MUNIVEST
FUND II, INC.
[FUND LOGO]
STRATEGIC
Performance
Annual Report
October 31, 1997
Officers and Directors
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Fred K. Stuebe, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MVT
This report, including the financial information herein, is
transmitted to the shareholders of MuniVest Fund II, Inc. for their
information. It is not a prospectus, circular or representation
intended for use in the purchase of shares of the Fund or any
securities mentioned in the report. Past performance results shown in
this report should not be considered a representation of future
performance. The Fund has leveraged its Common Stock by issuing
Preferred Stock to provide the Common Stock shareholders with a
potentially higher rate of return. Leverage creates risks for Common
Stock shareholders, including the likelihood of greater volatility of
net asset value and market price of shares of the Common Stock, and
the risk that fluctuations in the short-term dividend rates of the
Preferred Stock may affect the yield to Common Stock shareholders.
Statements and other information herein are as dated and are subject
to change.
MuniVest
Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011 #16807 -- 10/97
[RECYCLE LOGO]
Printed on post-consumer recycled paper
MUNIVEST FUND II, INC.
The Benefits and Risks of Leveraging
MuniVest Fund II, Inc. utilizes leveraging to seek to enhance the
yield and net asset value of its Common Stock. However, these
objectives cannot be achieved in all interest rate environments. To
leverage, the Fund issues Preferred Stock, which pays dividends at
prevailing short-term interest rates, and invests the proceeds in
long-term municipal bonds. The interest earned on these investments is
paid to Common Stock shareholders in the form of dividends, and the
value of these portfolio holdings is reflected in the per share net
asset value of the Fund's Common Stock. However, in order to benefit
Common Stock shareholders, the yield curve must be positively sloped;
that is, short-term interest rates must be lower than long-term
interest rates. At the same time, a period of generally declining
interest rates will benefit Common Stock shareholders. If either of
these conditions change, then the risks of leveraging will begin to
outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred Stock for
an additional $50 million, creating a total value of $150 million
available for investment in long-term municipal bonds. If prevailing
short-term interest rates are approximately 3% and long-term interest
rates are approximately 6%, the yield curve has a strongly positive
slope. The fund pays dividends on the $50 million of Preferred Stock
based on the lower short-term interest rates. At the same time, the
fund's total portfolio of $150 million earns the income based on long-
term interest rates. Of course, increases in short-term interest rates
would reduce (and even eliminate) the dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term and
long-term interest rates, the incremental yield pickup on the Common
Stock will be reduced or eliminated completely. At the same time, the
market value on the fund's Common Stock (that is, its price as listed
on the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common Stock's net
asset value will reflect the full decline in the price of the
portfolio's investments, since the value of the fund's Preferred Stock
does not fluctuate. In addition to the decline in net asset value, the
market value of the fund's Common Stock may also decline.
MuniVest Fund II, Inc., October 31, 1997
DEAR SHAREHOLDER
For the year ended October 31, 1997, the Common Stock of MuniVest Fund
II, Inc. earned $0.876 per share income dividends, which included
earned and unpaid dividends of $0.074. This represents a net
annualized yield of 6.00%, based on a month-end per share net asset
value of $14.59. Over the same period, the total investment return on
the Fund's Common Stock was +10.31%, based on a change in per share
net asset value from $14.12 to $14.59, and assuming reinvestment of
$0.876 per share income dividends.
For the six-month period ended October 31, 1997, the total investment
return on the Fund's Common Stock was +7.48%, based on a change in per
share net asset value from $14.01 to $14.59, and assuming reinvestment
of $0.436 per share income dividends.
For the six-month period ended October 31, 1997, the Fund's Auction
Market Preferred Stock had an average yield of Series A, 3.29%; Series
B, 3.80; and Series C, 2.97%.
The Municipal Market Environment
Long-term interest rates generally declined during the six-month
period ended October 31, 1997. The general financial environment has
remained one of solid economic growth tempered by few or no
inflationary pressures. While economic growth has been conducive to
declining bond yields, it has remained strong enough to suggest that
the Federal Reserve Board (FRB) might find it necessary to raise
short-term interest rates. This would be intended to slow economic
growth and ensure that any incipient inflationary pressures would be
curtailed. There were investor concerns that the FRB would be forced
to raise interest rates prior to year-end, thus preventing an even
more dramatic decline in interest rates. Long-term tax-exempt revenue
bonds, as measured by the Bond Buyer Revenue Bond Index, declined over
50 basis points (0.50%) to end the six-month period ended October 31,
1997 at 5.60%.
Similarly, long-term US Treasury bond yields generally moved lower
during most of the six-month period ended October 31, 1997. However,
the turmoil in the world's equity markets during the last week in
October has resulted in a significant rally in the Treasury bond
market. The US Treasury bond market was the beneficiary of a flight to
quality mainly by foreign investors whose own domestic markets have
continued to be very volatile. Prior to the initial decline in Asian
equity markets, long-term US Treasury bond yields were essentially
unchanged. By the end of October, US Treasury bond yields declined 80
basis points to 6.15%, their lowest level of 1997.
