MuniAssets
Fund, Inc.
STRATEGIC
Performance
[GRAPHIC OMITTED]
Annual Report
May 31, 1998
<PAGE>
MuniAssets Fund, Inc.
Managed Dividend
Policy
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. However, in order to
provide shareholders with a more consistent yield to the current trading price
of shares of Common Stock of the Fund, the Fund may at times pay out less than
the entire amount of net investment income earned in any particular month and
may at times in any particular month pay out such accumulated but undistributed
income in addition to net investment income earned in that month. As a result,
the dividends paid by the Fund for any particular month may be more or less than
the amount of net investment income earned by the Fund during such month. The
Fund's current accumulated but undistributed net investment income, if any, is
disclosed in the Statement of Assets, Liabilities and Capital, which comprises
part of the financial information included in this report.
Quality Profile
The quality ratings of securities in the Fund as of May 31, 1998 were as
follows:
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa........................................................... 2.7%
AA/Aa............................................................. 3.7
A/A............................................................... 9.6
BBB/Baa........................................................... 14.9
BB/Ba............................................................. 17.8
B/B............................................................... 10.1
NR(Not Rated)..................................................... 40.6
Other*............................................................ 1.0
- --------------------------------------------------------------------------------
*Temporary investments in short-term municipal securities.
<PAGE>
MuniAssets Fund, Inc., May 31, 1998
DEAR SHAREHOLDER
For the year ended May 31, 1998, MuniAssets Fund, Inc. earned $0.847 per share
income dividends, which included earned and unpaid dividends of $0.072. This
represents a net annualized yield of 5.73%, based on a month-end per share net
asset value of $14.77. Over the same period, the Fund's total investment return
was +10.87%, based on a change in per share net asset value from $14.16 to
$14.77, and assuming reinvestment of $0.847 per share income dividends.
For the six-month period ended May 31, 1998, the Fund's total investment return
was +3.93%, based on a change in per share net asset value from $14.64 to
$14.77, and assuming reinvestment of $0.417 per share income dividends.
The Municipal Market Environment
During the six months ended May 31, 1998, long-term bond yields generally moved
lower and by mid-January 1998, had declined to recent historic lows. US Treasury
bond yields declined 20 basis points (0.20%) to 5.95% by April 30, 1998.
Similarly, long-term uninsured tax-exempt bond yields, as measured by the Bond
Buyer Revenue Bond Index, fell approximately 35 basis points to 5.25%, a level
not seen since the mid-1970s. While low inflation has supported lower interest
rates, much of the decline in bond yields in late 1997 and early 1998 was driven
more by the turmoil in Asian financial markets than by domestic economic
fundamentals. Weak economic conditions in Asia were expected to negatively
impact US growth through reduced export demand. Additionally, inflation in the
United States was also expected to decline in response to lower prices on goods
imported from Asian manufacturers.
However, in recent months, many investors have become increasingly concerned
that most of the downturn in Asia, especially in Japan, has already occurred and
any future deterioration will not be severe enough to constrain US economic
growth. Some investors have feared that continued domestic economic growth,
particularly in such interest rate-sensitive sectors as housing and consumer
spending, would eventually trigger significant inflationary pressures. These
concerns served to push interest rates higher for the remainder of the reporting
periods, causing bond yields to retrace much of their earlier gains. By May 31,
1998, the 30-year US Treasury bond yield was 5.80%, declining almost 25 basis
points during the last six months. Long-term municipal revenue bond yields
declined more than 15 basis points to finish the six-month period ended May 31,
1998 at 5.39%.
