UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
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: 10/31/04
Date of reporting period: 11/01/03 - 04/30/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
MuniVest Fund II, Inc.
Semi-Annual Report
April 30, 2004
[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 April 30, 2004, the percentage of the Fund's
total net assets invested in inverse floaters was 11.03%.
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. APRIL 30, 2004
A Letter From the President
Dear Shareholder
For the six-month and 12-month periods ended April 30, 2004, the Lehman Brothers
Municipal Bond Index posted returns of +1.19% and +2.68%, respectively. Its
taxable counterpart, the Lehman Brothers Aggregate Bond Index, had returns of
+1.25% and +1.82% for the same periods. Amid considerable month-to-month
volatility, tax-exempt bond yields rose over the past year, although not to the
same extent as 10-year U.S. Treasury yields. In all, tax-exempt securities
continued to be an attractive fixed income investment alternative.
As of April month-end, the Federal Reserve Board maintained its accommodative
policy stance, although a better-than-expected employment report for the month
of March prompted speculation that an interest rate increase could come sooner
than many had expected. On April 2, 2004, the good news on the employment front
- -- previously the one dim spot in an otherwise bright economic picture -- helped
prompt the yield on the 10-year Treasury bond to spike nearly 25 basis points
(.25%), from 3.91% to 4.15%. Market watchers continue to monitor the economic
data and Federal Reserve Board language for indications of interest rate
direction. If economic growth maintains its recent pace and employment figures
continue to improve, many believe it is just a matter of time before interest
rates move upward.
Equity markets, in the meantime, gleaned support from the improving economic
environment and provided attractive returns. For the six-month and 12-month
periods ended April 30, 2004, the Standard & Poor's 500 Index returned +6.27%
and +22.88%, respectively. Significant fiscal and monetary stimulus in 2003,
including low interest rates and tax cuts, has opened the door to consumer
spending, capital spending, increases in exports and long-awaited job growth. As
expected, these developments have led the way to improvements in corporate
earnings -- a positive for stock markets.
The events and efforts of the past year leave us with a much stronger economy
today. Of course, markets will always fluctuate, and there are many
uncertainties -- not the least of which are geopolitical in nature -- which can
translate into negative market movements. Keeping this in mind, we encourage you
to revisit your portfolio and your asset allocation strategy to ensure you are
well positioned to take advantage of the opportunities that lie ahead.
Importantly, your financial advisor can help you develop a strategy most
suitable for your circumstances through all types of market and economic cycles.
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. APRIL 30, 2004 3
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A Discussion With Your Fund's Portfolio Manager
The Fund was able to outperform its Lipper category average for the period
as we remained focused on enhancing yield and preserving net asset value in a
volatile interest rate environment.
Describe the recent market environment relative to municipal bonds.
For much of the six-month period, a positive economic backdrop helped bond
prices to move higher as yields, which typically move opposite of prices,
declined. In early April, however, a surprisingly strong monthly employment
report triggered fears that the long accommodative Federal Reserve Board might
raise interest rates sooner than many had expected. As a result, bond yields
rose (prices fell) sharply for the remainder of the period. At the end of April,
long-term U.S. Treasury bond yields had climbed to 5.13%, representing an
increase of approximately 15 basis points (.15%) over the past six months.
Ten-year U.S. Treasury note yields stood at 4.30% as of period end, an increase
of more than 20 basis points.
Tax-exempt bond yields generally mimicked the movement of their taxable
counterparts, although volatility in the municipal market was more subdued.
Long-term revenue bond yields, as measured by the Bond Buyer Revenue Bond Index,
rose just four basis points over the past six months. For the same period,
yields on AAA-rated issues maturing in 30 years rose approximately 10 basis
points to 4.93% while yields on 10-year, AAA-rated issues increased more than 16
basis points to nearly 4%, according to Municipal Market Data. The more marked
increase in 10-year bond yields may be attributed to the fact that recent
issuance has been heavily concentrated in the 10-year - 20-year range. The
resulting supply imbalance prompted higher intermediate bond yields (and lower
prices). Longer-maturity and lower-rated issues continued to benefit from more
favorable supply/demand factors and, therefore, have seen less price
depreciation. For the six-month period as a whole, municipal bond supply
declined approximately 5% compared to the same period a year ago.
While investor enthusiasm for stocks has taken some attention away from fixed
income markets, overall demand for tax-exempt municipal bonds has remained
positive. Recent Federal Reserve Board statistics showed that U.S. household
holdings of municipal securities increased by more than $25 billion during the
fourth quarter of 2003 to approximately $680 billion. In addition, data from the
Investment Company Institute indicates that, in just the first three months of
2004, tax-exempt bond funds have seen net new cash flows of almost $640 million.
How did the Fund perform in light of the existing market conditions?
For the six-month period ended April 30, 2004, the Common Stock of MuniVest Fund
II, Inc. had net annualized yields of 7.35% and 7.81%, based on a period-end per
share net asset value of $14.74 and a per share market price of $13.86,
respectively, and $.540 per share income dividends. During the same period, the
total investment return on the Fund's Common Stock was +3.53%, based on a change
in per share net asset value from $14.76 to $14.74, and assuming reinvestment of
$.534 per share ordinary income dividends.
For the six-month period ended April 30, 2004, the Fund's Auction Market
Preferred Stock (AMPS) had average yields as follows: Series A, .84%; Series B,
..82%; and Series C, 1.05%.
