MuniAssets
Fund, Inc.
Annual Report May 31, 1994
This report, including the financial information herein, is
transmitted to the shareholders of MuniAssets Fund, Inc. for
their information. It is not a prospectus, circular or repre-
sentation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past perfor-
mance results shown in this report should not be considered
a representation of future performance.
MuniAssets Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniAssets Fund, Inc.
<TABLE>
Per Share
Selected Quarterly
Financial Data*
<CAPTION>
Net Realized Unrealized Dividends / Distributions
Investment Gains Gains Net Investment Capital
For the Period Income (Losses) (Losses) Income Gains
<S> <C> <C> <C> <C> <C>
June 25, 1993++ to August 31, 1993 $.15 $.07 $ .39 -- --
September 1, 1993 to November 30, 1993 .22 .09 (.33) $.30 --
December 1, 1993 to February 28, 1994 .22 .03 (.01) .22 --
March 1, 1994 to May 31, 1994 .22 (.12) (.78) .22 $.15
<PAGE>
<CAPTION>
Net Asset Value Market Price**
For the Period High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
June 25, 1993++ to August 31,1993 $14.74 $14.12 $15.00 $14.25 396
September 1, 1993 to November 30, 1993 14.99 14.42 14.875 13.75 241
December 1, 1993 to February 28, 1994 14.76 14.25 14.375 13.25 620
March 1, 1994 to May 31, 1994 14.22 12.97 13.875 12.125 513
<FN>
* Calculations are based upon shares of Common Stock outstanding
at the end of each period.
** As reported in the consolidated transaction reporting system.
*** In thousands.
++ Commencement of Operations.
</TABLE>
Officers and
Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Harry Woolf, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
The Bank of New York
48 Wall Street
New York, New York 10286
Transfer Agent
The Bank of New York
101 Barclay Street, 22W
New York, New York 10286
NYSE Symbol
MUA
<PAGE>
DEAR SHAREHOLDER
Since inception (June 25, 1993) through May 31, 1994, MuniAssets
Fund, Inc. earned $0.972 per share income dividends, representing
a net annualized yield of 7.76%, based on a month-end net asset
value of $13.40 per share. Over the same period, the Fund's total
investment return was 0.83%, based on a change in per share net
asset value from $14.18 to $13.40, and assuming reinvestment of
$0.897 per share income dividends.
For the six-month period ended May 31, 1994, the Fund's total
investment return was -3.02%, based on a change in per share net
asset value from $14.44 to $13.40, and assuming reinvestment of
$0.597 per share income dividends.
The Environment
Inflationary concerns persisted during the three-month period
ended May 31, 1994. The Federal Reserve Board followed up its
initial increase in the Federal Funds rate with three subsequent
monetary policy tightening moves. At the same time, investors
viewed signs of economic strength as an indication that the rate
of inflation would soon accelerate. Among the most troublesome
statistics released was the mid-May rise in the Commodity Research
Bureau's inflation index. However, by May 31, 1994 this index
had declined back to the levels at which it began the year.
Despite an upward revision in gross domestic product growth to
3.0% for the first quarter of the year, later economic data
releases suggest a moderating trend. Disposable income fell 0.5%
in April, consumer spending dropped 0.4% after adjusting for
inflation, and sales of new homes also fell. Consumer confidence
declined for the first time in three months, reflected in
sluggish retail sales. However, employment data for May sent
somewhat conflicting signals. The unemployment rate dropped
sharply in May from 6.4% to 6.0%, but at the same time business
payrolls grew only modestly.
<PAGE>
In the weeks ahead, investors are likely to continue to focus
their attention on the direction of the economy and inflationary
trends. Evidence of stable and moderate economic growth, combined
with subdued inflationary pressures, would be a positive develop-
ment for the financial markets. The absence of these trends,
along with continued monetary policy tightening by the central
bank, would likely lead to continued volatility in stock and bond
prices over the near term.
The Municipal Market
During the six months ended May 31, 1994, tax-exempt bond yields
exhibited considerable volatility as they rose to their highest
level in two years. As measured by the Bond Buyer Revenue Bond
Index, the yield on a newly issued municipal bond maturing in 30
years rose during the period by approximately 70 basis points
(0.70%) to 6.41% by the end of May. Yields on seasoned municipal
revenue issues rose by over 80 basis points in sympathy with the
even more dramatic rise in US Treasury bond yields. By the end of
May, yields on US Treasury securities had risen by over 100 basis
points to 7.42%.
