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 811-06499
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: 10/31/04
Date of reporting period: 11/01/03 - 10/31/04
Item 1 - Report to Stockholders
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
MuniYield California
Fund, Inc.
Annual Report
October 31, 2004
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.
A description of the policies and procedures that the Fund uses
to determine how to vote proxies relating to portfolio securities
is available (1) without charge, upon request, by calling toll-free
1-800-MER-FUND (1-800-637-3863; (2) at www.mutualfunds.ml.com;
and (3) on the Securities and Exchange Commission's Web site at
http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the
most recent 12-month period ended June 30 is available (1) at
www.mutualfunds.ml.com; and (2) on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
MuniYield California Fund, Inc.
Box 9011
Princeton, NJ 08543-9011
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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,
2004, the percentage of the Fund's total net assets invested in
inverse floaters was 6.74%, before the deduction of Preferred Stock.
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. Swap agreements involve the risk
that the party with whom the Fund has entered into the swap will
default on its obligation to pay the Fund and the risk that the Fund
will not be able to meet its obligations to pay the other party to
the agreement.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
A Letter From the President
Dear Shareholder
As we ended the current reporting period, the financial markets
were facing a number of uncertainties. At the top of investors'
minds were questions about economic expansion, corporate earnings,
interest rates and inflation, politics, oil prices and terrorism.
After benefiting from aggressive monetary and fiscal policy
stimulus, some fear the U.S. economy has hit a "soft patch." In
fact, economic expansion has slowed somewhat in recent months, but
we believe it is easing into a pace of growth that is sustainable
and healthy. The favorable economic environment has served to
benefit American corporations, which have continued to post strong
earnings. Although the most impressive results were seen earlier in
the year, solid productivity, improved revenue growth and cost
discipline all point to a vital corporate sector.
In terms of inflation and interest rates, the Federal Reserve Board
(the Fed) has signaled its confidence in the economic recovery by
increasing the Federal Funds target rate four times in the past
several months, from 1% to 2% as of the November 10 Federal Open
Market Committee meeting. Inflation, for its part, has remained in
check. Investors and economists are focused on how quickly Fed
policy will move from here.
With the presidential election now behind us, any politically
provoked market angst should subside to some extent. The effect of
oil prices, however, is more difficult to predict. At around $50 per
barrel, the price of oil is clearly a concern. However, on an
inflation-adjusted basis and considering modern usage levels, the
situation is far from the crisis proportions we saw in the 1980s.
Finally, although terrorism and geopolitical tensions are realities
we are forced to live with today, history has shown us that the
financial effects of any single event tend to be short-lived.
Amid the uncertainty, the Lehman Brothers Municipal Bond Index
posted a 12-month return of +6.03% and a six-month return of
+4.79% as of October 31, 2004. Long-term bond yields were slightly
lower at October 31, 2004 than they were a year earlier. As always,
our investment professionals are closely monitoring the markets,
the economy and the overall environment in an effort to make
well-informed decisions for the portfolios they manage. For the
individual investor, the key during uncertain times is to remain
focused on the big picture. Investment success comes not from
reacting to short-term volatility, but from maintaining a long-term
perspective and adhering to the disciplines of asset allocation,
diversification and rebalancing. We encourage you to work with your
financial advisor to ensure these time-tested techniques are
incorporated into your investment plan.
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, 2004
A Discussion With Your Fund's Portfolio Manager
Although long-term bond yields declined over the past 12 months, we
maintained the Fund's defensive positioning in an effort to limit
volatility and safeguard the Fund's net asset value in anticipation
of rising long-term interest rates ahead.
Describe the recent market environment relative to municipal bonds.
Over the past 12 months, amid considerable monthly volatility, long-
term U.S. Treasury bond yields generally moved lower - despite an
increase in short-term interest rates by the Federal Reserve Board
(the Fed). On October 31, 2004, the 30-year Treasury bond yield
stood at 4.79%, a decline of 34 basis points (.34%) from a year
earlier. The yield on the 10-year U.S. Treasury note was 4.02%, a
27 basis point drop during the same 12-month period.
While tax-exempt bond yields followed the same pattern as their
taxable counterparts, volatility in the municipal market was more
subdued. Yields on long-term revenue bonds, as measured by the Bond
Buyer Revenue Bond Index, fell 27 basis points during the past 12
months. According to Municipal Market Data, yields on AAA-rated
issues maturing in 30 years declined 22 basis points to 4.60%, while
yields on 10-year AAA-rated issues dropped 28 basis points to 3.40%.
The tax-exempt market was supported by generally positive supply/
demand dynamics. While more than $360 billion in new long-term tax-
exempt bonds was issued in the past 12 months, this represented a
decline of approximately 6% compared to the previous year. The
declining supply amid favorable demand allowed tax-exempt bond
prices to perform in line with the taxable market.
Describe conditions in the State of California.
As the 12-month period began, California was facing political and
economic uncertainty. Concerns over the state's $38 billion deficit
led Standard and Poor's (S&P) to downgrade California's credit
rating to BBB, the lowest in the nation. Conditions improved
somewhat as the state passed a new budget and Arnold Schwarzenegger
assumed the governor's office. The new budget, however, included a
significant amount of new general obligation debt - backed by the
state's precarious revenues - as well as new "fiscal recovery" bonds
to reduce the deficit.
