TAURUS
MUNINEW YORK
HOLDINGS, INC.
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
April 30, 1997
This report, including the financial information herein, is transmitted
to the shareholders of Taurus MuniNew York Holdings, Inc. for their
information. It is not a prospectus, circular or representation intended
for use in the purchase of shares of the fund or any securities
mentioned in the report. Past performance results shown in this report
should not be considered a representation of future performance. The
fund has leveraged its Common Stock by issuing Preferred Stock to
provide the Common Stock shareholders with a potentially higher rate of
return. Leverage creates risks for Common Stock shareholders, including
the likelihood of greater volatility of net asset value and market price
of shares of the Common Stock, and the risk that fluctuations in the
short-term dividend rates of the Preferred Stock may affect the yield to
Common Stock shareholders. Statements and other information herein are
as dated and are subject to change.
Taurus MuniNew York
Holdings, Inc.
Box 9011
Princeton, NJ
08543-9011 #11075 -- 4/97
Taurus MuniNew York Holdings, Inc.
TO OUR SHAREHOLDERS
For the six months ended April 30, 1997, the Common Stock of Taurus
MuniNew York Holdings, Inc. earned $0.446 per share income dividends,
which included earned and unpaid dividends of $0.057. This represents a
net annualized yield of 7.64%, based on a month-end net asset value of
$11.77 per share. Over the same period, the total investment return on
the fund's Common Stock was +2.09%, based on a change in per share net
asset value from $12.03 to $11.77, and assuming reinvestment of $0.448
per share income dividends and $0.031 per share capital gains
distributions.
For the six-month period ended April 30, 1997, the fund's Auction Market
Preferred Stock had an average yield of 3.43%.
The Municipal Market Environment
Long-term tax-exempt revenue bonds traded in a relatively narrow range
throughout much of the six-month period ended April 30, 1997. By mid-
January 1997, municipal bond yields rose to over 6% as investors reacted
negatively to reports of progressively stronger domestic economic
growth. However, a continued lack of any material inflationary pressures
allowed bond yields to decline to their prior levels by late February.
Bond yields rose again as investors became increasingly concerned that
the US domestic economic strength seen thus far in 1997 would continue,
and that the increase in short-term interest rates by the Federal
Reserve Board (FRB) in late March would be the first in a series of such
moves designed to slow the US economy before any dormant inflationary
pressures were awakened. Long-term tax-exempt bond yields rose
approximately 15 basis points (0.15%) to almost 6.15% by mid-April.
Similarly, long-term US Treasury bond yields rose over 35 basis points
over the same period to 7.16%. However, in late April economic
indicators were released showing that despite considerable economic
growth any inflationary pressures, particularly those associated with
wage increases, were well-contained and of no immediate concern. Fixed-
income bond prices staged a significant rally during the last week in
April with long-term US Treasury bond yields falling nearly 20 basis
points to end the month at 6.95%. Municipal bond yields, as measured by
the Bond Buyer Revenue Bond Index, declined nearly 15 basis points to
stand at 6.01% by April 30, 1997.
As in recent quarters, the relative stability of long-term tax-exempt
bond yields was supported by low levels of new municipal bond issuance.
During the six months ended April 30, 1997, approximately $90 billion in
long-term tax-exempt bonds was underwritten, a decline of over 6%
compared to the corresponding period a year earlier. During the three
months ended April 30, 1997, $41 billion in new long-term municipal
bonds was issued, also a 6% decline in issuance compared to the three-
month period ended April 30, 1996. Overall investor demand remained
strong, particularly from property and casualty insurance companies and
individual retail investors. In recent years, investor demand increased
whenever tax-exempt bond yields approached or exceeded the 6% level as
they have in the past few months.
