TAURUS
MUNICALIFORNIA
HOLDINGS, INC.
STRATEGIC
Performance
Annual Report
October 31, 1997
<PAGE>
Taurus MuniCalifornia Holdings, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1997, the Common Stock of Taurus MuniCalifornia
Holdings, Inc. earned $0.697 per share income dividends, which included earned
and unpaid dividends of $0.066. This represents a net annualized yield of 5.86%,
based on a month-end net asset value of $11.90 per share. Over the same period,
the total investment return on the Fund's Common Stock was +9.14%, based on a
change in per share net asset value from $11.59 to $11.90, and assuming
reinvestment of $0.689 per share income dividends.
For the six-month period ended October 31, 1997, the total investment return on
the Fund's Common Stock was +7.54%, based on a change in per share net asset
value from $11.40 to $11.90, and assuming reinvestment of $0.344 per share
income dividends.
For the six-month period ended October 31, 1997, the Fund's Auction Market
Preferred Stock had an average yield of 3.00%.
The Municipal Market Environment
Long-term interest rates generally declined during the six-month period ended
October 31, 1997. The general financial environment has remained one of solid
economic growth tempered by few or no inflationary pressures. While economic
growth has been conducive to declining bond yields, it has remained strong
enough to suggest that the Federal Reserve Board (FRB) might find it necessary
to raise short-term interest rates. This would be intended to slow economic
growth and ensure that any incipient inflationary pressures would be curtailed.
There were investor concerns that the FRB would be forced to raise interest
rates prior to year-end, thus preventing an even more dramatic decline in
interest rates. Long-term tax-exempt revenue bonds, as measured by the Bond
Buyer Revenue Bond Index, declined over 50 basis points (0.50%) to end the
six-month period ended October 31, 1997 at 5.60%.
Similarly, long-term US Treasury bond yields generally moved lower during most
of the six-month period ended October 31, 1997. However, the turmoil in the
world's equity markets during the last week in October has resulted in a
significant rally in the Treasury bond market. The US Treasury bond market was
the beneficiary of a flight to quality mainly by foreign investors whose own
domestic markets have continued to be very volatile. Prior to the initial
decline in Asian equity markets, long-term US Treasury bond yields were
essentially unchanged. By the end of October, US Treasury bond yields declined
80 basis points to 6.15%, their lowest level of 1997.
The tax-exempt bond market's continued underperformance as compared to its
taxable counterpart has been largely in response to its ongoing weakening
technical position. As municipal bond yields have declined, municipalities have
hurriedly rushed to refinance outstanding higher-couponed debt with new issues
financed at present low rates. During the last six months, over $118 billion in
new long-term tax-exempt issues were underwritten, an increase of over 25%
versus the comparable period a year ago. As interest rates have continued to
decline, these refinancings have intensified municipal bond issuance. During the
past three months, approximately $60 billion in new long-term municipal
securities were underwritten, an increase of over 34% as compared to the October
31, 1996 quarter.
The recent trend toward larger and larger bond issues has also continued.
However, issues of such magnitude usually must be attractively priced to ensure
adequate investor interest. Obviously, the yields of other municipal bond issues
are impacted by the yield premiums such large issuers have been required to pay.
Much of the municipal bond market's recent underperformance can be traced to
market pressures that these large bond issuances have exerted.
1
<PAGE>
Taurus MuniCalifornia Holdings, Inc. October 31, 1997
In our opinion, the recent correction in world equity markets has enhanced the
near-term prospects for continued low, if not declining, interest rates in the
United States. It is likely that the recent correction will result in slower US
domestic growth in the coming months. This decline is likely to be generated in
part by reduced US export growth. Additionally, some decline in consumer
spending also can be expected in response to reduced consumer confidence.
Perhaps more importantly, it is likely that barring a dramatic and unexpected
resurgence in domestic growth, the FRB may be unwilling to raise interest rates
until the full impact of the equity market's corrections can be established.
All of these factors suggest that for at least the near term, interest rates,
including tax-exempt bond yields, are unlikely to rise by any appreciable
amount. It is probable that municipal bond yields will remain under some
pressure as a result of continued strong new-issue supply. However, the recent
pace of municipal bond issuance is likely to be unsustainable. Continued
increases in bond issuance will require lower tax-exempt bond yields to generate
the economic savings necessary for additional municipal bond refinancing. With
tax-exempt bond yields at already attractive yield ratios relative to US
Treasury bonds (approximately 90% at the end of October), any further pressure
on the municipal market may represent an attractive investment opportunity.
