MuniInsured
Fund, Inc.
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
March 31, 1997
This report, including the financial information herein, is transmitted
to the shareholders of MuniInsured Fund, Inc. for their information. It
is not a prospectus, circular or representation intended for use in the
purchase of shares of the Fund or any securities mentioned in the
report. Past performance results shown in this report should not be
considered a representation of future performance. Statements and other
information herein are as dated and are subject to change.
MuniInsured
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #10662 -- 3/97
[RECYCLE LOGO] Printed on post-consumer recycled paper
MuniInsured Fund, Inc.
DEAR SHAREHOLDER
During the six-month period ended March 31, 1997, MuniInsured Fund, Inc.
earned $0.268 per share income dividends, representing a net annualized
yield of 5.60%, based on a month-end net asset value of $9.59 per share.
Over the same period, the Fund's total investment return was +1.77%,
based on a change in per share net asset value from $9.77 to $9.59, and
assuming reinvestment of $0.266 per share income dividends and $0.048
per share capital gains distributions.
The Municipal Market Environment
Long-term tax-exempt bond yields traded in a relatively narrow range
during the six months ended March 31, 1997. As measured by the Bond
Buyer Revenue Bond Index, A-rated uninsured tax-exempt revenue bond
yields rose to 6.09% at the end of March 1997. Municipal revenue bond
yields initially declined to approximately 5.80% in early December 1996,
as investors took comfort from the absence of inflationary pressures,
despite indications of a moderately expanding economy. For the remainder
of the period, however, tax-exempt bond yields rose as concerns
increased that the Federal Reserve Board would eventually raise interest
rates to dampen both economic growth and the rising US equity market. US
Treasury bond yields exhibited a similar pattern in recent months, but
associated volatility was significantly greater. US Treasury bond yields
initially declined approximately 40 basis points (0.40%) by early
December 1996. By the end of March, however, taxable yields retraced all
of these gains to yield 7.10%. For the six-month period ended March 31,
1997, US Treasury bond yields increased overall approximately 10 basis
points.
The tax-exempt bond market performed well in recent months mainly
because of a continued strong supply position. During the last year,
approximately $180 billion in new long-term municipal securities was
underwritten, an increase of nearly 4% compared to the same period a
year earlier. Less than $95 billion in tax-exempt securities was issued
over the last six months, a decrease of approximately 3% compared to
issuance a year earlier. Approximately $40 billion in new tax-exempt
securities was underwritten during the last three months, a decline in
issuance of over 9% compared to the March 31, 1996 quarter.
However, a number of factors prevented the municipal bond market from
enjoying even stronger performance. The historic strength of the US
equity market has attracted significant investor interest. Addition-
ally, as tax-exempt bond yields have again increased above 6%, investor
demand for tax-exempt products rose. Current tax-exempt yields represent
a taxable equivalent yield of over 9.50% to an investor in the 36%
marginal Federal income tax bracket.
The Presidential and Congressional elections this past November
resurrected some investor concerns regarding continued Federal deficit
reduction and potential legislative restrictions upon the municipal bond
market. This situation was similar to that at the beginning of 1996 when
tax-exempt bond yields were negatively impacted by fears that
legislation reducing the tax advantage of municipal bonds would be
introduced to aid further deficit reductions.
Looking forward, the supply of new bond issuance of 1997 is expected to
be very similar to that of 1996, with most annual estimates falling in
the $170 billion -- $175 billion range. Investor demand is also expected
to regain some of its former strength with 1997 total municipal
redemptions (refundings, maturities and coupon payments) in the $175
billion -- $185 billion range. This overall balance suggests that the
positive technical backdrop enjoyed in 1996 could continue in 1997. The
near-term direction of interest rates remains uncertain. Recent economic
growth has not yet resulted in renewed inflationary pressures. The
interest rate volatility seen in recent months, however, is likely to
continue until either the rate of recent economic growth declines or the
Federal Reserve Board again raises interest rates to restrict further
growth. However, the tax-exempt bond market's technical position may be
strong enough for much of 1997 to continue to dampen much of this
interest rate volatility. This suggests that municipal bond yields may
continue to trade in a relatively narrow range, rewarding neither an
overly aggressive nor defensive portfolio strategy.
