-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, COCglC2f2k7YzxjUSNODYhu9qCWHYP4QPYgACHBis5Eoex+KLFVhyy5T20XPfLlj tigheCi7a7QT6OilmUEWyA== 0000900092-03-000083.txt : 20030630 0000900092-03-000083.hdr.sgml : 20030630 20030630142111 ACCESSION NUMBER: 0000900092-03-000083 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030430 FILED AS OF DATE: 20030630 EFFECTIVENESS DATE: 20030630 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNIYIELD CALIFORNIA FUND INC CENTRAL INDEX KEY: 0000882152 IRS NUMBER: 223144221 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-06499 FILM NUMBER: 03763747 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08543-9011 BUSINESS PHONE: 6092822800 MAIL ADDRESS: STREET 1: P O BOX 9066 STREET 2: C/O MERRILL LYNCH ASSET MANAGEMENT CITY: PRINCETON STATE: NJ ZIP: 08543-9011 FORMER COMPANY: FORMER CONFORMED NAME: CALIFORNIA MUNIYIELD FUND INC DATE OF NAME CHANGE: 19600201 N-CSR 1 ml7019.txt MUNIYIELD CALIFORNIA UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-6499 Name of Fund: MuniYield California Fund, Inc. Fund Address: P.O. Box 9011 Princeton, NJ 08543-9011 Name and address of agent for service: Terry K. Glenn, President, MuniYield California Fund, Inc., 800 Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543- 9011 Registrant's telephone number, including area code: (609) 282-2800 Date of fiscal year end: 04/30/03 Date of reporting period: 11/01/02 - 04/30/03 Item 1 - Attach shareholder report (BULL LOGO) Merrill Lynch Investment Managers Semi-Annual Report April 30, 2003 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. Swap Agreements 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, 2003 DEAR SHAREHOLDER For the six months ended April 30, 2003, the Common Stock of MuniYield California Fund, Inc. had a net annualized yield of 6.31%, based on a period-end per share net asset value of $15.52 and $.486 per share income dividends. Over the same period, the total investment return on the Fund's Common Stock was +6.00%, based on a change in per share net asset value from $15.14 to $15.52, and assuming reinvestment of $.486 per share ordinary income dividends. For the six-month period ended April 30, 2003, the Fund's Auction Market Preferred Stock had an average yield of 2.43% for Series A, 1.04% for Series B and .74% for Series C. For a description of the Fund's total investment return based on a change in the per share market value (as measured by the trading price of the Fund's shares on the New York Stock Exchange), and assuming reinvestment of dividends, please refer to the Financial Highlights section of the Financial Statements included in this report. As a closed-end fund, the Fund's shares may trade in the secondary market at a premium or discount to the Fund's net asset value. As a result, total investment returns based on changes in the Fund's market value can vary significantly from total investment return based on changes in the Fund's net asset value. The Municipal Market Environment During the six-month period ended April 30, 2003, amid considerable weekly and monthly volatility, long-term fixed income interest rates generally declined. Geopolitical tensions and volatile equity valuations continued to overshadow economic fundamentals as they have for most of the last 12 months. Reacting to the strong U.S. equity rally that began last October, fixed income bond yields remained under pressure in November 2002, as U.S. equity markets continued to strengthen. During November, the Standard & Poor's 500 (S&P 500) Index rose an additional 5.50%. Equity prices were supported by further signs of U.S. economic recovery, especially improving labor market activity. In late November, third-quarter 2002 U.S. gross domestic product growth was 4%, well above the second-quarter 2002 rate of 1.30%. Financial conditions were also strengthened by a larger-than-expected reduction in short-term interest rates by the Federal Reserve Board in early November. The Federal Funds target rate was lowered 50 basis points (0.50%) to 1.25%, its lowest level since the 1960s. This action by the Federal Reserve Board was largely viewed as being taken to bolster the sputtering U.S. economic recovery. Rebounding U.S. equity markets and the prospects for a more substantial U.S. economic recovery pushed long-term U.S. Treasury yield levels to 5.10% by late November. However, into early 2003, softer equity prices and renewed investor concerns about U.S. military action against Iraq and North Korea again pushed bond prices higher. Reacting to disappointing holiday sales and corporate managements' attempts to scale back analysts' expectation of future earnings, the S&P 500 Index declined more than 10% from December 2002 to February 2003. Fearing an eventual U.S./Iraq military confrontation in 2003, investors again sought the safety of U.S. Treasury obligations and the prices of fixed income issues rose. By the end of February 2003, U.S. Treasury bond yields had declined approximately 40 basis points to 4.67%. Bond yields continued to fall into early March. Once direct U.S. military action against Iraq began, bond yields quickly rose. Prior uncertainty surrounding the Iraqi situation was obviously removed and early U.S. military successes fostered the hope that the conflict would be quickly and positively concluded. Concurrently, the S&P 400 Index rose over 6% as investors, in part, sold fixed income issues to purchase equities in anticipation of a strong U.S. economic recovery once the Iraqi conflict was resolved. By mid-March, U.S. Treasury bond yields again rose to above 5%. However, as there was growing sentiment that