N-30D 1 0001.txt ANNUAL REPORT MUNIYIELD CALIFORNIA FUND, INC. FUND LOGO Annual Report October 31, 2000 MuniYield California Fund, Inc. seeks to provide shareholders with as high a level of current income exempt from Federal and California income taxes as is consistent with its investment policies and prudent investment management by investing primarily in a portfolio of long-term, municipal obligations the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal and California income taxes. This report, including the financial information herein, is transmitted to shareholders of MuniYield California Fund, Inc. for their information. It is not a prospectus. Past performance results shown in this report should not be considered a representation of future performance. The Fund has leveraged its Common Stock 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 California Fund Box 9011 Princeton, NJ 08543-9011 Printed on post-consumer recycled paper MUNIYIELD CALIFORNIA FUND, INC. 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 pickup on the Common Stock will be reduced or eliminated completely. At the same time, the market value of the fund's Common Stock (that is, its price as listed on the New York Stock Exchange) may, as a result, decline. Furthermore, if long-term interest rates rise, the Common Stock's net asset value will reflect the full decline in the price of the portfolio's investments, since the value of the fund's Preferred Stock does not fluctuate. In addition to the decline in net asset value, the market value of the fund's Common Stock may also decline. As a part of its investment strategy, the Fund may invest in certain securities whose potential income return is inversely related to changes in a floating interest rate ("inverse floaters"). In general, income on inverse floaters will decrease when short-term interest rates increase and increase when short-term interest rates decrease. Investments in inverse floaters may be characterized as derivative securities and may subject the Fund to the risks of reduced or eliminated interest payments and losses of invested principal. In addition, inverse floaters have the effect of providing investment leverage and, as a result, the market value of such securities will generally be more volatile than that of fixed- rate, tax-exempt securities. To the extent the Fund invests in inverse floaters, the market value of the Fund's portfolio and the net asset value of the Fund's shares may also be more volatile than if the Fund did not invest in these securities. MuniYield California Fund, Inc., October 31, 2000 DEAR SHAREHOLDER For the year ended October 31, 2000, the Common Stock of MuniYield California Fund, Inc. earned $0.797 per share income dividends, which included earned and unpaid dividends of $0.066. This represents a net annualized yield of 5.62%, based on a month-end net asset value of $14.19 per share. During the same period, the total investment return on the Fund's Common Stock was +13.45%, based on a change in per share net asset value from $13.32 to $14.19, and assuming reinvestment of $0.802 per share income dividends. For the six-month period ended October 31, 2000, the total investment return on the Fund's Common Stock was +9.02%, based on a change in per share net asset value from $13.41 to $14.19, and assuming reinvestment of $0.395 per share income dividends. For the six-month period ended October 31, 2000, the Fund's Auction Market Preferred Stock had an average yield of 3.22% for Series A, 3.60% for Series B and 3.71% for Series C. The Municipal Market Environment During the six months ended October 31, 2000, long-term US Treasury bond yields generally drifted lower. A number of economic indicators, particularly employment, new home sales and consumer spending, have suggested that US economic growth, while still strong, has moderated from 1999's robust levels. Preliminary estimates for third-quarter 2000 US gross domestic product growth were recently released at 2.7%, well below the first-quarter 2000 rate of 4.8% and the second-quarter 2000 rate of 5.6%. This decline in economic growth suggests to some analysts that the Federal Reserve Board has finished raising interest rates for its current interest rate cycle. The Federal Reserve Board increased short-term interest rates at its May meeting and has since kept monetary policy steady at