-----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, AFZKQT1Tk2XuakN8V+xD+JUYyCuaC5EGpuXwkJ24s1Q6Ij6lYqFgcmEHK3NNlRSX O+jO8XHnbxMFv9FIF6RdyA== 0000900092-96-000305.txt : 19961210 0000900092-96-000305.hdr.sgml : 19961210 ACCESSION NUMBER: 0000900092-96-000305 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19961209 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNIYIELD CALIFORNIA FUND INC CENTRAL INDEX KEY: 0000882152 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06499 FILM NUMBER: 96677596 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08543-9011 BUSINESS PHONE: 6092822800 MAIL ADDRESS: STREET 1: P O BOX 9066 STREET 2: C/O MERRILL LYNCH ASSET MANAGEMENT CITY: PRINCETON STATE: NJ ZIP: 08543-9011 FORMER COMPANY: FORMER CONFORMED NAME: CALIFORNIA MUNIYIELD FUND INC DATE OF NAME CHANGE: 19600201 N-30D 1 ANNUAL REPORT MUNIYIELD CALIFORNIA FUND, INC. FUND LOGO Annual Report October 31, 1996 This report, including the financial information herein, is transmitted to the shareholders of MuniYield California Fund, Inc. for their information. It is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in the report. Past performance results shown in this report should not be considered a representation of future performance. The Fund has leveraged its Common Stock by issuing Preferred Stock to provide the Common Stock shareholders with a potentially higher rate of return. Leverage creates risks for Common Stock shareholders, including the likelihood of greater volatility of net asset value and market price of shares of the Common Stock, and the risk that fluctuations in the short-term dividend rates of the Preferred Stock may affect the yield to Common Stock shareholders. Statements and other information herein are as dated and are subject to change. MuniYield California Fund, Inc. Box 9011 Princeton, NJ 08543-9011 MuniYield California Fund, Inc. TO OUR SHAREHOLDERS For the year ended October 31, 1996, the Common Stock of MuniYield California Fund, Inc. earned $0.935 per share income dividends, which included earned and unpaid dividends of $0.079. This represents a net annualized yield of 6.05%, based on a month-end net asset value of $15.44 per share. Over the same period, the total investment return on the Fund's Common Stock was +8.54%, based on a change in per share net asset value from $15.18 to $15.44, and assuming reinvestment of $0.931 per share income dividends. For the six-month period ended October 31, 1996, the total investment return on the Fund's Common Stock was +7.17%, based on a change in per share net asset value from $14.88 to $15.44, and assuming reinvestment of $0.472 per share income dividends. For the six-month period ended October 31, 1996, the Fund's Auction Market Preferred Stock had an average yield of 3.15% for Series A and 3.25% for Series B. The Municipal Market Environment Municipal bond yields generally moved lower during the six months ended October 31, 1996. Long-term tax-exempt revenue bond yields, as measured by the Bond Buyer Revenue Bond Index, declined approximately 35 basis points (0.35%) to end the six-month period at approximately 5.94%. The municipal bond market exhibited considerable weekly yield volatility over the six months ended October 31, 1996 with bond yields fluctuating as much as 20 basis points. This ongoing volatility was in response to conflicting evidence regarding the degree to which recent economic growth will result in any significant increase in inflationary pressures. Much of the evidence supporting stronger growth has centered around the strong employment growth seen in April and June, with bond yields rising in response. Other, more recent, economic indicators have suggested that economic growth will not be excessive and inflationary pressures will remain well-contained. This