Toward the end of 2003, credit-rating agencies Fitch and Moody's
followed S&P's lead and downgraded California's credit rating. The
downgrade was prompted by Governor Schwarzenegger's repeal of an
unpopular vehicle licensing fee, which reduced the state's revenues,
and a lack of consensus on how to resolve the state's budget crisis.
In June 2004, California completed the issuance of $11 billion worth
of economic recovery bonds, alleviating concerns about the state's
cash-flow problems. In turn, Moody's upgraded the state's long-term
credit rating to A3 from Baa1, citing a recovering state economy,
increased tax collections, an improved budget outlook and more
liquidity. S&P soon followed, upgrading its rating from BBB to A,
while Fitch raised California's rating to A-.
As the state's fiscal health improved, credit spreads tightened
considerably, reflecting investors' increased comfort with taking
on the risk associated with owning California's debt. Still,
California faces a number of challenges, including compliance
with several stringent financial mandates. These include Proposition
98, which guarantees public schools a minimum level of funding;
strict property tax limits; and a requirement for a two-thirds
supermajority legislative vote on financial matters, which has often
impeded the timely adoption of a budget. Although California's large
population and above-average per-capita income have resulted in
relatively manageable debt levels, the state has depended on
substantial amounts of general obligation debt to resolve recent
budget shortfalls and capital needs.
How did the Fund perform during the fiscal year in light of the
existing market conditions?
For the 12-month period ended October 31, 2004, the Common Stock of
MuniYield California Fund, Inc. had net annualized yields of 6.37%
and 6.74%, based on a year-end per share net asset value of $15.27
and a per share market price of $14.43, respectively, and $.972 per
share income dividends. Over the same period, the total investment
return on the Fund's Common Stock was +7.74%, based on a change in
per share net asset value from $15.17 to $15.27, and assuming
reinvestment of ordinary income dividends.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
The Fund's total return, based on net asset value, trailed the
+9.99% average return of its comparable Lipper category of
California Municipal Debt Funds for the 12-month period. (Funds
in this Lipper category invest primarily in municipal debt
issues exempt from taxation in the state of California.) The
underperformance is partly attributed to the Fund's extremely
defensive duration, a measure of an investment's sensitivity to
interest rate changes. Our aim was to protect the Fund's net asset
value during a period in which we believed interest rates would
rise. However, long-term rates actually declined during the past
12 months, and we opted not to trade in and out of general market
higher grade securities to take advantage of periods of market
volatility. Instead, we kept the Fund fully invested and with
limited portfolio turnover--an approach that we believe was prudent
and in our shareholders' long-term interests, especially as the Fed
began raising interest rates.
Also impacting performance was the fact that, unlike many of
its peers, the Fund does not invest in below-investment-grade
securities. As credit spreads tightened, high yield bonds enjoyed
strong results, and our negligible exposure detracted from relative
results. Similarly, the portfolio was underweight in bonds backed by
tobacco revenues, and these bonds performed quite well. Finally, the
Fund employs a lower percentage of leverage than the majority of its
peer group, and this hindered relative performance at those times
when interest rates fell.
For the six-month period ended October 31, 2004, the total
investment return on the Fund's Common Stock was +6.45%, based
on a change in per share net asset value from $14.85 to $15.27, and
assuming reinvestment of ordinary income dividends.
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 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
returns based on changes in the Fund's net asset value.
What changes were made to the portfolio during the year?
We made relatively few changes to the portfolio's structure during
the past 12 months. We kept the Fund's duration below that of
our peer group in anticipation of rising interest rates. In an
environment of tightening credit spreads, we took advantage of
market conditions to sell some lower-rated bonds whose income was
subject to the alternative minimum tax (AMT). We were able to reduce
the Fund's AMT exposure while selling these strong-performing bonds
at a gain. Finally, in March 2004, we employed a hedge position to
control the portfolio's interest rate risk. We later eliminated the
hedge position after it became apparent that the market was not
going to decline as soon as initially expected.
For the six-month period ended October 31, 2004, the Fund's Auction
Market Preferred Stock (AMPS) had an average yield of 1.12% for
Series A, 1.01% for Series B and 1.19% for Series C. These
attractive funding levels, in combination with a positively sloped
yield curve, continued to provide a generous income benefit to the
Common Stock shareholder from the leveraging of Preferred Stock.
While the Fed is likely to continue raising short-term interest
rates, the increases are expected to be gradual and should not have
an immediate material impact on the positive advantage leverage has
had on the Fund's Common Stock yield. However, should the spread
between short-term and long-term interest rates narrow, the benefits
of leveraging will decline and, as a result, reduce the yield on the
Fund's Common Stock. At the end of the period, the Fund's leverage
amount, due to AMPS, was 30.10% of total net assets. (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 Fund's position at the close of the
period?
We maintained the portfolio's relatively short duration. The Fed has
continued to increase short-term interest rates at a "measured"
pace, with its fourth 25 basis point rate hike this year on November
10. In our view, long-term interest rates are likely to follow short-
term interest rates higher and, under these circumstances, the
portfolio's short duration should serve to safeguard the Fund's net
asset value.
With daily floating rate securities offering yields just near 1%,
we believe there is too much of a yield penalty associated with
maintaining an excess cash reserve balance. Therefore, the Fund
remains fully invested in an effort to enhance shareholder income.
