UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-7478
Name of Fund: MuniVest Fund II, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, MuniVest Fund
II, Inc., 800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing
address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 10/31/03
Date of reporting period: 11/01/02 - 10/31/03
Item 1 - Attach shareholder report
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MuniVest Fund II, Inc.
Annual Report
October 31, 2003
[LOGO] Merrill Lynch Investment Managers
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,
net of dividends to Preferred Stock, 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.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed-rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in such securities. As of October 31, 2003, the percentage of the Fund's
total net assets invested in inverse floaters was 11.30%.
Swap Agreements
The Fund may also invest in swap agreements, which are over-the-counter
contracts in which one party agrees to make periodic payments based on the
change in market value of a specified bond, basket of bonds, or index in return
for periodic payments based on a fixed or variable interest rate or the change
in market value of a different bond, basket of bonds or index. Swap agreements
may be used to obtain exposure to a bond or market without owning or taking
physical custody of securities.
2 MUNIVEST FUND II, INC. OCTOBER 31, 2003
A Letter From the President
Dear Shareholder
As 2003 draws to a close, it seems appropriate to reflect on what has been a
meaningful year in many respects. We saw the beginning and the end of all-out
war in Iraq, equity market uncertainty turned to strength and sub par gross
domestic product growth of 1.4% in the first quarter of 2003 grew to an
extraordinary 8.2% in the third quarter. Amid the good news, fixed income
investments, which had become the asset class of choice during the preceding
three-year equity market decline, faced new challenges.
During 2003, municipal bond yields rose and fell in reaction to geopolitical
events, equity market performance, economic activity and employment figures. By
the end of October, long-term municipal revenue bond yields were slightly higher
than they were one year earlier, at 5.24% as measured by the Bond Buyer Revenue
Bond Index. With many state deficits at record levels, municipalities issued
nearly $400 billion in new long-term tax-exempt bonds during the 12-month period
ended October 31, 2003. The availability of bonds, together with attractive
yield ratios relative to U.S. Treasury issues, made municipal bonds a popular
fixed income investment alternative.
Throughout the year, our portfolio managers continued to work diligently to
deliver on our commitment to provide superior performance within reasonable
expectations for risk and return. This included striving to outperform our peers
and the market indexes. With that said, remember that the advice and guidance of
a skilled financial advisor often can mean the difference between successful and
unsuccessful investing. A financial professional can help you choose those
investments that will best serve you as you plan for your financial future.
Finally, I am proud to premiere a new look to our shareholder communications.
Our portfolio manager commentaries have been trimmed and organized in such a way
that you can get the information you need at a glance, in plain language.
Today's markets are confusing enough. We want to help you put it all in
perspective. The report's new size also allows us certain mailing efficiencies.
Any cost savings in production or postage are passed on to the Fund and,
ultimately, to Fund shareholders.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
MUNIVEST FUND II, INC. OCTOBER 31, 2003 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
The Fund was able to successfully weather bouts of excessive interest rate
volatility during the fiscal year and outperform its Lipper category.
Describe the market environment relative to municipal bonds during the fiscal
year.
At the end of October, long-term tax-exempt bond yields were 90% - 95% of
comparable U.S. Treasury securities, substantially exceeding their historical
average of 85% - 88%. Considering their tax-free status, this made long-term
municipal bonds an attractive investment alternative during the past 12 months.
Long-term U.S. Treasury bond yields declined throughout most of the first seven
months of the fiscal year, while bond prices -- which move in the opposite
direction of yields -- rose in response to weak equity markets, concerns about a
growing conflict in Iraq and continued sub par U.S. economic growth. The Federal
Reserve Board continued to lower short-term interest rates to stimulate business
and consumer economic activity. Bond yields reversed course in July and August
2003, rising sharply as economic conditions began to improve and as most
analysts agreed the Federal Reserve Board had finished lowering interest rates.
In mid-August, U.S. Treasury bond yields reached 5.45%, their highest level
during the period, before again moving lower for the remainder of the fiscal
year. At the end of the 12-month period, long-term U.S. Treasury bond yields
were 5.13%, 15 basis points (.15%) higher than a year earlier. The relatively
modest yield increase year-over-year masks the considerable month-to-month
volatility in interest rates during the period.
Long-term tax-exempt bond yields also rose from year-ago levels, although to a
lesser extent than U.S. Treasury bonds. Yield movements were less volatile than
those experienced by U.S. Treasury issues, because municipal bond prices
typically are less sensitive to short-term economic and geopolitical pressures.
By the end of October, long-term municipal revenue bond yields stood at 5.24%, a
small increase compared to the previous year. Yields for long-term Aaa-rated
tax-exempt bonds (the highest rated) declined 10 basis points during the past
year. The decline largely reflected investors' growing demand for high-quality
bonds, which provided valuable stability in an uncertain market.
The municipal market's outperformance of the U.S. Treasury market was especially
impressive given the dramatic increase in new bond issuance during the fiscal
year. State and local governments took advantage of historically low interest
rates to finance existing infrastructure needs and refinance outstanding
high-interest-rate debt. During the past 12 months, municipalities issued nearly
$400 billion in new securities, an increase of more than 12% compared to last
year's issuance. More recently, however, new municipal bond issuance slowed as
tax-exempt bond yields rose, making borrowing more expensive. Less than $90
billion in long-term tax-exempt bonds was underwritten during the period's last
three months, a decline of nearly 10% versus the same three months of 2002. This
decline in supply helped support the tax-exempt market's recent performance.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the year ended October 31, 2003, the Common Stock of MuniVest Fund II, Inc.
had a net annualized yield of 6.79%, based on a year-end per share net asset
value of $14.76 and $1.002 per share income dividends. Over the same period, the
total investment return on the Fund's Common Stock was +11.88%, based on a
change in per share net asset value from $14.16 to $14.76, and assuming
reinvestment of $.994 per share ordinary income dividends.
For the six-month period ended October 31, 2003, the total investment return on
the Fund's Common Stock was +4.88%, based on a change in per share net asset
value from $14.58 to $14.76, and assuming reinvestment of $.508 per share
ordinary income dividends.
For the six-month period ended October 31, 2003, the Fund's Auction Market
Preferred Stock had an average yield as follows: Series A, .91%; Series B, .77%;
and Series C, .82%.
4 MUNIVEST FUND II, INC. OCTOBER 31, 2003
For a description of the Fund's total investment return based on a change in the
per share market value of the Fund's Common Stock (as measured by the trading
price of the Fund's shares on the New York Stock Exchange), and assuming
reinvestment of dividends, please refer to the Financial Highlights section of
the Financial Statements included in this report. As a closed-end fund, the
Fund's shares may trade in the secondary market at a premium or discount to the
Fund's net asset value. As a result, total investment returns based on changes
in the market value of the Fund's Common Stock can vary significantly from total
investment return based on changes in the Fund's net asset value.
For the 12 months ended October 31, 2003, the Fund's return, based on net asset
value, outperformed its comparable Lipper category of General Municipal Debt
Funds (Leveraged), which had an average return of +8.08%. We established a
neutral stance with respect to interest rates in 2002 and early 2003, and
maintained that stance through the middle of the year. We believe this
positioning helped insulate the Fund from much of the interest rate volatility
experienced during the past six months. Our strategy of enhancing yield by
increasing the Fund's exposure to lower-rated investment-grade issues also was
beneficial to total return performance, as these issues helped to increase the
Fund's investment income stream. In addition, these lower-rated issues have
exhibited less price volatility than many general market issues in recent
months, which also served to enhance performance.
What changes were made to the portfolio during the period?
In May and June, as market yields declined in response to weak economic growth
and the possibility of additional short-term interest rate changes by the
Federal Reserve Board, we adopted a slightly more defensive strategy, further
reducing the portfolio's interest rate sensitivity by lowering the Fund's
average portfolio maturity. This defensive positioning resulted in relative
outperformance as interest rates rose dramatically in July and August. We also
continued to add higher-yielding instruments to the portfolio whenever they were
attractively priced in an effort to help the Fund maintain its favorable
dividend yield in the coming months.
In terms of leverage, the Fund's borrowing costs remained in the low 1% range
during the period. These attractive funding levels, in combination with a steep
tax-exempt yield curve, generated a significant income benefit to the Fund's
Common Stock shareholders. Further declines in the Fund's borrowing costs would
require significant easing of monetary policy by the Federal Reserve Board.
While such action is not expected, neither is an increase in short-term interest
rates. We expect short-term borrowing costs to remain near current attractive
levels for the coming months. However, should the spread between short-term and
long-term interest rates narrow, the benefits of leverage will decline, and as a
result, reduce the yield on the Fund's Common Stock. (For a more complete
explanation of the benefits and risks of leveraging, see page 2 of this report
to shareholders.)
How would you characterize the Fund's position at the close of the period?
We ended the period with a slightly defensive position with respect to future
interest rate movements. We continue to favor more defensive, higher-couponed
issues over the more interest-rate-sensitive securities. At the close of the
period, the Fund had modest cash reserves of approximately 2%. Overall, the Fund
is structured to perform better in stable-to-rising interest rate environments.