Additionally, in recent months much of the new bond issuance was
dominated by a number of larger issues. These included $710 million in
New York City water bonds, $600 million in state of California bonds,
$1 billion in New York City general obligation bonds, $435 million in
Dade County, Florida water and sewer revenue bonds, $450 million in
Puerto Rico Electric Authority issues and $930 million in Port Authority
of New York and New Jersey issues. These bonds have typically been
issued in states with relatively high state income taxes and
consequently were generally underwritten at yields that were relatively
unattractive to residents in other states. This has exacerbated the
general decline in overall issuance in recent years, making the decrease
in supply even more dramatic for general market investors.
The present economic situation remains nearly ideal. The domestic
economy continues to grow steadily with little, if any, sign of a
resurgence in inflation. Recent economic growth generated considerable
unexpected tax revenues for the Federal government. Forecasts for the
1997 Federal fiscal deficit were reduced to under $100 billion, a level
not seen since the early 1980s. Such a reduced Federal deficit enhances
the prospect for a balanced Federal budget. All these factors support a
scenario of steady, or even falling, interest rates in the coming years.
Present annual estimates of future municipal bond issuance remain
centered around $175 billion, indicating that the current relative
scarcity of tax-exempt bonds should continue for at least the remainder
of the year. Should interest rates begin to decline later this year,
either as the result of a balanced Federal budget or continued benign
inflation, investors are unlikely to be able to purchase long-term
municipal bonds at their currently attractive levels.
Portfolio Strategy
For the six-month period ended April 30, 1997, we focused on sustaining
an appealing level of tax-exempt income while seeking to achieve an
above-average total return for the fund. We entered the April period
optimistic that interest rates would decline because of the seemingly
attractive level of interest rates and the tight technical market in
municipal bonds. To take advantage of this scenario, we extended the
portfolio's duration and lowered cash reserves to a minimal level. From
November 1996 to the beginning of December 1996, this strategy prevailed
as interest rates declined about 30 basis points.
The following three months proved to be extremely volatile as economic
reports suggested strength in the economy with benign inflation combined
with the threat of a monetary tightening by the FRB. Our investment
strategy shifted at this point to seek to take advantage of the trading
ranges the municipal market maintained during this time. Finally, in
late March 1997, when the FRB raised the Federal Funds rate by 25 basis
points, interest rates broke out of the trading range in which they had
vacillated. At this point our strategy shifted again because of the
attractive level of interest rates. Therefore, we extended the
portfolio's duration and again lowered cash reserves to minimal levels
in anticipation of a decline in interest rates. This strategy proved
correct as interest rates rallied during the last week of April and
declined nearly 25 basis points very quickly. Looking forward, we
anticipate a volatile market that will once again be caught within a
constrained trading range until the economy either moderates or
accelerates even further.
In Conclusion
We appreciate your ongoing interest in Taurus MuniNew York Holdings,
Inc., and we look forward to assisting you with your financial needs in
the months and years to come.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/ROBERTO ROFFO
Roberto Roffo
Vice President and Portfolio Manager
May 30, 1997
Taurus MuniNew York Holdings, Inc. April 30, 1997
THE BENEFITS AND RISKS OF LEVERAGING
Taurus MuniNew York Holdings, Inc. utilizes leveraging to seek to
enhance the yield and net asset value of its Common Stock. However,
these objectives cannot be achieved in all interest rate environments.
To leverage, the fund issues Preferred Stock, which pays dividends at
prevailing short-term interest rates, and invests the proceeds in long-
term municipal bonds. The interest earned on these investments is paid
to Common Stock shareholders in the form of dividends, and the value of
these portfolio holdings is reflected in the per share net asset value
of the fund's Common Stock. However, in order to benefit Common Stock
shareholders, the yield curve must be positively sloped; that is, short-
term interest rates must be lower than long-term interest rates. At the
same time, a period of generally declining interest rates will benefit
Common Stock shareholders. If either of these conditions change, then
the risks of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred Stock for
an additional $50 million, creating a total value of $150 million
available for investment in long-term municipal bonds. If prevailing
short-term interest rates are approximately 3% and long-term interest
rates are approximately 6%, the yield curve has a strongly positive
slope. The fund pays dividends on the $50 million of Preferred Stock
based on the lower short-term interest rates. At the same time, the
fund's total portfolio of $150 million earns the income based on long-
term interest rates. Of course, increases in short-term interest rates
would reduce (and even eliminate) the dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term interest
rates rise, narrowing the differential between short-term and long-term
interest rates, the incremental yield pickup on the Common Stock will be
reduced or eliminated completely. At the same time, the market value of
the fund's Common Stock (that is, its price as listed on the New York
Stock Exchange) may, as a result, decline. Furthermore, if long-term
interest rates rise, the Common Stock's net asset value will reflect the
full decline in the price of the portfolio's investments, since the
value of the fund's Preferred Stock does not fluctuate. In addition to
the decline in net asset value, the market value
of the fund's Common Stock may also decline.