The tax-exempt bond market's continued underperformance as compared to
its taxable counterpart has been largely in response to its ongoing
weakening technical position. As municipal bond yields have declined,
municipalities have hurriedly rushed to refinance outstanding higher-
couponed debt with new issues financed at present low rates. During
the last six months, over $118 billion in new long-term tax-exempt
issues were underwritten, an increase of over 25% versus the
comparable period a year ago. As interest rates have continued to
decline, these refinancings have intensified municipal bond issuance.
During the past three months, approximately $60 billion in new long-
term municipal securities were underwritten, an increase of over 34%
as compared to the October 31, 1996 quarter.
The recent trend toward larger and larger bond issues has also
continued. However, issues of such magnitude usually must be
attractively priced to ensure adequate investor interest. Obviously,
the yields of other municipal bond issues are impacted by the yield
premiums such large issuers have been required to pay. Much of the
municipal bond market's recent underperformance can be traced to
market pressures that these large bond issuances have exerted.
In our opinion, the recent correction in world equity markets has
enhanced the near-term prospects for continued low, if not declining,
interest rates in the United States. It is likely that the recent
correction will result in slower US domestic growth in the coming
months. This decline is likely to be generated in part by reduced US
export growth. Additionally, some decline in consumer spending also
can be expected in response to reduced consumer confidence. Perhaps
more importantly, it is likely that barring a dramatic and unexpected
resurgence in domestic growth, the FRB may be unwilling to raise
interest rates until the full impact of the equity market's
corrections can be established.
All of these factors suggest that for at least the near term, interest
rates, including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable that municipal bond yields will
remain under some pressure as a result of continued strong new-issue
supply. However, the recent pace of municipal bond issuance is likely
to be unsustainable. Continued increases in bond issuance will require
lower tax-exempt bond yields to generate the economic savings
necessary for additional municipal bond refinancing. With tax-exempt
bond yields at already attractive yield ratios relative to US Treasury
bonds (approximately 90% at the end of October), any further pressure
on the municipal market may represent an attractive investment
opportunity.
Portfolio Strategy
During the six months ended October 31, 1997, we largely maintained
the defensive posture we had adopted earlier in the year. Our
principal concern was that economic growth would remain strong enough
to force the FRB to raise interest rates prior to year-end. We
believed that as long as the potential for FRB action remained, it was
more likely that interest rates would be raised than lowered. We
believed that the Fund's core position of interest rate-sensitive
securities would allow the Fund to remain competitive should economic
growth weaken and interest rates fall.
However, the turmoil in the world's equity markets during October has
largely removed concerns regarding any additional action by the FRB in
the near term. Additionally, it is likely that economic growth in the
United States will be slower than expected as a result of the recent
stock market correction. Consequently, we adopted a more neutral
position until the full economic impact of the world equity markets'
correction can be determined. Looking ahead, we expect to remain fully
invested going into 1998 in order to seek to enhance yield for Common
Stock shareholders.
Short-term tax-exempt interest rates have continued to trade in a
relatively narrow range, mostly between 3.50% and 3.75%. During the
period ended October 31, 1997, the leverage of the Preferred Stock was
very favorable and significantly augmented the yield paid to the
Common Stock shareholders. However, should the spread between short-
term and long-term tax-exempt interest rates narrow, the benefits of
the leverage will decline and the yield on the Common Stock will be
reduced. (For a complete explanation of the benefits and risks of
leveraging, see page 1 of this report to shareholders.)
