UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-6499
Name of Fund: MuniYield California Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
MuniYield California Fund, Inc., 800 Scudders Mill Road, Plainsboro,
NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 10/31/03
Date of reporting period: 11/01/02 - 10/31/03
Item 1 - Attach shareholder report
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
MuniYield California
Fund, Inc.
Annual Report
October 31, 2003
MuniYield California Fund, Inc. seeks to provide shareholders with
as high a level of current income exempt from Federal and California
income taxes as is consistent with its investment policies and
prudent investment management by investing primarily in a portfolio
of long-term municipal obligations the interest on which, in the
opinion of bond counsel to the issuer, is exempt from Federal and
California income taxes.
This report, including the financial information herein, is
transmitted to shareholders of MuniYield California Fund, Inc. for
their information. It is not a prospectus. Past performance results
shown in this report should not be considered a representation of
future performance. The Fund has leveraged its Common Stock and
intends to remain leveraged by issuing Preferred Stock to provide
the Common Stock shareholders with a potentially higher rate of
return. Leverage creates risks for Common Stock shareholders,
including the likelihood of greater volatility of net asset value
and market price of shares of the Common Stock, and the risk that
fluctuations in the short-term dividend rates of the Preferred Stock
may affect the yield to Common Stock shareholders. Statements and
other information herein are as dated and are subject to change.
MuniYield California Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield California Fund, Inc.
The Benefits and Risks of Leveraging
MuniYield California Fund, Inc. utilizes leveraging to seek
to enhance the yield and net asset value of its Common Stock.
However, these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues Preferred Stock, which
pays dividends at prevailing short-term interest rates, and invests
the proceeds in long-term municipal bonds. The interest earned on
these investments, net of dividends to Preferred Stock, is paid to
Common Stock shareholders in the form of dividends, and the value of
these portfolio holdings is reflected in the per share net asset
value of the Fund's Common Stock. However, in order to benefit
Common Stock shareholders, the yield curve must be positively
sloped; that is, short-term interest rates must be lower than long-
term interest rates. At the same time, a period of generally
declining interest rates will benefit Common Stock shareholders. If
either of these conditions change, then the risks of leveraging will
begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred
Stock for an additional $50 million, creating a total value of
$150 million available for investment in long-term municipal bonds.
If prevailing short-term interest rates are approximately 3% and
long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million
of Preferred Stock based on the lower short-term interest rates. At
the same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pickup on the
Common Stock will be reduced or eliminated completely. At the same
time, the market value of the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain
securities whose potential income return is inversely related to
changes in a floating interest rate ("inverse floaters"). In
general, income on inverse floaters will decrease when short-term
interest rates increase and increase when short-term interest rates
decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of
reduced or eliminated interest payments and losses of invested
principal. In addition, inverse floaters have the effect of
providing investment leverage and, as a result, the market value of
such securities will generally be more volatile than that of fixed-
rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the
net asset value of the Fund's shares may also be more volatile than
if the Fund did not invest in such securities. As of October 31,
2003, the percentage of the Fund's total net assets invested in
inverse floaters was 12.86%.
Swap Agreements
The Fund may also invest in swap agreements, which are over-the-
counter contracts in which one party agrees to make periodic
payments based on the change in market value of a specified bond,
basket of bonds, or index in return for periodic payments based on a
fixed or variable interest rate or the change in market value of a
different bond, basket of bonds or index. Swap agreements may be
used to obtain exposure to a bond or market without owning or taking
physical custody of securities.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
A Letter From the President
Dear Shareholder
As 2003 draws to a close, it seems appropriate to reflect on what
has been a meaningful year in many respects. We saw the beginning
and the end of all-out war in Iraq, equity market uncertainty turned
to strength and sub par gross domestic product growth of 1.4% in the
first quarter of 2003 grew to an extraordinary 8.2% in the third
quarter. Amid the good news, fixed income investments, which had
become the asset class of choice during the preceding three-year
equity market decline, faced new challenges.
During 2003, municipal bond yields rose and fell in reaction to
geopolitical events, equity market performance, economic activity
and employment figures. By the end of October, long-term municipal
revenue bond yields were slightly higher than they were one year
earlier, at 5.24% as measured by the Bond Buyer Revenue Bond Index.
With many state deficits at record levels, municipalities issued
nearly $400 billion in new long-term tax-exempt bonds during the
12-month period ended October 31, 2003. The availability of bonds,
together with attractive yield ratios relative to U.S. Treasury
issues, made municipal bonds a popular fixed income investment
alternative.
Throughout the year, our portfolio managers continued to work
diligently to deliver on our commitment to provide superior
performance within reasonable expectations for risk and return. This
included striving to outperform our peers and the market indexes.
With that said, remember that the advice and guidance of a skilled
financial advisor often can mean the difference between successful
and unsuccessful investing. A financial professional can help you
choose those investments that will best serve you as you plan for
your financial future.
Finally, I am proud to premiere a new look to our shareholder
communications. Our portfolio manager commentaries have been trimmed
and organized in such a way that you can get the information you
need at a glance, in plain language. Today's markets are confusing
enough. We want to help you put it all in perspective. The report's
new size also allows us certain mailing efficiencies. Any cost
savings in production or postage are passed on to the Fund and,
ultimately, to Fund shareholders.
We thank you for trusting Merrill Lynch Investment Managers with
your investment assets, and we look forward to serving you in the
months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
A Discussion With Your Fund's Portfolio Manager
In a very volatile period for interest rates, we maintained our
focus on increasing current return and credit quality in the
portfolio while also minimizing the Fund's price volatility.
Describe the market environment relative to municipal bonds during
the fiscal year.
At the end of October, long-term tax-exempt bond yields were
90% - 95% of comparable U.S. Treasury securities, substantially
exceeding their historical average of 85% - 88%. Considering their
tax-free status, this made long-term municipal bonds an attractive
investment alternative during the past 12 months.
Long-term U.S. Treasury bond yields declined throughout most of the
first seven months of the fiscal year, while bond prices--which move
in the opposite direction of yields--rose in response to weak equity
markets, concerns about a growing conflict in Iraq, and continued
sub par U.S. economic growth. The Federal Reserve Board continued to
lower short-term interest rates to stimulate business and consumer
economic activity. Bond yields reversed course in July and August,
rising sharply as economic conditions began to improve and as most
analysts agreed the Federal Reserve Board had finished lowering
interest rates. In mid-August, U.S. Treasury bond yields reached
5.45%, their highest level during the period, before again moving
lower for the remainder of the fiscal year. At the end of the
12-month period, long-term U.S. Treasury bond yields were 5.13%,
15 basis points (.15%) higher than a year earlier. The relatively
modest yield increase year-over-year masks the considerable
month-to-month volatility in interest rates during the period.
Long-term tax-exempt bond yields also rose from year-ago levels,
although to a lesser extent than U.S. Treasury bonds. Yield
movements were less volatile than those experienced by U.S. Treasury
issues, because municipal bond prices typically are less sensitive
to short-term economic and geopolitical pressures. By the end of
October, long-term municipal revenue bond yields stood at 5.24%, a
small increase compared to the previous year. Yields for long-term
Aaa-rated tax-exempt bonds (the highest rated) declined 10 basis
points during the past year. The decline largely reflected
investors' growing demand for high-quality bonds, which provided
valuable stability in an uncertain market.
The municipal market's outperformance of the U.S. Treasury market
was especially impressive given the dramatic increase in new bond
issuance during the fiscal year. State and local governments took
advantage of historically low interest rates to finance existing
infrastructure needs and refinance outstanding high-interest-rate
debt. During the past 12 months, municipalities issued nearly
$400 billion in new securities, an increase of more than 12%
compared to last year's issuance. More recently, however, new
municipal bond issuance slowed as tax-exempt bond yields rose,
making borrowing more expensive. Less than $90 billion in long-term
tax-exempt bonds was underwritten during the period's last three
months, a decline of nearly 10% versus the same three months of
2002. This decline in supply helped support the tax-exempt market's
recent performance.
How did conditions in the state of California affect the Fund?
In July 2003, Standard & Poor's downgraded California's credit
rating to BBB, the lowest of any state in the nation. The credit
downgrade stemmed from uncertainty about California's financial
situation, characterized by a deficit that then exceeded
$38 billion. Since that time, the state managed to pass a budget.