The Fund's return, based on net asset value, over the past six months
significantly exceeded that of its comparable Lipper category of General
Municipal Debt Funds (Leveraged), which had a return of +2.20% for the six
months ended April 30, 2004. (Funds in this Lipper category invest primarily in
municipal debt issues rated in the top four credit rating categories. These
funds can be leveraged via use of debt, preferred equity and/or reverse
repurchase agreements.) Recent performance has reflected the Fund's modestly
defensive structure during a period of volatile interest rates. By maintaining a
conservative duration slightly below that of our peers, the Fund was better
equipped to weather movements in interest rates. In general, the lower the
duration, the less an investment will fluctuate in value as interest rates move
up or down. The Fund's position in lower-rated issues also helped to limit asset
price volatility, as these issues tend to be less interest rate-sensitive than
higher-rated obligations. The incremental yield associated with these
lower-rated issues also has continued to enhance the Fund's coupon income stream
well above the average of its peers.
4 MUNIVEST FUND II, INC. APRIL 30, 2004
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
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.
What changes were made to the portfolio during the period?
Portfolio activity was somewhat restricted, as recent municipal bond issuance
has been dominated by large, high-quality underwritings. As mentioned earlier,
these large issues have been heavily weighted in the 10-year - 20-year maturity
range to more closely align with individual retail investor interest. We have
found the relatively low yields associated with these issues to be unappealing
compared to the Fund's existing holdings. Instead, we continued to add
lower-quality bonds to the portfolio whenever they were attractively priced. The
resultant level of income generated by these bonds allowed the Fund to enhance
its returns during the period.
Another opportunity we sought to capitalize on was the heavy supply and
relatively low price of California bonds. The state's recent fiscal problems
have afforded us an opportunity to add attractively priced state-backed issues
to the Fund's holdings. In fact, we increased the portfolio's exposure to
California-related credits by approximately 5% during the period, bringing the
Fund's allocation to approximately 8.5% of net assets. As the state resolves its
recent financial problems, we expect these issues to outperform the broader
municipal market, benefiting Fund performance as a result.
In terms of leverage, the Fund's borrowing costs remained around 1% throughout
most of the six-month period. These attractive funding levels, in combination
with the steep municipal yield curve, continued to generate significant income
to the Fund's Common Stock shareholders. The Federal Reserve Board appears
poised to begin raising short-term interest rates, most likely later in 2004.
The increase, however, is expected to be gradual and should not have a material
impact on the positive advantage leverage has had on the Fund's Common Stock
yield. However, should the spread between short-term and long-term interest
rates narrow, the benefits of leveraging will decline and, as a result, reduce
the yield on the Fund's Common Stock. At the end of the period, the Fund's
leverage amount, due to AMPS, was 31.47% of total assets. (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 in a slightly defensive stance with respect to interest
rates. We believe this positioning readies the Fund to perform better in stable
to slightly rising interest rate environments. We would expect to adopt a more
defensive stance when interest rates decline during periods of market
volatility.
The Fund was fully invested at period-end in an effort to enhance investment
income flows. With short-term cash equivalents yielding only approximately 1%,
the performance penalty for holding assets in cash reserves is far too severe.
We continue to favor higher-couponed, lower-rated issues over more interest
rate-sensitive current-couponed issues.
With economic growth expected to continue its moderate advance, long-term
interest rates are likely to begin reversing their recent declines. The timing
of this reversal, however, remains unclear. We believe the Federal Reserve Board
will want to see consistent, strong employment growth before it will consider
raising short-term interest rates. Such a move is not probable until later this
year. In any case, given consensus inflationary forecasts, any increase in
long-term interest rates is likely to be moderate. With all of this is mind, and
considering expectations for manageable new-issue volume in 2004, we believe the
municipal market is poised to provide attractive returns compared to the taxable
bond market regardless of the interest rate environment.
Fred K. Stuebe
Vice President and Portfolio Manager
May 12, 2004
MUNIVEST FUND II, INC. APRIL 30, 2004 5
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Schedule of Investments (in Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
===================================================================================================================================
Alabama--1.6% NR* A2 $ 4,500 Huntsville, Alabama, Health Care Authority Revenue Bonds,
Series B, 5.75% due 6/01/2032 $ 4,669
===================================================================================================================================
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 1,247
AAA Aaa 2,315 Maricopa County, Arizona, Tempe Elementary Unified School
District Number 3, GO, Refunding, 7.50% due 7/01/2010 (c) 2,833
===================================================================================================================================
California--13.2% BBB- Baa2 4,360 California State Public Works Board, Lease Revenue Bonds
(Department of Mental Health--Coalinga State Hospital),
Series A, 5.125% due 6/01/2029 4,179
California State, Various Purpose, GO:
BBB Aaa 4,400 5.50% due 4/01/2030 4,501
BBB Baa1 8,000 5.50% due 11/01/2033 8,172
BBB Aaa 4,120 5.25% due 4/01/2034 4,063
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 1,273
Golden State Tobacco Securitization Corporation of
California, Tobacco Settlement Revenue Bonds:
NR* Baa3 1,000 Series A-2, 7.90% due 6/01/2042 1,063