Portfolio Strategy
During the six-month period ended March 31, 1997, we continued our
portfolio strategy of maintaining the maturity duration of MuniInsured
Fund, Inc. and stressing the purchase of current-coupon securities with
extended call protection in high-tax states and the sale of short call
bonds. Throughout the six-month period ended March 31, 1997, the
municipal bond market continued to exhibit price volatility at which
time we took the opportunity to execute our portfolio strategy.
Looking ahead, recent economic data indicate that the economy is growing
at an above-trend pace and with no signs that a slowdown is imminent.
Therefore, in the near term, we are implementing a more defensive
portfolio strategy by increasing the cash reserves and reducing the
maturity duration of the Fund.
In Conclusion
We appreciate your ongoing interest in MuniInsured Fund, Inc., and we
look forward to assisting you with your financial needs in the months
and years to come.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/WILLIAM R. BOCK
William R. Bock
Vice President and Portfolio Manager
May 6, 1997
<TABLE>
<CAPTION>
MuniInsured Fund, Inc. March 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C> <C>
Alaska -- 3.9% AAA Aaa $2,000 Alaska State Housing Finance Corporation, Refunding, Series A,
5.875% due 12/01/2024 (b)(g) $1,943
AAA Aaa 1,000 Ketchikan, Alaska, Municipal Utility Revenue Bonds, Series R,
6.65% due 12/01/2012 (e) 1,079
Arizona -- 0.6% A1+ P1 500 Coconino County, Arizona, Pollution Control Corporation, Public
Service Revenue Bonds (Navajo Project), VRDN, AMT, Series A,
3.80% due 10/01/2029 (c) 500
California -- 20.7% AAA Aaa 1,405 California Educational Facilities Authority Revenue Bonds
(Loyola Marymount University), Series 1996, 5.90% due
10/01/2021 (b) 1,396
AAA Aaa 1,500 California HFA, Home Mortgage Revenue Bonds, Series F, 6%
due 8/01/2017 (b) 1,509
AAA Aaa 3,025 California State Revenue Refunding Bonds, 5.375% due
6/01/2026 (d) 2,817
AAA Aaa 2,670 California State Variable Purpose Bonds, 5.90% due 3/01/2025 (a) 2,659
AAA Aaa 1,000 Los Angeles, California, Harbor Department Revenue Bonds, RITR,
AMT, 8.795% due 11/01/2026 (f) 1,043
AAA Aaa 1,605 Los Angeles County, California, Metropolitan Transportation
Authority, Sales Tax Revenue Bonds, Senior Series A
(Proposition A -- First Tier), 6% due 7/01/2026 (b) 1,611
AAA Aaa 2,000 Los Angeles County, California, Metropolitan Transportation
Authority, Sales Tax Revenue Refunding Bonds (Proposition A --
Second Tier), 6% due 7/01/2026 (b) 2,008
AAA Aaa 1,000 San Francisco, California, Bay Area Rapid Transit District, Sales
Tax Revenue Bonds, 5.50% due 7/01/2020 (d) 950
AAA Aaa 2,000 San Francisco, California, City and County Public Safety
Improvement Projects, UT, Series B, 6.30% due 6/15/2014 (d) 2,091
Colorado -- 2.1% AA Aa 1,000 Colorado Springs, Colorado, Utilities Revenue Bonds, Series A,
6.10% due 11/15/2024 1,013
A1 VMIG1+ 600 Moffat County, Colorado, PCR, Refunding (Pacificorp
Projects), VRDN, 3.75% due 5/01/2013 (a)(c) 600
Connecticut -- 5.8% AAA Aaa 1,000 Bridgeport, Connecticut, Series A, 5.25% due 3/01/2017 (a) 924
A+ NR* 1,250 Connecticut State Development Authority, Water Facility
Revenue Bonds (Bridgeport Hydraulic), AMT, 6.15% due 4/01/2035 1,246
AA Aa 1,000 Connecticut State, HFA (Housing Mortgage Finance Program),
AMT, Series A, Sub-Series A-2, 6.45% due 5/15/2022 1,017
AAA Aaa 1,350 Connecticut State Health and Educational Facilities Authority
Revenue Bonds (Vietnam Veteran Memorial Medical Center),
Series A, 5.375% due 7/01/2013 (b) 1,297
Illinois -- 15.4% AAA Aaa 1,000 Chicago, Illinois, Wastewater Transmission Revenue Bonds,
6.375% due 1/01/2024 (b) 1,033
AAA Aaa 1,000 Decatur, Illinois, Hospital Revenue Refunding Bonds (Decatur
Memorial Hospital), Series A, 7.75% due 10/01/2021 (b) 1,121
AA Aa3 1,000 Illinois HDA, Homeowner Mortgage Revenue Bonds,
Sub-Series D-1, 6.40% due 8/01/2017 1,019
AAA Aaa 3,000 Illinois Health Facilities Authority Revenue Bonds (Ingalls Health
System Project), 6.25% due 5/15/2024 (b) 3,050