its subsequent meetings. Given the potential for stable short-term interest rates in the coming months, investor emphasis focused on the continuing US Treasury debt reduction program and forecasts of sizeable Federal budgetary surpluses going forward. Many investors have concluded that there will be a significant future shortage of longer-dated maturity US Treasury securities. By late August, US Treasury bond yields declined 30 basis points (0.30%) to 5.66%; their lowest levels in more than a year. However, for the remainder of the period, bond yields were unable to maintain their earlier gains. Rising oil prices were the major focus behind the decline in bond prices, as many investors feared that higher oil prices would result in increased inflationary pressures. Additionally, US corporations issued large amounts of taxable debt in order to take advantage of the current low interest rate environment. During the last three months, US corporations issued more than $100 billion in investment-grade securities, offering yields in the 7.25% - 9% range. Many investors found these taxable issues an attractive and more plentiful alternative to US Treasury bonds. As the demand for US Treasury issues weakened, US bond yields rose. Although US Treasury bond yields rose to 5.78% by the end of October 2000, overall they declined almost 20 basis points during the last six months. The six-month period ended October 31, 2000 was one of the few periods in recent years in which the tax-exempt bond market out- performed its taxable counterpart, the US Treasury bond market. While municipal bond yields followed the similar seesaw pattern of Treasury bond yields, tax-exempt bond price volatility was significantly reduced. Municipal bond yields traded in a relatively narrow range during much of October 2000. Overall investor demand for municipal bonds remained strong, allowing tax-exempt bond yields, as measured by the Bond Buyer Revenue Bond Index, to decline 30 basis points to end the period at 5.75%. In the past three months, new long-term municipal bond issuance has continued to decline, albeit at a slower rate than earlier this year. During this period, more than $53 billion in new long-term municipal bonds was issued, a decline of 3% compared to the same three-month period in 1999. During the last six months, more than $105 billion in tax-exempt bonds was underwritten, a decline of 8% compared to the same six-month period in 1999. Just under $200 billion in new municipal securities was marketed during the past year, a decline of more than 16% compared to the same 12-month period in 1999. The demand for municipal bonds came from a number of non-traditional and conventional sources. Derivative/arbitrage programs and insurance companies remained the dominant institutional buyers, while individual retail purchases also remained strong. Traditional, open-end tax-exempt mutual funds have continued to see significant disintermediation. It was recently reported that thus far during the 2000 calendar year, long-term municipal bond mutual funds experienced net cash outflows of more than $15 billion. Fortunately, the combination of reduced new bond issuance and ongoing demand from non-traditional sources has been able to more than offset the decline in demand from tax-exempt mutual funds. This favorable balance has fostered a significant decline in municipal bond yields in recent months. Currently, there is no reason to expect that the positive technical position of the municipal bond market will significantly deteriorate. The steeply positive yield curve and the relatively high credit quality that the tax-exempt bond market offers should continue to attract different classes of institutional buyers. Strong state and local governmental financial conditions also suggest that issuance should remain manageable into next year. However, the results of the presidential election may affect the tax- exempt bond market. Various tax and spending programs proposed by both candidates have obvious implications for state and local governments as well as corporate and individual taxpayers. Political history has shown that the enactment of campaign promises, both Republican and Democratic, has very often been a long, laborious process. This suggests that over the next few months US economic factors will most likely have a greater effect on bond yields than