Portfolio Strategy
During the 12-month period ended October 31, 1997, we managed the Fund to seek
to sustain a generous level of tax-exempt income while providing an attractive
total return. We began the 12-month period with an optimistic outlook that
interest rates could decline as a result of the attractive value of a 6.75%
yield on US Treasury bonds and the correspondingly high yields on municipal
bonds. This optimism on interest rates proved well founded as interest rates
declined about 60 basis points throughout the fiscal year ended October 31,
1997.
While the overall trend in interest rates was down for the year, market
volatility created a fairly well-defined trading range in which we shifted our
investment strategy in response to rapidly changing market conditions. From
October 1996 to December 1996, interest rates declined about 35 basis points.
During that time, we scaled back the Fund's aggressive posture to a more
defensive position in response to our concerns that interest rates had declined
too rapidly for prevailing economic conditions.
This strategy proved correct as interest rates increased nearly 80 basis points
from December 1996 to April 1997 on investor beliefs that the US economy was
expanding at an excessive pace which could result in inflation and ultimately
lead to FRB interest rate tightenings. At that time, we once again held a more
aggressive posture for the Fund with interest rates at 7.15% for long-term US
Treasury bonds. In addition, we made this change in response to the excessive
backup in municipal yields and our belief that the FRB would not tighten
interest rates since inflation did not appear to be threatening. This
restructuring benefited the Fund as interest rates ultimately declined nearly
100 basis points during the second half of the year. We believe this interest
rate decline was caused by various circumstances, such as low inflation and the
volatility created by the Asian stock market and currency crisis. As a result of
this strategy, the Fund had a total return and yield above the industry average
of similar California municipal bond funds. Going forward, it is our opinion
that interest rates do not appear to be in danger of rising substantially, and
they may trade in a narrow range. Therefore, we expect to concentrate on
enhancing tax-exempt income for the shareholders while trying to limit
volatility.
2
<PAGE>
Taurus MuniCalifornia Holdings, Inc. October 31, 1997
In Conclusion
We appreciate your ongoing interest in Taurus MultiCalifornia Holdings, Inc.,
and we look forward to assisting you with your financial needs in the months and
years to come.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Roberto Roffo
Roberto Roffo
Vice President and Portfolio Manager
December 4, 1997
PROXY RESULTS
Taurus MuniCalifornia Holdings, Inc. Common Stock shareholders voted on and
approved the following proposals at a shareholders' meeting on November 20,
1997. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To consider and act upon a proposal to approve the Agreement
and Plan of Reorganization between the Fund and MuniYield
California Fund, Inc. 2,736,609 91,802 182,126
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Taurus MuniCalifornia Holdings, Inc. Preferred Stock shareholders voted on
and approved the following proposals at a shareholders' meeting on November
20, 1997. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To consider and act upon a proposal to approve the Agreement
and Plan of Reorganization between the Fund and MuniYield
California Fund, Inc. 795 0 5
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Shareholders of MuniYield California Fund, Inc. also approved the proposed
merger on November 20, 1997. MuniYield California Fund, Inc. will be the fund
surviving the merger, which is presently scheduled to take place February 6,
1998.
3
<PAGE>
Taurus MuniCalifornia Holdings, Inc. October 31, 1997
THE BENEFITS AND RISKS OF LEVERAGING
Taurus MuniCalifornia Holdings, Inc. utilizes leveraging to seek to enhance the
yield and net asset value of its Common Stock. However, these objectives cannot
be achieved in all interest rate environments. To leverage, the fund issues
Preferred Stock, which pays dividends at prevailing short-term interest rates,
and invests the proceeds in long-term municipal bonds. The interest earned on
these investments is paid to Common Stock shareholders in the form of dividends,
and the value of these portfolio holdings is reflected in the per share net
asset value of the Fund's Common Stock. However, in order to benefit Common
Stock shareholders, the yield curve must be positively sloped; that is,
short-term interest rates must be lower than long-term interest rates. At the
same time, a period of generally declining interest rates will benefit Common
Stock shareholders. If either of these conditions change, then the risks of
leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock capitalization of
$100 million and the issuance of Preferred Stock for an additional $50 million,
creating a total value of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are approximately 3%
and long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million of Preferred
Stock based on the lower short-term interest rates. At the same time, the fund's
total portfolio of $150 million earns the income based on long-term interest
rates. Of course, increases in short-term interest rates would reduce (and even
eliminate) the dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term investments,
and therefore the Common Stock shareholders are the beneficiaries of the
incremental yield. However, if short-term interest rates rise, narrowing the
differential between short-term and long-term interest rates, the incremental
yield pickup on the Common Stock will be reduced or eliminated completely. At
the same time, the market value of the fund's Common Stock (that is, its price
as listed on the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common Stock's net asset
value will reflect the full decline in the price of the portfolio's investments,
since the value of the fund's Preferred Stock does not fluctuate. In addition to
the decline in net asset value, the market value of the fund's Common Stock may
also decline.