hostilities may not be resolved in a matter of weeks, U.S. Treasury bond yields again declined to end the month at 4.81%. For the six months ended April 30, 2003, long-term U.S. Treasury bond yields ratcheted back to near 5% by mid-April, as U.S. equity markets continued to improve and the safe-haven premium U.S. Treasury issues had commanded prior to the beginning of the Iraqi conflict continued to be withdrawn. However, with the quick positive resolution of the Iraqi war, investors quickly resumed their focus on the fragile U.S. economic recovery. Business activity in the United States has remained sluggish, especially job creation. Investors have also been concerned that the recent SARS outbreak would have a material, negative impact on world economic conditions, especially in China and Japan. First quarter 2003 U.S. gross domestic product was released in late April initially estimating U.S. economic activity to be growing at 1.60%, well below many analysts' assessments. These factors, as well as the possibility that the Federal Reserve Board could again lower short-term interest rates to encourage more robust U.S. economic growth, pushed bond prices higher during the last two weeks of the period. By April 30, 2003, long-term U.S. Treasury bond yields had declined to almost 4.75%. Over the past six months, long-term U.S. bond yields fell more than 20 basis points. For the six months ended April 30, 2003, long-term tax-exempt bond yields also fell modestly. Yield volatility was reduced relative to that seen in U.S. Treasury issues, as municipal bond prices were much less sensitive to worldwide geopolitical pressures on a daily and weekly basis. Tax-exempt bond yields generally followed their taxable counterparts higher, responding to a more positive U.S. fixed income environment and continued slow economic growth. After rising approximately 10 basis points in November 2002 to 5.30%, municipal bond yields generally declined through February 2003. At February 28, 2003, long-term tax-exempt revenue bond yields, as measured by the Bond Buyer Revenue Bond Index, fell to approximately 5.05%. However, similar to U.S. Treasury bond yields, once military action began in Iraq, municipal bond yields rose sharply to nearly 5.20% before declining to approximately 5.10% by the end of April. Over the past six months, long-term tax-exempt bond yields fell approximately 11 basis points, slightly less than U.S. Treasury obligations. A number of factors have combined to generate consistently strong demand for municipal bonds throughout the six-month period ended April 30, 2003. Generally weak U.S. equity markets have supported continued positive demand for tax-exempt products as investors have sought the relative security of fixed income issues. Also, with tax- exempt money market rates near 1%, the demand for longer maturity municipal issues has increased as investors have opted to buy longer maturity issues rather than remain in cash reserves. Additionally, investors received approximately $30 billion in January 2003 from bond maturities, coupon income and proceeds from early redemptions. However, these positive demand factors were not totally able to offset the increase in tax-exempt new-issue supply, preventing more significant declines in tax-exempt bond yields. This modest underperformance has served to make municipal bonds a particularly attractive purchase relative to their taxable counterparts. Throughout most of the yield curve, municipal bonds have been able to be purchased at yields near or exceeding those of comparable Treasury issues. Compared to their recent historical averages of 82% - 88% of U.S. Treasury yields, municipal bond yield ratios in their current 95% - 105% range are likely to prove attractive to long-term investors. Declining U.S. equity markets and escalating geopolitical pressures have resulted in reduced economic activity and consumer confidence. It is important to note that, despite all the recent negative factors impeding the growth of U.S. businesses, the U.S. economy still grew at an approximate 2.50% rate for all of 2002, twice that of 2001. Similar expansion is expected for early 2003. Lower oil prices, reduced geopolitical uncertainties, increased Federal spending for defense, and a likely Federal tax cut are all factors which should promote stronger economic growth later this year. However, it is questionable to expect that business and investor confidence can be so quickly restored as to trigger dramatic, explosive U.S. economic growth and engender associated, large-scale interest rate increases. The resumption of solid economic growth is likely to be a gradual process accompanied by equally graduated increases in bond yields. Moderate economic growth, especially within a context of negligible inflationary pressures, should not greatly endanger the positive fixed income environments tax-exempt products currently enjoy. MuniYield California Fund, Inc., April 30, 2003 Specific to California, the state's financial condition has continued to deteriorate over the past six months. A weakened national economy and its effect on the once powerful technology sector led to a significant decline in income tax revenues, resulting in a large state budget deficit. Prior to the state's January budget revision, there was an approximate $35 billion budget shortfall projected during the following 18-month period. One of the efforts to close the gap was the issuance of tobacco revenue-backed securities. California executed the largest single sale of municipal bonds backed by revenues from the Master Settlement Agreement with the four largest tobacco