If yields decline to the recent lows seen in June 2003, we would expect to adopt
a much stronger defensive strategy.
Looking ahead, we believe moderate economic growth, especially within a context
of negligible inflationary pressures, should not greatly endanger the positive
fixed income environment that tax-exempt products have enjoyed.
Fred K. Stuebe
Vice President and Portfolio Manager
November 10, 2003
MUNIVEST FUND II, INC. OCTOBER 31, 2003 5
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (in Thousands)
S&P Moody's Face
State Ratings+ Ratings+ Amount Municipal Bonds Value
====================================================================================================================================
Alabama--0.9% NR* A2 $ 2,500 Huntsville, Alabama, Health Care Authority Revenue Bonds,
Series B, 5.75% due 6/01/2032 $ 2,540
====================================================================================================================================
Arizona--1.4% BB+ Ba1 1,200 Maricopa County, Arizona, Pollution Control Corporation, PCR,
Refunding (El Paso Electric Company Project), Series A, 6.25%
due 5/01/2037 1,245
AAA Aaa 2,315 Maricopa County, Arizona, Tempe Elementary Unified School District
Number 3, GO, Refunding, 7.50% due 7/01/2010 (c) 2,914
====================================================================================================================================
California--5.5% NR* NR* 1,250 Chula Vista, California, Community Facilities District, Special
Tax (Number 06-1, Eastlake Woods Area), Series A, 6.20% due 9/01/2033 1,255
Golden State Tobacco Securitization Corporation, California, Tobacco
Settlement Revenue Bonds:
BBB Baa2 1,000 Series A-2, 7.90% due 6/01/2042 1,029
BBB Baa2 3,700 Series A-3, 7.875% due 6/01/2042 3,801
BBB- Baa1 3,750 Series B, 5.375% due 6/01/2028 3,614
BBB- Baa1 5,200 Series B, 5.50% due 6/01/2033 5,037
NR* NR* 1,350 Poway, California, Unified School District, Special Tax (Community
Facilities District Number 6 Area), Series A, 6.125% due 9/01/2033 1,360
====================================================================================================================================
Colorado--3.8% NR* Aa2 40 Colorado HFA Revenue Bonds (S/F Program), AMT, Senior-Series F, 8.625%
due 6/01/2025 40
NR* Aa2 535 Colorado HFA, Revenue Refunding Bonds (S/F Program), AMT, Senior
Series A-2, 7.50% due 4/01/2031 558
Elk Valley, Colorado, Public Improvement Revenue Bonds (Public
Improvement Fee):
NR* NR* 3,025 Series A, 7.35% due 9/01/2031 3,099
NR* NR* 1,000 Series B, 7% due 9/01/2031 1,018
NR* NR* 1,325 North Range, Colorado, Metropolitan District Number 1, GO, 7.25% due
12/15/2031 1,325
BB+ Ba1 1,900 Northwest Parkway, Colorado, Public Highway Authority Revenue Bonds,
First Tier, Sub-Series D, 7.125% due 6/15/2041 1,932
NR* NR* 3,300 Plaza Metropolitan District No. 1, Colorado, Tax Allocation Revenue
Bonds (Public Improvement Fees), 8% due 12/01/2025 3,305
====================================================================================================================================
Connecticut--0.7% BBB- NR* 2,000 Mohegan Tribe Indians, Connecticut, Gaming Authority, Public
Improvement Revenue Refunding Bonds (Priority Distribution), 6.25%
due 1/01/2031 2,087
====================================================================================================================================
Florida--5.5% NR* NR* 440 Bonnet Creek Resort, Florida, Community Development District, Special
Assessment Revenue Bonds, 7.50% due 5/01/2034 460
BBB Baa2 6,705 Escambia County, Florida, PCR (Champion International Corporation
Project), AMT, 6.90% due 8/01/2022 6,973
NR* NR* 2,000 Fiddlers Creek, Florida, Community Development District Number 2,
Special Assessment Revenue Bonds, Series A, 6.375% due 5/01/2035 2,005
NR* NR* 1,000 Orlando, Florida, Urban Community Development District, Capital
Improvement Special Assessment Bonds, Series A, 6.95% due 5/01/2033 1,043
NR* NR* 2,000 Palm Beach County, Florida, HFA, M/F Housing Revenue Bonds (Lake
Delray Apartment Project), AMT, Series A, 6.40% due 1/01/2031 1,819
NR* NR* 215 Panther Trace, Florida, Community Development District, Special
Assessment Revenue Bonds, Series B, 6.50% due 5/01/2009 215
NR* NR* 1,000 Park Place Community Development District, Florida, Special Assessment
Revenue Bonds, 6.75% due 5/01/2032 1,042
NR* NR* 1,000 Preserve at Wilderness Lake, Florida, Community Development District,
Capital Improvement Bonds, Series A, 7.10% due 5/01/2033 1,039
NR* NR* 1,555 Vista Lakes Community, Florida, Development District, Capital
Improvement Revenue Bonds, Series B, 5.80% due 5/01/2008 1,560
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 at right.
AMT Alternative Minimum Tax (subject to)
DRIVERS Derivative Inverse Tax-Exempt Receipts
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
6 MUNIVEST FUND II, INC. OCTOBER 31, 2003
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
State Ratings+ Ratings+ Amount Municipal Bonds Value
====================================================================================================================================
Georgia--4.3% Atlanta, Georgia, Tax Allocation Revenue Bonds (Atlantic Station
Project):
NR* NR* $ 1,655 7.25% due 12/01/2005 $ 1,667
NR* NR* 2,000 7.90% due 12/01/2024 2,057
Georgia Municipal Electric Authority, Power Revenue Refunding Bonds:
A A2 5,620 Series W, 6.60% due 1/01/2018 6,830
A A2 380 Series W, 6.60% due 1/01/2018 (h) 464
A A2 1,250 Series X, 6.50% due 1/01/2020 1,509
====================================================================================================================================
Idaho--0.4% NR* Aaa 990 Idaho Housing Agency, S/F Mortgage Revenue Refunding Bonds, AMT,
Series E-2, 6.90% due 1/01/2027 1,053
====================================================================================================================================
Illinois--18.6% AAA NR* 3,000 Chicago, Illinois, O'Hare International Airport Revenue Refunding
Bonds, DRIVERS, AMT, Series 253, 10.086% due 1/01/2020 (a)(d) 3,377
CCC Caa2 4,000 Chicago, Illinois, O'Hare International Airport, Special Facility
Revenue Refunding Bonds (American Airlines Inc. Project), 8.20%
due 12/01/2024 2,843
AAA Aaa 810 Chicago, Illinois, S/F Mortgage Revenue Bonds, AMT, Series C, 7%
due 3/01/2032 (f)(i) 836
NR* NR* 800 Chicago, Illinois, Special Assessment Bonds (Lake Shore East), 6.75%
due 12/01/2032 794
AAA Aaa 2,385 Cook County, Illinois, Community High School District Number 219,
Niles Township, GO, 6% due 12/01/2017 (c) 2,752
BBB Baa1 2,800 Hodgkins, Illinois, Environmental Improvement Revenue Bonds (Metro
Biosolids Management LLC Project), AMT, 6% due 11/01/2023 2,830
BBB NR* 1,000 Illinois Development Finance Authority Revenue Bonds (Community
Rehabilitation Providers Facility), Series A, 6.50% due 7/01/2022 1,030
BBB NR* 2,500 Illinois Development Finance Authority, Revenue Refunding Bonds
(Community Rehabilitation Providers), Series A, 6% due 7/01/2015 2,550
A+ A1 6,500 Illinois HDA, Revenue Refunding Bonds (M/F Program), Series 5, 6.75%
due 9/01/2023 6,781
NR* Aaa 2,600 Kane and De Kalb Counties, Illinois, Community Unit School District
Number 302, GO, DRIVERS, Series 283, 10.13% due 2/01/2018 (a)(c) 3,251
NR* Aaa 3,850 Kane, Cook and Du Page Counties, Illinois, Elgin School District
Number 46, GO, 6.375% due 1/01/2018 (g) 4,482
Mc Lean and Woodford Counties, Illinois, Community Unit, School
District Number 005, GO, Refunding (g):
NR* Aaa 2,345 6.25% due 12/01/2014 2,752
NR* Aaa 2,000 6.375% due 12/01/2016 2,365
AAA NR* 3,200 Metropolitan Pier and Exposition Authority, Illinois, Dedicated State
Tax Revenue Refunding Bonds, DRIVERS, Series 269, 10.13%
due 6/15/2023 (a)(d) 3,834
Regional Transportation Authority, Illinois, Revenue Bonds:
AAA Aaa 1,500 Series A, 7.20% due 11/01/2020 (b) 1,965
AAA Aaa 7,000 Series A, 6.70% due 11/01/2021 (c) 8,796
AAA Aaa 2,500 Series C, 7.75% due 6/01/2020 (c) 3,421
====================================================================================================================================
Indiana--11.2% Indiana Bond Bank Revenue Bonds (State Revolving Fund Program),
Series A:
AAA NR* 2,750 6.875% due 2/01/2012 2,988
AAA NR* 5,750 6.75% due 2/01/2017 6,228
NR* Aaa 5,545 Indiana State HFA, S/F Mortgage Revenue Refunding Bonds, Series A,
6.80% due 1/01/2017 (e) 5,608