PORTFOLIO ABBREVIATIONS
To simplify the listings of Taurus MuniCalifornia Holdings, Inc. portfolio
holdings in the Schedule of Investments, we have abbreviated the names of many
of the securities according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
HFA Housing Finance Agency
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
4
<PAGE>
Taurus MuniCalifornia Holdings, Inc. October 31, 1997
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ---------------------------------------------------------------------------------------------------------------------------------
California -- 96.3%
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C>
California HFA, Home Mortgage Revenue Bonds:
AA- Aa $ 475 AMT, Series C, 7.60% due 8/01/2030 $ 501
AA- Aa 790 AMT, Series D, 7.75% due 8/01/2010 839
AAA Aaa 1,000 AMT, Series E, 6.10% due 8/01/2029 (a) 1,039
AA- Aa 1,975 AMT, Series F-1, 7% due 8/01/2026 2,129
AA- Aa 1,355 Series D, 7.25% due 8/01/2017 1,428
- ---------------------------------------------------------------------------------------------------------------------------------
AA- AA 1,000 California HFA, Revenue Bonds, RIB, AMT, 8.945% due 8/01/2023 (h) 1,116
- ---------------------------------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority Revenue Bonds, Series A:
AA Aa3 3,500 (Kaiser Permanente), 6.50% due 12/01/2020 3,759
BB Aaa 1,500 Refunding (Good Samaritan Health System), 7.50% due 5/01/2000 (i) 1,651
AAA Aaa 2,180 (San Francisco Children's Hospital), 7.50% due 10/01/2000 (d)(i) 2,426
- ---------------------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority,
PCR, Refunding (Pacific Gas and Electric Co.),
VRDN (g):
A1 NR* 900 AMT, Series G, 3.65% due 2/01/2016 900
A1+ NR* 400 Series F, 3.55% due 11/01/2026 400
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 California Pollution Control Financing Authority, PCR, Refunding (San Diego Gas and
Electric Co.), Series A, 5.90% due 6/01/2014 (d) 1,640
- ---------------------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority, PCR (Southern California Edison Co.),
Series B:
A+ A2 1,285 AMT, 6.40% due 12/01/2024 1,373
A1 VMIG1+ 1,200 VRDN, 3.40% due 2/28/2008 (g) 1,200
- ---------------------------------------------------------------------------------------------------------------------------------
NR* P1 1,400 California Pollution Control Financing Authority, Resource Recovery Revenue Refunding Bonds
(Ultra Power Rocklin Project), VRDN, AMT, Series A, 3.65% due 6/01/2017 (g) 1,400
- ---------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,215 California Rural Home Mortgage Finance Authority, S/F Mortgage Revenue Bonds
(Mortgage-Backed Securities Program), AMT, Series A-1, 6.90% due 12/01/2024 (e)(j) 1,319
- ---------------------------------------------------------------------------------------------------------------------------------
A Aaa 1,000 California State Public Works Board, Lease Revenue Bonds (Department of Corrections--
Monterey County--Soledad II), Series A, 6.875% due 11/01/2004 (i) 1,169
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Cerritos, California, Public Financing Authority, Revenue Refunding Bonds (Los Coyotes
Redevelopment Project Loan), Series A, 6.50% due 11/01/2023 (a) 3,550
- ---------------------------------------------------------------------------------------------------------------------------------
BBB NR* 2,000 Contra Costa County, California, Public Financing Authority, Tax Allocation Revenue
Refunding Bonds, Series A, 7.10% due 8/01/2022 2,185
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,700 Cucamonga County, California, Water District Facilities Refinancing Bonds, COP, 6.50%
due 9/01/2022 (b) 2,933
- ---------------------------------------------------------------------------------------------------------------------------------
NR* NR* 810 Cypress, California, S/F Residential Mortgage Revenue Refunding Bonds, Series B, 7.25%
due 1/01/2012 (c) 985
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 895 Delano, California, Unified School District, COP, Series A, 5.90% due 1/01/2022 (a) 932
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,010 Fresno, California, Sewer Revenue Bonds, Series A-1, 6.25% due 9/01/2014 (a) 2,279
- ---------------------------------------------------------------------------------------------------------------------------------
A+ Aa3 3,700 Los Angeles, California, Department of Water and Power, Electric Plant Revenue Refunding
Bonds, RIB, 6.375% due 2/01/2020 (h) 3,973
- ---------------------------------------------------------------------------------------------------------------------------------
AA Aa3 2,000 Los Angeles, California, Harbor Department Revenue Bonds, AMT, Series B, 6.625%
due 8/01/2019 2,172
- ---------------------------------------------------------------------------------------------------------------------------------