producers. California intended to come to market with another transaction, effectively attempting to monetize this future revenue stream, but a weakened demand for these securities drove up borrowing costs. This second transaction, which would total nearly $3 billion, has been postponed indefinitely. The state has approached cutting spending, a more politically difficult decision, and the proposed sale of nearly $3 billion of pension bonds. The governor's office is also working with investment bankers and caucus leaders as lawmakers consider up to $10 billion in deficit financing to address the shortfall. However, details will remain unclear until the state's May budget revision. The major rating services currently have California general obligation debt rated in the low single-A range. Portfolio Strategy The Fund employs leverage to attempt to provide a higher current return of tax-exempt income to shareholders. Throughout the six months ended April 30, 2003, we maintained a fully invested position, with cash equivalent reserves averaging less than 2% of total assets. Cash reserves were limited because of the tight technical position of the California short-term marketplace. Yields on California municipal cash equivalents were consistently averaged near 1% throughout most of the period and are currently below 1% for some tranches of the Fund's Preferred Stock. Our strategy was aimed at creating a more defensive market structure within a leveraged portfolio, which maintains both a fully invested posture and contains a position of inverse floaters representing 14.5% of assets. We have raised the Fund's overall average coupon levels and shortened maturities through purchases in both the primary and secondary California markets. The Fund's net asset value recently exceeded $15.50, well above the original issue level of $15.00. Going forward, our strategy is focused on protecting this price level, since historically we have witnessed a reluctance of municipal prices to move higher once the market has achieved these levels. As market yields decline through 5%, retail investor demand for California issues has historically declined. The market has substantially exceeded these levels, and it is our aim to reduce price volatility in the Fund from this point forward. Steps taken to date include raising the average level of couponing of the Fund's holdings and concentrating assets in parts of the yield curve that we believe offer the best value for interest rate risk taken. We have employed an interest rate swap representing 5% of total assets to further seek to protect the Fund's asset valuation. The use of leverage allowed the Fund to generate an above- average yield. Consequently, it was not necessary to reach for additional yield by compromising credit quality. The action taken by the Federal Reserve Board in lowering interest rates, combined with tight market technicals, resulted in a material decrease in the Fund's borrowing cost. At April 30, 2003, the Fund had three tranches of Preferred Stock. Two of these tranches were in a seven-day floating rate mode; the third was fixed for a two-year period (expiring October 2003). The decline in the short-term interest rates has benefited the execution with respect to the two floating rate tranches. This decline, in combination with a steep tax-exempt yield curve, generated a material income benefit to the Fund's Common Stock shareholder from the leveraging of the Preferred Stock. These declines led to lower borrowing yields for the Fund and increased yields for the Fund's Common Stock shareholder. 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 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 20, 2003 PROXY RESULTS
During the six-month period ended April 30, 2003, MuniYield California Fund, Inc.'s Common Stock shareholders voted on the following proposal. The proposal was approved at a shareholders' meeting on April 28, 2003. 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 19,509,907 371,501 James H. Bodurtha 19,511,862 369,546 Joe Grills 19,505,029 376,379 Roberta Cooper Ramo 19,517,974 363,434 Robert S. Salomon, Jr. 19,504,089 377,319 Stephen B. Swensrud 19,496,639 384,769 During the six-month period ended April 30, 2003, MuniYield California Fund, Inc.'s Preferred Stock shareholders (Series A, B & C) voted on the following proposal. The proposal was approved at a shareholders' meeting on April 28, 2003. 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 Board of Directors: Terry K. Glenn, James H. Bodurtha, Joe Grills, Herbert I. London, Andre F. Perold, Roberta Cooper Ramo, Robert S. Salomon, Jr. and Stephen B. Swensrud 4,286 8
MuniYield California Fund, Inc., April 30, 2003 SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Issue Value California--136.1% ABAG Finance Authority for Nonprofit Corporations, California, Revenue Refunding Bonds: A- NR* $ 2,000 COP (Episcopal Homes Foundation), 5.125% due 7/01/2018 $ 2,033 BBB NR* 1,730 (Redwood Senior Homes and Services), 6% due 11/15/2022 1,759 AAA Aaa 3,975 Antioch Area Public Facilities Financing Agency, California, Special Tax (Community Facilities District Number 1989-1), 5.70% due 8/01/2022 (a) 4,444 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) 5,023 AAA Aaa 2,500 Bakersfield, California, COP, Refunding (Convention Center Expansion Project), 5.80% due 4/01/2017 (i) 2,820 AA- Aa2 6,900 California HFA, Home Mortgage Revenue Bonds, Series D, 5.85% due 8/01/2017 7,423 California Health Facilities Finance Authority Revenue Bonds: AAA NR* 5,000 (Kaiser Permanente), RIB, Series 26, 9.34% due 6/01/2022 (g)(k) 5,675 NR* Aa3 2,835 (Scripps