N-30D 1 ml6860.txt MUNIYIELD CALIFORNIA (BULL LOGO) Merrill Lynch Investment Managers Semi-Annual Report April 30, 2002 MuniYield California Fund, Inc. www.mlim.ml.com 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 and intends to remain leveraged 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, Inc. 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. The Fund may also invest in swap agreements, which are over-the- counter contracts in which one party agrees to make periodic payments based on the change in market value of a specified bond, basket of bonds, or index in return for periodic payments based on a fixed or variable interest rate or the change in market value of a different bond, basket of bonds or index. Swap agreements may be used to obtain exposure to a bond or market without owning or taking physical custody of securities. MuniYield California Fund, Inc., April 30, 2002 DEAR SHAREHOLDER For the six months ended April 30, 2002, the Common Stock of MuniYield California Fund, Inc. earned $0.484 per share income dividends, which included earned and unpaid dividends of $0.081. This represents a net annualized yield of 6.61%, based on a month- end net asset value of $14.76 per share. For the six-month period ended April 30, 2002, the total investment return of the Fund's Common Stock was +0.19%, based on a change in per share net asset value from $15.22 to $14.76, and assuming reinvestment of $0.483 per share income dividends. For the six-month period ended April 30, 2002, the Fund's Auction Market Preferred Stock had an average yield of 2.44%, for Series A, 1.35% for Series B and 1.09% for Series C. The Municipal Market Environment During the six months ended April 30, 2002, long-term fixed-income bond yields generally rose, while exhibiting considerable monthly volatility. However, throughout the period, tax-exempt bond yield volatility was appreciably lower and the overall increase in municipal bond yields was lower than its taxable counterpart. This relative outperformance by the tax-exempt market largely reflected an improving technical position in recent months. Despite additional decreases in the short-term interest rate target to 1.75% by the Federal Reserve Board, long-term fixed-income markets were unable to hold their October 2001 gains. Rapid, significant US military success in Afghanistan, stronger-than-expected retail sales and recovering US equity markets combined to suggest to many investors that US economic recovery was far more imminent than had been anticipated earlier in the fall of 2001. Bond yields rose during November and December 2001 as investors sold securities both to realize recent profits and in anticipation of an early reversal of the Federal Reserve Board's policy. By the end of December, long- term US Treasury bond yields rose more than 50 basis points (0.50%) to approximately 5.45%. During January and February 2002, economic indicators were mixed, signaling some strength in consumer spending and housing-related industries, but with continued declines in manufacturing employment. Interest rates remained in a narrow but volatile range as weak US equity markets generally supported fixed-income products. By the end of January 2002, the Federal Reserve Board ended its aggressive series of short-term interest rate reductions by maintaining its overnight rate target at 1.75%, a 40-year low. The Federal Reserve Board noted that while US economic activity was beginning to strengthen, earlier weakness could easily resume should consumer spending falter. In recent months, however, the index of leading economic indicators has risen, suggesting that economic activity is likely to expand later this year. In its final revision, fourth quarter 2001 US gross domestic product growth was revised higher to 1.6%, signaling improving economic conditions relative to earlier in 2001. By the end of February 2002, long-term US Treasury bond yields stood at 5.42%. In early March, a number of economic indicators, including surging existing home sales, solid consumer spending and positive nonfarm payroll growth following several months of job losses, suggested US economic activity was continuing to strengthen. Also, in Congressional testimony, Federal Reserve Board Chairman Alan Greenspan was cautiously optimistic regarding future US economic growth noting, while any increase in activity was likely to be moderate, "an economic expansion (was) well underway." These factors combined to push US equity prices higher and bond prices sharply lower in expectation of a reversal of the