AA A1 1,000 Illinois Health Facilities Authority, Revenue Refunding Bonds
(Advocate Health Care), Series A, 5.875% due 8/15/2022 971
AAA Aaa 1,250 Metropolitan Pier and Exposition Authority, Illinois, Dedicated
State Tax Revenue Refunding Bonds (McCormick Place
Expansion Project), Series A, 5.25% due 6/15/2027 (a) 1,129
AAA Aaa 1,000 Regional Transportation Authority, Illinois, GO, UT, Series C,
7.75% due 6/01/2020 (d) 1,250
AAA Aaa 2,180 Waukegan, Illinois, GO, UT, Series A, 6.75% due 11/15/2013 (d) 2,357
Indiana -- 1.4% A NR* 1,000 Indiana Bond Bank Revenue Bonds (State Revolving Fund
Program), Series A, 6.75% due 2/01/2017 1,094
Kansas -- 3.5% AAA Aaa 2,500 Burlington, Kansas, PCR, Refunding (Kansas Gas and Electric
Company Project), 7% due 6/01/2031 (b) 2,717
Maine -- 1.3% AA Aa2 1,000 Maine State Housing Authority, Mortgage Purchase Revenue
Bonds, AMT, Series C-2, 6.875% due 11/15/2023 1,037
Maryland -- 0.1% A1+ VMIG1+ 100 University of Maryland Revenue Bonds (Equipment Loan
Program), VRDN, Series A, 3.35% due 7/01/2015 (c) 100
Massachusetts -- 5.4% AAA Aaa 1,050 Massachusetts Education Loan Authority, Educational Loan
Revenue Bonds, AMT, Issue E, Series A, 7.375% due 1/01/2012 (a) 1,125
AAA Aaa 2,000 Massachusetts State, HFA, M/F Housing Revenue Refunding
Bonds, Series A, 6.10% due 7/01/2015 (b) 2,023
A+ Aa 990 Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT,
Series 32, 6.60% due 12/01/2026 1,014
New Mexico -- 0.1% A1+ NR* 100 Eddy County, New Mexico, PCR, Refunding (IMC Fertilizer Inc.
Project), VRDN, 3.45% due 2/01/2003 (c) 100
New York -- 5.4% AAA Aaa 1,000 Metropolitan Transportation Authority, New York, Transport
Facility Revenue Bonds, Series A, 6.10% due 7/01/2021 (e) 1,017
AAA Aaa 1,500 New York City, New York, City Municipal Water Finance
Authority, Water and Sewer System Revenue Bonds, RITR, 7.795%
due 6/15/2026 (f) 1,419
BBB+ Baa1 1,570 New York City, New York, GO, UT, Series F, 7.625% due 2/01/2015 1,725
Oregon -- 2.8% AAA Aaa 1,000 Port of Portland, Oregon, International Airport Revenue Bonds
(Portland International Airport), AMT, Series 11, 5.625%
due 7/01/2026 (d) 948
A1+ A3 1,200 Port Saint Helens, Oregon, PCR (Portland General Electric
Company Project), VRDN, AMT, Series A, 3.65% due 8/01/2014 (c) 1,200
Texas -- 8.4% AAA Aaa 1,150 Brazos River Authority, Texas, Revenue Refunding Bonds
(Houston Light and Power), Series A, 6.70% due 3/01/2017 (a) 1,233
AAA Aaa 3,000 Harris County, Texas, Health Facilities Development Corp.,
Hospital Revenue Bonds (Hermann Hospital Project), 6.375%
due 10/01/2024 (b) 3,134
AAA Aaa 1,000 Houston, Texas, Airport System Revenue Bonds (Sub-Lien), AMT,
Series A, 6.75% due 7/01/2021 (d) 1,061
A+ A2 1,000 Port Corpus Christi Authority, Texas, Nueces County, PCR
(Hoechst Celanese Corporation Project), AMT, 6.875% due
4/01/2017 1,063
Utah -- 4.4% AAA Aaa 3,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds (IHC
Hospitals, Inc.), INFLOS, 9.744% due 5/15/2020 (a)(f) 3,427
Virginia -- 2.7% Virginia State, HDA, Commonwealth Mortgage:
AAA Aaa 1,000 AMT, Series A, Sub-Series A-4, 6.45% due 7/01/2028 (b) 1,018
AA+ Aa1 1,000 Series J, Sub-Series J-2, 6.75% due 7/01/2017 1,056
Washington -- 10.9% AAA Aaa 11,345 Chelan County, Washington, Public Utilities District No. 1,
Consolidated Revenue Refunding Bonds, Series A, 6% due
6/01/2022 (b)(h) 2,461
AAA Aaa 2,275 Tacoma, Washington, Sewer Revenue Bonds, Series B, 6.375% due
12/01/2015 (d) 2,373
AAA Aaa 2,240 Washington State, COP, 5.80% due 10/01/2015 (a) 2,210
AAA Aaa 1,500 Washington State Motor Vehicle Fuel Tax, Series D, 5.375% due
1/01/2022 (d) 1,391
West Virginia -- 2.1% AAA Aaa 1,500 Harrison County, West Virginia, Commonwealth Solid Waste
Disposal Revenue Bonds (Monongahela Power), AMT, Series C,
6.75% due 8/01/2024 (a) 1,615
Wisconsin -- 1.5% AAA Aaa 1,120 Wisconsin Public Power Inc., Power Supply System Revenue
Bonds, Series A, 6% due 7/01/2015 (b) 1,144
Total Investments (Cost -- $74,371) -- 98.5% 76,338
Other Assets Less Liabilities -- 1.5% 1,167
---------
Net Assets -- 100.0% $77,505
=========
(a) AMBAC Insured.
(b) MBIA Insured.
