MUNIVEST
FUND, INC.
FUND LOGO
Semi-Annual Report
February 28, 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
Mark B. Goldfus, Secretary
<PAGE>
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
ASE Symbol
MVF
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
This report, including the financial information herein, is
transmitted to the shareholders of MuniVest 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. 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 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, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
<PAGE>
MUNIVEST FUND, INC.
The Benefits and
Risks of
Leveraging
MuniVest Fund, Inc. utilizes leveraging to seek to enhance the yield
and net asset value of its Common Stock. However, these objectives
cannot be achieved in all interest rate environments. To leverage,
the Fund issues Preferred Stock, which pays dividends at prevailing
short-term interest rates, and invests the proceeds in long-term
municipal bonds. The interest earned on these investments 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 American 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.
<PAGE>
TO OUR SHAREHOLDERS
For the six months ended February 28, 1997, the Common Stock of
MuniVest Fund, Inc. earned $0.311 per share income dividends, which
included earned and unpaid dividends of $0.048 per share. This
represents a net annualized yield of 6.43% based on a month-end per
share net asset value of $9.74. Over the same period, the Fund's
total investment return was +6.65%, based on a change in per share
net asset value from $9.45 to $9.74, and assuming reinvestment of
$0.316 per share income dividends.
For the six months ended February 28, 1997, the Fund's Preferred
Stock had an average dividend yield as follows: Series A, 3.65%;
Series B, 3.63%; Series C, 3.08%; Series D, 3.11%; and Series E,
3.28%.
The Municipal Market
Environment
Long-term tax-exempt bond yields traded in a relatively narrow range
during the six months ended February 28, 1997. As measured by the
Bond Buyer Revenue Bond Index, A-rated uninsured tax-exempt revenue
bond yields declined to 5.93% at the end of February 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 increased as concerns arose that the Federal Reserve Board
may 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 60 basis points (0.60%) by early December 1996. By the
close of the six-month period ended February 28, 1997, however,
taxable yields retraced most of these gains to yield 6.80%. For the
six-month period ended February 28, 1997, US Treasury bond yields
declined approximately 30 basis points, while municipal bond yields
fell approximately 15 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 $220 billion in new long-term municipal securities was
underwritten, an increase of over 7% compared to the same period a
year earlier. Less than $100 billion in tax-exempt securities was
issued during the six months ended February 28, 1997, essentially
unchanged from issuance a year ago. Approximately $45 billion in new
tax-exempt securities was underwritten during the three months ended
February 28, 1997, a decline in issuance of over 7% compared to the
same period a year ago. This declining trend in tax-exempt bond
issuance has been even more apparent thus far in 1997. During
January and February, just over $200 billion in new long-term
municipal bonds was underwritten, a decline of over 15% from the
first two months of 1996.
<PAGE>
A number of other factors prevented the municipal bond market from
enjoying an even stronger performance. The historic strength of the
US equity market has attracted significant investor interest.
Additionally, as tax-exempt bond yields declined again below 6%,
some investors temporarily lost interest in the municipal bond
market. If interest rates continue to decline, as they did at the
end of 1994 and throughout 1995, investors, in general, will quickly
adjust to the new levels. The tax advantages generated by municipal
bonds quickly outweigh low nominal yields and investor demand
increases.
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 advantages of
municipal bonds would be introduced to aid further deficit
reductions.
Looking forward, the supply of new bond issuance for 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 should continue in 1997. However, 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 raises interest rates to restrict further
growth. However, the tax-exempt bond market's technical position is
likely to be strong enough for much of 1997 to continue to dampen
much of this interest rate volatility. This scenario suggests that
municipal bond yields will continue to trade in a relatively narrow
range, rewarding neither an overly aggressive nor defensive
portfolio strategy.
Portfolio Strategy
In recent months, we slowly returned to a more neutral outlook from
the more defensive position we adopted mid-year 1996. We expect the
municipal bond market will continue to trade at a relatively narrow
range, although with perhaps a slight upward bias toward higher
yields by mid-year 1997. During the period, we reduced cash reserves
to generate greater coupon income. Additionally, given the recent
scarcity of new-issue supply, we were hesitant to maintain large
cash reserves as reinvestment would be difficult. New purchases
emphasized higher-yielding securities, as opposed to more interest
rate-sensitive issues. Although we do not expect any meaningful
decline in municipal bond interest rates until later this year, we
believe the Fund's current portfolio structure could allow it to
perform well in a market rally.
<PAGE>
Looking ahead, while economic growth improved in recent months, we
believe it is unlikely to accelerate sufficiently to generate
serious inflationary pressures. Furthermore, the Federal Reserve
Board remains committed to ensuring that inflation remains at its
current levels. With such a scenario, any short-term increase in
bond yields will be viewed as an opportunity to add higher-yielding
securities to the Fund in an effort to enhance its already
attractive dividend. We will also use such an opportunity to
modestly add to the Fund's position of more interest rate-sensitive
securities in order to more fully participate in an improving
municipal bond market.