Thus far in 1998, the municipal bond market has experienced unexpectedly strong
supply pressures. These supply pressures have prevented tax-exempt bond yields
from declining as much as US Treasury bond yields. Over the last six months,
more than $135 billion in new tax-exempt bonds were underwritten, an increase of
over 45% compared to the same period a year ago. During the May quarter,
municipalities issued more than $72 billion in new securities, an increase of
more than 45% compared to the same three-month period in 1997. Moreover, the
municipal bond market recently absorbed the largest single bond issue ever
underwritten, a $3.4 billion Long Island Power Authority Revenue Bond. These
bonds pushed total underwriting in May to more than $19 billion, the largest May
volume since 1993. Additionally, corporate issuers have also viewed current
interest rate levels as an opportunity to issue significant amounts of higher
nominal-yielding taxable securities. Thus far in 1998, over $400 billion in
investment-grade corporate bonds have been underwritten, an increase of more
than 75% compared to the same period a year ago. This sizeable corporate bond
issuance has tended to support generally higher fixed-income yields and reduce
the demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely to be
maintained. Continued increases in bond issuance will require lower and lower
tax-exempt bond yields to generate the economic savings necessary for additional
municipal bond refinancings. Preliminary estimates for 1998 total municipal bond
issuance are presently in the $200 billion-$225 billion range. These estimates
suggest that recent supply pressures are likely to abate later in the year.
Earlier this year, municipal bond investors received approximately $30 billion
in coupon payments, bond maturities and proceeds from early redemptions.
Municipal bond investors are also expected to receive over $45 billion in June
and July from coupon payments and proceeds from maturities. These assets have
helped to support the tax-exempt market as it has been able to absorb the
dramatic increase in bond issuance with little difficulty.
It is also possible that at least some of the recent economic strength seen in
the United States will be reversed in the coming months. A particularly mild
winter has been partially responsible for a strong housing sector, as well as
other construction industries. This past winter's economic strength may have
borrowed from future quarters' growth. This recent strong trend may not be
sustained and may lead to weaker construction growth later this year.
Additionally, strong economic growth in 1997 and the increased use of electronic
tax filings have resulted in larger and earlier Federal and state income tax
refunds to many individuals. These refunds appear to have supported strong
consumer spending in recent months, but may be borrowing against weaker spending
later this year.
The continued impact of the Asian financial crisis on the US domestic economy's
future growth remains unclear. Current Asian economic conditions continue to
reflect ongoing weakness. Recent trade data has indicated that reduced US
exports to these countries may have reduced US economic growth by as much as 2%
in the first quarter of 1998. Since further trade deterioration is possible in
the coming months, we do not believe, barring a dramatic and unexpected
resurgence of domestic inflation, that the Federal Reserve Board will be willing
to raise interest rates until the full impact of the Asian situation can be
established.
These factors suggest that over the near term, interest rates, including
tax-exempt bond yields, are unlikely to rise by any appreciable amount. Recent
supply pressures have caused municipal bond yield ratios to rise relative to US
Treasury bond yields. At May 31, 1998, long-term tax-exempt bond yields were at
attractive yield ratios relative to US Treasury securities (over 90%), well in
excess of their expected range of 85%-88%. Any further pressure on the municipal
market may well represent a very attractive investment opportunity.
Portfolio Strategy
As a result of our investment approach, which places emphasis on solid credit
and attentive yield spread analysis rather than interest rate calls, MuniAssets
Fund, Inc. has consistently generated a competitive total return for its
shareholders. During the fiscal year ended May 31, 1998, we chose to keep the
Fund fully invested in an effort to enhance the potential income stream. This
approach proved beneficial in light of the stable bond market environment
experienced thus far in 1998. Contributing to the year's positive results has
been the advance refunding of approximately 6.5% of the Fund's investments and
the initial assignment of ratings or actual upgrades for another 9% of its
holdings.
In the past, we have witnessed increasingly narrow credit spreads and the
resulting lack of value in the high-yield municipal market. Our investment
approach clearly has been impacted by these developments, as evidenced by the
recent retrenchment from our emphasis on the healthcare sector. Yield spread
contraction was most pronounced in this industry, and given the illiquidity
typical of many small healthcare issuers, we chose to reduce our exposure. As a
result, few true opportunities exist in the current marketplace for healthcare
issues and, as a consequence, a high degree of caution is mandated by the low
risk/reward ratio. While much of our focus will shift to the more liquid and
widely held issues, we still expect to continue to search the healthcare sector
for the increasingly rare opportunities that offer both incremental yield and
upside potential.