Walter C. O'Connor, CFA
Vice President and Portfolio Manager
November 10, 2004
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
Schedule of Investments (In Thousands)
S&P Moody's Face
Ratings++ Ratings++ Amount Municipal Bonds Value
California--133.8%
BBB NR* $ 1,730 ABAG Finance Authority for Nonprofit Corporations, California,
Revenue Refunding Bonds (Redwood Senior Homes and Services),
6% due 11/15/2022 $ 1,827
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) 4,461
AAA Aaa 2,820 Arcata, California, Joint Powers Financing Authority, Tax Allocation
Revenue Refunding Bonds (Community Development Project Loan), Series A,
6% due 8/01/2023 (a) 2,934
AAA Aaa 2,500 Bakersfield, California, COP, Refunding (Convention Center Expansion
Project), 5.80% due 4/01/2017 (h) 2,727
AA- Aa2 1,410 California HFA, Home Mortgage Revenue Bonds, Series D, 5.85% due
8/01/2017 1,500
California Health Facilities Financing Authority Revenue Bonds:
AAA Aaa 5,000 (Kaiser Permanente), RIB, Series 26, 8.92% due 6/01/2022 (f)(j) 6,142
NR* Aa3 2,835 (Scripps Research Institute), Series A, 6.625% due 7/01/2018 2,901
AAA Aaa 1,490 California Health Facilities Financing Authority, Revenue Refunding
Bonds (Pomona Valley Hospital Medical Center), Series A, 5.625%
due 7/01/2019 (h) 1,641
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) 2,827
A- NR* 4,990 (J. David Gladstone Institute Project), 5.50% due 10/01/2022 5,299
BBB+ Baa2 5,800 California Pollution Control Financing Authority, Solid Waste
Disposal Revenue Refunding Bonds (Republic Services Inc. Project), AMT,
Series C, 5.25% due 6/01/2023 6,138
California Rural Home Mortgage Finance Authority, S/F Mortgage Revenue
Bonds (Mortgage Backed Securities Program), AMT:
NR* Aaa 145 Series A-1, 6.90% due 12/01/2024 (d)(g) 152
AAA NR* 210 Series B, 6.15% due 6/01/2020 (e) 214
California State Department of Veteran Affairs, Home Purpose Revenue
Refunding Bonds, Series C:
A Aa2 5,970 5.875% due 12/01/2015 6,130
A Aa2 9,315 6.05% due 12/01/2020 9,582
A Aa2 2,500 6.15% due 12/01/2027 2,573
BBB+ A2 4,500 California State Department of Water Resources, Power Supply Revenue
Bonds, Series A, 5.75% due 5/01/2017 5,105
AA Aa3 6,000 California State Department of Water Resources Revenue Bonds (Central
Valley Project), 5.25% due 7/01/2022 6,009
California State, GO, Refunding:
A A3 8,000 5.75% due 5/01/2030 8,786
A A3 2,785 (Veterans), AMT, Series BJ, 5.70% due 12/01/2032 2,856
California State Public Works Board, Lease Revenue Bonds:
AAA Aaa 2,000 (California State University), Series C, 5.40% due 10/01/2022 (h) 2,179
A- Baa1 5,000 (Department of Corrections), Series C, 5.50% due 6/01/2023 5,439
AAA Aaa 6,645 (Department of Health Services), Series A, 5.75% due 11/01/2017 (h) 7,546
AAA Aaa 17,000 (Various Community College Projects), Series A, 5.625% due
3/01/2016 (a) 18,139
Portfolio Abbreviations
To simplify the listings of MuniYield California Fund, Inc.'s
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
M/F Multi-Family
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
Ratings++ Ratings++ Amount Municipal Bonds Value
California (continued)
California State University and Colleges, Housing System Revenue
Refunding Bonds (c):
AAA Aaa $ 3,000 5.75% due 11/01/2015 $ 3,178
AAA Aaa 3,500 5.80% due 11/01/2017 3,706
AAA Aaa 3,900 5.90% due 11/01/2021 4,132
California State, Various Purpose, GO:
A A3 4,730 5.50% due 4/01/2030 5,091
A A3 6,850 5.50% due 11/01/2033 7,347
AAA Aaa 5,250 California Statewide Communities Development Authority, COP (John
Muir/Mount Diablo Health System), 5.125% due 8/15/2022 (h) 5,642
California Statewide Communities Development Authority, Health
Facility Revenue Bonds (Memorial Health Services), Series A:
A A3 3,270 6% due 10/01/2023 3,526
A A3 3,000 5.50% due 10/01/2033 3,065
AA- A1 5,000 California Statewide Communities Development Authority Revenue Bonds
(Sutter Health), Series B, 5.50% due 8/15/2028 5,232
AAA Aaa 2,380 California Statewide Communities Development Authority, Water Revenue
Bonds (Pooled Financing Program), Series C, 5.25% due 10/01/2028 (f) 2,519
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) 2,281
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) 2,935