In Conclusion
We appreciate your ongoing interest in MuniVest Fund, Inc., and we
look forward to serving your investment needs in the months and
years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Fred K. Stuebe)
Fred K. Stuebe
Vice President and
Portfolio Manager
April 3, 1997
<PAGE>
PROXY RESULTS
<TABLE>
During the six-month period ended February 28, 1997, MuniVest Fund,
Inc. Common Stock shareholders voted on the following proposals. The
proposals were approved at a shareholders' meeting on September 19,
1996. The description of each proposal and number of shares voted
are as follows:
<CAPTION>
Shares Voted Shares Voted
For Without Authority
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors: Charles C. Reilly 58,386,435 1,364,067
Kevin A. Ryan 58,387,506 1,362,996
Cynthia A. Montgomery 58,385,406 1,365,096
Arthur Zeikel 58,387,301 1,363,201
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 58,376,476 328,835 1,045,191
<CAPTION>
During the six-month period ended February 28, 1997, MuniVest Fund,
Inc. Preferred Stock (Series A, B, C, D and E) shareholders voted on
the following proposals. The proposals were approved at a
shareholders' meeting on September 19, 1996. The description of each
proposal and number of shares voted are as follows:
Shares Voted Shares Voted
For Without Authority
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors:
Ronald W. Forbes and Richard R. West as follows: Series A 1,807 33
Series B 1,578 0
Series C 1,894 10
Series D 1,401 0
Series E 2,296 253
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year as follows: Series A 1,803 4 33
Series B 1,578 0 0
Series C 1,894 0 10
Series D 1,280 90 31
Series E 2,296 253 0
</TABLE>
<PAGE>
Portfolio
Abbreviations
To simplify the listings of MuniVest Fund, Inc.'s portfolio holdings
in the Schedule of Investments, we have abbreviated the names of
many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
INFLOS Inverse Floating Rate Municipal Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama--3.6% AAA NR* $ 9,740 Alabama, HFA, S/F Mortgage Revenue Bonds, Series A,
7.60% due 10/01/2022 (d) $ 10,345
BBB Baa1 8,750 Courtland, Alabama, IDB, IDR, Refunding (Champion
International Corporation), Series A, 7.20% due 12/01/2013 9,507
Courtland, Alabama, IDB, Solid Waste Disposal Revenue
Bonds (Champion International Corporation Project), AMT:
BBB Baa1 5,000 7% due 6/01/2022 5,244
BBB Baa1 6,170 Series A, 6.375% due 3/01/2029 6,176
Alaska--4.0% North Slope Boro, Alaska, GO, UT, Series B (c):
AAA Aaa 6,000 5.10%** due 1/01/2002 4,764
AAA Aaa 6,000 5.20%** due 1/01/2003 4,517
AA Aa3 23,250 Valdez, Alaska, Marine Terminal Revenue Refunding
Bonds (Sohio Pipeline--BP Oil), 7.125% due 12/01/2025 25,749
<PAGE>
California-- A1+ NR* 100 California Pollution Control Financing Authority,
0.9% PCR, Refunding (Pacific Gas and Electric), VRDN,
Series C, 3.35% due 11/01/2026 (g) 100
AA Aaa 7,000 California State Department of Water Resources
Revenue Bonds (Central Valley Project--Water Systems),
Series P, 6.50% due 6/01/2006 (a) 7,982
Colorado--2.7% Denver, Colorado, City and County Airport Revenue Bonds:
BBB Baa 11,150 AMT, Series C, 6.75% due 11/15/2013 11,765
BBB Baa 1,905 AMT, Series C, 6.75% due 11/15/2022 2,008
AAA NR* 1,850 Series A, 7.25% due 11/15/2002 (a) 2,133
AAA Baa 5,490 Series A, 7.25% due 11/15/2002 (a) 6,331
AAA NR* 980 El Paso County, Colorado, S/F Mortgage Revenue Bonds,
AMT, Series A, 8% due 9/01/2022 (d) 1,040
Connecticut-- A1+ VMIG1++ 100 Connecticut State Development Authority, PCR,
0.3% Refunding (Western Massachusetts Electric Co.),
VRDN, Series A, 3.20% due 9/01/2028 (g) 100
AAA Aaa 2,665 Connecticut State Special Tax Obligation Revenue
Refunding Bonds (Transportation Infrastructure),
Series C, 6% due 10/01/2006 (c) 2,891
Delaware--0.5% AAA Aaa 3,630 Delaware Transportation Authority, Transportation
System, Senior Revenue Bonds, 7% due 7/01/2014 (f) 4,105
Florida--2.4% A1+ VMIG1++ 1,200 Dade County, Florida, IDA, IDR (Dolphins Stadium
Project), VRDN, Series D, 3.30% due 1/01/2016 (g) 1,200
A1+ VMIG1++ 1,300 Dade County, Florida, Water and Sewer System Revenue
Bonds, VRDN, 3.25% due 10/05/2022 (f)(g) 1,300
NR* Aaa 9,535 Florida, HFA, Home Ownership Revenue Bonds, AMT,
Series G-1, 7.90% due 3/01/2022 (d) 10,047
AA Aa 7,360 Gainesville, Florida, Utilities System Revenue Refunding
Bonds, Series A, 5.20% due 10/01/2022 6,933
