-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IVxyvXK3DCHzLXjkIksUB13cWDgLM62UbXfxlnQ8b+p2Rf8HPMQwErEtuFgFN/J0 btFZOa1Ao1LfIgUYeJgstQ== 0000928816-97-000400.txt : 19971216 0000928816-97-000400.hdr.sgml : 19971216 ACCESSION NUMBER: 0000928816-97-000400 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19971215 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNIVEST FUND II INC CENTRAL INDEX KEY: 0000897269 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07478 FILM NUMBER: 97738129 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092822800 MAIL ADDRESS: STREET 1: PO BOX 9011 CITY: PRINCETON STATE: NJ ZIP: 08543-9011 N-30D 1 MUNIVEST FUND II, INC. MUNIVEST FUND II, INC. [FUND LOGO] STRATEGIC Performance Annual Report October 31, 1997 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 Fred K. Stuebe, 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 101 Barclay Street New York, NY 10286 Preferred Stock: IBJ Schroder Bank & Trust Company One State Street New York, NY 10004 NYSE Symbol MVT This report, including the financial information herein, is transmitted to the shareholders of MuniVest Fund II, 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. MuniVest Fund II, Inc. Box 9011 Princeton, NJ 08543-9011 #16807 -- 10/97 [RECYCLE LOGO] Printed on post-consumer recycled paper MUNIVEST FUND II, INC. The Benefits and Risks of Leveraging MuniVest Fund II, 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 on 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. MuniVest Fund II, Inc., October 31, 1997 DEAR SHAREHOLDER For the year ended October 31, 1997, the Common Stock of MuniVest Fund II, Inc. earned $0.876 per share income dividends, which included earned and unpaid dividends of $0.074. This represents a net annualized yield of 6.00%, based on a month-end per share net asset value of $14.59. Over the same period, the total investment return on the Fund's Common Stock was +10.31%, based on a change in per share net asset value from $14.12 to $14.59, and assuming reinvestment of $0.876 per share income dividends. For the six-month period ended October 31, 1997, the total investment return on the Fund's Common Stock was +7.48%, based on a change in per share net asset value from $14.01 to $14.59, and assuming reinvestment of $0.436 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 Series A, 3.29%; Series B, 3.80; and Series C, 2.97%. The Municipal Market Environment Long-term interest rates generally declined during the six-month period ended October 31, 1997. The general financial environment has remained one of solid economic growth tempered by few or no inflationary pressures. While economic growth has been conducive to declining bond yields, it has remained strong enough to suggest that the Federal Reserve Board (FRB) might find it necessary to raise short-term interest rates. This would be intended to slow economic growth and ensure that any incipient inflationary pressures would be curtailed. There were investor concerns that the FRB would be forced to raise interest rates prior to year-end, thus preventing an even more dramatic decline in interest rates. Long-term tax-exempt revenue bonds, as measured by the Bond Buyer Revenue Bond Index, declined over 50 basis points (0.50%) to end the six-month period ended October 31, 1997 at 5.60%. Similarly, long-term US Treasury bond yields generally moved lower during most of the six-month period ended October 31, 1997. However, the turmoil in the world's equity markets during the last week in October has resulted in a significant rally in the Treasury bond market. The US Treasury bond market was the beneficiary of a flight to quality mainly by foreign investors whose own domestic markets have continued to be very volatile. Prior to the initial decline in Asian equity markets, long-term US Treasury bond yields were essentially unchanged. By the end of October, US Treasury bond yields declined 80 basis points to 6.15%, their lowest level of 1997. The tax-exempt bond market's continued underperformance as compared to its taxable counterpart has been largely in response to its ongoing weakening technical position. As municipal bond yields have declined, municipalities have hurriedly rushed to refinance outstanding higher- couponed debt with new issues financed at present low rates. During the last six months, over $118 billion in new long-term tax-exempt