political considerations. Portfolio Strategy During the six months ended October 31, 2000, the Fund underwent a slight restructuring with our aim to reduce portfolio volatility in what became an extremely volatile interest rate environment within a general trend toward lower yields. We continued to maintain a fully invested position, mainly in higher-quality California municipal bonds. Our strategy has concentrated on utilizing strength in market conditions in an effort to reduce asset price volatility and increase current income. We adopted a more neutral stance as a closed-end, leveraged municipal fund, yet our fully invested position may likely allow significant price appreciation should fixed-income securities values start to improve following signs of an economic slowdown. We do not anticipate making any significant changes going forward, yet we will monitor the overall economic backdrop for signs of a more favorable environment for fixed-income securities and California municipal bonds in particular. MuniYield California Fund, Inc., October 31, 2000 The 125 basis point increase in short-term interest rates by the Federal Reserve Board during the past year has resulted in a minor increase in the Fund's borrowing cost to the 3% - 3.5% range. However, the tax-exempt yield curve has remained steeply positive, generating a material income benefit to the Fund's Common Stock shareholders from the leveraging of the Preferred Stock. 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 1 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 to come. Sincerely, (Terry K. Glenn) Terry K. Glenn President and Director (Vincent R. Giordano) Vincent R. Giordano Senior Vice President (Walter C. O'Connor) Walter C. O'Connor Vice President and Portfolio Manager December 4, 2000 SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Issue Value California--95.6% AAA Aaa $ 6,500 Alameda Corridor Transportation Authority, California, Revenue Bonds, Senior Lien, Series A, 4.75% due 10/01/2025 (h) $ 5,802 AAA Aaa 4,180 Antioch Area Public Facilities Financing Agency, California, Special Tax (Community Facilities District Number 1989-1), 5.70% due 8/01/2022 (a) 4,297 AAA Aaa 5,690 Arcata, California, Joint Powers Financing Authority, Tax Allocation Revenue Refunding Bonds (Community Development Project Loan), Series A, 6% due 8/01/2023 (a) 5,897 AAA Aaa 2,500 Bakersfield, California, COP, Refunding (Convention Center Expansion Project), 5.80% due 4/01/2017 (h) 2,610 California Educational Facilities Authority, Revenue Refunding Bonds: AAA Aaa 2,100 (Pooled College), Series A, 5.60% due 12/01/2014 (h) 2,189 NR* Aaa 5,000 RIB, Series 413, 7.89% due 10/01/2026 (h)(j) 5,474 AA+ Aa2 1,500 (University of Southern California), Series A, 5.70% due 10/01/2015 1,579 California HFA, Home Mortgage Revenue Bonds, AMT (c): AA- Aa2 1,560 Series E-1, 6.70% due 8/01/2025 1,597 AA- Aa2 2,140 Series F-1, 7% due 8/01/2026 2,186 AA- Aa2 4,870 Series N, 6.375% due 2/01/2027 5,076 AAA Aaa 1,615 Series P, 5.80% due 2/01/2019(a) 1,651 A+ Aa2 3,700 California HFA, Revenue Bonds, RIB, AMT, Series B-2, 8.351% due 8/01/2023 (c)(j) 3,941 NR* A1 2,835 California Health Facilities Finance Authority Revenue Bonds (Scripps Research Institute), Series A, 6.625% due 7/01/2018 2,986 California Health Facilities Finance Authority, Revenue Refunding Bonds (h): A1+ VMIG1++ 3,000 (Adventist Hospital), VRDN, Series A, 4.40% due 9/01/2028 (k) 3,000 AAA Aaa 1,490 (Pomona Valley Hospital Medical Center), Series A, 5.625% due 7/01/2019 1,526 AAA Aaa 2,520 California Infrastructure and Economic Development Bank Revenue Bonds (Asian Museum Foundation of San Francisco), 5.50% due 6/01/2018 (h) 2,578 California Pollution Control Financing Authority, PCR, Refunding, VRDN (k): A1+ NR* 1,000 (Pacific Gas and Electric), AMT, Series B, 4.45% due 11/01/2026 1,000 A1+ NR* 500 (Pacific Gas and Electric), Series A, 4.40% due 12/01/2018 500 A1+ NR* 10,200 (Pacific Gas and Electric), Series E, 2.75% due 11/01/2026 10,200 A1 VMIG1++ 100 (Southern California Edison Company), Series B, 4.55% due 2/28/2008 100
