-----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, OeSrXQrT68i+Sg5wGsltZ2d3iwrJ/ImRX2nwQiAB4EKyrDCLn7DePdW6HNeY3w8z 8ZMOUBQJffpd9hPzQw1MTA== 0000928816-97-000410.txt : 19971219 0000928816-97-000410.hdr.sgml : 19971219 ACCESSION NUMBER: 0000928816-97-000410 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971218 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: SEC FILE NUMBER: 811-06499 FILM NUMBER: 97740573 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 MUNIYIELD CALIFORNIA FUND, INC. MUNIYIELD CALIFORNIA FUND, INC. [FUND LOGO] STRATEGIC Performance Annual Report October 31, 1997 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 #16162 -- 10/97 [RECYCLE LOGO] Printed on post-consumer recycled paper MuniYield California Fund, Inc. TO OUR SHAREHOLDERS For the year ended October 31, 1997, the Common Stock of MuniYield California Fund, Inc. earned $0.934 per share income dividends, which included earned and unpaid dividends of $0.080. This represents a net annualized yield of 5.84%, based on a month-end net asset value of $15.98 per share. Over the same period, the total investment return on the Fund's Common Stock was +10.01%, based on a change in per share net asset value from $15.44 to $15.98, and assuming reinvestment of $0.933 per share income dividends. For the six-month period ended October 31, 1997, the total investment return on the Fund's Common Stock was +8.38%, based on a change in per share net asset value from $15.19 to $15.98, and assuming reinvestment of $0.467 per share income dividends. For the six-month period ended October 31, 1997, the Fund's Auction Market Preferred Stock had an average yield of 3.17% for Series A and 3.14% for Series B. The Municipal Market Environment Long-term interest rates generally declined during the six-month period ended October 31, 1997. The general financial environment has remained one of solid economic growth tempered by few or no inflationary pressures. While economic growth has been conducive to declining bond yields, it has remained strong enough to suggest that the Federal Reserve Board (FRB) might find it necessary to raise short-term interest rates. This would be intended to slow economic growth and ensure that any incipient inflationary pressures would be curtailed. There were investor concerns that the FRB would be forced to raise interest rates prior to year-end, thus preventing an even more dramatic decline in interest rates. Long-term tax-exempt revenue bonds, as measured by the Bond Buyer Revenue Bond Index, declined over 50 basis points (0.50%) to end the six-month period ended October 31, 1997 at 5.60%. Similarly, long-term US Treasury bond yields generally moved lower during most of the six-month period ended October 31, 1997. However, the turmoil in the world's equity markets during the last week in October has resulted in a significant rally in the Treasury bond market. The US Treasury bond market was the beneficiary of a flight to quality mainly by foreign investors whose own domestic markets have continued to be very volatile. Prior to the initial decline in Asian equity markets, long-term US Treasury bond yields were essentially unchanged. By the end of October, US Treasury bond yields declined 80 basis points to 6.15%, their lowest level of 1997. The tax-exempt bond market's continued underperformance as compared to its taxable counterpart has been largely in response to its ongoing weakening technical position. As municipal bond yields have declined, municipalities have hurriedly rushed to refinance outstanding higher-couponed debt with new issues financed at present low rates. During the last six months, over $118 billion in new long-term tax-exempt issues were underwritten, an increase of over 25% versus the comparable period a year ago. As interest rates have continued to decline, these refinancings have intensified municipal bond issuance. During the past three months, approximately $60 billion in new long-term municipal securities were underwritten, an increase of over 34% as compared to the October 31, 1996 quarter. The recent trend toward larger and larger bond issues has also continued. However, issues of such magnitude usually must be attractively priced to ensure adequate investor interest. Obviously, the