AAA NR* 230 Los Angeles, California, S/F Home Mortgage Revenue Bonds, AMT, Issue A, 7.55%
due 12/01/2023 (e) 242
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Los Angeles, California, Unified School District, UT, Series A, 6% due 7/01/2007 (b) 1,112
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
Taurus MuniCalifornia Holdings, Inc. October 31, 1997
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ---------------------------------------------------------------------------------------------------------------------------------
California (concluded)
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C>
Los Angeles County, California, Metropolitan Transportation Authority, Sales Tax
Revenue Bonds:
AAA Aaa $1,390 Proposition A, 1st Tier, Senior Series A, 6% due 7/01/2023 (d) $ 1,473
AAA Aaa 1,030 Proposition C, 2nd Series A, 5.90% due 7/01/2008 (a) 1,138
- ---------------------------------------------------------------------------------------------------------------------------------
A+ A1 2,000 Pasadena, California, COP, Refunding (Old Pasadena Package Facility Project), 6.25%
due 1/01/2018 2,233
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Port Oakland, California, Port Revenue Bonds, AMT, Series E, 6.50% due 11/01/2016 (d) 1,090
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Riverside County, California, Lease Refunding Bonds, COP, 5.125% due 11/01/2021 (d) 1,945
- ---------------------------------------------------------------------------------------------------------------------------------
BBB- Baa2 1,250 Riverside County, California, Public Financing Authority, Tax Allocation Revenue Bonds
(Redevelopment Projects), Series A, 5.625% due 10/01/2033 1,250
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,720 San Diego, California, IDR, RITR, 8.185% due 9/01/2018 (h) 1,952
- ---------------------------------------------------------------------------------------------------------------------------------
BBB+ Baa1 1,300 San Diego, California, Redevelopment Agency Refunding Bonds (Horton Project), Series B,
6.625% due 11/01/2017 1,426
- ---------------------------------------------------------------------------------------------------------------------------------
San Francisco, California, City and County Airport Commission, International Airport
Revenue Bonds, Second Series:
AAA Aaa 1,500 AMT, Issue 5, 6.50% due 5/01/2019 (b) 1,637
AAA Aaa 1,000 Refunding, Issue 1, 6.50% due 5/01/2013 (a) 1,097
AAA Aaa 2,000 Refunding, Issue 2, 6.75% due 5/01/2013 (d) 2,238
- ---------------------------------------------------------------------------------------------------------------------------------
AAA NR* 110 San Francisco, California, City and County, S/F Mortgage Revenue Bonds (Mortgage-Backed
Securities Program), AMT, 7.45% due 1/01/2024 (f) 116
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 San Mateo County, California, Joint Powers Financing Authority, Lease Revenue
Refunding Bonds (Capital Projects Program), 5% due 7/01/2021 (d) 3,391
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Santa Clara County, California, Financing Authority, Lease Revenue Bonds (VMC Facility
Replacement Project), Series A, 6.875% due 11/15/2004 (a)(i) 2,340
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,850 Santa Cruz County, California, COP, Refunding (Capital Facilities Project), 5.60%
due 9/01/2023 (d) 4,045
- ---------------------------------------------------------------------------------------------------------------------------------
Southern California Home Financing Authority, S/F Mortgage Revenue Bonds, AMT:
AAA NR* 2,325 (Mortgage Backed Securities Program), Series A, 7.625% due 10/01/2023 (e) 2,452
AAA NR* 170 Series B, 7.75% due 3/01/2024 (f) 180
- ---------------------------------------------------------------------------------------------------------------------------------
BBB+ NR* 2,305 Stanislaus, California, Waste-to-Energy Financing Agency, Solid Waste Facility Revenue
Refunding Bonds (Ogden Martin System Inc. Project), 7.625% due 1/01/2010 2,471
- ---------------------------------------------------------------------------------------------------------------------------------
A NR* 1,385 Torrance, California, Hospital Revenue Refunding Bonds (Little Company of Mary Hospital),
6.875% due 7/01/2015 1,502
- ---------------------------------------------------------------------------------------------------------------------------------
Puerto Rico -- 2.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority, Power Revenue Bonds:
BBB+ Baa1 1,000 Refunding, Series U, 6% due 7/01/2014 1,056
AAA Aaa 500 Series AA, 6% due 7/01/2006 (d) 552
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost -- $74,958) -- 98.3% 80,236
Other Assets Less Liabilities -- 1.7% 1,352
-------
Net Assets -- 100.0% $81,588
=======
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) Escrowed to Maturity.