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 PCR Pollution Control Revenue Bonds RIB Residual Interest Bonds RITR Residual Interest Trust Receipts S/F Single-Family VRDN Variable Rate Demand Notes SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Issue Value California NR* Aaa $ 1,215 California Rural Home Mortgage Finance (continued) Authority, S/F Mortgage Revenue Bonds (Mortgage-Backed Securities Program), AMT, Series A-1, 6.90% due 12/01/2024 (d)(g) $ 1,309 AA Aa3 6,315 California State Department of Veteran Affairs, Home Purpose Revenue Refunding Bonds, Series C, 6.05% due 12/01/2020 6,511 California State, GO, Refunding: AAA Aaa 15,000 4.25% due 10/01/2026 (h) 12,247 AA Aa2 5,000 5.75% due 5/01/2030 5,143 California State Public Works Board, Lease Revenue Bonds: AAA Aaa 2,000 (California State University), Series C, 5.40% due 10/01/2022 (h) 2,004 AA- Aaa 6,800 (Department of Corrections), Series A, 7% due 11/01/2004 (i) 7,636 AAA Aaa 6,645 (Department of Health Services), Series A, 5.75% due 11/01/2017 (h) 7,001 California State University and Colleges, Housing System Revenue Refunding Bonds (b): AAA Aaa 3,000 5.75% due 11/01/2015 3,146 AAA Aaa 3,500 5.80% due 11/01/2017 3,651 AAA Aaa 3,900 5.90% due 11/01/2021 4,096 AAA Aaa 5,250 California Statewide Communities Development Authority, COP (John Muir/Mount Diablo Health System), 5.125% due 8/15/2022 (h) 5,059 AAA Aaa 4,500 Central Coast Water Authority, California, Regional Facilities Revenue Refunding Bonds (State Water Project), Series A, 5% due 10/01/2022 (a) 4,332 AAA Aaa 2,000 Chino Basin, California, Regional Financing Authority Revenue Bonds (Inland Empire Utility Agency Sewer Project), 5.75% due 11/01/2019 (h) 2,087 Contra Costa County, California, Public Financing Authority, Lease Revenue Refunding Bonds (Various Capital Facilities), Series A (h): AAA Aaa 2,705 5.30% due 8/01/2020 2,698 AAA Aaa 3,485 5.35% due 8/01/2024 3,462 Contra Costa County, California, Public Financing Authority, Tax Allocation Revenue Bonds, Series A: AAA NR* 1,860 7.10% due 8/01/2002 (i) 1,992 BBB NR* 1,140 7.10% due 8/01/2022 1,183 AAA Aaa 2,500 Davis, California, Joint Unified School District, Community Facilities District, Special Tax Refunding Bonds, Number 1, 5.50% due 8/15/2021 (h) 2,522 AAA Aaa 3,950 East Bay, California, Municipal Utility District, Water System Subordinated Revenue Refunding Bonds, 5% due 6/01/2026 (b) 3,722 AAA Aaa 2,500 Fontana, California, Redevelopment Agency Tax Allocation Refunding Bonds (Southwest Industrial Park Project), 5% due 9/01/2022 (h) 2,382 BBB Baa3 1,775 Inglewood, California, Public Financing Authority, Revenue Refunding Bonds, Series B, 7% due 5/01/2002 (i) 1,861 NR* Aaa 2,000 Los Angeles, California, COP (Sonnenblick Del Rio West Los Angeles), 6.20% due 11/01/2031 (a) 2,167 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) 3,929 AAA Aaa 5,000 Los Angeles, California, Convention and Exhibition Center Authority, Lease Revenue Refunding Bonds, Series A, 5.375% due 8/15/2018 (h) 5,026 NR* Aa3 9,060 Los Angeles, California, Department of Water and Power, Electric Plant Revenue Refunding Bonds, RIB, Series 370, 7.841% due 2/15/2024 (j) 9,641 Los Angeles, California, Harbor Department Revenue Bonds, AMT: NR* Aaa 4,000 RITR, Series RI-7, 8.095% due 11/01/2026 (h)(j) 4,462 AA Aa3 2,000 Series B, 6% due 8/01/2015 2,103 AA Aa3 4,240 Series B, 6.60% due 8/01/2015 4,455 AA Aa3 8,855 Series B, 6.625% due 8/01/2019 9,276 AAA Aaa 9,500 Los Angeles, California, Unified School District, GO, Series A, 5% due 7/01/2021 (b) 9,087 AAA Aaa 13,750 Los Angeles, California, Wastewater System Revenue Bonds, Series A, 5% due 6/01/2023 (b) 13,037 AAA Aaa 5,000 Los Angeles County, California, Public Works Financing Authority, Lease Revenue Bonds (Multiple Capital Facilities Project VI), Series A, 5.625% due 5/01/2026 (a) 5,075 AAA Aaa 4,000 Los Angeles County, California, Metropolitan Transportation Authority, Sales Tax Revenue Bonds (Proposition C), Second Tier, Senior Series A, 5.50% due 7/01/2017 (a) 4,082 AAA Aaa 2,950 Los Angeles County, California, Metropolitan Transportation Authority, Sales Tax Revenue Refunding Bonds, Proposition A, First Tier, Series C, 5% due 7/01/2020 (a) 2,836 AAA Aaa 2,000 Menlo Park, California, Community Development Agency, Tax Allocation Refunding Bonds (Las Pulgas Community Development Project), 5.375% due 6/01/2016 (a) 2,040 Metropolitan Water District of Southern California, Waterworks Revenue Bonds, Series A: AAA Aaa 5,730 5.75% due 7/01/2013 (h) 6,044 AA Aa2 5,500 5% due 7/01/2026 5,181 A1+ NR* 2,600 Metropolitan Water District of Southern California, Waterworks Revenue Refunding