NR* VMIG1++ 100 Palm Beach County, Florida, Water and Sewer Revenue Bonds,
VRDN, 3.50% due 10/01/2011 (g) 100
A1+ VMIG1++ 1,200 Saint Lucie County, Florida, PCR, Refunding (Florida
Power & Light Company Project), VRDN, 3.40% due 1/01/2026 (g) 1,200
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Georgia--5.9% A1 NR* $ 2,800 Burke County, Georgia, Development Authority, PCR,
Refunding (Georgia Power Company Plant Vogtle Project),
VRDN, 3.45% due 9/01/2026 (g) $ 2,800
Georgia Municipal Electric Authority, Special Obligation
Bonds:
A A3 4,850 (3rd Crossover Series), Series W, 6.60% due 1/01/2018 5,391
A+ A3 12,940 (5th Crossover Series), Project One, 6.50% due 1/01/2017 14,225
Georgia State, GO, Series F:
AA+ Aaa 8,900 6.50% due 12/01/2006 10,082
AA+ Aaa 7,000 6.50% due 12/01/2007 7,965
AA+ Aa 1,550 Georgia State, HFA, S/F Mortgage Revenue Bonds, AMT,
Sub-Series A-2, 6.55% due 12/01/2027 1,597
AA- A1 3,725 Metropolitan Atlanta, Rapid Transit Authority, Sales
Tax Revenue Bonds, Series O, 6.55% due 7/01/2001(a) 4,099
A+ A3 4,785 Monroe County, Georgia, Development Authority, PCR,
Refunding (Oglethorpe Power Scherer), Series A, 6.80%
due 1/01/2011 5,407
Hawaii--1.6% Hawaii State Department of Budget and Finance, Special
Purpose Mortgage Revenue Bonds:
AA+ NR* 3,500 (Citizens Utility Company), Series 91-A, 6.66% due 11/01/2021 3,699
A A2 10,000 (Kapi'Olani Health Obligations), 6.25% due 7/01/2021 10,286
Idaho--1.1% A+ Aaa 3,325 Idaho Falls, Idaho, Refunding, GO, UT, 9.10% due 4/01/2003 (a) 4,187
NR* Aaa 5,000 Idaho Housing Agency, S/F Mortgage Revenue Bonds, AMT,
Series E-2, 6.90% due 1/01/2027 5,241
Illinois--7.9% AAA Aaa 2,500 Chicago, Illinois, GO, Series A-1, 5.125% due 1/01/2025 (h) 2,297
AAA Aaa 6,750 Chicago, Illinois, Water Revenue Bonds, 5% due 11/01/2020 (f) 6,131
AAA Aaa 2,500 Cook County, Illinois, COP (Community College--District No.
508), UT, 8.75% due 1/01/2004 (f) 3,062
BBB Baa2 7,000 Illinois Development Finance Authority, PCR, Refunding
(Commonwealth Edison Company Project), 7.25% due 6/01/2011 7,556
Illinois Educational Facilities Authority Revenue Bonds:
NR* NR* 2,500 (Chicago Osteopathic Health System), 7.25% due 11/15/2019 (a) 3,009
A+ A1 2,000 Refunding (Loyola University--Chicago), Series A, 7.125%
due 7/01/2021 2,181
Illinois, HDA, Revenue Bonds (M/F Housing Program):
A+ A1 920 Refunding, Series A, 7.375% due 7/01/2017 994
A+ A1 7,000 Series 5, 6.75% due 9/01/2023 7,273
Illinois Health Facilities Authority Revenue Bonds:
NR* Baa1 2,650 (Holy Cross Hospital Project), 6.70% due 3/01/2014 2,738
NR* Baa1 2,205 (Ravenswood Hospital Medical Center), 6.85% due 6/01/2012 2,286
NR* Baa1 7,375 (Ravenswood Hospital Medical Center), 6.90% due 6/01/2022 7,644
AA A1 9,000 Refunding (Advocate Health Care), Series A, 5.875%
due 8/15/2022 8,947
<PAGE> BBB NR* 2,500 Lansing, Illinois, Tax Increment Revenue Refunding Bonds
(Sales Tax--Landings Redevelopment), 7% due 12/01/2008 2,748
Regional Transportation Authority, Illinois, Revenue Bonds:
AAA Aaa 3,500 Series A, 7.20% due 11/01/2020 (h) 4,224
AAA Aaa 4,000 UT, Series C, 7.75% due 6/01/2020 (f) 5,123
AAA Aaa 2,500 UT, Series C, 7.10% due 6/01/2025 (f) 2,838
Indiana--8.9% A NR* 5,250 Indiana Bond Bank Revenue Bonds (State Revolving Fund
Program), Series A, 6.75% due 2/01/2017 5,821
Indiana Health Facilities Financing Authority, Hospital
Revenue Refunding Bonds:
AA Aa3 10,250 (Clarian Health Partners Inc.), Series A, 6% due 2/15/2021 10,337
BBB+ NR* 3,000 (Hancock Memorial Hospital Health Services), 6.125%
due 8/15/2017 3,005
NR* Aaa 5,290 Indiana State, HFA, S/F Mortgage Revenue Refunding Bonds,
Series A, 6.80% due 1/01/2017 5,519
NR* A2 6,000 Indiana Transportation Finance Authority, Airport Facilities
Lease Revenue Bonds (United Air), Series A, 6.75% due
11/01/2002 (a) 6,720
A+ A1 7,195 Indiana Transportation Finance Authority, Highway Revenue
Bonds, Series A, 6.80% due 12/01/2016 8,294
Indianapolis, Indiana, Local Public Improvement Bond Bank,
Revenue Refunding Bonds, Series D:
A+ NR* 15,335 6.75% due 2/01/2014 17,465
A+ NR* 18,350 6.75% due 2/01/2020 20,054
Iowa--0.4% NR* Aaa 3,310 Iowa Finance Authority, S/F Mortgage Revenue Bonds, AMT,
Series A, 7.90% due 11/01/2022 (d) 3,467
Kentucky--0.5% AA- Aa3 3,900 Boone County, Kentucky, PCR, Refunding (Dayton Power &
Light Co.), Series A, 6.50% due 11/15/2022 4,139