BBB Baa3 4,310 Series A-3, 7.875% due 6/01/2042 4,575
BBB- Baa2 3,750 Series B, 5.375% due 6/01/2028 3,649
BBB- Baa2 6,200 Series B, 5.50% due 6/01/2033 6,094
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 1,364
===================================================================================================================================
Colorado--3.5% NR* Aa2 5 Colorado HFA, Revenue Bonds (S/F Program), AMT, Senior
Series F, 8.625% due 6/01/2025 5
NR* Aa2 425 Colorado HFA, Revenue Refunding Bonds (S/F Program), AMT,
Senior Series A-2, 7.50% due 4/01/2031 433
Elk Valley, Colorado, Public Improvement Revenue Bonds
(Public Improvement Fee):
NR* NR* 3,025 Series A, 7.35% due 9/01/2031 3,113
NR* NR* 1,000 Series B, 7% due 9/01/2031 1,016
NR* NR* 1,325 North Range, Colorado, Metropolitan District Number 1, GO,
7.25% due 12/15/2031 1,312
BB+ Ba1 950 Northwest Parkway, Colorado, Public Highway Authority
Revenue Bonds, First Tier, Sub-Series D, 7.125%
due 6/15/2041 979
NR* NR* 3,300 Plaza Metropolitan District No. 1, Colorado, Tax
Allocation Revenue Bonds (Public Improvement Fees), 8%
due 12/01/2025 3,350
===================================================================================================================================
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 2,094
===================================================================================================================================
Florida--5.2% NR* NR* 440 Bonnet Creek Resort, Florida, Community Development
District, Special Assessment Revenue Bonds, 7.50%
due 5/01/2034 462
BBB Baa2 6,705 Escambia County, Florida, PCR (Champion International
Corporation Project), AMT, 6.90% due 8/01/2022 6,908
Fiddlers Creek, Florida, Community Development District
Number 2, Special Assessment Revenue Bonds:
NR* NR* 2,350 Series A, 6.375% due 5/01/2035 2,386
NR* NR* 1,250 Series B, 5.75% due 5/01/2013 1,250
NR* NR* 1,000 Orlando, Florida, Urban Community Development District,
Capital Improvement Special Assessment Bonds, Series A,
6.95% due 5/01/2033 1,045
NR* NR* 125 Panther Trace, Florida, Community Development District,
Special Assessment Revenue Bonds, Series B, 6.50%
due 5/01/2009 125
NR* NR* 970 Park Place Community Development District, Florida,
Special Assessment Revenue Bonds, 6.75% due 5/01/2032 1,011
NR* NR* 975 Preserve at Wilderness Lake, Florida, Community
Development District, Capital Improvement Bonds, Series A,
7.10% due 5/01/2033 1,023
NR* NR* 1,135 Vista Lakes Community, Florida, Development District,
Capital Improvement Revenue Bonds, Series B, 5.80%
due 5/01/2008 1,135
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. APRIL 30, 2004
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
===================================================================================================================================
Georgia--4.9% NR* NR* $ 1,655 Atlanta, Georgia, Tax Allocation Bonds (Atlantic Station
Project), 7.25% due 12/01/2005 $ 1,666
NR* NR* 2,000 Atlanta, Georgia, Tax Allocation Revenue Bonds (Atlantic
Station Project), 7.90% due 12/01/2024 2,075
NR* NR* 2,000 Fulton County, Georgia, Residential Care Facilities
Revenue Refunding Bonds (Canterbury Court Project),
Series A, 6.125% due 2/15/2026 1,956
Georgia Municipal Electric Authority, Power Revenue
Refunding Bonds:
A A2 5,620 Series W, 6.60% due 1/01/2018 6,635
A A2 380 Series W, 6.60% due 1/01/2018 (h) 455
A A2 1,250 Series X, 6.50% due 1/01/2020 1,479
===================================================================================================================================
Idaho--0.2% NR* Aaa 700 Idaho Housing Agency, S/F Mortgage Revenue Refunding
Bonds, AMT, Series E-2, 6.90% due 1/01/2027 718
===================================================================================================================================
Illinois--15.5% 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) 3,424
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 3,357
AAA Aaa 580 Chicago, Illinois, S/F Mortgage Revenue Bonds, AMT,
Series C, 7% due 3/01/2032 (f)(i) 586
NR* NR* 800 Chicago, Illinois, Special Assessment Bonds (Lake Shore
East), 6.75% due 12/01/2032 817
NR* NR* 1,000 Chicago, Illinois, Tax Allocation Bonds (Kingsbury
Redevelopment Project), Series A, 6.57% due 2/15/2013 1,046
BBB Baa1 2,800 Hodgkins, Illinois, Environmental Improvement Revenue
Bonds (Metro Biosolids Management LLC Project), AMT, 6%
due 11/01/2023 2,824
BBB NR* 1,000 Illinois Development Finance Authority Revenue Bonds
(Community Rehabilitation Providers Facility), Series A,
6.50% due 7/01/2022 1,034
BBB NR* 2,500 Illinois Development Finance Authority, Revenue Refunding
Bonds (Community Rehabilitation Providers), Series A, 6%
due 7/01/2015 2,576
A+ A1 6,500 Illinois HDA, Revenue Refunding Bonds (M/F Program),
Series 5, 6.75% due 9/01/2023 6,686
AAA Aaa 2,600 Kane and De Kalb Counties, Illinois, Community Unit
School District Number 302, GO, DRIVERS, Series 283,
10.117% due 2/01/2018 (a)(c) 3,176
NR* Aaa 2,000 Mc Lean and Woodford Counties, Illinois, Community Unit,
School District Number 005, GO, Refunding, 6.375%
due 12/01/2016 (g) 2,334
AAA NR* 3,200 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Refunding Bonds, DRIVERS,
Series 269, 10.117% due 6/15/2023 (a)(d) 3,788
Regional Transportation Authority, Illinois, Revenue Bonds:
AAA Aaa 1,500 Series A, 7.20% due 11/01/2020 (b) 1,914
AAA Aaa 7,000 Series A, 6.70% due 11/01/2021 (c) 8,667
AAA Aaa 2,500 Series C, 7.75% due 6/01/2020 (c) 3,364
===================================================================================================================================
Indiana--10.9% Indiana Bond Bank Revenue Bonds (State Revolving Fund
Program), Series A (k):
AAA NR* 5,750 6.75% due 2/01/2005 6,099
AAA NR* 2,750 6.875% due 2/01/2005 2,919
NR* Aaa 5,545 Indiana State, HFA, S/F Mortgage Revenue Refunding Bonds,
Series A, 6.80% due 1/01/2017 (e) 5,562
Indiana Transportation Finance Authority, Highway Revenue
Bonds, Series A:
AA- Aa2 1,530 7.25% due 6/01/2015 1,894
AA- Aa2 470 7.25% due 6/01/2015 569
AA- Aa2 3,775 6.80% due 12/01/2016 4,580
AA NR* 8,750 Indianapolis, Indiana, Local Public Improvement Bond Bank
Revenue Refunding Bonds, Series D, 6.75% due 2/01/2014 10,392
===================================================================================================================================