Federal Reserve Board actions taken during the past 15 months. By the end of March 2002, long-term US Treasury bond yields stood at 5.80%, their highest level in more than 18 months. During April 2002, bond yields reversed to move lower as US economic conditions, especially employment trends, weakened and US equity markets solidly declined. Also, first quarter 2002 US gross domestic product growth was initially estimated to have grown 0.6%. This decline in US economic activity from the fourth quarter of 2001 suggested that earlier US economic strength was weakening and the Federal Reserve Board would be unlikely to raise interest rates for much of 2002. US Treasury issue prices were also boosted by erupting Middle East politics that led many international investors to seek the safe haven of US Treasury securities. By April 30, 2002, long- term US Treasury bond yields declined to 5.59%. During the past six months, US Treasury bond yields rose more than 70 basis points. The municipal bond market displayed a similar pattern to its taxable counterpart during the six-month period ended April 2002. The tax- exempt bond market was also unable to maintain the gains made in late September and October 2001. In addition to a modestly stronger financial environment, increased tax-exempt new bond issuance in late 2001 also put upward pressure on municipal bond yields. By year- end 2001, long-term tax-exempt revenue bond yields as measured by the Bond Buyer Revenue Bond Index stood at 5.60%, an increase of approximately 25 basis points during the last two months of 2001. In early 2002, tax-exempt bond yields traded in a relatively narrow range as an increasingly positive technical position supported existing municipal bond prices. However, in March, increased economic activity and associated concerns regarding near-term Federal Reserve Board actions also pushed tax-exempt bond prices lower. By late March, long-term municipal revenue bond yields rose to 5.67%, their highest level in more than a year. Similar to US Treasury issues, tax-exempt bond yields declined throughout April as economic conditions weakened. The municipal bond market's improvement was bolstered by a continued improvement in the market's technical environments. Investor demand strengthened, in part aided by declining equity prices, as issuance levels declined. At April 30, 2002, long-term tax-exempt bond yields stood at 5.52%, an increase of approximately 30 basis points during the last six months. Interest rates are likely to remain near current levels as US economic conditions are expected to remain relatively weak. However, going forward, business activity appears likely to accelerate, perhaps significantly. Immediately after the September 11 attacks, the Federal Government announced a $45 billion package to aid New York City, Washington DC and the airline industry, with additional fiscal aid packages expected. The military response to these attacks will continue to require sizable increases in Defense Department spending. Eventually, this governmental spending should result in increased US economic activity, particularly in the construction and defense industries. This governmental stimulus, in conjunction with the actions already taken by the Federal Reserve Board, can be expected to generate significant increases in US gross domestic product growth some time in mid-to-late 2002. As inflationary pressures are expected to remain well contained going forward, increased economic activity need not result in significant increases in long-term bond yields. Also, throughout much of 2001, the municipal bond market exhibited far less volatility than its taxable counterparts. Since the strong technical position that has supported the tax-exempt bond market's performance for much of 2001 can be expected to continue, any potential increases in municipal bond yields can also be expected to be limited. Portfolio Strategy Throughout the past six months, the Fund was positioned to seek to deliver a high degree of current income exempt from state and Federal taxes while maintaining an asset mix with above-industry- average credit quality. We kept a generally low portfolio duration, believing that the bulk of the municipal market's performance could be derived from the intermediate to 20-year maturity area of the yield curve. Our most successful strategy employed during the past six months was to emphasize that portion of Fund assets able to be committed to inverse floater securities. A relatively steep municipal yield curve provided an ideal environment to