Unfortunately for California's finances, the budget included record
amounts of new borrowing and lacked provisions to significantly cut
government spending or increase tax revenues. To close its budget
gap, California plans to issue new general obligation debt, quasi-
state-backed bonds secured by a legal settlement with the tobacco
industry, and "fiscal recovery" bonds to refinance California's high-
interest-rate debt. Some of these bond issues, however, are likely
to face legal challenges.
California's political situation was clarified in October, when
Arnold Schwarzenegger won a recall election to succeed Gray Davis as
governor. It is, however, unclear whether this election will lead to
significant changes in the state's fiscal responsibility or in its
financial condition.
California general debt obligations offered as much as 75 basis
points of additional yield relative to comparable AAA-rated
municipal bonds during the period, reflecting investors' concern
about the state's credit problems. As the period progressed, that
spread narrowed to 35 basis points before widening to 50 basis
points late in the period. The more recent wider spreads were
prompted by renewed skepticism following the recall and anticipated
new bond supply.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
How did the Fund perform during the period in light of the existing
market conditions?
For the year ended October 31, 2003, the Common Stock of MuniYield
California Fund, Inc. had a net annualized yield of 6.41%, based on
a year-end per share net asset value of $15.17 and $.972 per share
income dividends. Over the same period, the total investment return
on the Fund's Common Stock was +7.14%, based on a change in per
share net asset value from $15.14 to $15.17, and assuming
reinvestment of $.972 per share ordinary income dividends.
For the six-month period ended October 31, 2003, the total
investment return on the Fund's Common Stock was +1.08%, based on a
change in per share net asset value from $15.52 to $15.17, and
assuming reinvestment of $.486 per share ordinary income dividends.
For the six-month period ended October 31, 2003, the Fund's Auction
Market Preferred Stock had an average yield of 2.11% for Series A,
..69% for Series B and .91% for Series C.
For a description of the Fund's total investment return based on a
change in the per share market value of the Fund's Common Stock (as
measured by the trading price of the Fund's shares on the New York
Stock Exchange), and assuming reinvestment of dividends, please
refer to the Financial Highlights section of the Financial
Statements included in this report. As a closed-end fund, the Fund's
shares may trade in the secondary market at a premium or discount to
the Fund's net asset value. As a result, total investment returns
based on changes in the market value of the Fund's Common Stock can
vary significantly from total investment return based on changes in
the Fund's net asset value.
The Fund's performance, based on net asset value, for the fiscal
year exceeded that of its comparable Lipper category of California
Municipal Debt Funds, which had an average return of +5.40% for the
same 12-month period. The Fund's above-average current return was
achieved by maximizing coupon income during the period and
maintaining a low duration profile. In a highly volatile interest
rate environment, the shorter duration helped us to insulate the
Fund from spikes in interest rates.
What changes were made to the portfolio during the period?
We made few changes to the portfolio's mix of investments. The Fund
benefited from receiving a higher-than-average stream of coupon
payments from its bonds, the result of a structure put in place in
prior years during a more favorable interest rate environment.
With interest rates at historically low levels, and given our belief
in the potential for higher rates in the future, we continued to
follow a relatively defensive investment strategy and keep the
Fund's duration below that of its peers. Generally, the lower the
duration, the less an investment will fluctuate in value as interest
rates move up or down. Because market rates moved upward during the
period, having a lower-than-average duration helped performance.
In terms of leverage, the Fund's borrowing costs remained between
..75%-1.25% during the fiscal year. These attractive funding levels,
in combination with a steep tax-exempt yield curve, generated a
significant income benefit to the Fund's Common Stock shareholders.
Further declines in the Fund's borrowing costs would require
significant easing of monetary policy by the Federal Reserve Board.
While such action is not expected, neither is an imminent increase
in short-term interest rates. We expect short-term borrowing costs
to remain near current attractive levels for the coming months.
However, should the spread between short-term and long-term interest
rates narrow, the benefits of leverage will decline, and as a
result, reduce the yield on the Fund's Common Stock. (For a more
complete explanation of the benefits and risks of leveraging, see
page 2 of this report to shareholders.)
How would you characterize the portfolio's position at the close of
the period?
We continued to position the portfolio defensively, keeping its
duration shorter than our Lipper group. Our focus is on maintaining
the Fund's net asset value, as we anticipate continued interest rate
volatility. We believe the Fund's defensive structure should mute
some of the price volatility that may result if long-term market
rates continue to rise.
Walter C. O'Connor
Vice President and Portfolio Manager
November 11, 2003
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Schedule of Investments (In Thousands)
S&P Moody's Face
Ratings++ Ratings++ Amount Municipal Bonds Value
California--134.0%
ABAG Finance Authority for Nonprofit Corporations, California,
Revenue Refunding Bonds:
BBB+ NR* $ 2,000 COP (Episcopal Homes Foundation), 5.125% due 7/01/2018 $ 1,911
BBB NR* 1,730 (Redwood Senior Homes and Services), 6% due 11/15/2022 1,754
AAA Aaa 3,975 Antioch Area Public Facilities Financing Agency, California,
Special Tax (Community Facilities District Number 1989-1),
5.70% due 8/01/2022 (a) 4,367
AAA Aaa 4,690 Arcata, California, Joint Powers Financing Authority, Tax Allocation
Revenue Refunding Bonds (Community Development Project Loan),
Series A, 6% due 8/01/2023 (a) 4,944
AAA Aaa 2,500 Bakersfield, California, COP, Refunding (Convention Center Expansion
Project), 5.80% due 4/01/2017 (h) 2,813
AA- Aa2 6,900 California HFA, Home Mortgage Revenue Bonds, Series D, 5.85% due
8/01/2017 7,327
California Health Facilities Finance Authority Revenue Bonds:
AAA NR* 5,000 (Kaiser Permanente), RIB, Series 26, 9.64% due 6/01/2022 (f)(j) 5,726
NR* Aa3 2,835 (Scripps Research Institute), Series A, 6.625% due 7/01/2018 2,981
AAA Aaa 1,490 California Health Facilities Finance Authority, Revenue Refunding
Bonds (Pomona Valley Hospital Medical Center), Series A, 5.625%
due 7/01/2019 (h) 1,626
California Infrastructure and Economic Development Bank Revenue
Bonds:
AAA Aaa 2,520 (Asian Museum Foundation of San Francisco), 5.50% due
6/01/2018 (h) 2,776
A- NR* 4,990 (J. David Gladstone Institute Project), 5.50% due 10/01/2022 5,219
BBB+ Baa2 13,000 California Pollution Control Financing Authority, Solid Waste
Disposal Revenue Refunding Bonds (Republic Services Inc. Project),
AMT, Series C, 5.25% due 6/01/2023 12,961
California Rural Home Mortgage Finance Authority, S/F Mortgage
Revenue Bonds (Mortgage-Backed Securities Program), AMT:
NR* Aaa 445 Series A-1, 6.90% due 12/01/2024 (d)(g) 470
AAA NR* 525 Series B, 6.15% due 6/01/2020 (e) 553
California State Department of Veteran Affairs, Home Purpose Revenue
Refunding Bonds:
AAA Aaa 3,000 Series A, 5.30% due 12/01/2021 (a) 3,118
A Aa2 5,970 Series C, 5.875% due 12/01/2015 6,393
A Aa2 9,315 Series C, 6.05% due 12/01/2020 9,945
A Aa2 2,500 Series C, 6.15% due 12/01/2027 2,561
BBB+ A3 4,500 California State, Department of Water Resources, Power Supply
Revenue Bonds, Series A, 5.75% due 5/01/2017 4,911
AA Aa3 8,000 California State Department of Water Resources Revenue Bonds
(Central Valley Project), 5.25% due 7/01/2022 8,024
California State, GO, Refunding:
BBB A3 8,000 5.75% due 5/01/2030 8,265
A A3 2,785 (Veterans), AMT, Series BJ, 5.70% due 12/01/2032 2,831
Portfolio Abbreviations
To simplify the listings of MuniYield California Fund, Inc.'s
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DRIVERS Derivative Inverse Tax-Exempt Receipts