PORTFOLIO ABBREVIATIONS
To simplify the listings of Taurus MuniNew York Holdings,
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)
HFA Housing Finance Agency
IDA Industrial Development Authority
M/F Multi-Family
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
<TABLE>
<CAPTION>
Taurus MuniNew York Holdings, Inc. April 30, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
New York - 97.5%
<S> <C> <C> <C> <C>
A A2 $3,000 Allegany County, New York, IDA, Solid Waste Disposal Facility Revenue Bonds
(Atlantic Richfield Company), AMT, 6.625% due 9/01/2016 $3,170
AAA Aaa 1,600 Buffalo, New York, Sewer Authority Revenue Bonds, Series F, 6% due 7/01/2013 (c) 1,695
AAA Aaa 2,000 Metropolitan Transportation Authority, New York, Dedicated Tax Fund, Series A, 5.25%
due 4/01/2026 (e) 1,862
BBB Baa1 3,000 Metropolitan Transportation Authority, New York, Transit Facilities Service Contract,
Refunding, Series 5, 7% due 7/01/2012 3,222
AAA Aaa 1,850 Municipal Assistance Corporation for City of Troy, New York, Series A, 5% due 1/15/2016 (e) 1,702
AAA Aaa 2,500 New York City, New York, Educational Construction Fund Revenue Bonds, Junior Sub-Lien,
5.50% due 4/01/2026 (b) 2,402
A1+ NR* 300 New York City, New York, IDA, Civic Facility Revenue Bonds (National Audobon Society),
VRDN, 4.25% due 12/01/2014 (a) 300
New York City, New York, IDA, Special Facility Revenue Bonds, AMT:
BB+ Baa2 2,000 (1990 AMR/American Airlines Inc. Project), 7.75% due 7/01/2019 2,107
A A 2,220 RITR, Series 5, 7.645% due 1/01/2024 (f) 2,209
New York City, New York, Municipal Water Finance Authority, Water and Sewer
System Revenue Bonds:
A- A2 3,375 RITR, 7.475% due 6/15/2025 (f) 3,379
AAA Aaa 2,000 Series 1994-A, 7% due 6/15/2015 (c) 2,156
A- A2 1,290 Series A, 6.75% due 6/15/2017 1,383
A1+ VMIG1+ 1,000 VRDN, Series C, 4.45% due 6/15/2023 (a)(c) 1,000
A1+ VMIG1+ 280 VRDN, Series G, 4.45% due 6/15/2024 (a)(c) 280
A1+ VMIG1+ 1,000 New York City, New York, Trust for Cultural Resources Revenue Bonds
(Solomon R. Guggenheim), VRDN, Series B, 4.25% due 12/01/2015 (a) 1,000
New York State Dormitory Authority Revenue Bonds:
BBB Baa1 4,000 (Department of Health), 5.50% due 7/01/2025 3,689
AAA Aaa 6,000 (Ithaca College), 5.25% due 7/01/2026 (b) 5,585
BBB+ Baa1 2,340 (Mental Health Services Facilities Improvement), Series B, 6% due 8/15/2016 2,361
AAA Aaa 2,250 (Mental Health Services Facilities Improvement), Series B, 5.125% due 8/15/2021 (e) 2,067
BBB+ Baa1 2,370 (Mental Health Services Facilities Improvement), Series B, 5.375% due 2/15/2026 2,144
BBB+ Baa1 1,500 Refunding (State University Educational Facilities), Series A, 5.50% due 5/15/2019 1,421
BBB- Baa1 1,000 (State University Athletic Facilities), 7.25% due 7/01/2021 1,084
BBB+ Baa1 2,500 (State University Educational Facilities), 5.50% due 5/15/2026 2,313