In Conclusion
We appreciate your ongoing interest in MuniVest Fund II, Inc., and we
look forward to assisting you with your financial needs in the months
and years ahead.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/FRED K. STUEBE
Fred K. Stuebe
Vice President and Portfolio Manager
December 3, 1997
<TABLE>
<CAPTION>
PROXY RESULTS
During the six-month period ended October 31, 1997, MuniVest Fund II, Inc. Common Stock shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on September 18, 1997. The description of each proposal and
number of shares voted are as follows:
Shares Voted Shares Withheld
For From Voting
<S> <C> <C> <C>
1. To elect the Fund's Board of Directors: Cynthia A. Montgomery 19,326,854 369,225
Charles C. Reilly 19,356,904 339,175
Kevin A. Ryan 19,328,664 367,415
Arthur Zeikel 19,333,537 362,542
<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. 19,216,568 111,429 368,082
<CAPTION>
During the six-month period ended October 31, 1997, MuniVest Fund II, Inc. Preferred Stock shareholders (Series A, B and C)
voted on the following proposals. The proposals were approved at a shareholders' meeting on September 18, 1997. The description
of each proposal and number of shares voted are as follows:
Shares Voted Shares Withheld
For From Voting
<S> <C> <C> <C>
1. To elect the Fund's Board of Directors as follows: Ronald W. Forbes, Cynthia A. Montgomery,
Charles C. Reilly, Kevin A. Ryan, Richard R. West and Arthur Zeikel:
Series A 1,769 0
Series B 1,402 0
Series C 1,549 0
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <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 1,769 0 0
Series B 1,387 15 0
Series C 1,549 0 0
</TABLE>
<TABLE>
<CAPTION>
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% AA Aa3 $15,000 Valdez, Alaska, Marine Terminal Revenue Refunding
Bonds (Sohio Pipeline -- British Petroleum Oil),
7.125% due 12/01/2025 $16,798
Arizona -- 0.7% AAA Aaa 2,315 Maricopa County, Arizona, School District No. 3,
Refunding and Improvement Bonds (Tempe Elementary
School), UT, 7.50% due 7/01/2010 (c) 2,892
California -- 1.6% AA Aaa 3,825 California State Department of Water Resources,
Water Systems Revenue Bonds (Central Valley Project),
Series P, 6.50% due 6/01/2006 (i) 4,420
A Aaa 2,000 California State Public Works Board, Lease Revenue
Bonds (Various Community College Projects), Series B,
7% due 3/01/2004 (i) 2,327
Colorado -- 2.7% NR* Aa2 2,780 Colorado HFA, S/F Program, AMT, Senior Series F, 8.625%
due 6/01/2025 (h) 3,138
Denver, Colorado, City and County Airport Revenue Bonds,
AMT, Series C:
AAA Aaa 1,560 6.75% due 11/15/2002 (i) 1,754
BBB Baa1 5,940 6.75% due 11/15/2022 6,419
Delaware -- 0.6% AAA Aaa 2,250 Delaware Transportation Authority, Transportation System
Revenue Bonds, Senior Series, 7% due 7/01/2004 (c)(i) 2,618
Florida -- 1.0% BBB Baa1 3,655 Escambia County, Florida, PCR (Champion International
Corp. Project), AMT, 6.90% due 8/01/2022 4,054
Georgia -- 4.9% A A 1,250 Georgia Municipal Electric Authority, Power Revenue Bonds,
Series X, 6.50% due 1/01/2020 1,428
Georgia Municipal Electric Authority, Special Obligation
Revenue Bonds:
A A3 6,000 (3rd Crossover Series), 6.60% due 1/01/2018 6,910
A+ A3 11,035 (5th Crossover Series), Project One, 6.50% due 1/01/2017 12,544
Hawaii -- 0.5% A A2 2,000 Hawaii State Department of Budget and Finance, Special
Purpose Revenue Bonds (Kapi'Olani Health Obligation),
6.25% due 7/01/2021 2,123
Idaho -- 0.6% NR* Aaa 2,500 Idaho Housing Agency, S/F Mortgage, AMT, Series E-2,
6.90% due 1/01/2027 2,667
Illinois -- 13.9% AAA Aaa 3,850 Chicago, Illinois, GO, UT, 5.25% due 1/01/2027 (c) 3,754
AA- Aa3 6,925 Chicago, Illinois, Gas Supply Revenue Bonds (People's
Gas and Light), Series A, 6.875% due 3/01/2015 7,546
