-----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, HI9WqVYHLRV5l42zlIjUqumIh8u6sFxeavK7FfCGY5QLY/QEwpfrke6XJx7cf+zb yE9s2zBC9eLAl308qNRcFw== 0000900092-95-000339.txt : 19951212 0000900092-95-000339.hdr.sgml : 19951212 ACCESSION NUMBER: 0000900092-95-000339 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19951211 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNIYIELD CALIFORNIA FUND INC CENTRAL INDEX KEY: 0000882152 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06499 FILM NUMBER: 95600691 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08543-9011 BUSINESS PHONE: 6092822800 MAIL ADDRESS: STREET 1: P O BOX 9066 STREET 2: C/O MERRILL LYNCH ASSET MANAGEMENT CITY: PRINCETON STATE: NJ ZIP: 08543-9011 FORMER COMPANY: FORMER CONFORMED NAME: CALIFORNIA MUNIYIELD FUND INC DATE OF NAME CHANGE: 19600201 N-30D 1 ANNUAL REPORT MUNIYIELD CALIFORNIA FUND, INC. FUND LOGO Annual Report October 31, 1995 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 Donald C. Burke, Vice President Vincent R. Giordano, Vice President Kenneth A. Jacob, Vice President Gerald M. Richard, Treasurer Mark B. Goldfus, 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 MYC This report, including the financial information herein, is transmitted to the shareholders of MuniYield California 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. MuniYield California Fund, Inc. Box 9011 Princeton, NJ 08543-9011 MuniYield California Fund, Inc. TO OUR SHAREHOLDERS For the year ended October 31, 1995, the Common Stock of MuniYield California Fund, Inc. earned $0.896 per share income dividends, which included earned and unpaid dividends of $0.075. This represents a net annualized yield of 5.90%, based on a month-end net asset value of $15.18 per share. Over the same period, the total investment return on the Fund's Common Stock was +19.33%, based on a change in per share net asset value from $13.91 to $15.18, and assuming reinvestment of $0.903 per share income dividends and $0.246 per share capital gains distributions. For the six-month period ended October 31, 1995, the total investment return on the Fund's Common Stock was +7.95%, based on a change in per share net asset value from $14.54 to $15.18, and assuming reinvestment of $0.438 per share income dividends. For the six-month period ended October 31, 1995, the Fund's Auction Market Preferred Stock had an average yield of 4.15% for Series A and 3.67% for Series B. The Environment After losing momentum through the second calendar quarter of 1995, it now appears that the US economic expansion has resumed. Gross domestic product growth for the three months ended September 30 was reported to be 4.2%, higher than generally expected. September durable goods orders increased a surprisingly strong 3%, and existing home sales rose to a near-record level. At the same time, there is evidence that inflationary pressures remain subdued. Reflecting the trend of renewed economic growth--and continued good news on the inflation front--the Federal Reserve Board signaled no near-term shift in monetary policy following its September meeting. Thus, official interest rates may not be reduced further in the immediate future. Another significant development has been the strengthening of the US dollar relative to the yen and the Deutschemark. Improving interest rate differentials favoring the US currency, combined with coordinated central bank intervention and more positive investor sentiment, have helped to bolster the dollar in foreign exchange markets. Other factors that appear to be improving the US dollar's outlook in the near term are a pick-up in capital flows to the United States and the prospect of increased capital outflows from Japan. However, it remains to be seen if the US dollar's strengthening trend can continue without significant improvements in the US budget and trade deficits. In the weeks ahead, investor interest will continue to focus on US economic activity. Clear signs of a moderate, noninflationary expansion could further benefit the US stock and bond markets. In addition, should the current Federal budget deficit reduction efforts now underway in Washington prove successful, the implications would likely be positive for the US financial markets. The Municipal Market Tax-exempt bond yields continued to decline during the six-month period ended October 31, 1995. As measured by the Bond Buyer Revenue Bond Index, the yield on uninsured, long-term municipal revenue bonds fell 30 basis points (0.30%) to end the October period at approximately 6.00%. While tax-exempt bond yields have declined dramatically from their highs one year ago, municipal bond yields have exhibited considerable yield volatility on a weekly basis. In recent months, tax-exempt bond yields have fluctuated by as much as 20 basis points on a week-to-week basis. US