Louisiana--1.5% A- A3 4,000 De Soto Parish, Louisiana, Environmental Improvement
Revenue Refunding Bonds (International Paper Co. Project),
AMT, Series B, 6.55% due 4/01/2019 4,191
NR* Baa2 3,000 Lake Charles, Louisiana, Harbor and Terminal District,
Port Facilities Revenue Refunding Bonds (Trunkline Long
Company Project), 7.75% due 8/15/2022 3,407
A- A1 5,000 Louisiana Public Facilities Authority Revenue Bonds
(Tulane University ), 6.625% due 11/15/2021 5,399
<PAGE>
Massachusetts-- AAA Aaa 2,035 Boston, Massachusetts, Water and Sewer Commission Revenue
9.0% Bonds, Series A, 9.25% due 1/01/2011 (k) 2,805
Massachusetts Bay Transportation Authority Revenue Bonds
(Massachusetts General Transportation Systems):
A+ A1 3,010 Refunding, Series A, 7% due 3/01/2019 3,569
A+ A1 7,500 Series C, 6.10% due 3/01/2023 7,697
Massachusetts State, HFA (Residential Development)(e):
AAA Aaa 3,375 Series A, 6.90% due 11/15/2024 3,552
AAA Aaa 2,360 Series D, Section 8, 6.875% due 11/15/2021 2,474
AAA Aaa 7,300 Massachusetts State Health and Educational Facilities Authority
Revenue Bonds, 6.70% due 8/15/2021 (i) 7,909
Massachusetts State Water Resource Authority, Series A:
AAA Aaa 7,870 6.875% due 12/01/2001 (a) 8,840
A A 37,130 6.50% due 7/15/2019 41,565
Michigan--10.5% AAA Aaa 2,085 Detroit, Michigan, Sewage Disposal Revenue Refunding
Bonds, Series B, 5.25% due 7/01/2021 (c) 1,960
AAA Aaa 3,125 East Grand Rapids, Michigan, Public School District
Building and Site, UT, 5% due 5/01/2016 (c) 2,916
AAA Aaa 2,000 Grand Ledge, Michigan, Public School District, UT, 7.875%
due 5/01/2004 (a)(c) 2,422
BBB NR* 4,385 LaPeer, Michigan, Economic Development Corporation,
Limited Obligation Revenue Bonds (LaPeer Health Services
Project), 8.50% due 2/01/2000 (a) 4,952
AA+ NR* 10,915 Michigan State, HDA, S/F Mortgage Revenue Refunding
Bonds, AMT, Series D, 6.85% due 6/01/2026 11,387
Michigan State Hospital Finance Authority Revenue Bonds:
NR* Aaa 2,000 (McLaren Obligated Group), Series A, 7.50% due 9/15/2001 (a) 2,286
A A2 3,250 Refunding (Detroit Medical Center Obligation Group),
Series A, 6.25% due 8/15/2013 3,366
A A2 7,930 Refunding (Detroit Medical Center Obligation Group),
Series A, 6.50% due 8/15/2018 8,324
AA Aa2 7,500 Refunding (Henry Ford Health Systems), Series A, 5.25%
due 11/15/2020 7,036
AA Aa2 21,875 Refunding (Henry Ford Health Systems), Series A, 5.25%
due 11/15/2025 20,402
NR* VMIG1++ 100 Refunding (Mount Clemens Hospital), VRDN, 3.40% due
8/15/2015 (g) 100
AAA Aaa 2,880 (Saint John Hospital and Medical Center), Series A, 5.25%
due 5/15/2026 (h) 2,685
AA- Aaa 2,000 (Sisters of Mercy Health Corp.), Series J, 7.375% due
2/15/2001 (a) 2,248
A1+ VMIG1++ 100 Michigan State Strategic Fund, Limited Obligation Revenue
Bonds (United Waste Systems, Inc. Project), VRDN, AMT,
3.45% due 4/01/2010 (g) 100
AAA Aaa 3,000 Michigan State Strategic Fund, Limited Obligation Revenue
Refunding Bonds (Detroit Edison Co. Plantation Project),
6.875% due 12/01/2021 (f) 3,326
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Michigan Michigan State University Revenue Bonds, Series A (h):
(concluded) AAA Aaa $ 1,450 5.125% due 2/15/2016 $ 1,370
AAA Aaa 5,000 5% due 2/15/2026 4,539
Royal Oak, Michigan, Hospital Finance Authority
Revenue Bonds:
AAA Aaa 235 Refunding (Beaumont Properties, Inc.), Series E,
6.625% due 1/01/2002 (a) 260
AA- Aa3 2,265 Refunding (Beaumont Properties, Inc.), Series E,
6.625% due 1/01/2019 2,418
AA Aaa 5,750 (William Beaumont Hospital), Series D, 6.75% due
1/01/2001 (a) 6,322
AAA Aaa 2,400 Saint Clair County, Michigan, Building Authority, 5.25%
due 4/01/2021 (c) 2,268
Minnesota--2.8% A1+ NR* 1,100 Beltrami County, Minnesota, Environmental Control Revenue
Bonds (Northwood Panelboard Co. Project), VRDN, AMT, 3.45%
due 7/01/2025 (g) 1,100
AA- A1 100 Minneapolis, Minnesota, Community Development Agency, PCR
(Collateral--Northern System Power Co. Project), VRDN,
3.40% due 3/01/2011 (g) 100
Minnesota State, HFA, S/F Mortgage Revenue Bonds:
AA Aa 3,590 AMT, Series L, 6.70% due 7/01/2020 3,728
AA Aa 5,690 AMT, Series M, 6.70% due 7/01/2026 5,908
AA+ Aa 4,155 Series H, 6.70% due 1/01/2018 4,372
AA+ Aa 2,000 Series Q, 6.70% due 1/01/2017 2,105
AA- A1 700 Red Wing, Minnesota, PCR (Northern States Power Company
Project), VRDN, 3.40% due 3/01/2011 (g) 700
BBB Baa1 5,700 Sartell, Minnesota, PCR, Refunding (Champion International
Corp.), 6.95% due 10/01/2012 6,086