yields of other municipal bond issues are impacted by the yield premiums such large issuers have been required to pay. Much of the municipal bond market's recent underperformance can be traced to market pressures that these large bond issuances have exerted. In our opinion, the recent correction in world equity markets has enhanced the near-term prospects for continued low, if not declining, interest rates in the United States. It is likely that the recent correction will result in slower US domestic growth in the coming months. This decline is likely to be generated in part by reduced US export growth. Additionally, some decline in consumer spending also can be expected in response to reduced consumer confidence. Perhaps more importantly, it is likely that barring a dramatic and unexpected resurgence in domestic growth, the FRB may be unwilling to raise interest rates until the full impact of the equity market's corrections can be established. All of these factors suggest that for at least the near term, interest rates, including tax-exempt bond yields, are unlikely to rise by any appreciable amount. It is probable that municipal bond yields will remain under some pressure as a result of continued strong new-issue supply. However, the recent pace of municipal bond issuance is likely to be unsustainable. Continued increases in bond issuance will require lower tax-exempt bond yields to generate the economic savings necessary for additional municipal bond refinancing. With tax-exempt bond yields at already attractive yield ratios relative to US Treasury bonds (approximately 90% at the end of October), any further pressure on the municipal market may represent an attractive investment opportunity. Portfolio Strategy During the 12-month period ended October 31, 1997, we managed the Fund with the intention of seeking to provide a generous level of tax-exempt income while providing an attractive total return. We began the 12-month period with an optimistic outlook that interest rates could decline as a result of the attractive value of a 6.75% yield on US Treasury bonds and the relatively high yields on California municipal bonds. This optimism on interest rates proved well founded as interest rates declined about 60 basis points throughout the fiscal year ended October 31, 1997. While the overall trend in interest rates was down for the year, market volatility created a fairly well-defined trading range in which we shifted our investment strategy in response to rapidly changing market conditions. From October 1996 to December 1996, good domestic and global inflation scenarios caused interest rates to decline about 35 basis points. During that time, we scaled back the Fund's aggressive posture to a more neutral stance in response to investor concerns that interest rates had declined too rapidly for prevailing economic conditions. This strategy proved correct as interest rates increased nearly 80 basis points from December 1996 to April 1997 on investor beliefs that the US economy was expanding at an excessive pace which could result in inflation and ultimately lead to FRB interest rate tightenings. At that time, we once again held a more aggressive posture for the Fund with interest rates having rebounded to 7.15% for long-term US Treasury issues and California revenue bonds yielding close to 6%. In our opinion, these were levels where retail investors saw value in debt securities and returned to the marketplace as buyers. This restructuring benefited the Fund as interest rates ultimately declined nearly 100 basis points during the second half of the year. The Fund's performance during the past year was mainly achieved by our investment strategies of capturing the relevant trading ranges provided by what became an extremely volatile fixed-income marketplace. While enhancing net asset valuation is important, we also focused on maintaining an above-industry average current return of tax-exempt income to the Fund's Common Stock shareholders. The fiscal year concluded with interest rates at the lower end of the trading range, yet our outlook for bonds remains positive. Therefore, we expect to maintain a fully invested posture in the Fund until economic conditions would dictate a more cautious stance. 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, /S/ARTHUR ZEIKEL Arthur Zeikel President /S/VINCENT R. GIORDANO Vincent R. Giordano Senior Vice President /S/WALTER C. O'CONNOR Walter C. O'Connor Vice President and Portfolio Manager December 2, 1997