Treasury bond yields have displayed similar volatility, but the extent of their decline has been greater. By the end of October, long-term US Treasury bond yields had declined almost 100 basis points to 6.33%. Proposed Federal tax restructuring continued to weigh heavily on the tax- exempt bond market. Thus far in 1995, US Treasury bond yields have declined approximately 150 basis points. Municipal bond yields have fallen approximately 95 basis points as the uncertainty surrounding any changes to the existing Federal income tax structure has prevented the municipal bond market from rallying as strongly as its taxable counterpart. A general view of a moderately expanding domestic economy, supported by a very favorable inflationary environment, allowed interest rates to significantly decline from their recent highs in November 1994. However, this decline was not a smooth downward curve. Conflicting economic indicators were released during recent months that have prevented a clear consensus regarding the near-term direction of interest rates from being reached. The resultant uncertainty has promoted more of a saw-toothed pattern as interest rate declines were repeatedly interrupted by indications of stronger-than-expected economic growth. As these concerns were overcome by subsequent weaker economic releases, interest rate declines have resumed. These periods of volatility are likely to continue for the remainder of 1995, or until proposed Federal budget deficit reduction packages are resolved and any resultant responses by the Federal Reserve Board have occurred. However, the municipal bond market's technical position remained supportive throughout recent quarters. Approximately $82 billion in long-term municipal securities were issued during the six months ended October 31, 1995. While this issuance is virtually identical to underwritings during the October 31, 1994 quarter, tax-exempt bond issuance over the last 12 months remained approximately 25% below comparable 1994 levels. The municipal bond market should maintain this positive technical position well into 1996. Annual issuance for 1995 is now projected to be approximately $140 billion, significantly less than last year's already low level of $162 billion. Projected maturities and early redemptions for the remainder of 1995 and throughout 1996 will lead to a continued decline in the total outstanding municipal bond supply throughout 1996 and, perhaps, into 1998 should new bond issuance remain at historically low levels. Despite the municipal bond market's relative underperformance compared to the US Treasury market thus far in 1995, the extent of the tax-exempt bond market's rally was nonetheless quite impressive. Municipal bond yields have fallen 135 basis points from their highs reached in November 1994 and municipal bond prices rose accordingly. Most tax-exempt products recouped almost all of the losses incurred in 1994 and are well on their way to posting double-digit total returns for all of 1995. This relative underperformance so far in 1995 provided long-term investors with the rare opportunity to purchase tax-exempt securities at yield levels near those of taxable securities. Additionally, many of the factors that led to the relative underperformance of the tax-exempt bond market thus far in 1995, namely investor concern regarding Federal budget deficit reductions and proposed changes in the Federal income tax structure, are nearing resolution. The Federal budget reconciliation process has already begun, and may be essentially completed by year-end. Recent public opinion polls suggest that the majority of American taxpayers prefer the existing Federal income tax system compared to proposed changes, such as the flat tax or national sales tax. In an upcoming election year, neither party is likely to advocate a clearly unpopular position, particularly one that can be expected to negatively impact the Federal budget deficit reduction program through reduced tax revenues. As these factors are resolved, we believe that much of the resistance that the municipal bond market met this year should dissipate. This should allow municipal bond yields to significantly decline from current levels in order to return to more normal historic yield relationships. Portfolio Strategy Over the past 12 months, the Fund's performance was reflective of the management strategies we employed over two distinct investment periods. Toward the end of 1994, we believed the drastic rise in longer maturity fixed-income security yields, combined with an improved technical condition of the overall marketplace, restored value to the municipal market. Consequently, we positioned the portfolio in an aggressive stance with a minimal cash reserve position. This strategy was established a bit prematurely and, as a result, the Fund's net asset