AAA Aaa 3,750 Cucamonga, California, County Water District, COP, 5.125% due
9/01/2035 (c) 3,871
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) 2,665
AAA Aaa 1,030 Garden Grove, California, Public Financing Authority, Revenue
Refunding Bonds (Water Services Capital Improvement Program), COP,
5% due 12/15/2022 (f) 1,098
BBB Baa3 4,650 Golden State Tobacco Securitization Corporation of California, Tobacco
Settlement Revenue Bonds, Series A-4, 7.80% due 6/01/2042 4,992
AAA Aaa 5,025 Indio, California, Water Authority, Water Enterprise Revenue Bonds,
5.125% due 4/01/2030 (a) 5,289
Industry, California, Urban Development Agency, Tax Allocation
Refunding Bonds (h):
AAA Aaa 14,915 (Civic--Recreation--Industrial), Series 1, 5.50% due 5/01/2021 16,178
AAA Aaa 5,000 (Civic-Recreational--Industrial Redevelopment Project No. 1),
5.50% due 5/01/2020 5,418
NR* Aaa 2,000 Los Angeles, California, COP (Sonnenblick Del Rio West Los Angeles),
6.20% due 11/01/2031 (a) 2,323
AAA Aaa 10,000 Los Angeles, California, Community College District, GO, Series A,
5.50% due 8/01/2021 (h) 11,230
Los Angeles, California, Department of Water and Power, Electric Plant
Revenue Refunding Bonds:
AA- Aaa 9,865 6% due 2/15/2005 (i) 10,087
NR* Aa3 4,920 RIB, Series 370, 9.94% due 2/15/2024 (j) 5,142
Los Angeles, California, Harbor Department Revenue Bonds, AMT:
AAA Aaa 4,000 RITR, Series RI-7, 10.295% due 11/01/2026 (h)(j) 4,615
AA Aa2 2,000 Series B, 6% due 8/01/2015 2,127
AA Aa2 6,000 Series B, 5.375% due 11/01/2023 6,299
AAA Aaa 7,000 Los Angeles, California, Wastewater System Revenue Bonds, Series A,
5% due 6/01/2023 (c) 7,236
AAA Aaa 4,500 Los Angeles, California, Wastewater System Revenue Refunding Bonds,
Subordinate Series A, 5% due 6/01/2027 (h) 4,659
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
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) $ 4,180
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) 5,494
AAA Aaa 8,705 Modesto, California, Wastewater Treatment Facilities Revenue Bonds,
5.625% due 11/01/2017 (h) 9,619
AAA Aaa 1,750 North City-West, California, School Facilties Financing Authority,
Special Tax Refunding Bonds, Series B, 5.75% due 9/01/2015 (f) 1,902
Oakland, California, Alameda County Unified School District, GO,
Series F (h):
AAA Aaa 3,290 5.50% due 8/01/2017 3,674
AAA Aaa 3,770 5.50% due 8/01/2018 4,210
Oakland, California, Joint Powers Financing Authority, Lease Revenue
Bonds (Oakland Administration Buildings) (a)(i):
AAA Aaa 11,395 5.75% due 8/01/2006 12,384
AAA Aaa 2,000 5.9% due 8/01/2006 2,179
AAA Aaa 3,000 Oxnard, California, Financing Authority, Wastewater Revenue Bonds
(Redwood Trunk Sewer and Headworks Projects), Series A, 5.25% due
6/01/2034 (c) 3,178
AAA Aaa 1,000 Palm Springs, California, Financing Authority, Lease Revenue Refunding
Bonds (Convention Center Project), Series A, 5.50% due 11/01/2035 (h) 1,100
AAA Aaa 1,750 Pleasant Valley, California, School District, Ventura County, GO,
Series C, 5.75% due 8/01/2025 (b)(h) 1,976
BBB- NR* 2,255 Pomona, California, Public Financing Authority, Revenue Refunding
Bonds (Merged Redevelopment Project), Series A1, 5.75% due 2/01/2034 2,322
AAA Aaa 10,600 Port Oakland, California, Port Revenue Refunding Bonds, Series I,
5.40% due 11/01/2017 (h) 11,714
NR* Aaa 5,808 Port Oakland, California, RIB, Refunding, AMT, Series 717X, 8.70%
due 11/01/2027 (c)(j) 6,381
AAA Aaa 4,315 Rancho Cucamonga, California, Redevelopment Agency, Tax Allocation
Refunding Bonds (Rancho Redevelopment Project), 5.25% due 9/01/2020 (f) 4,708
AAA Aaa 2,345 Richmond, California, Redevelopment Agency, Tax Allocation, Refunding
Bonds (Harbour Redevelopment Project), Series A, 5.50% due 7/01/2018 (h) 2,610
AAA Aaa 5,000 Sacramento, California, Municipal Utility District, Electric Revenue
Refunding Bonds, Series L, 5.125% due 7/01/2022 (h) 5,371
Sacramento County, California, Sanitation District Financing Authority,
Revenue Refunding Bonds:
AA Aa3 4,500 RIB, Series 366, 9.692% due 12/01/2027 (j) 4,955
AA Aa3 5,695 Series A, 5.60% due 12/01/2017 5,973
AA Aa3 6,190 Series A, 5.75% due 12/01/2018 6,506
AA Aa3 3,750 Trust Receipts, Class R, Series A, 9.885% due 12/01/2019 (j) 4,156
AAA Aaa 10,100 San Bernardino, California, City Unified School District, GO,