Research Institute), Series A, 6.625% due 7/01/2018 3,031 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) 1,656 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) 2,811 A- NR* 4,730 (J. David Gladstone Institute Project), 5.50% due 10/01/2021 5,052 A- NR* 4,990 (J. David Gladstone Institute Project), 5.50% due 10/01/2022 5,303 BBB Baa3 13,000 California Pollution Control Financing Authority, Solid Waste Disposal Revenue Refunding Bonds (Republic Services Inc. Project), AMT, Series C, 5.25% due 6/01/2023 13,347 California Rural Home Mortgage Finance Authority, S/F Mortgage Revenue Bonds (Mortgage-Backed Securities Program), AMT: NR* Aaa 660 Series A-1, 6.90% due 12/01/2024 (e)(h) 739 AAA NR* 730 Series B, 6.15% due 6/01/2020 (f) 797 California State Department of Veteran Affairs, Home Purpose Revenue Refunding Bonds: AAA Aaa 3,000 Series A, 5.30% due 12/01/2021 (a) 3,162 AA- Aa2 5,970 Series C, 5.875% due 12/01/2015 6,505 AA- Aa2 9,315 Series C, 6.05% due 12/01/2020 (l) 10,028 AA- Aa2 2,500 Series C, 6.15% due 12/01/2027 2,597 BBB+ A3 4,500 California State, Department of Water Resources, Power Supply Revenue Bonds, Series A, 5.75% due 5/01/2017 5,003 AA Aa3 8,000 California State Department of Water Resources Revenue Bonds (Central Valley Project), 5.25% due 7/01/2022 8,025 A A2 2,500 California State, GO, 5.25% due 4/01/2032 2,538 California State, GO, Refunding: A A2 8,000 5.75% due 5/01/2030 8,586 AA- A2 2,785 (Veterans), AMT, Series BJ, 5.70% due 12/01/2032 2,866 California State Public Works Board, Lease Revenue Bonds: AAA Aaa 2,000 (California State University), Series C, 5.40% due 10/01/2022 (i) 2,137 AAA NR* 8,500 DRIVERS, Series 209, 9.635% due 3/01/2016 (a)(k) 10,391 A- Aaa 6,800 (Department of Corrections), Series A, 7% due 11/01/2004 (j) 7,528 AAA Aaa 6,645 (Department of Health Services), Series A, 5.75% due 11/01/2017 (i) 7,409 California State University and Colleges, Housing System Revenue Refunding Bonds (c): AAA Aaa 3,000 5.75% due 11/01/2015 3,335 AAA Aaa 3,500 5.80% due 11/01/2017 3,886 AAA Aaa 3,900 5.90% due 11/01/2021 4,341 AAA Aaa 5,250 California Statewide Communities Development Authority, COP (John Muir/Mount Diablo Health System), 5.125% due 8/15/2022 (i) 5,466 California Statewide Communities Development Authority, Health Facility Revenue Bonds (Memorial Health Services), Series A: A- A3 2,270 6% due 10/01/2023 2,418 A- A3 3,000 5.50% due 10/01/2033 3,062 A+ A1 5,000 California Statewide Communities Development Authority Revenue Bonds (Sutter Health), Series B, 5.50% due 8/15/2028 5,131 BBB+ Baa1 2,000 Central California, Joint Powers Health Financing Authority, COP (Community Hospitals of Central California), 6% due 2/01/2020 2,090 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) 2,279 BBB NR* 1,140 Contra Costa County, California, Public Financing Authority, Tax Allocation Revenue Bonds, Series A, 7.10% due 8/01/2022 1,164 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) 2,926 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) 2,747 A- A3 5,000 Golden State Tobacco Securitization Corporation, California, Tobacco Settlement Revenue Bonds, Series 2003-A-1, 6.75% due 6/01/2039 4,423 NR* Aaa 9,957 Industry, California, Urban Development Agency, Tax Allocation Refunding Bonds, RIB, Series 632-X, 9.41% due 5/01/2021 (i)(k) 11,955 NR* Aaa 2,000 Los Angeles, California, COP (Sonnenblick Del Rio West Los Angeles), 6.20% due 11/01/2031 (a) 2,366 AAA Aaa 10,000 Los Angeles, California, Community College District, GO, Series A, 5.50% due 8/01/2021 (i) 10,913 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) 3,824 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) 5,391 Los Angeles, California, Department of Water and Power, Electric Plant Revenue Refunding Bonds: AA- Aaa 11,865 6% due 2/15/2005 (j) 12,972 NR* Aa3 4,920 RIB, Series 370, 10.36% due 2/15/2024 (k) 5,798
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 M/F Multi-Family RIB Residual Interest Bonds RITR Residual Interest Trust Receipts S/F Single-Family MuniYield California Fund, Inc., April 30, 2003 SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Issue Value California Los Angeles, California, Harbor Department Revenue Bonds, AMT: (concluded) AAA Aaa $ 4,000 RITR, Series RI-7, 10.645% due 11/01/2026 (i)(k) $ 5,094 AA Aa3 6,000 Series B, 5.375% due 11/01/2023 6,153 AA Aa3 2,000 Series B, 6% due 8/01/2015 2,240 AAA Aaa 9,000 Los Angeles, California, Wastewater System Revenue Bonds, Series A, 5% due 6/01/2023 (c) 9,307 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) 4,369 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) 5,490 AAA Aaa 8,705 Modesto, California, Wastewater Treatment Facilities Revenue Bonds, 5.625% due 11/01/2017 (i) 9,900 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) 1,984 Oakland, California, Joint Powers Financing Authority, Lease Revenue Bonds (Oakland Administration Buildings)(a): AAA Aaa 2,000 5.90% due 8/01/2016 2,268 AAA Aaa 11,395 5.75% due 8/01/2021 12,849 AAA Aaa 3,500 Oakland, California, State Building Authority, Lease Revenue Bonds (Elihu M. Harris), Series A, 5% due 4/01/2023 (a) 3,617 Oakland, California, Unified School District, Alameda County, GO, Series F (i): AAA Aaa 3,290 5.50% due 8/01/2017 3,685 AAA Aaa 3,770 5.50% due 8/01/2018 4,209 AAA Aaa 1,750 Pleasant Valley, California, School District, Ventura County, GO, Series C, 5.75% due 8/01/2025 (b)(i) 1,973 AAA Aaa 10,600 Port Oakland, California, Port Revenue Refunding Bonds, Series I, 5.40% due 11/01/2017 (i) 11,776 NR* Aaa 5,808 Port Oakland, California, RIB, Refunding, AMT, Series 717X, 9.13% due 11/01/2027 (c)(k) 6,247 AAA