Long-term tax-exempt interest rates gradually declined from the
end of November 1993 into early February. However, on a weekly
basis, municipal bond yields fluctuated by as much as 15 basis
points as investors were unable to reconcile the rapid economic
growth seen in the last quarter of 1993 and into early 1994 with
continued weak inflationary pressures. Following the Federal
Reserve Board's initial interest rate increase in early February,
municipal bond prices began to erode in concert with taxable bond
prices as investors began to sell securities in anticipation of
further interest rate increases. As the Federal Reserve Board
continued to raise short-term interest rates in subsequent months,
municipal bond yields rose further to a high of 6.60% in mid-May
before declining somewhat at month's end.
The magnitude of the rise in tax-exempt bond yields during the
last six months has not been seen since 1987 when municipal bond
yields rose 250 basis points from March to October of that year.
It is very important to note that the municipal bond price
declines over the last six months, while certainly damaging, were
essentially much different than the 1987 episode. Recent price
declines have largely been the result of consistent and insistent
selling pressures over the last four months. In 1987, the tax-
exempt bond market was much more volatile and, at times, chaotic
as investors sought to liquidate positions without much concern
to fundamental value. The recent price deterioration, for the
most part, has been orderly and the municipal bond market's
liquidity and integrity have not been challenged or jeopardized.
<PAGE>
To a large extent, the municipal bond market has continued to be
supported by its strong technical position. New-issue volume for
the last six months has been approximately $100 billion. This
represents a decline of approximately 40% versus the comparable
period of one year earlier. This decline has been even more
pronounced over the last three months when only $41 billion long-
term securities were issued, representing over a 50% decline in
issuance from a year ago's level. This decline was expected and
discussed in earlier shareholder reports. This reduced issuance
has minimized potential selling pressures in recent months as
institutional investors have been wary of selling appreciable
amounts of securities that they may be unable to replace later
this year at any price level. We expect this decline in new bond
issuance to continue this year and into 1995.
Despite recent price declines, tax-exempt securities remain among
the most attractive investment alternatives available. Longer-term
municipal securities, after the recent yield increases, yielded
approximately 85% of comparable US Treasury issues. Purchases of
these municipal bonds also accrue substantial after-tax yield
advantages. For example, to investors in the 39% marginal Federal
income tax bracket, the purchase of a tax-exempt product yielding
6.35% represents an after-tax equivalent of 10.40%. With pre-
vailing estimates of 1994 inflation at no more than 3%--4%, real
after-tax rates in excess of 6.25% easily compensate longer-term
investors for much of the price volatility recently experienced.
We continue to look for municipal bond yields to decline later
this year and into 1995 as inflationary pressures remain low and
as the domestic economy is further slowed by the impact of higher
interest rates. As this scenario unfolds, currently available
tax-exempt products should generate significant returns for long-
term investors.
Portfolio Strategy
During the six months ended May 31, 1994, our strategy focused on
restructuring the Fund's portfolio in keeping with its income-
oriented investment objectives. With each high-yield purchase, we
would in turn liquidate another lower-yielding security; the net
result providing an incremental yield pickup for shareholders.
Approximately $13 million of these high-yielding tax-exempt
securities were purchased bearing an average yield of 7.18%. At
May 31, 1994, 44% of the Fund's net assets were invested in
unrated or noninvestment-grade municipal securities.
Looking forward, we will continue to search the municipal market-
place for suitable high-yield investments as a means to enhance
the Fund's yield. Despite the recent market decline, we intend to
maintain a low cash position in order to seek to provide share-
holders with an attractive level of tax-exempt income during what
we expect to be a relatively stable interest rate environment for
tax-exempt high-yield securities.