During the six-month period ended May 31, 1998, we purchased approximately $15.9
million in tax-exempt high-yield securities. Partial funding for these purchases
was obtained through the sale of various holdings, some of which had been
advance refunded. In almost every instance, those securities that were sold had
been issued some time ago in a higher interest rate environment. Although
2 & 3
<PAGE>
MuniAssets Fund, Inc., May 31, 1998
it will be difficult to replace the coupon income generated by these holdings,
early redemption by the respective issuers at some point in the near future is
all but certain. Given this likelihood, we have chosen to address the issue
rather than passively wait for the bonds to be called. In this manner, we are
able to achieve the flexibility to gradually restructure the portfolio at a pace
of our own choosing, thereby limiting the erosion of income brought on by lower
interest rates. Moreover, the Fund's new investments typically possess not only
far better call protection, but also the potential to appreciate within the
context of improving credit fundamentals as well as a further decline in
long-term interest rates.
Clearly, this approach entails additional risk both in terms of credit and
interest rate sensitivity. However, much of our success to date is directly
attributable to a deliberate and value-oriented style of credit analysis. In
addition, a strong argument can be made for a constructive outlook in the bond
market. Persistent low inflation, coupled with the expected fallout from the
economic and political turmoil encompassing many of the emerging market nations,
suggests there is limited risk of a sustained rise in domestic long-term
interest rates. Therefore, we view the foregoing strategy as the logical means
by which to strive to generate both a sustainable dividend as well as a
competitive total return.
In Conclusion
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,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Theodore R. Jaeckel Jr.
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
/s/ John M. Loffredo
John M. Loffredo
Vice President and Portfolio Manager
June 30, 1998
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by MuniAssets Fund,
Inc. during its taxable year ended May 31, 1998 qualify as tax-exempt interest
dividends for Federal income tax purposes.
Please retain this information for your records.
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Alabama--2.9% B+ NR* $1,420 Brewton, Alabama, IDB, PCR, Refunding (Container Corporation
American Project), 8% due 4/01/2009 $ 1,610
CCC Baa3 4,500 Mobile, Alabama, IDB, Solid Waste Disposal, Revenue Refunding
Bonds (Mobile Energy Services Co. Project), 6.95% due 1/01/2020 2,790
===================================================================================================================================
Alaska--1.4% NR* NR* 2,000 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (Amerada
Hess Pipeline Corporation), 6.10% due 2/01/2024 2,122
===================================================================================================================================
Arizona--6.7% B B2 2,500 Coconino County, Arizona, PCR, Refunding (Tucson Electric Power
Navajo Corporation), Series B, 7% due 10/01/2032 2,844
NR* B1 3,000 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds
(America West Airlines, Inc.), AMT, 6.30% due 4/01/2023 3,128
A1+ VMIG1+ 300 Phoenix, Arizona, VRDN, UT, Series 95-2, 3.95% due 6/01/2020(a) 300
B B2 2,000 Pima County, Arizona, IDA, Industrial Revenue Bonds (Tucson Electric
Power Company Project), Series B, 6% due 9/01/2029 2,060
NR* NR* 1,880 Show-Low, Arizona, Improvement District No. 5, 6.375% due 1/01/2015 1,978
===================================================================================================================================
California--3.9% NR* NR* 3,305 Long Beach, California, Redevelopment Agency, M/F Housing Revenue
Bonds (Pacific Court Apartments), AMT, Issue B, 6.80% due 9/01/2013(d) 1,818
AA Aa2 2,000 Metropolitan Water District, Southern California, Waterworks Revenue
Bonds, RIB, 7.907% due 8/05/2022(b) 2,215
NR* NR* 1,810 Pleasanton, California, Joint Powers Financing Authority, Reassessment