continued benign inflationary environment has supported lower tax-exempt bond yields in recent months. US Treasury bond yields have exhibited similar, albeit greater, volatility during the period, falling more than 20 basis points to end the period at 6.64%. Over the past six months, tax-exempt bond yields registered significantly greater declines than those shown by US Treasury bonds. This relative outperformance by the municipal bond market was largely the result of the strong technical support the tax-exempt market has enjoyed throughout most of 1996. Perhaps most significantly, the pace of new bond issuance has recently slowed. Over the last year, approximately $180 billion in long-term municipal securities was issued, an increase of over 25% versus the same period a year ago. Much of this increase was the result of issuers seeking to refinance their existing higher-couponed debt as interest rates declined in 1995 and early 1996. As interest rates rose, these financings became increasingly economically impractical and issuance declined. Over the last six months, approximately $90 billion in long-term tax-exempt securities was underwritten, an increase of 5% versus the comparable period a year earlier. Only $41 billion in tax-exempt securities was issued in the last three months, a 3% decline in issuance versus the October 30, 1995 quarter. At the same time, investor demand remained consistently strong. With nominal new-issue yields generally above 6%, retail investor interest was steady. Additionally, investors received over $50 billion this June and July in assets derived from coupon income, bond maturities, and proceeds from early redemptions. Annual new bond issuance has declined in recent years and is expected to remain below levels seen in the early 1990s. Consequently, as the higher- couponed bonds issued in the early-to-mid 1980s were redeemed at their first optional call date, the total number of outstanding tax- exempt bonds has declined. This combination of a declining net supply and significant amounts of assets helped maintain investor demand in recent months. It is unlikely that the municipal bond market will continue to significantly outperform US Treasury securities in the near future. The tax-exempt bond market's recent performance has led to the yield ratio between long-term taxable and tax-exempt securities falling from in excess of 90% to approximately 85%. While still historically very attractive, some institutional investors, particularly short- term traders, began to view the tax-exempt bond market's recent outperformance as an opportunity to sell a relatively expensive asset. However, to the long-term investor, such a sale would represent the loss of an attractively priced asset which may not be easily replaced given the relative scarcity of municipal bonds under present supply conditions. Looking ahead, no clear consensus for the direction of interest rates currently exists. Perhaps, the primary focus going forward will be the extent to which the increase in interest rates seen thus far in 1996 will negatively impact future economic growth. Should growth slow in the interest rate-sensitive sectors of the economy, like housing, auto, and consumer spending, as many economists assert is likely, then bond yields are likely to decline. Under such a scenario, the municipal bond market's performance is likely to closely mirror that of the US Treasury bond market. Portfolio Strategy During the 12-month period ended October 31, 1996, our portfolio strategy focused on seeking to provide current return while being mindful of capital appreciation. In an effort to enhance the additional benefit of increased yield to Common Stock shareholders, we kept the Fund's Preferred Stock in the shortest possible maturity range. (For a complete explanation