GO General Obligation Bonds
HFA Housing Finance Agency
M/F Multi-Family
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
Ratings++ Ratings++ Amount Municipal Bonds Value
California (continued)
California State Public Works Board, Lease Revenue Bonds:
AAA Aaa $ 2,000 (California State University), Series C, 5.40% due
10/01/2022 (h) $ 2,097
AAA NR* 8,500 DRIVERS, Series 209, 9.91% due 3/01/2016 (a)(j) 10,265
BBB- Aaa 6,800 (Department of Corrections), Series A, 7% due 11/01/2004 (i) 7,339
AAA Aaa 6,645 (Department of Health Services), Series A, 5.75% due 11/01/2017 (h) 7,271
California State University and Colleges, Housing System Revenue
Refunding Bonds (c):
AAA Aaa 3,000 5.75% due 11/01/2015 3,307
AAA Aaa 3,500 5.80% due 11/01/2017 3,859
AAA Aaa 3,900 5.90% due 11/01/2021 4,311
BBB A3 6,850 California State, Various Purpose, GO, 5.50% due 11/01/2033 6,950
AAA Aaa 5,250 California Statewide Communities Development Authority, COP
(John Muir/Mount Diablo Health System), 5.125% due 8/15/2022 (h) 5,439
California Statewide Communities Development Authority, Health
Facility Revenue Bonds (Memorial Health Services), Series A:
A- A3 3,270 6% due 10/01/2023 3,458
A- A3 3,000 5.50% due 10/01/2033 3,011
A+ A1 5,000 California Statewide Communities Development Authority Revenue
Bonds (Sutter Health), Series B, 5.50% due 8/15/2028 5,055
BBB Baa2 2,000 Central California, Joint Powers Health Financing Authority, COP
(Community Hospitals of Central California), 6% due 2/01/2020 2,080
AAA Aaa 2,000 Chino Basin, California, Regional Financing Authority Revenue Bonds
(Inland Empire Utility Agency Sewer Project), 5.75% due 11/01/2019 (h) 2,251
AAA Aaa 2,705 Contra Costa County, California, Public Financing Lease Revenue
Refunding Bonds (Various Capital Facilities), Series A, 5.30% due
8/01/2020 (h) 2,873
AAA Aaa 2,500 Davis, California, Joint Unified School District, Community
Facilities District, Special Tax Refunding Bonds, Number 1, 5.50%
due 8/15/2021 (h) 2,698
BBB Baa2 5,650 Golden State Tobacco Securitization Corporation of California,
Tobacco Settlement Revenue Bonds, Series A-4, 7.80% due 6/01/2042 5,775
NR* Aaa 9,957 Industry, California, Urban Development Agency, Tax Allocation
Refunding Bonds, RIB, Series 632-X, 9.72% due 5/01/2021 (h)(j) 11,611
NR* Aaa 2,000 Los Angeles, California, COP (Sonnenblick Del Rio West Los Angeles),
6.20% due 11/01/2031 (a) 2,283
AAA Aaa 10,000 Los Angeles, California, Community College District, GO, Series A,
5.50% due 8/01/2021 (h) 10,829
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) 3,734
Los Angeles, California, Department of Water and Power, Electric
Plant Revenue Refunding Bonds:
AA- Aaa 11,865 6% due 2/15/2005 (i) 12,718
NR* Aa3 4,920 RIB, Series 370, 10.67% due 2/15/2024 (j) 5,628
Los Angeles, California, Harbor Department Revenue Bonds, AMT:
AAA Aaa 4,000 RITR, Series RI-7, 10.945% due 11/01/2026 (h)(j) 4,953
AA Aa2 2,000 Series B, 6% due 8/01/2015 2,210
AA Aa2 6,000 Series B, 5.375% due 11/01/2023 6,122
AAA Aaa 9,000 Los Angeles, California, Wastewater System Revenue Bonds, Series A,
5% due 6/01/2023 (c) 9,136
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
Ratings++ Ratings++ Amount Municipal Bonds Value
California (continued)
AAA Aaa $ 4,000 Los Angeles County, California, Metropolitan Transportation
Authority, Sales Tax Revenue Bonds (Proposition C), Second Tier,
Senior Series A, 5.50% due 7/01/2005 (a)(i) $ 4,363
AAA Aaa 5,000 Los Angeles County, California, Public Works Financing Authority,
Lease Revenue Bonds (Multiple Capital Facilities Project VI),
Series A, 5.625% due 5/01/2026 (a) 5,377
AAA Aaa 8,705 Modesto, California, Wastewater Treatment Facilities Revenue Bonds,
5.625% due 11/01/2017 (h) 9,762
AAA Aaa 1,750 North City-West, California, School Facilities Financing Authority,
Special Tax Refunding Bonds, Series B, 5.75% due 9/01/2015 (f) 1,969
Oakland, California, Joint Powers Financing Authority, Lease Revenue
Bonds (Oakland Administration Buildings) (a):
AAA Aaa 2,000 5.90% due 8/01/2016 2,252
AAA Aaa 11,395 5.75% due 8/01/2021 12,634
Oakland, California, Unified School District, Alameda County, GO,
Series F (h):
AAA Aaa 3,290 5.50% due 8/01/2017 3,646
AAA Aaa 3,770 5.50% due 8/01/2018 4,156
AAA Aaa 1,750 Pleasant Valley, California, School District, Ventura County, GO,
Series C, 5.75% due 8/01/2025 (b)(h) 1,930
AAA Aaa 10,600 Port Oakland, California, Port Revenue Refunding Bonds, Series I,
5.40% due 11/01/2017 (h) 11,632
NR* Aaa 5,808 Port Oakland, California, RIB, Refunding, AMT, Series 717X, 9.44%
due 11/01/2027 (c)(j) 6,125
AAA Aaa 4,315 Rancho Cucamonga, California, Redevelopment Agency, Tax Allocation
Refunding Bonds (Rancho Redevelopment Project), 5.25% due 9/01/2020 (f) 4,553
AAA Aaa 2,345 Richmond, California, Redevelopment Agency, Tax Allocation
Refunding Bonds (Harbour Redevelopment Project), Series A, 5.50%
due 7/01/2018 (h) 2,584
AAA Aaa 4,000 Roseville, California, Electric System Revenue Bonds, COP, 5.50%
due 8/01/2009 (f)(i) 4,648
AAA Aaa 5,000 Sacramento, California, Municipal Utility District, Electric
Revenue Refunding Bonds, Series L, 5.125% due 7/01/2022 (h) 5,180
Sacramento County, California, Sanitation District Financing
Authority, Revenue Refunding Bonds:
AA Aa3 4,500 RIB, Series 366, 10.42% due 12/01/2027 (j) 5,279
AA Aa3 5,695 Series A, 5.60% due 12/01/2017 6,211
AA Aa3 6,190 Series A, 5.75% due 12/01/2018 6,773
AA Aa3 3,750 Trust Receipts, Class R, Series A, 10.591% due 12/01/2019 (j) 4,511
AAA Aaa 10,100 San Bernardino, California, City Unified School District, GO,
Refunding, Series A, 5.875% due 8/01/2024 (c) 11,149
AAA Aaa 3,000 San Bernardino, California, Joint Powers Financing Authority,
Lease Revenue Bonds (Department of Transportation Lease), Series A,
5.50% due 12/01/2020 (h) 3,268
AAA Aaa 5,000 San Bernardino, California, Joint Powers Financing Authority, Tax
Allocation Revenue Refunding Bonds, Series A, 5.75% due 10/01/2015 (f) 5,495
San Francisco, California, City and County Airports Commission,
International Airport Revenue Bonds, AMT, Second Series:
AAA Aaa 3,000 Issue 5, 6.50% due 5/01/2019 (c) 3,137
AAA Aaa 4,525 Issue 6, 6.60% due 5/01/2020 (a) 4,734
AAA Aaa 2,000 Issue 11, 6.25% due 5/01/2005 (c)(i) 2,163
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
Ratings++ Ratings++ Amount Municipal Bonds Value
California (concluded)
AA Aa3 $ 1,720 San Francisco, California, City and County Educational Facilities,
GO (Community College), Series A, 5.75% due 6/15/2019 $ 1,924
AAA Aaa 4,715 San Francisco, California, City and County Redevelopment Agency,
Lease Revenue Refunding Bonds (George R. Moscone Convention Center),
6.80% due 7/01/2019 (f) 4,979
AA Aa3 1,310 San Francisco, California, City and County Zoo Facilities, GO,
Series B, 5.75% due 6/15/2019 1,466
AAA Aaa 4,590 San Joaquin Hills, California, Transportation Corridor Agency,
Toll Road Revenue Refunding Bonds, Series A, 5.25% due 1/15/2030 (h) 4,729
AAA Aaa 2,020 Santa Clara, California, Unified School District, GO, 5.50% due
7/01/2021 (c) 2,187
NR* A3 3,500 Santa Clara County, California, Housing Authority, M/F Housing
Revenue Bonds (John Burns Gardens Apartments Project), AMT, Series A,
6% due 8/01/2041 3,501
NR* Aaa 5,125 Santa Clara Valley, California, Water District, COP, Refunding, RIB,
Series 411, 10.67% due 2/01/2024 (c)(j) 5,447
AAA Aaa 4,000 Santa Monica, California, Redevelopment Agency, Tax Allocation Bonds
(Earthquake Recovery Redevelopment Project), 6% due 7/01/2029 (a) 4,493
AAA Aaa 2,000 Sequoia, California, Unified High School District, GO, 5.70% due
7/01/2005 (f)(i) 2,188
AAA Aaa 2,265 South Bayside, California, Waste Management Authority, Waste System
Revenue Bonds, 5.75% due 3/01/2020 (a) 2,526
AAA NR* 180 Southern California Home Finance Authority, S/F Mortgage Revenue
Bonds (Mortgage-Backed Securities Program), AMT, Series A, 6.75%
due 9/01/2022 (e) 180
AAA Aaa 3,235 Taft, California, Public Financing Authority, Lease Revenue Bonds
(Community Correctional Facility), Series A, 6.05% due 1/01/2017 (h) 3,634
A+ A1 1,310 Torrance, California, Hospital Revenue Refunding Bonds (Torrance
Memorial Medical Center), Series A, 6% due 6/01/2022 1,406
Vernon, California, Electric System Revenue Bonds (Malburg Generating
Station Project):
BBB+ A2 2,740 5.50% due 4/01/2022 2,769
BBB+ A2 1,250 5.50% due 4/01/2023 1,261
BBB+ A2 2,250 5.30% due 4/01/2026 2,228
AAA Aaa 5,000 Vista, California, Joint Powers Financing Authority, Lease Revenue
Refunding Bonds, 5.625% due 5/01/2016 (h) 5,615
Puerto Rico--1.9%
AAA Aaa 2,140 Puerto Rico Commonwealth Highway and Transportation Authority,