Refunding, Series A, 5.875% due 8/01/2009 (c)(i) 11,692
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) 3,164
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) 5,278
AAA Aaa 3,600 San Diego, California, Unified School District, GO (Election of 1998),
Series F, 5% due 7/01/2029 (f) 3,723
AAA Aaa 2,000 San Francisco, California, City and County Airport Commission,
International Airport Revenue Bonds, AMT, Second Series, Issue 11,
6.25% due 5/01/2005 (c)(i) 2,063
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
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 $ 1,933
AA Aa3 1,310 San Francisco, California, City and County Zoo Facilities, GO,
Series B, 5.75% due 6/15/2019 1,472
AAA Aaa 4,615 San Jose, California, Airport Revenue Bonds, Series D, 5% due
3/01/2028 (h) 4,761
AAA Aaa 5,000 San Juan, California, Unified School District, GO (Election of 2002),
5% due 8/01/2028 (h) 5,168
AAA Aaa 2,020 Santa Clara, California, Unified School District, GO, 5.50% due
7/01/2021 (c) 2,262
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 3,583
AAA Aaa 4,000 Santa Monica, California, Redevelopment Agency, Tax Allocation Bonds
(Earthquake Recovery Redevelopment Project), 6% due 7/01/2029 (a) 4,488
AAA Aaa 2,000 Sequoia, California, Unified High School District, GO, 5.70% due
7/01/2005 (f)(i) 2,092
AAA Aaa 2,265 South Bayside, California, Waste Management Authority, Waste System
Revenue Bonds, 5.75% due 3/01/2020 (a) 2,548
AAA NR* 60 Southern California Home Finance Authority, S/F Mortgage Revenue
Bonds (Mortgage-Backed Securities Program), AMT, Series A, 6.75%
due 9/01/2022 (e) 60
AAA Aaa 3,235 Taft, California, Public Financing Authority, Lease Revenue Bonds
(Community Correctional Facility), Series A, 6.05% due 1/01/2017 (h) 3,514
A+ A1 1,310 Torrance, California, Hospital Revenue Refunding Bonds (Torrance
Memorial Medical Center), Series A, 6% due 6/01/2022 1,464
AAA Aaa 1,000 Ventura, California, Unified School District, GO (Election of 1997),
Series H, 5.125% due 8/01/2034 (f) 1,045
Vernon, California, Electric System Revenue Bonds (Malburg Generating
Station Project):
BBB+ A2 2,740 5.50% due 4/01/2022 2,837
BBB+ A2 1,250 5.50% due 4/01/2023 1,293
AAA Aaa 5,000 Vista, California, Joint Powers Financing Authority, Lease Revenue
Refunding Bonds, 5.625% due 5/01/2016 (h) 5,501
AAA Aaa 5,605 Whittier, California, Union High School District, GO (Election of 1999),
Series D, 5% due 8/01/2033 (f) 5,757
Puerto Rico--5.2%
AAA Aaa 2,140 Puerto Rico Commonwealth Highway and Transportation Authority,
Highway Revenue Bonds, Series Y, 5.50% due 7/01/2006 (h)(i) 2,298
A- Baa1 5,000 Puerto Rico Commonwealth, Public Improvement, GO, Series A, 5%
due 7/01/2029 5,096
Puerto Rico Electric Power Authority, Power Revenue Bonds:
A- A3 6,500 Series NN, 5.125% due 7/01/2029 6,746
AAA Aaa 2,600 Series X, 5.50% due 7/01/2005 (h)(i) 2,665
Virgin Islands--1.0%
BBB- Baa3 3,000 Virgin Islands Government Refinery Facilities Revenue Refunding
Bonds (Hovensa Coker Project), AMT, 6.50% due 7/01/2021 3,278
Total Municipal Bonds (Cost--$427,117)--140.0% 455,363
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
Schedule of Investments (concluded) (In Thousands)
Shares
Held Short-Term Securities Value
859 CMA California Municipal Money Fund++++ $ 859
Total Short-Term Securities (Cost--$859)--0.3% 859
Total Investments (Cost--$427,976**)--140.3% 456,222
Other Assets Less Liabilities--2.8% 8,982
Preferred Stock, at Redemption Value--(43.1%) (140,000)
----------
Net Assets Applicable to Common Stock--100.0% $ 325,204
==========
(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, 2004.
* Not Rated.
** The cost and unrealized appreciation/depreciation of investments as
of October 31, 2004, as computed for federal income tax purposes,
were as follows:
(in Thousands)
Aggregate cost $ 427,819
==============
Gross unrealized appreciation 29,223
Gross unrealized depreciation (820)
--------------
Net unrealized appreciation $ 28,403
==============
++ 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) were as follows:
Net Dividend
Affiliate Activity Income
CMA California Municipal
Money Fund (13,474) $24
See Notes to Financial Statements.