of the benefits and risks of leveraging, see page 4 of this report to shareholders.) The Fund's performance was enhanced this year by early recognition that interest rates in the beginning of 1996 were likely to head higher. We maintained an above-average coupon structure, tempering the negative reaction of net asset value to the ensuing interest rate increases. As the year progressed, we identified a fairly well-defined trading range in the municipal market. We effectively managed the purchases and sales of long-term revenue bonds in the Fund's holdings by exploiting the upper and lower boundaries of this trading range. We then concentrated larger percentages of the Fund's assets in securities rated at least AA by one or more of the major rating agencies, in response to the lack of yield differentials between credit quality classes. We anticipate continuing this approach until the point where deteriorating economic releases lead to a change in an interest rate forecast that allows a more constructive trend for bond prices. 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, (Arthur Zeikel) Arthur Zeikel President (Vincent R. Giordano) Vincent R. Giordano Senior Vice President (Walter C. O'Connor) Walter C. O'Connor Vice President and Portfolio Manager November 25, 1996 PROXY RESULTS During the six-month period ended October 31, 1996, MuniYield California Fund, Inc. Common Stock shareholders voted on the following proposals. The proposals were approved at a special shareholders' meeting on September 19, 1996. The description of each proposal and number of shares voted are as follows:
Shares Voted Shares Voted For Without Authority 1.To elect the Fund's Board of Directors: James H. Bodurtha 16,022,997 467,560 Herbert I. London 16,018,681 471,876 Robert R. Martin 16,017,922 472,635 Arthur Zeikel 16,024,529 466,028 Shares Voted Shares Voted Shares Voted For Against Abstain 2.To ratify the selection of Deloitte & Touche LLP as the Fund's independent auditors for the current fiscal year. 15,994,582 75,568 420,407 During the six-month period ended October 31, 1996, MuniYield California Fund, Inc. Preferred Stock shareholders (Series A and B) voted on the following proposals. The proposals were approved at a special shareholders' meeting on June 16, 1996. The description of each proposal and number of shares voted are as follows: Shares Voted Shares Voted For Without Authority 1.To elect the Fund's Board of Directors: James H. Bodurtha, Herbert I. London, Robert R. Martin, Joseph L. May, Andre F. Perold and Arthur Zeikel as follows: Series A 2,334 6 Series B 2,318 63 Shares Voted Shares Voted Shares Voted For Against Abstain 2.To ratify the selection of Deloitte & Touche LLP as the Fund's independent auditors for the current fiscal year as follows: Series A 2,334 6 0 Series B 2,307 11 63
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. PORTFOLIO ABBREVIATIONS To simplify the listings of MuniYield California Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) COP Certificates of Participation GO General Obligation Bonds HFA Housing Finance Agency PCR Pollution Control Revenue Bonds RAN Revenue Anticipation Notes RIB Residual Interest Bonds S/F Single-Family UT Unlimited Tax VRDN Variable Rate Demand Notes SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) California--95.7% California Health Facilities Financing Authority Revenue Bonds: AA Aa3 $ 1,000 (Kaiser Permanente), Series A, 7% due 12/01/2010 $ 1,096 AAA Aaa 2,000 (Kaiser Permanente), Series A, 7% due 10/01/2018 (c) 2,166 A1+ VMIG1++ 1,200 (Pooled Loan Program), VRDN, Series 85-B, 3.35% due 10/01/2010 (a)(d) 1,200 AAA Aaa 1,000 Refunding (Adventist Health), Series A, 6.50% due 3/01/2014 (c) 1,071 A1+ VMIG1++ 1,200 Refunding (Catholic West), VRDN, Series C, 3.35% due 7/01/2011 (a)(c) 1,200 AAA