Aaa 4,315 Rancho Cucamonga, California, Redevelopment Agency, Tax Allocation Refunding Bonds (Rancho Redevelopment Project), 5.25% due 9/01/2020 (g) 4,647 AAA Aaa 2,345 Richmond, California, Redevelopment Agency, Tax Allocation, Refunding Bonds (Harbour Redevelopment Project), Series A, 5.50% due 7/01/2018 (i) 2,617 AAA Aaa 4,000 Roseville, California, Electric System Revenue Bonds, COP, 5.50% due 8/01/2009 (g)(j) 4,700 AAA Aaa 5,000 Sacramento, California, Municipal Utility District, Electric Revenue Refunding Bonds, Series L, 5.125% due 7/01/2022 (i) 5,202 Sacramento County, California, Sanitation District Financing Authority, Revenue Refunding Bonds: AA Aa3 4,500 RIB, Series 366, 10.111% due 12/01/2027 (k) 5,515 AA Aa3 5,695 Series A, 5.60% due 12/01/2017 6,254 AA Aa3 6,190 Series A, 5.75% due 12/01/2018 6,821 AA Aa3 3,750 Trust Receipts, Class R, Series A, 10.32% due 12/01/2019 (k) 4,576 AAA Aaa 10,100 San Bernardino, California, City Unified School District, GO, Refunding, Series A, 5.875% due 8/01/2024 (c) 11,434 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) 3,315 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) 5,544 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) 3,185 AAA Aaa 4,525 Issue 6, 6.60% due 5/01/2020 (a) 4,809 AAA Aaa 2,000 Issue 11, 6.25% due 5/01/2005 (c)(j) 2,206 AA Aa3 1,720 San Francisco, California, City and County Educational Facilities, GO (Community College), Series A, 5.75% due 6/15/2019 1,956 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) 5,080 AA Aa3 1,310 San Francisco, California, City and County Zoo Facilities, GO, Series B, 5.75% due 6/15/2019 1,490 AAA Aaa 4,590 San Joaquin Hills, California, Transportation Corridor Agency, Toll Road Revenue Refunding Bonds, Series A, 5.25% due 1/15/2030 (i) 4,820 A A2 3,100 San Jose, California, Redevelopment Agency, Tax Allocation Bonds (Merged Area Redevelopment Project), 5.25% due 8/01/2029 3,205 AAA Aaa 2,020 Santa Clara, California, Unified School District, GO, 5.50% due 7/01/2021 (c) 2,218 NR* A3 3,500 Santa Clara County, California, Housing Authority, M/F Housing Revenue Bonds (John Burns Gardens Apartments Project), AMT, Series A, 6% due 8/01/2041 3,573 NR* Aaa 5,125 Santa Clara Valley, California, Water District, COP, Refunding, RIB, Series 411, 10.36% due 2/01/2024 (c)(k) 5,643 AAA Aaa 4,000 Santa Monica, California, Redevelopment Agency, Tax Allocation Bonds (Earthquake Recovery Redevelopment Project), 6% due 7/01/2029 (a) 4,612 AAA Aaa 2,000 Sequoia, California, Unified High School District, GO, 5.70% due 7/01/2024 (g) 2,193 AAA Aaa 2,265 South Bayside, California, Waste Management Authority, Waste System Revenue Bonds, 5.75% due 3/01/2020 (a) 2,562 AAA NR* 305 Southern California Home Finance Authority, S/F Mortgage Revenue Bonds (Mortgage-Backed Securities Program), AMT, Series A, 6.75% due 9/01/2022 (f) 308 AAA Aaa 3,235 Taft, California, Public Financing Authority, Lease Revenue Bonds (Community Correctional Facility), Series A, 6.05% due 1/01/2017 (i) 3,665 A+ A1 1,310 Torrance, California, Hospital Revenue Refunding Bonds (Torrance Memorial Medical Center), Series A, 6% due 6/01/2022 1,420 Vernon, California, Electric System Revenue Bonds (Malburg Generating Station Project): BBB+ A2 2,740 5.50% due 4/01/2022 2,786 BBB+ A2 1,250 5.50% due 4/01/2023 1,268 AAA Aaa 5,000 Vista, California, Joint Powers Financing Authority, Lease Revenue Refunding Bonds, 5.625% due 5/01/2016 (i) 5,687 Puerto Rico-- AAA Aaa 2,140 Puerto Rico Commonwealth Highway and Transportation Authority, 1.9% Highway Revenue Bonds, Series Y, 5.50% due 7/01/2006 (i)(j) 2,426 AAA Aaa 2,600 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series X, 5.50% due 7/01/2025 (i) 2,794 A- Baa1 1,000 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds, Series U, 6% due 7/01/2014 1,068
MuniYield California Fund, Inc., April 30, 2003 SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Ratings Ratings Amount Issue Value Virgin Islands-- BBB- Baa3 $ 3,000 Virgin Islands Government Refinery Facilities Revenue Bonds 0.9% (Hovensa Coker Project), AMT, 6.50% due 7/01/2021 $ 3,035 Total Municipal Bonds (Cost--$424,123)--138.9% 458,970 Shares Held Short-Term Securities 612 CMA California Municipal Money Fund (d) 612 Total Short-Term Securities (Cost--$612)--0.2% 612 Total Investments (Cost--$424,735)--139.1% 459,582 Variation Margin on Financial Futures Contracts**--(0.0%) (119) Other Assets Less Liabilities--3.3% 11,085 Preferred Stock, at Redemption Value--(42.4%) (140,133) --------- Net Assets Applicable to Common Stock--100.0% $ 330,415 ========= (a) AMBAC Insured. (b) Escrowed to maturity. (c) FGIC Insured. (d) Investments in companies considered to be an affiliate of the Fund (such companies are defined as "Affiliated Companies" in Section 2(a)(3) of the Investment Company Act of 1940) are as follows: (in Thousands) Net Dividend Affiliate Activity Income CMA California Municipal Money Fund 612 $16 (e) FHLMC Collateralized. (f) FNMA/GNMA Collateralized. (g) FSA Insured. (h) GNMA Collateralized. (i) MBIA Insured. (j) Prerefunded. (k) The interest rate shown is subject to change periodically and inversely based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 2003. (l) All or a portion of security held in connection with open financial futures contracts. * Not Rated. ** Financial futures contracts sold as of April 30, 2003 were as follows: (in Thousands) Number of Expiration Contracts Issue Date Value 200 U.S. Treasury Notes June 2003 $ 23,025 --------- Total Financial Futures Contracts Sold (Total Contract Price--$23,111) $ 23,025 ========= See Notes to Financial Statements.
