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
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C>
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
<CAPTION>
Shares Voted Shares Withheld
For From Voting
<S> <C> <C> <C>
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
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
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:
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C> <C>
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
<CAPTION>
Shares Voted Shares Withheld
For From Voting
<S> <C> <C> <C>
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
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of October 31, 1997
<S> <C> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
October 31, 1997
<S> <C> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended
October 31,
1997 1996
Increase (Decrease) in Net Assets:
<S> <C> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
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