<PAGE>
We appreciate your investment in MuniAssets Fund, Inc., and we
look forward to assisting you with your financial needs in the
months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President and
Portfolio Manager
June 28, 1994
Portfolio
Abbreviations
To simplify the listings of MuniAssets Fund, Inc.'s
portfolio holdings in the Schedule of Investments,
we have abbreviated the names of many of the securities
according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
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 la)
<S> <S> <S> <C> <S> <C>
Alabama--2.1% NR B2 $1,000 Birmingham, Alabama, Industrial Development
Board, PCR (USG Interiors), 7.50% due 4/01/2002 $ 992
B+ NR 420 Brewton, Alabama, Industrial Development Board,
PCR, Refunding (Container Corporation America
Project), 8% due 4/01/2009 419
Arkansas--1.5% NR NR 1,000 Pine Bluff, Arkansas, IDR, Refunding (Coltec
Industries Incorporated), 6.50% due 2/15/2009 979
California--14.3% NR NR 1,500 Long Beach, California, Redevelopment Agency, M/F
Housing Revenue Refunding Bonds, AMT (Pacific
Court Apartments), Issue B, 6.80% due 9/01/2013 1,441
AA Aa 2,000 Metropolitan Water District, Southern California,
Waterworks Revenue Bonds, RIB, 8.774% due
8/05/2022 (c) 1,840
AAA Aaa 5,000 Northern California, Transmission Revenue Bonds,
RIB, 6.912% due 4/29/2024 (b)(c) 3,900
NR NR 1,960 Pleasanton, California, Joint Powers Financing
Authority, Reassessment Subordinated Revenue Bonds,
Series B, 6.60% due 9/02/2008 1,972
Colorado--9.6% Denver, Colorado, City and County Airport Revenue
Bonds, AMT:
BB Baa 1,000 Series A, 8% due 11/15/2025 1,020
BB Baa 2,500 Series B, 7.25% due 11/15/2023 2,361
BB Baa 1,500 Series C, 6.75% due 11/15/2022 1,340
NR NR 1,460 Mountain Village Metropolitan District, Colorado,
San Miguel County, Revenue Bonds, 7.40% due
12/15/2013 1,420
Connecticut--3.0% NR NR 1,920 Eastern Connecticut, State Regional Educational
Service Center Revenue Bonds, 6.50% due 5/15/2009 1,902
Idaho--3.2% NR NR 2,080 Idaho Student Loan Fund Marketing Association In-
corporated, Student Loan Subordinated Revenue Bonds,
Junior Series I, AMT, 6.70% due 10/01/2007 2,074
Illinois--7.9% Illinois Health Facilities Authority Revenue Bonds:
BBB+ NR 1,000 (Community Hospital of Ottawa), 6.85% due
8/15/2024 971
A+ A 4,450 Refunding (Lutheran General Health), Series C,
6% due 4/01/2018 4,076
Indiana--3.1% NR NR 1,000 Burns Harbor, Indiana, Solid Waste Disposal
Facilities Revenue Bonds (Bethlehem Steel Corporation
Project), AMT, 8% due 4/01/2024 1,004
BB- B1 1,000 East Chicago, Indiana, Economic Development Revenue
Bonds (U.S. Gypsum Company Project), 7.25% due
5/01/2014 976
<PAGE>
Iowa--1.5% NR NR 800 Iowa Finance Authority, Health Care Facilities
Revenue Bonds (Mercy Health Initiatives Project),
9.95% due 7/01/2019 846
A-1+ NR 100 Iowa Finance Authority, Solid Waste Disposal Revenue
Bonds (Cedar River Paper Company Project), Series A,
VRDN, 3.30% due 7/01/2023 (a) 100
Massachusetts-- Massachusetts State Industrial Finance Agency
3.1% Revenue Bonds:
NR NR 1,000 (Bay Cove Human Services Inc.), 8.375% due
4/01/2019 1,002
BB+ Bal 1,000 (Vinfen Corporation), 7.10% due 11/15/2018 939
Minnesota--1.5% BBB- Baa 1,000 Saint Paul, Minnesota, Housing and Redevelopment
Authority, Hospital Revenue Refunding Bonds
(Healtheast Projects), Series A, 6.625% due
11/01/2017 952
Mississippi--1.6% NR Baa3 1,000 Warren County, Mississippi, PCR, Refunding (Missi-
ssippi Power and Light Company Project), 7% due
4/01/2022 1,015
Missouri--1.1% NR B1 700 Clay County, Missouri, IDA, IDR, Refunding (U.S.