Quality Profile (unaudited)
The quality ratings of securities in the Fund as of October 31, 2004
were as follows:
Percent of
Quality Rating Total
S&P Rating/Moody's Investments
AAA/Aaa 65.0%
AA/Aa 15.9
A/A 14.8
BBB/Baa 4.1
Other* 0.2
* Includes portfolio holdings in short-term securities.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
Statement of Net Assets
As of October 31, 2004
Assets
Investments in unaffiliated securities, at value (identified cost--$427,117,046) $ 455,363,090
Investments in affiliated securities, at value (identified cost--$859,450) 859,450
Cash 67,957
Receivables:
Interest $ 8,696,236
Securities sold 6,936,000
Dividends from affiliates 27 15,632,263
---------------
Prepaid expenses 8,165
---------------
Total assets 471,930,925
---------------
Liabilities
Payables:
Securities purchased 6,261,167
Investment adviser 220,647
Dividends to Common Stock shareholders 179,249
Other affiliates 3,244 6,664,307
---------------
Accrued expenses 62,396
---------------
Total liabilities 6,726,703
---------------
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* authorized,
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 $ 325,204,222
===============
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 $ 2,668,510
Accumulated realized capital losses--net (7,797,786)
Unrealized appreciation--net 28,246,044
---------------
Total accumulated earnings--net 23,116,768
---------------
Total--Equivalent to $15.27 net asset value per share of Common Stock
(market price--$14.43) $ 325,204,222
===============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
Statement of Operations
For the Year Ended October 31, 2004
Investment Income
Interest $ 24,873,191
Dividends from affiliates 23,589
---------------
Total income 24,896,780
---------------
Expenses
Investment advisory fees $ 2,299,072
Commission fees 354,384
Accounting services 155,226
Transfer agent fees 62,398
Professional fees 57,586
Printing and shareholder reports 35,729
Custodian fees 24,940
Directors' fees and expenses 22,337
Listing fees 20,800
Pricing fees 15,217
Other 44,181
---------------
Total expenses before reimbursement 3,091,870
Reimbursement of expenses (16,458)
---------------
Total expenses after reimbursement 3,075,412
---------------
Investment income--net 21,821,368
---------------
Realized & Unrealized Gain--Net
Realized gain on:
Investments--net 1,389,663
Futures contracts--net 406,457 1,796,120
---------------
Change in unrealized appreciation on investments--net 554,785
---------------
Total realized and unrealized gain--net 2,350,905
---------------
Dividends to Preferred Stock Shareholders
Investment income--net (1,424,248)
---------------
Net Increase in Net Assets Resulting from Operations $ 22,748,025
===============
See Notes to Financial Statements.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
Statements of Changes in Net Assets
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 2004 2003
Operations
Investment income--net $ 21,821,368 $ 22,666,324
Realized gain (loss)--net 1,796,120 (41,823)
Change in unrealized appreciation--net 554,785 1,001,147
Dividends and distributions to Preferred Stock shareholders (1,424,248) (2,059,080)
--------------- ---------------
Net increase in net assets resulting from operations 22,748,025 21,566,568
--------------- ---------------
Dividends & Distributions to Common Stock Shareholders
Investment income--net (20,698,988) (20,698,988)
Realized gain--net -- (57,092)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions to
Common Stock shareholders (20,698,988) (20,756,080)
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase in net assets applicable to Common Stock 2,049,037 810,488
Beginning of year 323,155,185 322,344,697
--------------- ---------------
End of year* $ 325,204,222 $ 323,155,185
=============== ===============
* Undistributed investment income--net $ 2,668,510 $ 2,970,378
=============== ===============
See Notes to Financial Statements.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
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: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 15.17 $ 15.14 $ 15.22 $ 14.19 $ 13.32
---------- ---------- ---------- ---------- ----------
Investment income--net 1.02++ 1.06++ 1.07++ 1.03 1.02
Realized and unrealized gain (loss)--net .12 .04 (.06) 1.05 .88
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.07) (.10) (.12) (.20) (.23)
Realized gain--net -- --+++ --+++ -- --
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.07 1.00 .89 1.88 1.67
---------- ---------- ---------- ---------- ----------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.97) (.97) (.97) (.85) (.80)
Realized gain--net -- --+++ --+++ -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions to Common
Stock shareholders (.97) (.97) (.97) (.85) (.80)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 15.27 $ 15.17 $ 15.14 $ 15.22 $ 14.19
========== ========== ========== ========== ==========
Market price per share, end of year $ 14.43 $ 14.15 $ 14.46 $ 15.10 $ 13.0625
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 7.74% 7.14% 6.14% 13.85% 13.45%
========== ========== ========== ========== ==========
Based on market price per share 9.16% 4.64% 2.18% 22.71% 10.18%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of reimbursement** .96% .95% .99% 1.00% 1.02%
========== ========== ========== ========== ==========
Total expenses** .96% .96% .99% 1.00% 1.02%
========== ========== ========== ========== ==========
Total investment income--net** 6.79% 6.93% 7.13% 7.00% 7.51%
========== ========== ========== ========== ==========
Amount of dividends to Preferred Stock
shareholders .44% .63% .77% 1.37% 1.69%
========== ========== ========== ========== ==========
Investment income--net, to Common Stock
shareholders 6.35% 6.30% 6.36% 5.63% 5.82%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common & Preferred Stock**
Total expenses, net of reimbursement .67% .67% .69% .69% .69%
========== ========== ========== ========== ==========
Total expenses .67% .67% .69% .69% .69%
========== ========== ========== ========== ==========
Total investment income--net 4.74% 4.84% 4.95% 4.83% 5.05%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders 1.02% 1.46% 1.76% 3.04% 3.47%
========== ========== ========== ========== ==========
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
Financial Highlights (concluded)
The following per share data and ratios have been derived For the Year Ended October 31,
from information provided in the financial statements. 2004 2003 2002 2001 2000
Supplemental Data
Net assets applicable to Common Stock,
end of year (in thousands) $ 325,204 $ 323,155 $ 322,345 $ 322,524 $ 300,503
========== ========== ========== ========== ==========
Preferred Stock outstanding, end of year
(in thousands) $ 140,000 $ 140,000 $ 140,000 $ 140,000 $ 140,000
========== ========== ========== ========== ==========
Portfolio turnover 33.60% 20.24% 49.87% 58.17% 93.01%
========== ========== ========== ========== ==========
Leverage
Asset coverage per $1,000 $ 3,323 $ 3,308 $ 3,302 $ 3,304 $ 3,146
========== ========== ========== ========== ==========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 270 $ 569 $ 607 $ 802 $ 865
========== ========== ========== ========== ==========
Series B--Investment income--net $ 241 $ 217 $ 322 $ 721 $ 875
========== ========== ========== ========== ==========
Series C--Investment income--net $ 250 $ 207 $ 292 $ 745 $ 875
========== ========== ========== ========== ==========
* 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.