enhance the benefits delivered by leveraged products. As a result, these positions generated an extraordinarily high level of coupon income and Common Stock shareholders benefited by receiving higher current returns. Our inverse floater position represented nearly 15% of the Funds' total assets, while cash equivalent reserves were generally kept at minimal levels, averaging close to 2% - 3%. MuniYield California Fund, Inc., April 30, 2002 The Fund's performance also benefited from its concentration in higher-rated credits. A weakened California state economy and mixed national economic environment, along with the state's energy situation, led to downgrades in several counties and utility- specific issues. We sidestepped many of these problems by focusing on credits rated AA and AAA by at least one of the major bond rating agencies. At April 30, 2002, 88.6% of the Fund's total assets were rated AA or higher. The 475 basis point decline in short-term interest rates engineered by the Federal Reserve Board in 2001 has resulted in a material decrease in the Fund's borrowing cost into the 1% - 1.25% range. This decline, in combination with a steep tax-exempt yield curve, generated a material income benefit to the Fund's Common Stock shareholders from the leveraging of the Preferred Stock. While modest increases in short-term interest rates are expected later this year, these increases are unlikely to result in significantly higher borrowing costs for the Fund. However, should short-term tax- exempt rates rise, the benefits of leveraging will diminish and the yield paid to the Common Stock shareholders will decline. (For a more 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 (Kenneth A. Jacob) Kenneth A. Jacob Senior Vice President (John M. Loffredo ) John M. Loffredo Senior Vice President (Walter C. O'Connor) Walter C. O'Connor Vice President and Portfolio Manager May 31, 2002 PROXY RESULTS
During the six-month period ended April 30, 2002, MuniYield California Fund, Inc.'s Common Stock shareholders voted on the following proposal. The proposal was approved at a shareholders' meeting on April 8, 2002. A description of the proposal and number of shares voted are as follows: Shares Voted Shares Withheld For From Voting 1. To elect the Fund's Directors: Terry K. Glenn 20,194,825 414,813 James H. Bodurtha 20,195,666 413,972 Joe Grills 20,179,740 429,898 Roberta Cooper Ramo 20,194,916 414,722 Robert S. Salomon Jr. 20,195,333 414,305 Melvin R. Seiden 20,171,660 437,978 Stephen B. Swensrud 20,144,224 465,414 During the six-month period ended April 30, 2002, MuniYield California Fund, Inc.'s Preferred Stock shareholders (Series A, B and C) voted on the following proposal. The proposal was approved at a shareholders' meeting on April 8, 2002. A description of the proposal and number of shares voted are as follows: Shares Voted Shares Withheld For From Voting 2. To elect the Fund's Board of Directors: Terry K. Glenn, James H. Bodurtha, Joe Grills, Herbert I. London, Andre F. Perold, Roberta Cooper Ramo, Robert S. Salomon Jr., Melvin R. Seiden and Stephen B. Swensrud 4,151 79
MuniYield California Fund, Inc., April 30, 2002 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 Net Assets, which comprises part of the Financial Information included in this report. QUALITY PROFILE The quality ratings of securities in the Fund as of April 30, 2002 were as follows: Percent of S&P Rating/Moody's Rating Total Assets AAA/Aaa 67.5% AA/Aa 21.1 A/A 6.7 BBB/Baa 0.6 NR (Not Rated) 1.7 Other++ 0.1 ++Temporary investments in short-term municipal securities. SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Issue Value California-- ABAG, California, Finance Authority for Non-Profit 133.7% Corporations Revenue Bonds (California School of Mechanical Arts): NR* A3 $ 1,000 5.25% due 10/01/2026 $ 972 NR* A3 2,180 5.30% due 10/01/2032 2,111 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) 4,402 AAA Aaa 4,690 Arcata, California, Joint Powers Financing Authority, Tax Allocation Revenue Refunding Bonds (Community Development Project Loan), Series A, 6% due 8/01/2023 (a) 5,038 AAA Aaa 2,500 Bakersfield, California, COP, Refunding (Convention Center Expansion Project), 5.80% due 4/01/2017 (i) 2,659 AA+ Aa1 1,500 California Educational Facilities Authority, Revenue Refunding Bonds (University of Southern California), Series A, 5.70% due 10/01/2015 1,615 California HFA, Home Mortgage Revenue Bonds: AA- Aa2 250 AMT, Series E-1, 6.70% due 8/01/2025 (d) 257 AA- Aa2 1,575 AMT, Series N, 6.375% due 2/01/2027 (d) 1,648 AA- Aa2 6,900 Series