Highway Revenue Bonds, Series Y, 5.50% due 7/01/2006 (h)(i) 2,390
AAA Aaa 2,600 Puerto Rico Electric Power Authority, Power Revenue Bonds,
Series X, 5.50% due 7/01/2025 (h) 2,724
A- A3 1,000 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds,
Series U, 6% due 7/01/2014 1,047
Virgin Islands--0.9%
BBB- Baa3 3,000 Virgin Islands Government Refinery Facilities Revenue Bonds
(Hovensa Coker Project), AMT, 6.50% due 7/01/2021 3,022
Total Municipal Bonds (Cost--$414,295)--136.8% 441,986
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Schedule of Investments (concluded) (In Thousands)
Shares
Held Short-Term Securities Value
14,333 CMA California Municipal Money Fund++++ $ 14,333
Total Short-Term Securities (Cost--$14,333)--4.4% 14,333
Total Investments (Cost--$428,628)--141.2% 456,319
Other Assets Less Liabilities--2.1% 6,836
Preferred Stock, at Redemption Value--(43.3%) (140,000)
---------
Net Assets Applicable to Common Stock--100.0% $ 323,155
=========
(a)AMBAC Insured.
(b)Escrowed to maturity.
(c)FGIC Insured.
(d)FHLMC Collateralized.
(e)FNMA/GNMA Collateralized.
(f)FSA Insured.
(g)GNMA Collateralized.
(h)MBIA Insured.
(i)Prerefunded.
(j)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, 2003.
*Not Rated.
++Ratings of issues shown are unaudited.
++++Investments in companies considered to be an affiliate of the
Fund (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) are as
follows:
(in Thousands)
Net Dividend
Affiliate Activity Income
CMA California Municipal
Money Fund 14,333 $39
See Notes to Financial Statements.
Quality Profile (unaudited)
The quality ratings of securities in the Fund as of October 31, 2003
were as follows:
Percent of
Total
S&P Rating/Moody's Rating Investments
AAA/Aaa 62.5%
AA/Aa 17.0
A/A 11.4
BBB/Baa 6.0
NR (Not Rated) 3.1
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Statement of Net Assets
As of October 31, 2003
Assets
Investments, at value (identified cost--$428,628,180) $ 456,319,439
Cash 13,159
Receivables:
Interest $ 9,108,826
Securities sold 5,096,678
Dividends from affiliates 185 14,205,689
---------------
Prepaid expenses 6,380
---------------
Total assets 470,544,667
---------------
Liabilities
Payables:
Securities purchased 6,927,770
Investment adviser 216,310
Dividends to Common Stock shareholders 203,361
Other affiliates 3,304 7,350,745
---------------
Accrued expenses 38,737
---------------
Total liabilities 7,389,482
---------------
Preferred Stock
Preferred Stock, at redemption value, par value $.10 per share
(2,400 Series A shares, 2,400 Series B shares and 800 Series C
shares of AMPS* issued and outstanding at $25,000 per share
liquidation preference) 140,000,000
---------------
Net Assets Applicable to Common Stock
Net assets applicable to Common Stock $ 323,155,185
===============
Analysis of Net Assets Applicable to Common Stock
Common Stock, par value $.10 per share (21,295,255 shares issued
and outstanding) $ 2,129,526
Paid-in capital in excess of par 299,957,928
Undistributed investment income--net $ 2,970,378
Accumulated realized capital losses on investments--net (9,593,906)
Unrealized appreciation on investments--net 27,691,259
---------------
Total accumulated earnings--net 21,067,731
---------------
Total--Equivalent to $15.17 net asset value per share of Common Stock
(market price--$14.15) $ 323,155,185
===============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Statement of Operations
For the Year Ended October 31, 2003
Investment Income
Interest $ 25,738,724
Dividends from affiliates 38,849
---------------
Total income 25,777,573
---------------
Expenses
Investment advisory fees $ 2,339,566
Commission fees 366,072
Accounting services 155,728
Transfer agent fees 62,504
Professional fees 47,952
Listing fees 29,293
Directors' fees and expenses 26,743
Printing and shareholder reports 26,451
Custodian fees 25,038
Pricing fees 15,171
Other 45,684
---------------
Total expenses before reimbursement 3,140,202
Reimbursement of expenses (28,953)
---------------
Total expenses after reimbursement 3,111,249
---------------
Investment income--net 22,666,324
---------------
Realized & Unrealized Gain (Loss) on Investments--Net
Realized loss on investments--net (41,823)
Change in unrealized appreciation on investments--net 1,001,147
---------------
Total realized and unrealized gain on investments--net 959,324
---------------
Dividends & Distributions to Preferred Stock Shareholders
Investment income--net (2,052,104)
Realized gain on investments--net (6,976)
---------------
Total dividends and distributions to Preferred Stock shareholders (2,059,080)
---------------
Net Increase in Net Assets Resulting from Operations $ 21,566,568
===============
See Notes to Financial Statements.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Statements of Changes in Net Assets
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 2003 2002
Operations
Investment income--net $ 22,666,324 $ 22,702,565
Realized gain (loss) on investments--net (41,823) 4,745,197
Change in unrealized appreciation on investments--net 1,001,147 (6,145,783)
Dividends and distributions to Preferred Stock shareholders (2,059,080) (2,476,760)
--------------- ---------------
Net increase in net assets resulting from operations 21,566,568 18,825,219
--------------- ---------------
Dividends & Distributions to Common Stock Shareholders
Investment income--net (20,698,988) (20,592,555)
Realized gain on invesments--net (57,092) (60,340)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions
to Common Stock shareholders (20,756,080) (20,652,895)
--------------- ---------------
Common Stock Transactions
Value of shares issued to Common Stock shareholders in reinvestment
of dividends and distributions -- 1,648,690
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase (decrease) in net assets applicable to Common Stock 810,488 (178,986)
Beginning of year 322,344,697 322,523,683
--------------- ---------------
End of year* $ 323,155,185 $ 322,344,697
=============== ===============
*Undistributed investment income--net $ 2,970,378 $ 3,055,193
=============== ===============
See Notes to Financial Statements.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
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,
Increase (Decrease) in Net Asset Value: 2003 2002 2001++ 2000++ 1999++
Per Share Operating Performance
Net asset value, beginning of year $ 15.14 $ 15.22 $ 14.19 $ 13.32 $ 16.23
---------- ---------- ---------- ---------- ----------
Investment income--net 1.06++++ 1.07++++ 1.03 1.02 1.03
Realized and unrealized gain (loss) on
investments--net .04 (.06) 1.05 .88 (2.25)
Dividends and distributions to
Preferred Stock shareholders:
Investment income--net (.10) (.12) (.20) (.23) (.14)
Realized gain on investments--net --+++ --+++ -- -- (.04)
In excess of realized gain on
investments--net -- -- -- -- (.05)
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.00 .89 1.88 1.67 (1.45)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net (.97) (.97) (.85) (.80) (.88)
Realized gain on investments--net --+++ --+++ -- -- (.24)
In excess of realized gain on
investments--net -- -- -- -- (.34)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions to
Common Stock shareholders (.97) (.97) (.85) (.80) (1.46)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 15.17 $ 15.14 $ 15.22 $ 14.19 $ 13.32
========== ========== ========== ========== ==========
Market price per share, end of year $ 14.15 $ 14.46 $ 15.10 $ 13.0625 $ 12.625
========== ========== ========== ========== ==========
Total Investment Return*
Based on market price per share 4.64% 2.18% 22.71% 10.18% (16.13%)
========== ========== ========== ========== ==========
Based on net asset value per share 7.14% 6.14% 13.85% 13.45% (9.70%)
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common Stock
Expenses, net of reimbursement** .95% .99% 1.00% 1.02% .98%
========== ========== ========== ========== ==========
Total expenses** .96% .99% 1.00% 1.02% .98%
========== ========== ========== ========== ==========
Total investment income--net** 6.93% 7.13% 7.00% 7.51% 6.86%
========== ========== ========== ========== ==========
Amount of dividends to Preferred
Stock shareholders .63% .77% 1.37% 1.69% .96%
========== ========== ========== ========== ==========
Investment income--net, to Common
Stock shareholders 6.30% 6.36% 5.63% 5.82% 5.90%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common & Preferred Stock**
Expenses, net of reimbursement .67% .69% .69% .69% .68%