(d) MBIA Insured.
(e) GNMA Collateralized.
(f) GNMA/FNMA Collateralized.
(g) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at October 31,
1997.
(h) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in effect
at October 31, 1997.
(i) Prerefunded.
(j) FHLMC Collateralized.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
6
<PAGE>
Taurus MuniCalifornia Holdings, Inc. October 31, 1997
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Statement of Assets, Liabilities and Capital as of October 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$74,958,074) (Note 1a)... $ 80,235,695
Cash............................................................. 66,550
Interest receivable.............................................. 1,465,579
Prepaid expenses and other assets................................ 5,999
------------
Total assets..................................................... 81,773,823
------------
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Dividends to shareholders (Note 1e)............................ $ 57,537
Investment adviser (Note 2).................................... 36,672 94,209
----------
Accrued expenses................................................. 91,183
------------
Total liabilities ............................................... 185,392
------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets....................................................... $ 81,588,431
============
- ---------------------------------------------------------------------------------------------------------------------------
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (800 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) $ 20,000,000
Common Stock, par value $.10 per share (5,175,539 shares issued
and outstanding)............................................... $ 517,554
Paid-in capital in excess of par................................. 56,531,915
Undistributed investment income--net ............................ 513,670
Accumulated realized capital losses on investments--net (Note 5). (1,252,329)
Unrealized appreciation on investments--net...................... 5,277,621
-----------
Total--Equivalent to $11.90 net asset value per share of Common Stock
(market price--$11.5625)......................................... 61,588,431
------------7
Total capital.................................................... $ 81,588,431
============
- ---------------------------------------------------------------------------------------------------------------------------
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
7
<PAGE>
Taurus MuniCalifornia Holdings, Inc. October 31, 1997
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Statement of Operations
- ---------------------------------------------------------------------------------------------------------------------------
For the
Year Ended
October 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned......... $ 4,743,979
(Note 1d):
- ---------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2)................................ $ 403,387
Professional fees................................................ 80,599
Accounting services (Note 2)..................................... 77,487
Commission fees (Note 4)......................................... 50,544
Transfer agent fees.............................................. 36,298
Printing and shareholder reports................................. 28,933
Directors' fees and expenses..................................... 19,595
Listing fees..................................................... 16,295
Custodian fees................................................... 8,434
Pricing fees..................................................... 6,586
Other............................................................ 13,431
---------
Total expenses .................................................. 741,589
-----------
Investment income--net........................................... 4,002,390
-----------
- ---------------------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments--net ............................... 587,179
Unrealized Change in unrealized appreciation on investments--net ........... 1,250,409
Gain on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations ............ $ 5,839,978
(Notes 1b, 1d & 3): ===========
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
8
<PAGE>
Taurus MuniCalifornia Holdings, Inc. October 31, 1997
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
For the Year Ended
October 31,
-----------------------------
Increase (Decrease) in Net Assets: 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net.......................................... $ 4,002,390 $ 4,176,355
Realized gain on investments--net............................... 587,179 1,315,836
Change in unrealized appreciation/depreciation on investments--net 1,250,409 (314,866)
----------- -----------
Net increase in net assets resulting from operations............ 5,839,978 5,177,325
----------- -----------
- -----------------------------------------------------------------------------------------------------------------------------
Dividends to Investment income--net:
Shareholders Common Stock.................................................. (3,568,374) (3,457,027)
(Note 1e): Preferred Stock............................................... (642,680) (696,352)
----------- -----------
Net decrease in net assets resulting from dividends to shareholders (4,211,054) (4,153,379)
----------- -----------
- -----------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets.................................... 1,628,924 1,023,946