Aaa 4,085 (San Diego Hospital Association), Series A, 6.70% due 10/01/2010 (c) 4,482 NR* A 2,835 (Scripps Research Institute), Series A, 6.625% due 7/01/2018 3,023 A+ A 3,600 (Sutter Health Hospital), Series 89-A, 6.70% due 1/01/2013 3,755 California HFA, Home Mortgage Revenue Bonds: AA- Aa 1,920 AMT, Series C, 7.45% due 8/01/2011 2,015 AA- Aa 2,585 AMT, Series E-1, 6.70% due 8/01/2025 2,680 AA- Aa 4,955 AMT, Series F-1, 7% due 8/01/2026 5,263 AA- Aa 1,200 Series D, 7.25% due 8/01/2017 1,272 AA- Aa 760 Series F, 7.875% due 8/01/2019 793 AA- Aa 2,900 California HFA, Revenue Bonds, RIB, AMT, 8.856% due 8/01/2023 (h) 3,067 A1 NR* 770 California Pollution Control Financing Authority, PCR, Refunding (Pacific Gas and Electric Co.), VRDN, AMT, Series G, 3.60% due 2/01/2016 (a) 770 NR* Aa3 700 California Pollution Control Financing Authority, Resource Recovery Revenue Bonds (Honey Lake Power Project), VRDN, AMT, 3.55% due 9/01/2018 (a) 700 California State Public Works Board, Lease Revenue Bonds: A A 3,000 (California Community College), Series A, 6.75% due 9/01/2001 (g) 3,354 A A 6,800 (Department of Corrections--Monterey County), Series A, 7% due 11/01/2004 (g) 7,957 A A 9,800 (Various California State University Projects), Series A, 6.70% due 10/01/2002 (g) 11,066 A A 5,100 (Various California State University Projects), Series A, 6.625% due 10/01/2010 5,511 A A 5,085 (Various Community College Projects), Series B, 7% due 3/01/2004 (g) 5,889 A1+ VMIG1++ 5,400 California State, RAN, VRDN, Series C-1, 3.35% due 6/30/1997 (a) 5,400 AAA Aaa 13,250 California State Veterans, GO, UT, AMT, Series BD, BE and BF, 6.375% due 2/01/2027 (b) 13,601 AA Aa 4,750 California Statewide Community Development Authority Revenue Bonds, COP (Saint Joseph Health System Group), 6.625% due 7/01/2021 5,087 A+ A1 3,000 Contra Costa County, California, COP (Merrithew Memorial Hospital), 6.60% due 11/01/2012 3,164 BBB NR* 1,000 Contra Costa County, California, Public Financing Authority, Tax Allocation Revenue Refunding Bonds, Series A, 7.10% due 8/01/2022 1,060 AAA Aaa 2,365 Contra Costa County, California, Transportation Authority, Sales Tax Revenue Bonds, Series A, 6% due 3/01/2006 (d) 2,552 AAA Aaa 2,000 Cucamonga County, California, Water District Facilities Refinancing Bonds, COP, 6.50% due 9/01/2022 (d) 2,164 AAA Aaa 395 Culver City, California, Redevelopment Finance Authority Revenue Bonds (Senior Lien Project Loans), Series A, 6.75% due 11/01/2015 (b) 426 AAA Aaa 3,500 East Bay, California, Municipal Utility District, Water System Subordinated Revenue Refunding Bonds, 6% due 6/01/2012 (c) 3,629 AAA Aaa 1,000 El Cajon, California, Redevelopment Agency, Tax Allocation Bonds (El Cajon Redevelopment Project), 6.60% due 10/01/2022 (b) 1,091 BBB Baa 1,905 Inglewood, California, Public Financing Authority Revenue Bonds (Manchester- Prairie-North Inglewood Industrial Park Project), Series B, 7% due 5/01/2022 2,025
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) California (continued) AAA Aaa $ 3,645 Los Angeles, California, Community Redevelopment Agency, Tax Allocation Refunding Bonds (Bunker Hill), Series H, 6.50% due 12/01/2015 (f) $ 3,955 Los Angeles, California, Department of Water and Power, Waterworks Revenue Bonds: AAA Aaa 3,925 6.30% due 7/01/2024 (c) 4,194 AA Aa 4,000 Refunding, 6.40% due 5/15/2028 4,190 Los Angeles, California, Harbor Department Revenue Bonds, AMT, Series B: AA Aa 4,240 6.60% due 8/01/2015 4,511 AA Aa 6,855 6.625% due 8/01/2019 7,282 AAA Aaa 3,000 Los Angeles, California, Wastewater System Revenue Bonds, Series D, 6.625% due 12/01/2012 (c) 3,254 AAA Aaa 5,000 Los Angeles County, California, COP (Correctional Facilities Project), 6.50% due 9/01/2000 (c)(g) 5,484 Los Angeles County, California, Metropolitan Transportation Authority, Sales Tax Revenue Refunding