== ======== ======== ======== Series C--Investment income--net $ 643 $ 763 $ 998 $ 827 $ 647 ======== ======== ======== ======== ======== Series D--Investment income--net $ 637 $ 762 $ 888 $ 897 $ 659 ======== ======== ======== ======== ======== Series E--Investment income--net $ 656 $ 752 $ 875 $ 759 $ 707 ======== ======== ======== ======== ======== *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 Stock shareholders. ++Dividends per share have been adjusted to reflect a two-for-one stock split that occurred on December 1, 1994. ++++Amount is less than $.01 per share. See Notes to Financial Statements.
MuniYield Fund, Inc. October 31, 1998 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: MuniYield Fund, Inc. (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 Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MYD. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing price as of the close of such exchanges. Options written or purchased are valued at the last sale price in the case of exchange-traded options. In the case of options traded in the over-the-counter market, valuation is the last asked price (options written) or the last bid price (options purchased). Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities and assets for which market quotations are not readily available are valued at their fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the fund under the general supervision of the Board of Directors. (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. (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. MuniYield Fund, Inc. October 31, 1998 NOTES TO FINANCIAL STATEMENTS (concluded) (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 $2,052 have been reclassified between undistributed net realized capital gains and undistributed net investment income, $72 has been reclassified between paid-in capital in excess of par and undistributed net realized capital gains, and $693 has been reclassified between paid-in capital in excess of par 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 Stock. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended October 31, 1998 were $767,466,034 and $798,498,487, 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 $30,241,512 $53,728,649 Short-term investments 1 -- ----------- ----------- Total $30,241,513 $53,728,649 =========== =========== As of October 31, 1998, net unrealized appreciation for Federal income tax purposes aggregated $53,721,647, of which $54,492,154 related to appreciated securities and $770,507 related to depreciated securities. The aggregate cost of investments at October 31, 1998 for Federal income tax purposes was $806,992,170. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of the holders of Common Stock. Common Stock Shares issued and outstanding during the year ended October 31, 1998 increased by 512,710 as a result of dividend reinvestment and during the year ended October 31, 1997 remained constant. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund, with a par value of $.05 per share and a liquidation preference of $25,000 per share, that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yields in effect at October 31, 1998 were as follows: Series A, 3.37%; Series B, 3.33%; Series C, 3.24%, Series D, 3.30%; and Series E, 3.15%. 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 $272,054 as commissions. 5. Subsequent Event: On November 5, 1998, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $.086596 per share, payable on November 27, 1998 to shareholders of record as of November 20, 1998. MuniYield Fund, Inc. October 31, 1998 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders, MuniYield Fund, Inc.: We have audited the accompanying statement of assets, liabilities and capital, including the schedule of investments, of MuniYield Fund, Inc. 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. 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 Fund, Inc. 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 17, 1998 MuniYield Fund, Inc. October 31, 1998 IMPORTANT TAX INFORMATION (unaudited) All of the net investment income distributions paid by MuniYield Fund, Inc. 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 taxable distributions paid by the Fund during the year:
Payable Ordinary Long-Term Date Income Capital Gains Common Stock Shareholders 12/30/97 $ .119756 $ .142691 Preferred Stock Shareholders: Series A 11/05/97 $86.48 $24.78* 12/03/97 -- $78.26* 10/07/98 -- $103.26** Series B 11/12/97 $51.94 $57.51* 12/10/97 $35.00 $46.09* 10/14/98 -- $97.37** Series C 11/26/97 $53.00 $58.68* 12/24/97 $35.36 $46.62* 9/30/98 -- $100.02** 10/28/98 -- $103.26** Series D 11/26/97 $53.00 $58.68* 12/24/97 $35.31 $46.54* 9/30/98 -- $101.78** 10/28/98 -- $103.26** Series E 11/05/97 $23.13 $5.28* 11/12/97 $12.96 $14.35* 11/19/97 $13.01 $14.62* 11/26/97 $12.88 $14.74* 12/03/97 $12.98 $15.23* 12/10/97 $12.17 $14.88* 12/17/97 -- $24.71* 9/23/98 -- $24.52** 9/30/98 -- $27.11** 10/07/98 -- $26.18** 10/14/98 -- $23.97** 10/21/98 -- $23.83** 10/28/98 -- $23.23** *The entire distribution is subject to the 28% tax rate. **The entire distribution is subject to the 20% tax rate. Please retain this information for your records.
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 shares of Common Stock of the Fund, the Fund may at times pay out less than the entire amount of net investment income earned in any particular month and may at times in any month pay out such accumulated but undistributed income in addition to net investment income earned in that month. As a result, the dividends paid by the Fund for any particular month may be more or less than the amount of net investment income earned by the Fund during such month. The Fund's current accumulated but undistributed net investment income, if any, is disclosed in the Statement of Assets, Liabilities and Capital, which comprises part of the Financial Information included in this report. Deloitte & Touche LLP MuniYield Fund, Inc. October 31, 1998 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 19.2% AA/Aa 12.4 A/A 16.6 BBB/Baa 18.4 BB/Ba 13.1 B/B 3.1 NR (Not Rated) 9.4 Other* 7.7 [FN] *Temporary investments in short-term municipal securities. OFFICERS AND DIRECTORS Arthur Zeikel, President and Director James H. Bodurtha, Director Herbert I. London, Director Robert R. Martin, Director Joseph L. May, Director Andre F. Perold, Director Terry K. Glenn, Executive Vice President Vincent R. Giordano, Senior Vice President Donald C. Burke, Vice President Kenneth A. Jacob, Vice President Theodore R. Jaeckel Jr., Vice President Gerald M. Richard, Treasurer Philip M. Mandel, Secretary Custodian The Bank of New York 90 Washington Street New York, NY 10286 Transfer Agents Common Stock: The Bank of New York 101 Barclay Street New York, NY 10286 Preferred Stock: IBJ Schroder Bank & Trust Company One State Street New York, NY 10004 NYSE Symbol MYD -----END PRIVACY-ENHANCED MESSAGE-----