Quality Profile The quality ratings of securities in the Fund as of April 30, 2003 were as follows: Percent of S&P Rating/Moody's Rating Total Investments AAA/Aaa 65.1% AA/Aa 17.7 A/A 12.4 BBB/Baa 4.7 NR (Not Rated) 0.1 STATEMENT OF NET ASSETS
As of April 30, 2003 Assets: Investments, at value (identified cost--$424,734,721) $ 459,582,105 Cash 60,535 Receivables: Interest $ 8,933,865 Securities sold 2,463,006 Dividends 14 11,396,885 ------------- Prepaid expenses 175,257 ------------- Total assets 471,214,782 ------------- Liabilities: Payables: Dividends to shareholders 216,388 Investment adviser 197,412 Variation margin 118,750 Other affiliates 3,632 536,182 ------------- Accrued expenses 130,788 ------------- Total liabilities 666,970 ------------- Preferred Stock: Preferred Stock, at redemption value, par value $.10 per share (2,400 Series A shares, 2,400 Series B shares and 800 Series C shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) 140,133,224 ------------- Net Assets Net assets applicable to Common Stock $ 330,414,588 Applicable To ============= Common Stock: Analysis of Net Common Stock, par value $.10 per share (21,295,255 shares issued and Assets Applicable outstanding) $ 2,129,526 to Common Stock: Paid-in capital in excess of par 299,957,928 Undistributed investment income--net $ 2,813,609 Accumulated realized capital losses on investments--net (9,419,797) Unrealized appreciation on investments--net 34,933,322 ------------- Total accumulated earnings--net 28,327,134 ------------- Total--Equivalent to $15.52 net asset value per share of Common Stock (market price--$14.55) $ 330,414,588 ============= *Auction Market Preferred Stock. See Notes to Financial Statements.
MuniYield California Fund, Inc., April 30, 2003 STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 2003 Investment Interest $ 12,735,268 Income: Dividends 16,270 ------------- Total income 12,751,538 ------------- Expenses: Investment advisory fees $ 1,154,358 Commission fees 181,038 Accounting services 77,801 Professional fees 25,602 Transfer agent fees 22,746 Listing fees 15,701 Printing and shareholder reports 15,453 Directors' fees and expenses 14,879 Custodian fees 12,241 Pricing fees 7,846 Other 20,376 ------------- Total expenses before reimbursement 1,548,041 Reimbursement of expenses (10,157) ------------- Total expenses after reimbursement 1,537,884 ------------- Investment income--net 11,213,654 ------------- Realized & Realized gain on investments--net 132,333 Unrealized Change in unrealized appreciation on investments--net 8,243,210 Gain On ------------- Investments--Net: Total realized and unrealized gain on investments--net 8,375,543 ------------- Dividends & Investment income--net (1,105,744) Distributions to Realized gain on investments--net (6,976) Preferred Stock ------------- Shareholders: Total dividends and distributions to Preferred Stock shareholders (1,112,720) ------------- Net Increase in Net Assets Resulting from Operations $ 18,476,477 ============= See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the Months Ended Year Ended April 30, October 31, Increase (Decrease) in Net Assets: 2003 2002 Operations: Investment income--net $ 11,213,654 $ 22,702,565 Realized gain on investments--net 132,333 4,745,197 Change in unrealized appreciation on investments--net 8,243,210 (6,145,783) Dividends and distributions to Preferred Stock shareholders (1,112,720) (2,476,760) ------------- ------------- Net increase in net assets resulting from operations 18,476,477 18,825,219 ------------- ------------- Dividends & Investment income--net (10,349,494) (20,592,555) Distributions to Realized gain on investments--net (57,092) (60,340) Common Stock ------------- ------------- Shareholders: Net decrease in net assets resulting from dividends and distributions to Common Stock shareholders (10,406,586) (20,652,895) ------------- ------------- Common Stock Value of shares issued to Common Stock shareholders in Transactions: reinvestment of dividends and distributions -- 1,648,690 ------------- ------------- Net Assets Total increase (decrease) in net assets applicable to Common Stock 8,069,891 (178,986) Applicable to Beginning of period 322,344,697 322,523,683 Common Stock: ------------- ------------- End of period* $ 330,414,588 $ 322,344,697 ============= ============= *Undistributed investment income--net $ 2,813,609 $ 3,055,193 ============= ============= See Notes to Financial Statements.