AAA Aaa 5,000 Chicago, Illinois, Sales Tax Revenue Bonds, 5.375% due
1/01/2027 (c) 4,960
Illinois HDA, M/F Housing Program:
A+ A1 9,090 Refunding, Series A, 7.375% due 7/01/2017 9,889
A+ A1 6,500 Series 5, 6.75% due 9/01/2023 6,843
A+ Aa2 2,550 Illinois HDA, Residential Mortgage Revenue Bonds, AMT,
Series C-1, 6.874% due 2/01/2018 2,703
NR* Baa1 3,235 Illinois Health Facilities Authority Revenue Bonds (Holy
Cross Hospital Project), 6.75% due 3/01/2024 3,455
Illinois Regional Transportation Authority:
AAA Aaa 4,815 Series A, 6.50% due 6/01/2015 (b) 5,273
AAA Aaa 1,500 Series A, 7.20% due 11/01/2020 (b) 1,876
AAA Aaa 7,000 Series A, 6.70% due 11/01/2021 (c) 8,325
AAA Aaa 2,500 UT, Series C, 7.75% due 6/01/2020 (c) 3,286
AAA Aaa 1,000 UT, Series C, 7.10% due 6/01/2025 (c) 1,147
Indiana -- 11.9% Indiana Bond Bank Revenue Bonds (Guarantee -- State
Revolving Fund Program), Series A:
AAA NR* 2,750 6.875% due 2/01/2012 3,093
AAA NR* 5,750 6.75% due 2/01/2017 6,473
AA Aa3 2,500 Indiana Health Facilities Financing Authority, Hospital
Revenue Refunding Bonds (Clarian Health Partners Inc.),
Series A, 6% due 2/15/2021 2,597
NR* Aaa 5,545 Indiana State, HFA, S/F Mortgage Revenue Refunding
Bonds, Series A, 6.80% due 1/01/2017 5,866
NR* Aaa 1,915 Indiana Transportation Finance Authority, Airport
Facilities Lease Revenue Bonds (United Air), Series A,
6.75% due 11/01/2002 (i) 2,152
Indiana Transportation Finance Authority, Highway Revenue
Bonds, Series A:
A+ A1 2,000 7.25% due 6/01/2015 2,455
A+ A1 3,775 6.80% due 12/01/2016 4,490
Indianapolis, Indiana, Local Public Improvement Bond
Bank, Refunding, Series D:
A+ NR* 8,750 6.75% due 2/01/2014 10,299
A+ NR* 11,800 6.75% due 2/01/2020 13,034
Kentucky -- 2.0% AA- Aa3 1,750 Boone County, Kentucky, PCR, Refunding (Dayton Power &
Light Co.), Series A, 6.50% due 11/15/2022 1,904
AAA Aaa 7,000 Jefferson County, Kentucky, Health Facilities Revenue
Refunding Bonds (Alliant Health Systems Inc.), 5.125% due
10/01/2027 (d) 6,686
Louisiana -- 1.4% NR* A3 2,000 Lake Charles, Louisiana, Harbor and Terminal District,
Port Facilities Revenue Refunding Bonds (Trunkline Long
Co. Project), 7.75% due 8/15/2022 2,292
A+ A1 3,315 Louisiana Public Facilities Authority Revenue Bonds
(Tulane University), 6.625% due 11/15/2021 3,641
Maine -- 1.7% NR* Aa2 6,790 Maine State Housing Authority, Mortgage Purchase, AMT,
Series C-2, 6.875% due 11/15/2023 7,234
Maryland -- 1.1% A- NR* 2,000 Maryland State Energy Financing Administration, Solid
Waste Disposal, Limited Obligation Revenue Bonds
(Wheelabrator Water Project), AMT, 6.45% due 12/01/2016 2,183
Maryland State Health and Higher Educational Facilities
Authority Revenue Bonds:
NR* VMIG1+ 1,000 (Pooled Loan Program), VRDN, Series A, 3.65% due
4/01/2035 (a) 1,000
AAA Aaa 1,000 (University of Maryland Medical Systems), Series B, 7%
due 7/01/2022 (c) 1,236
A1+ VMIG1+ 400 University of Maryland, University Revenue Bonds
(Revolving Equipment Loan Program), VRDN, Series A, 3.65%
due 7/01/2015 (a) 400
Massachusetts -- 6.1% Massachusetts Bay Transportation Authority Revenue Bonds
(Massachusetts General Transportation Systems):
AAA Aaa 5,000 Series A, 5% due 3/01/2019 (c) 4,816
AAA Aaa 5,000 Series A, 5% due 3/01/2023 (c) 4,785
AA- A1 5,000 Series C, 5% due 3/01/2024 4,740
AAA Aaa 1,000 Massachusetts State, HFA, Residential Development,
Series C, 6.90% due 11/15/2021 (f) 1,088
AA- Aa3 2,500 Massachusetts State Port Authority Revenue Bonds, Series
A, 5% due 7/01/2027 2,378
A+ A1 1,000 Massachusetts State Revenue Refunding Bonds (College
Building Authority Project), Series A, 7.50% due
5/01/2011 1,244
A A2 6,000 Massachusetts State Water Resource Authority, Series A,
6.50% due 7/15/2019 6,930