Louisiana--7.4% B NR* 1,950 Hodge, Louisiana, Utility Revenue Refunding Bonds (Stone
Container Corporation), AMT, 7.45% due 3/01/2024 1,970
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) 5,783
BB- NR* 10,000 Port New Orleans, Louisiana, IDR, Refunding (Continental
Grain Company Project), 6.50% due 1/01/2017 10,123
BBB Baa2 3,600 Sabine River Authority, Louisiana, Water Facilities
Revenue Refunding Bonds (International Paper Company),
6.20% due 2/01/2025 3,830
MUNIVEST FUND II, INC. APRIL 30, 2004 7
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
===================================================================================================================================
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 $ 2,096
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) 1,252
NR* Baa3 1,250 Montgomery County, Maryland, Special Obligation, Special
Tax Bond (West Germantown Development District), Series B,
6.70% due 7/01/2027 1,267
===================================================================================================================================
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 1,233
BB+ NR* 1,250 Massachusetts State Development Finance Agency, Revenue
Refunding Bonds (Eastern Nazarene College), 5.625%
due 4/01/2029 1,042
BBB- NR* 1,500 Massachusetts State Health and Educational Facilities
Authority Revenue Bonds (Jordan Hospital), Series E, 6.75%
due 10/01/2033 1,528
AA Aa3 6,000 Massachusetts State Water Resource Authority Revenue Bonds,
Series A, 6.50% due 7/15/2019 7,142
AAA Aaa 3,000 Massachusetts State Water Resource Authority, Revenue
Refunding Bonds, Series A, 6% due 8/01/2016 (c) 3,408
===================================================================================================================================
Michigan--7.7% 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 1,561
A NR* 3,100 Flint, Michigan, Hospital Building Authority, Revenue
Refunding Bonds (Hurley Medical Center), Series A, 6%
due 7/01/2020 3,260
BBB- NR* 3,320 Macomb County, Michigan, Hospital Finance Authority,
Hospital Revenue Bonds (Mount Clemens General Hospital),
Series B, 5.875% due 11/15/2034 3,054
Michigan State Hospital Finance Authority, Revenue
Refunding Bonds:
AAA Aa2 8,425 (Ascension Health Credit), Series A, 6.125%
due 11/15/2009 (k) 9,787
B Ba3 2,340 (Detroit Medical Center Obligation Group), Series A,
6.50% due 8/15/2018 1,957
BB+ NR* 3,000 Pontiac, Michigan, Tax Increment Finance Authority, Revenue
Refunding Bonds (Development Area Number 3), 6.375%
due 6/01/2031 2,949
===================================================================================================================================
Minnesota--0.6% Minnesota State, HFA, S/F Mortgage Revenue Bonds, AMT:
AA+ Aa1 650 Series L, 6.70% due 7/01/2020 664
AA+ Aa1 1,010 Series M, 6.70% due 7/01/2026 1,031
===================================================================================================================================
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 7,233
BBB- Ba1 3,465 5.90% due 5/01/2022 3,482
===================================================================================================================================
Missouri--0.2% AAA NR* 480 Missouri State Housing Development Commission, S/F Mortgage
Revenue Bonds (Homeowner Loan), AMT, Series A, 7.50%
due 3/01/2031 (i) 492
===================================================================================================================================
Nebraska--1.0% Nebraska Investment Finance Authority, S/F Housing Revenue
Bonds, AMT (i):
AAA NR* 1,255 Series C, 6.30% due 9/01/2028 (f) 1,290
AAA NR* 1,700 Series D, 6.45% due 3/01/2028 1,759
===================================================================================================================================
Nevada--2.3% AAA Aaa 3,300 Clark County, Nevada, IDR (Power Company Project), AMT,
Series A, 6.70% due 6/01/2022 (c) 3,382
NR* NR* 620 Clark County, Nevada, Improvement District No. 142 Special
Assessment, 6.375% due 8/01/2023 617
AAA Aaa 215 Nevada Housing Division Revenue Bonds (S/F Program), AMT,
Senior Series E, 7% due 10/01/2019 (e) 220
AAA Aaa 2,500 Washoe County, Nevada, Gas Facilities Revenue Bonds (Sierra
Pacific Power Company), AMT, 6.65% due 12/01/2017 (b) 2,534
8 MUNIVEST FUND II, INC. APRIL 30, 2004
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
===================================================================================================================================
New Jersey--4.7% New Jersey EDA, Retirement Community Revenue Bonds (Cedar
Crest Village Inc. Facility), Series A:
NR* NR* $ 1,335 7.25% due 11/15/2021 $ 1,368
NR* NR* 1,100 7.25% due 11/15/2031 1,117
B Caa2 3,000 New Jersey EDA, Special Facility Revenue Bonds (Continental
Airlines Inc. Project), AMT, 6.25% due 9/15/2029 2,345
BB+ NR* 1,680 New Jersey Health Care Facilities Financing Authority Revenue
Bonds (Pascack Valley Hospital Association), 6.625%
due 7/01/2036 1,740
AAA Aaa 1,365 New Jersey State Housing and Mortgage Finance Agency, Home
Buyer Revenue Bonds, AMT, Series M, 6.95% due 10/01/2022 (d) 1,401
BBB Baa3 5,830 Tobacco Settlement Financing Corporation of New Jersey
Revenue Bonds, 7% due 6/01/2041 5,716
===================================================================================================================================
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 3,279
===================================================================================================================================
New York--8.2% New York City, New York, City IDA, Civic Facility Revenue
Bonds:
NR* NR* 690 Series C, 6.80% due 6/01/2028 706
NR* NR* 890 (Special Needs Facility Pooled Program), Series C-1,
6.50% due 7/01/2017 912
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, 11.08% due 11/15/2015 (a) 4,415
AAA A2 3,255 New York City, New York, GO, Refunding, Series A, 6.375%
due 5/15/2015 (c) 3,770
AAA NR* 7,000 New York State Dormitory Authority, Revenue Refunding Bonds,
RIB, Series 305, 10.60% due 5/15/2015 (a)(d) 8,890
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 1,001
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 2,661
===================================================================================================================================
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 1,641