Mississippi-- NR* P1 100 Perry County, Mississippi, PCR, Refunding (Leaf River Forest
0.0% Project), VRDN, 3.40% due 3/01/2002 (g) 100
Missouri--0.3% AAA Aaa 2,600 Missouri State Regional Convention and Sports Complex
Authority, Series A, 6.90% due 8/15/2003 (a) 2,941
Nevada--1.9% AAA Aaa 3,000 Clark County, Nevada, Santation District, Series A, 6.80%
due 7/01/2002 (a) 3,349
AAA Aaa 5,000 Clark County, Nevada, School District GO, 6.75% due
12/15/2004 (a)(f) 5,729
Nevada State Housing Division, Housing Revenue Bonds, AMT:
AAA NR* 1,235 (Multi-Unit), Issue B, 7.45% due 10/01/2017 (e) 1,330
NR* Aa 2,355 (S/F Program), Series A, 6.55% due 10/01/2012 2,436
AAA Aaa 3,110 (S/F Program), Series E, 7% due 10/01/2019 3,272
<PAGE>
New Jersey--1.0% AAA Aaa 3,000 New Jersey State Housing and Mortgage Finance Agency
Revenue Bonds (Home Buyer), AMT, Series M, 6.95%
due 10/01/2022 (c) 3,169
AAA Aaa 5,000 New Jersey State Transportation Trust Fund Authority,
Refunding (Transportation System), Series A, 6% due 6/15/2003 (h) 5,384
New York--6.2% New York City, New York, GO, UT:
BBB+ Baa1 3,750 Refunding, Series C, 5.875% due 2/01/2016 3,639
BBB+ Baa1 5,000 Refunding, Series F, 5.875% due 8/01/2024 4,806
BBB+ Baa1 4,355 Series B, 7% due 6/01/2016 4,629
BBB+ Baa1 2,800 Series B, 5.875% due 8/15/2016 2,716
BBB+ Baa1 1,500 Series B, Sub-Series B-1, 7% due 8/15/2016 1,611
BBB+ Baa1 4,000 Series B, Sub-Series B-1, 7.25% due 8/15/2019 4,402
BBB+ Baa1 4,085 Series F, 5.75% due 2/01/2019 3,894
BBB+ Baa1 2,615 Series O, 9.50% due 8/01/2002 3,100
A1 VMIG1++ 300 New York City, New York, GO, VRDN, UT, Sub-Series A-4,
3.45% due 8/01/2022 (g) 300
A1+ VMIG1++ 1,000 New York City, New York, Municipal Water Finance Authority,
Water and Sewer System
Revenue Bonds, VRDN, Series G, 3.40% due 6/15/2004 (f)(g) 1,000
BBB Aaa 3,350 New York State, HFA, Services Contract Obligation Revenue
Bonds, Series A, 7.80% due 3/15/2001 (a) 3,831
A Aaa 13,000 New York State Local Government Assistance Corporation
Revenue Bonds, Series C, 7% due 4/01/2001 (a) 14,527
BBB Aaa 2,380 New York State Urban Development Corporation Revenue Bonds
(State Facilities), 7.50% due 4/01/2001 (a) 2,703
AA- A1 2,750 Port Authority of New York and New Jersey, Consolidated
Revenue Bonds, 76th Series, AMT, 6.50% due 11/01/2026 2,925
North Carolina-- North Carolina Medical Care Commission, Health Care
0.7% Facilities Revenue Bonds (Carolina Medicorp. Project):
AA Aa3 1,215 5.25% due 5/01/2021 1,136
AA Aa3 2,515 5.25% due 5/01/2026 2,331
AA Aa3 2,500 North Carolina Medical Care Commission, Hospital Revenue
Bond (Duke University Hospital Project), Series C, 5.25%
due 6/01/2021 2,344
Ohio--4.2% Cleveland, Ohio, Public Power System, Revenue Refunding
Bonds, First Mortgage, Series 1 (c):
AAA Aaa 2,750 5% due 11/15/2020 2,538
AAA Aaa 5,000 5% due 11/15/2024 4,567
AA Aa3 6,480 Franklin County, Ohio, Hospital Revenue Refunding Bonds
(Holy Cross Health System Corp.), 5.875% due 6/01/2021 6,508
Ohio, HFA, S/F Mortgage Revenue Bonds, AMT (d):
AAA Aaa 3,950 RIB, Series B-4, 9.971% due 3/31/2031 (j) 4,315
AAA NR* 8,775 Series A, 7.65% due 3/01/2029 9,255
AAA NR* 3,945 Series C, 8.125% due 3/01/2020 4,158
AAA NR* 4,335 Series C, 7.85% due 9/01/2021 4,599
A1+ VMIG1++ 1,000 Ohio State Air Quality Development Authority, Revenue
Refunding Bonds (Cincinnati Gas and Electric), VRDN,
Series B, 3.40% due 9/01/2030 (g) 1,000
<PAGE>
Pennsylvania-- AA+ Aa 4,890 Pennsylvania, HFA, S/F Mortgage Revenue Bonds, AMT,
1.9% Series U, 7.80% due 10/01/2020 5,151
AAA Aaa 10,000 Pennsylvania State Higher Educational Assistance Agency,
Student Loan Revenue Bonds, AMT, RIB, 9.863% due
9/03/2026 (h)(j) 11,212
Rhode Island-- AA+ A1 6,000 Rhode Island Housing and Mortgage Finance Corporation,
1.5% INFLOS, AMT, Series 8, 10.439% due 4/01/2024 (j) 6,532
AAA Aaa 6,000 Rhode Island State Health and Education Building
Corporation Revenue Bonds (Rhode Island Hospital),
6.85% due 8/15/2021 (f)(k) 6,697
South Carolina-- A1+ VMIG1++ 900 Berkeley County, South Carolina, PCR, Refunding (Amoco
0.4% Chemical Co. Project), VRDN, 3.40% due 7/01/2012 (g) 900
AAA Aaa 2,045 Richland County, South Carolina, Hospital Facilities
Revenue Refunding Bonds (South Carolina Baptist Hospital),
Series B, 10% due 8/01/2001 (h) 2,501
Texas--6.8% AAA Aaa 3,040 Copperas Cove, Texas, Independent School District, GO,
UT, 6.90% due 8/15/2004 (a) 3,474