issues were underwritten, an increase of over 25% versus the comparable period a year ago. As interest rates have continued to decline, these refinancings have intensified municipal bond issuance. During the past three months, approximately $60 billion in new long- term municipal securities were underwritten, an increase of over 34% as compared to the October 31, 1996 quarter. The recent trend toward larger and larger bond issues has also continued. However, issues of such magnitude usually must be attractively priced to ensure adequate investor interest. Obviously, the yields of other municipal bond issues are impacted by the yield premiums such large issuers have been required to pay. Much of the municipal bond market's recent underperformance can be traced to market pressures that these large bond issuances have exerted. In our opinion, the recent correction in world equity markets has enhanced the near-term prospects for continued low, if not declining, interest rates in the United States. It is likely that the recent correction will result in slower US domestic growth in the coming months. This decline is likely to be generated in part by reduced US export growth. Additionally, some decline in consumer spending also can be expected in response to reduced consumer confidence. Perhaps more importantly, it is likely that barring a dramatic and unexpected resurgence in domestic growth, the FRB may be unwilling to raise interest rates until the full impact of the equity market's corrections can be established. All of these factors suggest that for at least the near term, interest rates, including tax-exempt bond yields, are unlikely to rise by any appreciable amount. It is probable that municipal bond yields will remain under some pressure as a result of continued strong new-issue supply. However, the recent pace of municipal bond issuance is likely to be unsustainable. Continued increases in bond issuance will require lower tax-exempt bond yields to generate the economic savings necessary for additional municipal bond refinancing. With tax-exempt bond yields at already attractive yield ratios relative to US Treasury bonds (approximately 90% at the end of October), any further pressure on the municipal market may represent an attractive investment opportunity. Portfolio Strategy During the six months ended October 31, 1997, we largely maintained the defensive posture we had adopted earlier in the year. Our principal concern was that economic growth would remain strong enough to force the FRB to raise interest rates prior to year-end. We believed that as long as the potential for FRB action remained, it was more likely that interest rates would be raised than lowered. We believed that the Fund's core position of interest rate-sensitive securities would allow the Fund to remain competitive should economic growth weaken and interest rates fall. However, the turmoil in the world's equity markets during October has largely removed concerns regarding any additional action by the FRB in the near term. Additionally, it is likely that economic growth in the United States will be slower than expected as a result of the recent stock market correction. Consequently, we adopted a more neutral position until the full economic impact of the world equity markets' correction can be determined. Looking ahead, we expect to remain fully invested going into 1998 in order to seek to enhance yield for Common Stock shareholders. Short-term tax-exempt interest rates have continued to trade in a relatively narrow range, mostly between 3.50% and 3.75%. During the period ended October 31, 1997, the leverage of the Preferred Stock was very favorable and significantly augmented the yield paid to the Common Stock shareholders. However, should the spread between short- term and long-term tax-exempt interest rates narrow, the benefits of the leverage will decline and the yield on the Common Stock will be reduced. (For a complete explanation of the benefits and risks of leveraging, see page 1 of this report to shareholders.) In Conclusion We appreciate your ongoing interest in MuniVest Fund II, Inc., and we look forward to assisting you with your financial needs in the months and years ahead. Sincerely, /S/ARTHUR ZEIKEL Arthur Zeikel President /S/VINCENT R. GIORDANO Vincent R. Giordano Senior Vice President /S/FRED K. STUEBE Fred K. Stuebe Vice President and Portfolio Manager December 3, 1997