D, 5.85% due 8/01/2017 7,245 AA- Aa2 2,450 California HFA, Revenue Bonds, RIB, AMT, Series B-2, 11.293% due 8/01/2023 (d)(k) 2,520 California Health Facilities Finance Authority Revenue Bonds: AAA NR* 5,000 (Kaiser Permanente), RIB, Series 26, 9.10% due 6/01/2022 (g)(k) 5,282 NR* Aa3 2,835 (Scripps Research Institute), Series A, 6.625% due 7/01/2018 2,983 AAA Aaa 1,490 California Health Facilities Finance Authority, Revenue Refunding Bonds (Pomona Valley Hospital Medical Center), Series A, 5.625% due 7/01/2019 (i) 1,562 California Infrastructure and Economic Development Bank Revenue Bonds: AAA Aaa 2,520 (Asian Museum Foundation of San Francisco), 5.50% due 6/01/2018 (i) 2,670 A- NR* 4,730 (J. David Gladstone Institute Project), 5.50% due 10/01/2021 4,801 A- NR* 4,990 (J. David Gladstone Institute Project), 5.50% due 10/01/2022 5,053 A1+ NR* 300 California Pollution Control Financing Authority, PCR, Refunding (Pacific Gas and Electric), VRDN, AMT, Series B, 1.80% due 11/01/2026 (l) 300
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 DRIVERS Derivative Inverse Tax-Exempt Receipts 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 YCN Yield Curve Notes VRDN Variable Rate Demand Notes MuniYield California Fund, Inc., April 30, 2002 SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Issue Value California California Rural Home Mortgage Finance Authority, S/F (continued) Mortgage Revenue Bonds (Mortgage-Backed Securities Program), AMT: NR* Aaa $ 1,070 Series A-1, 6.90% due 12/01/2024 (e)(h) $ 1,167 AAA NR* 910 Series B, 6.15% due 6/01/2020 (f) 964 California State Department of Veteran Affairs, Home Purpose Revenue Refunding Bonds, Series C: AA- Aa2 5,970 5.875% due 12/01/2015 6,364 AA- Aa2 9,315 6.05% due 12/01/2020 9,657 AA- Aa2 2,500 6.15% due 12/01/2027 2,605 California State, GO, Refunding: A+ A1 1,000 5.75% due 12/01/2029 1,047 A+ A1 8,000 5.75% due 5/01/2030 8,378 AA- A1 4,480 (Veterans), AMT, Series BJ, 5.70% due 12/01/2032 4,497 California State Public Works Board, Lease Revenue Bonds: AAA Aaa 2,000 (California State University), Series C, 5.40% due 10/01/2022 (i) 2,043 AAA NR* 8,500 DRIVERS, Series 209, 9.31% due 3/01/2016 (a)(k) 9,448 NR* NR* 6,800 (Department of Corrections), Series A, 7% due 11/01/2004 (j) 7,737 AAA Aaa 6,645 (Department of Health Services), Series A, 5.75% due 11/01/2017 (i) 7,177 California State University and Colleges, Housing System Revenue Refunding Bonds (c): AAA Aaa 3,000 5.75% due 11/01/2015 3,247 AAA Aaa 3,500 5.80% due 11/01/2017 3,702 AAA Aaa 3,900 5.90% due 11/01/2021 4,207 AAA Aaa 5,250 California Statewide Communities Development Authority, COP (John Muir/Mount Diablo Health System), 5.125% due 8/15/2022 (i) 5,240 AAA Aaa 2,000 Chino Basin, California, Regional Financing Authority Revenue Bonds (Inland Empire Utility Agency Sewer Project), 5.75% due 11/01/2019 (i) 2,142 Contra Costa County, California, Public Financing Authority, Tax Allocation Revenue Bonds, Series A: AAA NR* 1,860 7.10% due 8/01/2002 (j) 1,924 BBB NR* 1,140 7.10% due 8/01/2022 1,166 AAA Aaa 2,705 Contra Costa County, California, Public Financing Lease Revenue Refunding Bonds (Various Capital Facilities), Series A, 5.30% due 8/01/2020 (i) 2,766 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 (i) 2,563 NR* Aaa 5,000 Industry, California, Urban Development Agency, Tax Allocation Refunding Bonds, RIB, Series 632-X, 9.12% due 5/01/2021 (i)(k) 5,394 NR* Aaa 2,000 Los Angeles, California, COP (Sonnenblick Del Rio West Los Angeles), 6.20% due 11/01/2031 (a) 2,205 AAA Aaa 10,000 Los Angeles, California, Community College District, GO, Series A, 5.50% due 8/01/2021 (i) 10,419 AAA Aaa 3,645 Los Angeles, California, Community Redevelopment Agency, Tax Allocation Refunding Bonds (Bunker Hill), Series H, 6.50% due 12/01/2015 (g) 3,973 AAA Aaa 5,075 Los Angeles, California, Convention and Exhibition Center Authority, Lease Revenue Refunding Bonds, DRIVERS, Series 162, 5.375% due 8/15/2018 (i)(k) 5,396 Los Angeles, California, Department of Water and Power, Electric Plant Revenue Refunding Bonds: A+ Aaa 20,865 6% due 2/15/2005 (j) 23,025 NR* Aa3 4,920 RIB, Series 370, 10.07% due 2/15/2024 (k) 5,817 Los Angeles, California, Harbor Department Revenue Bonds, AMT: NR* Aaa 4,000 RITR, Series RI-7, 10.445% due 11/01/2026 (i)(k) 4,703 AA Aa3 2,000 Series B, 6% due 8/01/2015 2,194 AA Aa3 4,240 Series B, 6.60% due 8/01/2015 4,372 AA Aa3 8,855 Series B, 6.625% due 8/01/2019 9,127 AA Aa3 5,000 Series B, 5.375% due 11/01/2023 5,010 AAA Aaa 10,000 Los Angeles, California, Wastewater System Revenue