NR* NR* 1,500 (Givens Estates Project), Series A, 6.375% due 7/01/2023 1,503
===================================================================================================================================
Ohio--0.2% NR* NR* 620 Port of Greater Cincinnati Development Authority, Ohio,
Special Assessment Revenue Bonds (Cooperative Public Parking
Infrastructure Project), 6.40% due 2/15/2034 598
===================================================================================================================================
Pennsylvania--3.8% NR* Aaa 2,000 Delaware River Port Authority of Pennsylvania and New Jersey
Revenue Bonds, RIB, Series 396, 10.603% due 1/01/2019 (a)(g) 2,495
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 2,011
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 1,311
NR* NR* 1,265 Philadelphia, Pennsylvania, Authority for IDR, Commercial
Development, 7.75% due 12/01/2017 1,276
Sayre, Pennsylvania, Health Care Facilities Authority Revenue
Bonds (Guthrie Health Issue), Series B:
A- NR* 2,425 5.85% due 12/01/2020 2,546
A- NR* 1,350 1% due 12/01/2031 1,534
===================================================================================================================================
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 1,181
MUNIVEST FUND II, INC. APRIL 30, 2004 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
===================================================================================================================================
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 $ 1,280
NR* Aa2 440 South Carolina Housing Finance and Development Authority,
Mortgage Revenue Bonds, AMT, Series A, 6.70% due 7/01/2027 453
===================================================================================================================================
Tennessee--3.2% BB Ba2 4,000 McMinn County, Tennessee, IDB, Solid Waste Revenue Bonds
(Recycling Facility--Calhoun Newsprint), AMT, 7.40%
due 12/01/2022 4,024
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 5,389
===================================================================================================================================
Texas--15.9% Austin, Texas, Convention Center Revenue Bonds (Convention
Enterprises Inc.), First Tier, Series A:
BBB- Baa3 1,600 6.70% due 1/01/2028 1,682
BBB- Baa3 4,510 6.70% due 1/01/2032 4,728
Brazos River Authority, Texas, PCR, Refunding, AMT:
BBB Baa2 1,500 (Texas Utility Company), Series A, 7.70% due 4/01/2033 1,711
BBB Baa2 7,080 (Utilities Electric Company), Series B, 5.05%
due 6/01/2030 7,332
BBB- NR* 1,810 Brazos River Authority, Texas, Revenue Refunding Bonds
(Reliant Energy Inc. Project), Series B, 7.75%
due 12/01/2018 1,968
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 6,237
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 2,643
AA* Aa3 5,000 Harris County, Texas, Health Facilities Development
Corporation Revenue Refunding Bonds, RITR, Series 6,
9.755% due 7/01/2027 (a)(h) 6,044
BBB- NR* 1,150 Lufkin, Texas, Health Facilities Development Corporation,
Health System Revenue Bonds (Memorial Health System of East
Texas), 5.70% due 2/15/2028 1,047
BBB- Ba2 3,440 Matagorda County, Texas, Navigation District Number 1
Revenue Refunding Bonds (Reliant Energy Inc.), Series C,
8% due 5/01/2029 3,731
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 3,187
BBB Baa2 1,600 Port Corpus Christi, Texas, Revenue Refunding Bonds (Celanese
Project), Series A, 6.45% due 11/01/2030 1,643
NR* Aa1 3,750 San Antonio, Texas, Electric and Gas Revenue Bonds, RIB,
Series 469X, 10.13% due 2/01/2014 (a) 4,743
===================================================================================================================================
Virginia--3.5% BBB+ A3 1,000 Chesterfield County, Virginia, IDA, PCR, Refunding (Virginia
Electric and Power Company), Series B, 5.875% due 6/01/2017 1,066
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 3,187
BB Ba2 7,415 Pocahontas Parkway Association, Virginia, Toll Road Revenue
Bonds, Senior Series A, 5.50% due 8/15/2028 6,109
===================================================================================================================================
Washington--8.1% 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) 2,687
` Energy Northwest, Washington, Electric Revenue Refunding
Bonds, DRIVERS (a):
AAA NR* 2,250 Series 248, 10.117% due 7/01/2018 (d) 2,681
AAA NR* 1,125 Series 255, 10.611% due 7/01/2018 (b) 1,400
AAA Aaa 5,000 Washington State, GO, Trust Receipts, Class R, Series 6,
10.50% due 1/01/2014 (a)(b)(g) 6,244
AA Baa1 2,200 Washington State Health Care Facilities Authority Revenue
Bonds (Kadlec Medical Center), 6% due 12/01/2030 (j) 2,308
Washington State Public Power Supply System, Revenue
Refunding Bonds, Series B:
AA- Aaa 5,000 (Nuclear Project No. 1), 7.125% due 7/01/2016 6,238
AAA Aaa 1,900 (Nuclear Project No. 3), 7.125% due 7/01/2016 (d) 2,385
10 MUNIVEST FUND II, INC. APRIL 30, 2004
Schedule of Investments (concluded) (in Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
===================================================================================================================================
Wisconsin--0.9% BBB+ NR* $ 2,715 Wisconsin State Health and Educational Facilities Authority
Revenue Bonds (Synergyhealth Inc.), 6% due 11/15/2032 $ 2,734
===================================================================================================================================
Wyoming--2.1% Sweetwater County, Wyoming, Solid Waste Disposal Revenue
Bonds (FMC Corporation Project), AMT:
BB+ Ba3 1,000 Series A, 7% due 6/01/2024 1,010
BB+ Ba3 5,000 Series B, 6.90% due 9/01/2024 5,046
===================================================================================================================================
Virgin Islands--2.2% BBB- Baa3 6,000 Virgin Islands Government Refinery Facilities Revenue
Refunding Bonds (Hovensa Coker Project), AMT, 6.50%
due 7/01/2021 6,385
---------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$391,904)--142.4% 418,492
=========================================================================================================
===================================================================================================================================
Shares
Held Short-Term Securities
=========================================================================================================