Subordinated Revenue Bonds, Sub-Series B, 6.60% due 9/02/2008 1,969
===================================================================================================================================
Colorado--6.7% NR* Aaa 2,500 Arapahoe County, Colorado, Capital Improvement Trust Fund, Highway
Revenue Bonds (SR-E-470 Project), Series B, 7% due 8/31/2005(c) 2,980
NR* NR* 1,000 Colorado Postsecondary Educational Facilities Authority Revenue Bonds
(Colorado Ocean Journey Inc. Project), 8.30% due 12/01/2017 1,171
NR* NR* 2,500 Denver, Colorado, Urban Renewal Authority, Tax Increment Revenue Bonds
(Downtown Denver), AMT, Series A, 7.75% due 9/01/2016 2,781
NR* NR* 3,170 Mountain Village Metropolitan District, Colorado, San Miguel County,
7.40% due 12/15/2013 3,436
===================================================================================================================================
Connecticut--2.0% NR* NR* 1,000 Connecticut State Health and Educational Facilities Authority Revenue
Bonds (Edgehill Issue), Series A, 6.875% due 7/01/2027 1,076
NR* NR* 1,920 Eastern Connecticut, State Regional Educational Service Center, 6.50%
due 5/15/2009 2,037
===================================================================================================================================
District of BB- NR* 1,700 District of Columbia, COP, 6.875% due 1/01/2003 1,777
Columbia--1.1%
===================================================================================================================================
Florida--1.1% NR* NR* 1,625 North Springs Improvement District, Florida, Special Assessment
Revenue Bonds (Parkland Isles Project), Series B, 6.25% due 5/01/2005 1,655
===================================================================================================================================
Georgia--2.3% NR* NR* 1,900 Hancock County, Georgia, COP, 8.50% due 4/01/2015 2,140
NR* NR* 1,355 Rockdale County, Georgia, Development Authority, Solid Waste Disposal
Revenue Bonds (Visy Paper Inc. Project), AMT, 7.40% due 1/01/2016 1,469
===================================================================================================================================
</TABLE>
4 & 5
<PAGE>
MuniAssets Fund, Inc., May 31, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Illinois--10.8% Illinois Development Finance Authority Revenue Bonds:
BBB NR* $ 595 (Community Rehabilitation Providers), Series C, 5.65% due 7/01/2019 $ 601
AA- Aa3 2,215 (Presbyterian Home Lake), Series B, 6.40% due 9/01/2031 2,460
NR* NR* 2,370 (Primary Health Care Centers--Facilities Acquisition Program),
7.50% due 12/01/2006 2,562
Illinois Health Facilities Authority Revenue Bonds:
BBB+ NR* 1,000 (Community Hospital of Ottawa Project), 6.75% due 8/15/2014 1,100
BBB+ NR* 2,000 (Community Hospital of Ottawa Project), 6.85% due 8/15/2024 2,211
A+ A2 2,000 (Edward Hospital Association Project), 7% due 2/15/2002 (c) 2,227
NR* Baa1 2,150 (Holy Cross Hospital Project), 6.70% due 3/01/2014 2,349
A A3 1,250 Refunding (Riverside Health System), Series A, 6% due 11/15/2018 1,318
A- NR* 1,485 Refunding (Saint Elizabeth's Hospital of Chicago), 7.625% due
7/01/2004 (c) 1,768
===================================================================================================================================
Indiana--2.1% NR* A2 3,000 Indiana Health Facility Financing Authority, Hospital Revenue Refunding
Bonds (Saint Anthony Medical Center), Series A, 7% due 10/01/2017 3,271
===================================================================================================================================
Iowa--1.4% BBB NR* 1,000 Des Moines County, Iowa, IDR, Refunding (U.S. Gypsum Company Project),
7.20% due 11/01/2007 1,140
NR* NR* 800 Iowa Finance Authority, Health Care Facilities, Revenue Refunding
Bonds (Care Initiatives Project), 9.25% due 7/01/2025 1,075
===================================================================================================================================
Louisiana--5.0% NR* A3 1,700 Lake Charles, Louisiana, Harbor and Terminal District, Port
Facilities Revenue Refunding Bonds (Trunkline Long Company Project),
7.75% due 8/15/2022 1,946
BBB NR* 1,600 New Orleans, Louisiana, IDB, IDR, Refunding (U.S. Gypsum Company