PROXY RESULTS During the six-month period ended October 31, 1997, MuniVest Fund II, Inc. Common Stock shareholders voted on the following proposals. The proposals were approved at a shareholders' meeting on September 18, 1997. The description of each proposal and number of shares voted are as follows: Shares Voted Shares Withheld For From Voting 1. To elect the Fund's Board of Directors: Cynthia A. Montgomery 19,326,854 369,225 Charles C. Reilly 19,356,904 339,175 Kevin A. Ryan 19,328,664 367,415 Arthur Zeikel 19,333,537 362,542 Shares Voted Shares Voted Shares Voted For Against Abstain 2. To ratify the selection of Deloitte & Touche LLP as the Fund's independent auditors for the current fiscal year. 19,216,568 111,429 368,082 During the six-month period ended October 31, 1997, MuniVest Fund II, Inc. Preferred Stock shareholders (Series A, B and C) voted on the following proposals. The proposals were approved at a shareholders' meeting on September 18, 1997. The description of each proposal and number of shares voted are as follows: Shares Voted Shares Withheld For From Voting 1. To elect the Fund's Board of Directors as follows: Ronald W. Forbes, Cynthia A. Montgomery, Charles C. Reilly, Kevin A. Ryan, Richard R. West and Arthur Zeikel: Series A 1,769 0 Series B 1,402 0 Series C 1,549 0 Shares Voted Shares Voted Shares Voted For Against Abstain 2. To ratify the selection of Deloitte & Touche LLP as the Fund's independent auditors for the current fiscal year as follows: Series A 1,769 0 0 Series B 1,387 15 0 Series C 1,549 0 0
SCHEDULE OF INVESTMENTS (in Thousands) S&P Moody's Face Value STATE Ratings Ratings Amount Issue (Note 1a) Alaska -- 3.9% AA Aa3 $15,000 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (Sohio Pipeline -- British Petroleum Oil), 7.125% due 12/01/2025 $16,798 Arizona -- 0.7% AAA Aaa 2,315 Maricopa County, Arizona, School District No. 3, Refunding and Improvement Bonds (Tempe Elementary School), UT, 7.50% due 7/01/2010 (c) 2,892 California -- 1.6% AA Aaa 3,825 California State Department of Water Resources, Water Systems Revenue Bonds (Central Valley Project), Series P, 6.50% due 6/01/2006 (i) 4,420 A Aaa 2,000 California State Public Works Board, Lease Revenue Bonds (Various Community College Projects), Series B, 7% due 3/01/2004 (i) 2,327 Colorado -- 2.7% NR* Aa2 2,780 Colorado HFA, S/F Program, AMT, Senior Series F, 8.625% due 6/01/2025 (h) 3,138 Denver, Colorado, City and County Airport Revenue Bonds, AMT, Series C: AAA Aaa 1,560 6.75% due 11/15/2002 (i) 1,754 BBB Baa1 5,940 6.75% due 11/15/2022 6,419 Delaware -- 0.6% AAA Aaa 2,250 Delaware Transportation Authority, Transportation System Revenue Bonds, Senior Series, 7% due 7/01/2004 (c)(i) 2,618 Florida -- 1.0% BBB Baa1 3,655 Escambia County, Florida, PCR (Champion International Corp. Project), AMT, 6.90% due 8/01/2022 4,054 Georgia -- 4.9% A A 1,250 Georgia Municipal Electric Authority, Power Revenue Bonds, Series X, 6.50% due 1/01/2020 1,428 Georgia Municipal Electric Authority, Special Obligation Revenue Bonds: A A3 6,000 (3rd Crossover Series), 6.60% due 1/01/2018 6,910 A+ A3 11,035 (5th Crossover Series), Project One, 6.50% due 1/01/2017 12,544 Hawaii -- 0.5% A A2 2,000 Hawaii State Department of Budget and Finance, Special Purpose Revenue Bonds (Kapi'Olani Health Obligation), 6.25% due 7/01/2021 2,123 Idaho -- 0.6% NR* Aaa 2,500 Idaho Housing Agency, S/F Mortgage, AMT, Series E-2, 6.90% due 1/01/2027 2,667 Illinois -- 13.9% AAA Aaa 3,850 Chicago, Illinois, GO, UT, 5.25% due 1/01/2027 (c) 3,754 AA- Aa3 6,925 Chicago, Illinois, Gas Supply Revenue Bonds (People's Gas and Light), Series A, 6.875% due 3/01/2015 7,546 AAA Aaa 5,000 Chicago, Illinois, Sales Tax Revenue Bonds, 5.375% due 1/01/2027 (c) 4,960 Illinois HDA, M/F Housing Program: A+ A1 9,090 Refunding, Series A, 7.375% due 7/01/2017 9,889 A+ A1 6,500 Series 5, 6.75% due 9/01/2023 6,843 A+ Aa2 2,550 Illinois HDA, Residential Mortgage Revenue Bonds, AMT, Series C-1, 6.874% due 2/01/2018 2,703 NR* Baa1 3,235 Illinois Health Facilities Authority Revenue Bonds (Holy Cross Hospital Project), 6.75% due 3/01/2024 3,455 Illinois Regional Transportation Authority: AAA Aaa 4,815 Series A, 6.50% due 6/01/2015 (b) 5,273 AAA Aaa 1,500 Series A, 7.20% due 11/01/2020 (b) 1,876 AAA Aaa 7,000 Series A, 6.70% due 11/01/2021 (c) 8,325 AAA Aaa 2,500 UT, Series C, 7.75% due 