Michigan -- 7.5% AAA Aaa 2,500 Detroit, Michigan, Water Supply System Revenue Bonds,
Series A, 5% due 7/01/2027 (d) 2,385
BBB Baa1 3,500 Dickinson County, Michigan, Economic Development
Corporation, Solid Waste Disposal, Revenue Refunding
Bonds (Champion International), 6.55% due 3/01/2007 3,715
A1+ VMIG1+ 200 Grand Rapids, Michigan, Water Supply System, Revenue
Refunding Bonds, VRDN, 3.50% due 1/01/2020 (a)(c) 200
AA Aa2 1,250 Michigan Municipal Bond Authority, Revenue Refunding
Bonds (Local Government -- Qualified School), Series A,
6.50% due 5/01/2016 1,365
A+ NR* 2,755 Michigan State, HDA, Rental Housing Revenue Refunding
Bonds, Series A, 6.65% due 4/01/2023 2,882
Michigan State, HDA, S/F Mortgage Revenue Bonds:
AA+ NR* 5,490 Refunding, AMT, Series D, 6.85% due 6/01/2026 5,844
AA+ NR* 4,885 Series A, 6.875% due 6/01/2023 5,137
A A2 3,500 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Detroit Medical Center Obligated Group),
Series A, 6.50% due 8/15/2018 3,772
A A1 2,500 Michigan State Strategic Fund, Limited Obligation
Revenue Bonds (Ford Motor Co. Project), AMT, Series A,
6.55% due 10/01/2022 2,682
AAA Aaa 1,500 Northern Michigan University, Revenue Refunding Bonds,
5.125% due 12/01/2020 (d) 1,461
AA- Aa3 2,320 Royal Oak, Michigan, Hospital Finance Authority, Revenue
Refunding Bonds (Beaumont Properties, Inc.), Series E,
6.625% due 1/01/2019 2,506
Minnesota -- 1.6% Minnesota State, HFA, S/F Mortgage, AMT:
AA+ Aa2 2,665 Series L, 6.70% due 7/01/2020 2,824
AA+ Aa2 3,900 Series M, 6.70% due 7/01/2026 4,133
Nebraska -- 0.6% AAA Aaa 2,200 Lancaster County, Nebraska, Hospital Authority No. 1,
Hospital Revenue Bonds (Bryan Memorial Hospital Project),
6.70% due 6/01/2022 (d)(j) 2,497
Nevada -- 3.1% AAA Aaa 2,500 Clark County, Nevada, School District, 6.75% due
12/15/2004 (c)(i) 2,871
AAA Aaa 1,440 Nevada Housing Division, S/F Program, AMT, Series E, 7%
due 10/01/2019 1,546
AA Aa2 5,430 Nevada State Refunding (Colorado River
Commission -- Hoover), 6.60% due 10/01/2016 5,956
AAA Aaa 2,500 Washoe County, Nevada, Gas Facilities Revenue Bonds
(Sierra Pacific Power Co.), AMT, 6.65% due 12/01/2017 (b) 2,723
New Jersey -- 1.1% AAA Aaa 4,435 New Jersey State Housing and Mortgage Finance Agency
Revenue Bonds (Home Buyer), AMT, Series M, 6.95% due
10/01/2022 (d) 4,804
New York -- 8.9% AAA Aaa 2,500 Metropolitan Transportation Authority, New York, Commuter
Facility Revenue Refunding Bonds, Series D, 5.125% due
7/01/2022 (d) 2,443
New York City, New York, GO, UT:
BBB+ Baa1 2,500 Refunding, Series C, 5.875% due 2/01/2016 2,565
BBB+ Aaa 2,220 Series B, 7% due 6/01/2001 (i) 2,459
BBB+ Baa1 110 Series B, 7% due 6/01/2016 119
BBB+ Aaa 1,040 Series B, Sub-Series B-1, 7% due 8/15/2004 (i) 1,209
BBB+ Aaa 3,390 Series B, Sub-Series B-1, 7.25% due 8/15/2004 (i) 3,990
BBB+ Baa1 6,460 Series B, Sub-Series B-1, 7% due 8/15/2016 7,297
BBB+ Baa1 610 Series B, Sub-Series B-1, 7.25% due 8/15/2019 694
New York City, New York, Municipal Water Finance
Authority, Water and Sewer System Revenue Refunding
Bonds:
A- A2 7,500 Series A, 5.125% due 6/15/2021 7,197
AAA Aaa 10,300 Series C, 5% due 6/15/2021 (c) 9,913
North Carolina -- A1+ NR* 100 Raleigh-Durham, North Carolina, Airport Authority,
0.0% Special Facility Revenue Refunding Bonds (American
Airlines), VRDN, Series B, 3.70% due 11/01/2015 (a) 100
Ohio -- 0.4% Cleveland, Ohio, Water Works Revenue Bonds (First
Mortgage), Series F-92B (b):
AAA Aaa 20 6.50% due 1/01/2002 (i) 22
AAA Aaa 1,480 6.50% due 1/01/2011 1,615
Oregon -- 0.2% A1 VMIG1+ 900 Medford, Oregon, Hospital Facilities Authority Revenue
Bonds (Gross-Rogue Valley Health Services), VRDN, 3.80%
due 10/01/2016 (a) 900
Pennsylvania -- 0.7% AA+ Aa 1,250 Pennsylvania HFA, S/F Mortgage, AMT, Series 43, 7.40%