PROXY RESULTS During the six-month period ended October 31, 1997, MuniYield California Fund, Inc. Common Stock shareholders voted on the following proposals. The proposals were approved at a shareholders' meeting on November 20, 1997. The description of each proposal and number of shares voted are as follows: Shares Voted Shares Voted Shares Voted For Against Abstain 1. To approve an Agreement and Plan of Reorganization (the "Agreement and Plan of Organization") contemplating the acquisition of all of the assets of Taurus MuniCalifornia Holdings, Inc. ("Taurus") by MuniYield California Fund, Inc. ("MuniYield") and the assumption of all of the liabilities of Taurus by MuniYield, in exchange solely for an equal aggregate value of newly issued shares of Common Stock of MuniYield ("MuniYield Common Stock") and shares of one newly created series of Auction Market Preferred Stock ("AMPS") of MuniYield to be designated Series C ("MuniYield Series C AMPS") and the distribution of such MuniYield Common Stock to the holders of Common Stock of Taurus and such MuniYield Series C AMPS to the holders of AMPS of Taurus. 8,890,507 338,631 671,820 Shares Voted Shares Withheld For From Voting 2. To elect the Fund's Board of Directors: James H. Bodurtha 16,136,422 443,303 Herbert I. London 16,137,002 442,723 Robert R. Martin 16,130,780 448,945 Arthur Zeikel 16,127,407 452,318 Shares Voted Shares Voted Shares Voted For Against Abstain 3. To ratify the selection of Deloitte & Touche LLP as the Fund's independent auditors for the current fiscal year. 15,972,505 105,288 501,932 During the six-month period ended October 31, 1997, MuniYield California Fund, Inc. Preferred Stock shareholders (Series A and B) voted on the following proposals. The proposals were approved at a shareholders' meeting on November 20, 1997. The description of each proposal and number of shares voted are as follows: Shares Voted Shares Voted Shares Voted For Against Abstain 1. To approve an Agreement and Plan of Reorganization (the "Agreement and Plan of Organization") contemplating the acquisition of all of the assets of Taurus MuniCalifornia Holdings, Inc. ("Taurus") by MuniYield California Fund, Inc. ("MuniYield") and the assumption of all of the liabilities of Taurus by MuniYield, in exchange solely for an equal aggregate value of newly issued shares of Common Stock of MuniYield ("MuniYield Common Stock") and shares of one newly created series of Auction Market Preferred Stock ("AMPS") of MuniYield to be designated Series C ("MuniYield Series C AMPS") and the distribution of such MuniYield Common Stock to the holders of Common Stock of Taurus and such MuniYield Series C AMPS to the holders of AMPS of Taurus. Series A 2,388 0 0 Series B 2,393 0 7 Shares Voted Shares Withheld For From Voting 2. 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 2,022 0 Series B 1,433 2 Shares Voted Shares Voted Shares Voted For Against Abstain 3. To ratify the selection of Deloitte & Touche LLP as the Fund's independent auditors for the current fiscal year as follows: Series A 2,022 0 0 Series B 1,433 0 2
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.
SCHEDULE OF INVESTMENTS (in Thousands) S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) California -- 96.2% AAA Aaa $3,500 California Educational Facilities Authority Revenue Bonds (Stanford University), Series N, 5.20% due 12/01/2027 $3,468 California HFA, Home Mortgage Revenue Bonds: AA- Aa 610 AMT, Series C, 7.45% due 8/01/2011 625 AAA Aaa 4,000 AMT, Series E, 6.10% due 8/01/2029 (b) 4,156 AA- Aa 2,570 AMT, Series E-1, 6.70% due 8/01/2025 2,737 AA- Aa 4,955 AMT, Series F-1, 7% due 8/01/2026 5,340 AA- Aa 5,745 AMT, Series N, 6.375% due 2/01/2027 6,048 AA- Aa 825 Series D, 7.25% due 8/01/2017 870 AA- Aa 2,750 California HFA, Revenue Bonds, RIB, AMT, 8.945% due 8/01/2023 (h) 3,070 California Health Facilities Financing Authority Revenue Bonds: AA Aa3 1,000 (Kaiser Permanente), Series A, 7% due 12/01/2010 1,099 AAA Aaa 2,000 (Kaiser Permanente), Series