Gypsum Corporate Project), 7.25% due 5/01/2014 678
Montana--1.5% NR NR 1,000 Montana State Board Investment, Resource Recovery
Revenue Bonds (Yellowstone Energy LP Project), AMT,
7% due 12/31/2019 982
New Jersey--2.9% AAA Aaa 2,200 New Jersey Health Care Facilities Revenue Bonds
(St. Peters Medical Center), Series F, 5% due
7/01/2021(b) 1,848
New Mexico--1.8% BB Ba2 1,250 Farmington, New Mexico, PCR, Refunding (Public
Service Company-San Juan Project), Series A, 6.40%
due 8/15/2023 1,139
<PAGE>
Ohio--4.0% NR VMIGl 100 Cuyahoga County, Ohio, Hospital Improvement Revenue
Bonds (University Hospital of Cleveland),
VRDN, 3.30% due 1/01/2016(a) 100
BB Baa3 1,500 Ohio State Air Quality Development Authority, PCR,
Refunding (Cleveland Electric Company), AMT, 6.85%
due 7/01/2023 1,442
BB Ba2 1,000 Ohio State Water Development Authority, Pollution
Control Facilities Revenue Bonds (Toledo Edison
Project), AMT, Series A, 7.40% due 11/01/2022 1,010
Oregon--1.6% B+ NR 1,000 Yamhill County, Oregon, PCR, Refunding (Smurfit
Newsprint Corporation Project), 8% due 12/01/2003 1,015
Pennsylvania-- A- NR 2,000 Delaware County, Pennsylvania, Hospital Authority
16.0% Revenue Bonds (Riddle Memorial Hospital), 6.50%
due 1/01/2022 1,950
NR Ba 1,500 Montgomery County, Pennsylvania, IDA, Revenue Bonds
(Pennsburg Nursing and Rehabilitation
Center), 7.625% due 7/01/2018 1,479
BBB Baal 2,000 Philadelphia, Pennsylvania, Gas Works Revenue Re-
funding Bonds, Fourteenth-Series A, 6.375% due
7/01/2014 1,999
BBB+ Baal 1,000 Philadelphia, Pennsylvania, Hospitals and Higher
Educational Facilities Authority Revenue Bonds
(Graduate Health System), Series A, 6.25% due
7/01/2018 912
BBB Baa 2,175 Ridley Park, Pennsylvania, Hospital Authority,
Revenue Refunding Bonds (Taylor Hospital),
Series A, 6% due 12/01/2013 1,935
NR NR 2,000 Washington County, Pennsylvania, Hospital Authority,
Revenue Refunding Bonds (Canonsburg General Hospital
Project), 7.35% due 6/01/2013 2,027
Rhode Island--6.4% A- Baal 2,000 Rhode Island Depositors, Economic Protection
Corporation, Special Obligation Refunding Bonds,
Series A, 6.375% due 8/01/2022 1,978
West Warwick, Rhode Island, GO, UT, Series A:
NR Ba 1,200 6.80% due 7/15/1998 1,240
NR Ba 910 7.30% due 7/15/2008 921
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note la)
<S> <S> <S> <C> <S> <C>
Tennessee--1.6% NR NR $1,000 Knox County, Tennessee, Health, Educational and
Housing Facilities Board, Hospital Facilities
Revenue Bonds (Baptist Health Systems of East
Tennessee), 8.60% due 4/15/2016 $ 1,060
Texas--6.1% A- NR 2,000 Brazos County, Texas, Health Facility Development
Corporation, Franciscan Services Corporation,
Revenue Refunding Bonds (Saint Joseph Hospital
and Health Center), Series B, 6% due 1/01/2019 1,808
BB Bal 1,000 Dallas-Fort Worth, Texas, International Airport
Facility Improvement, Corporate Revenue Refunding
Bonds (Delta Airlines, Incorporated), 6.25% due
11/01/2013 904
NR NR 1,250 Gulf Coast Waste Disposal Authority, Texas, PCR,
Solid Waste Disposal (Diamond Shamrock Corporate
Project), 6.75% due 6/01/2009 1,250
Vermont--1.1% BBB NR 750 Swanton Village, Vermont, Electric Systems Revenue
Bonds, 6.70% due 12/01/2023 721
Virginia--1.6% NR NR 1,000 Pittsylvania County, Virginia, IDA, Multitrade
Revenue Bonds, AMT, Series A, 7.55% due 1/01/2019 997
Total Investments (Cost--$66,435)--98.1% 62,936
Other Assets Less Liabilities--1.9% 1,218
-------
Net Assets--100.0% $64,154
=======
<FN>
(a) The interest rate is subject to change periodically based upon the prevailing
market rate. The interest rates shown are the rates in effect at May 31, 1994.
(b) MBIA Insured.
(c) The interest rate is subject to change periodically and inversely based upon
prevailing market rates. The interest rates shown are the rates in effect at
May 31, 1994.