Project), 7.20% due 10/01/2007 1,817
BB NR* 3,500 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain
Company Project), 7.50% due 7/01/2013 3,946
===================================================================================================================================
Maryland--2.2% NR* NR* 3,000 Maryland State Energy Financing Administration, Limited Obligation
Revenue Bonds (Cogeneration--AES Warrior Run), AMT, 7.40% due 9/01/2019 3,323
===================================================================================================================================
Massachusetts--7.7% Massachusetts State Health and Educational Facilities Authority
Revenue Bonds:
NR* B 960 (New England Memorial Hospital Project), Series C, 7% due 4/01/2014 982
A- NR* 1,000 Refunding (Melrose--Wakefield Hospital), Series B, 6.25%
due 7/01/2004 (c) 1,109
Massachusetts State Industrial Finance Agency Revenue Bonds:
NR* Ba2 2,850 (Bay Cove Human Services Inc.), 8.375% due 4/01/2019 3,261
BBB Ba1 1,815 (Vinfen Corporation), 7.10% due 11/15/2018 2,010
NR* NR* 4,000 Massachusetts State Port Authority, Special Project Revenue Bonds
(Harborside Hyatt Project), AMT, 10% due 3/01/2026 4,479
===================================================================================================================================
Michigan--3.1% A A2 2,900 Michigan State Hospital Finance Authority, Revenue Refunding Bonds
(Detroit Medical Center Obligation Group), Series A, 6.50% due
8/15/2018 3,160
NR* NR* 1,500 Wayne Charter County, Michigan, Special Airport Facilities,
Revenue Refunding Bonds (Northwest Airlines, Inc.), 6.75% due
12/01/2015 1,652
===================================================================================================================================
Minnesota--0.7% AA Aa2 975 Minnesota State, HFA, S/F Mortgage, Series Q, 6.70% due 1/01/2017 1,041
===================================================================================================================================
Missouri--1.1% NR* Baa 1,500 Missouri State Health and Educational Facilities Authority, Health
Facilities Revenue Bonds (Jefferson Memorial Hospital Obligation
Group), 6.80% due 5/15/2025 1,643
===================================================================================================================================
New Jersey--6.0% Camden County, New Jersey, Improvement Authority, Lease Revenue
Bonds (Holt Hauling and Warehousing), Series A:
BB- NR* 1,000 9.625% due 1/01/2011 1,257
BB- NR* 3,800 9.875% due 1/01/2021 4,834
NR* NR* 1,000 New Jersey EDA, IDR, Refunding (Newark Airport Marriott Hotel), 7%
due 10/01/2014 1,103
New Jersey EDA, Revenue Bonds:
NR* NR* 1,000 (First Mortgage--Cranes Mill Project), Series A, 7.375% due
2/01/2017 1,107
NR* NR* 1,000 (Leisure Park Project), Series A, 5.875% due 12/01/2027 1,019
===================================================================================================================================
New Mexico--1.7% BB+ Ba1 2,500 Farmington, New Mexico, PCR, Refunding (Public Service Company),
Series A, 5.80% due 4/01/2022 2,553
===================================================================================================================================
New York--3.6% BBB+ Aaa 1,000 New York City, New York, GO, UT, Series B, Sub-Series B-1, 7%
due 8/15/2004 (c) 1,161
NR* NR* 1,500 Port Authority of New York and New Jersey, Special Obligation Revenue
Bonds (Special Project--KIAC), AMT, Series 4, Fifth Installment, 6.75%
due 10/01/2019 1,650
Utica, New York, Public Improvement Bonds, UT:
CCC B2 700 9.25% due 8/15/2001 780
CCC B2 700 9.25% due 8/15/2002 793
CCC B2 700 9.25% due 8/15/2003 804
CCC B2 250 8.50% due 8/15/2015 291
===================================================================================================================================
Ohio--3.2% BB- Ba2 3,500 Cleveland, Ohio, Airport Special Revenue Refunding Bonds (Continental
Airlines, Inc.), AMT, 5.70% due 12/01/2019 3,452
NR* NR* 1,400 Ohio State Water Development Authority, Solid Waste Disposal Revenue
Bonds (Bay Shore Power Project), AMT, Series A, 5.875% due 9/01/2020 1,414
===================================================================================================================================