Bonds: AAA Aaa 5,720 Proposition A, Series A, 5% due 7/01/2021 (d) 5,179 A1+ VMIG1++ 3,800 Proposition C, VRDN, Second Senior Series A, 3.40% due 7/01/2020 (a)(c) 3,800 AAA Aaa 10,660 Los Angeles County, California, Public Works Financing Authority, Lease Revenue Refunding Bonds, Series A, 6% due 9/01/2004 (c) 11,486 AA- Aaa 6,500 Los Angeles County, California, Transportation Commission, Sales Tax Revenue Bonds, Series A, 6.75% due 7/01/2001 (g) 7,267 M-S-R Public Power Agency, California, Revenue Bonds (San Juan Project): A A 5,000 Series C, 6.875% due 7/01/2019 5,118 AAA Aaa 6,155 Series E, 6.50% due 7/01/2017 (c) 6,643 AA Aa 6,000 Metropolitan Water District, Southern California Waterworks Revenue Bonds, 6.625% due 7/01/2001 (g) 6,659 AAA Aaa 2,500 Northern California Power Agency, Multiple Capital Facilities Revenue Bonds, RIB, 9.142% due 9/02/2025 (c)(h) 2,863 AAA Aaa 1,955 Northern California Power Agency, Public Power Revenue Bonds (Hydroelectric Project Number 1), Series E, 7.15% due 7/01/2024 (c) 2,083 AAA Aaa 16,000 Orange County, California, Local Transportation Authority, Sales Tax Revenue Bonds, Second Series, 6.10% due 2/14/2011 (d) 16,602 A NR* 5,000 Palmdale, California, Civic Authority, Revenue Refunding Bonds (Merged Redevelopment Project), Series A, 6.60% due 9/01/2034 5,414 AAA Aaa 3,905 Rancho Cucamonga, California, Redevelopment Agency, Tax Allocation Bonds (Rancho Redevelopment Project), 6.75% due 9/01/2020 (c) 4,193 NR* A 3,750 Rancho Mirage, California, Joint Powers Financing Authority, COP (Eisenhower Memorial Hospital), 7% due 3/01/2022 4,050 Redwood City, California, Public Financing Authority, Local Agency Revenue Bonds: AAA Aaa 5,025 Refunding, Series A, 6.50% due 7/15/2011 (b) 5,437 A- NR* 1,500 Series B, 7.25% due 7/15/2011 1,639 AAA Aaa 7,950 Riverside County, California, Transportation Commission, Sales Tax Revenue Refunding Bonds, Series A, 6% due 6/01/2005 (d) 8,632 A+ Aaa 18,000 Sacramento, California, City Financing Authority Revenue Bonds, 6.80% due 11/01/2001 (g) 20,279 Sacramento, California, Municipal Utility District, Electric Revenue Bonds, Series B (c): AAA Aaa 3,180 6.25% due 8/15/2011 3,375 AAA Aaa 4,865 6.375% due 8/15/2022 5,176 AAA Aaa 5,000 San Diego, California, Public Facilities Financing Authority, Sewer Revenue Bonds, 5% due 5/15/2020 (d) 4,586
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) California (concluded) San Francisco, California, City and County Airport Commission, International Airport Revenue Bonds, Second Series: AAA Aaa $ 1,500 AMT, Issue 5, 6.50% due 5/01/2019 (d) $ 1,601 AAA Aaa 4,525 AMT, Issue 6, 6.60% due 5/01/2020 (b) 4,899 AAA Aaa 11,000 Refunding, Issue 1, 6.50% due 5/01/2013 (b) 11,919 AA- A1 5,480 San Francisco, California, City and County, GO (Variable Purpose Projects), UT, Series A, 6.50% due 12/15/2010 5,784 AA Aa 5,000 San Francisco, California, City and County Public Utilities Commission, Water Revenue Bonds, Series A, 6.50% due 11/01/2017 5,258 AAA Aaa 4,715 San Francisco, California, City and County Redevelopment Agency, Lease Revenue Bonds (George R. Moscone Convention Center), 6.80% due 7/01/2019 (f) 5,234 AAA Aaa 3,180 Santa Clara, California, Electric Revenue Bonds, Series A, 6.50% due 7/01/2021 (c) 3,432 AAA Aaa 9,525 Santa Clara County, California, Financing Authority, Lease Revenue Bonds (VMC Facility Replacement Project), Series A, 6.75% due 11/15/2020 (b) 10,591 AA A1 5,000 Santa Clara County, California, Transportation District, Sales Tax Revenue Bonds, Series A, 6.75% due 6/01/2011 5,451 AAA Aaa 3,000 Santa Fe Springs, California, Redevelopment Agency, Tax Allocation Bonds (Conservation Redevelopment Project), Series A, 6% due 9/01/2014 (c) 3,085 AAA Aaa 7,750 Santa Rosa, California, Wastewater Revenue Bonds (Sub-Regional Wastewater Project), Series