Bonds, VRDN, Series B-1, 4.40% due 7/01/2035 (k) 2,600 AAA Aaa 8,705 Modesto, California, Wastewater Treatment Facilities Revenue Bonds, 5.625% due 11/01/2017 (h) 9,043 AAA Aaa 1,750 North City-West, California, School Facilties Financing Authority, Special Tax Refunding Bonds, Series B, 5.75% due 9/01/2015 (f) 1,841 AAA Aaa 1,270 Northern California Power Agency, Multiple Capital Facilities Revenue Bonds, RIB, 8.483% due 8/01/2025 (h)(j) 1,402 Northern California Power Agency, Public Power Revenue Refunding Bonds (Hydroelectric Project Number 1), Series A (h): AAA Aaa 13,600 5.125% due 7/01/2023 13,131 AAA Aaa 5,000 5% due 7/01/2028 4,694 Oakland, California, Joint Powers Financing Authority, Lease Revenue Bonds (Oakland Administration Buildings) (a): AAA Aaa 2,000 5.90% due 8/01/2016 2,120 AAA Aaa 11,395 5.75% due 8/01/2021 11,724 AAA Aaa 4,160 Oakland, California, State Building Authority, Lease Revenue Bonds (Elihu M. Harris), Series A, 5% due 4/01/2023 (a) 3,950 Oakland, California, Unified School District, Alameda County, GO, Series F (h): AAA Aaa 3,290 5.50% due 8/01/2017 3,387 AAA Aaa 3,770 5.50% due 8/01/2018 3,861
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Issue Value California AAA Aaa $ 1,750 Pleasant Valley, California, School District, (concluded) Ventura County, GO, Series C, 5.75% due 8/01/2025 (h) $ 1,802 AAA Aaa 10,600 Port Oakland, California, Port Revenue Refunding Bonds, Series I, 5.40% due 11/01/2017 (h) 10,804 AAA Aaa 2,345 Richmond, California, Redevelopment Agency, Tax Allocation, Refunding Bonds (Harbour Redevelopment Project), Series A, 5.50% due 7/01/2018 (h) 2,398 AAA Aaa 1,750 Riverside County, California, Asset Leasing Corporation, Leasehold Revenue Refunding Bonds (Riverside County Hospital Project), Series B, 5.70% due 6/01/2016 (h) 1,854 AAA Aaa 5,000 Roseville, California, Electric System Revenue Bonds, COP, 5.50% due 2/01/2024 (f) 5,033 AAA Aaa 5,000 Sacramento, California, Municipal Utility District, Electric Revenue Refunding Bonds, Series L, 5.125% due 7/01/2022 (h) 4,844 Sacramento County, California, Sanitation District Financing Authority, Revenue Refunding Bonds: AA Aa3 4,500 RIB, Series 366, 7.64% due 12/01/2027 (j) 4,766 AA Aa3 1,000 Series A, 5.60% due 12/01/2017 1,027 AA Aa3 2,500 Series A, 5.75% due 12/01/2018 2,579 NR* Aa3 3,750 Trust Receipts, Class R, Series A, 7.829% due 12/01/2019 (j) 4,104 AAA Aaa 9,850 San Bernardino, California, City Unified School District, GO, Refunding, Series A, 5.875% due 8/01/2024 (b) 10,284 AAA Aaa 3,000 San Bernardino, California, Joint Powers Financing Authority, Lease Revenue Bonds (Department of Transportation Lease), Series A, 5.50% due 12/01/2020 (h) 3,031 AAA Aaa 5,000 San Bernardino, California, Joint Powers Financing Authority, Tax Allocation Revenue Refunding Bonds, Series A, 5.75% due 10/01/2015 (f) 5,235 AAA Aaa 2,500 San Diego, California, Public Facilities Financing Authority, Sewer Revenue Bonds, 5% due 5/15/2020 (b) 2,395 BBB+ Baa1 1,300 San Diego, California, Redevelopment Agency, Tax Allocation, Refunding Bonds (Horton Project), Series B, 6.625% due 11/01/2017 1,395 AAA Aaa 5,000 San Francisco, California, Bay Area Rapid Transit District, Sales Tax Revenue Refunding Bonds, 4.75% due 7/01/2023 (a) 4,487 San Francisco, California, City and County Airport Commission, International Airport Revenue Bonds, AMT, Second Series: AAA Aaa 3,000 Issue 5, 6.50% due 5/01/2019 (b) 3,205 AAA Aaa 4,525 Issue 6, 6.60% due 5/01/2020 (a) 4,828 AAA Aaa 3,000 Issue 11, 6.25% due 5/01/2026 (b) 3,136 AAA Aaa 4,715 San Francisco, California, City and County Redevelopment Agency, Lease Revenue Refunding Bonds (George R. Moscone Convention Center), 6.80% due 7/01/2019 (f) 5,161 AAA Aaa 2,020 Santa Clara, California, Unified School District, GO, 5.50% due 7/01/2021 (b) 2,048 AAA Aaa 2,000 Santa Clara County, California, Financing Authority, Lease Revenue Bonds (VMC Facility Replacement Project), Series A, 6.875% due 11/15/2004 (a)(i) 2,237 NR* Aaa 5,125 Santa Clara Valley, California, Water District, COP, Refunding, RIB, Series 411, 7.89% due 2/01/2024 (b)(j) 5,477 AAA Aaa 3,000 Santa Fe Springs, California, Redevelopment Agency, Tax Allocation, Refunding Bonds (Conservation Redevelopment Project), Series A, 6% due 9/01/2014 (h) 3,141 AAA Aaa 4,000 Santa Monica, California, Redevelopment Agency, Tax Allocation Bonds (Earthquake Recovery