AAA Aaa 2,000 New York State Energy Research and Development Authority, Facilities Revenue Bonds
(Con Edison Company Inc.), AMT, Series A, 6.75% due 1/15/2027 (e) 2,110
AAA Aaa 1,255 New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds
(Brooklyn Union Gas Company), AMT, Series B, 6.75% due 2/01/2024 (e) 1,347
AAA Aaa 2,000 New York State Environmental Facilities Corporation, Special Obligation, Revenue
Refunding Bonds (Riverbank State Park), 5.125% due 4/01/2022 (b) 1,838
AAA Aaa 1,065 New York State, HFA, M/F Housing Revenue Bonds, AMT, Series A, 7.75% due 11/01/2020 (b) 1,134
A A3 2,000 New York State Local Government Assistance Corporation, Series D, 5% due 4/01/2023 1,760
BBB Baa 2,485 New York State Medical Care Facilities Finance Agency Revenue Bonds (Brookdale
Hospital Medical Center), Series A, 6.85% due 2/15/2017 2,607
New York State Mortgage Agency, Homeownership Revenue Bonds:
NR* Aa2 3,270 AMT, Series 44, 7.50% due 4/01/2026 3,509
NR* Aa2 2,490 AMT, Series 50, 6.625% due 4/01/2025 2,568
NR* Aa2 5,750 AMT, Series HH-3, 7.95% due 4/01/2022 6,039
NR* Aa2 1,100 Series EE-2, 7.50% due 4/01/2016 1,156
NR* Aa 4,550 New York State Mortgage Agency Revenue Bonds, Series B-41, 6.30% due 10/01/2017 4,740
AAA Aaa 1,000 New York State Thruway Authority, General Revenue Bonds, Series B, 5% due 1/01/2020 (e) 892
New York State Urban Development Corporation Revenue Bonds:
BBB Baa1 8,830 (Correctional Capital Facilities), Series 6, 5.375% due 1/01/2025 7,990
BBB Baa1 3,265 Refunding (University Facilities Grants), 5.50% due 1/01/2015 3,126
Port Authority of New York and New Jersey, Consolidated Bonds:
AA- A1 3,000 71st Series, 6.50% due 1/15/2026 3,146
AA- A1 3,000 72nd Series, 7.35% due 10/01/2002 (g) 3,380
AA- A1 1,000 109th Series (Fourth Installment), 5.375% due 1/15/2032 939
A1+ VMIG1+ 2,900 Syracuse, New York, IDA, Civic Facility Revenue Bonds (Syracuse University Project),
VRDN, 4.25% due 3/01/2023 (a) 2,900
BBB Baa1 4,000 Triborough Bridge and Tunnel Authority, New York (Convention Center Project), Series E,
7.25% due 1/01/2010 4,477
AAA Aaa 2,000 Triborough Bridge and Tunnel Authority, New York, General Purpose Revenue Refunding
Bonds, Series Y, 6.125% due 1/01/2021 (d) 2,120
Puerto Rico -- 1.2%
A1+ VMIG1+ 200 Puerto Rico Commonwealth, Government Development Bank, Refunding, VRDN, 4.30%
due 12/01/2015 (a) 200
A Baa1 1,150 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway Revenue
Bonds, Series Y, 5.50% due 7/01/2036 1,080
Total Investments (Cost -- $104,339) -- 98.7% 107,589
Other Assets Less Liabilities -- 1.3% 1,440
---------
Net Assets -- 100.0% $109,029
=========
(a) The interest rate is subject to change periodically based upon prevailing market rates.
The interest rate shown is the rate in effect at April 30, 1997.
(b) AMBAC Insured.
(c) FGIC Insured.