++ Based on average shares outstanding.
+++ Amount is less than $(.01) per share.
See Notes to Financial Statements.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
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 U.S. generally accepted
accounting principles, which may require the use of management
accruals and estimates. Actual results may differ from the
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 values
as obtained by a pricing service. Pricing services use valuation
matrixes that incorporate both dealer-supplied valuations and
valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the
general direction of the Board of Directors. Such valuations and
procedures will be reviewed periodically by the Board of Directors
of the Fund. 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's pricing service. Short-term
investments with a remaining maturity of 60 days or less are valued
at amortized cost, which approximates market value, under which
method the investment is valued at cost and any premium or discount
is amortized on a straight line basis to maturity. Investments in
open-end investment companies are valued at their net asset value
each business day. Securities and other 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.
(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 may 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).
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
Notes to Financial Statements (continued)
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.
(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.
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. The Investment Adviser has agreed to
reimburse its management fee by the amount of management fees the
Fund pays to FAM indirectly through its investment in CMA California
Municipal Money Fund. For the year ended October 31, 2004, FAM
reimbursed the Fund in the amount of $16,458.
For the year ended October 31, 2004, the Fund reimbursed FAM $10,213
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, 2004 were $163,510,498 and
$151,350,843, respectively.
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.
Preferred Stock
Auction Market Preferred Stock 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,
2004 were: Series A, 1.40%; Series B, 1.03%; and Series C, 1.30%.
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, 2004, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, an affiliate of FAM, earned $178,155 as commissions.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
Notes to Financial Statements (concluded)
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 29, 2004 to
shareholders of record on November 12, 2004.
The tax character of distributions paid during the fiscal years
ended October 31, 2004 and October 31, 2003 was as follows:
10/31/2004 10/31/2003
Distributions paid from:
Tax-exempt income $ 22,123,236 $ 22,751,092
Ordinary income -- 64,068
--------------- ---------------
Total distributions $ 22,123,236 $ 22,815,160
=============== ===============
As of October 31, 2004, the components of accumulated earnings on a
tax basis were as follows:
Undistributed tax-exempt income--net $ 2,510,669
Undistributed long-term capital gains--net --
---------------
Total undistributed earnings--net 2,510,669
Capital loss carryforward (6,759,497)*
Unrealized gains--net 27,365,596**
---------------
Total accumulated earnings--net $ 23,116,768
===============
* On October 31, 2004, the Fund had a net capital loss carryforward
of $6,759,497, of which $6,405,651 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, 2004
Report of Independent Registered Public Accounting Firm
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, 2004, 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 the standards of the
Public Company Accounting Oversight Board (United States). 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, 2004, 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, 2004, 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 U.S. generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 14, 2004
Important Tax Information (unaudited)
All of the net investment income distributions paid by MuniYield
California Fund, Inc. during the taxable year ended October 31, 2004
qualify as tax-exempt interest dividends for federal income tax
purposes.
Please retain this information for your records.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
Automatic Dividend Reinvestment Plan (unaudited)
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, 2004
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, 2004
Officers and Directors (unaudited)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Terry K. Glenn* President 1999 to President of the Merrill Lynch Investment 124 Funds None
P.O. Box 9011 and present Managers, L.P. ("MLIM")/Fund Asset 157 Portfolios
Princeton, Director Management, L.P. ("FAM")-advised funds
NJ 08543-9011 since 1999; Chairman (Americas Region) of
Age: 64 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
present and 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, 2004
Officers and Directors (unaudited)(continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age 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. 38 Funds None
P.O. Box 9095 present since 1996 and Executive Vice President 55 Portfolios
Princeton, thereof from 1996 to 2003; Chairman of the
NJ 08543-9095 Board, Berkshire Holding Corporation since
Age: 60 1980; Partner, Squire, Sanders & Dempsey
from 1980 to 1993.
Joe Grills Director 2002 to Member of the Committee of Investment of 38 Funds Kimco Realty
P.O. Box 9095 present Employee Benefit Assets of the Association 55 Portfolios Corporation
Princeton, of Financial Professionals ("CIEBA") since
NJ 08543-9095 1986; Member of CIEBA's Executive Committee
Age: 69 since 1988 and its Chairman from 1991 to
1992; Assistant Treasurer of International
Business Machines Corporation ("IBM") and
Chief Investment Officer of IBM Retirement
Funds from 1986 to 1993; Member of the
Investment Advisory Committee 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 University
Management Company from 1992 to 2004, Vice
Chairman thereof from 1998 to 2004 and
Director Emeritus thereof since 2004;
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 its Vice Chairman 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 38 Funds None
P.O. Box 9095 present York University since 1993 and Professor 55 Portfolios
Princeton, thereof since 1980; President, Hudson
NJ 08543-9095 Institute since 1997 and Trustee thereof
Age: 65 since 1980; Dean, Gallatin Division of
New York University from 1976 to 1993;
Distinguished Fellow, Herman Kahn Chair,
Hudson Institute from 1984 to 1985;
Director, Damon Corp. from 1991 to 1995;
Overseer, Center for Naval Analyses from
1983 to 1993.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
Officers and Directors (unaudited)(continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors* (concluded)
Roberta Cooper Ramo Director 1999 to Shareholder, Modrall, Sperling, Roehl, 38 Funds None
P.O. Box 9095 present Harris & Sisk, P.A. since 1993; President, 55 Portfolios
Princeton, American Bar Association from 1995 to 1996
NJ 08543-9095 and Member of the Board of Governors thereof
Age: 62 from 1994 to 1997; Shareholder, Poole,
Kelly & Ramo, Attorneys at Law, P.C. from
1977 to 1993; Director, ECMC Group (service
provider to students, schools and lenders)
since 2001; Director, United New Mexico
Bank (now Wells Fargo) from 1983 to 1988;
Director, First National Bank of New Mexico
(now Wells Fargo) from 1975 to 1976; Vice
President, American Law Institute since 2004.