value suffered toward the final months of 1994 as the municipal market continued to deteriorate. However, as a better scenario for the municipal market began to unfold in 1995, the Fund's more aggressive posture allowed the portfolio to benefit from the price appreciation achieved as interest rates came down. The Fund's appreciation can also be attributed to its above-average credit quality. At October 31, 1995, 72% of the Fund's total assets were invested in securities rated AA or better by at least one of the major rating agencies. The general tightness of yield spreads over the range of credit qualities allowed the Fund to maintain this level of quality without significant sacrifice of current yield. Recently, we adopted a more cautious approach to the bond market since it has reached yield levels that historically have proved unattractive to retail investors. The portfolio's asset mix was restructured to a more defensive posture with higher-couponed issues replacing more market-sensitive performance securities. In order to maintain a relatively high degree of current return, cash equivalent reserves are still minimal in a range of 7%--10%. Therefore, even though the Fund reduced its volatility to market swings, its low cash position should allow sufficient price appreciation should interest rates continue to decline. Short-term tax-exempt interest rates traded in the 3.25%--4.00% range throughout most of the last six months. This has continued to generate significant beneficial impact upon the yield paid to the Fund's Common Stock shareholders. However, should the spread between short-term and long-term interest rates narrow, the benefits of leverage will decline, and, as a result, reduce the yield on the Fund's Common Stock. (For a complete explanation of the benefits and risks of leveraging, see page 5 of this report to shareholders.) In Conclusion We appreciate your ongoing interest in MuniYield California Fund, Inc., 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 Vice President (Walter C. O'Connor) Walter C. O'Connor Portfolio Manager November 28, 1995 We are pleased to announce that Walter C. O'Connor is responsible for the day-to-day management of MuniYield California Fund, Inc. Mr. O'Connor has been employed by Merrill Lynch Asset Management, L.P. (an affiliate of the Fund's investment adviser) since 1993 as Vice President and Portfolio Manager, and was Assistant Vice President from 1991 to 1993. Prior thereto, he was Assistant Vice President with Prudential Securities from 1984 to 1991. PROXY RESULTS During the six-month period ended October 31, 1995, MuniYield California Fund, Inc. Common Stock shareholders voted on the following proposals. The proposals were approved at a special shareholders' meeting on June 16, 1995. The description of each proposal and number of shares voted are as follows:
Shares Voted Shares Voted For Without Authority 1.To elect the Fund's Board of Directors: Herbert I. London 15,796,421 636,389 Robert R. Martin 15,796,421 636,389 Arthur Zeikel 15,797,089 635,721 Shares Voted Shares Voted Shares Voted For Against Abstain 2.To ratify the selection of Deloitte & Touche LLP as the Fund's independent auditors for the current fiscal year. 15,750,601 141,298 540,911
During the six-month period ended October 31, 1995, MuniYield California Fund, Inc. Preferred Stock shareholders (Series A and B) voted on the following proposals. The proposals were approved at a special shareholders' meeting on June 16, 1995. The description of each proposal and number of shares voted are as follows: Shares Voted Shares Voted For Without Authority 1.To elect the Fund's Board of Directors: Herbert I. London, Robert R. Martin, Joseph L. May, Andre F. Perold and Arthur Zeikel as follows: Series A 1,900 0 Series B 2,364 0 Shares Voted Shares Voted Shares Voted For Against Abstain 2.To ratify the selection of Deloitte & Touche LLP as the Fund's independent auditors for the current fiscal year as follows: Series A 1,900 0 0 Series B 2,364 0 0
THE BENEFITS AND RISKS OF LEVERAGING MuniYield California Fund, Inc. utilizes leveraging to seek to enhance the yield and net asset value of its Common Stock. However, these objectives cannot be achieved in all interest rate environments. To leverage, the Fund issues Preferred Stock, which pays dividends at prevailing short-term interest rates, and invests the proceeds in long-term municipal bonds. The interest earned on these investments is paid to Common Stock shareholders in the form of dividends, and the value of these portfolio holdings is reflected in the per share net asset value of the Fund's Common Stock. However, in order to benefit Common Stock shareholders, the yield curve must be positively sloped; that is, short-term interest rates must be lower than long-term interest rates. At the same time, a period of