4,692 Merrill Lynch Institutional Tax-Exempt Fund+ 4,692
---------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$4,692)--1.6% 4,692
=========================================================================================================
Total Investments (Cost--$396,596)--144.0% 423,184
Other Assets Less Liabilities--1.9% 5,752
Preferred Stock, at Redemption Value--(45.9%) (135,000)
--------
Net Assets Applicable to Common Stock--100.0% $293,936
========
(a) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at April 30, 2004.
(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) Radian Insured.
(k) Prerefunded.
* Not Rated.
+ 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 2,300 $28
--------------------------------------------------------------------------
See Notes to Financial Statements.
MUNIVEST FUND II, INC. APRIL 30, 2004 11
[LOGO] Merrill Lynch Investment Managers
Statement of Net Assets
As of April 30, 2004
======================================================================================================================
Assets
- ----------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$391,904,103) ........................... $ 418,492,130
Investments in affiliated securities, at value
(identified cost--$4,691,794) ............................. 4,691,794
Cash ....................................................... 37,621
Receivables:
Interest ................................................ $ 9,085,755
Securities sold ......................................... 2,021,973
Dividends from affiliates ............................... 114 11,107,842
-------------
Prepaid expenses ........................................... 5,864
-------------
Total assets ............................................... 434,335,251
-------------
======================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------
Payables:
Securities purchased .................................... 4,979,339
Investment adviser ...................................... 206,352
Dividends to Common Stock shareholders .................. 191,502
Other affiliates ........................................ 2,993 5,380,186
-------------
Accrued expenses ........................................... 19,352
-------------
Total liabilities .......................................... 5,399,538
-------------
======================================================================================================================
Preferred Stock
- ----------------------------------------------------------------------------------------------------------------------
Preferred Stock, at redemption value, 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 ...................... $ 293,935,713
=============
======================================================================================================================
Analysis of Net Assets Applicable to Common Stock
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.10 per share (19,944,719 shares
issued and outstanding) ................................... $ 1,994,472
Paid-in capital in excess of par ........................... 278,112,796
Undistributed investment income--net ....................... $ 7,248,019
Accumulated realized capital losses on investments--net .... (20,007,601)
Unrealized appreciation on investments--net ................ 26,588,027
-------------
Total accumulated earnings--net ............................ 13,828,445
-------------
Total--Equivalent to $14.74 net asset value per share of
Common Stock (market price--$13.86) ....................... $ 293,935,713
=============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
12 MUNIVEST FUND II, INC. APRIL 30, 2004
Statement of Operations
For the Six Months Ended April 30, 2004
======================================================================================================================
Investment Income
- ----------------------------------------------------------------------------------------------------------------------
Interest ................................................... $ 13,113,608
Dividends from affiliates .................................. 28,171
-------------
Total income ............................................... 13,141,779
-------------
======================================================================================================================
Expenses
- ----------------------------------------------------------------------------------------------------------------------
Investment advisory fees ................................... $ 1,084,469
Commission fees ............................................ 170,744
Accounting services ........................................ 74,157
Transfer agent fees ........................................ 34,923
Professional fees .......................................... 27,262
Printing and shareholder reports ........................... 22,827
Directors' fees and expenses ............................... 16,217
Custodian fees ............................................. 12,598
Listing fees ............................................... 10,631
Pricing fees ............................................... 9,257
Other ...................................................... 21,071
-------------
Total expenses before reimbursement ........................ 1,484,156
Reimbursement of expenses .................................. (6,755)
-------------
Total expenses after reimbursement ......................... 1,477,401
-------------
Investment income--net ..................................... 11,664,378
-------------
======================================================================================================================
Realized & Unrealized Gain (Loss) on Investments--Net
- ----------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net .......................... 1,737,479
Change in unrealized appreciation on investments--net ...... (2,546,692)
-------------
Total realized and unrealized loss on investments--net ..... (809,213)
-------------
======================================================================================================================
Dividends to Preferred Stock Shareholders
- ----------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................... (607,806)
-------------
Net Increase in Net Assets Resulting from Operations ....... $ 10,247,359
=============
See Notes to Financial Statements.