Indiana Transportation Finance Authority, Highway Revenue Bonds,
Series A:
AA Aa2 1,530 7.25% due 6/01/2015 1,959
AA Aa2 470 7.25% due 6/01/2015 (h) 584
AA Aa2 3,775 6.80% due 12/01/2016 4,710
AA NR* 8,750 Indianapolis, Indiana, Local Public Improvement Bond Bank, Revenue
Refunding Bonds, Series D, 6.75% due 2/01/2014 10,689
MUNIVEST FUND II, INC. OCTOBER 31, 2003 7
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
State Ratings+ Ratings+ Amount Municipal Bonds Value
====================================================================================================================================
Kentucky--0.7% B B3 $ 2,000 Kenton County, Kentucky, Airport Board, Special Facilities Airport
Revenue Bonds (Delta Airlines Project), AMT, Series A, 7.50%
due 2/01/2020 $ 1,977
====================================================================================================================================
Louisiana--6.6% AAA Aaa 5,000 Louisiana Local Government, Environmental Facilities, Community
Development Authority Revenue Bonds (Capital Projects and Equipment
Acquisition), Series A, 6.30% due 7/01/2030 (b) 5,925
BB- NR* 10,000 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain
Company Project), 6.50% due 1/01/2017 9,703
BBB Baa2 3,600 Sabine River Authority, Louisiana, Water Facilities Revenue
Refunding Bonds (International Paper Company), 6.20% due 2/01/2025 3,740
====================================================================================================================================
Maryland--1.6% A- NR* 2,000 Maryland State Energy Financing Administration, Solid Waste Disposal
Revenue Bonds, Limited Obligation (Wheelabrator Water Projects),
AMT, 6.45% due 12/01/2016 2,111
AAA Aaa 1,000 Maryland State Health and Higher Educational Facilities Authority
Revenue Bonds (University of Maryland Medical System), Series B, 7%
due 7/01/2022 (c) 1,268
NR* NR* 1,250 Montgomery County, Maryland, Special Obligation, Special Tax Bond
(West Germantown Development District), Series B, 6.70%
due 7/01/2027 1,273
====================================================================================================================================
Massachusetts--4.9% AA- Aa2 1,000 Massachusetts State College Building Authority Project, Revenue
Refunding Bonds, Senior-Series A, 7.50% due 5/01/2011 1,263
BB+ NR* 1,250 Massachusetts State Development Finance Agency, Revenue Refunding
Bonds (Eastern Nazarine College), 5.625% due 4/01/2029 937
BBB- NR* 1,500 Massachusetts State Health and Educational Facilities Authority
Revenue Bonds (Jordan Hospital), Series E, 6.75% due 10/01/2033 1,472
AA Aa3 6,000 Massachusetts State Water Resource Authority Revenue Bonds,
Series A, 6.50% due 7/15/2019 7,327
AAA Aaa 3,000 Massachusetts State Water Resource Authority, Revenue Refunding
Bonds, Series A, 6% due 8/01/2016 (c) 3,475
====================================================================================================================================
Michigan--6.6% BBB Baa2 1,500 Delta County, Michigan, Economic Development Corporation,
Environmental Improvement Revenue Refunding Bonds (Mead
Westvaco-Escanaba), Series A, 6.25% due 4/15/2027 1,555
BBB- Baa3 3,100 Flint, Michigan, Hospital Building Authority, Revenue Refunding
Bonds (Hurley Medical Center), 6% due 7/01/2020 2,885
NR* Ba3 285 Michigan State Hospital Finance Authority, Hospital Revenue
Refunding Bonds (Sinai Hospital), 6.625% due 1/01/2016 219
Michigan State Hospital Finance Authority, Revenue Refunding Bonds,
Series A:
AAA Aa2 8,425 (Ascension Health Credit), 6.125% due 11/15/2009 (k) 10,089
B Ba1 2,340 (Detroit Medical Center Obligation Group), 6.50% due 8/15/2018 1,721
BB+ NR* 3,000 Pontiac, Michigan, Tax Increment Finance Authority, Revenue
Refunding Bonds (Development Area Number 3), 6.375% due 6/01/2031 2,903
====================================================================================================================================
Minnesota--0.7% Minnesota State HFA, S/F Mortgage Revenue Bonds, AMT:
AA+ Aa1 760 Series L, 6.70% due 7/01/2020 777
AA+ Aa1 1,235 Series M, 6.70% due 7/01/2026 1,262
====================================================================================================================================
Mississippi--3.6% Mississippi Business Finance Corporation, Mississippi, PCR,
Refunding (System Energy Resources Inc. Project):
BBB- Ba1 7,200 5.875% due 4/01/2022 7,156
BBB- Ba1 3,465 5.90% due 5/01/2022 3,453
8 MUNIVEST FUND II, INC. OCTOBER 31, 2003
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
State Ratings+ Ratings+ Amount Municipal Bonds Value
====================================================================================================================================
Missouri--0.3% AAA NR* $ 715 Missouri State Housing Development Commission, S/F Mortgage
Revenue Bonds (Homeowner Loan), AMT, Series A, 7.50%
due 3/01/2031 (i) $ 750
====================================================================================================================================
Nebraska--1.4% Nebraska Investment Finance Authority, S/F Housing Revenue Bonds,
AMT (i):
AAA NR* 1,590 Series C, 6.30% due 9/01/2028 (f) 1,650
AAA NR* 2,375 Series D, 6.45% due 3/01/2028 2,468
====================================================================================================================================
Nevada--2.1% AAA Aaa 3,300 Clark County, Nevada, IDR (Power Company Project), AMT, Series A,
6.70% due 6/01/2022 (c) 3,406
AAA Aaa 315 Nevada Housing Division Revenue Bonds (S/F Program), AMT,
Senior--Series E, 7% due 10/01/2019 (e) 322
AAA Aaa 2,500 Washoe County, Nevada, Gas Facilities Revenue Bonds (Sierra
Pacific Power Company), AMT, 6.65% due 12/01/2017 (b) 2,549
====================================================================================================================================
New Jersey--5.0% New Jersey EDA, Retirement Community Revenue Bonds (Cedar Crest
Village Inc. Facility), Series A:
NR* NR* 1,335 7.25% due 11/15/2021 1,370
NR* NR* 1,100 7.25% due 11/15/2031 1,118
B Caa2 2,000 New Jersey EDA, Special Facility Revenue Bonds (Continental
Airlines Inc. Project), AMT, 6.25% due 9/15/2029 1,700
BB+ NR* 1,930 New Jersey Health Care Facilities Financing Authority Revenue Bonds
(Pascack Valley Hospital Association), 6.625% due 7/01/2036 1,933
AAA Aaa 2,620 New Jersey State Housing and Mortgage Finance Agency, Home Buyer
Revenue Bonds, AMT, Series M, 6.95% due 10/01/2022 (d) 2,707
BBB Baa2 6,250 Tobacco Settlement Financing Corporation of New Jersey Revenue
Bonds, 7% due 6/01/2041 5,859
====================================================================================================================================
New Mexico--1.1% B+ Ba3 3,160 Farmington, New Mexico, PCR, Refunding (Tucson Electric Power
Co.--San Juan Project), Series A, 6.95% due 10/01/2020 3,273
====================================================================================================================================
New York--9.8% New York City, New York, City IDA, Civic Facility Revenue Bonds:
NR* NR* 690 Series C, 6.80% due 6/01/2028 714
NR* NR* 890 (Special Needs Facility Pooled Program), Series C-1, 6.50%
due 7/01/2017 925
BB+ Ba2 1,920 New York City, New York, City IDA, Special Facility Revenue Bonds
(British Airways PLC Project), AMT, 7.625% due 12/01/2032 1,886
NR* Aa2 3,375 New York City, New York, City Transitional Finance Authority
Revenue Bonds, RIB, Series 283, 11.11% due 11/15/2018 (a) 4,576
New York City, New York, GO, Refunding, Series A:
AAA Aaa 3,530 6.50% due 5/15/2012 (j) 4,129
A Aaa 3,255 6.375% due 5/15/2015 (c) 3,832
AAAr NR* 7,000 New York State Dormitory Authority, Revenue Refunding Bonds,
RIB, Series 305, 10.64% due 5/15/2015 (a)(d) 9,159
NR* NR* 1,000 Westchester County, New York, IDA, Civic Facility Revenue Bonds
(Special Needs Facilities Pooled Program), Series E-1, 6.50%
due 7/01/2017 1,004
NR* NR* 2,690 Westchester County, New York, IDA, Continuing Care Retirement,
Mortgage Revenue Bonds (Kendal on Hudson Project), Series A, 6.50%
due 1/01/2034 2,664
====================================================================================================================================
North Carolina--1.1% North Carolina Medical Care Commission, Retirement Facilities, First
Mortgage Revenue Bonds:
NR* NR* 1,625 (Forest at Duke Project), 6.375% due 9/01/2032 1,635
NR* NR* 1,500 (Givens Estates Project), Series A, 6.375% due 7/01/2023 1,504