due 10/01/2014 1,355
AAA Aaa 1,500 Philadelphia, Pennsylvania, Water and Wastewater Revenue
Bonds, Series A, 5% due 8/01/2022 (b) 1,434
South Carolina -- A- A1 3,000 Richland County, South Carolina, Solid Waste Disposal
1.0% Facilities Revenue Bonds (Union Camp Corp. Project), AMT,
Series B, 7.125% due 9/01/2021 3,272
NR* Aa2 1,000 South Carolina State Housing Finance and Development
Authority, Mortgage Revenue Bonds, AMT, Series A, 6.70%
due 7/01/2027 (h) 1,065
Texas -- 6.6% AAA Aaa 1,665 Crowley, Texas, Independent School District, GO, UT,
5.125% due 8/01/2027 1,619
AA- Aa3 2,500 Guadalupe-Blanco River Authority, Texas, Sewage and
Solid Waste Disposal Facility Revenue Bonds (du Pont
(E.I.) de Nemours and Co. Project), AMT, 6.40% due
4/01/2026 2,720
Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds:
A- A2 1,500 (Memorial Hospital Systems Project), Series A, 6.60% due
6/01/2004 (i) 1,699
A- A2 1,500 (Memorial Hospital Systems Project), Series A, 6.625%
due 6/01/2004 (i) 1,701
AAA Aa3 2,500 (Saint Luke's Episcopal Hospital Project), Series A,
6.625% due 2/15/2012 (j) 2,748
AA Aa3 7,000 (School Health Care Systems), Refunding, Series B, 5.75%
due 7/01/2027 7,222
A+ A2 2,500 Matagorda County, Texas, Port of Bay City Authority
Revenue Bonds (Hoechst Celanese Corp. Project), AMT,
6.50% due 5/01/2026 2,714
AA Aa 4,000 North Central, Texas, Health Facility Development
Corporation Revenue Bonds (Baylor University Medical
Center), INFLOS, Series A, 9.816% due 5/15/2001 (e)(i) 4,845
AA Aa2 2,500 Texas State Refunding (Veterans' Land), UT, 6.50% due
12/01/2021 2,676
Virginia -- 3.7% A- A1 3,115 Isle Wight County, Virginia, IDA, Solid Waste Disposal
Facilities Revenue Bonds (Union Camp Corp. Project),
AMT, 6.55% due 4/01/2024 3,379
Virginia State, HDA (Commonwealth Mortgage):
AA+ Aa1 2,000 AMT, Series B, Sub-Series B-2, 6.85% due 1/01/2027 2,104
AA+ NR* 2,500 AMT, Series G, Sub-Series G-2, 6.65% due 1/01/2019 2,658
AA+ Aa1 2,000 Series B, Sub-Series B-5, 6.90% due 7/01/2013 2,082
AA+ Aa1 5,100 Series H, 6.85% due 7/01/2014 5,484
Washington -- 3.9% AAA NR* 2,395 Washington State Housing Finance Commission, S/F
Mortgage Revenue Refunding Bonds, Series D, 6.95% due
7/01/2017 (f)(g) 2,515
Washington State Public Power Supply System, Revenue
Refunding Bonds, Series B:
AA- Aa1 4,950 (Nuclear Project No. 1), 7.25% due 7/01/2009 5,920
AA- Aa1 5,000 (Nuclear Project No. 1), 7.125% due 7/01/2016 5,999
AAA Aaa 1,900 (Nuclear Project No. 3), 7.125% due 7/01/2016 (d) 2,307
Wisconsin -- 1.1% AA Aa 2,250 Wisconsin Housing and EDA, Home Ownership Revenue Bonds,
AMT, Series D, 6.65% due 7/01/2025 2,372
NR* A3 2,000 Wisconsin State Health and Educational Facilities
Authority, Revenue Refunding Bonds (Saint Claire Hospital
Project), 7% due 2/15/2011 2,166
Wyoming -- 3.0% BBB Baa2 5,000 Sweetwater County, Wyoming, Solid Waste Disposal Revenue
Bonds (FMC Corp. Project), AMT, Series B, 6.90% due
9/01/2024 5,508
Wyoming Community Development Authority, S/F Mortgage:
AA Aa2 1,500 AMT, Series H, 7.10% due 6/01/2012 1,616
AA Aa2 5,175 Series B, 6.70% due 6/01/2017 5,471
----------
Total Investments (Cost -- $383,883) -- 98.0% 416,642
Other Assets Less Liabilities -- 2.0% 8,703
----------
Net Assets -- 100.0% $425,345
==========
(a) The interest rate is subject to change periodically based upon prevailing market rates. The interest
rate shown is the rate in effect at October 31, 1997.
(b) AMBAC Insured.
(c) FGIC Insured.
(d) MBIA Insured.
(e) The interest rate is subject to change periodically and inversely based upon prevailing market rates.
The interest rate shown is the rate in effect at October 31, 1997.
(f) FNMA Collateralized.
(g) GNMA Collateralized.
(h) FHA Insured.
(i) Prerefunded.