(c) The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the
rate in effect at March 31, 1997.
(d) FGIC Insured.
(e) FSA Insured.
(f) 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 March 31, 1997.
(g) FNMA/GNMA Collateralized.
(h) Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase by the Fund.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniInsured Fund, 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)
COP Certificates of Participation
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
INFLOS Inverse Floating Rate Municipal Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RITR Residual Interest Tax Receipts
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of March 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $74,370,855) (Note 1a) $76,337,824
Cash 33,537
Interest receivable 1,264,069
Prepaid expenses and other assets 27,009
------------
Total assets 77,662,439
------------
Liabilities: Payables:
Dividends to shareholders (Note 1e) $62,488
Investment adviser (Note 2) 31,124 93,612
------------
Accrued expenses and other liabilities 63,431
------------
Total liabilities 157,043
------------
Net Assets: Net assets $77,505,396
============
Capital: Common Stock, par value $.10 per share; 150,000,000 shares authorized;
8,079,388 shares issued and outstanding (Note 4) $807,939
Paid-in capital in excess of par 74,515,276
Undistributed investment income -- net 348,648
Accumulated realized capital losses on investments -- net (133,436)
Unrealized appreciation on investments -- net 1,966,969
------------
Total capital -- Equivalent to $9.59 net asset value per share of Common
Stock (market price -- $8.3125) $77,505,396
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations for the Six Months Ended March 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $2,348,722
(Note 1d):
Expenses: Investment advisory fees (Note 2) $197,512
Professional fees 33,110
Transfer agent fees 18,874
Accounting services (Note 2) 17,914
Printing and shareholder reports 13,648
Directors' fees and expenses 13,151
Listing fees 4,973
Pricing fees 4,366
Custodian fees 2,891
Other 6,466
------------
Total expenses 312,905
------------
Investment income -- net 2,035,817
------------
Realized & Unreal- Realized gain on investments -- net 563,725
ized Gain (Loss) on Change in unrealized appreciation on investments -- net (1,469,800)
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $1,129,742
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the Year
Months Ended Ended
March 31, September 30,
1997 1996
Increase (Decrease) in Net Assets:
<S> <C> <C> <C>
Operations: Investment income -- net $2,035,817 $4,093,949
Realized gain on investments -- net 563,725 711,533
Change in unrealized appreciation on investments -- net (1,469,800) 338,231
------------ ------------
Net increase in net assets resulting from operations 1,129,742 5,143,713
------------ ------------
Dividends & Investment income -- net (2,022,053) (4,085,981)
Distributions to Realized gain on investments -- net (518,066) --
Shareholders ------------ ------------
(Note 1e): Net decrease in net assets resulting from dividends and distributions
to shareholders (2,540,119) (4,085,981)
------------ ------------
Net Assets: Total increase (decrease) in net assets (1,410,377) 1,057,732
Beginning of period 78,915,773 77,858,041
------------ ------------
End of period* $77,505,396 $78,915,773
============ ============
*Undistributed investment income -- net $348,648 $334,884
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
For the
Six
Months
The following per share data and ratios have been derived Ended
from information provided in the financial statements. March 31, For the Year Ended September 30,
1997 1996 1995 1994 1993
Increase (Decrease) in Net Asset Value: ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $9.77 $9.64 $9.50 $10.72 $10.26
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net .25 .51 .52 .57 .60
Realized and unrealized gain (loss) on
investments -- net (.12) .13 .34 (.99) .68
------- ------- ------- ------- -------
Total from investment operations .13 .64 .86 (.42) 1.28