========== ========== ========== ========== ==========
Total expenses .67% .69% .69% .69% .68%
========== ========== ========== ========== ==========
Total investment income--net 4.84% 4.95% 4.83% 5.05% 4.77%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders 1.46% 1.76% 3.04% 3.47% 2.18%
========== ========== ========== ========== ==========
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Financial Highlights (concluded)
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 2003 2002 2001++ 2000++ 1999++
Supplemental Data
Net assets applicable to Common Stock,
end of year (in thousands) $ 323,155 $ 322,345 $ 322,524 $ 300,503 $ 282,114
========== ========== ========== ========== ==========
Preferred Stock outstanding, end of
year (in thousands) $ 140,000 $ 140,000 $ 140,000 $ 140,000 $ 140,000
========== ========== ========== ========== ==========
Portfolio turnover 20.24% 49.87% 58.17% 93.01% 146.39%
========== ========== ========== ========== ==========
Leverage
Asset coverage per $1,000 $ 3,308 $ 3,302 $ 3,304 $ 3,146 $ 3,015
========== ========== ========== ========== ==========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 569 $ 607 $ 802 $ 865 $ 527
========== ========== ========== ========== ==========
Series B--Investment income--net $ 217 $ 322 $ 721 $ 875 $ 546
========== ========== ========== ========== ==========
Series C--Investment income--net $ 207 $ 292 $ 745 $ 875 $ 591
========== ========== ========== ========== ==========
*Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales charges.
**Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Certain prior year amounts have been reclassified to conform to
current year presentation.
++++Based on average shares outstanding.
+++Amount is less than $(.01) per share.
See Notes to Financial Statements.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Notes to Financial Statements
1. Significant Accounting Policies:
MuniYield California Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified,
closed-end management investment company. The Fund's financial
statements are prepared in conformity with accounting principles
generally accepted in the United States of America, which may
require the use of management accruals and estimates. 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 last available
bid price in the over-the-counter market or on the basis of yield
equivalents as obtained by the Fund's pricing service from one or
more dealers that make markets in such securities. Financial futures
contracts and options thereon, which are traded on exchanges, are
valued at their closing prices as of the close of such exchanges.
Options written or purchased are valued at the last sale price in
the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price
(options written) or the last bid price (options purchased). Swap
agreements are valued by quoted fair values received daily by the
Fund from the counterparty. Short-term investments with a remaining
maturity of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund, including valuations furnished by a pricing
service retained by the Fund, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies both to increase the return of the
Fund and to hedge, or protect, its exposure to interest rate
movements and movements in the securities markets. Losses may arise
due to changes in the value of the contract or if the counterparty
does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts.
Futures contracts are contracts for delayed delivery of securities
at a specific future date and at a specific price or yield. Upon
entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal
to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund
as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When
an option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of the
premiums received or paid (or gain or loss to the extent the cost of
the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
* Forward interest rate swaps--The Fund may enter into forward
interest rate swaps. In a forward interest rate swap, the Fund and
the counterparty agree to make periodic net payments on a specified
notional contract amount, commencing on a specified future effective
date, unless terminated earlier. When the agreement is closed, the
Fund records a realized gain or loss in an amount equal to the value
of the agreement.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Notes to Financial Statements (continued)
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost basis. Interest
income is recognized on the accrual basis. Dividend income is
recorded on the ex-dividend dates. The Fund amortizes all premiums
and discounts on debt securities.
(e) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
(f) Reclassification--Accounting principles generally accepted in
the United States of America require that certain components of net
assets be adjusted to reflect permanent differences between
financial and tax reporting. These reclassifications have no effect
on net assets or net asset value per share. There were no
significant reclassifications in the current year.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect, wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of .50% of
the Fund's average weekly net assets, including proceeds from the
issuance of Preferred Stock. For the year ended October 31, 2003,
FAM reimbursed the Fund in the amount of $28,953.
For the year ended October 31, 2003, the Fund reimbursed FAM $10,137
for certain accounting services.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 2003 were $91,629,906 and
$103,307,130, respectively.
Net realized gains (losses) for the year ended October 31, 2003 and
net unrealized gains as of October 31, 2003 were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ 1,039,962 $ 27,691,259
Forward interest rate swaps 418,600 --
Financial futures contracts (1,500,385) --
--------------- ---------------
Total $ (41,823) $ 27,691,259
=============== ===============
As of October 31, 2003, net unrealized appreciation for
Federal income tax purposes aggregated $27,856,965, of which
$28,771,299 related to appreciated securities and $914,334 related
to depreciated securities. The aggregate cost of investments at
October 31, 2003 for Federal income tax purposes was $428,462,474.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of stock
without approval of the holders of Common Stock.
Common Stock
Shares issued and outstanding during the year ended October 31, 2003
remained constant and during the year ended October 31, 2002
increased by 110,780 as a result of dividend reinvestment.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund, with a par value of $.10 per share and a
liquidation preference of $25,000 per share, that entitle their
holders to receive cash dividends at an annual rate that may vary
for the successive dividend periods. The yields in effect at October
31, 2003 were: Series A, .81%; Series B, .75% and Series C, .80%.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Notes to Financial Statements (concluded)
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from .25% to .375%,
calculated on the proceeds of each auction. For the year ended
October 31, 2003, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"), an affiliate of FAM, earned $85,191 as commissions.
5. Distributions to Shareholders:
The Fund paid a tax-exempt income dividend to holders of Common
Stock in the amount of $.081000 per share on November 26, 2003 to
shareholders of record on November 14, 2003.
The tax character of distributions paid during the fiscal years
ended October 31, 2003 and October 31, 2002 was as follows:
10/31/2003 10/31/2002
Distributions paid from:
Tax-exempt income $ 22,751,092 $ 23,054,683
Ordinary income 64,068 74,971
--------------- ---------------
Total distributions $ 22,815,160 $ 23,129,654
=============== ===============
As of October 31, 2003, the components of accumulated earnings on a
tax basis were as follows:
Undistributed tax-exempt income--net $ 2,804,671
Undistributed long-term capital gains--net --
---------------
Total undistributed earnings--net 2,804,671
Capital loss carryforward (8,339,735)*
Unrealized gains--net 26,602,795**
---------------
Total accumulated earnings--net $ 21,067,731
===============
*On October 31, 2003, the Fund had a net capital loss carryforward
of $8,339,735, of which $7,985,889 expires in 2008 and $353,846
expires in 2011. This amount will be available to offset like
amounts of any future taxable gains.