(d) CAPMAC Insured.
(e) MBIA 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 April 30, 1997.
(g) Prerefunded.
* Not Rated.
+ Highest short-term rating issued by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of April 30, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $104,338,867) (Note 1a) $107,589,397
Cash 22,027
Interest receivable 1,604,820
Prepaid expenses and other assets 6,535
--------------
Total assets 109,222,779
--------------
Liabilities: Payables:
Dividends to shareholders (Note 1e) $114,012
Investment adviser (Note 2) 44,379 158,391
--------------
Accrued expenses and other liabilities 35,714
--------------
Total liabilities 194,105
--------------
Net Assets: Net assets $109,028,674
==============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (1,200 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) $30,000,000
Common Stock, par value $.10 per share (6,714,921 shares issued
and outstanding) $671,492
Paid-in capital in excess of par 73,695,014
Undistributed investment income -- net 967,326
Undistributed realized capital gains on investment income -- net 444,312
Unrealized appreciation on investments -- net 3,250,530
--------------
Total -- Equivalent to $11.77 net asset value per share of
Common Stock (market price -- $11.375) 79,028,674
--------------
Total capital $109,028,674
==============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six
Months Ended
April 30, 1997
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned $3,265,764
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $272,951
Professional fees 39,794
Commission fees (Note 4) 37,208
Transfer agent fees 23,115
Accounting services (Note 2) 19,753
Printing and shareholder reports 14,077
Directors' fees and expenses 9,552
Listing fees 7,936
Custodian fees 5,532
Pricing fees 2,354
Other 7,666
-------------
Total expenses 439,938
-------------
Investment income -- net 2,825,826
-------------
Realized & Realized gain on investments -- net 792,825
Unrealized Change in unrealized appreciation on investments -- net (1,635,437)
Gain (Loss) on -------------
Investments -- Net Net Increase in Net Assets Resulting from Operations $1,983,214
(Notes 1b, 1d & 3): =============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
April 30, October 31,
1997 1996
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations: Investment income -- net $2,825,826 $5,683,601
Realized gain on investments -- net 792,825 1,475,289
Change in unrealized appreciation/depreciation on investments -- net (1,635,437) (1,066,500)
------------- -------------
Net increase in net assets resulting from operations 1,983,214 6,092,390
------------- -------------
Dividends & Investment income -- net:
Distributions to Common Stock (2,339,291) (4,660,309)
Shareholders Preferred Stock (328,656) (980,749)
(Note 1e): Realized gain on investments -- net:
Common Stock (873,551) (566,101)
Preferred Stock (181,812) (134,351)
------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (3,723,310) (6,341,510)
------------- -------------
Net Assets: Total decrease in net assets (1,740,096) (249,120)
Beginning of period 110,768,770 111,017,890
------------- -------------
End of period* $109,028,674 $110,768,770
============= =============
*Undistributed investment income -- net $967,326 $809,447
============= =============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
April 30, For the Year Ended October 31,
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 $12.03 $12.07 $11.18 $13.23 $11.95
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net .42 .85 .88 .91 .99
Realized and unrealized gain (loss) on
investments -- net (.12) .05 .95 (1.76) 1.28
------- ------- ------- ------- -------
Total from investment operations .30 .90 1.83 (.85) 2.27
------- ------- ------- ------- -------
Less dividends and distributions to
Common Stock shareholders:
Investment income -- net (.35) (.69) (.71) (.78) (.88)
Realized gain on investments -- net (.13) (.08) (.05) (.28) --
------- ------- ------- ------- -------
Total dividends and distributions to Common
Stock shareholders (.48) (.77) (.76) (1.06) (.88)
------- ------- ------- ------- -------
Effect of Preferred Stock activity:
Dividends and distributions to
Preferred Stock shareholders:
Investment income -- net (.05) (.15) (.17) (.10) (.11)
Realized gain on investments -- net (.03) (.02) (.01) (.04) --
------- ------- ------- ------- -------
Total effect of Preferred Stock activity (.08) (.17) (.18) (.14) (.11)
------- ------- ------- ------- -------
Net asset value, end of period $11.77 $12.03 $12.07 $11.18 $13.23
======= ======= ======= ======= =======