(j) Escrowed to maturity.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
Portfolio Abbreviations
To simplify the listings of MuniVest Fund II, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the names
of many of the securities according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
EDA Economic Development Authority
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
INFLOS Inverse Floating Rate Municipal Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of October 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $383,883,135) (Note 1a) $416,641,871
Cash 96,746
Receivables:
Securities sold $11,987,932
Interest 7,538,043 19,525,975
-------------
Deferred organization expenses (Note 1e) 3,338
Prepaid expenses and other assets 16,366
-------------
Total assets 436,284,296
-------------
Liabilities: Payables:
Securities purchased 10,310,663
Dividends to shareholders (Note 1f) 315,086
Investment adviser (Note 2) 191,248 10,816,997
-------------
Accrued expenses and other liabilities 122,025
-------------
Total liabilities 10,939,022
-------------
Net Assets: Net assets $425,345,274
=============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (5,400 shares of AMPS* issued
and outstanding at $25,000 per share liquidation preference) $135,000,000
Common Stock, par value $.10 per share (19,907,055 shares issued and
outstanding) $1,990,705
Paid-in capital in excess of par 277,543,484
Undistributed investment income -- net 2,719,803
Accumulated realized capital losses on investments -- net (Note 5) (24,667,454)
Unrealized appreciation on investments -- net 32,758,736
-------------
Total -- Equivalent to $14.59 net asset value per share of Common Stock
(market price -- $13.875) 290,345,274
-------------
Total capital $425,345,274
=============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1997
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned $25,182,103
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $2,106,587
Commission fees (Note 4) 343,818
Professional fees 92,538
Accounting services (Note 2) 82,001
Transfer agent fees 70,336
Printing and shareholder reports 37,750
Custodian fees 30,846
Directors' fees and expenses 24,462
Listing fees 24,260
Pricing fees 15,206
Amortization of organization expenses (Note 1e) 8,288
Other 32,032
-------------
Total expenses 2,868,124
-------------
Investment income -- net 22,313,979
-------------
Realized & Realized gain on investments -- net 633,564
Unrealized Gain on Change in unrealized appreciation on investments -- net 8,520,482
Investments -- Net -------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $31,468,025
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $22,313,979 $21,973,143
Realized gain (loss) on investments -- net 633,564 (1,655,497)
Change in unrealized appreciation/depreciation on investments -- net 8,520,482 5,246,338
-------------- --------------
Net increase in net assets resulting from operations 31,468,025 25,563,984
-------------- --------------
Dividends to Investment income -- net:
Shareholders Common Stock (17,439,516) (16,965,648)
(Note 1f): Preferred Stock (4,718,754) (4,793,238)
-------------- --------------
Net decrease in net assets resulting from dividends to shareholders (22,158,270) (21,758,886)
-------------- --------------
Net Assets: Total increase in net assets 9,309,755 3,805,098
Beginning of year 416,035,519 412,230,421
-------------- --------------
End of year* $425,345,274 $416,035,519
============== ==============
* Undistributed investment income -- net $2,719,803 $2,564,094
============== ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For the
Period
The following per share data and ratios have been derived March 29,
from information provided in the financial statements. 1993+ to
For the Year Ended October 31, Oct. 31,
1997 1996 1995 1994 1993
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $14.12 $13.93 $12.56 $15.15 $14.18
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net 1.13 1.10 1.11 1.08 .62
Realized and unrealized gain (loss) on
investments -- net .46 .18 1.37 (2.53) 1.02
--------- --------- --------- --------- ---------
Total from investment operations 1.59 1.28 2.48 (1.45) 1.64
--------- --------- --------- --------- ---------
Less dividends and distributions to Common
Stock shareholders:
Investment income -- net (.88) (.85) (.85) (.87) (.45)
Realized gain on investments -- net -- -- -- (.08) --
--------- --------- --------- --------- ---------
Total dividends and distributions to Common
Stock shareholders (.88) (.85) (.85) (.95) (.45)
--------- --------- --------- --------- ---------
Capital charge resulting from issuance of
Common Stock -- -- -- -- (.02)
--------- --------- --------- --------- ---------
Effect of Preferred Stock activity:++
Dividends and distributions to Preferred Stock
shareholders:
Investment income -- net (.24) (.24) (.26) (.18) (.09)
Realized gain on investments -- net -- -- -- (.01) --
Capital charge resulting from issuance of
Preferred Stock -- -- -- -- (.11)
--------- --------- --------- --------- ---------
Total effect of Preferred Stock activity (.24) (.24) (.26) (.19) (.20)
--------- --------- --------- --------- ---------
Net asset value, end of period $14.59 $14.12 $13.93 $12.56 $15.15
========= ========= ========= ========= =========
Market price per share, end of period $13.875 $12.625 $12.125 $10.375 $14.625
========= ========= ========= ========= =========
Total Investment Based on market price per share 17.32% 11.43% 25.68% (23.56%) .53%++++
Return:** ========= ========= ========= ========= =========
Based on net asset value per share 10.31% 8.47% 19.27% (10.67%) 10.16%++++
========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement .68% .68% .69% .68% .35%*
Net Assets:*** ========= ========= ========= ========= =========
Expenses .68% .68% .69% .68% .49%*
========= ========= ========= ========= =========
Investment income -- net 5.30% 5.30% 5.55% 5.17% 5.17%*
========= ========= ========= ========= =========
Supplemental Net assets, net of Preferred Stock, end of
Data: period (in thousands) $290,345 $281,036 $277,230 $250,079 $301,507
========= ========= ========= ========= =========
Preferred Stock outstanding, end of period
(in thousands) $135,000 $135,000 $135,000 $135,000 $135,000
========= ========= ========= ========= =========
Portfolio turnover 57.80% 46.58% 95.62% 114.56% 25.00%
========= ========= ========= ========= =========
Leverage: Asset coverage per $1,000 $3,151 $3,082 $3,054 $2,852 $3,233
========= ========= ========= ========= =========
Dividends Per Share Series A -- Investment income -- net $880 $898 $967 $644 $292
On Preferred Stock ========= ========= ========= ========= =========
Outstanding:+++ Series B -- Investment income -- net $872 $879 $891 $693 $352
========= ========= ========= ========= =========
Series C -- Investment income -- net $869 $886 $1,070 $634 $302
========= ========= ========= ========= =========
* Annualized.
** Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result in
substantially different returns. Total investment returns exclude the
effects of sales loads.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on April 26, 1993.
+++ Dividends per share have been adjusted to reflect a two-for-one stock split
that occurred on December 1, 1994.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
MuniVest Fund II, Inc., October 31, 1997
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniVest Fund II, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund determines and makes available for
publication the net asset value of its Common Stock on a weekly basis.
The Fund's Common Stock is listed on the New York Stock Exchange under
the symbol MVT. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent bid
price or yield equivalent as obtained by the Fund's pricing service
from dealers that make markets in such securities. Financial futures
contracts and options thereon, which are traded on exchanges, are
valued at their closing prices as of the close of such exchanges.
Options, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges or, lacking any sales, at the
last available bid price. Securities with remaining maturities of
sixty days or less are valued at amortized cost, which approximates
market value. Securities for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund, which
may utilize a matrix system for valuations. The procedures of the
pricing service and its valuations are reviewed by the officers of the
Fund under the general supervision of the Board of Directors.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
[bullet] Financial futures contracts -- The Fund may purchase or sell
interest rate futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and
are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was
opened and the value at the time it was closed.
[bullet] Options -- The Fund is authorized to write covered call
options and purchase put options. When the Fund writes an option, an
amount equal to the premium received by the Fund is reflected as an
asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an option,
the related premium paid (or received) is added to (or deducted from)
the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund
enters into a closing transaction), the Fund realizes a gain or loss
on the option to the extent of the premiums received or paid (or gain
or loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income -- Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses -- Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(f) Dividends and distributions -- Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1997 were $237,469,045 and
$234,676,089, respectively.
Net realized and unrealized gains (losses) as of October 31, 1997 were
as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $2,833,543 $32,758,736
Financial futures contracts (2,199,979) --
------------ ------------
Total $633,564 $32,758,736
============ ============
As of October 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $32,758,575, all of which related to
appreciated securities. The aggregate cost of investments at October
31, 1997 for Federal income tax purposes was $383,883,296.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which were
initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of holders of Common Stock.
Common Stock
Shares issued and outstanding during the years ended October 31, 1997,
and October 31, 1996 remained constant.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock
of the Fund that entitle their holders to receive cash dividends at an
annual rate that may vary for the successive dividend periods. The
yields in effect at October 31, 1997 were as follows: Series A,
3.517%; Series B, 3.52%; and Series C, 3.54%.
As of October 31, 1997, there were 5,400 AMPS authorized, issued and
outstanding with a liquidation preference of $25,000 per share.
The Fund pays commissions to certain broker-dealers at the end of each
auction at an annual rate ranging from 0.25% to 0.375%, calculated on
the proceeds of each auction. For the year ended October 31, 1997,
Merrill Lynch, Pierce, Fenner & Smith Inc., an affiliate of FAM,
earned $150,509 as commissions.
5. Capital Loss Carryforward:
At October 31, 1997, the Fund had a net capital loss carryforward of
approximately $17,782,000, of which $3,734,000 expires in 2002 and
$14,048,000 expires in 2003. This amount will be available to offset
like amounts of any future taxable gains.
6. Subsequent Event:
On November 6, 1997, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount of
$.074006 per share, payable on November 26, 1997 to shareholders of
record as of November 17, 1997.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders,
MuniVest Fund II, Inc.:
We have audited the accompanying statement of assets,
liabilities and capital, including the schedule of investments,
of MuniVest Fund II, Inc. as of October 31, 1997, the related
statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and
the financial highlights for each of the years in the four-year period
then ended, and for the period March 29, 1993 (commencement of
operations) to October 31, 1993. These financial statements and the
financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned at October 31, 1997 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
MuniVest Fund II, Inc. as of October 31, 1997, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 9, 1997
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniVest Fund
II, Inc. during its taxable year ended October 31, 1997 qualify as
tax-exempt interest dividends for Federal income tax purposes.
Additionally, there were no capital gains distributed by the Fund
during the year.
Please retain this information for your records.