**The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
straddles and the difference between book and tax amortization
methods for premiums and discounts on fixed income securities.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Independent Auditors' Report
To the Shareholders and Board of Directors
of MuniYield California Fund, Inc.:
We have audited the accompanying statement of net assets, including
the schedule of investments, of MuniYield California Fund, Inc. as
of October 31, 2003, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of
the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and 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 as of October 31, 2003, by
correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures.
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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of MuniYield California Fund, Inc. as of October
31, 2003, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period
then ended, and its financial highlights for each of the five years
in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
December 17, 2003
Important Tax Information (unaudited)
All of the net investment income distributions paid by MuniYield
California Fund, Inc. during its taxable year ended October 31, 2003
qualify as tax-exempt interest dividends for Federal income tax
purposes.
Additionally, the following table summarizes the taxable
distributions paid by the Fund during the year:
Payable Ordinary
Date Income
Common Stock Shareholders 12/30/2002 $.002681
Preferred Stock Shareholders: Series A 12/02/2002 $ 1.72
Series B 11/29/2002 $ .91
Series C 11/29/2002 $ .83
Please retain this information for your records.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Automatic Dividend Reinvestment Plan
The following description of the Fund's Automatic Dividend
Reinvestment Plan (the "Plan") is sent to you annually as required
by Federal securities laws.
Pursuant to the Fund's Plan, unless a holder of Common Stock
otherwise elects, all dividend and capital gains distributions will
be automatically reinvested by The Bank of New York (the "Plan
Agent"), as agent for shareholders in administering the Plan, in
additional shares of Common Stock of the Fund. Holders of Common
Stock who elect not to participate in the Plan will receive all
distributions in cash paid by check mailed directly to the
shareholder of record (or, if the shares are held in street or other
nominee name then to such nominee) by The Bank of New York, as
dividend paying agent. Such participants may elect not to
participate in the Plan and to receive all distributions of
dividends and capital gains in cash by sending written instructions
to The Bank of New York, as dividend paying agent, at the address
set forth below. Participation in the Plan is completely voluntary
and may be terminated or resumed at any time without penalty by
written notice if received by the Plan Agent not less than ten days
prior to any dividend record date; otherwise such termination will
be effective with respect to any subsequently declared dividend or
distribution.
Whenever the Fund declares an income dividend or capital gains
distribution (collectively referred to as "dividends") payable
either in shares or in cash, non-participants in the Plan will
receive cash and participants in the Plan will receive the
equivalent in shares of Common Stock. The shares will be acquired by
the Plan Agent for the participant's account, depending upon the
circumstances described below, either (i) through receipt of
additional unissued but authorized shares of Common Stock from the
Fund ("newly issued shares") or (ii) by purchase of outstanding
shares of Common Stock on the open market ("open-market purchases")
on the New York Stock Exchange or elsewhere. If on the payment date
for the dividend, the net asset value per share of the Common Stock
is equal to or less than the market price per share of the Common
Stock plus estimated brokerage commissions (such conditions being
referred to herein as "market premium"), the Plan Agent will invest
the dividend amount in newly issued shares on behalf of the
participant. The number of newly issued shares of Common Stock to be
credited to the participant's account will be determined by dividing
the dollar amount of the dividend by the net asset value per share
on the date the shares are issued, provided that the maximum
discount from the then current market price per share on the date of
issuance may not exceed 5%. If on the dividend payment date the net
asset value per share is greater than the market value (such
condition being referred to herein as "market discount"), the Plan
Agent will invest the dividend amount in shares acquired on behalf
of the participant in open-market purchases.
In the event of a market discount on the dividend payment date, the
Plan Agent will have until the last business day before the next
date on which the shares trade on an "ex-dividend" basis or in no
event more than 30 days after the dividend payment date (the "last
purchase date") to invest the dividend amount in shares acquired in
open-market purchases. It is contemplated that the Fund will pay
monthly income dividends. Therefore, the period during which open-
market purchases can be made will exist only from the payment date
on the dividend through the date before the next "ex-dividend" date,
which typically will be approximately ten days. If, before the Plan
Agent has completed its open-market purchases, the market price of a
share of Common Stock exceeds the net asset value per share, the
average per share purchase price paid by the Plan Agent may exceed
the net asset value of the Fund's shares, resulting in the
acquisitions of fewer shares than if the dividend had been paid in
newly issued shares on the dividend payment date. Because of the
foregoing difficulty with respect to open-market purchases, the Plan
provides that if the Plan Agent is unable to invest the full
dividend amount in open-market purchases during the purchase period
or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market
purchases and will invest the uninvested portion of the dividend
amount in newly issued shares at the close of business on the last
purchase date determined by dividing the uninvested portion of the
dividend by the net asset value per share.
The Plan Agent maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the account,
including information needed by shareholders for tax records. Shares
in the account of each Plan participant will be held by the Plan
Agent in non-certificated form in the name of the participant, and
each shareholder's proxy will include those shares purchased or
received pursuant to the Plan. The Plan Agent will forward all proxy
solicitation materials to participants and vote proxies for shares
held pursuant to the Plan in accordance with the instructions of the
participants.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Automatic Dividend Reinvestment Plan (concluded)
In the case of shareholders such as banks, brokers or nominees which
hold shares of others who are the beneficial owners, the Plan Agent
will administer the Plan on the basis of the number of shares
certified from time to time by the record shareholders as
representing the total amount registered in the record shareholder's
name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued
directly by the Fund as a result of dividends or capital gains
distributions payable either in shares or in cash. However, each
participant will pay a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open-market purchases in
connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not
relieve participants of any Federal, state or local income tax that
may be payable (or required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not
available to shareholders not participating in the Plan. If the
market price plus commissions of the Fund's shares is above the net
asset value, participants in the Plan will receive shares of the
Fund at less than they could otherwise purchase them and will have
shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market
price plus commissions is below the net asset value, participants
will receive distributions in shares with a net asset value greater
than the value of any cash distribution they would have received on
their shares. However, there may be insufficient shares available in
the market to make distributions in shares at prices below the net
asset value. Also, since the Fund does not redeem shares, the price
on resale may be more or less than the net asset value.
The value of shares acquired pursuant to the Plan will generally be
excluded from gross income to the extent that the cash amount
reinvested would be excluded from gross income. If, when the Fund's
shares are trading at a premium over net asset value, the Fund
issues shares pursuant to the Plan that have a greater fair market
value than the amount of cash reinvested, it is possible that all or
a portion of such discount (which may not exceed 5% of the fair
market value of the Fund's shares) could be viewed as a taxable
distribution. If the discount is viewed as a taxable distribution,
it is also possible that the taxable character of this discount
would be allocable to all the shareholders, including shareholders
who do not participate in the Plan. Thus, shareholders who do not
participate in the Plan might be required to report as ordinary
income a portion of their distributions equal to their allocable
share of the discount.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the
Plan. There is no direct service charge to participants in the Plan;
however, the Fund reserves the right to amend the Plan to include a
service charge payable by the participants.
All correspondence concerning the Plan should be directed to the
Plan Agent at The Bank of New York, Church Street Station, P.O. Box
11258, New York , NY 10286-1258, Telephone: 800-432-8224.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Officers and Directors (unaudited)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held Of Time Overseen by Held by
Name, Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Terry K. Glenn* President 1999 to President and Chairman of Merrill Lynch 124 Funds None
P.O. Box 9011 and present Investment Managers, L.P. ("MLIM")/Fund 163 Portfolios
Princeton, Director and Asset Management, L.P. ("FAM")--Advised
NJ 08543-9011 present 1993 to Funds since 1999; Chairman
Age: 63 (Americas Region) of MLIM from 2000 to
2002; Executive Vice President of MLIM
and FAM (which terms as used herein include
their corporate predecessors) from 1983 to
2002; President of FAM Distributors, Inc.
("FAMD") from 1986 to 2002 and Director
thereof from 1991 to 2002; Executive Vice
President and Director of Princeton Services,
Inc. ("Princeton Services") from 1993 to
2002; President of Princeton Administrators,
L.P. from 1989 to 2002; Director of Financial
Data Services, Inc. since 1985.
* Mr. Glenn is a director, trustee or member of an advisory board of
certain other investment companies for which MLIM or FAM acts as
investment adviser. Mr. Glenn is an "interested person," as
described in the Investment Company Act, of the Fund based on his
former positions with MLIM, FAM, FAMD, Princeton Services and
Princeton Administrators, L.P. The Director's term is unlimited.