Redevelopment Project), 6% due 7/01/2029 (a) 4,222 AAA Aaa 1,000 Santa Rosa, California, High School District, GO, 5.70% due 5/01/2021 (f) 1,028 AAA Aaa 2,000 Sequoia, California, Unified High School District, GO, 5.70% due 7/01/2024 (f) 2,037 AAA Aaa 2,265 South Bayside, California, Waste Management Authority, Waste System Revenue Bonds, 5.75% due 3/01/2020 (a) 2,349 AAA NR* 765 Southern California Home Finance Authority, S/F Mortgage Revenue Bonds (Mortgage-Backed Securities Program), AMT, Series A, 6.75% due 9/01/2022 (e) 778 AAA Aaa 3,235 Taft, California, Public Financing Authority, Lease Revenue Bonds (Community Correctional Facilty), Series A, 6.05% due 1/01/2017 (h) 3,436 University of California Revenue Bonds: AAA Aaa 1,475 (Multi-Purpose Projects), Series F, 5% due 9/01/2022 (b) 1,405 AAA Aaa 4,885 (Research Facilities), Series D, 5% due 9/01/2024 (f) 4,624 AAA Aaa 6,445 University of California Revenue Refunding Bonds (Research Facilities), Series C, 5% due 9/01/2021 (f) 6,163 AAA Aaa 5,000 Vista, California, Joint Powers Financing Authority, Lease Revenue Refunding Bonds, 5.625% due 5/01/2016 (h) 5,211 Puerto Rico--2.8% Puerto Rico Commonwealth, Highway and Transportation Authority, Highway Revenue Refunding Bonds: A Baa1 5,500 Series V, 6.625% due 7/01/2012 5,743 AAA Aaa 3,000 Series W, 5.50% due 7/01/2013 (h) 3,191 AAA Aaa 2,600 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series X, 5.50% due 7/01/2025 (h) 2,604 A- Baa1 1,000 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds, Series U, 6% due 7/01/2014 1,050 Total Investments (Cost--$417,415)--98.4% 433,539 Other Assets Less Liabilities--1.6% 6,964 -------- Net Assets--100.0% $440,503 ======== (a)AMBAC Insured. (b)FGIC Insured. (c)FHA Insured. (d)FHLMC Collateralized. (e)FNMA/GNMA Collateralized. (f)FSA Insured. (g)GNMA Collateralized. (h)MBIA Insured. (i)Prerefunded. (j)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, 2000. (k)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, 2000. *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.
MuniYield California Fund, Inc., October 31, 2000 STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of October 31, 2000 Assets: Investments, at value (identified cost--$417,414,523) $433,538,528 Cash 199,571 Receivables: Interest $ 7,499,581 Securities sold 6,221,546 13,721,127 ------------ Prepaid expenses and other assets 11,953 ------------ Total assets 447,471,179 ------------ Liabilities: Payables: Securities purchased 6,360,637 Dividends to shareholders 293,919 Investment adviser 179,754 6,834,310 ------------ Accrued expenses and other liabilities 133,606 ------------ Total liabilities 6,967,916 ------------ Net Assets: Net assets $440,503,263 ============ Capital: Capital Stock (200,000,000 shares authorized): Preferred Stock, par value $.10 per share (5,600 shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) $140,000,000 Common Stock, par value $.10 per share (21,184,475 shares issued and outstanding) $ 2,118,448 Paid-in capital in excess of par 298,320,316 Undistributed investment income--net 3,732,077 Accumulated realized capital losses on investments--net (11,494,921) Accumulated distributions in excess of realized capital gains--net (8,296,662) Unrealized appreciation on investments--net 16,124,005 ------------ Total--Equivalent to $14.19 net asset value per share of Common Stock (market price--$13.0625) 300,503,263 ------------ Total capital $440,503,263 ============ *Auction Market Preferred Stock. See Notes to Financial Statements.
STATEMENT OF OPERATIONS
For the Year Ended October 31, 2000 Investment Interest and amortization of premium and discount earned $ 24,635,797 Income: Expenses: Investment advisory fees $ 2,141,616 Commission fees 353,976 Accounting services 100,649 Professional fees 80,797 Transfer agent fees 70,916 Listing fees 38,615 Printing and shareholder reports 34,634 Directors' fees and expenses 32,499 Custodian fees 30,730 Pricing fees 15,686 Other 42,750 ------------ Total expenses 2,942,868 ------------ Investment income--net 21,692,929 ------------ Realized & Realized loss on investments--net (11,494,921) Unrealized Change in unrealized appreciation/depreciation Gain (Loss) on on investments--net 30,050,061 Investments--Net: ------------ Net Increase in Net Assets Resulting from Operations $ 40,248,069 ============ See Notes to Financial Statements.