AAA Aaa 3,420 Dallas, Texas, GO, 6% due 2/15/2006 3,713
AA- Aa3 6,250 Guadalupe-Blanco River Authority, Texas, Sewage and
Solid Waste Disposal Facility Revenue Bonds (E.I. du
Pont de Nemours and Company Project), AMT, 6.40% due 4/01/2026 6,563
BBB Baa1 4,000 Gulf Coast, Texas, IDA, Revenue Refunding Bonds (Champion
International Corp.), 7.125% due 4/01/2010 4,307
NR* VMIG1++ 100 Gulf Coast, Texas, IDA, Solid Waste Disposal Revenue Bonds
(CITGO Petroleum Corp. Project), VRDN, AMT, 3.50% due 5/01/2025 (g) 100
AA Aa3 2,400 Harris County, Texas, Certificates of Obligation, Tax and
Revenue Bonds, 10% due 10/01/2002 (k) 3,022
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Texas Harris County, Texas, Health Facilities Development
(concluded) Corporation, Hospital Revenue Bonds:
AAA Aaa $ 1,485 (Herman Hospital Project), 6.375% due 10/01/2024 (c) $ 1,588
A- A2 3,500 (Memorial Hospital Systems Project), Series A,
6.60% due 6/01/2004 (a) 3,966
A- A2 2,500 (Memorial Hospital Systems Project), Series A, 6.625%
due 6/01/2004 (a) 2,827
AA Aa 5,290 (Saint Luke's Episcopal Hospital Project), Series A,
6.625% due 2/15/2012 5,641
A1+ NR* 300 Harris County, Texas, Industrial Development Corporation,
PCR (Exxon Corporation Project), AMT, 3.45% due 8/15/2027 300
AAA Aaa 2,500 Houston, Texas, Water and Sewer System Revenue Refunding
Bonds, Junior Lien Series A, 5.375% due 12/01/2027 2,372
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 2,615
North Central, Texas, Health Facility Development
<PAGE> Corporation Revenue Bonds:
AA Aa 5,700 (Baylor University Medical Center), INFLOS, Series A,
9.968% due 5/15/2001 (a)(j) 6,918
A1 Aaa 500 (Methodist Hospital, Dallas), VRDN, Series B, 3.45% due
10/01/2015 (b)(g) 500
NR* Aaa 960 Socorro, Texas, Independent School District, UT, Series A,
5.125% due 2/15/2027 885
NR* VMIG1++ 1,800 Southwest Texas, Higher Education Authority Incorporated,
Revenue Refunding Bonds (Southern Methodist University),
VRDN, 3.45% due 7/01/2015 (g) 1,800
AA Aa 5,000 Texas State Refunding (Public Financing Authority), 5.70%
due 10/01/2003 5,328
AA Aa 3,500 Texas State Refunding (Veterans' Land), UT, 6.50% due 12/01/2021 3,697
Utah--0.4% A+ Aa 3,150 Intermountain Power Agency, Utah, Power Supply Revenue
Bonds, Series B, 7% due 7/01/2021 3,352
NR* P1 100 Salt Lake County, Utah, PCR, Refunding (Service Station
Holdings Project), VRDN, 3.45% due 2/01/2008 (g) 100
Virginia--2.1% Virginia State, HDA, Commonwealth Mortgage Revenue Bonds:
AA+ NR* 2,950 AMT, Series G, Sub-Series G-2, 6.65% due 1/01/2019 3,040
AA+ Aa1 10,000 Series H, 6.85% due 7/01/2014 10,578
AA+ Aa1 4,400 Series J, Sub-Series J-2, 6.75% due 7/01/2017 4,679
Washington--4.8% Washington State Housing Finance Commission, S/F Mortgage
Revenue Refunding Bonds (d):
AAA NR* 7,795 Series A, 7.70% due 7/01/2016 8,265
AAA NR* 2,395 Series D, 6.95% due 7/01/2017 (e) 2,504
Washington State Public Power Supply System, Revenue
Refunding Bonds (Nuclear Project No. 1):
AA- Aaa 5,000 Series A, 6.875% due 7/01/2001 (a) 5,569
AA- Aa1 3,000 Series A, 7% due 7/01/2008 3,425
AA- Aa1 5,000 Series B, 7.25% due 7/01/2009 5,791
AA- Aa1 14,320 Series B, 7.125% due 7/01/2016 16,471
Wisconsin--0.5% NR* A3 4,000 Wisconsin State Health and Educational Facilities
Authority, Revenue Refunding Bonds (Saint Claire
Hospital Project), 7% due 2/15/2011 4,249
Wyoming--1.2% BBB Baa2 7,475 Sweetwater County, Wyoming, Solid Waste Disposal
Revenue Bonds (FMC Corp. Project), AMT, Series B,
6.90% due 9/01/2024 7,963
AA Aa 2,500 Wyoming Community Development Authority, S/F Mortgage
Revenue Bonds, AMT, Series H, 7.10% due 6/01/2012 2,642
<PAGE>
Total Investments (Cost--$809,363)--98.4% 856,363
Other Assets Less Liabilities--1.6% 14,150
--------
Net Assets--100.0% $870,513
========
<FN>
(a)Prerefunded.
(b)BIG Insured.
(c)MBIA Insured.
(d)GNMA Collateralized.
(e)FNMA Collateralized.
(f)FGIC Insured.
(g)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in effect
at February 28, 1997.
(h)AMBAC Insured.
(i)FSA Insured.
(j)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at February 28, 1997.
(k)Escrowed to maturity.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of February 28, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$809,363,381)(Note 1a) $856,363,215
Cash 56,925
Receivables:
Interest $ 12,499,763
Securities sold 12,094,318 24,594,081
------------
Prepaid expenses and other assets 20,112