Directors serve until their resignation, removal or death, or until
December 31 of the year in which they turn 72. As Fund President,
Mr. Glenn serves at the pleasure of the Board of Directors.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Officers and Directors (unaudited)(continued)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held Of Time Overseen by Held by
Name, Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors*
James H. Bodurtha Director 1995 to Director, The China Business Group, Inc. 40 Funds None
P.O. Box 9095 present since 1996 and Executive Vice President 59 Portfolios
Princeton, thereof from 1996 to 2003; Chairman of
NJ 08543-9095 the Board, Berkshire Holding Corporation
Age: 59 since 1980; Partner, Squire, Sanders &
Dempsey fromc 1980 to 1993.
Joe Grills Director 2002 to Member of the Committee of Investment of 40 Funds Kimco Realty
P.O. Box 9095 present Employee Benefit Assets of the Association 59 Portfolios Corporation
Princeton, of Financial Professionals ("CIEBA") since
NJ 08543-9095 1986 and its Chairman from 1991 to 1992;
Age: 68 Member of the Investment Advisory Committees
of the State of New York Common Retirement
Fund since 1989; Member of the Investment
Advisory Committee of the Howard Hughes
Medical Institute from 1997 to 2000;
Director, Duke Management Company since
1992 and Vice Chairman thereof since 1998;
Director LaSalle Street Fund from 1995 to
2001; Director, Kimco Realty Corporation
since 1997; Member of the Investment
Advisory Committee of the Virginia
Retirement System since 1998 and Vice
Chairman thereof since 2002; Director,
Montpelier Foundation since 1998 and Vice
Chairman thereof since 2000; Member of the
Investment Committee of the Woodberry Forest
School since 2000; Member of the Investment
Committee of the National Trust for Historic
Preservation since 2000.
Herbert I. London Director 1992 to John M. Olin Professor of Humanities, New 40 Funds None
P.O. Box 9095 present York University since 1993 and Professor 59 Portfolios
Princeton, thereof since 1980; President of Hudson
NJ 08543-9095 Institute since 1997 and Trustee thereof
Age: 64 since 1980.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Officers and Directors (unaudited)(continued)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held Of Time Overseen by Held by
Name, Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors* (concluded)
Andre F. Perold Director 1992 to George Gund Professor of Finance and 40 Funds None
P.O. Box 9095 present Banking, Harvard Business School since 59 Portfolios
Princeton, 2000 and a member of the faculty since
NJ 08543-9095 1979; Director and Chairman of the
Age: 51 Board, UNX, Inc. since 2003; Director,
Sanlam Limited and Sanlam Life since
2001; Director, Genbel Securities and
Gensec Bank since 1999; Director,
Stockback.com from 2002 to 2002;
Director, Bulldogresearch.com from 2000
to 2001; Director, Sanlam Investment
Management from 1999 to 2001; Director,
Quantec Limited from 1991 to 1999.
Roberta Cooper Ramo Director 1999 to Shareholder, Modrall, Sperling, Roehl, 40 Funds None
P.O. Box 9095 present Harris & Sisk, P.A. since 1993; Director 59 Portfolios
Princeton, of Cooper's, Inc. since 1999 and Chairman
NJ 08543-9095 of the Board since 2000; Director of ECMC,
Age: 61 Inc. since 2001.
Robert S. Salomon, Jr. Director 2002 to Principal of STI Management since 1994, 40 Funds None
P.O. Box 9095 present Trustee of Commonfund from 1980 to 2001; 59 Portfolios
Princeton, Director of Rye Country Day School since
NJ 08543-9095 2001.
Age: 66
Stephen B. Swensrud Director 2002 to Chairman, Fernwood Advisors (investment 41 Funds None
P.O. Box 9095 present adviser) since 1996; Principal of Fernwood 60 Portfolios
Princeton, Associates (financial consultant) since
NJ 08543-9095 1975; Chairman of RPP Corporation since
Age: 70 1978; Director, International Mobile
Communications, Inc. since 1998.
* The Director's term is unlimited. Directors serve until their
resignation, removal or death, or until December 31 of the year in
which they turn 72.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Officers and Directors (unaudited)(concluded)
Position(s) Length
Held Of Time
Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
Fund Officers
Donald C. Burke Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof
P.O. Box 9011 President present since 1999; Senior Vice President and Treasurer of Princeton Services since
Princeton, and 1999 to 1999; Vice President of FAMD since 1999; Director of MLIM Taxation since 1990.
NJ 08543-9011 Treasurer and
Age: 43 present
Kenneth A. Jacob Senior 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
P.O. Box 9011 Vice present Management) of MLIM from 1997 to 2000.
Princeton, President
NJ 08543-9011
Age: 52
John M. Loffredo Senior 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
P.O. Box 9011 Vice present Management) of MLIM from 1998 to 2000.
Princeton, President
NJ 08543-9011
Age: 39
Walter C. O'Connor Vice 1995 to Managing Director of MLIM since 2003; Director (Municipal Tax-Exempt Fund
P.O. Box 9011 President present Management) of MLIM from 2000 to 2003; Vice President of MLIM from
Princeton, 1994 to 2000.
NJ 08543-9011
Age: 42
Brian D. Stewart Secretary 2003 to Vice President (Legal Advisory) of MLIM since 2002; Attorney with Reed Smith
P.O. Box 9011 present from 2001 to 2002; Attorney with Saul Ewing from 1999 to 2001.
Princeton,
NJ 08543-9011
Age: 34
* Officers of the Fund serve at the pleasure of the Board of
Directors.
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
MYC
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Dividend Policy
The Fund's dividend policy is to distribute all or a portion of its
net investment income to its shareholders on a monthly basis. In
order to provide shareholders with a more stable level of dividend
distributions, the Fund may at times pay out less than the entire
amount of net investment income earned in any particular month and
may at times in any particular month pay out such accumulated but
undistributed income in addition to net investment income earned in
that month. As a result, the dividends paid by the Fund for any
particular month may be more or less than the amount of net
investment income earned by the Fund during such month. The Fund's
current accumulated but undistributed net investment income, if any,
is disclosed in the Statement of Net Assets, which comprises part of
the financial information included in this report.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Electronic Delivery
The Fund is now offering electronic delivery of communications to
its shareholders. In order to receive this service, you must
register your account and provide us with e-mail information.
To sign up for this service, simply access this website
http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification
number (PIN). You will need this PIN should you wish to update your
e-mail address, choose to discontinue this service and/or make any
other changes to the service. This service is not available for
certain retirement accounts at this time.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2003
Item 2 - Did registrant adopt a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party? If not, why not? Briefly describe
any amendments or waivers that occurred during the period. State
here if code of ethics/amendments/waivers are on website and give
website address-. State here if fund will send code of ethics to
shareholders without charge upon request--
The registrant has adopted a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer and
principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Did the registrant's board of directors determine that the
registrant either: (i) has at least one audit committee financial
expert serving on its audit committee; or (ii) does not have an
audit committee financial expert serving on its audit committee? If
yes, disclose name of financial expert and whether he/she is
"independent," (fund may, but is not required, to disclose name/
independence of more than one financial expert) If no, explain why
not. -
The registrant's board of directors has determined that (i) the
registrant has the following audit committee financial experts
serving on its audit committee and (ii) each audit committee
financial expert is independent: (1) Joe Grills, (2) Andre Perold,
(3) Robert S. Salomon, Jr., and (4) Stephen B. Swensrud.
Item 4 - Disclose annually only (not answered until December 15,
2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements
for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of
the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising the fees disclosed
under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the
fees disclosed under this category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the
last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item. Registrants shall describe the nature
of the services comprising the fees disclosed under this category.
N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the
audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule
10A-3 under the Exchange Act, state whether or not the registrant
has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d)
under the Exchange Act regarding an exemption from the listing
standards for audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by
the earlier of their first annual shareholders meeting after January
2004, or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in
their portfolio, describe the policies and procedures that it uses
to determine how to vote proxies relating to those portfolio
securities.
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill
Lynch Investment Managers, L.P. and/or Fund Asset Management, L.P.
(the "Investment Adviser") authority to vote all proxies relating to
the Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("Proxy Voting Procedures") with respect to
the voting of proxies related to the portfolio securities held in
the account of one or more of its clients, including a Fund.