Market price per share, end of period $11.375 $10.875 $10.75 $9.875 $14.25
======= ======= ======= ======= =======
Total Investment Based on market price per share 9.14%++++ 8.54% 16.98% (24.38%) 19.63%
Return:** ======= ======= ======= ======= =======
Based on net asset value per share 2.09%++++ 6.94% 16.01% (7.78%) 18.50%
======= ======= ======= ======= =======
Ratios to Average Expenses .81%* .82% .83% .80% .86%
Net Assets:*** ======= ======= ======= ======= =======
Investment income -- net 5.17%* 5.15% 5.54% 5.40% 5.82%
======= ======= ======= ======= =======
Supplemental Net assets, net of Preferred Stock, end
Data: of period (in thousands) $79,029 $80,769 $81,018 $75,075 $87,553
======= ======= ======= ======= =======
Preferred Stock outstanding, end of period
(in thousands) $30,000 $30,000 $30,000 $30,000 $30,000
======= ======= ======= ======= =======
Portfolio turnover 62.33% 193.24% 165.22% 65.74% 34.31%
======= ======= ======= ======= =======
Leverage: Asset coverage per $1,000 $3,634 $3,692 $3,701 $3,503 $3,916
======= ======= ======= ======= =======
Dividends Per Share Investment income -- net $274 $817 $949 $573 $626
On Preferred Stock ======= ======= ======= ======= =======
Outstanding:+
* 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.
+ 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.
</TABLE>
Taurus MuniNew York Holdings, Inc. April 30, 1997
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Taurus MuniNew York Holdings, 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 New York Stock Exchange under the symbol MNY. 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 market and are valued at the most recent bid price
or yield equivalent as obtained by the Fund's pricing service from
dealers that make markets in such securities. Financial futures
contracts and options thereon, which are traded on exchanges, are valued
at their closing prices as of the close of such exchanges. Options,
which are traded on exchanges, are valued at their last sale price as of
the close of such exchanges or, lacking any sales, at the last available
bid price. Short-term securities with a remaining maturity of sixty days
or less are valued at amortized cost, which approximates market value.
Securities 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 margins as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by
the Fund as unrealized gains or losses. When the contract is closed, the
Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
[bullet] Options -- The Fund is authorized to write covered call options
and purchase call and 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.
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 April 30, 1997 were $64,508,579 and $66,145,222,
respectively.
Net realized and unrealized gains as of April 30, 1997 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $792,825 $3,250,530
---------- ----------
Total $792,825 $3,250,530
========== ==========
As of April 30, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $3,250,530, of which $3,586,076 related to
appreciated securities and $335,546 related to depreciated securities.
The aggregate cost of investments at April 30, 1997 for Federal income
tax purposes was $104,338,867.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which were
initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital stock
without approval of the holders of Common Stock.
Common Stock
For the six months ended April 30, 1997, shares issued and outstanding
remained constant at 6,714,921. At April 30, 1997, total paid-in capital
amounted to $74,366,506.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of
the Fund that entitle their holders to receive cash dividends at an
annual rate that may vary for the successive dividend periods. The yield
in effect at April 30, 1997 was 3.72%.
As of April 30,1997, there were 1,200 AMPS shares authorized, issued and
outstanding with a liquidation preference of $25,000 per share.
The Fund pays commissions to certain broker-dealers at the end of each
auction at an annual rate ranging from 0.25% to 0.375%, calculated on
the proceeds of each auction. For the six months ended April 30, 1997,
Merrill Lynch, Pierce, Fenner & Smith Inc., an affiliate of FAM, earned
$25,135 as commissions.
5. Subsequent Event:
On May 9, 1997, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of $.056999
per share, payable on May 29, 1997 to shareholders of record as of May
19, 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
Roberto Roffo, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
110 Washington Street
New York, NY 10286
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MNY