Ratings of issues shown have not been audited by Deloitte & Touche.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of May 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$66,435,489) (Note 1a $ 62,935,655
Cash 27,617
Receivables:
Securities sold $ 2,969,056
Interest 1,201,037
Investment adviser (Note 2) 63,919 4,234,012
------------
Deferred organization expenses (Note 1e) 61,892
Prepaid expenses and other assets 22,543
------------
Total assets 67,281,719
------------
Liabilities: Payables:
Securities purchased 2,884,461
Capital shares redeemed 157,015 3,041,476
------------
Accrued expenses and other liabilities 86,188
------------
Total liabilities 3,127,664
------------
Net Assets: Net assets $ 64,154,055
============
Capital: Common Stock, par value $.10 per share; 200,000,000 shares
authorized; 4,787,055 shares issued and outstanding $ 478,706
Paid-in capital in excess of par 67,187,000
Undistributed investment income--net 358,479
Accumulated realized capital losses--net (370,296)
Unrealized depreciation on investments--net (3,499,834)
------------
Total capital--Equivalent to $13.40 net asset value per share
of Common Stock (market price--$12.25) (Note 4) $ 64,154,055
============
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period June 25, 1993++ to May 31, 1994
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 4,043,883
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 351,471
Professional fees 40,898
Accounting services (Note 2) 37,016
Directors' fees and expenses 19,565
Printing and shareholder reports 16,462
Transfer agent fees (Note 2) 15,149
Amortization of organization expenses (Note 1e) 14,212
Listing fees 13,968
Custodian fees 7,834
Other 25,371
------------
Total expenses before reimbursement 541,946
Reimbursement of expenses (Note 2) (415,390)
------------
Total expenses after reimbursement 126,556
------------
Investment income--net 3,917,327
------------
Realized & Realized gain on investments--net 365,341
Unrealized Gain Unrealized depreciation on investments--net (3,499,834)
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 782,834
(Notes 1d & 3): ============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
For the Period
June 25, 1993++
Increase (Decrease) in Net Assets: to May 31, 1994
<S> <S> <C>
Operations: Investment income--net $ 3,917,327
Realized gain on investments--net 365,341
Unrealized depreciation on investments--net (3,499,834)
------------
Net increase in net assets resulting from operations 782,834
------------
Dividends & Investment income--net (3,558,848)
Distributions to Realized gain on investments--net (735,637)
Shareholders ------------
(Note 1f): Net decrease in net assets resulting from dividends and distributions
to shareholders (4,294,485)
------------
Common Stock Net proceeds from issuance of Common Stock 67,756,500
Transactions Offering and underwriting costs resulting from the issuance of Common Stock (190,799)
(Note 4): ------------
Net increase in net assets derived from Common Stock transactions 67,565,701
------------
Net Assets: Total increase in net assets 64,054,050
Beginning of period 100,005
------------
End of period* $ 64,154,055
============
<FN>
*Undistributed investment income--net $ 358,479
============
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
June 25, 1993++
Increase (Decrease) in Net Asset Value: to May 31, 1994
<S> <S> <C>
Per Share Net asset value, beginning of period $ 14.18
Operating ------------
Performance: Investment income--net .81
Realized and unrealized loss on investments--net (.66)
------------
Total from investment operations .15
------------
Less dividends and distributions:
Investment income--net (.74)
Realized gain on investments--net (.15)
------------
Total dividends and distributions (.89)
------------
Capital charge resulting from issuance of Common Stock (.04)
------------
Net asset value, end of period $ 13.40
============
Market price per share, end of period $ 12.25
============
Total Investment Based on net asset value per share 0.83%+++
Return:** ============
Based on market price per share (12.87%)+++
============
Ratios to Average Expenses, net of reimbursement .20%*
Net Assets: ============
Expenses 85%*
============
Investment income--net 6.12%*
============
<PAGE>
Supplemental Net assets, end of period (in thousands) $ 64,154
Data: ============
Portfolio turnover 101.59%
============
<FN>
++ Commencement of Operations.
+++ Aggregate total investment return.
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, result in substantially different
returns. Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniAssets Fund, Inc. (the "Fund") is presently the only series
of Merrill Lynch Municipal Series Trust (the "Trust"). The Fund
is registered under the Investment Company Act of 1940 as a newly
organized, non-diversified, closed-end management investment
company. Prior to commencement of operations on June 25, 1993,
the Fund had no operations other than those relating to organiza-
tional matters and the sale of 7,055 shares of Common Stock on
June 11, 1993 to Fund Asset Management, L.P. ("FAM") for $100,005.