Pursuant to these Proxy Voting Procedures, the Investment Adviser's
primary objective when voting proxies is to make proxy voting
decisions solely in the best interests of each Fund and its
shareholders, and to act in a manner that the Investment Adviser
believes is most likely to enhance the economic value of the
securities held by the Fund. The Proxy Voting Procedures are
designed to ensure that that the Investment Adviser considers the
interests of its clients, including the Funds, and not the interests
of the Investment Adviser, when voting proxies and that real (or
perceived) material conflicts that may arise between the Investment
Adviser's interest and those of the Investment Adviser's clients are
properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment
professionals appointed by the CIO, portfolio managers and
investment analysts appointed by the CIO and any other personnel the
CIO deems appropriate. The Committee will also include two non-
voting representatives from the Investment Adviser's Legal
department appointed by the Investment Adviser's General Counsel.
The Committee's membership shall be limited to full-time employees
of the Investment Adviser. No person with any investment banking,
trading, retail brokerage or research responsibilities for the
Investment Adviser's affiliates may serve as a member of the
Committee or participate in its decision making (except to the
extent such person is asked by the Committee to present information
to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser
might be asked to do so). The Committee determines how to vote the
proxies of all clients, including a Fund, that have delegated proxy
voting authority to the Investment Adviser and seeks to ensure that
all votes are consistent with the best interests of those clients
and are free from unwarranted and inappropriate influences. The
Committee establishes general proxy voting policies for the
Investment Adviser and is responsible for determining how those
policies are applied to specific proxy votes, in light of each
issuer's unique structure, management, strategic options and, in
certain circumstances, probable economic and other anticipated
consequences of alternate actions. In so doing, the Committee may
determine to vote a particular proxy in a manner contrary to its
generally stated policies. In addition, the Committee will be
responsible for ensuring that all reporting and recordkeeping
requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires
a case-by-case determination. In such cases, the Committee may
elect not to adopt a specific voting policy applicable to that
issue. The Investment Adviser believes that certain proxy voting
issues require investment analysis - such as approval of mergers and
other significant corporate transactions - akin to investment
decisions, and are, therefore, not suitable for general guidelines.
The Committee may elect to adopt a common position for the
Investment Adviser on certain proxy votes that are akin to
investment decisions, or determine to permit the portfolio manager
to make individual decisions on how best to maximize economic value
for a Fund (similar to normal buy/sell investment decisions made by
such portfolio managers). While it is expected that the Investment
Adviser will generally seek to vote proxies over which the
Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in
conjunction with a Fund's portfolio manager, may determine that the
Fund's specific circumstances require that its proxies be voted
differently.
To assist the Investment Adviser in voting proxies, the Committee
has retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address
special circumstances that can arise in connection with proxy
voting. For instance, under the Proxy Voting Procedures, the
Investment Adviser generally will not seek to vote proxies related
to portfolio securities that are on loan, although it may do so
under certain circumstances. In addition, the Investment Adviser
will vote proxies related to securities of foreign issuers only on a
best efforts basis and may elect not to vote at all in certain
countries where the Committee determines that the costs associated
with voting generally outweigh the benefits. The Committee may at
any time override these general policies if it determines that such
action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote
proxies in respect of an issuer where an affiliate of the Investment
Adviser (each, an "Affiliate"), or a money management or other
client of the Investment Adviser (each, a "Client") is involved.
The Proxy Voting Procedures and the Investment Adviser's adherence
to those procedures are designed to address such conflicts of
interest. The Committee intends to strictly adhere to the Proxy
Voting Procedures in all proxy matters, including matters involving
Affiliates and Clients. If, however, an issue representing a non-
routine matter that is material to an Affiliate or a widely known
Client is involved such that the Committee does not reasonably
believe it is able to follow its guidelines (or if the particular
proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes
of ensuring that an independent determination is reached, retain an
independent fiduciary to advise the Committee on how to vote or to
cast votes on behalf of the Investment Adviser's clients.
In the event that the Committee determines not to retain an
independent fiduciary, or it does not follow the advice of such an
independent fiduciary, the powers of the Committee shall pass to a
subcommittee, appointed by the CIO (with advice from the Secretary
of the Committee), consisting solely of Committee members selected
by the CIO. The CIO shall appoint to the subcommittee, where
appropriate, only persons whose job responsibilities do not include
contact with the Client and whose job evaluations would not be
affected by the Investment Adviser's relationship with the Client
(or failure to retain such relationship). The subcommittee shall
determine whether and how to vote all proxies on behalf of the
Investment Adviser's clients or, if the proxy matter is, in their
judgment, akin to an investment decision, to defer to the applicable
portfolio managers, provided that, if the subcommittee determines to
alter the Investment Adviser's normal voting guidelines or, on
matters where the Investment Adviser's policy is case-by-case, does
not follow the voting recommendation of any proxy voting service or
other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies
relating to the Client may be voted unless the Secretary, or in the
Secretary's absence, the Assistant Secretary of the Committee
concurs that the subcommittee's determination is consistent with the
Investment Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain
recurring proxy issues that are not expected to involve unusual
circumstances. These policies are guidelines only, and the
Investment Adviser may elect to vote differently from the
recommendation set forth in a voting guideline if the Committee
determines that it is in a Fund's best interest to do so. In
addition, the guidelines may be reviewed at any time upon the
request of a Committee member and may be amended or deleted upon the
vote of a majority of Committee members present at a Committee
meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
* Proposals related to the composition of the Board of Directors of
issuers other than investment companies. As a general matter, the
Committee believes that a company's Board of Directors (rather than
shareholders) is most likely to have access to important, nonpublic
information regarding a company's business and prospects, and is
therefore best-positioned to set corporate policy and oversee
management. The Committee, therefore, believes that the foundation
of good corporate governance is the election of qualified,
independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of
the corporation in a manner that will seek to maximize shareholder
value over time. In individual cases, the Committee may look at a
nominee's history of representing shareholder interests as a
director of other companies or other factors, to the extent the
Committee deems relevant.
* Proposals related to the selection of an issuer's independent
auditors. As a general matter, the Committee believes that
corporate auditors have a responsibility to represent the interests
of shareholders and provide an independent view on the propriety of
financial reporting decisions of corporate management. While the
Committee will generally defer to a corporation's choice of auditor,
in individual cases, the Committee may look at an auditors' history
of representing shareholder interests as auditor of other companies,
to the extent the Committee deems relevant.
* Proposals related to management compensation and employee
benefits. As a general matter, the Committee favors disclosure of
an issuer's compensation and benefit policies and opposes excessive
compensation, but believes that compensation matters are normally
best determined by an issuer's board of directors, rather than
shareholders. Proposals to "micro-manage" an issuer's compensation
practices or to set arbitrary restrictions on compensation or
benefits will, therefore, generally not be supported.
* Proposals related to requests, principally from management, for
approval of amendments that would alter an issuer's capital
structure. As a general matter, the Committee will support requests
that enhance the rights of common shareholders and oppose requests
that appear to be unreasonably dilutive.
* Proposals related to requests for approval of amendments to an
issuer's charter or by-laws. As a general matter, the Committee
opposes poison pill provisions.
* Routine proposals related to requests regarding the formalities of
corporate meetings.
* Proposals related to proxy issues associated solely with holdings
of investment company shares. As with other types of companies, the
Committee believes that a fund's Board of Directors (rather than its
shareholders) is best-positioned to set fund policy and oversee
management. However, the Committee opposes granting Boards of
Directors authority over certain matters, such as changes to a
fund's investment objective, that the Investment Company Act
envisions will be approved directly by shareholders.
* Proposals related to limiting corporate conduct in some manner
that relates to the shareholder's environmental or social concerns.
The Committee generally believes that annual shareholder meetings
are inappropriate forums for discussion of larger social issues, and
opposes shareholder resolutions "micromanaging" corporate conduct or
requesting release of information that would not help a shareholder
evaluate an investment in the corporation as an economic matter.
While the Committee is generally supportive of proposals to require
corporate disclosure of matters that seem relevant and material to
the economic interests of shareholders, the Committee is generally
not supportive of proposals to require disclosure of corporate
matters for other purposes.
Item 8--Reserved
Item 9(a) - The registrant's certifying officers have reasonably
designed such disclosure controls and procedures to ensure material
information relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b)--There were no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of
ethics or amendments/waivers is on website or offered to
shareholders upon request without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the
Sarbanes-Oxley Act. Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MuniYield California Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
MuniYield California Fund, Inc.
Date: December 22, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
MuniYield California Fund, Inc.
Date: December 22, 2003
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
MuniYield California Fund, Inc.
Date: December 22, 2003
Attached hereto as a furnished exhibit are the certifications
pursuant to Section 906 of the Sarbanes-Oxley Act.