6/01/2020 (c) 3,286 AAA Aaa 1,000 UT, Series C, 7.10% due 6/01/2025 (c) 1,147 Indiana -- 11.9% Indiana Bond Bank Revenue Bonds (Guarantee -- State Revolving Fund Program), Series A: AAA NR* 2,750 6.875% due 2/01/2012 3,093 AAA NR* 5,750 6.75% due 2/01/2017 6,473 AA Aa3 2,500 Indiana Health Facilities Financing Authority, Hospital Revenue Refunding Bonds (Clarian Health Partners Inc.), Series A, 6% due 2/15/2021 2,597 NR* Aaa 5,545 Indiana State, HFA, S/F Mortgage Revenue Refunding Bonds, Series A, 6.80% due 1/01/2017 5,866 NR* Aaa 1,915 Indiana Transportation Finance Authority, Airport Facilities Lease Revenue Bonds (United Air), Series A, 6.75% due 11/01/2002 (i) 2,152 Indiana Transportation Finance Authority, Highway Revenue Bonds, Series A: A+ A1 2,000 7.25% due 6/01/2015 2,455 A+ A1 3,775 6.80% due 12/01/2016 4,490 Indianapolis, Indiana, Local Public Improvement Bond Bank, Refunding, Series D: A+ NR* 8,750 6.75% due 2/01/2014 10,299 A+ NR* 11,800 6.75% due 2/01/2020 13,034 Kentucky -- 2.0% AA- Aa3 1,750 Boone County, Kentucky, PCR, Refunding (Dayton Power & Light Co.), Series A, 6.50% due 11/15/2022 1,904 AAA Aaa 7,000 Jefferson County, Kentucky, Health Facilities Revenue Refunding Bonds (Alliant Health Systems Inc.), 5.125% due 10/01/2027 (d) 6,686 Louisiana -- 1.4% NR* A3 2,000 Lake Charles, Louisiana, Harbor and Terminal District, Port Facilities Revenue Refunding Bonds (Trunkline Long Co. Project), 7.75% due 8/15/2022 2,292 A+ A1 3,315 Louisiana Public Facilities Authority Revenue Bonds (Tulane University), 6.625% due 11/15/2021 3,641 Maine -- 1.7% NR* Aa2 6,790 Maine State Housing Authority, Mortgage Purchase, AMT, Series C-2, 6.875% due 11/15/2023 7,234 Maryland -- 1.1% A- NR* 2,000 Maryland State Energy Financing Administration, Solid Waste Disposal, Limited Obligation Revenue Bonds (Wheelabrator Water Project), AMT, 6.45% due 12/01/2016 2,183 Maryland State Health and Higher Educational Facilities Authority Revenue Bonds: NR* VMIG1+ 1,000 (Pooled Loan Program), VRDN, Series A, 3.65% due 4/01/2035 (a) 1,000 AAA Aaa 1,000 (University of Maryland Medical Systems), Series B, 7% due 7/01/2022 (c) 1,236 A1+ VMIG1+ 400 University of Maryland, University Revenue Bonds (Revolving Equipment Loan Program), VRDN, Series A, 3.65% due 7/01/2015 (a) 400 Massachusetts -- 6.1% Massachusetts Bay Transportation Authority Revenue Bonds (Massachusetts General Transportation Systems): AAA Aaa 5,000 Series A, 5% due 3/01/2019 (c) 4,816 AAA Aaa 5,000 Series A, 5% due 3/01/2023 (c) 4,785 AA- A1 5,000 Series C, 5% due 3/01/2024 4,740 AAA Aaa 1,000 Massachusetts State, HFA, Residential Development, Series C, 6.90% due 11/15/2021 (f) 1,088 AA- Aa3 2,500 Massachusetts State Port Authority Revenue Bonds, Series A, 5% due 7/01/2027 2,378 A+ A1 1,000 Massachusetts State Revenue Refunding Bonds (College Building Authority Project), Series A, 7.50% due 5/01/2011 1,244 A A2 6,000 Massachusetts State Water Resource Authority, Series A, 6.50% due 7/15/2019 6,930 Michigan -- 7.5% AAA Aaa 2,500 Detroit, Michigan, Water Supply System Revenue Bonds, Series A, 5% due 7/01/2027 (d) 2,385 BBB Baa1 3,500 Dickinson County, Michigan, Economic Development Corporation, Solid Waste Disposal, Revenue Refunding Bonds (Champion International), 6.55% due 3/01/2007 3,715 A1+ VMIG1+ 200 Grand Rapids, Michigan, Water Supply System, Revenue Refunding Bonds, VRDN, 3.50% due 1/01/2020 (a)(c) 200 AA Aa2 1,250 Michigan Municipal Bond Authority, Revenue Refunding Bonds (Local Government -- Qualified School), Series A, 6.50% due 5/01/2016 1,365 A+ NR* 2,755 Michigan State, HDA, Rental Housing Revenue Refunding Bonds, Series A, 6.65% due 4/01/2023 2,882 Michigan State, HDA, S/F Mortgage Revenue Bonds: AA+ NR* 5,490 Refunding, AMT, Series D, 6.85% due 6/01/2026 5,844 AA+ NR* 4,885 Series A, 6.875% due 6/01/2023 5,137 A A2 3,500 Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Detroit Medical Center Obligated Group), Series A, 6.50% due 8/15/2018 3,772 A A1 2,500 Michigan State Strategic Fund, Limited Obligation Revenue Bonds (Ford Motor Co. Project), AMT, Series A, 6.55% due 10/01/2022 2,682 AAA Aaa 1,500 Northern Michigan University, Revenue Refunding Bonds, 5.125% due 12/01/2020 (d) 1,461 AA- Aa3 2,320 Royal Oak, Michigan, Hospital Finance Authority, Revenue Refunding Bonds (Beaumont Properties, Inc.), Series E, 6.625% due 1/01/2019 2,506 Minnesota -- 1.6% Minnesota State, HFA, S/F