A, 7% due 10/01/2018 (c) 2,135 AAA Aaa 1,000 Refunding (Adventist Health), Series A, 6.50% due 3/01/2014 (c) 1,077 AAA Aaa 3,000 Refunding (Sutter Health Hospital), Series C, 5.125% due 8/15/2022 (f) 2,900 AAA Aaa 4,085 (San Diego Hospital Association), Series A, 6.70% due 10/01/2010 (c) 4,471 NR* A 2,835 (Scripps Research Institute), Series A, 6.625% due 7/01/2018 3,117 A+ A 3,600 (Sutter Health Hospital), Series 89-A, 6.70% due 1/01/2013 3,728 California Pollution Control Financing Authority, PCR, Refunding (Pacific Gas and Electric Co.), VRDN (a): NR* NR* 6,700 AMT, Series B, 3.65% due 11/01/2026 6,700 NR* NR* 5,200 AMT, Series C, 3.65% due 11/01/2026 5,200 A1 NR* 900 AMT, Series G, 3.65% due 2/01/2016 900 A1+ NR* 1,400 Series C, 3.55% due 11/01/2026 1,400 A1+ NR* 1,300 Series F, 3.55% due 11/01/2026 1,300 A1+ VMIGI+ 1,900 California Pollution Control Financing Authority, Solid Waste Disposal Revenue Bonds (Shell Oil Co. -- Martinez Project), VRDN, AMT, Series A, 3.55% due 10/01/2024 (a) 1,900 California State, GO: A+ A1 9,885 5% due 10/01/2023 9,429 A+ A1 9,050 5.125% due 10/01/2027 8,734 California State Public Works Board, Lease Revenue Bonds (g): A Aaa 3,000 (California Community Colleges), Series A, 6.75% due 9/01/2001 3,334 A Aaa 6,800 (Department of Corrections -- Monterey County Soledad II), Series A, 7% due 11/01/2004 8,001 A Aaa 7,130 (Various California State University Projects), Series A, 6.625% due 10/01/2002 8,000 AAA Aaa 14,800 (Various California State University Projects), Series A, 6.70% due 10/01/2002 16,704 A Aaa 3,535 (Various Community College Projects), Series B, 7% due 3/01/2004 4,132 AA Aa 4,750 California Statewide Community Development Authority Revenue Bonds, COP (Saint Joseph Health System Group), 6.625% due 7/01/2004 (g) 5,435 A+ Aaa 3,000 Contra Costa County, California, COP (Merrithew Memorial Hospital), 6.60% due 11/01/2002 (g) 3,368 BBB NR* 1,000 Contra Costa County, California, Public Financing Authority, Tax Allocation Revenue Refunding Bonds, Series A, 7.10% due 8/01/2022 1,092 AAA Aaa 2,000 Cucamonga County, California, Water District Facilities Refinancing Bonds, COP, 6.50% due 9/01/2022 (d) 2,172 AAA Aaa 395 Culver City, California, Redevelopment Finance Authority Revenue Bonds (Senior Lien Project Loans), Series A, 6.75% due 11/01/2015 (b) 422 AAA Aaa 1,000 El Cajon, California, Redevelopment Agency, Tax Allocation Bonds (El Cajon Redevelopment Project), 6.60% due 10/01/2001 (b)(g) 1,108 BBB Baa 1,875 Inglewood, California, Public Financing Authority Revenue Bonds (Manchester-Prairie-North Inglewood Industrial Park Project), Series B, 7% due 5/01/2022 2,027 AAA Aaa 3,590 Long Beach California, Water Revenue Refunding Bonds, Series A, 5% due 5/01/2024 3,443 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) 4,064 A+ Aa3 3,600 Los Angeles, California, Department of Water and Power, Electric Plant Revenue Refunding Bonds, RIB, 6.375% due 2/01/2020 (h) 3,866 AAA Aaa 3,925 Los Angeles, California, Department of Water and Power, Waterworks Revenue Bonds, 6.30% due 7/01/2024 (c) 4,272 Los Angeles, California, Harbor Department Revenue Bonds: AA Aa3 4,240 AMT, Series B, 6.60% due 8/01/2015 4,622 AA Aa3 6,855 AMT, Series B, 6.625% due 8/01/2019 7,444 AAA Aaa 4,000 RITR, AMT, Series 7, 8.395% due 11/01/2026 (c)(h) 4,875 AAA Aaa 3,000 Los Angeles, California, Wastewater System Revenue Bonds, Series D, 6.625% due 12/01/2000 (c)(g) 3,321 AAA Aaa 5,000 Los Angeles County, California, COP (Correctional Facilities Project), 6.50% due 9/01/2000 (c)(g) 5,426 AA- Aaa 6,500 Los Angeles County, California, Transportation Commission, Sales Tax Revenue Bonds, Series A, 6.75% due 7/01/2001 (g) 7,199 M-S-R Public Power Agency, California, Revenue Bonds (San Juan Project): A A3 5,000 Refunding, Series H, 5.90% due 7/01/2020 5,044 AAA Aaa 6,155 Series E, 6.50% due 7/01/2017 (c) 6,691 Metropolitan Water District, Southern California Waterworks Revenue Bonds: AA Aa 6,000 6.625% due 7/01/2001 (g) 6,610 AA Aa 3,045 Series C, 5% due 7/01/2027 2,896 AAA Aaa 2,500 Northern California Power Agency, Multiple Capital Facilities Revenue Bonds, RIB, 9.045% due 9/02/2025 (c)(h) 2,984 Oakland, California, Joint Powers Financing Authority, Lease Revenue Bonds (Oakland Administration Buildings) (b): AAA