Oregon--3.1% A1 VMIG1+ 200 Medford, Oregon, Hospital Facilities Authority Revenue Bonds
(Gross-Rogue Valley Health Services), VRDN, 3.95% due 10/01/2016(a) 200
NR* Baa2 1,500 Oregon State, Economic Development Revenue Refunding Bonds (Georgia
Pacific Corporation Project), Series 183, 5.70% due 12/01/2025 1,548
NR* NR* 700 Western Generation Agency, Oregon, Revenue Bonds (Wauna Cogeneration
Project), Series A, 7.125% due 1/01/2021 760
B+ NR* 2,000 Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint Corporation
Project), 8% due 12/01/2003 2,239
===================================================================================================================================
Pennsylvania--8.9% BBB- Baa3 1,250 Allegheny County, Pennsylvania, IDA, Environmental Improvement,
Revenue Refunding Bonds (USX Corporation), Series A, 6.70% due
12/01/2020 1,382
NR* NR* 1,275 Lehigh County, Pennsylvania, General Purpose Authority Revenue Bonds
(Wiley House Kids Peace), 8.75% due 11/01/2014 1,331
===================================================================================================================================
</TABLE>
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)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
6 & 7
<PAGE>
MuniAssets Fund, Inc., May 31, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Pennsylvania NR* Ba3 $1,400 Montgomery County, Pennsylvania, IDA, Revenue Bonds (Pennsburg
(concluded) Nursing and Rehabilitation Center), 7.625% due 3/31/2004 (c) $ 1,655
NR* NR* 3,000 Pennsylvania Economic Development Financing Authority, Recycling
Revenue Bonds (Ponderosa Fibres Project), AMT, Series A, 6.045%
due 1/01/2022 2,160
NR* NR* 1,455 Pennsylvania State Higher Educational Facilities Authority, Eastern
College and University Revenue Refunding Bonds (Eastern College),
Series A, 8% due 10/15/2015 1,716
NR* NR* 4,000 Philadelphia, Pennsylvania, Authority for IDR, Refunding (Commercial
Development--Philadelphia Airport), AMT, 7.75% due 12/01/2017 4,512
A1+ NR* 1,000 Schuylkill County, Pennsylvania, IDA, Resource Recovery Revenue
Refunding Bonds (Northeastern Power Company), VRDN, AMT, Series B,
3.95% due 12/01/2022 (a) 1,000
===================================================================================================================================
South Carolina--0.7% NR* NR* 1,000 Charleston County, South Carolina, Health Facilities Revenue Bonds
(First Mortgage--Episcopal Church Project), Series A, 6.25% due
4/01/2019 1,038
===================================================================================================================================
Texas--5.8% BB- Ba1 4,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 4,695
BBB Baa3 3,500 Odessa, Texas, Junior College District, Revenue Refunding Bonds,
Series A, 8.125% due 6/01/2005(c) 4,302
===================================================================================================================================
Vermont--2.3% NR* NR* 3,065 Vermont Educational and Health Buildings Financing Agency Revenue
Bonds (College of Saint Joseph's Project), 8.50% due 11/01/2024 3,538
===================================================================================================================================
Virginia--2.9% NR* NR* 1,500 Dulles Town Center Community Development Authority, Virginia, Special
Assessment Tax (Dulles Town Center Project), 6.25% due 3/01/2026 1,513
Pittsylvania County, Virginia, IDA, Multi-Trade Revenue Bonds, AMT,
Series A:
NR* NR* 1,700 7.50% due 1/01/2014 1,881
NR* NR* 1,000 7.55% due 1/01/2019 1,105
===================================================================================================================================
Total Investments (Cost--$144,932)--100.4% 154,600
Liabilities in Excess of Other Assets--(0.4%) (653)
Net Assets--100.0% $153,947
===================================================================================================================================
</TABLE>
(a) The interest rate is subject to change
periodically based upon prevailing market rates.
The interest rate shown is the rate in effect at
May 31, 1998.
(b) 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 May 31, 1998.
(c) Prerefunded.