Mortgage, AMT: AA+ Aa2 2,665 Series L, 6.70% due 7/01/2020 2,824 AA+ Aa2 3,900 Series M, 6.70% due 7/01/2026 4,133 Nebraska -- 0.6% AAA Aaa 2,200 Lancaster County, Nebraska, Hospital Authority No. 1, Hospital Revenue Bonds (Bryan Memorial Hospital Project), 6.70% due 6/01/2022 (d)(j) 2,497 Nevada -- 3.1% AAA Aaa 2,500 Clark County, Nevada, School District, 6.75% due 12/15/2004 (c)(i) 2,871 AAA Aaa 1,440 Nevada Housing Division, S/F Program, AMT, Series E, 7% due 10/01/2019 1,546 AA Aa2 5,430 Nevada State Refunding (Colorado River Commission -- Hoover), 6.60% due 10/01/2016 5,956 AAA Aaa 2,500 Washoe County, Nevada, Gas Facilities Revenue Bonds (Sierra Pacific Power Co.), AMT, 6.65% due 12/01/2017 (b) 2,723 New Jersey -- 1.1% AAA Aaa 4,435 New Jersey State Housing and Mortgage Finance Agency Revenue Bonds (Home Buyer), AMT, Series M, 6.95% due 10/01/2022 (d) 4,804 New York -- 8.9% AAA Aaa 2,500 Metropolitan Transportation Authority, New York, Commuter Facility Revenue Refunding Bonds, Series D, 5.125% due 7/01/2022 (d) 2,443 New York City, New York, GO, UT: BBB+ Baa1 2,500 Refunding, Series C, 5.875% due 2/01/2016 2,565 BBB+ Aaa 2,220 Series B, 7% due 6/01/2001 (i) 2,459 BBB+ Baa1 110 Series B, 7% due 6/01/2016 119 BBB+ Aaa 1,040 Series B, Sub-Series B-1, 7% due 8/15/2004 (i) 1,209 BBB+ Aaa 3,390 Series B, Sub-Series B-1, 7.25% due 8/15/2004 (i) 3,990 BBB+ Baa1 6,460 Series B, Sub-Series B-1, 7% due 8/15/2016 7,297 BBB+ Baa1 610 Series B, Sub-Series B-1, 7.25% due 8/15/2019 694 New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Refunding Bonds: A- A2 7,500 Series A, 5.125% due 6/15/2021 7,197 AAA Aaa 10,300 Series C, 5% due 6/15/2021 (c) 9,913 North Carolina -- A1+ NR* 100 Raleigh-Durham, North Carolina, Airport Authority, 0.0% Special Facility Revenue Refunding Bonds (American Airlines), VRDN, Series B, 3.70% due 11/01/2015 (a) 100 Ohio -- 0.4% Cleveland, Ohio, Water Works Revenue Bonds (First Mortgage), Series F-92B (b): AAA Aaa 20 6.50% due 1/01/2002 (i) 22 AAA Aaa 1,480 6.50% due 1/01/2011 1,615 Oregon -- 0.2% A1 VMIG1+ 900 Medford, Oregon, Hospital Facilities Authority Revenue Bonds (Gross-Rogue Valley Health Services), VRDN, 3.80% due 10/01/2016 (a) 900 Pennsylvania -- 0.7% AA+ Aa 1,250 Pennsylvania HFA, S/F Mortgage, AMT, Series 43, 7.40% due 10/01/2014 1,355 AAA Aaa 1,500 Philadelphia, Pennsylvania, Water and Wastewater Revenue Bonds, Series A, 5% due 8/01/2022 (b) 1,434 South Carolina -- A- A1 3,000 Richland County, South Carolina, Solid Waste Disposal 1.0% Facilities Revenue Bonds (Union Camp Corp. Project), AMT, Series B, 7.125% due 9/01/2021 3,272 NR* Aa2 1,000 South Carolina State Housing Finance and Development Authority, Mortgage Revenue Bonds, AMT, Series A, 6.70% due 7/01/2027 (h) 1,065 Texas -- 6.6% AAA Aaa 1,665 Crowley, Texas, Independent School District, GO, UT, 5.125% due 8/01/2027 1,619 AA- Aa3 2,500 Guadalupe-Blanco River Authority, Texas, Sewage and Solid Waste Disposal Facility Revenue Bonds (du Pont (E.I.) de Nemours and Co. Project), AMT, 6.40% due 4/01/2026 2,720 Harris County, Texas, Health Facilities Development Corporation, Hospital Revenue Bonds: A- A2 1,500 (Memorial Hospital Systems Project), Series A, 6.60% due 6/01/2004 (i) 1,699 A- A2 1,500 (Memorial Hospital Systems Project), Series A, 6.625% due 6/01/2004 (i) 1,701 AAA Aa3 2,500 (Saint Luke's Episcopal Hospital Project), Series A, 6.625% due 2/15/2012 (j) 2,748 AA Aa3 7,000 (School Health Care Systems), Refunding, Series B, 5.75% due 7/01/2027 7,222 A+ A2 2,500 Matagorda County, Texas, Port of Bay City Authority Revenue Bonds (Hoechst Celanese Corp. Project), AMT, 6.50% due 5/01/2026 2,714 AA Aa 4,000 North Central, Texas, Health Facility Development Corporation Revenue Bonds (Baylor University Medical Center), INFLOS, Series A, 9.816% due 5/15/2001 (e)(i) 4,845 AA Aa2 2,500 Texas State Refunding (Veterans' Land), UT, 6.50% due 12/01/2021 2,676 Virginia -- 3.7% A- A1 3,115 Isle Wight County, Virginia, IDA, Solid Waste Disposal Facilities Revenue Bonds (Union Camp Corp. Project), AMT, 6.55% due 4/01/2024 3,379 Virginia State, HDA (Commonwealth Mortgage): AA+ Aa1 2,000 AMT, Series B, Sub-Series B-2, 6.85% due 1/01/2027 2,104 AA+ NR* 2,500 AMT, Series G, Sub-Series G-2, 6.65% due 1/01/2019 2,658 AA+ Aa1 2,000 Series B, Sub-Series B-5, 6.90% due 7/01/2013 2,082 AA+ Aa1 5,100 Series H, 6.85% due 7/01/2014 5,484 Washington -- 3.9% AAA NR* 2,395 