Robert S. Salomon, Jr. Director 2002 to Principal of STI Management (investment 38 Funds None
P.O. Box 9095 present adviser) since 1994; Chairman and CEO of 55 Portfolios
Princeton, Salomon Brothers Asset Management from
NJ 08543-9095 1992 to 1995; Chairman of Salomon Brothers
Age: 67 equity mutual funds from 1992 to 1995;
regular columnist with Forbes Magazine
from 1992 to 2002; Director of Stock
Research and U.S. Equity Strategist at
Salomon Brothers from 1975 to 1991;
Trustee, Commonfund from 1980 to 2001.
Stephen B. Swensrud Director 2002 to Chairman of Fernwood Advisors, Inc. 39 Funds None
P.O. Box 9095 present (investment adviser) since 1996; Principal, 56 Portfolios
Princeton, Fernwood Associates (financial consultants)
NJ 08543-9095 since 1975; Chairman of R.P.P. Corporation
Age: 71 (manufacturing company) since 1978; Director
of International Mobile Communications,
Incorporated (telecommunications) 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, 2004
Officers and Directors (unaudited)(concluded)
Position(s) Length of
Held with Time
Name, Address & Age 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 since
P.O. Box 9011 President present 1999; Senior Vice President and Treasurer of Princeton Services since 1999
Princeton, and and and Director since 2004; Vice President of FAMD since 1999; Vice President
NJ 08543-9011 Treasurer 1999 to of MLIM and FAM from 1990 to 1997; Director of MLIM Taxation since 1990.
Age: 44 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: 53
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: 40
Walter 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 1994
Princeton, to 1999.
NJ 08543-9011
Age: 43
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice
P.O. Box 9011 Compliance present President and Chief Compliance Officer of MLIM since 2004; Global Director
Princeton, Officer of Compliance at Morgan Stanley Investment Management from 2002 to 2004;
NJ 08543-9011 Managing Director and Global Director of Compliance at Citigroup Asset
Age: 53 Management from 2000 to 2002; Chief Compliance Officer at Soros Fund
Management in 2000; Chief Compliance Officer at Prudential Financial from
1995 to 2000.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from
P.O. Box 9011 present 1999 to 2002; Attorney associated with MLIM since 1997.
Princeton,
NJ 08543-9011
Age: 44
* 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--11 East
New York, NY 10286
Preferred Stock:
The Bank of New York
101 Barclay Street--7 West
New York, NY 10286
NYSE Symbol
MYC
Andre F. Perold resigned as a Director of the Fund
effective October 22, 2004.
MUNIYIELD CALIFORNIA FUND, INC., OCTOBER 31, 2004
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third
quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are
available on the SEC's Web site at http://www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Dividend Policy (unaudited)
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, 2004
Electronic Delivery
The Fund offers 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 Web site
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, 2004
Item 2 - Code of Ethics - 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 - Audit Committee Financial Expert - 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 F. Perold (resigned
as of October 1, 2004), (3) Robert S. Salomon, Jr., and (4)
Stephen B. Swensrud.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending October 31, 2004 - $26,000
Fiscal Year Ending October 31, 2003 - $25,000
(b) Audit-Related Fees -
Fiscal Year Ending October 31, 2004 - $3,000
Fiscal Year Ending October 31, 2003 - $5,600
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
(c) Tax Fees - Fiscal Year Ending October 31, 2004 - $5,610
Fiscal Year Ending October 31, 2003 - $4,800
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending October 31, 2004 - $0
Fiscal Year Ending October 31, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services provided
to the registrant on an annual basis require specific pre-approval
by the Committee. The Committee also must approve other non-audit
services provided to the registrant and those non-audit services
provided to the registrant's affiliated service providers that
relate directly to the operations and the financial reporting of the
registrant. Certain of these non-audit services that the Committee
believes are a) consistent with the SEC's auditor independence rules
and b) routine and recurring services that will not impair the
independence of the independent accountants may be approved by the
Committee without consideration on a specific case-by-case basis
("general pre-approval"). However, such services will only be
deemed pre-approved provided that any individual project does not
exceed $5,000 attributable to the registrant or $50,000 for all of
the registrants the Committee oversees. Any proposed services
exceeding the pre-approved cost levels will require specific pre-
approval by the Committee, as will any other services not subject to
general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to
general pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending October 31, 2004 - $13,270,096
Fiscal Year Ending October 31, 2003 - $18,737,552
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's 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.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
Item 5 - Audit Committee of Listed Registrants - The following
individuals are members of the registrant's separately-designated
standing audit committee established in accordance with Section
3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)):
James H. Bodurtha
Joe Grills
Herbert I. London
Andre F. Perold (resigned as of October 1, 2004)
Roberta Cooper Ramo
Robert S. Solomon, Jr.
Stephen B. Swensrud
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies -
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 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 10 - Controls and Procedures
10(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.
10(b) - There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - 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 13, 2004
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 13, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
MuniYield California Fund, Inc.
Date: December 13, 2004