generally declining interest rates will benefit Common Stock shareholders. If either of these conditions change, then the risks of leveraging will begin to outweigh the benefits. To illustrate these concepts, assume a fund's Common Stock capitalization of $100 million and the issuance of Preferred Stock for an additional $50 million, creating a total value of $150 million available for investment in long-term municipal bonds. If prevailing short-term interest rates are approximately 3% and long- term interest rates are approximately 6%, the yield curve has a strongly positive slope. The fund pays dividends on the $50 million of Preferred Stock based on the lower short-term interest rates. At the same time, the fund's total portfolio of $150 million earns the income based on long-term interest rates. Of course, increases in short-term interest rates would reduce (and even eliminate) the dividends on the Common Stock. In this case, the dividends paid to Preferred Stock shareholders are significantly lower than the income earned on the fund's long-term investments, and therefore the Common Stock shareholders are the beneficiaries of the incremental yield. However, if short-term interest rates rise, narrowing the differential between short-term and long-term interest rates, the incremental yield pick-up 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. PORTFOLIO ABBREVIATIONS To simplify the listings of MuniYield California Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) COP Certificates of Participation GO General Obligation Bonds HFA Housing Finance Agency RIB Residual Interest Bonds S/F Single-Family UT Unlimited Tax VRDN Variable Rate Demand Notes SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) California--94.3% California Health Facilities Financing Authority Revenue Bonds: A1+ VMIG1++ $ 1,800 (Catholic Health Care), VRDN, Series C, 3.60% due 7/01/2020 (a)(c) $ 1,800 A1+ NR* 2,200 (Huntington Memorial Hospital), VRDN, 3.75% due 11/01/2010 (a) 2,200 AA Aa3 1,000 (Kaiser Permanente), Series A, 7% due 12/01/2010 1,093 AAA Aaa 2,000 (Kaiser Permanente), Series A, 7% due 10/01/2018 (c) 2,210 AAA Aaa 1,000 Refunding (Adventist Health), Series A, 6.50% due 3/01/2014 (c) 1,054 AAA Aaa 4,085 (San Diego Hospital Association), Series A, 6.70% due 10/01/2010 (c) 4,445 NR* A 2,835 (Scripps Research Institute), Series A, 6.625% due 7/01/2018 2,943 A+ A 3,600 (Sutter Health), Series 89-A, 6.70% due 1/01/2013 3,801 California HFA, Home Mortgage Revenue Bonds: AA- Aa 2,635 AMT, Series C, 7.45% due 8/01/2011 2,764 AA- Aa 2,600 AMT, Series E-1, 6.70% due 8/01/2025 2,664 AA- Aa 5,000 AMT, Series F-1, 7% due 8/01/2026 5,241 AA- Aa 1,275 Series D, 7.25% due 8/01/2017 1,363 AA- Aa 870 Series F, 7.875% due 8/01/2019 918 AA- Aa 2,950 California HFA, Revenue Bonds, RIB, AMT, 8.777% due 8/01/2023 (h) 3,075 California Pollution Control Financing Authority, Resource Recovery Revenue Bonds, VRDN, AMT (a): A1 VMIG1++ 300 (Atlantic Richfield Company Project), Series A, 3.95% due 12/01/2024 300 NR* P1 1,500 (Delano Project), 4% due 8/01/2019 1,500 NR* P1 300 (Delano Project), Series 1991, 4% due 8/01/2019 300 NR* Aa3 500 (Honey Lake Power Project), 4% due 9/01/2018 500 NR* P1 300 Refunding (Ultra Power Rocklin Project), Series A, 4.05% due 6/01/2017 300 California Public Works Board, Lease Revenue Bonds: A- A 3,000 (California Community Colleges), Series A, 6.75% due 9/01/2011 3,171 A- A 6,800 (Department of Corrections-Monterey County), Series A, 7% due 11/01/2019 7,397 A- A 5,100 (Various California State University Projects), Series A, 6.625% due 10/01/2010 5,360 A- A 9,800 (Various California State University Projects), Series A, 6.70% due 10/01/2017 10,316 A- A 1,550 (Various Community College Projects), 7% due 3/01/2014 1,687 A- A 3,535 (Various Community College Projects), 7% due 3/01/2019 3,831 AAA Aaa 17,900 (Various Universities of California Projects), Series A, 6.60% due 12/01/2002 (g) 20,442 A A1 3,980 California State, GO, 5.25% due 10/01/2013 3,772 A A1 5,000 California State, GO, Variable Purpose Bonds, 5.90% due 4/01/2023 4,959 California Statewide Community Development Authority Revenue Bonds, COP: AA Aa 4,750 (Saint Joseph Health System Group), 6.625% due 7/01/2021 5,074 A1 VMIG1++ 2,500 (Sutter Health Obligation Group), VRDN, 3.80% due 7/01/2015 (a)(b) 2,500 A+ A1 3,000 Contra Costa County, California, COP (Merrithew Memorial Hospital), 6.60% due 11/01/2012 3,118 BBB NR* 1,000 Contra Costa County, California, Public Financing Authority, Tax Allocation Revenue Refunding Bonds, Series A, 7.10% due 8/01/2022 1,057 AAA Aaa 2,000 Cucamonga County, California, Water District Facilities Refinancing Bonds, COP, 6.50% due 9/01/2022 (d) 2,121 AAA Aaa 395 Culver City, California, Redevelopment Finance Authority Revenue Bonds (Senior Lien Project Loans), Series A, 6.75% due 11/01/2015 (b) 429 AAA Aaa 3,500 East Bay, California, Municipal Utility District, Water System, Subordinated Revenue Refunding Bonds, 6% due 6/01/2012 (c) 3,587 AAA Aaa 1,000 El Cajon, California, Redevelopment Agency, Tax Allocation Bonds (El Cajon Redevelopment Project), 6.60% due 10/01/2022 (b) 1,068