MUNIVEST FUND II, INC. OCTOBER 31, 2003 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
State Ratings+ Ratings+ Amount Municipal Bonds Value
====================================================================================================================================
Pennsylvania--4.9% NR* Aaa $ 2,000 Delaware River Port Authority of Pennsylvania and New Jersey
Revenue Bonds, RIB, Series 396, 10.643% due 1/01/2019 (a)(g) $ 2,555
NR* NR* 2,000 Pennsylvania Economic Development Financing Authority, Exempt
Facilities Revenue Bonds (National Gypsum Company), AMT, Series B,
6.125% due 11/01/2027 1,964
A NR* 1,250 Pennsylvania State Higher Educational Facilities Authority
Revenue Bonds (University of Pennsylvania Medical Center Health
System), Series A, 6% due 1/15/2031 1,299
NR* NR* 1,265 Philadelphia, Pennsylvania, Authority for IDR, Commercial
Development, 7.75% due 12/01/2017 1,283
Sayre, Pennsylvania, Health Care Facilities Authority Revenue
Bonds (Guthrie Health Issue):
A- NR* 3,300 Series A, 5.875% due 12/01/2031 3,368
A- NR* 2,425 Series B, 5.85% due 12/01/2020 2,529
A- NR* 1,350 Series B, 1% due 12/01/2031 1,469
====================================================================================================================================
Rhode Island--0.4% BBB Baa2 1,140 Rhode Island State Health and Educational Building Corporation,
Hospital Financing Revenue Bonds (Lifespan Obligation Group),
6.50% due 8/15/2032 1,160
====================================================================================================================================
South Carolina--0.6% BBB+ Baa2 1,230 Medical University, South Carolina, Hospital Authority, Hospital
Facility Revenue Refunding Bonds, 6.50% due 8/15/2032 1,284
NR* Aa2 540 South Carolina Housing Finance and Development Authority, Mortgage
Revenue Bonds, AMT, Series A, 6.70% due 7/01/2027 549
====================================================================================================================================
Tennessee--3.2% BB+ Ba1 4,000 McMinn County, Tennessee, IDB, Solid Waste Revenue Bonds (Recycling
Facility--Calhoun Newsprint), AMT, 7.40% due 12/01/2022 4,000
A- Baa1 5,000 Shelby County, Tennessee, Health, Educational and Housing Facility
Board, Hospital Revenue Refunding Bonds (Methodist Healthcare),
6.50% due 9/01/2026 5,404
====================================================================================================================================
Texas--16.2% Austin, Texas, Convention Center Revenue Bonds (Convention
Enterprises Inc.):
BBB- Baa3 1,600 First Tier, Series A, 6.70% due 1/01/2028 1,690
BBB- Baa3 4,510 First Tier, Series A, 6.70% due 1/01/2032 4,764
A+ Aa3 1,500 Trust Certificates, Second Tier, Series B, 6% due 1/01/2023 1,624
Brazos River Authority, Texas, PCR, Refunding, AMT:
BBB Baa2 1,500 (Texas Utility Company), Series A, 7.70% due 4/01/2033 1,666
BBB Baa2 7,080 (Utilities Electric Company), Series B, 5.05% due 6/01/2030 7,393
BBB- Ba1 1,810 Brazos River Authority, Texas, Revenue Refunding Bonds (Reliant
Energy Inc. Project), Series B, 7.75% due 12/01/2018 1,959
A- A3 5,800 Brazos River, Texas, Harbor Navigation District, Brazoria County
Environmental Revenue Refunding Bonds (Dow Chemical Company
Project), AMT, Series A-7, 6.625% due 5/15/2033 6,129
AA- Aa3 2,500 Guadalupe-Blanco River Authority, Texas, Sewage and Solid Waste
Disposal Facility Revenue Bonds (E. I. du Pont de Nemours and
Company Project), AMT, 6.40% due 4/01/2026 2,667
AA Aa3 5,000 Harris County, Texas, Health Facilities Development Corporation,
Revenue Refunding Bonds, RITR, Series 6, 9.745% due 7/01/2027 (a)(h) 6,243
BBB- Ba1 3,440 Matagorda County, Texas, Navigation District Number 1, Revenue
Refunding Bonds (Reliant Energy Inc.), Series C, 8% due 5/01/2029 3,735
BB Ba3 3,060 Port Corpus Christi, Texas, Individual Development Corporation,
Environmental Facilities Revenue Bonds (Citgo Petroleum Corporation
Project), AMT, 8.25% due 11/01/2031 3,134
BBB Baa2 1,600 Port Corpus Christi, Texas, Revenue Refunding Bonds (Celanese
Project), Series A, 6.45% due 11/01/2030 1,673
NR* Aa1 3,750 San Antonio, Texas, Electric and Gas Revenue Bonds, RIB, Series 469x,
10.16% due 2/01/2014 (a) 4,933
10 MUNIVEST FUND II, INC. OCTOBER 31, 2003
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
State Ratings+ Ratings+ Amount Municipal Bonds Value
====================================================================================================================================
Virginia--3.5% BBB+ A3 $ 1,000 Chesterfield County, Virginia, IDA, PCR (Virginia Electric and
Power Company), Series B, 5.875% due 6/01/2017 $ 1,049
BBB Baa2 3,115 Isle of Wight County, Virginia, IDA, Solid Waste Disposal
Facilities Revenue Bonds (Union Camp Corporation Project), AMT,
6.55% due 4/01/2024 3,197
BBB- Baa3 800 Mecklenburg County, Virginia, IDA, Exempt Facility Revenue
Refunding Bonds (UAE LP Project), 6.50% due 10/15/2017 814
BB NR* 6,915 Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds,
Senior-Series A, 5.50% due 8/15/2028 5,342
====================================================================================================================================
Washington--10.0% AAA Aaa 2,425 Chelan County, Washington, Public Utility District Number 001,
Consolidated Revenue Refunding Bonds (Chelan Hydro), AMT, Series D,
6.35% due 7/01/2028 (d) 2,758
Energy Northwest, Washington, Electric Revenue Refunding Bonds,
DRIVERS (a):
AAA NR* 2,250 Series 248, 10.13% due 7/01/2018 (d) 2,745
AAA NR* 1,125 Series 255, 10.62% due 7/01/2018 (b) 1,427
NR* NR* 1,000 Port Seattle, Washington, Special Facilities Revenue Bonds
(Northwest Airlines Project), AMT, 7.25% due 4/01/2030 933
AAAr Aaa 5,000 Washington State, GO, Trust Receipts, Class R, Series 6, 10.523%
due 1/01/2014 (a)(g) 6,363
AA Baa1 2,200 Washington State Health Care Facilities Authority Revenue Bonds
(Kadlec Medical Center), 6% due 12/01/2030 (l) 2,367
Washington State Public Power Supply System, Revenue Refunding
Bonds, Series B:
AA- Aa1 3,030 (Nuclear Project Number 1), 7.25% due 7/01/2009 (h) 3,578
AA- Aa1 270 (Nuclear Project Number 1), 7.25% due 7/01/2009 315
AA- Aa1 5,000 (Nuclear Project Number 1), 7.125% due 7/01/2016 6,337
AAA Aaa 1,900 (Nuclear Project No. 3), 7.125% due 7/01/2016 (d) 2,430
====================================================================================================================================
Wisconsin--0.9% BBB+ NR* 2,715 Wisconsin State Health and Educational Facilities Authority
Revenue Bonds (Synergyhealth Inc.), 6% due 11/15/2032 2,719
====================================================================================================================================
Wyoming--2.0% Sweetwater County, Wyoming, Solid Waste Disposal Revenue Bonds (FMC
Corporation Project), AMT:
BB+ Ba3 1,000 Series A, 7% due 6/01/2024 1,000
BB+ Ba3 5,000 Series B, 6.90% due 9/01/2024 4,950
====================================================================================================================================
Virgin Islands--2.1% BBB- Baa3 6,000 Virgin Islands Government Refinery Facilities Revenue Bonds (Hovensa
Coker Project), AMT, 6.50% due 7/01/2021 6,045
--------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$386,607)--141.6% 415,787
==============================================================================================================
MUNIVEST FUND II, INC. OCTOBER 31, 2003 11
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded) (in Thousands)
Shares
Held Short-Term Securities Value
===================================================================================================================================
2,392 Merrill Lynch Institutional Tax-Exempt Fund++ $ 2,392
-------------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$2,392)--0.8% 2,392
===================================================================================================================================
Total Investments (Cost--$388,999)--142.4% 418,179
Unrealized Depreciation on Forward Interest Rate Swaps+++--0.0% (45)
Other Assets Less Liabilities--3.6% 10,619
Preferred Stock, at Redemption Value--(46.0%) (135,000)
---------
Net Assets Applicable to Common Stock--100.0% $ 293,753
=========
(a) 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 October 31, 2003.
(b) AMBAC Insured.
(c) FGIC Insured.
(d) MBIA Insured.