------------
Total assets 881,034,333
------------
<PAGE>
Liabilities: Payables:
Securities purchased 9,184,098
Dividends to Common Stock shareholders (Note 1e) 831,848
Investment adviser (Note 2) 335,539 10,351,485
------------
Accrued expenses and other liabilities 169,518
------------
Total liabilities 10,521,003
------------
Net Assets: Net assets $870,513,330
============
Capital: Preferred Stock, par value $.025 per share; 10,000,000 shares
authorized (11,000 shares of AMPS* issued and outstanding,
at $25,000 per share liquidation preference)(Note 4) $275,000,000
Common Stock, par value $.10 per share; 150,000,000 shares
authorized; 61,123,140 shares issued and outstanding (Note 4) $ 6,112,314
Paid-in capital in excess of par 563,529,671
Undistributed investment income--net 6,315,656
Accumulated realized capital losses on investments--net (Note 5) (25,143,426)
Accumulated distributions in excess of realized capital
gains--net (Note 1e) (2,300,719)
Unrealized appreciation on investments--net 46,999,834
------------
Total--Equivalent to $9.74 net asset value per share of
Common Stock (market price--$9.25) 595,513,330
------------
Total capital $870,513,330
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
For the Six Months Ended February 28, 1997
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 26,552,815
Income (Note 1d):
<PAGE>
Expenses: Investment advisory fees (Note 2) $ 2,182,908
Commission fees (Note 4) 354,671
Transfer agent fees 73,695
Accounting services (Note 2) 47,925
Professional fees 43,672
Custodian fees 28,216
Printing and shareholder reports 24,654
Directors' fees and expenses 16,769
Pricing fees 12,298
Listing fees 10,052
Other 16,942
------------
Total expenses 2,811,802
------------
Investment income--net 23,741,013
------------
Realized & Realized gain on investments--net 2,575,199
Unrealized Gain Change in unrealized appreciation on investments--net 15,586,510
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 41,902,722
(Notes 1b, 1d & 3): ============
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 23,741,013 $ 48,100,100
Realized gain (loss) on investments--net 2,575,199 (4,368,437)
Change in unrealized appreciation on investments--net 15,586,510 793,429
------------ ------------
Net increase in net assets resulting from operations 41,902,722 44,525,092
------------ ------------
Dividends to Investment income--net:
Shareholders Common Stock (19,292,297) (38,311,006)
(Note 1e): Preferred Stock (4,637,260) (9,884,670)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (23,929,557) (48,195,676)
------------ ------------
<PAGE>
Net Assets: Total increase (decrease) in net assets 17,973,165 (3,670,584)
Beginning of period 852,540,165 856,210,749
------------ ------------
End of period* $870,513,330 $852,540,165
============ ============
<FN>
*Undistributed investment income--net $ 6,315,656 $ 6,527,951
============ ============
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have
been derived from information provided in the For the Six
financial statements. Months Ended
February 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.45 $ 9.51 $ 9.57 $ 10.65 $ 10.19
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .39 .79 .81 .84 .92
Realized and unrealized gain (loss) on
investments--net .30 (.06) .10 (.78) .69
-------- -------- -------- -------- --------
Total from investment operations .69 .73 .91 .06 1.61
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.32) (.63) (.64) (.70) (.78)
Realized gain on investments--net -- -- (.12) (.32) (.25)
In excess of realized gain on
investments--net -- -- (.04) -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.32) (.63) (.80) (1.02) (1.03)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends to Preferred Stock shareholders
from investment income--net (.08) (.16) (.17) (.12) (.12)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.74 $ 9.45 $ 9.51 $ 9.57 $ 10.65
======== ======== ======== ======== ========
Market price per share, end of period $ 9.25 $ 9.125 $ 8.563 $ 8.50 $ 11.25
======== ======== ======== ======== ========
Total Investment Based on market price per share 4.89%+++ 14.18% 10.88% (16.29%) 10.39%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 6.65%+++ 6.46% 9.38% (.44%) 15.38%
======== ======== ======== ======== ========
<PAGE>
Ratios to Average Expenses .64%* .64% .66% .64% .65%