Aaa 2,000 5.90% due 8/01/2016 2,115 AAA Aaa 6,000 5.75% due 8/01/2021 6,214 AAA Aaa 5,395 5.75% due 8/01/2026 5,587 AAA Aaa 7,840 Orange County, California, Local Transportation Authority, Sales Tax Revenue Bonds, RITR, Series B, 8.22% due 2/15/2002 (g)(h) 9,300 A NR* 5,000 Palmdale, California, Civic Authority, Revenue Refunding Bonds (Merged Redevelopment Project), Series A, 6.60% due 9/01/2034 5,630 AAA Aaa 3,905 Rancho Cucamonga, California, Redevelopment Agency, Tax Allocation Bonds (Rancho Redevelopment Project), 6.75% due 9/01/2020 (c) 4,155 NR* A2 3,750 Rancho Mirage, California, Joint Powers Financing Authority, COP (Eisenhower Memorial Hospital), 7% due 3/01/2002 (g) 4,221 Redwood City, California, Public Financing Authority, Local Agency Revenue Bonds: AAA Aaa 5,025 Refunding, Series A, 6.50% due 7/15/2011 (b) 5,465 A- NR* 1,500 Series B, 7.25% due 7/15/2001 (g) 1,685 A+ Aaa 18,000 Sacramento, California, City Financing Authority Revenue Bonds, 6.80% due 11/01/2001 (g) 20,104 Sacramento, California, Municipal Utility District, Electric Revenue Bonds, Series B (c)(g): AAA Aaa 3,180 6.25% due 8/15/2002 3,519 AAA Aaa 4,865 6.375% due 8/15/2002 5,410 AAA Aaa 3,000 San Diego County, California, COP, Refunding (Central Jail), 5% due 10/01/2025 (b) 2,857 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) 1,637 AAA Aaa 4,525 AMT, Issue 6, 6.60% due 5/01/2020 (b) 4,964 AAA Aaa 11,000 Refunding, Issue 1, 6.50% due 5/01/2013 (b) 12,072 AA- A1 5,480 San Francisco, California, City and County, GO (Variable Purpose Projects), UT, Series A, 6.50% due 12/15/2000 (g) 5,876 AA- Aaa 5,000 San Francisco, California, City and County Public Utilities Commission, Water Revenue Bonds, Series A, 6.50% due 11/01/2001 (g) 5,529 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) 5,359 AAA Aaa 3,180 Santa Clara, California, Electric Revenue Bonds, Series A, 6.50% due 7/01/2021 (c) 3,457 AAA Aaa 9,525 Santa Clara County, California, Financing Authority, Lease Revenue Bonds (VMC Facility Replacement Project), Series A, 6.75% due 11/15/2004 (b)(g) 11,070 AA A1 5,000 Santa Clara County, California, Transportation District, Sales Tax Revenue Bonds, Series A, 6.75% due 6/01/2011 5,459 AAA Aaa 3,000 Santa Fe Springs, California, Redevelopment Agency, Tax Allocation Bonds (Consolidated Redevelopment Project), Series A, 6% due 9/01/2014 (c) 3,165 AAA Aaa 7,750 Santa Rosa, California, Wastewater Revenue Bonds (Sub-Regional Wastewater Project), Series A, 6.50% due 9/01/2002 (d)(g) 8,635 AAA NR* 1,125 Southern California Home Financing Authority, S/F Mortgage Revenue Bonds, AMT, Series A, 6.75% due 9/01/2022 (e) 1,183 AAA Aaa 5,000 Stockton, California, Revenue Bonds, COP (Wastewater Treatment Plant Expansion), Series A, 6.80% due 9/01/2024 (d) 5,649 AAA Aaa 6,645 University of California Revenue Bonds, RITR, Series 13, 8.77% due 9/01/2019 (c) 7,849 A NR* 3,300 University of California Revenue Refunding Bonds (Multiple Purpose Projects), Series A, 6.875% due 9/01/2002 (g) 3,733 AAA Aaa 2,735 West and Central Basin, California, Financing Authority Revenue Refunding Bonds (Central Basin Project), Series A, 5.125% due 8/01/2022 (b) 2,666 Puerto Rico -- 2.3% A Baa1 5,500 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway Revenue Refunding Bonds, Series V, 6.625% due 7/01/2012 6,022 BBB+ Baa1 2,600 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series T, 6.375% due 7/01/2024 2,850 Total Investments (Cost -- $353,130) -- 98.5% 382,393 Other Assets Less Liabilities -- 1.5% 5,904 ------------ Net Assets -- 100.0% $388,297 ============ (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, 1997. (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, 1997. * Not Rated. + Highest short-term rating by Moody's Investors Service, Inc. Ratings of issues shown have not been audited by Deloitte & Touche LLP. PORTFOLIO ABBREVIATIONS To simplify the listings of MuniYield California Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) COP Certificates of Participation GO General Obligation Bonds HFA Housing Finance Agency PCR Pollution Control Revenue Bonds RIB Residual Interest Bonds RITR Residual Interest Trust Receipts S/F Single-Family UT Unlimited Tax VRDN Variable Rate Demand Notes See Notes to Financial Statements.