MUNIVEST FUND II, INC. APRIL 30, 2004 13
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 2004 2003
======================================================================================================================
Operations
- ----------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................... $ 11,664,378 $ 23,231,287
Realized gain on investments--net .......................... 1,737,479 4,133,450
Change in unrealized appreciation on investments--net ...... (2,546,692) 5,676,120
Dividends to Preferred Stock shareholders .................. (607,806) (1,330,776)
-------------------------------
Net increase in net assets resulting from operations ....... 10,247,359 31,710,081
-------------------------------
======================================================================================================================
Dividends to Common Stock Shareholders
- ----------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................... (10,637,333) (19,787,613)
-------------------------------
Net decrease in net assets resulting from dividends to
Common Stock shareholders ................................. (10,637,333) (19,787,613)
-------------------------------
======================================================================================================================
Common Stock Transactions
- ----------------------------------------------------------------------------------------------------------------------
Value of shares issued to Common Stock shareholders in
reinvestment of dividends ................................. 573,097 --
-------------------------------
======================================================================================================================
Net Assets Applicable to Common Stock
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets applicable to Common Stock .... 183,123 11,922,468
Beginning of period ........................................ 293,752,590 281,830,122
-------------------------------
End of period* ............................................. $ 293,935,713 $ 293,752,590
===============================
* Undistributed investment income--net .................. $ 7,248,019 $ 6,828,780
===============================
See Notes to Financial Statements.
14 MUNIVEST FUND II, INC. APRIL 30, 2004
Financial Highlights
The following per share data and ratios have been derived For the Six For the Year Ended
from information provided in the financial statements. Months Ended October 31,
April 30, -----------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001+ 2000+
================================================================================================================================
Per Share Operating Performance
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .... $ 14.76 $ 14.16 $ 14.29 $ 13.32 $ 12.81
-------------------------------------------------------------
Investment income--net .................. .59++ 1.17++ 1.11 1.02 1.04
Realized and unrealized gain (loss)
on investments--net .................... (.05) .49 (.25) .97 .54
Dividends to Preferred Stock shareholders
from investment income--net ............ (.03) (.07) (.09) (.22) (.28)
-------------------------------------------------------------
Total from investment operations ........ .51 1.59 .77 1.77 1.30
-------------------------------------------------------------
Less dividends to Common Stock
shareholders from investment
income--net ............................ (.53) (.99) (.90) (.80) (.79)
-------------------------------------------------------------
Net asset value, end of period .......... $ 14.74 $ 14.76 $ 14.16 $ 14.29 $ 13.32
=============================================================
Market price per share, end of period ... $ 13.86 $ 14.26 $ 13.36 $ 13.69 $11.625
=============================================================
================================================================================================================================
Total Investment Return***
- --------------------------------------------------------------------------------------------------------------------------------
Based on market price per share ......... .76%@ 14.56% 4.25% 25.20% 5.93%
=============================================================
Based on net asset value per share ...... 3.53%@ 11.88% 5.86% 14.06% 11.33%
=============================================================
================================================================================================================================
Ratios Based on Average Net Assets of Common Stock
- --------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement** .. .99%* 1.01% 1.05% 1.02% 1.08%
=============================================================
Total expenses** ........................ .99%* 1.01% 1.05% 1.02% 1.08%
=============================================================
Total investment income--net** .......... 7.78%* 8.01% 7.79% 7.42% 8.00%
=============================================================
Amount of dividends to Preferred
Stock shareholders ..................... .41%* .46% .66% 1.57% 2.15%
=============================================================
Investment income--net, to Common
Stock shareholders ..................... 7.37%* 7.55% 7.13% 5.85% 5.85%
=============================================================
================================================================================================================================
Ratios Based on Average Net Assets of Common & Preferred Stock**
- --------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement .... .68%* .69% .71% .69% .71%
=============================================================
Total expenses .......................... .68%* .69% .71% .69% .71%
=============================================================
Total investment income--net ............ 5.37%* 5.46% 5.26% 4.98% 5.24%
=============================================================
================================================================================================================================
Ratios Based on Average Net Assets of Preferred Stock
- --------------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders .90%* .98% 1.38% 3.22% 4.08%
=============================================================
MUNIVEST FUND II, INC. APRIL 30, 2004 15
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (concluded)
For the Six For the Year Ended
Months Ended October 31,
The following per share data and ratios have been derived April 30, -----------------------------------------------
from information provided in the financial statements. 2004 2003 2002 2001+ 2000+
===========================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common
Stock, end of period (in thousands) $293,936 $293,753 $281,830 $284,547 $265,169
============================================================
Preferred Stock outstanding, end
of period (in thousands) .......... $135,000 $135,000 $135,000 $135,000 $135,000
============================================================
Portfolio turnover ................. 11.75% 31.50% 66.07% 87.80% 110.66%
============================================================
===========================================================================================================================
Leverage
- ---------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 .......... $ 3,177 $ 3,176 $ 3,088 $ 3,108 $ 2,964
============================================================
===========================================================================================================================
Dividends Per Share on Preferred Stock Outstanding
- ---------------------------------------------------------------------------------------------------------------------------
Series A--Investment income--net ... $ 104 $ 251 $ 338 $ 793 $ 1,067
============================================================
Series B--Investment income--net ... $ 102 $ 248 $ 319 $ 834 $ 990
============================================================
Series C--Investment income--net ... $ 131 $ 240 $ 375 $ 784 $ 1,012
============================================================
* Annualized.
** Do not reflect the effect of dividends to Preferred Stock shareholders.
*** 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.
+ Certain prior year amounts have been reclassified to conform to current
year presentation.
++ Based on average shares outstanding.
@ Aggregate total investment return.
See Notes to Financial Statements.
16 MUNIVEST FUND II, INC. APRIL 30, 2004
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. Actual results may
differ from these estimates. These unaudited financial statements reflect all
adjustments, which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal, recurring nature. The Fund determines and makes available for
publication the net asset value of its Common Stock on a weekly basis. The
Fund's Common Stock is listed on the New York Stock Exchange under the symbol
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 may write covered call options and purchase put
options. When the Fund writes an option, an amount equal to the premium
received by the Fund is reflected as an asset and an equivalent liability.