Washington State Housing Finance Commission, S/F Mortgage Revenue Refunding Bonds, Series D, 6.95% due 7/01/2017 (f)(g) 2,515 Washington State Public Power Supply System, Revenue Refunding Bonds, Series B: AA- Aa1 4,950 (Nuclear Project No. 1), 7.25% due 7/01/2009 5,920 AA- Aa1 5,000 (Nuclear Project No. 1), 7.125% due 7/01/2016 5,999 AAA Aaa 1,900 (Nuclear Project No. 3), 7.125% due 7/01/2016 (d) 2,307 Wisconsin -- 1.1% AA Aa 2,250 Wisconsin Housing and EDA, Home Ownership Revenue Bonds, AMT, Series D, 6.65% due 7/01/2025 2,372 NR* A3 2,000 Wisconsin State Health and Educational Facilities Authority, Revenue Refunding Bonds (Saint Claire Hospital Project), 7% due 2/15/2011 2,166 Wyoming -- 3.0% BBB Baa2 5,000 Sweetwater County, Wyoming, Solid Waste Disposal Revenue Bonds (FMC Corp. Project), AMT, Series B, 6.90% due 9/01/2024 5,508 Wyoming Community Development Authority, S/F Mortgage: AA Aa2 1,500 AMT, Series H, 7.10% due 6/01/2012 1,616 AA Aa2 5,175 Series B, 6.70% due 6/01/2017 5,471 ---------- Total Investments (Cost -- $383,883) -- 98.0% 416,642 Other Assets Less Liabilities -- 2.0% 8,703 ---------- Net Assets -- 100.0% $425,345 ========== (a) The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at October 31, 1997. (b) AMBAC Insured. (c) FGIC Insured. (d) MBIA Insured. (e) 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. (f) FNMA Collateralized. (g) GNMA Collateralized. (h) FHA Insured. (i) Prerefunded. (j) Escrowed to maturity. * Not Rated. + Highest short-term rating by Moody's Investors Service, Inc. Ratings of issues shown have not been audited by Deloitte & Touche LLP. Portfolio Abbreviations To simplify the listings of MuniVest Fund II, Inc.'s 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) GO General Obligation Bonds EDA Economic Development Authority HDA Housing Development Authority HFA Housing Finance Agency IDA Industrial Development Authority INFLOS Inverse Floating Rate Municipal Bonds M/F Multi-Family PCR Pollution Control Revenue Bonds S/F Single-Family UT Unlimited Tax VRDN Variable Rate Demand Notes See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL As of October 31, 1997 Assets: Investments, at value (identified cost -- $383,883,135) (Note 1a) $416,641,871 Cash 96,746 Receivables: Securities sold $11,987,932 Interest 7,538,043 19,525,975 ------------- Deferred organization expenses (Note 1e) 3,338 Prepaid expenses and other assets 16,366 ------------- Total assets 436,284,296 ------------- Liabilities: Payables: Securities purchased 10,310,663 Dividends to shareholders (Note 1f) 315,086 Investment adviser (Note 2) 191,248 10,816,997 ------------- Accrued expenses and other liabilities 122,025 ------------- Total liabilities 10,939,022 ------------- Net Assets: Net assets $425,345,274 ============= Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.05 per share (5,400 shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) $135,000,000 Common Stock, par value $.10 per share (19,907,055 shares issued and outstanding) $1,990,705 Paid-in capital in excess of par 277,543,484 Undistributed investment income -- net 2,719,803 Accumulated realized capital losses on investments -- net (Note 5) (24,667,454) Unrealized appreciation on investments -- net 32,758,736 ------------- Total -- Equivalent to $14.59 net asset value per share of Common Stock (market price -- $13.875) 290,345,274 ------------- Total capital $425,345,274 ============= * Auction Market Preferred Stock. See Notes to Financial Statements.
STATEMENT OF OPERATIONS For the Year Ended October 31, 1997 Investment Interest and amortization of premium and discount earned $25,182,103 Income (Note 1d): Expenses: Investment advisory fees (Note 2) $2,106,587 Commission fees (Note 4) 343,818 Professional fees 92,538 Accounting services (Note 2) 82,001 Transfer agent fees 70,336 Printing and shareholder reports 37,750 Custodian fees 30,846 Directors' fees and expenses 24,462 Listing fees 24,260 Pricing fees 15,206 Amortization of organization expenses (Note 1e) 8,288 Other 32,032 ------------- Total expenses 2,868,124 ------------- Investment income -- net 22,313,979 ------------- Realized & Realized gain on investments -- net 633,564 Unrealized Gain on Change in unrealized appreciation on investments -- net 8,520,482 Investments -- Net ------------- (Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $31,468,025 ============= See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS For the Year Ended October 31, Increase (Decrease) in Net Assets: 1997 1996 Operations: Investment income -- net $22,313,979 $21,973,143 Realized gain (loss) on investments -- net 633,564 (1,655,497) Change in unrealized appreciation/depreciation on investments -- net 8,520,482 5,246,338 -------------- -------------- Net increase in net assets resulting from operations 31,468,025 25,563,984 -------------- -------------- Dividends to Investment income -- net: Shareholders Common Stock (17,439,516) (16,965,648) (Note 1f): Preferred Stock (4,718,754) (4,793,238) -------------- -------------- Net decrease in net assets resulting from dividends to shareholders (22,158,270) (21,758,886) -------------- -------------- Net Assets: Total increase in net assets 9,309,755 3,805,098 Beginning of year 416,035,519 412,230,421 -------------- -------------- End of year* $425,345,274 $416,035,519 ============== ============== * Undistributed investment income -- net $2,719,803 $2,564,094 ============== ============== See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS For the Period The following per share data and ratios have been derived March 29, from information provided in the financial statements. 1993+ to For the Year Ended October 31, Oct. 31, 1997 1996 1995 1994 1993 Increase (Decrease) in Net Asset Value: Per Share Net asset value, beginning of period $14.12 $13.93 $12.56 $15.15 $14.18 Operating --------- --------- --------- --------- --------- Performance: Investment income -- net 1.13 1.10 1.11 1.08 .62 Realized and unrealized gain (loss) on investments -- net .46 .18 1.37 (2.53) 1.02 --------- --------- --------- --------- --------- Total from investment operations 1.59 1.28 2.48 (1.45) 1.64 --------- --------- --------- --------- --------- Less dividends and distributions to Common Stock shareholders: Investment income -- net (.88) (.85) (.85) (.87) (.45) Realized gain on investments -- net -- -- -- (.08) -- --------- --------- --------- --------- --------- Total dividends and distributions to Common Stock shareholders (.88) (.85) (.85) (.95) (.45) --------- --------- --------- --------- --------- Capital charge resulting from issuance of Common Stock -- -- -- -- (.02) --------- --------- --------- --------- --------- Effect of Preferred Stock activity:++ Dividends and distributions to Preferred Stock shareholders: Investment income -- net (.24) (.24) (.26) (.18) (.09) Realized gain on investments -- net -- -- -- (.01) -- Capital charge resulting from issuance of Preferred Stock -- -- -- -- (.11) --------- --------- --------- --------- --------- Total effect of Preferred Stock activity (.24) (.24) (.26) (.19) (.20) --------- --------- --------- --------- --------- Net asset value, end of period $14.59 $14.12 $13.93 $12.56 $15.15 ========= ========= ========= ========= ========= Market price per share, end of period $13.875 $12.625 $12.125 $10.375 $14.625 ========= ========= ========= ========= ========= Total Investment Based on market price per share 17.32% 11.43% 25.68% (23.56%) .53%++++ Return:** ========= ========= ========= ========= ========= Based on net asset value per share 10.31% 8.47% 19.27% (10.67%) 10.16%++++ ========= ========= ========= ========= ========= Ratios to Average Expenses, net of reimbursement .68% .68% .69% .68% .35%* Net Assets:*** ========= ========= ========= ========= ========= Expenses .68% .68% .69% .68% .49%* ========= ========= ========= ========= ========= Investment income -- net 5.30% 5.30% 5.55% 5.17% 5.17%* ========= ========= ========= ========= ========= Supplemental Net assets, net of Preferred Stock, end of Data: period (in thousands) $290,345 $281,036 $277,230 $250,079 $301,507 ========= ========= ========= ========= ========= Preferred Stock outstanding, end of period (in thousands) $135,000 $135,000 $135,000 $135,000 $135,000 ========= ========= ========= ========= ========= Portfolio turnover 57.80% 46.58% 95.62% 114.56% 25.00% ========= ========= ========= ========= ========= Leverage: Asset coverage per $1,000 $3,151 $3,082 $3,054 $2,852 $3,233 ========= ========= ========= ========= ========= Dividends Per Share Series A -- Investment income -- net $880 $898 $967 $644 $292 On Preferred Stock ========= ========= ========= ========= ========= Outstanding:+++ Series B -- Investment income -- net $872 $879 $891 $693 $352 ========= ========= ========= ========= ========= Series C -- Investment income -- net $869 $886 $1,070 $634 $302 ========= ========= ========= ========= ========= * Annualized. ** 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. + Commencement of operations. ++ The Fund's Preferred Stock was issued on April 26, 1993. +++ Dividends per share have been adjusted to reflect a two-for-one stock split that occurred on December 1, 1994. ++++ Aggregate total investment return. See Notes to Financial Statements.