MuniYield California Fund, Inc., October 31, 2000 STATEMENTS OF CHANGES IN NET ASSETS For the Year Ended October 31, Increase (Decrease) in Net Assets: 2000 1999 Operations: Investment income--net $ 21,692,929 $ 21,783,984 Realized loss on investments--net (11,494,921) (5,955,228) Change in unrealized appreciation/depreciation on investments--net 30,050,061 (41,734,304) ------------ ------------ Net increase (decrease) in net assets resulting from operations 40,248,069 (25,905,548) ------------ ------------ Dividends & Investment income--net: Distributions to Common Stock (16,980,585) (18,534,023) Shareholders: Preferred Stock (4,877,784) (3,048,224) Realized gain on investments--net: Common Stock -- (4,949,446) Preferred Stock -- (777,830) In excess of realized gain on investments--net: Common Stock -- (7,168,573) Preferred Stock -- (1,126,578) ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders (21,858,369) (35,604,674) ------------ ------------ Capital Stock Value of shares issued to Common Stock shareholders Transactions: in reinvestment of dividends and distributions -- 4,278,659 ------------ ------------ Net Assets: Total increase (decrease) in net assets 18,389,700 (57,231,563) Beginning of year 422,113,563 479,345,126 ------------ ------------ End of year* $440,503,263 $422,113,563 ============ ============ *Undistributed investment income--net $ 3,732,077 $ 3,897,517 ============ ============ See Notes to Financial Statements.
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: 2000 1999 1998 1997 1996 Per Share Net asset value, beginning of year $ 13.32 $ 16.23 $ 15.98 $ 15.44 $ 15.18 Operating --------- -------- -------- -------- -------- Performance: Investment income--net 1.02 1.03 1.11 1.17 1.16 Realized and unrealized gain (loss) on investments--net .88 (2.25) .39 .54 .28 --------- -------- -------- -------- -------- Total from investment operations 1.90 (1.22) 1.50 1.71 1.44 --------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.80) (.88) (.92) (.93) (.93) Realized gain on investments--net -- (.24) (.08) -- -- In excess of realized gain on investments--net -- (.34) -- -- -- --------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (.80) (1.46) (1.00) (.93) (.93) --------- -------- -------- -------- -------- Capital charge resulting from issuance of Common Stock -- -- (.01) -- -- --------- -------- -------- -------- -------- Effect of Preferred Stock activity: Dividends and distributions to Preferred Stock shareholders: Investment income--net (.23) (.14) (.19) (.24) (.25) Realized gain on investments--net -- (.04) (.05) -- -- In excess of realized gain on investments--net -- (.05) -- -- -- --------- -------- -------- -------- -------- Total effect of Preferred Stock activity (.23) (.23) (.24) (.24) (.25) --------- -------- -------- -------- -------- Net asset value, end of year $ 14.19 $ 13.32 $ 16.23 $ 15.98 $ 15.44 ========= ======== ======== ======== ======== Market price per share, end of year $13.0625 $ 12.625 $16.5625 $ 15.875 $ 14.875 ========= ======== ======== ======== ======== Total Investment Based on market price per share 10.18% (16.13%) 8.10% 13.44% 18.68% Return:* ========= ======== ======== ======== ======== Based on net asset value per share 13.45% (9.70%) 11.04% 10.01% 8.54% ========= ======== ======== ======== ======== Ratios Based on Total expenses** 1.02% .98% .93% .97% .98% Average Net ========= ======== ======== ======== ======== Assets of Total investment income--net** 7.51% 6.86% 7.12% 7.47% 7.50% Common Stock: ========= ======== ======== ======== ======== Amount of dividends to Preferred Stock shareholders 1.69% .96% 1.21% 1.53% 1.61% ========= ======== ======== ======== ======== Investment income--net, to Common Stock shareholders 5.82% 5.90% 5.91% 5.94% 5.89% ========= ======== ======== ======== ======== Ratios Based on Total expenses .69% .68% .65% .67% .67% Total Average ========= ======== ======== ======== ======== Net Assets:**++ Total investment income--net 5.05% 4.77% 4.94% 5.14% 5.16% ========= ======== ======== ======== ======== Ratios Based on Dividends to Preferred Average Net Stock shareholders 3.47% 2.18% 2.82% 3.36% 3.47% Assets of ========= ======== ======== ======== ======== Preferred Stock: Supplemental Net assets, net of Preferred Stock, Data: end of year (in thousands) $ 300,503 $282,114 $339,345 $268,297 $259,082 ========= ======== ======== ======== ======== Preferred Stock outstanding, end of year (in thousands) $ 140,000 $140,000 $140,000 $120,000 $120,000 ========= ======== ======== ======== ======== Portfolio turnover 93.01% 146.39% 136.88% 88.68% 67.48% ========= ======== ======== ======== ======== Leverage: Asset coverage per $1,000 $ 3,146 $ 3,015 $ 3,424 $ 3,236 $ 3,159 ========= ======== ======== ======== ======== Dividends Per Series A--Investment income--net $ 865 $ 527 $ 729 $ 852 $ 875 Share on ========= ======== ======== ======== ======== Preferred Stock Series B--Investment income--net $ 875 $ 546 $ 693 $ 830 $ 860 Outstanding:++++ ========= ======== ======== ======== ======== Series C--Investment income--net $ 875 $ 591 $ 466 -- -- ========= ======== ======== ======== ======== *Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales charges. **Do not reflect the effect of dividends to Preferred Stock shareholders. ++Includes Common and Preferred Stock average net assets. ++++The Fund's Preferred Stock was issued on April 10, 1992 (Series A and B) and February 9, 1998 (Series C). See Notes to Financial Statements.