FINANCIAL INFORMATION Statement of Assets, Liabilities and Capital as of October 31, 1997 Assets: Investments, at value (identified cost -- $353,130,053) (Note 1a) $382,392,974 Cash 86,219 Interest receivable 6,341,732 Prepaid expenses and other assets 50,248 ------------ Total assets 388,871,173 ------------ Liabilities: Payables: Dividends to shareholders (Note 1f) $310,717 Investment adviser (Note 2) 174,955 485,672 ------------ Accrued expenses and other liabilities 88,548 ------------ Total liabilities 574,220 ------------ Net Assets: Net assets $388,296,953 ============ 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 (16,790,322 shares issued and outstanding) $1,679,032 Paid-in capital in excess of par 233,928,260 Undistributed investment income -- net 2,982,280 Undistributed realized capital gains on investments -- net 444,460 Unrealized appreciation on investments -- net 29,262,921 ------------ Total -- Equivalent to $15.98 net asset value per Common Stock (market price -- $15.875) 268,296,953 ------------ Total capital $388,296,953 ============ *Auction Market Preferred Stock. See Notes to Financial Statements.
Statement of Operations For the Year Ended October 31, 1997 Investment Income Interest and amortization of premium and discount earned $22,298,994 (Note 1d): Expenses: Investment advisory fees (Note 2) $1,917,955 Commission fees (Note 4) 306,792 Accounting services (Note 2) 74,267 Professional fees 72,484 Transfer agent fees 59,008 Printing and shareholder reports 35,272 Custodian fees 28,281 Listing fees 24,260 Directors' fees and expenses 22,820 Pricing fees 9,126 Amortization of organization expenses (Note 1e) 1,859 Other 20,734 ------------ Total expenses 2,572,858 ------------ Investment income -- net 19,726,136 ------------ Realized & Realized gain on investments -- net 4,361,725 Unrealized Gain on Change in unrealized appreciation on investments -- net 4,684,387 Investments -- Net ------------ (Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $28,772,248 ============ See Notes to Financial Statements.
Statements of Changes in Net Assets For the Year Ended October 31, 1997 1996 Increase (Decrease) in Net Assets: Operations: Investment income -- net $19,726,136 $19,405,691 Realized gain on investments -- net 4,361,725 279,008 Change in unrealized appreciation/depreciation on investments -- net 4,684,387 4,438,485 ------------ ------------ Net increase in net assets resulting from operations 28,772,248 24,123,184 ------------ ------------ Dividends to Investment income -- net: Shareholders Common Stock (15,659,702) (15,619,604) (Note 1f): Preferred Stock (4,036,776) (4,164,120) ------------ ------------ Net decrease in net assets resulting from dividends to shareholders (19,696,478) (19,783,724) ------------ ------------ Capital Stock Value of shares issued to Common Stock shareholders in reinvestment Transactions of dividends 139,682 -- (Note 4): ------------ ------------ Net Assets: Total increase in net assets 9,215,452 4,339,460 Beginning of year 379,081,501 374,742,041 ------------ ------------ End of year* $388,296,953 $379,081,501 ============ ============ *Undistributed investment income -- net $2,982,280 $2,952,622 ============ ============ See Notes to Financial Statements.