Bonds, Series A, 5% due 6/01/2023 (c) 9,846 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) 4,201 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) 5,201 NR* Aa1 1,905 Menlo Park, California, GO, 5.30% due 8/01/2032 1,919 AAA Aaa 8,705 Modesto, California, Wastewater Treatment Facilities Revenue Bonds, 5.625% due 11/01/2017 (i) 9,207 AAA Aaa 1,750 North City-West, California, School Facilities Financing Authority, Special Tax Refunding Bonds, Series B, 5.75% due 9/01/2015 (g) 1,908 AAA Aaa 1,270 Northern California Power Agency, Multiple Capital Facilities Revenue Bonds, RIB, 11.423% due 8/01/2025 (i)(k) 1,343 Oakland, California, Joint Powers Financing Authority, Lease Revenue Bonds (Oakland Administration Buildings) (a): AAA Aaa 2,000 5.90% due 8/01/2016 2,198 AAA Aaa 11,395 5.75% due 8/01/2021 12,138 AAA Aaa 4,160 Oakland, California, State Building Authority, Lease Revenue Bonds (Elihu M. Harris), Series A, 5% due 4/01/2023 (a) 4,096 Oakland, California, Unified School District, Alameda County, GO, Series F (i): AAA Aaa 3,290 5.50% due 8/01/2017 3,487 AAA Aaa 3,770 5.50% due 8/01/2018 3,971 AAA Aaa 1,750 Pleasant Valley, California, School District, Ventura County, GO, Series C, 5.75% due 8/01/2025 (i) 1,850 AAA Aaa 10,600 Port Oakland, California, Port Revenue Refunding Bonds, Series I, 5.40% due 11/01/2017 (i) 11,099 AAA Aaa 4,315 Rancho Cucamonga, California, Redevelopment Agency, Tax Allocation Refunding Bonds (Rancho Redevelopment Project), 5.25% due 9/01/2020 (g) 4,390 AAA Aaa 2,345 Richmond, California, Redevelopment Agency, Tax Allocation, Refunding Bonds (Harbour Redevelopment Project), Series A, 5.50% due 7/01/2018 (i) 2,466 AAA Aaa 5,000 Roseville, California, Electric System Revenue Bonds, COP, 5.50% due 2/01/2024 (g) 5,160 AAA Aaa 5,000 Sacramento, California, Municipal Utility District, Electric Revenue Refunding Bonds, Series L, 5.125% due 7/01/2022 (i) 5,004
MuniYield California Fund, Inc., April 30, 2002 SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Issue Value California Sacramento County, California, Sanitation District (concluded) Financing Authority, Revenue Refunding Bonds: AA Aa3 $ 4,500 RIB, Series 366, 9.87% due 12/01/2027 (k) $ 5,412 AA Aa3 5,695 Series A, 5.60% due 12/01/2017 5,999 AA Aa3 6,190 Series A, 5.75% due 12/01/2018 6,549 AA Aa3 3,750 Trust Receipts, Class R, Series A, 10.001% due 12/01/2019 (k) 4,410 AAA Aaa 10,100 San Bernardino, California, City Unified School District, GO, Refunding, Series A, 5.875% due 8/01/2024 (c) 10,789 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 (i) 3,087 AAA Aaa 5,000 San Bernardino, California, Joint Powers Financing Authority, Tax Allocation Revenue Refunding Bonds, Series A, 5.75% due 10/01/2015 (g) 5,404 BBB+ Baa1 1,300 San Diego, California, Redevelopment Agency, Tax Allocation, Refunding Bonds (Horton Project), Series B, 6.625% due 11/01/2006 (j) 1,531 AAA Aaa 2,000 San Diego, California, Sewer Revenue Bonds, Series A, 5.25% due 5/15/2020 (i) 2,013 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 (c) 3,243 AAA Aaa 4,525 Issue 6, 6.60% due 5/01/2020 (a) 4,900 AAA Aaa 2,000 Issue 11, 6.25% due 5/01/2005 (c)(j) 2,219 AA Aa3 1,720 San Francisco, California, City and County Educational Facilities, GO (Community College), Series A, 5.75% due 6/15/2019 1,837 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 (g) 5,217 AA Aa3 1,310 San Francisco, California, City and County Zoo Facilities, GO, Series B, 5.75% due 6/15/2019 1,399 AAA Aaa 7,800 San Joaquin Hills, California, Transportation Corridor Agency, Toll Road Revenue (i) 7,766 AAA Aaa 2,020 Santa Clara, California, Unified School District, GO, 5.50% due 7/01/2021 (c) 2,104 NR* Aaa 5,125 Santa Clara Valley, California, Water District, COP, Refunding, RIB, Series 411, 10.12% due 2/01/2024 (c)(k) 5,766 AAA Aaa 3,000 Santa Fe Springs, California, Redevelopment Agency, Tax Allocation, Refunding Bonds (Conservation Redevelopment Project), Series A, 6% due 9/01/2014 (i) 3,095 AAA Aaa 4,000 Santa Monica, California, Redevelopment Agency, Tax Allocation Bonds (Earthquake Recovery Redevelopment Project), 6% due 7/01/2029 (a) 4,304 AAA Aaa 2,000 Sequoia, California, Unified High School District, GO, 5.70% due 7/01/2024 (g) 2,103 AAA Aaa 2,265 South Bayside, California, Waste Management Authority, Waste System Revenue Bonds, 5.75% due 3/01/2020 (a) 2,411 AAA NR* 490 Southern California Home Finance Authority, S/F Mortgage Revenue Bonds (Mortgage-Backed Securities Program), AMT, Series A, 6.75% due 9/01/2022 (f) 496 AAA Aaa 3,235 Taft, California, Public Financing