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net (.25) (.51) (.53) (.57) (.60)
Realized gain on investments -- net (.06) -- (.19) (.23) (.22)
In excess of realized gain on investments -- net -- -- --++ -- --
------- ------- ------- ------- -------
Total dividends and distributions (.31) (.51) (.72) (.80) (.82)
------- ------- ------- ------- -------
Net asset value, end of period $9.59 $9.77 $9.64 $9.50 $10.72
======= ======= ======= ======= =======
Market price per share, end of period $8.3125 $8.75 $8.75 $8.75 $10.875
======= ======= ======= ======= =======
Total Investment Based on market price per share (1.50%)+ 5.91% 8.46% (12.93%) 8.27%
Return:** ======= ======= ======= ======= =======
Based on net asset value per share 1.77%+ 7.34% 10.06% (4.10%) 13.12%
======= ======= ======= ======= =======
Ratios to Average Expenses .79%* .78% .79% .77% .80%
Net Assets: ======= ======= ======= ======= =======
Investment income -- net 5.15%* 5.15% 5.55% 5.58% 5.81%
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $77,505 $78,916 $77,858 $76,662 $85,535
Data: ======= ======= ======= ======= =======
Portfolio turnover 30.16% 94.61% 83.52% 47.17% 27.89%
======= ======= ======= ======= =======
* 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.
+ Aggregate total investment return.
++ Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
MuniInsured Fund, Inc. March 31, 1997
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniInsured Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end management
investment company. These unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such
adjustments are of a normal recurring nature. 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 American
Stock Exchange under the symbol MIF. 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. Municipal bonds for which
quotations are not readily available are valued at fair value on a
consistent basis as determined by the pricing service using a matrix
system to determine valuations. The Board of Directors has determined in
good faith that the use of a pricing service is a fair method of
determining the valuation of portfolio securities. Obligations with
remaining maturities of sixty days or less are valued at amortized cost,
which approximates market value. Financial futures contracts and related
options, 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 for which market quotations are not readily available are
valued at their 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).
(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.
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 six months ended March 31, 1997 were $22,765,595 and $25,219,129,
respectively.
Net realized and unrealized gains as of March 31, 1997 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $563,725 $1,966,969
--------- ----------
Total $563,725 $1,966,969
========= ==========
As of March 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $1,966,969, of which $2,569,601 related to
appreciated securities and $602,632 related to depreciated securities.
The aggregate cost of investments at March 31, 1997 for Federal income
tax purposes was $74,370,855.
4. Common Stock Transactions:
At March 31, 1997, the Fund had one class of shares of Common Stock, par
value $.10 per share, of which 150,000,000 shares were authorized. For
the six months ended March 31, 1997, shares issued and outstanding
remained constant at 8,079,388. At March 31, 1997, total paid-in capital
amounted to $75,323,215.
5. Subsequent Event:
On April 8, 1997, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of $.043152
per share, payable on April 29, 1997 to shareholders of record as of
April 18, 1997.
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
William R. Bock, Vice President
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
State Street Bank & Trust Company
One Heritage Drive, P2N
North Quincy, Massachusetts 02171
Transfer Agent
State Street Bank & Trust Company
225 Franklin Street
Boston, Massachusetts 02101
(617) 328-5000
ASE Symbol
MIF