MuniYield California Fund, Inc., April 30, 2003 FINANCIAL HIGHLIGHTS
The following per share data and ratios For the have been derived from information Six Months provided in the financial statements. Ended April 30, For the Year Ended October 31, Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999 Per Share Net asset value, beginning of period $ 15.14 $ 15.22 $ 14.19 $ 13.32 $ 16.23 Operating ----------- ------------ --------- --------- --------- Performance:++ Investment income--net .53++++++++ 1.07++++++++ 1.03 1.02 1.03 Realized and unrealized gain (loss) on investments--net .39 (.06) 1.05 .88 (2.25) Dividends and distributions to Preferred Stock shareholders: Investment income--net (.05) (.12) (.20) (.23) (.14) Realized gain on investments--net --+++++ --+++++ -- -- (.04) In excess of realized gain on investments--net -- -- -- -- (.05) --------- --------- --------- --------- --------- Total from investment operations .87 .89 1.88 1.67 (1.45) --------- --------- --------- --------- --------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.49) (.97) (.85) (.80) (.88) Realized gain on investments--net --+++++ --+++++ -- -- (.24) In excess of realized gain on investments--net -- -- -- -- (.34) --------- --------- --------- --------- --------- Total dividends and distributions to Common Stock shareholders (.49) (.97) (.85) (.80) (1.46) --------- --------- --------- --------- --------- Net asset value, end of period $ 15.52 $ 15.14 $ 15.22 $ 14.19 $ 13.32 ========= ========= ========= ========= ========= Market price per share, end of period $ 14.55 $ 14.46 $ 15.10 $ 13.0625 $ 12.625 ========= ========= ========= ========= ========= Total Investment Based on market price per share 4.05%+++ 2.18% 22.71% 10.18% (16.13%) Return:** ========= ========= ========= ========= ========= Based on net asset value per share 6.00%+++ 6.14% 13.85% 13.45% (9.70%) ========= ========= ========= ========= ========= Ratios Based on Expenses, net of reimbursement*** .95%* .99% 1.00% 1.02% .98% Average Net ========= ========= ========= ========= ========= Assets of Total expenses*** .96%* .99% 1.00% 1.02% .98% Common Stock: ========= ========= ========= ========= ========= Total investment income--net*** 6.96%* 7.13% 7.00% 7.51% 6.86% ========= ========= ========= ========= ========= Amount of dividends to Preferred Stock shareholders .69%* .77% 1.37% 1.69% .96% ========= ========= ========= ========= ========= Investment income--net, to Common Stock shareholders 6.27%* 6.36% 5.63% 5.82% 5.90% ========= ========= ========= ========= ========= Ratios Based on Total expenses, net of reimbursement .67%* .69% .69% .69% .68% Average Net ========= ========= ========= ========= ========= Assets Of Total expenses .67%* .69% .69% .69% .68% Common & ========= ========= ========= ========= ========= Preferred Total investment income--net 4.86%* 4.95% 4.83% 5.05% 4.77% Stock:*** ========= ========= ========= ========= ========= Ratios Based on Dividends to Preferred Stock Average Net shareholders 1.59%* 1.76% 3.04% 3.47% 2.18% Assets of ========= ========= ========= ========= ========= Preferred Stock: Supplemental Net assets applicable to Common Stock, Data: end of period (in thousands) $ 330,415 $ 322,345 $ 322,524 $ 300,503 $ 282,114 ========= ========= ========= ========= ========= Preferred Stock outstanding, end of period (in thousands) $ 140,000 $ 140,000 $ 140,000 $ 140,000 $ 140,000 ========= ========= ========= ========= ========= Portfolio turnover 12.17% 49.87% 58.17% 93.01% 146.39% ========= ========= ========= ========= ========= Leverage: Asset coverage per $1,000 $ 3,360 $ 3,302 $ 3,304 $ 3,146 $ 3,015 ========= ========= ========= ========= ========= Dividends Per Series A--Investment income--net $ 301 $ 607 $ 802 $ 865 $ 527 Share On ========= ========= ========= ========= ========= Preferred Stock Series B--Investment income--net $ 129 $ 322 $ 721 $ 875 $ 546 Outstanding: ========= ========= ========= ========= ========= Series C--Investment income--net $ 92 $ 292 $ 745 $ 875 $ 591 ========= ========= ========= ========= ========= *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. ++Certain prior year amounts have been reclassified to conform to current year presentation. +++Aggregate total investment return. +++++Amount is less than $(.01) per share. ++++++++Based on average shares outstanding. See Notes to Financial Statements.
MuniYield California Fund, Inc., April 30, 2003 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 both to increase the return of the Fund and to hedge, or protect, its exposure to interest rate movement and movements in the securities markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts. 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. * Forward interest rate swaps--The Fund is authorized to enter into forward interest rate swaps. In a forward interest rate swap, the Fund and the counterparty agree to pay or receive interest on a specified notional contract amount, commencing on a specified future effective date, unless terminated earlier. The value of the agreement is determined by quoted fair values received daily by the Fund from the counterparty. When the agreement is closed, the Fund records a realized gain or loss in an amount equal to the value of the agreement. (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. Dividend income is recorded on the ex-dividend dates. Interest income is recognized on the accrual basis. The Fund amortizes all premiums and discounts on debt securities. (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, 2003, FAM reimbursed the Fund in the amount of $10,157. For the six months ended April 30, 2003, the Fund reimbursed FAM $5,225 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, 2003 were $55,504,030 and $57,729,077, respectively. Net realized gains (losses) for the six months ended April 30, 2003 and net unrealized gains as of April 30, 2003 were as follows: Realized Unrealized Gains (Losses) Gains Long-term investments $ 1,038,396 $ 34,847,384 Financial futures contracts (906,063) 85,938 ------------ ------------ Total $ 132,333 $ 34,933,322 ============ ============ As of April 30, 2003, net unrealized appreciation for Federal income tax purposes aggregated $35,012,620, of which $35,816,068 related to appreciated securities and $803,448 related to depreciated securities. The aggregate cost of investments at April 30, 2003 for Federal income tax purposes was $424,569,485. 4. Stock Transactions: The Fund is authorized to issue 200,000,000 shares of 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 stock without approval of the holders of Common Stock. Common Stock Shares issued and outstanding during the six months ended April 30, 2003 remained constant and during the year ended October 31, 2002 increased by 110,780 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 April 30, 2003 were: Series A, 3.14%; Series B, 1.15% and Series C, .95%. Shares issued and outstanding during the six months ended April 30, 2003 and during the year ended October 31, 2002 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, 2003, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, earned $37,656 as commissions. 5. Capital Loss Carryforward: On October 31, 2002, the Fund had a net capital loss carryforward of $7,985,889, all of which expires in 2008. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: The Fund paid a tax-exempt income dividend to holders of Common Stock in the amount of $.081000 per share on May 29, 2003 to shareholders of record on May 16, 2003. MuniYield California Fund, Inc., April 30, 2003 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. 