MuniVest Fund II, Inc., October 31, 1997 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: MuniVest Fund II, 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 MVT. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments -- Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options, which are traded on exchanges, are valued at their last sale price as of the close of such exchanges or, lacking any sales, at the last available bid price. Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments -- The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. [bullet] Financial futures contracts -- The Fund may purchase or sell interest rate futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. [bullet] Options -- The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income -- Security transactions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. Discounts and market premiums are amortized into interest income. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Deferred organization expenses -- Deferred organization expenses are amortized on a straight-line basis over a five-year period. (f) Dividends and distributions -- Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of 0.50% of the Fund's average weekly net assets. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended October 31, 1997 were $237,469,045 and $234,676,089, respectively. Net realized and unrealized gains (losses) as of October 31, 1997 were as follows: Realized Unrealized Gains (Losses) Gains Long-term investments $2,833,543 $32,758,736 Financial futures contracts (2,199,979) -- ------------ ------------ Total $633,564 $32,758,736 ============ ============ As of October 31, 1997, net unrealized appreciation for Federal income tax purposes aggregated $32,758,575, all of which related to appreciated securities. The aggregate cost of investments at October 31, 1997 for Federal income tax purposes was $383,883,296. 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 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 yields in effect at October 31, 1997 were as follows: Series A, 3.517%; Series B, 3.52%; and Series C, 3.54%. As of October 31, 1997, there were 5,400 AMPS authorized, issued and outstanding with a liquidation preference of $25,000 per share. The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of each auction. For the year ended October 31, 1997, Merrill Lynch, Pierce, Fenner & Smith Inc., an affiliate of FAM, earned $150,509 as commissions. 5. Capital Loss Carryforward: At October 31, 1997, the Fund had a net capital loss carryforward of approximately $17,782,000, of which $3,734,000 expires in 2002 and $14,048,000 expires in 2003. This amount will be available to offset like amounts of any future taxable gains. 6. 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 $.074006 per share, payable on November 26, 1997 to shareholders of record as of November 17, 1997. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders, MuniVest Fund II, Inc.: We have audited the accompanying statement of assets, liabilities and capital, including the schedule of investments, of MuniVest Fund II, Inc. as of October 31, 1997, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the four-year period then ended, and for the period March 29, 1993 (commencement of operations) to October 31, 1993. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at October 31, 1997 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of MuniVest Fund II, Inc. as of October 31, 1997, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods in conformity with generally accepted accounting principles. Deloitte & Touche LLP Princeton, New Jersey December 9, 1997 IMPORTANT TAX INFORMATION (unaudited) All of the net investment income distributions paid by MuniVest Fund II, 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. -----END PRIVACY-ENHANCED MESSAGE-----