A, 6.50% due 9/01/2002 (d)(g) 8,665 AAA NR* 1,125 Southern California Home Financing Authority, S/F Mortgage Revenue Bonds, AMT, Series A, 6.75% due 9/01/2022 (e) 1,161 AAA Aaa 5,000 Stockton, California, Revenue Bonds (Wastewater Treatment Plant Expansion), COP, Series A, 6.80% due 9/01/2024 (d) 5,603 University of California Revenue Bonds (Multiple Purpose Projects): A NR* 3,300 Refunding, Series A, 6.875% due 9/01/2002 (g) 3,751 AAA Aaa 13,560 Series D, 6.375% due 9/01/2019 (c) 14,448 Puerto Rico--2.7% A Baa1 5,500 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway Revenue Refunding Bonds, Series V, 6.625% due 7/01/2012 5,908 A1+ VMIG1++ 1,600 Puerto Rico Commonwealth, Revenue Refunding Bonds (Government Development Bank), VRDN, 3.30% due 12/01/2015 (a) 1,600 BBB+ Baa1 2,600 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series T, 6.375% due 7/01/2024 2,727 Total Investments (Cost--$348,418)--98.4% 372,997 Other Assets Less Liabilities--1.6% 6,085 -------- Net Assets--100.0% $379,082 ======== (a)The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at October 31, 1996. (b)AMBAC Insured. (c)MBIA Insured. (d)FGIC Insured. (e)FNMA/GNMA Collateralized. (f)FSA Insured. (g)Prerefunded. (h)The interest rate is subject to change periodically and inversely based upon prevailing market rates. The interest rate shown is the rate in effect at October 31, 1996. ++Highest short-term rating by Moody's Investors Service, Inc. *Not Rated. Ratings of issues shown have not been audited by Deloitte & Touche LLP. See Notes to Financial Statements.
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of October 31, 1996 Assets: Investments, at value (identified cost--$348,418,146) (Note 1a) $372,996,680 Cash 72,103 Interest receivable 6,593,159 Deferred organization expenses (Note 1e) 1,859 Prepaid expenses and other assets 14,186 ------------ Total assets 379,677,987 ------------ Liabilities: Payables: Dividends to shareholders (Note 1f) $ 342,117 Investment adviser (Note 2) 160,108 502,225 ------------ Accrued expenses and other liabilities 94,261 ------------ Total liabilities 596,486 ------------ Net Assets: Net assets $379,081,501 ============ Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.05 per share (4,800 shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) $120,000,000 Common Stock, par value $.10 per share (16,781,559 shares issued and outstanding) $ 1,678,156 Paid-in capital in excess of par 233,789,454 Undistributed investment income--net 2,952,622 Accumulated realized capital losses on investments--net (Note 5) (3,917,265) Unrealized appreciation on investments--net 24,578,534 ------------ Total--Equivalent to $15.44 net asset value per Common Stock (market price--$14.875) 259,081,501 ------------ Total capital $379,081,501 ============ *Auction Market Preferred Stock. See Notes to Financial Statements.
FINANCIAL INFORMATION (continued) Statement of Operations
For the Year Ended October 31, 1996 Investment Income Interest and amortization of premium and discount earned $ 21,942,622 (Note 1d): Expenses: Investment advisory fees (Note 2) $ 1,875,520 Commission fees (Note 4) 303,840 Professional fees 79,003 Accounting services (Note 2) 64,467 Transfer agent fees 54,508 Printing and shareholder reports 43,314 Custodian fees 30,347 Listing fees 24,635 Directors' fees and expenses 23,107 Pricing fees 10,829 Amortization of organization expenses (Note 1e) 5,814 Other 21,547 ------------ Total expenses 2,536,931 ------------ Investment income--net 19,405,691 ------------ Realized & Realized gain on investments--net 279,008 Unrealized Gain on Change in unrealized appreciation on investments--net 4,438,485 Investments--Net ------------ (Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 24,123,184 ============ See Notes to Financial Statements.