(d) Non-income producing security.
* Not Rated.
+ Highest short-term rating by Moody's Investors
Service, Inc.
Ratings of issues shown have not been audited by
Deloitte & Touche LLP.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of May 31, 1998
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$144,931,625) (Note 1a)...................... $154,600,373
Cash................................................................................. 16,150
Interest receivable.................................................................. 3,012,902
Prepaid expenses and other assets.................................................... 22,592
------------
Total assets......................................................................... 157,652,017
------------
====================================================================================================================================
Liabilities: Payables:
Securities purchased............................................................... $ 3,458,245
Dividends to shareholders (Note 1e)................................................ 113,649
Investment adviser (Note 2)........................................................ 71,809 3,643,703
------------
Accrued expenses and other liabilities............................................... 61,408
------------
Total liabilities.................................................................... 3,705,111
------------
====================================================================================================================================
Net Assets: Net assets........................................................................... $153,946,906
============
====================================================================================================================================
Capital: Common Stock, par value $.10 per share; 200,000,000 shares authorized;
10,424,616 shares issued and outstanding (Note 4) ................................ $ 1,042,461
Paid-in capital in excess of par..................................................... 148,421,136
Undistributed investment income--net................................................. 749,132
Accumulated realized capital losses on investments--net (Note 5)..................... (5,934,571)
Unrealized appreciation on investments--net.......................................... 9,668,748
------------
Total capital--Equivalent to $14.77 net asset value per share of Common Stock
(market price--$13.75) .............................................................. $153,946,906
============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniAssets Fund, Inc., May 31, 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended May 31, 1998
==================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned............. $ 9,866,943
Income (Note 1d):
==================================================================================================================================
Expenses: Investment advisory fees (Note 2).................................... $ 836,737
Professional fees.................................................... 103,966
Directors' fees and expenses......................................... 40,350
Accounting services (Note 2)......................................... 35,486
Transfer agent fees (Note 2)......................................... 33,581
Printing and shareholder reports..................................... 16,434
Organization expenses................................................ 15,021
Pricing fees......................................................... 13,515
Custodian fees....................................................... 12,524
Listing fees......................................................... 10,108
Other................................................................ 15,576
------------
Total expenses ...................................................... 1,133,298
------------
Investment income--net............................................... 8,733,645
------------
==================================================================================================================================
Realized & Realized gain on investments--net.................................... 2,000,762
Unrealized Change in unrealized appreciation on investments--net................ 4,412,572
Gain on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations................. $ 15,146,979
(Notes 1b, 1d & 3): ============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended May 31,
--------------------------
Increase (Decrease) in Net Assets: 1998 1997
===============================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net.................................................. $ 8,733,645 $ 8,788,419
Realized gain on investments--net....................................... 2,000,762 1,096,461
Change in unrealized appreciation on investments--net................... 4,412,572 3,291,866
------------ ------------
Net increase in net assets resulting from operations.................... 15,146,979 13,176,746
------------ ------------
===============================================================================================================================
Dividends to Investment income--net.................................................. (8,830,400) (8,741,364)
Shareholders ------------ ------------
(Note 1e): Net decrease in net assets resulting from dividends to shareholders..... (8,830,400) (8,741,364)
------------ ------------
===============================================================================================================================
Net Assets: Total increase in net assets............................................ 6,316,579 4,435,382
Beginning of year....................................................... 147,630,327 143,194,945
------------ ------------
End of year*............................................................ $153,946,906 $147,630,327
============ ============
===============================================================================================================================
* Undistributed investment income--net.................................... $ 749,132 $ 845,887
============ ============
===============================================================================================================================