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) California (continued) BBB Baa $ 1,930 Inglewood, California, Public Financing Authority Revenue Bonds (Manchester-Prairie-North Inglewood Industrial Park Project), Series B, 7% due 5/01/2022 $ 1,999 AA Aa 1,000 Kings River Conservation District, California, Revenue Refunding Bonds (Pine Flat Power), Series D, 6.375% due 1/01/2012 1,037 AAA Aaa 3,645 Los Angeles, California, Community Redevelopment Agency, Tax Allocation Refunding Bonds (Bunker Hill), Series H, 6.50% due 12/01/2015 (f) 3,863 AAA Aaa 4,000 Los Angeles, California, Convention and Exhibition Center Authority, Lease Revenue Refunding Bonds, Series A, 5.375% due 8/15/2018 (c) 3,825 AAA Aaa 3,925 Los Angeles, California, Department of Water and Power, Waterworks Revenue Bonds, 6.30% due 7/01/2024 (c) 4,117 AA Aa 3,000 Los Angeles, California, Harbor Department Revenue Bonds, AMT, Series B, 6.625% due 8/01/2019 3,130 AAA Aaa 3,000 Los Angeles, California, Wastewater System Revenue Bonds, Series D, 6.625% due 12/01/2012 (c) 3,214 AAA Aaa 12,900 Los Angeles County, California, COP (Correctional Facilities Project), 6.50% due 9/01/2013 (c) 13,558 Los Angeles County, California, Transportation Commission, Sales Tax Revenue Bonds, Series A: AA- Aaa 6,500 6.75% due 7/01/2001 (g) 7,367 A+ Aaa 6,850 Proposition C, Second Series, 6.75% due 7/01/2002 (g) 7,839 AA- A1 2,000 Refunding, 7% due 7/01/2019 2,173 M-S-R Public Power Agency, California, Revenue Bonds (San Juan Project): A A 5,000 Series C, 6.875% due 7/01/2019 5,216 AAA Aaa 2,955 Series E, 6.50% due 7/01/2017 (c) 3,124 AA Aa 8,000 Metropolitan Water District, Southern California, Waterworks Revenue Bonds, 6.625% due 7/01/2012 8,558 AAA Aaa 2,500 Northern California Power Agency, Multiple Capital Facilities Revenue Bonds, RIB, 8.891% due 9/02/2025 (c)(h) 2,775 Northern California Power Agency, Public Power Revenue Bonds (Hydroelectric Project Number 1) (c): AAA Aaa 4,000 Refunding, Series A, 5.50% due 7/01/2016 3,927 AAA Aaa 1,970 Series E, 7.15% due 7/01/2024 2,142 AAA Aaa 16,000 Orange County, California, Local Transportation Authority, Sales Tax Revenue Bonds, Second Series, 6.10% due 2/14/2011 (d) 16,504 A NR* 5,000 Palmdale, California, Civic Authority, Revenue Refunding Bonds (Merged Redevelopment Project), Series A, 6.60% due 9/01/2034 5,482 AAA Aaa 3,905 Rancho Cucamonga, California, Redevelopment Agency, Tax Allocation Bonds (Rancho Redevelopment Project), 6.75% due 9/01/2020 (c) 4,195 NR* A 3,750 Rancho Mirage, California, Joint Powers Financing Authority, COP (Eisenhower Memorial Hospital), 7% due 3/01/2022 3,935 Redwood City, California, Public Financing Authority, Local Agency Revenue Bonds: AAA Aaa 5,025 Refunding, Series A, 6.50% due 7/15/2011 (b) 5,408 A- NR* 1,500 Series B, 7.25% due 7/15/2011 1,629 A+ Aaa 18,000 Sacramento, California, City Financing Authority Revenue Bonds, 6.80% due 11/01/2001 (g) 20,554
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) California (concluded) Sacramento, California, Municipal Utility District, Electric Revenue Bonds, Series B (c): AAA Aaa $ 3,180 6.25% due 8/15/2011 $ 3,454 AAA Aaa 4,865 6.375% due 8/15/2022 5,106 San Francisco, California, City and County Airport Commission, International Airport Revenue Bonds, Second Series: AAA Aaa 1,500 AMT, Issue 5, 6.50% due 5/01/2019 (d) 1,593 AAA Aaa 4,525 AMT, Issue 6, 6.60% due 5/01/2020 (b) 4,858 AAA Aaa 11,000 Refunding, Issue 1, 6.50% due 5/01/2013 (b) 11,770 AA- A1 5,480 San Francisco, California, City and County, GO, UT (Various Purpose Projects), Series A, 6.50% due 12/15/2010 5,794 AA Aa 5,000 San Francisco, California, City and County Public Utilities Commission, Water Revenue Bonds, Series A, 6.50% due 11/01/2017 5,307 AAA Aaa 4,715 San Francisco, California, City and County Redevelopment Agency, Lease Revenue Bonds (George R. Moscone Convention Center), 6.80% due 7/01/2019 (i) 5,123 AAA Aaa 3,180 Santa Clara, California, Electric Revenue Bonds, Series A, 6.50% due 7/01/2021 (c) 3,372 AAA Aaa 9,525 Santa Clara County, California, Financing Authority, Lease Revenue Bonds (VMC Facility Replacement Project), Series A, 6.75% due 11/15/2020 (b) 10,381 AA A1 5,000 Santa Clara County, California, Transportation District, Sales Tax Revenue Bonds, Series A, 6.75% due 6/01/2011 5,435 AAA Aaa 3,000 Santa Fe Springs, California, Redevelopment Agency, Tax Allocation Bonds (Conservation Redevelopment Project), Series A, 6% due 9/01/2014 (c) 3,074 AAA Aaa 7,750 Santa Rosa, California, Wastewater Revenue Bonds (Sub-Regional Wastewater Project), Series A, 6.50% due 9/01/2022 (d) 8,239 AAA NR* 1,145 Southern California Home Financing Authority, S/F Mortgage Revenue Bonds, AMT, Series A, 6.75% due 9/01/2022 (e) 1,179 A1+ VMIG1++ 1,400 Southern California Public Power Authority, Revenue Refunding Bonds (Southern Transmission Project), VRDN, 3.55% due 7/01/2019 (a)(b) 1,400 AAA Aaa 5,000 Stockton, California, COP, Revenue Bonds (Wastewater Treatment Plant Expansion), Series A, 6.80% due 9/01/2024 (d) 5,449 University of California Revenue Bonds (Multiple Purpose Projects): A- NR* 3,300 Refunding, Series A, 6.875% due 9/01/2002 (g) 3,795 AAA Aaa 13,560 Series D, 6.375% due 9/01/2019 (c) 14,206 Puerto Rico--1.6% A Baa1 5,500 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway Revenue Refunding Bonds, Series V, 6.625% due 7/01/2012 5,867 Total Investments (Cost--$339,193)--95.9% 359,333 Other Assets Less Liabilities--4.1% 15,409 -------- Net Assets--100.0% $374,742 ======== (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, 1995. (b)AMBAC Insured. (c)MBIA Insured. (d)FGIC Insured. (e)FNMA/GNMA Collateralized. (f)FSA Insured. (g)Prerefunded. (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, 1995. (i)CGIC Insured. *Not Rated. ++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.
FINANCIAL INFORMATION Statement of Assets, Liabilities and Capital as of October 31, 1995 Assets: Investments, at value (identified cost--$339,192,835) (Note 1a) $359,332,884 Cash 41,136 Receivables: Securities sold $ 13,271,752 Interest 6,433,128 19,704,880 ------------ Deferred organization expenses (Note 1e) 7,672 Prepaid expenses and other assets 14,841 ------------ Total assets 379,101,413 ------------ Liabilities: Payables: Securities purchased 3,770,055 Dividends to shareholders (Note 1f) 371,180 Investment adviser (Note 2) 163,636 4,304,871 ------------ Accrued expenses and other liabilities 54,501 ------------ Total liabilities 4,359,372 ------------ Net Assets: Net assets $374,742,041 ============ Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.10 per share (4,800 shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) $120,000,000 Common Stock, par value $.10 per share (16,781,559 shares issued and outstanding) $ 1,678,156 Paid-in capital in excess of par 233,789,454 Undistributed investment income--net 3,330,655 Accumulated realized capital losses on investments--net (Note 5) (4,196,273) Unrealized appreciation on investments--net 20,140,049 ------------ Total--Equivalent to $15.18 net asset value per Common Stock (market price--$13.375) 254,742,041 ------------ Total capital $374,742,041 ============ *Auction Market Preferred Stock. See Notes to Financial Statements.
FINANCIAL INFORMATION (continued) Statement of Operations
For the Year Ended October 31, 1995 Investment Income Interest and amortization of premium and discount earned $ 22,299,990 (Note 1d): Expenses: Investment advisory fees (Note 2) $ 1,809,998 Commission fees (Note 4) 312,147 Professional fees 83,810 Printing and shareholder reports 60,010 Accounting services (Note 2) 59,864 Transfer agent fees 53,581 Custodian fees 28,918 Listing fees 24,635 Directors' fees and expenses 23,737 Pricing fees 10,926 Amortization of organization expenses (Note 1e) 5,797 Other 17,210 ------------ Total expenses 2,490,633 ------------ Investment income--net 19,809,357 ------------ Realized & Realized loss on investments--net (4,196,257) Unrealized Gain Change in unrealized appreciation/depreciation on investments--net 29,929,032 (Loss) on ------------ Investments Net Increase in Net Assets Resulting from Operations $ 45,542,132 - --Net (Notes 1b, ============ 1d & 3):
Statement of Chamges in Net Assets
For the Year Ended October 31, Increase (Decrease) in Net Assets: 1995 1994 Operations: Investment income--net $ 19,809,357 $ 20,668,758 Realized gain (loss) on investments--net (4,196,257) 4,877,369 Change in unrealized appreciation/depreciation on investments--net 29,929,032 (49,417,622) ------------ ------------ Net increase (decrease) in net assets resulting from operations 45,542,132 (23,871,495) ------------ ------------ Dividends & Investment income--net: Distributions to Common Stock (15,159,571) (16,790,151) Shareholders Preferred Stock (4,189,584) (3,140,796) (Note 1f): Realized gain on investments--net: Common Stock (4,134,976) (1,122,166) Preferred Stock (741,300) (171,888) ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders (24,225,431) (21,225,001) ------------ ------------ Net Assets: Total increase (decrease) in net assets 21,316,701 (45,096,496) Beginning of year 353,425,340 398,521,836 ------------ ------------ End of year* $374,742,041 $353,425,340 ============ ============ *Undistributed investment income--net (Note 1g) $ 3,330,655 $ 2,869,102 ============ ============ See Notes to Financial Statements.