FINANCIAL INFORMATION (continued) Statements of Changes in Net Assets
For the Year Ended October 31, Increase (Decrease) in Net Assets: 1996 1995 Operations: Investment income--net $ 19,405,691 $ 19,809,357 Realized gain (loss) on investments--net 279,008 (4,196,257) Change in unrealized appreciation/depreciation on investments--net 4,438,485 29,929,032 ------------ ------------ Net increase in net assets resulting from operations 24,123,184 45,542,132 ------------ ------------ Dividends & Investment income--net: Distributions to Common Stock (15,619,604) (15,159,571) Shareholders Preferred Stock (4,164,120) (4,189,584) (Note 1f): Realized gain on investments--net: Common Stock -- (4,134,976) Preferred Stock -- (741,300) ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders (19,783,724) (24,225,431) ------------ ------------ Net Assets: Total increase in net assets 4,339,460 21,316,701 Beginning of year 374,742,041 353,425,340 ------------ ------------ End of year* $379,081,501 $374,742,041 ============ ============ *Undistributed investment income--net $ 2,952,622 $ 3,330,655 ============ ============ See Notes to Financial Statements.
FINANCIAL INFORMATION (concluded) Financial Highlights
For the Period The following per share data and ratios have been derived Feb. 28, from information provided in the financial statements. For the 1992++ to Year Ended October 31, Oct. 31, Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992 Per Share Net asset value, beginning of period $ 15.18 $ 13.91 $ 16.60 $ 14.03 $ 14.18 Operating -------- -------- -------- -------- -------- Performance: Investment income--net 1.16 1.18 1.23 1.22 .77 Realized and unrealized gain (loss) on investments--net .28 1.53 (2.65) 2.62 (.07) -------- -------- -------- -------- -------- Total from investment operations 1.44 2.71 (1.42) 3.84 .70 -------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.93) (.90) (1.00) (.99) (.55) Realized gain on investments--net -- (.25) (.07) (.08) -- -------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (.93) (1.15) (1.07) (1.07) (.55) -------- -------- -------- -------- -------- Capital charge resulting from issuance of Common Stock -- -- -- -- (.02) -------- -------- -------- -------- -------- Effect of Preferred Stock activity:++++ Dividends and distributions to Preferred Stock shareholders: Investment income--net (.25) (.25) (.19) (.18) (.14) Realized gain on investments--net -- (.04) (.01) (.02) -- Capital charge resulting from issuance of Preferred Stock -- -- -- -- (.14) Total effect of Preferred Stock activity (.25) (.29) (.20) (.20) (.28) -------- -------- -------- -------- -------- Net asset value, end of period $ 15.44 $ 15.18 $ 13.91 $ 16.60 $ 14.03 ======== ======== ======== ======== ======== Market price per share, end of period $ 14.875 $ 13.375 $ 12.125 $ 15.625 $ 14.50 ======== ======== ======== ======== ======== Total Investment Based on market price per share 18.68% 20.62% (16.36%) 15.56% .43%+++ Return:** ======== ======== ======== ======== ======== Based on net asset value per share 8.54% 19.33% (9.69%) 26.88% 2.79%+++ ======== ======== ======== ======== ======== Ratios to Average Expenses, net of reimbursement .67% .69% .66% .69% .54%* Net Assets:*** ======== ======== ======== ======== ======== Expenses .67% .69% .66% .69% .71%* ======== ======== ======== ======== ======== Investment income--net 5.16% 5.48% 5.44% 5.35% 5.65%* ======== ======== ======== ======== ======== Supplemental Net assets, net of Preferred Stock, end of Data: period (in thousands) $259,082 $254,742 $233,425 $278,522 $233,502 ======== ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) $120,000 $120,000 $120,000 $120,000 $120,000 ======== ======== ======== ======== ======== Portfolio turnover 67.48% 69.59% 78.89% 21.68% 28.75% ======== ======== ======== ======== ======== Leverage: Asset coverage per $1,000 $ 3,159 $ 3,123 $ 2,945 $ 3,321 $ 2,946 ======== ======== ======== ======== ======== Dividends Per Share Series A--Investment income--net $ 875 $ 882 $ 694 $ 547 $ 449 On Preferred Stock ======== ======== ======== ======== ======== Outstanding:++++++ Series B--Investment income--net $ 860 $ 864 $ 615 $ 688 $ 481 ======== ======== ======== ======== ======== *Annualized. **Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. ***Do not reflect the effect of dividends to Preferred Stock shareholders. ++Commencement of Operations. ++++The Fund's Preferred Stock was issued on April 10, 1992. ++++++Dividends per share have been adjusted to reflect a two-for- one stock split that occurred on December 1, 1994. +++Aggregate total investment return. See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: MuniYield California Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MYC. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options, which are traded on exchanges, are valued at their last sale price as of the close of such exchanges or, lacking any sales, at the last available bid price. Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell interest rate futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. Discounts and market premiums are amortized into interest income. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Deferred organization expenses--Deferred organization expenses are amortized on a straight-line basis over a five-year period. (f) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of 0.50% of the Fund's average weekly net assets. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended October 31, 1996 were $239,863,386 and $235,521,062, respectively. Net realized and unrealized gains (losses) as of October 31, 1996 were as follows: Realized Unrealized Gains Gains (Losses) Long-term investments $ 1,286,129 $24,578,534 Short-term investments (1,215) -- Financial futures contracts (1,005,906) -- ----------- ----------- Total $ 279,008 $24,578,534 =========== =========== As of October 31, 1996, net unrealized appreciation for Federal income tax purposes aggregated $24,578,534, all of which related to appreciated securities. The aggregate cost of investments at October 31, 1996 for Federal income tax purposes was $348,418,146. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of the holders of Common Stock. Common Stock For the year ended October 31, 1996, shares issued and outstanding remained constant at 16,781,559. At October 31, 1996, total paid-in capital amounted to $235,467,610. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yields in effect at October 31, 1996 were as follows: Series A, 3.25% and Series B, 3.00%. As of October 31, 1996, there were 4,800 AMPS shares authorized, issued and outstanding with a liquidation preference of $25,000 per share. The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of each auction. For the year ended October 31, 1996, MLPF&S, an affiliate of FAM, earned $200,611 as commissions. 5. Capital Loss Carryforward: At October 31, 1996, the Fund had a net capital loss carryforward of approximately $2,658,000, all of which expires in 2003. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: On November 8, 1996, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $.078926 per share, payable on November 27, 1996 to shareholders of record as of November 18, 1996. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders MuniYield California Fund, Inc.: We have audited the accompanying statement of assets, liabilities and capital, including the schedule of investments, of MuniYield California Fund, Inc. as of October 31, 1996, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the four-year period then ended and the period February 28, 1992 (commencement of operations) to October 31, 1992. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at October 31, 1996 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of MuniYield California Fund, Inc. as of October 31, 1996, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods in conformity with generally accepted accounting principles. Deloitte & Touche LLP Princeton, New Jersey December 3, 1996 IMPORTANT TAX INFORMATION (UNAUDITED) All of the net investment income distributions paid by MuniYield California Fund, Inc. during its taxable year ended October 31, 1996 qualify as tax-exempt interest dividends for Federal income tax purposes. Additionally, there were no capital gains distributed by the Fund during the year. Please retain this information for your records. OFFICERS AND DIRECTORS Arthur Zeikel, President and Director James H. Bodurtha, Director Herbert I. London, Director Robert R. Martin, Director Joseph L. May, Director Andre F. Perold, Director Terry K. Glenn, Executive Vice President Vincent R. Giordano, Senior Vice President Donald C. Burke, Vice President Kenneth A. Jacob, Vice President Walter C. O'Connor, Vice President Gerald M. Richard, Treasurer Mark B. Goldfus, Secretary Custodian The Bank of New York 90 Washington Street New York, New York 10286 Transfer Agents Common Stock: The Bank of New York 101 Barclay Street New York, New York 10286 Preferred Stock: IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 NYSE Symbol MYC -----END PRIVACY-ENHANCED MESSAGE-----