The amount of the liability is subsequently marked to market to reflect
the current market value of the option written. When a security is
purchased or sold through an exercise of an option, the related premium
paid (or received) is added to (or deducted from) the basis of the
security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent
of the premiums received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
MUNIVEST FUND II, INC. APRIL 30, 2004 17
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
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 six months ended April
30, 2004, FAM reimbursed the Fund in the amount of $6,755.
In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), an
affiliate of FAM, received $4,000 in commissions on the execution of portfolio
security transactions for the Fund for the six months ended April 30, 2004.
For the six months ended April 30, 2004, the Fund reimbursed FAM $4,426 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 six
months ended April 30, 2004 were $53,116,252 and $49,624,422, respectively.
Net realized gains (losses) for the six months ended April 30, 2004 and net
unrealized appreciation as of April 30, 2004 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Appreciation
- --------------------------------------------------------------------------------
Long-term investments ..................... $ 2,040,344 $26,588,027
Forward interest rate swaps ............... (302,865) --
-------------------------------
Total ..................................... $ 1,737,479 $26,588,027
===============================
As of April 30, 2004, net unrealized appreciation for Federal income tax
purposes aggregated $26,726,548, of which $28,485,123 related to appreciated
securities and $1,758,575 related to depreciated securities. The aggregate cost
of investments at April 30, 2004 for Federal income tax purposes was
$396,457,376.
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.
Common Stock
Shares issued and outstanding during the six months ended April 30, 2004
increased by 37,664 as a result of dividend reinvestment and for the year ended
October 31, 2003 remained constant.
Preferred Stock
Auction Market Preferred Stock 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 April 30, 2004 were as follows: Series A, .90%; Series
B, .93%; and Series C, .98%.
18 MUNIVEST FUND II, INC. APRIL 30, 2004
Notes to Financial Statements (concluded)
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 six months ended April 30, 2004, MLPF&S earned $63,710 as
commissions.
5. Capital Loss Carryforward:
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.
6. Subsequent Event:
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of $.092000 per share on May 27, 2004 to shareholders of record on May
14, 2004.
MUNIVEST FUND II, INC. APRIL 30, 2004 19
[LOGO] Merrill Lynch Investment Managers
Quality Profile
The quality ratings of securities in the Fund as of April 30, 2004 were as
follows:
- --------------------------------------------------------------------------------
Percent of
Total
S&P Rating/Moody's Rating Investments
- --------------------------------------------------------------------------------
AAA/Aaa ......................................................... 28.8%
AA/Aa ........................................................... 11.5
A/A ............................................................. 10.3
BBB/Baa ......................................................... 25.9
BB/Ba ........................................................... 8.1
B/B ............................................................. 2.9
CCC/Caa ......................................................... 1.3
NR (Not Rated) .................................................. 11.2
- --------------------------------------------------------------------------------
Proxy Results
During the six-month period ended April 30, 2004, MuniVest Fund II, Inc.'s
Common Stock shareholders voted on the following proposal. The proposal was
approved at a shareholders' meeting on January 30, 2004. A description of the
proposal and number of shares voted are as follows:
- ---------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- ---------------------------------------------------------------------------------------------------------------
1. To elect the Fund's Directors: Terry K. Glenn 19,145,753 284,548
Cynthia A. Montgomery 19,139,472 290,829
Kevin A. Ryan 19,140,310 289,991
Roscoe S. Suddarth 19,139,312 290,989
Edward D. Zinbarg 19,135,568 294,733
- ---------------------------------------------------------------------------------------------------------------
During the six-month period ended April 30, 2004, MuniVest Fund II, Inc.'s
Preferred Stock (Series A - C) shareholders voted on the following proposal. The
proposal was approved at a shareholders' meeting on January 30, 2004. A
description of the proposal and number of shares voted are as follows:
- ---------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- ---------------------------------------------------------------------------------------------------------------
1. To elect the Fund's Board of Directors:
Terry K. Glenn, Ronald W. Forbes, Cynthia A. Montgomery, Kevin A. Ryan,
Roscoe S. Suddarth, Richard R. West and Edward D. Zinbarg 5,174 20
- ---------------------------------------------------------------------------------------------------------------
20 MUNIVEST FUND II, INC. APRIL 30, 2004
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. APRIL 30, 2004 21
[LOGO] Merrill Lynch Investment Managers
Officers and Directors
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Kevin A. Ryan, Director
Roscoe S. Suddarth, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Kenneth A. Jacob, Senior Vice President
John M. Loffredo, Senior Vice President
Fred K. Stuebe, Vice President
Donald C. Burke, Vice President and Treasurer
Phillip S. Gillespie, Secretary
- --------------------------------------------------------------------------------
Charles C. Reilly, Director of MuniVest Fund II, Inc., has recently retired. The
Fund's Board of Directors wishes Mr. Reilly well in his retirement.
- --------------------------------------------------------------------------------
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
101 Barclay Street -- 7 West
New York, NY 10286
NYSE Symbol
MVT
22 MUNIVEST FUND II, INC. APRIL 30, 2004
Electronic Delivery
The Fund offers 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. APRIL 30, 2004 23
[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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
website at http://www.sec.gov.
MuniVest Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
#16807 -- 4/04
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this
semi-annual report
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-annual
report
Item 8 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(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.
10(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the last fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - 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: June 18, 2004
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: June 18, 2004
By: /s/ Donald C. Burke
---------------------------------
Donald C. Burke,
Chief Financial Officer of
MuniVest Fund II, Inc.
Date: June 18, 2004