Authority, Lease Revenue Bonds (Community Correctional Facility), Series A, 6.05% due 1/01/2017 (i) 3,471 A+ A1 1,310 Torrance, California, Hospital Revenue Refunding Bonds (Torrance Memorial Medical Center), Series A, 6% due 6/01/2022 1,370 AA Aa2 2,845 University of California, Multi-Purpose Revenue Bonds, Series K, 5.25% due 9/01/2024 2,850 AAA Aaa 4,000 University of California Revenue Refunding Bonds (Research Facilities), Series C, 5% due 9/01/2021 (g) 3,975 AAA Aaa 5,000 Vista, California, Joint Powers Financing Authority, Lease Revenue Refunding Bonds, 5.625% due 5/01/2016 (i) 5,327 Puerto Rico-- AAA Aaa 10,250 Puerto Rico Commonwealth, GO, Refunding, YCN, 10.082% 8.4% due 7/01/2020 (g)(k)(j) 10,698 AAA Aaa 2,140 Puerto Rico Commonwealth Highway and Transportation Authority, Highway Revenue Bonds, Series Y, 5.50% due 7/01/2026 (i) 2,198 A Baa1 5,500 Puerto Rico Commonwealth Highway and Transportation Authority, Highway Revenue Refunding Bonds, Series V, 6.625% due 7/01/2002 (j) 5,630 AAA Aaa 2,600 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series X, 5.50% due 7/01/2025 (i) 2,640 A- Baa1 1,000 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds, Series U, 6% due 7/01/2014 1,065 AAA Aaa 4,000 Puerto Rico, Public Finance Corporation, Commonwealth Appropriation Revenue Bonds, Series A, 5.375% due 8/01/2024 (i) 4,125 Total Investments (Cost--$425,128)--142.1% 445,681 Other Assets Less Liabilities--2.5% 8,022 Preferred Stock, at Redemption Value--(44.6%) (140,138) ----------- Net Assets Applicable to Common Stock--100.0% $ 313,565 =========== (a)AMBAC Insured. (b)Escrowed to maturity. (c)FGIC Insured. (d)FHA Insured. (e)FHLMC Collateralized. (f)FNMA/GNMA Collateralized. (g)FSA Insured. (h)GNMA Collateralized. (i)MBIA Insured. (j)Prerefunded. (k)The interest rate is subject to change periodically and inversely based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 2002. (l)The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 2002. *Not Rated. See Notes to Financial Statements.
MuniYield California Fund, Inc., April 30, 2002 STATEMENT OF NET ASSETS As of April 30, 2002 Assets: Investments, at value (identified cost--$425,128,164) $445,680,590 Cash 72,681 Receivables: Interest $ 8,313,813 Securities sold 1,784,200 10,098,013 ------------ Prepaid expenses and other assets 322,822 ------------ Total assets 456,174,106 ------------ Liabilities: Payables: Securities purchased 1,905,000 Dividends to shareholders 235,731 Investment adviser 185,574 2,326,305 ------------ Accrued expenses and other liabilities 144,698 ------------ Total liabilities 2,471,003 ------------ Preferred Preferred Stock, par value $.10 per share (5,600 shares of AMPS* Stock: issued and outstanding at $25,000 per share liquidation preference) 140,138,408 ------------ Net Assets Net assets applicable to Common Stock $313,564,695 Applicable ============ To Common Stock: Analysis of Common Stock, par value $.10 per share (21,248,778 shares Net Assets issued and outstanding) $ 2,124,878 Applicable to Paid-in capital in excess of par 299,272,098 Common Stock: Undistributed investment income--net 3,401,034 Accumulated realized capital losses on investments--net (11,785,741) Unrealized appreciation on investments--net 20,552,426 ------------ Total--Equivalent to $14.76 net asset value per share of Common Stock (market price $14.57) $313,564,695 ============ *Auction Market Preferred Stock. See Notes to Financial Statements.
STATEMENT OF OPERATIONS For the Six Months Ended April 30, 2002 Investment Interest $ 13,011,927 Income: Expenses: Investment advisory fees $ 1,129,305 Commission fees 177,648 Accounting services 82,206 Professional fees 48,295 Transfer agent fees 31,241 Printing and shareholder reports 19,472 Custodian fees 16,581 Directors' fees and expenses 15,052 Listing fees 14,062 Pricing fees 9,894 Other 16,475 ------------ Total expenses 1,560,231 ------------ Investment income--net 11,451,696 ------------ Realized & Realized gain on investments--net 2,461,372 Unrealized Change in unrealized appreciation on investments--net (12,283,469) Gain (Loss) On ------------ Investments-- Total realized and unrealized loss on investments--net (9,822,097) Net: ------------ Dividends & Investment income--net (1,221,248) Distributions Realized gain on investments--net (14,632) to Preferred ------------ Stock Total dividends and distributions to Preferred Stock shareholders (1,235,880) Shareholders: ------------ Net Increase in Net Assets Resulting from Operations $ 393,719 ============ See Notes to Financial Statements.