Beginning of year............................................... 79,959,507 78,935,561
----------- -----------
End of year*.................................................... $ 81,588,431 $ 79,959,507
============ ============
- -----------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net............................. $ 513,670 $ 722,334
============ ============
- -----------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
9
<PAGE>
Taurus MuniCalifornia Holdings, Inc. October 31, 1997
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
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: 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year.......... $ 11.59 $ 11.39 $ 10.25 $ 12.51 $ 11.53
Operating -------- -------- -------- -------- --------
Performance: Investment income--net...................... .77 .80 .81 .84 .91
Realized and unrealized gain (loss) on
investments--net............................ .35 .20 1.14 (2.08) 1.13
-------- -------- -------- -------- --------
Total from investment operations............ 1.12 1.00 1.95 (1.24) 2.04
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net.................... (.69) (.67) (.66) (.71) (.82)
Realized gain on investments--net......... -- -- -- (.20) (.14)
-------- -------- -------- -------- --------
Total dividends and distributions to
Common Stock shareholders................... (.69) (.67) (.66) (.91) (.96)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to
Preferred Stock shareholders:
Investment income--net.................. (.12) (.13) (.15) (.09) (.08)
Realized gain on investments--net....... -- -- -- (.02) (.02)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity.... (.12) (.13) (.15) (.11) (.10)
-------- -------- -------- -------- --------
Net asset value, end of year................ $ 11.90 $ 11.59 $ 11.39 $ 10.25 $ 12.51
======== ======== ======== ======== ========
Market price per share, end of year......... $11.5625 $ 10.75 $ 9.50 $ 9.25 $ 13.00
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share............. 14.34% 20.63% 10.03% (22.57%) 12.52%
Return:* ======== ======== ======== ======== ========
Based on net asset value per share.......... 9.14% 8.48% 19.05% (10.84%) 17.39%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses.................................... .92% .88% .93% .89% .94%
Net Assets:** ======== ======== ======== ======== ========
Investment income--net...................... 4.96% 5.27% 5.50% 5.49% 5.76%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Stock, end
Data: of year (in thousands)...................... $ 61,588 $ 59,960 $ 58,936 $ 53,032 $ 64,720
======== ======== ======== ======== ========
Preferred Stock outstanding, end of year
(in thousands).............................. $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000
======== ======== ======== ======== ========
Portfolio turnover.......................... 69.35% 55.58% 107.20% 87.83% 52.04%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000................... $ 4,079 $ 3,998 $ 3,947 $ 3,652 $ 4,236
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Dividends Per Share Investment income--net....................... $ 803 $ 870 $ 944 $ 557 $ 514
On Preferred Stock ======== ======== ======== ======== ========
Outstanding:+
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Dividends per share have been adjusted to reflect a two-for-one stock
split that occured on December 1, 1994.
See Notes to Financial Statements.
10
<PAGE>
Taurus MuniCalifornia Holdings, Inc. October 31, 1997
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Taurus MuniCalifornia Holdings, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund determines and makes available for publication the
net asset value of its Common Stock on a weekly basis. The Fund's Common Stock
is listed on the New York Stock Exchange under the symbol MCF. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options, which are traded on exchanges, are valued at
their last sale price as of the close of such exchanges or, lacking any sales,
at the last available bid price. Short-term securities with a remaining maturity
of sixty days or less are valued at amortized cost, which approximates market
value. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Fund, including valuations furnished
by a pricing service retained by the Fund, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Fund under the general supervision of the Board
of Directors.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts -- The Fund may purchase or sell interest rate
futures contracts and options on such futures contracts for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. Futures contracts are contracts for delayed delivery of securities
at a specific future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial margins 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.
o Options -- The Fund is authorized to write covered call options and purchase
put and call options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written. When a security is
purchased or sold through an exercise of an option, the related premium paid (or
received) is added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund realizes a
gain or loss on the option to the extent of the premiums received or paid (or
gain or loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
11
<PAGE>
Taurus MuniCalifornia Holdings, Inc. October 31, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.50% of the Fund's average weekly net assets.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 1997 were $51,430,796 and $58,256,268, respectively.