FINANCIAL INFORMATION (concluded) Financial Highlights
For the Period The following per share data and ratios have been derived Feb. 28, from information provided in the financial statements. For the 1992++ to Year Ended October 31, Oct. 31, Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 Per Share Net asset value, beginning of period $ 13.91 $ 16.60 $ 14.03 $ 14.18 Operating -------- -------- -------- -------- Performance: Investment income--net 1.18 1.23 1.22 .77 Realized and unrealized gain (loss) on investments--net 1.53 (2.65) 2.62 (.07) -------- -------- -------- -------- Total from investment operations 2.71 (1.42) 3.84 .70 -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.90) (1.00) (.99) (.55) Realized gain on investments--net (.25) (.07) (.08) -- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (1.15) (1.07) (1.07) (.55) -------- -------- -------- -------- Capital charge resulting from issuance of Common Stock -- -- -- (.02) -------- -------- -------- -------- Effect of Preferred Stock activity:++++ Dividends and distributions to Preferred Stock shareholders: Investment income--net (.25) (.19) (.18) (.14) Realized gain on investments--net (.04) (.01) (.02) -- Capital charge resulting from issuance of Preferred Stock -- -- -- (.14) -------- -------- -------- -------- Total effect of Preferred Stock activity (.29) (.20) (.20) (.28) -------- -------- -------- -------- Net asset value, end of period $ 15.18 $ 13.91 $ 16.60 $ 14.03 ======== ======== ======== ======== Market price per share, end of period $ 13.375 $ 12.125 $ 15.625 $ 14.50 ======== ======== ======== ======== Total Investment Based on market price per share 20.62% (16.36%) 15.56% .43%+++ Return:** ======== ======== ======== ======== Based on net asset value per share 19.33% (9.69%) 26.88% 2.79%+++ ======== ======== ======== ======== Ratios to Expenses, net of reimbursement .69% .66% .69% .54%* Average ======== ======== ======== ======== Net Assets:*** Expenses .69% .66% .69% .71%* ======== ======== ======== ======== Investment income--net 5.48% 5.44% 5.35% 5.65%* ======== ======== ======== ======== Supplemental Net assets, net of Preferred Stock, end of Data: period (in thousands) $254,742 $233,425 $278,522 $233,502 ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) $120,000 $120,000 $120,000 $120,000 ======== ======== ======== ======== Portfolio turnover 69.59% 78.89% 21.68% 28.75% ======== ======== ======== ======== Dividends Per Series A--Investment income--net $ 882 $ 694 $ 547 $ 449 Share on Series B--Investment income--net 864 615 688 481 Preferred Stock Outstanding:++++++ *Annualized. **Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. ***Do not reflect the effect of dividends to Preferred Stock shareholders. ++Commencement of Operations. ++++The Fund's Preferred Stock was issued on April 10, 1992. ++++++Dividends per share have been adjusted to reflect a two-for- one stock split. +++Aggregate total investment return. See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: MuniYield California 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 MYC. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options, which are traded on exchanges, are valued at their last sale price as of the close of such exchanges or, lacking any sales, at the last available bid price. Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities and assets for which market quotations are not readily available are valued at 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 interest rate futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * 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 to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. Discounts and market premiums are amortized into interest income. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Deferred organization expenses--Deferred organization expenses are amortized on a straight-line basis over a five-year period. (f) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. (g) Reclassification--Generally accepted accounting principles require that certain differences between accumulated net realized capital losses and paid-in capital in excess of par for financial reporting and tax purposes, if permanent, be reclassified to undistributed net investment income. Accordingly, current year's permanent book/tax differences of $1,084 and $267 have been reclas- sified from accumulated net realized capital losses and paid-in capital in excess of par, respectively, to 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. 