MuniYield California Fund, Inc., April 30, 2002 STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the Months Ended Year Ended April 30, October 31, Increase (Decrease) in Net Assets: 2002 2001++ Operations: Investment income--net $ 11,451,696 $ 21,792,542 Realized gain on investments--net 2,461,372 5,619,363 Change in unrealized appreciation/depreciation on investments--net (12,283,469) 16,860,244 Dividends and distributions to Preferred Stock shareholders (1,235,880) (4,251,280) ------------ ------------ Net increase in net assets resulting from operations 393,719 40,020,869 ------------ ------------ Dividends & Investment income--net (10,250,580) (18,000,449) Distributions to Realized gain on investments--net (60,339) -- Common Stock ------------ ------------ Shareholders: Net decrease in net assets resulting from dividends and distributions to Common Stock shareholders (10,310,919) (18,000,449) ------------ ------------ Capital Stock Net increase in net assets derived from capital stock transactions 958,212 -- Transactions: ------------ ------------ Net Assets Total increase (decrease) in net assets applicable to Common Stock (8,958,988) 22,020,420 Applicable to Beginning of period 322,523,683 300,503,263 Common Stock: ------------ ------------ End of period* $313,564,695 $322,523,683 ============ ============ *Undistributed investment income--net $ 3,401,034 $ 3,272,812 ============ ============ ++Certain prior year amounts have been reclassified to conform to current year presentation. See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived from information For the Six provided in the financial statements. Months Ended April 30, For the Year Ended October 31, Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998 Per Share Net asset value, beginning of period $ 15.22 $ 14.19 $ 13.32 $ 16.23 $ 15.98 Operating -------- -------- -------- -------- -------- Performance:++++ Investment income--net .55 1.03 1.02 1.03 1.11 Realized and unrealized gain (loss) on investments--net .08 1.05 .88 (2.25) .39 Dividends and distributions to Preferred Stock shareholders: Investment income--net (.06) (.20) (.23) (.14) (.19) Realized gain on investments--net (.55) -- -- (.04) (.05) In excess of realized gain on investments--net -- -- -- (.05) -- -------- -------- -------- -------- -------- Total from investment operations .02 1.88 1.67 (1.45) 1.26 -------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.48) (.85) (.80) (.88) (.92) Realized gain on investments--net --+++++ -- -- (.24) (.08) In excess of realized gain on investments--net -- -- -- (.34) -- -------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (.48) (.85) (.80) (1.46) (1.00) -------- -------- -------- -------- -------- Capital charge resulting from issuance of Common Stock -- -- -- -- (.01) -------- -------- -------- -------- -------- Net asset value, end of period $ 14.76 $ 15.22 $ 14.19 $ 13.32 $ 16.23 ======== ======== ======== ======== ======== Market price per share, end of period $ 14.57 $ 15.10 $13.0625 $ 12.625 $16.5625 ======== ======== ======== ======== ======== Total Based on market price per share (.31%)+++ 22.71% 10.18% (16.13%) 8.10% Investment ======== ======== ======== ======== ======== Return:** Based on net asset value per share 0.19%+++ 13.85% 13.45% (9.70%) 11.04% ======== ======== ======== ======== ======== Ratios Based on Total expenses*** 1.00%* 1.00% 1.02% .98% .93% Average Net ======== ======== ======== ======== ======== Assets of Total investment income--net*** 7.31%* 7.00% 7.51% 6.86% 7.12% Common Stock: ======== ======== ======== ======== ======== Amount of dividends to Preferred Stock shareholders .78%* 1.37% 1.69% .96% 1.21% ======== ======== ======== ======== ======== Investment income--net, to Common Stock shareholders 6.53%* 5.63% 5.82% 5.90% 5.91% ======== ======== ======== ======== ======== Ratios Based on Total expenses .69%* .69% .69% .68% .65% Average Net ======== ======== ======== ======== ======== Assets Of Total investment income--net 5.07%* 4.83% 5.05% 4.77% 4.94% Common & ======== ======== ======== ======== ======== Preferred Stock:*** Ratios Based on Dividends to Preferred Stock shareholders 1.76%* 3.04% 3.47% 2.18% 2.82% Average Net ======== ======== ======== ======== ======== Assets of Preferred Stock: Supplemental Net assets, net of Preferred Stock, Data: end of period (in thousands) $313,565 $322,524 $300,503 $282,114 $339,345 ======== ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) $140,000 $140,000 $140,000 $140,000 $140,000 ======== ======== ======== ======== ======== Portfolio turnover 25.33% 58.17% 93.01% 146.39% 136.88% ======== ======== ======== ======== ======== Leverage: Asset coverage per $1,000 $ 3,240 $ 3,304 $ 3,146 $ 3,015 $ 3,424 ======== ======== ======== ======== ======== Dividends Per Series A--Investment income--net $ 300 $ 802 $ 865 $ 527 $ 729 Share On ======== ======== ======== ======== ======== Preferred Stock Series B--Investment income--net $ 164 $ 721 $ 875 $ 546 $ 693 Outstanding:++ ======== ======== ======== ======== ======== Series C--Investment income--net $ 135 $ 745 $ 875 $ 591 $ 466 ======== ======== ======== ======== ======== *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 charges. ***Do not reflect the effect of dividends to Preferred Stock shareholders. ++The Fund's Preferred Stock was issued on April 10, 1992 (Series A and B) and February 9, 1998 (Series C). ++++Certain prior year amounts have been reclassified to conform to current year presentation. +++Aggregate total investment return. +++++Amount is less than $.01 per share. See Notes to Financial Statements.
MuniYield California Fund, Inc., April 30, 2002 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. These unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal, recurring nature. 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). Realized gains and losses on security transactions are determined on the identified cost basis. Interest income is recognized on the accrual basis. As required, effective September 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing all premiums and discounts on debt securities. The cumulative effect of this accounting change had no impact on total net assets of the Fund, but resulted in a $148,354 increase in cost of securities (which in return results in a corresponding $148,354 increase in undistributed net investment income and a corresponding $148,354 decrease in net unrealized appreciation), based on securities held by the Fund as of October 31, 2001. The effect of this change for the six months ended April 30, 2002 was to increase net investment income by $37,331, decrease net unrealized appreciation by $153,680 and decrease net realized capital gains by $32,005. The statement of changes in net assets and financial highlights for prior periods have not been restated to reflect this change in presentation. (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. 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. For the six months ended April 30, 2002, the Fund reimbursed FAM $10,612 for certain accounting services. 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 six months ended April 30, 2002 were $116,137,080 and $112,592,782, respectively. Net realized gains for the six months ended April 30, 2002 and net unrealized gains as of April 30, 2002 were as follows: Realized Unrealized Gains Gains Long-term investments $ 2,461,372 $ 20,552,426 ------------ ------------ Total $ 2,461,372 $ 20,552,426 ============ ============ As of April 30, 2002, net unrealized appreciation for Federal income tax purposes aggregated $20,706,106, of which $21,492,227 related to appreciated securities and $786,121 related to depreciated securities. The aggregate cost of investments at April 30, 2002 for Federal income tax purposes was $424,974,484. 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 six months ended April 30, 2002 increased by 64,303 as a result of dividend reinvestment and during the year ended October 31, 2001 remained constant. 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 April 30, 2002 were: Series A, 2.40%; Series B, 1.60%; and Series C, 1.14%. Shares issued and outstanding during the six months ended April 30, 2002 and during the year ended October 31, 2001 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 six months ended April 30, 2002, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, earned $47,964 as commissions. 5. Capital Loss Carryforward: At October 31, 2001, the Fund had a net capital loss carryforward of approximately $12,291,000, of which $648,000 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 May 8, 2002, the Fund's Board of Directors declared an ordinary income dividend to Common Stock Shareholders in the amount of $.081000 per share, payable on May 30, 2002 to shareholders of record as of May 20, 2002. MuniYield California Fund, Inc., April 30, 2002 OFFICERS AND DIRECTORS Terry K. Glenn, President and Director James H. Bodurtha, Director Joe Grills, Director Herbert I. London, Director Andre F. Perold, Director Roberta Cooper Ramo, Director Robert S. Salomon Jr., Director Melvin R. Seiden, Director Stephen B. Swensrud, Director Kenneth A. Jacob, Senior Vice President John M. Loffredo, Senior Vice President Walter C. O'Connor, Vice President Donald C. Burke, Vice President and Treasurer Alice A. Pellegrino, Secretary Joseph L. May, Director and Vincent R. Giordano, Senior Vice President of MuniYield California Fund, Inc., have recently retired. The Fund's Board of Directors wishes Messrs. May and Giordano well in their retirements. 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 100Church Street New York, NY 10286 NYSE Symbol MYC