MuniYield California Fund, Inc., October 31, 2000 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's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require the use of management accruals and estimates. 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 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 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 investment strategies to increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). 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. Distributions in excess of realized capital gains are due primarily to differing tax treatments for futures transactions. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of .50% of the Fund's average weekly net assets, including proceeds from the issuance of Preferred Stock. Accounting services are provided to the Fund by FAM. 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, 2000 were $383,162,308 and $381,898,661, respectively. Net realized losses for the year ended October 31, 2000 and net unrealized gains as of October 31, 2000 were as follows: Realized Unrealized Losses Gains Long-term investments $ (11,357,971) $ 16,124,005 Financial futures contracts (136,950) -- ------------- ------------ Total $ (11,494,921) $ 16,124,005 ============= ============ As of October 31, 2000, net unrealized appreciation for Federal income tax purposes aggregated $16,124,005, of which $17,191,248 related to appreciated securities and $1,067,243 related to depreciated securities. The aggregate cost of investments at October 31, 2000 for Federal income tax purposes was $417,414,523. 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, 2000 remained constant and during the year ended October 31, 1999 increased by 274,041 as a result of dividend reinvestment. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund, with a par value of $.10 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, 2000 were: Series A, 4.09%; Series B, 3.90%; and Series C, 3.30%. Shares issued and outstanding during the years ended October 31, 2000 and October 31, 1999 remained constant. The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from .25% to .375%, calculated on the proceeds of each auction. For the year ended October 31, 2000, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, earned $125,661 as commissions. 5. Capital Loss Carryforward: At October 31, 2000, the Fund had a net capital loss carry-forward of approximately $18,771,000, of which $7,128,000 expires in 2007 and $11,643,000 expires in 2008. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: On November 8, 2000, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $.065900 per share, payable on November 29, 2000 to shareholders of record as of November 20, 2000. MuniYield California Fund, Inc., October 31, 2000 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, 2000, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 2000 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 California Fund, Inc. as of October 31, 2000, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Princeton, New Jersey December 5, 2000 IMPORTANT TAX INFORMATION (unaudited) All of the net investment income distributions paid by MuniYield California Fund, Inc. during its taxable year ended October 31, 2000 qualify as tax-exempt interest dividends for Federal income tax purposes. Additionally, there were no capital gains distributions paid by the Fund during the year. Please retain this information for your records. MuniYield California Fund, Inc., October 31, 2000 QUALITY PROFILE (unaudited) The quality ratings of securities in the Fund as of October 31, 2000 were as follows: Percent of S&P Rating/Moody's Rating Net Assets AAA/Aaa 75.5% AA/Aa 15.7 A/A 2.2 BBB/Baa 1.0 Other++ 4.0 ++Temporary investments in short-term municipal securities. MANAGED DIVIDEND POLICY The Fund's dividend policy is to distribute all or a portion of its net investment income to its shareholders on a monthly basis. In order to provide shareholders with a more consistent yield to the current trading price of shares of Common Stock of the Fund, the Fund may at times pay out less than the entire amount of net investment income earned in any particular month and may at times in any month pay out such accumulated but undistributed income in addition to net investment income earned in that month. As a result, the dividends paid by the Fund for any particular month may be more or less than the amount of net investment income earned by the Fund during such month. The Fund's current accumulated but undistributed net investment income, if any, is disclosed in the Statement of Assets, Liabilities and Capital, which comprises part of the Financial Information included in this report. OFFICERS AND DIRECTORS Terry K. Glenn, President and Director James H. Bodurtha, Director Herbert I. London, Director Joseph L. May, Director Andre F. Perold, Director Roberta Cooper Ramo, Director Arthur Zeikel, Director Vincent R. Giordano, Senior Vice President Kenneth A. Jacob, Vice President Walter C. O'Connor, Vice President Donald C. Burke, Vice President and Treasurer Alice A. Pellegrino, 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: The Bank of New York 100 Church Street New York, NY 10286 NYSE Symbol MYC