Financial Highlights The following per share data and ratios have been derived from information provided in the financial statements. For the Year Ended October 31, 1997 1996 1995 1994 1993 Increase (Decrease) in Net Asset Value: Per Share Net asset value, beginning of year $15.44 $15.18 $13.91 $16.60 $14.03 Operating -------- -------- -------- -------- -------- Performance: Investment income -- net 1.17 1.16 1.18 1.23 1.22 Realized and unrealized gain (loss) on investments -- net .54 .28 1.53 (2.65) 2.62 -------- -------- -------- -------- -------- Total from investment operations 1.71 1.44 2.71 (1.42) 3.84 -------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income -- net (.93) (.93) (.90) (1.00) (.99) Realized gain on investments -- net -- -- (.25) (.07) (.08) -------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (.93) (.93) (1.15) (1.07) (1.07) -------- -------- -------- -------- -------- Effect of Preferred Stock activity: Dividends and distributions to Preferred Stock shareholders: Investment income -- net (.24) (.25) (.25) (.19) (.18) Realized gain on investments -- net -- -- (.04) (.01) (.02) -------- -------- -------- -------- -------- Total effect of Preferred Stock activity (.24) (.25) (.29) (.20) (.20) -------- -------- -------- -------- -------- Net asset value, end of year $15.98 $15.44 $15.18 $13.91 $16.60 ======== ======== ======== ======== ======== Market price per share, end of year $15.875 $14.875 $13.375 $12.125 $15.625 ======== ======== ======== ======== ======== Total Investment Based on market price per share 13.44% 18.68% 20.62% (16.36%) 15.56% Return:* ======== ======== ======== ======== ======== Based on net asset value per share 10.01% 8.54% 19.33% (9.69%) 26.88% ======== ======== ======== ======== ======== Ratios to Average Expenses .67% .67% .69% .66% .69% Net Assets:** ======== ======== ======== ======== ======== Investment income -- net 5.14% 5.16% 5.48% 5.44% 5.35% ======== ======== ======== ======== ======== Supplemental Net assets, net of Preferred Stock, end of year Data: (in thousands) $268,297 $259,082 $254,742 $233,425 $278,522 ======== ======== ======== ======== ======== Preferred Stock outstanding, end of year (in thousands) $120,000 $120,000 $120,000 $120,000 $120,000 ======== ======== ======== ======== ======== Portfolio turnover 88.68% 67.48% 69.59% 78.89% 21.68% ======== ======== ======== ======== ======== Leverage: Asset coverage per $1,000 $3,236 $3,159 $3,123 $2,945 $3,321 ======== ======== ======== ======== ======== Dividends Series A -- Investment income -- net $852 $875 $882 $694 $547 Per Share On ======== ======== ======== ======== ======== Preferred Stock Series B -- Investment income -- net $830 $860 $864 $615 $688 Outstanding:+ ======== ======== ======== ======== ======== * 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. + Dividends per share have been adjusted to reflect a two-for-one stock split that occurred on December 1, 1994. See Notes to Financial Statements.
MuniYield California Fund, Inc. October 31, 1997 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. [bullet] 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. [bullet] 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, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended October 31, 1997 were $325,036,649 and $351,066,735, respectively. Net realized and unrealized gains (losses) as of October 31, 1997 were as follows: Realized Gains Unrealized (Losses) Gains Long-term investments $4,338,323 $29,262,921 Short-term investments (823) -- Financial futures contracts 24,225 -- ---------- ----------- Total $4,361,725 $29,262,921 ========== =========== As of October 31, 1997, net unrealized appreciation for Federal income tax purposes aggregated $29,262,921, of which $29,324,999 related to appreciated securities and $62,078 related to depreciated securities. The aggregate cost of investments at October 31, 1997 for Federal income tax purposes was $353,130,053. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of the holders of Common Stock. Common Stock Shares issued and outstanding during the year ended October 31, 1997 increased by 8,763 as a result of dividend reinvestment and during the year ended October 31, 1996 remained constant. 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, 1997 were as follows: Series A, 3.40% and Series B, 3.30%. As of October 31, 1997, 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, 1997, Merrill Lynch, Pierce, Fenner & Smith Inc., an affiliate of FAM, earned $175,229 as commissions. 5. Subsequent Event: On November 6, 1997, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $.079828 per share, payable on November 26, 1997 to shareholders of record as of November 17, 1997. 6. Reorganization Plan: On November 20, 1997, the shareholders approved a plan of reorganization whereby the Fund would acquire substantially all of the assets and liabilities of Taurus MuniCalifornia Holdings, Inc. in exchange for newly issued shares of the Fund. Taurus MuniCalifornia Holdings, Inc. is a registered, non-diversified, closed-end management investment company. Both entities have a similar investment objective and are managed by FAM. 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, 1997, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with 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, 1997 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, 1997, 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, 1997 IMPORTANT TAX INFORMATION (unaudited) All of the net investment income distributions paid by MuniYield California Fund, Inc. during its taxable year ended October 31, 1997 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 Philip M. Mandel, Secretary Custodian The Bank of New York 90 Washington Street New York, NY 10286 Transfer Agent Common Stock: The Bank of New York 101 Barclay Street New York, NY 10286 Preferred Stock: IBJ Schroder Bank & Trust Company One State Street New York, NY 10004 NYSE Symbol MYC -----END PRIVACY-ENHANCED MESSAGE-----