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 MUA. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded pri-
marily in the over-the-counter markets and are valued at the last
available bid price in the over-the-counter market or on the basis
of yield equivalents as obtained by the Fund's pricing service
from one or more dealers that make markets in the securities.
Financial futures contracts, 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 investments with a
remaining maturity 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.
<PAGE>
(b) Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts. 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.
(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
NOTES TO FINANCIAL STATEMENTS (concluded)
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 and offering expenses--Deferred
organization expenses are charged to expense on a straight-line
basis over a five-year period, beginning with the commencement of
operations of the Fund. Direct expenses relating to the public
offering of the Fund's shares of Common Stock were charged to
capital at the time of issuance of the shares.
(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.
(g) Non-income producing investments--Written and purchased
options are non-income producing investments.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
FAM. Effective January 1, 1994, the investment advisory business
of FAM was reorganized from a corporation to a limited partnership.
Both prior to and after the reorganization, ultimate control of
FAM was vested with Merrill Lynch & Co., Inc. ("ML & Co."). The
general partner of FAM is Princeton Services, Inc., an indirect
wholly-owned subsidiary of ML & Co. The limited partners are ML &
Co. and Merrill Lynch Investment Management, Inc. ("MLIM"), which
is also an indirect wholly-owned subsidiary of ML & Co.
<PAGE>
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 of 0.55% based upon
the average weekly value of the Fund's net assets. For the period
June 25, 1993 to May 31, 1994, MLAM earned fees of $351,471, of
which $330,746 was voluntarily waived. In addition, MLAM voluntarily
reimbursed the Fund $84,644 in additional expenses.
Financial Data Services, Inc. ("FDS"), an indirect wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
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, MLIM, Merrill Lynch, Pierce, Fenner & Smith
Inc. ("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the period ended May 31,1994 were $129,265,910
and $61,898,985, respectively.
Net realized and unrealized gains (losses) as of May 31, 1994
were as follows:
Realized Unrealized
Gains Losses
Long-term investments $ 43,590 $(3,193,585)
Short-term investments 61,757 (306,249)
Financial futures contracts 259,994 --
---------- -----------
Total $ 365,341 $(3,499,834)
========== ===========
As of May 31, 1994, net unrealized depreciation for Federal
income tax purposes aggregated $3,499,834, of which $145,217
related to appreciated securities and $3,645,051 related to
depreciated securities. The aggregate cost of investments at
May 31, 1994 for Federal income tax purposes was $66,435,489.
4. Common Stock Transactions:
At May 31, 1994, the Fund had one class of shares of Common
Stock, par value $.10 per share, of which 200,000,000 shares
were authorized. During the period June 25, 1993 to May 31, 1994,
the Fund sold 4,780,000 shares of Common Stock. At May 31, 1994,
total paid-in capital amounted to $67,665,706.
<PAGE>
5. Subsequent Event:
On June 10, 1994, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the
amount of $.074885 payable on June 29, 1994 to shareholders of
record as of June 20, 1994.
6. Reorganization Plan:
On July 13, 1994, the Board of Directors approved an Agreement
and Plan of Reorganization between the Fund and MuniBond Income
Fund, Inc. ("MuniBond Income") pursuant to which the Fund would
acquire substantially all of the assets and liabilities of MuniBond
Income in exchange for newly issued shares of the Fund. MuniBond
Income is a registered, non-diversified, closed-end management in-
vestment company, with a similar investment objective to the Fund,
and is managed by FAM.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MuniAssets Fund, Inc.:
We have audited the accompanying statement of assets, liabilities
and capital, including the schedule of investments, of MuniAssets
Fund, Inc. as of May 31, 1994, the related statements of operations
and changes in net assets, and the financial highlights for the
period June 25, 1993 (commencement of operations) to May 31, 1994.
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 audit.
We conducted our audit in accordance with generally accepted audit-
ing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the finan-
cial 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 May 31,
1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and signifi-
cant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
<PAGE>
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position
of MuniAssets Fund, Inc. as of May 31, 1994, the results of its
operations, the changes in net assets, and the financial highlights
for the respective stated period in conformity with generally
accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
July 13, 1994
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
MuniAssets Fund, Inc. during its taxable year ended May 31, 1994
qualify as tax-exempt interest dividends for Federal income tax
purposes. Additionally, the Fund distributed short-term capital
gains of $.153672 per share to shareholders of record on December
20, 1993.