(e) FHA Insured.
(f) FHLMC Collateralized.
(g) FSA Insured.
(h) Escrowed to maturity.
(i) FNMA/GNMA Collateralized.
(j) XL Capital Insured.
(k) Prerefunded.
(l) Radian Insured.
* Not Rated.
+ Ratings of issues shown are unaudited.
++ Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
(in Thousands)
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund (995) $60
--------------------------------------------------------------------------
+++ Forward interest rate swaps entered into as of October 31, 2003 were as
follows:
(in Thousands)
--------------------------------------------------------------------------
Notional Unrealized
Amount Depreciation
--------------------------------------------------------------------------
Receive a variable rate equal to 7-day
Bond Market Association Municipal Swap
Interest Rate at quarterly reset date and
pay a fixed rate equal to 3.741%.
Broker, J.P. Morgan Chase Bank
Expires December 2013 $21,100 $ (45)
--------------------------------------------------------------------------
See Notes to Financial Statements.
12 MUNIVEST FUND II, INC. OCTOBER 31, 2003
Statement of Net Assets
As of October 31, 2003
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments, at value (identified cost--$388,999,424) ................... $ 418,179,445
Cash .................................................................... 78,981
Receivables:
Interest ............................................................. $ 9,092,216
Securities sold ...................................................... 3,576,940
Dividends from affiliates ............................................ 58 12,669,214
-------------
Prepaid expenses ........................................................ 5,864
-------------
Total assets ............................................................ 430,933,504
-------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on forward interest rate swaps .................. 45,302
Payables:
Securities purchased ................................................. 1,695,010
Investment adviser ................................................... 203,801
Dividends to Common Stock shareholders ............................... 190,024
Other affiliates ..................................................... 3,040 2,091,875
-------------
Accrued expenses ........................................................ 43,737
-------------
Total liabilities ....................................................... 2,180,914
-------------
===================================================================================================================================
Preferred Stock
- -----------------------------------------------------------------------------------------------------------------------------------
Preferred Stock, par value $.05 per share (1,800 Series A Shares, 1,800
Series B Shares and 1,800 Series C Shares of AMPS* issued and
outstanding at $25,000 per share liquidation preference) .............. 135,000,000
-------------
===================================================================================================================================
Net Assets Applicable to Common Stock
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock ................................... $ 293,752,590
=============
===================================================================================================================================
Analysis of Net Assets Applicable to Common Stock
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.10 per share (19,907,055 shares issued and
outstanding) .......................................................... $ 1,990,705
Paid-in capital in excess of par ........................................ 277,543,466
Undistributed investment income--net .................................... $ 6,828,780
Accumulated realized capital losses on investments--net ................. (21,745,080)
Unrealized appreciation on investments--net ............................. 29,134,719
-------------
Total accumulated earnings--net ......................................... 14,218,419
-------------
Total--Equivalent to $14.76 net asset value per share of Common Stock
(market price--$14.26) ................................................ $ 293,752,590
=============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
MUNIVEST FUND II, INC. OCTOBER 31, 2003 13
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
For the Year Ended October 31, 2003
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Interest ................................................................ $ 26,090,928
Dividends from affiliates ............................................... 59,830
-------------
Total income ............................................................ 26,150,758
-------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ................................................ $ 2,129,798
Commission fees ......................................................... 341,622
Accounting services ..................................................... 144,403
Transfer agent fees ..................................................... 78,128
Professional fees ....................................................... 61,346
Directors' fees and expenses ............................................ 37,320
Listing fees ............................................................ 28,965
Custodian fees .......................................................... 23,621
Pricing fees ............................................................ 22,111
Printing and shareholder reports ........................................ 14,840
Other ................................................................... 49,672
-------------
Total expenses before reimbursement ..................................... 2,931,826
Reimbursement of expenses ............................................... (12,355)
-------------
Total expenses after reimbursement ...................................... 2,919,471
-------------
Investment income--net .................................................. 23,231,287
-------------
===================================================================================================================================
Realized & Unrealized Gain on Investments--Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ....................................... 4,133,450
Change in unrealized appreciation on investments--net ................... 5,676,120
-------------
Total realized and unrealized gain on investments--net .................. 9,809,570
-------------
===================================================================================================================================
Dividends to Preferred Stock Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .................................................. (1,330,776)
-------------
Net Increase in Net Assets Resulting from Operations .................... $ 31,710,081
=============
See Notes to Financial Statements.
14 MUNIVEST FUND II, INC. OCTOBER 31, 2003
Statements of Changes in Net Assets
For the Year Ended
October 31,
---------------------------------
Increase (Decrease) in Net Assets: 2003 2002
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .................................................. $ 23,231,287 $ 21,828,084
Realized gain on investments--net ....................................... 4,133,450 3,250,885
Change in unrealized appreciation on investments--net ................... 5,676,120 (8,111,087)
Dividends to Preferred Stock shareholders ............................... (1,330,776) (1,857,924)
---------------------------------
Net increase in net assets resulting from operations .................... 31,710,081 15,109,958
---------------------------------
===================================================================================================================================
Dividends to Common Stock Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .................................................. (19,787,613) (17,826,768)
---------------------------------
Net decrease in net assets resulting from dividends to Common Stock
shareholders ............................................................ (19,787,613) (17,826,768)
---------------------------------
===================================================================================================================================
Net Assets Applicable to Common Stock
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets applicable to Common Stock ...... 11,922,468 (2,716,810)
Beginning of year ....................................................... 281,830,122 284,546,932
---------------------------------
End of year* ............................................................ $ 293,752,590 $ 281,830,122
=================================
* Undistributed investment income--net ............................... $ 6,828,780 $ 4,715,882
=================================
See Notes to Financial Statements.
MUNIVEST FUND II, INC. OCTOBER 31, 2003 15
[LOGO] Merrill Lynch Investment Managers
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended October 31,
--------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001+ 2000+ 1999+
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ........................ $ 14.16 $ 14.29 $ 13.32 $ 12.81 $ 14.85
--------------------------------------------------------
Investment income--net .................................... 1.17++ 1.11 1.02 1.04 1.05
Realized and unrealized gain (loss) on investments--net ... .49 (.25) .97 .54
(2.05)
Dividends to Preferred Stock shareholders from investment
income--net ............................................. (.07) (.09) (.22) (.28) (.22)
--------------------------------------------------------
Total from investment operations .......................... 1.59 .77 1.77 1.30 (1.22)
--------------------------------------------------------
Less dividends to Common Stock shareholders from investment
income--net ............................................. (.99) (.90) (.80) (.79) (.82)
--------------------------------------------------------
Net asset value, end of year .............................. $ 14.76 $ 14.16 $ 14.29 $ 13.32 $ 12.81
========================================================
Market price per share, end of year ....................... $ 14.26 $ 13.36 $ 13.69 $11.625 $ 11.75
========================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on market price per share ........................... 14.56% 4.25% 25.20% 5.93% (13.49%)
========================================================
Based on net asset value per share ........................ 11.88% 5.86% 14.06% 11.33% (8.31%)
========================================================
==================================================================================================================================
Ratios Based on Average Net Assets of Common Stock
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement** .................... 1.01% 1.05% 1.02% 1.08% 1.01%
========================================================
Total expenses** .......................................... 1.01% 1.05% 1.02% 1.08% 1.01%
========================================================
Total investment income--net** ............................ 8.01% 7.79% 7.42% 8.00% 7.36%
========================================================
Amount of dividends to Preferred Stock shareholders ....... .46% .66% 1.57% 2.15% 1.53%
========================================================
Investment income--net, to Common Stock shareholders ...... 7.55% 7.13% 5.85% 5.85% 5.83%
========================================================
==================================================================================================================================
Ratios Based on Average Net Assets of Common and Preferred Stock**
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement ...................... .69% .71% .69% .71% .68%
========================================================
Total expenses ............................................ .69% .71% .69% .71% .68%
========================================================
Total investment income--net .............................. 5.46% 5.26% 4.98% 5.24% 4.99%
========================================================
==================================================================================================================================
Ratios Based on Average Net Assets of Preferred Stock
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders ................. .98% 1.38% 3.22% 4.08% 3.22%
========================================================
16 MUNIVEST FUND II, INC. OCTOBER 31, 2003
Financial Highlights (concluded)
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended October 31,
------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001+ 2000+ 1999+
=============================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock, end of year
(in thousands) ................................. $293,753 $281,830 $284,547 $265,169 $254,975
============================================================
Preferred Stock outstanding, end of year
(in thousands) ................................. $135,000 $135,000 $135,000 $135,000 $135,000
============================================================
Portfolio turnover ............................... 31.50% 66.07% 87.80% 110.66% 114.06%
============================================================
=============================================================================================================================
Leverage
- -----------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 ........................ $ 3,176 $ 3,088 $ 3,108 $ 2,964 $ 2,889
============================================================
=============================================================================================================================
Dividends Per Share on Preferred Stock Outstanding
- -----------------------------------------------------------------------------------------------------------------------------
Series A--Investment income--net ......... $ 251 $ 338 $ 793 $ 1,067 $ 816
============================================================
Series B--Investment income--net ......... $ 248 $ 319 $ 834 $ 990 $ 810
============================================================
Series C--Investment income--net ......... $ 240 $ 375 $ 784 $ 1,012 $ 786
============================================================
* 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
charges.
** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Certain prior year amounts have been reclassified to conform to current
year presentation.
++ Based on average shares outstanding.
See Notes to Financial Statements.
MUNIVEST FUND II, INC. OCTOBER 31, 2003 17
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements
1. Significant Accounting Policies:
MuniVest Fund II, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as a non-diversified, closed-end management investment
company. The Fund's financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America, which
may require the use of management accruals and estimates. 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 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 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 written or purchased are valued at the last sale price in the case of
exchange-traded options. In the case of options traded in the over-the-counter
market, valuation is the last asked price (options written) or the last bid
price (options purchased). Swap agreements are valued by quoted fair values
received daily by the Fund from the counterparty. 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
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
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. 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).
18 MUNIVEST FUND II, INC. OCTOBER 31, 2003
Notes to Financial Statements (continued)
Written and purchased options are non-income producing investments.
o Forward interest rate swaps -- The Fund may enter into forward interest
rate swaps. In a forward interest rate swap, the Fund and the counterparty
agree to make periodic net payments on a specified notional contract
amount, commencing on a specified future effective date, unless terminated
earlier. When the agreement is closed, the Fund records a realized gain or
loss in an amount equal to the value of the agreement.
(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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(e) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of .50% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Stock. For the year ended October 31,
2003, FAM reimbursed the Fund in the amount of $12,355.
For the year ended October 31, 2003, the Fund reimbursed FAM $9,210 for certain
accounting services.
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, 2003 were $137,330,769 and $129,264,685, respectively.
Net realized gains for the year ended October 31, 2003 and net unrealized gains
(losses) as of October 31, 2003 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments ................. $ 2,822,972 $ 29,180,021
Forward interest rate swaps ........... 1,310,478 (45,302)
--------------------------------
Total ................................. $ 4,133,450 $ 29,134,719
================================
As of October 31, 2003, net unrealized appreciation for Federal income tax
purposes aggregated $29,287,903, of which $32,477,814 related to appreciated
securities and $3,189,911 related to depreciated securities. The aggregate cost
of investments at October 31, 2003 for Federal income tax purposes was
$388,891,542.
MUNIVEST FUND II, INC. OCTOBER 31, 2003 19
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded)
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of 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 stock without approval of holders of Common Stock.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.05 per share and a liquidation preference of $25,000
per share plus accrued and unpaid dividends, 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, 2003 were as follows:
Series A, .81%; Series B, .74%; and Series C, .80%.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of each
auction. For the year ended October 31, 2003, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, an affiliate of FAM, earned $132,746 as commissions.
5. Distributions to Shareholders:
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of $.086000 per share on November 26, 2003, to shareholders of record on
November 14, 2003.
The tax character of distributions paid during the fiscal years ended October
31, 2003 and October 31, 2002 was as follows:
- --------------------------------------------------------------------------------
10/31/2003 10/31/2002
- --------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $21,118,389 $19,684,692
-------------------------------
Total distributions .................... $21,118,389 $19,684,692
===============================
As of October 31, 2003, the components of accumulated earnings on a tax basis
were as follows:
- -----------------------------------------------------------------------------
Undistributed tax-exempt income--net .................... $ 6,720,898
Undistributed long-term capital gains--net .............. --
------------
Total undistributed earnings--net ....................... 6,720,898
Capital loss carryforward ............................... (17,731,217)*
Unrealized gains--net ................................... 25,228,738**
------------
Total accumulated earnings--net ......................... $ 14,218,419
============
* On October 31, 2003, the Fund had a net capital loss carryforward of
$17,731,217, of which $8,972,783 expires in 2007 and $8,758,434 expires in
2008. This amount will be available to offset like amounts of any future
taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on straddles, and the
difference between book and tax amortization methods for premiums and
discounts on fixed income securities.
20 MUNIVEST FUND II, INC. OCTOBER 31, 2003
Independent Auditors' Report
To the Shareholders and Board of Directors of
MuniVest Fund II, Inc.:
We have audited the accompanying statement of net assets, including the schedule
of investments, of MuniVest Fund II, Inc. as of October 31, 2003, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and 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 as of October 31, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
MuniVest Fund II, Inc. as of October 31, 2003, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
December 17, 2003
Dividend Policy
The Fund's dividend policy is to distribute all or a portion of its net
investment income to its shareholders on a monthly basis. In order to provide
shareholders with a more stable level of dividend distributions, 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 Net Assets, which
comprises part of the financial information included in this report.
MUNIVEST FUND II, INC. OCTOBER 31, 2003 21
[LOGO] Merrill Lynch Investment Managers
Automatic Dividend Reinvestment Plan
The following description of the Fund's Automatic Dividend Reinvestment Plan
(the "Plan") is sent to you annually as required by Federal securities laws.
Pursuant to the Fund's Plan, unless a holder of Common Stock otherwise elects,
all dividend and capital gains distributions will be automatically reinvested by
The Bank of New York (the "Plan Agent"), as agent for shareholders in
administering the Plan, in additional shares of Common Stock of the Fund.
Holders of Common Stock who elect not to participate in the Plan will receive
all distributions in cash paid by check mailed directly to the shareholder of
record (or, if the shares are held in street or other nominee name then to such
nominee) by The Bank of New York, as dividend paying agent. Such participants
may elect not to participate in the Plan and to receive all distributions of
dividends and capital gains in cash by sending written instructions to The Bank
of New York, as dividend paying agent, at the address set forth below.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date; otherwise such
termination will be effective with respect to any subsequently declared dividend
or distribution.
Whenever the Fund declares an income dividend or capital gains distribution
(collectively referred to as "dividends") payable either in shares or in cash,
non-participants in the Plan will receive cash and participants in the Plan will
receive the equivalent in shares of Common Stock. The shares will be acquired by
the Plan Agent for the participant's account, depending upon the circumstances
described below, either (i) through receipt of additional unissued but
authorized shares of Common Stock from the Fund ("newly issued shares") or (ii)
by purchase of outstanding shares of Common Stock on the open market
("open-market purchases") on the New York Stock Exchange or elsewhere. If on the
payment date for the dividend, the net asset value per share of the Common Stock
is equal to or less than the market price per share of the Common Stock plus
estimated brokerage commissions (such conditions being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
Common Stock to be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued, provided that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on an "ex-dividend" basis or in no event more than 30 days after the
dividend payment date (the "last purchase date") to invest the dividend amount
in shares acquired in open-market purchases. It is contemplated that the Fund
will pay monthly income dividends. Therefore, the period during which
open-market purchases can be made will exist only from the payment date on the
dividend through the date before the next "ex-dividend" date, which typically
will be approximately ten days. If, before the Plan Agent has completed its
open-market purchases, the market price of a share of Common Stock exceeds the
net asset value per share, the average per share purchase price paid by the Plan
Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisitions of fewer shares than if the dividend had been paid in newly issued
shares on the dividend payment date. Because of the foregoing difficulty with
respect to open-market purchases, the Plan provides that if the Plan Agent is
unable to invest the full dividend amount in open-market purchases during the
purchase period or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market purchases and will
invest the uninvested portion of the dividend amount in newly issued shares at
the close of business on the last purchase date determined by dividing the
uninvested portion of the dividend by the net asset value per share.
22 MUNIVEST FUND II, INC. OCTOBER 31, 2003
Automatic Dividend Reinvestment Plan (concluded)
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent in non-certificated form in the name
of the participant, and each shareholder's proxy will include those shares
purchased or received pursuant to the Plan. The Plan Agent will forward all
proxy solicitation materials to participants and vote proxies for shares held
pursuant to the Plan in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which hold shares
of others who are the beneficial owners, the Plan Agent will administer the Plan
on the basis of the number of shares certified from time to time by the record
shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of dividends or capital gains distributions payable either in
shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus commissions
of the Fund's shares is above the net asset value, participants in the Plan will
receive shares of the Fund at less than they could otherwise purchase them and
will have shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market price plus
commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Fund does not redeem
shares, the price on resale may be more or less than the net asset value.
The value of shares acquired pursuant to the Plan will generally be excluded
from gross income to the extent that the cash amount reinvested would be
excluded from gross income. If, when the Fund's shares are trading at a premium
over net asset value, the Fund issues shares pursuant to the Plan that have a
greater fair market value than the amount of cash reinvested, it is possible
that all or a portion of such discount (which may not exceed 5% of the fair
market value of the Fund's shares) could be viewed as a taxable distribution. If
the discount is viewed as a taxable distribution, it is also possible that the
taxable character of this discount would be allocable to all the shareholders,
including shareholders who do not participate in the Plan. Thus, shareholders
who do not participate in the Plan might be required to report as ordinary
income a portion of their distributions equal to their allocable share of the
discount.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
All correspondence concerning the Plan should be directed to the Plan Agent at
The Bank of New York, Church Street Station, P.O. Box 11258, New York, NY
10286-1258, Telephone: 800-432-8224.