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 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 Brian D. Stewart, Secretary Melvin R. Seiden, Director of MuniYield California Fund, Inc., has recently retired. The Fund's Board of Directors wishes Mr. Seiden well in his retirement. Custodian The Bank of New York 100 Church 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 Item 2 - Did registrant adopt a code of ethics, as of the end of the period covered by this report, that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party? If not, why not? Briefly describe any amendments or waivers that occurred during the period. State here if code of ethics/amendments/waivers are on website and give website address-. State here if fund will send code of ethics to shareholders without charge upon request--N/A (not answered until July 15, 2003 and only annually for funds) Item 3 - Did the registrant's board of directors determine that the registrant either: (i) has at least one audit committee financial expert serving on its audit committee; or (ii) does not have an audit committee financial expert serving on its audit committee? If yes, disclose name of financial expert and whether he/she is "independent," (fund may, but is not required, to disclose name/independence of more than one financial expert) If no, explain why not. -N/A (not answered until July 15, 2003 and only annually for funds) Item 4 - Disclose annually only (not answered until December 15, 2003) (a) Audit Fees - Disclose aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. N/A. (b) Audit-Related Fees - Disclose aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category. N/A. (c) Tax Fees - Disclose aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. Registrants shall describe the nature of the services comprising the fees disclosed under this category. N/A. (d) All Other Fees - Disclose aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category. N/A. (e)(1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. N/A. (e)(2) Disclose the percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. N/A. (f) If greater than 50%, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees. N/A. (g) Disclose the aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant. N/A. (h) Disclose whether the registrant's audit committee has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any subadviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. N/A. Item 5 - If the registrant is a listed issuer as defined in Rule 10A- 3 under the Exchange Act, state whether or not the registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. If the registrant has such a committee, however designated, identify each committee member. If the entire board of directors is acting as the registrant's audit committee in Section 3(a)(58)(B) of the Exchange Act, so state. If applicable, provide the disclosure required by Rule 10A-3(d) under the Exchange Act regarding an exemption from the listing standards for audit committees. (Listed issuers must be in compliance with the new listing rules by the earlier of their first annual shareholders meeting after January 2004, or October 31, 2004 (annual requirement)) Item 6 - Reserved Item 7 - For closed-end funds that contain voting securities in their portfolio, describe the policies and procedures that it uses to determine how to vote proxies relating to those portfolio securities. N/A (not answered until July 1, 2003) Item 8--Reserved Item 9(a) - The registrant's certifying officers have reasonably designed such disclosure controls and procedures to ensure material information relating to the registrant is made known to us by others particularly during the period in which this report is being prepared. The registrant's certifying officers have determined that the registrant's disclosure controls and procedures are effective based on our evaluation of these controls and procedures as of a date within 90 days prior to the filing date of this report. Item 9(b)--There were no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Item 10 - Exhibits 10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or amendments/waivers is on website or offered to shareholders upon request without charge. N/A. 10(b) - Attach certifications pursuant to Section 302 of the Sarbanes-Oxley Act. Attached hereto. Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MuniYield California Fund, Inc. By: _/s/ Terry K. Glenn_______ Terry K. Glenn, President of MuniYield California Fund, Inc. Date: June 23, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: _/s/ Terry K. Glenn________ Terry K. Glenn, President of MuniYield California Fund, Inc. Date: June 23, 2003 By: _/s/ Donald C. Burke________ Donald C. Burke, Chief Financial Officer of MuniYield California Fund, Inc. Date: June 23, 2003 Attached hereto as an exhibit are the certifications pursuant to Section 906 of the Sarbanes-Oxley Act. EX-99.CERT 3 ex99cert.txt EX-99 CERT EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Terry K. Glenn, President of MuniYield California Fund, Inc., certify that: 1. I have reviewed this report on Form N-CSR of MuniYield California Fund, Inc. (the "Fund"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Fund as of, and for, the periods presented in this report; 4. The Fund's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the Fund and have: a) designed such disclosure controls and procedures to ensure that material information relating to the Fund, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Fund's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Fund's other certifying officers and I have disclosed, based on our most recent evaluation, to the Fund's auditors and the audit committee of the Fund's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Fund's ability to record, process, summarize, and report financial data and have identified for the Fund's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal controls; and 6. The Fund's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 23, 2003 /s/ Terry K. Glenn Terry K. Glenn, President of MuniYield California Fund, Inc. EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Donald C. Burke, Chief Financial Officer of MuniYield California Fund, Inc., certify that: 1. I have reviewed this report on Form N-CSR of MuniYield California Fund, Inc. (the "Fund"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Fund as of, and for, the periods presented in this report; 4. The Fund's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the Fund and have: a) designed such disclosure controls and procedures to ensure that material information relating to the Fund, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Fund's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Fund's other certifying officers and I have disclosed, based on our most recent evaluation, to the Fund's auditors and the audit committee of the Fund's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Fund's ability to record, process, summarize, and report financial data and have identified for the Fund's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal controls; and 6. The Fund's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 23, 2003 /s/ Donald C. Burke Donald C. Burke, Chief Financial Officer of MuniYield California Fund, Inc. Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Terry K. Glenn, President of MuniYield California Fund, Inc. (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: June 23, 2003 /s/ Terry K. Glenn Terry K. Glenn, President of MuniYield California Fund, Inc. A signed original of this written statement required by Section 906 has been provided to MuniYield California Fund, Inc. and will be retained by MuniYield California Fund, Inc. and furnished to the Securities and Exchange Commission or staff upon request. Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Donald C. Burke, Chief Financial Officer of MuniYield California Fund, Inc. (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: June 23, 2003 /s/ Donald C. Burke Donald C. Burke, Chief Financial Officer of MuniYield California Fund, Inc. A signed original of this written statement required by Section 906 has been provided to MuniYield California Fund, Inc. and will be retained by MuniYield California Fund, Inc. and furnished to the Securities and Exchange Commission or staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----