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
MuniAssets Fund, Inc., May 31, 1998
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the
The following per share data and ratios Period
have been derived from information June 25,
provided in the financial statements. For the Year Ended May 31, 1993+ to
----------------------------------------- May 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ... $ 14.16 $ 13.74 $ 13.73 $ 13.40 $ 14.18
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ............... .84 .84 .88 .87 .81
Realized and unrealized gain (loss) on
investments--net ..................... .62 .42 .03 .33 (.66)
-------- -------- -------- -------- --------
Total from investment operations ....... 1.46 1.26 .91 1.20 .15
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ............... (.85) (.84) (.89) (.85) (.74)
Realized gain on investments--net .... -- -- -- -- (.15)
-------- -------- -------- -------- --------
Total dividends and distributions ...... (.85) (.84) (.89) (.85) (.89)
-------- -------- -------- -------- --------
Capital charge resulting from issuance
of Common Stock ........................ -- -- (.01) (.02) (.04)
-------- -------- -------- -------- --------
Net asset value, end of period ......... $ 14.77 $ 14.16 $ 13.74 $ 13.73 $ 13.40
======== ======== ======== ======== ========
Market price per share, end of period .. $ 13.75 $ 12.625 $ 12.375 $ 11.875 $ 12.25
======== ======== ======== ======== ========
=================================================================================================================
Total Investment Based on net asset value per share ..... 10.87% 10.11% 7.46% 9.93% .83%++
Return:** ======== ======== ======== ======== ========
Based on market price per share ........ 15.76% 9.01% 11.91% 4.00% (12.87%)++
======== ======== ======== ======== ========
=================================================================================================================
Ratios to Average Expenses, net of reimbursement ......... .75% .76% .55% .50% .20%*
Net Assets: ======== ======== ======== ======== ========
Expenses ............................... .75% .76% .77% .85% .85%*
======== ======== ======== ======== ========
Investment income--net ................. 5.75% 6.06% 6.24% 6.54% 6.12%*
======== ======== ======== ======== ========
=================================================================================================================
Supplemental Net assets, end of period (in thousands) $153,947 $147,630 $143,195 $143,169 $ 64,154
Data: ======== ======== ======== ======== ========
Portfolio turnover ..................... 36.39% 45.15% 42.72% 55.51% 101.59%
======== ======== ======== ======== ========
=================================================================================================================
</TABLE>
* 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.
+ Commencement of operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniAssets Fund, 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 MUA. 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 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 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 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, 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.
o Financial futures contracts--The Fund may purchase or sell financial 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.
o 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
12 & 13
<PAGE>
MuniAssets Fund, Inc., May 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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 of
0.55% based upon the average weekly value of the Fund's 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 May 31, 1998 were $58,713,813 and $54,097,273, respectively.
Net realized gains for the year ended May 31, 1998 and net unrealized gains as
of May 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments....................... $2,000,762 $9,668,748
---------- ----------
Total....................................... $2,000,762 $9,668,748
========== ==========
- --------------------------------------------------------------------------------
As of May 31, 1998, net unrealized appreciation for Federal income tax purposes
aggregated $9,668,748, of which $13,349,433 related to appreciated securities
and $3,680,685 related to depreciated securities. The aggregate cost of
investments at May 31, 1998 for Federal income tax purposes was $144,931,625.
4. Common Stock Transactions:
At May 31, 1998, the Fund had one class of shares of Common Stock, par value
$.10 per share, of which 200,000,000 shares were authorized. Shares issued and
outstanding during the years ended May 31, 1998 and May 31, 1997 remained
constant.
5. Capital Loss Carryforward:
At May 31, 1998, the Fund had a net capital loss carryforward of approximately
$5,155,000, of which $373,000 expires in 2003, and $4,782,000 expires in 2004.
This amount will be available to offset like amounts of any future taxable
gains.
6. Subsequent Event:
On June 8, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.071861 payable on June
29, 1998 to shareholders of record as of June 22, 1998.
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,
1998, 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 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 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 May 31,
1998 by correspondence with the custodian and broker. 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 MuniAssets Fund,
Inc. as of May 31, 1998, 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
July 8, 1998
14 & 15
<PAGE>
Officers and Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Theodore R. Jaeckel Jr., Vice President
John M. Loffredo, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agent
The Bank of New York
101 Barclay Street, 22W
New York, NY 10286
NYSE Symbol
MUA
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 representation intended for use in the purchase of
shares of the Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a representation of future
performance. Statements and other information herein are as dated and are
subject to change.
MuniAssets
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #16716--5/98
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