MUNIVEST FUND II, INC. OCTOBER 31, 2003 23
[LOGO] Merrill Lynch Investment Managers
Officers and Directors (unaudited)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 1999 to President and Chairman of Merrill Lynch Investment 124 Funds None
Glenn* Princeton, NJ and present Managers, L.P. ("MLIM")/Fund Asset Management, 163 Portfolios
08543-9011 Director and L.P. ("FAM")--Advised Funds since 1999; Chairman
Age: 63 1993 to (Americas Region) of MLIM from 2000 to 2002;
present Executive Vice President of FAM and MLIM (which
terms as used herein include their corporate
predecessors) from 1983 to 2002; President of
FAM Distributors, Inc. ("FAMD") from 1986 to 2002
and Director thereof from 1991 to 2002; Executive
Vice President and Director of Princeton Services,
Inc. ("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P. from
1989 to 2002; Director of Financial Data Services,
Inc. since 1985.
------------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM or
MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of
the Fund based on his former positions with FAM, MLIM, FAMD, Princeton Services and Princeton Administrators, L.P. The
Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of the
year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of Directors.
====================================================================================================================================
Independent Directors*
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald W. P.O. Box 9095 Director 1993 to Professor Emeritus of Finance, School of Business, 50 Funds None
Forbes Princeton, NJ present State University of New York at Albany since 2000 49 Portfolios
08543-9095 and Professor thereof from 1989 to 2000;
Age: 63 International Consultant at the Urban Institute
from 1995 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Cynthia A. P.O. Box 9095 Director 1993 to Professor, Harvard Business School since 1989. 50 Funds Unum
Montgomery Princeton, NJ present 49 Portfolios Provident
08543-9095 Corporation
Age: 51 and Newell
Rubbermaid,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Charles C. P.O. Box 9095 Director 1993 to Self-employed financial consultant since 1990. 50 Funds None
Reilly Princeton, NJ present 49 Portfolios
08543-9095
Age: 72
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin A. P.O. Box 9095 Director 1993 to Founder and Director Emeritus of The Boston 50 Funds None
Ryan Princeton, NJ present University Center for the Advancement of 49 Portfolios
08543-9095 Ethics and Character; Professor of Education at
Age: 71 Boston University from 1982 to 1999 and
Professor Emeritus thereof since 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Roscoe S. P.O. Box 9095 Director 2000 to President, Middle East Institute from 1995 to 50 Funds None
Suddarth Princeton, NJ present 2001; Foreign Service Officer, United States 49 Portfolios
08543-9095 Foreign Service from 1961 to 1995; Career
Age: 68 Minister from 1989 to 1995; Deputy Inspector
General, U.S. Department of State, from 1991
to 1994; U.S. Ambassador to the Hashemite
Kingdom of Jordan from 1987 to 1990.
- ------------------------------------------------------------------------------------------------------------------------------------
24 MUNIVEST FUND II, INC. OCTOBER 31, 2003
Officers and Directors (unaudited) (concluded)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Richard R. P.O. Box 9095 Director 1993 to Dean Emeritus of New York University, Leonard 50 Funds Bowne &
West Princeton, NJ present N. Stern School of Business Administration 49 Portfolios Co., Inc.;
08543-9095 since 1994. Vornado
Age: 65 Realty Trust;
Vornado
Operating
Company and
Alexander's,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Edward D. P.O. Box 9095 Director 2000 to Self-employed financial consultant since 1994; 50 Funds None
Zinbarg Princeton, NJ present Executive Vice President of The Prudential 49 Portfolios
08543-9095 Insurance Company of America from 1988 to
Age: 69 1994; Former Director of Prudential Reinsurance
Company and former Trustee of The Prudential
Foundation.
------------------------------------------------------------------------------------------------------------------------
* The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of
the year in which they turn 72.
- ------------------------------------------------------------------------------------------------------------------------------------
Position(s) Length
Held of Time
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof
Burke Princeton, NJ President present since 1999; Senior Vice President and Treasurer of Princeton Services since
08543-9011 and and 1999; Vice President of FAMD since 1999; Director of MLIM Taxation
Age: 43 Treasurer 1999 to since 1990.
present
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9011 Senior 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
Jacob Princeton, NJ Vice present Management) of MLIM from 1997 to 2000.
08543-9011 President
Age: 52
- ------------------------------------------------------------------------------------------------------------------------------------
John M. P.O. Box 9011 Senior 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
Loffredo Princeton, NJ Vice present Management) of MLIM from 1998 to 2000.
08543-9011 President
Age: 39
- ------------------------------------------------------------------------------------------------------------------------------------
Fred K. P.O. Box 9011 Vice 1998 to Director (Municipal Tax-Exempt Fund Management) of MLIM since 2000; Vice
Stuebe Princeton, NJ President present President of MLIM from 1994 to 2000.
08543-9011
Age: 53
- ------------------------------------------------------------------------------------------------------------------------------------
Brian D. P.O. Box 9011 Secretary 2002 to Vice President (Legal Advisory) of MLIM since 2002; Attorney with Reed Smith
Stewart Princeton, NJ present from 2001 to 2002; Attorney with Saul Ewing from 1999 to 2001.
08543-9011
Age: 34
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
MVT
MUNIVEST FUND II, INC. OCTOBER 31, 2003 25
[LOGO] Merrill Lynch Investment Managers
Quality Profile (unaudited)
The quality ratings of securities in the Fund as of October 31, 2003 were as
follows:
- --------------------------------------------------------------------------------
Percent of
Total
S&P Rating/Moody's Rating Investments
- --------------------------------------------------------------------------------
AAA/Aaa ................................................. 30.3%
AA/Aa ................................................... 14.9
A/A ..................................................... 9.9
BBB/Baa ................................................. 22.3
BB/Ba ................................................... 10.5
B/B ..................................................... 0.9
CCC/Caa ................................................. 0.7
NR (Not Rated) .......................................... 10.5
- --------------------------------------------------------------------------------
Important Tax Information (unaudited)
All of the net investment income distributions paid by MuniVest Fund II, Inc.
during its taxable year ended October 31, 2003 qualify as tax-exempt interest
dividends for Federal income tax purposes.
Please retain this information for your records.
26 MUNIVEST FUND II, INC. OCTOBER 31, 2003
Electronic Delivery
The Fund is now offering electronic delivery of communications to its
shareholders. In order to receive this service, you must register your account
and provide us with e-mail information. To sign up for this service, simply
access this website http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification number
(PIN). You will need this PIN should you wish to update your e-mail address,
choose to discontinue this service and/or make any other changes to the service.
This service is not available for certain retirement accounts at this time.
MUNIVEST FUND II, INC. OCTOBER 31, 2003 27
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
MuniVest Fund II, Inc. seeks to provide shareholders with as high a level of
current income exempt from Federal income taxes as is consistent with its
investment policies and prudent investment management by investing primarily in
a portfolio of long-term, investment-grade municipal obligations the interest on
which, in the opinion of bond counsel to the issuer, is exempt from Federal
income taxes.
This report, including the financial information herein, is transmitted to
shareholders of MuniVest Fund II, Inc. for their information. It is not a
prospectus. Past performance results shown in this report should not be
considered a representation of future performance. The Fund has leveraged its
Common Stock and intends to remain leveraged 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 -- 10/03
Item 2 - Did registrant adopt a code of ethics, as of the end of the period
covered by this report, that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party? If not, why not? Briefly describe any amendments or
waivers that occurred during the period. State here if code of
ethics/amendments/waivers are on website and give website address-.
State here if fund will send code of ethics to shareholders without
charge upon request--
The registrant has adopted a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer and principal
accounting officer, or persons performing similar functions. A copy of
the code of ethics is available without charge upon request by calling
toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Did the registrant's board of directors determine that the registrant
either: (i) has at least one audit committee financial expert serving
on its audit committee; or (ii) does not have an audit committee
financial expert serving on its audit committee? If yes, disclose name
of financial expert and whether he/she is "independent," (fund may, but
is not required, to disclose name/independence of more than one
financial expert) If no, explain why not. -
The registrant's board of directors has determined that (i) the
registrant has the following audit committee financial experts serving
on its audit committee and (ii) each audit committee financial expert
is independent: (1) Ronald W. Forbes, (2) Richard R. West, and (3)
Edward D. Zinbarg.
Item 4 - Disclose annually only (not answered until December 15, 2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by
the principal accountant for the audit of the
registrant's annual financial statements or services
that are normally provided by the accountant in
connection with statutory and regulatory filings or
engagements for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and
related services by the principal accountant
that are reasonably related to the performance
of the audit of the registrant's financial
statements and are not reported under
paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising
the fees disclosed under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and
tax planning. Registrants shall describe the nature of
the services comprising the fees disclosed under this
category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services
provided by the principal accountant, other than
the services reported in paragraphs (a) through
(c) of this Item. Registrants shall describe the
nature of the services comprising the fees
disclosed under this category. N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of
Regulation S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by
the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule
2-01 of Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended on
the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for each
of the last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-3 under the
Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d) under
the Exchange Act regarding an exemption from the listing standards for
audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by the
earlier of their first annual shareholders meeting after January 2004,
or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in their portfolio,
describe the policies and procedures that it uses to determine how to
vote proxies relating to those portfolio securities.