Net Assets:*** ======== ======== ======== ======== ========
Investment income--net 5.44%* 5.57% 5.91% 5.76% 6.17%
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock,
Data: end of period (in thousands) $595,513 $577,540 $581,211 $584,680 $642,530
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $275,000 $275,000 $275,000 $275,000 $275,000
======== ======== ======== ======== ========
Portfolio turnover 29.19% 69.87% 71.95% 100.92% 73.38%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,166 $ 3,100 $ 3,113 $ 3,126 $ 3,336
======== ======== ======== ======== ========
Dividends Per Series A--Investment income--net $ 461 $ 895 $ 922 $ 633 $ 633
Share on ======== ======== ======== ======== ========
Preferred Series B--Investment income--net $ 457 $ 903 $ 946 $ 637 $ 642
Stock Outstan- ======== ======== ======== ======== ========
ding:++ Series C--Investment income--net $ 389 $ 900 $ 947 $ 644 $ 624
======== ======== ======== ======== ========
Series D--Investment income--net $ 392 $ 901 $ 1,014 $ 633 $ 644
======== ======== ======== ======== ========
Series E--Investment income--net $ 413 $ 895 $ 968 $ 626 $ 636
======== ======== ======== ======== ========
<FN>
*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 effect of sales loads.
***Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Dividends per share have been adjusted to reflect a four-for-one
stock split on December 1, 1994.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
<PAGE>
1. Significant Accounting Policies:
MuniVest 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 MVF. 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 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.
*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.
<PAGE>
*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) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. Distributions in excess of
realized capital gains are due primarily to differing tax treatments
for futures transactions and post-October losses.
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. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of .50% of
the Fund's average weekly net assets.
<PAGE>
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 February 28, 1997 were $247,998,746 and
$244,424,530, respectively.
Net realized and unrealized gains (losses) as of February 28, 1997
were as follows:
Realized Gains Unrealized
(Losses) Gains
Long-term investments $ 3,162,699 $46,999,834
Financial futures contracts (587,500) --
-------------- -----------
Total $ 2,575,199 $46,999,834
============== ===========
As of August 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $46,999,834, of which $47,488,479
related to appreciated securities and $488,645 related to
depreciated securities. The aggregate cost of investments at
February 28, 1997 for Federal income tax purposes was $809,363,381.
4. Capital Stock Transactions:
Common Stock
At August 31, 1996, 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 February 28, 1997 shares issued
and outstanding remained constant at 61,123,140. At February 28,
1997, total paid-in capital amounted to $569,641,985.
Preferred Stock
The 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 for each series. The Fund is authorized to issue
10,000,000 shares of Preferred Stock having a par value of $.025 per
share. The yields in effect at February 28, 1997 were as follows:
Series A, 3.34%; Series B, 3.347%; Series C, 3.29%; Series D, 3.33%;
and Series E, 3.25%.
As of February 28, 1997, there were 11,000 AMPS shares issued and
outstanding with a liquidation preference of $25,000 per share.
<PAGE>
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate of approximately one-quarter of 1%
calculated on the proceeds of each auction. For the six months ended
February 28,1997, Merrill Lynch, Pierce, Fenner & Smith Inc., an
affiliate of FAM, received $204,693 as commissions.
5. Capital Loss Carryforward:
At August 31, 1996, the Fund had a net capital loss carryforward of
approximately $16,956,000, of which $5,672,000 expires in 2003 and
$11,284,000 expires in 2004. This amount will be available to offset
like amounts of any future taxable gains.
6. Subsequent Event:
On March 10, 1997 the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.048003 per share, payable on March 27, 1997 to shareholders of
record as of March 20, 1997.