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, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended October 31, 1995 were $235,456,031 and $273,075,889, respectively. Net realized and unrealized gains (losses) as of October 31, 1995 were as follows: Realized Unrealized Losses Gains Long-term investments $(2,154,377) $20,140,049 Short-term investments (24,099) -- Financial futures contracts (2,017,781) -- ----------- ----------- Total $(4,196,257) $20,140,049 =========== =========== As of October 31, 1995, net unrealized appreciation for Federal income tax purposes aggregated $20,137,289, of which $20,191,866 related to appreciated securities and $54,577 related to depreciated securities. The aggregate cost of investments at October 31, 1995 for Federal income tax purposes was $339,195,595. 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 For the year ended October 31, 1995, shares issued and outstanding remained constant at 16,781,559. At October 31, 1995, total paid-in capital amounted to $235,467,877. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund 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, 1995 were: Series A, 3.77% and Series B, 3.30%. A two-for-one stock split occurred on December 1, 1994. As a result, as of October 31, 1995, there were 4,800 AMPS shares authorized, issued and outstanding with a liquidation preference of $25,000 per share, plus accumulated and unpaid dividends of $508,510. 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, 1995, MLPF&S, an affiliate of FAM, earned $226,343 as commissions. 5. Capital Loss Carryforward: At October 31, 1995, the Fund had a net capital loss carryforward of approximately $3,025,000, all of which expires in 2003. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: On November 13, 1995, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $.075105 per share, payable on November 29, 1995 to shareholders of record as of November 24, 1995. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders MuniYield California Fund, Inc.: We have audited the accompanying statement of assets, liabilities and capital, including the schedule of investments, of MuniYield California Fund, Inc. as of October 31, 1995, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the three-year period then ended and the period February 28, 1992 (commencement of operations) to October 31, 1992. 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, 1995 by correspondence with the custodian and broker. 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 California Fund, Inc. as of October 31, 1995, 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 1, 1995 IMPORTANT TAX INFORMATION (UNAUDITED) All of the net investment income distributions paid monthly by MuniYield California Fund, Inc. during its taxable year ended October 31, 1995 qualify as tax-exempt interest dividends for Federal income tax purposes. Additionally, the following table summarizes the per share capital gains distributions paid by the Fund during the year:
Payable Short-Term Long-Term Date Capital Gains Capital Gains Common Stock Shareholders 12/29/94 -- $ 0.246400 Preferred Stock Shareholders: Series A 12/15/94 -- $120.36 1/12/95 -- $ 43.42 Series B 11/25/94 -- $ 68.03 12/08/94 -- $ 29.51 12/15/94 -- $ 29.19 12/22/94 -- $ 33.55 12/29/94 -- $ 18.83 Please retain this information for your records.
PER SHARE INFORMATION (UNAUDITED) Per Share Selected Quarterly Financial Data*
Dividends/Distributions Net Realized Unrealized Investment Gains Gains Net Investment Income Capital Gains For the Quarter Income (Losses) (Losses) Common Preferred Common Preferred November 1, 1993 to January 31, 1994 $.31 $ .13 $ .02 $.26 $.04 $.07 $.01 February 1, 1994 to April 30, 1994 .30 .36 (2.24) .24 .05 -- -- May 1, 1994 to July 31, 1994 .31 .03 .23 .25 .05 -- -- August 1, 1994 to October 31, 1994 .31 (.22) (.96) .25 .05 -- -- November 1, 1994 to January 31, 1995 .31 (.34) .74 .24 .04 .25 .04 February 1, 1995 to April 30, 1995 .28 .01 .50 .22 .07 -- -- May 1, 1995 to July 31, 1995 .30 .02 .18 .22 .08 -- -- August 1, 1995 to October 31, 1995 .29 .06 .36 .22 .06 -- -- Net Asset Value Market Price** For the Quarter High Low High Low Volume*** November 1, 1993 to January 31, 1994 $16.68 $16.03 $15.875 $15.00 1,867 February 1, 1994 to April 30, 1994 16.62 14.35 15.875 13.125 2,112 May 1, 1994 to July 31, 1994 15.41 14.40 14.00 13.00 1,478 August 1, 1994 to October 31, 1994 15.11 13.90 13.875 12.00 1,818 November 1, 1994 to January 31, 1995 14.02 12.76 12.75 11.25 4,025 February 1, 1995 to April 30, 1995 14.82 14.03 13.625 12.625 1,160 May 1, 1995 to July 31, 1995 15.33 14.49 13.50 12.625 1,329 August 1, 1995 to October 31, 1995 15.25 14.52 13.375 12.50 1,223 *Calculations are based upon shares of Common Stock outstanding at the end of each quarter. **As reported in the consolidated transaction reporting system. ***In thousands.
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