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill Lynch
Investment Managers, L.P. and/or Fund Asset Management, L.P. (the
"Investment Adviser") authority to vote all proxies relating to the
Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("Proxy Voting Procedures") with respect to the
voting of proxies related to the portfolio securities held in the
account of one or more of its clients, including a Fund. Pursuant to
these Proxy Voting Procedures, the Investment Adviser's primary
objective when voting proxies is to make proxy voting decisions solely
in the best interests of each Fund and its shareholders, and to act in
a manner that the Investment Adviser believes is most likely to enhance
the economic value of the securities held by the Fund. The Proxy Voting
Procedures are designed to ensure that the Investment Adviser considers
the interests of its clients, including the Funds, and not the
interests of the Investment Adviser, when voting proxies and that real
(or perceived) material conflicts that may arise between the Investment
Adviser's interest and those of the Investment Adviser's clients are
properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment professionals
appointed by the CIO, portfolio managers and investment analysts
appointed by the CIO and any other personnel the CIO deems appropriate.
The Committee will also include two non-voting representatives from the
Investment Adviser's Legal department appointed by the Investment
Adviser's General Counsel. The Committee's membership shall be limited
to full-time employees of the Investment Adviser. No person with any
investment banking, trading, retail brokerage or research
responsibilities for the Investment Adviser's affiliates may serve as a
member of the Committee or participate in its decision making (except
to the extent such person is asked by the Committee to present
information to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser might
be asked to do so). The Committee determines how to vote the proxies of
all clients, including a Fund, that have delegated proxy voting
authority to the Investment Adviser and seeks to ensure that all votes
are consistent with the best interests of those clients and are free
from unwarranted and inappropriate influences. The Committee
establishes general proxy voting policies for the Investment Adviser
and is responsible for determining how those policies are applied to
specific proxy votes, in light of each issuer's unique structure,
management, strategic options and, in certain circumstances, probable
economic and other anticipated consequences of alternate actions. In so
doing, the Committee may determine to vote a particular proxy in a
manner contrary to its generally stated policies. In addition, the
Committee will be responsible for ensuring that all reporting and
recordkeeping requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires a
case-by-case determination. In such cases, the Committee may elect not
to adopt a specific voting policy applicable to that issue. The
Investment Adviser believes that certain proxy voting issues require
investment analysis - such as approval of mergers and other significant
corporate transactions - akin to investment decisions, and are,
therefore, not suitable for general guidelines. The Committee may elect
to adopt a common position for the Investment Adviser on certain proxy
votes that are akin to investment decisions, or determine to permit the
portfolio manager to make individual decisions on how best to maximize
economic value for a Fund (similar to normal buy/sell investment
decisions made by such portfolio managers). While it is expected that
the Investment Adviser will generally seek to vote proxies over which
the Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in conjunction
with a Fund's portfolio manager, may determine that the Fund's specific
circumstances require that its proxies be voted differently.
To assist the Investment Adviser in voting proxies, the Committee has
retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For
instance, under the Proxy Voting Procedures, the Investment Adviser
generally will not seek to vote proxies related to portfolio securities
that are on loan, although it may do so under certain circumstances. In
addition, the Investment Adviser will vote proxies related to
securities of foreign issuers only on a best efforts basis and may
elect not to vote at all in certain countries where the Committee
determines that the costs associated with voting generally outweigh the
benefits. The Committee may at any time override these general policies
if it determines that such action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote proxies in
respect of an issuer where an affiliate of the Investment Adviser (each, an
"Affiliate"), or a money management or other client of the Investment Adviser
(each, a "Client") is involved. The Proxy Voting Procedures and the Investment
Adviser's adherence to those procedures are designed to address such conflicts
of interest. The Committee intends to strictly adhere to the Proxy Voting
Procedures in all proxy matters, including matters involving Affiliates and
Clients. If, however, an issue representing a non-routine matter that is
material to an Affiliate or a widely known Client is involved such that the
Committee does not reasonably believe it is able to follow its guidelines (or if
the particular proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes of ensuring
that an independent determination is reached, retain an independent fiduciary to
advise the Committee on how to vote or to cast votes on behalf of the Investment
Adviser's clients.
In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent
fiduciary, the powers of the Committee shall pass to a subcommittee,
appointed by the CIO (with advice from the Secretary of the Committee),
consisting solely of Committee members selected by the CIO. The CIO
shall appoint to the subcommittee, where appropriate, only persons
whose job responsibilities do not include contact with the Client and
whose job evaluations would not be affected by the Investment Adviser's
relationship with the Client (or failure to retain such relationship).
The subcommittee shall determine whether and how to vote all proxies on
behalf of the Investment Adviser's clients or, if the proxy matter is,
in their judgment, akin to an investment decision, to defer to the
applicable portfolio managers, provided that, if the subcommittee
determines to alter the Investment Adviser's normal voting guidelines
or, on matters where the Investment Adviser's policy is case-by-case,
does not follow the voting recommendation of any proxy voting service
or other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies relating
to the Client may be voted unless the Secretary, or in the Secretary's
absence, the Assistant Secretary of the Committee concurs that the
subcommittee's determination is consistent with the Investment
Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain recurring
proxy issues that are not expected to involve unusual circumstances.
These policies are guidelines only, and the Investment Adviser may
elect to vote differently from the recommendation set forth in a voting
guideline if the Committee determines that it is in a Fund's best
interest to do so. In addition, the guidelines may be reviewed at any
time upon the request of a Committee member and may be amended or
deleted upon the vote of a majority of Committee members present at a
Committee meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
o Proposals related to the composition of the Board of Directors of issuers
other than investment companies. As a general matter, the Committee
believes that a company's Board of Directors (rather than shareholders) is
most likely to have access to important, nonpublic information regarding a
company's business and prospects, and is therefore best-positioned to set
corporate policy and oversee management. The Committee, therefore,
believes that the foundation of good corporate governance is the election
of qualified, independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of the
corporation in a manner that will seek to maximize shareholder value over
time. In individual cases, the Committee may look at a nominee's history
of representing shareholder interests as a director of other companies or
other factors, to the extent the Committee deems relevant.
o Proposals related to the selection of an issuer's independent auditors. As
a general matter, the Committee believes that corporate auditors have a
responsibility to represent the interests of shareholders and provide an
independent view on the propriety of financial reporting decisions of
corporate management. While the Committee will generally defer to a
corporation's choice of auditor, in individual cases, the Committee may
look at an auditors' history of representing shareholder interests as
auditor of other companies, to the extent the Committee deems relevant.
o Proposals related to management compensation and employee benefits. As a
general matter, the Committee favors disclosure of an issuer's
compensation and benefit policies and opposes excessive compensation, but
believes that compensation matters are normally best determined by an
issuer's board of directors, rather than shareholders. Proposals to
"micro-manage" an issuer's compensation practices or to set arbitrary
restrictions on compensation or benefits will, therefore, generally not be
supported.
o Proposals related to requests, principally from management, for approval
of amendments that would alter an issuer's capital structure. As a general
matter, the Committee will support requests that enhance the rights of
common shareholders and oppose requests that appear to be unreasonably
dilutive.
o Proposals related to requests for approval of amendments to an issuer's
charter or by-laws. As a general matter, the Committee opposes poison pill
provisions.
o Routine proposals related to requests regarding the formalities of
corporate meetings.
o Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the Committee
believes that a fund's Board of Directors (rather than its shareholders)
is best-positioned to set fund policy and oversee management. However, the
Committee opposes granting Boards of Directors authority over certain
matters, such as changes to a fund's investment objective, that the
Investment Company Act envisions will be approved directly by
shareholders.
o Proposals related to limiting corporate conduct in some manner that
relates to the shareholder's environmental or social concerns. The
Committee generally believes that annual shareholder meetings are
inappropriate forums for discussion of larger social issues, and opposes
shareholder resolutions "micromanaging" corporate conduct or requesting
release of information that would not help a shareholder evaluate an
investment in the corporation as an economic matter. While the Committee
is generally supportive of proposals to require corporate disclosure of
matters that seem relevant and material to the economic interests of
shareholders, the Committee is generally not supportive of proposals to
require disclosure of corporate matters for other purposes.
Item 8 -- Reserved
Item 9(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b) -- There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon request
without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the Sarbanes-Oxley Act.
Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MuniVest Fund II, Inc.
By: /s/ Terry K. Glenn
--------------------------
Terry K. Glenn,
President of
MuniVest Fund II, Inc.
Date: December 22, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Terry K. Glenn
--------------------------
Terry K. Glenn,
President of
MuniVest Fund II, Inc.
Date: December 22, 2003
By: /s/ Donald C. Burke
--------------------------
Donald C. Burke,
Chief Financial Officer of
MuniVest Fund II, Inc.
Date: December 22, 2003
Attached hereto as a furnished exhibit are the certifications pursuant
to Section 906 of the Sarbanes-Oxley Act.