Net realized and unrealized gains (losses) as of October 31, 1997 were as
follows:
- --------------------------------------------------------------------------------
Realized
Gains Unrealized
(Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments ...................... $ 754,469 $5,277,621
Financial futures contracts ................ (167,290) --
--------- ----------
Total ...................................... $ 587,179 $5,277,621
========= ==========
- --------------------------------------------------------------------------------
As of October 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $5,276,756, of which $5,281,241 related to appreciated
securities and $4,485 related to depreciated securities. The aggregate cost of
investments at October 31, 1997 for Federal income tax purposes was $74,958,939.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of the holders
of Common Stock.
Common Stock
Shares issued and outstanding during the years ended October 31, 1997 and
October 31, 1996 remained constant.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund that entitle their holders to receive cash dividends at an annual rate that
may vary for the successive dividend periods. The yield in effect at October 31,
1997 was 3.19%.
As of October 31, 1997, there were 800 AMPS shares authorized, issued and
outstanding with a liquidation preference of $25,000 per share.
The Fund pays commissions to certain broker-dealers at the end of each auction
at the annual rate of one-quarter of 1%, calculated on the proceeds of each
auction.
For the year ended October 31, 1997, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), a subsidiary of ML & Co., earned $37,611 as commissions.
5. Capital Loss Carryforward:
At October 31, 1997, the Fund had a capital loss carryforward of approximately
$322,000, of which $301,000 expires in 2002 and $21,000 expires in 2003. This
amount will be available to offset like amounts of any future taxable gains.
6. Reorganization Plan:
On November 20, 1997, the shareholders approved a plan of reorganization whereby
MuniYield California Fund, Inc. would acquire substantially all of the assets
and liabilities of the Fund in exchange for newly issued shares of MuniYield
California Fund, Inc. MuniYield California Fund, Inc. is a registered,
non-diversified, closed-end management investment company. Both entities have a
similar investment objective and are managed by FAM.
7. Subsequent Event:
On November 6, 1997, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.065686 per share,
payable on November 26, 1997 to shareholders of record as of November 17, 1997.
12
<PAGE>
Taurus MuniCalifornia Holdings, Inc. October 31, 1997
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
Taurus MuniCalifornia Holdings, Inc.
We have audited the accompanying statement of assets, liabilities and capital of
Taurus MuniCalifornia Holdings, Inc., including the schedule of investments, as
of October 31, 1997, 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 financial highlights for each of the years indicated
therein. 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 generally accepted auditing
standards. 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 and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1997, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Taurus
MuniCalifornia Holdings, Inc. at October 31, 1997, 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 financial highlights for each of the indicated
years, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Princeton, New Jersey
November 26, 1997
13
<PAGE>
Taurus MuniCalifornia Holdings, Inc. October 31, 1997
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by Taurus MuniCalifornia
Holdings, Inc. during its taxable year ended October 31, 1997 qualify as
tax-exempt interest dividends for Federal income tax purposes. Additionally,
there were no capital gains distributed by the fund during the year.
Please retain this information for your records.
14
<PAGE>
Taurus MuniCalifornia Holdings, Inc. October 31, 1997
OFFICERS AND DIRECTORS
Officers and Directors
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Roberto Roffo, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
110 Washington Street
New York, NY 10286
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MCF
15
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of Taurus MuniCalifornia Holdings, Inc. for their information. It
is not a prospectus, circular or representation intended for use in the purchase
of shares of the fund or any securities mentioned in the report. Past
performance results shown in this report should not be considered a
representation of future performance. The fund has leveraged its Common Stock by
issuing Preferred Stock to provide the Common Stock shareholders with a
potentially higher rate of return. Leverage creates risks for Common Stock
shareholders, including the likelihood of greater volatility of net asset value
and market price of shares of the Common Stock, and the risk that fluctuations
in the short-term dividend rates of the Preferred Stock may affect the yield to
Common Stock shareholders. Statements and other information herein are as dated
and are subject to change.
Taurus MuniCalifornia
Holdings, Inc.
Box 9011
Princeton, NJ
08543-9011 #11074--10/97
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