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 811-07478
Name of Fund: MuniVest Fund II, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, 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: 10/31/05
Date of reporting period: 11/01/04 - 10/31/05
Item 1 - Report to Stockholders
MuniVest Fund II, Inc.
Annual Report
October 31, 2005
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.
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, 2005, the percentage of the Fund's
total net assets invested in inverse floaters was 10.80%, before the deduction
of Preferred Stock.
Swap Agreements
The Fund may 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. Swap agreements involve the risk that the party with whom the
Fund has entered into the swap will default on its obligation to pay the Fund
and the risk that the Fund will not be able to meet its obligations to pay the
other party to the agreement.
2 MUNIVEST FUND II, INC. OCTOBER 31, 2005
A Letter From the President
Dear Shareholder
As the financial markets continued to muddle their way through 2005, the Federal
Reserve Board (the Fed) advanced its monetary tightening campaign full steam
ahead. The 12th consecutive interest rate hike since June 2004 came on November
1, bringing the target federal funds rate to 4%. The central bank is clearly
more focused on inflationary figures than on economic growth, which has shown
some signs of moderating. Despite rising short-term interest rates and
record-high energy prices, the major market indexes managed to post positive
results for the current reporting period:
Total Returns as of October 31, 2005 6-month 12-month
========================================================================================
U.S. equities (Standard & Poor's 500 Index) + 5.27% + 8.72%
- ----------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) +12.25 +12.08
- ----------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) + 8.63 +18.09
- ----------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) + 0.15 + 1.13
- ----------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 0.59 + 2.54
- ----------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) + 2.87 + 3.54
- ----------------------------------------------------------------------------------------
The headlines in recent months focused on Hurricanes Katrina and Rita and, more
recently, the nomination of Ben Bernanke to succeed Alan Greenspan as Chairman
of the Fed. While the hurricanes prompted a spike in energy prices and
short-term disruptions to production and spending, the longer-term economic
impact is likely to be tempered. In fact, the fiscal stimulus associated with
reconstruction efforts in the Gulf Coast region could add to gross domestic
product growth in 2006. Notably, the uncontroversial nomination of Dr. Bernanke
was well received by the markets.
The U.S. equity markets remained largely range bound in 2005. Up to this point,
strong corporate earnings reports and relatively low long-term bond yields have
worked in favor of equities. Looking ahead, high energy prices, continued
interest rate hikes, a potential consumer slowdown and/or disappointing earnings
pose the greatest risks to U.S. stocks. Internationally, many markets have
benefited from strong economic statistics, trade surpluses and solid finances.
The bond market continued to be characterized by a flattening yield curve,
although long-term yields finally began to inch higher toward period end. The
10-year Treasury yield hit 4.57% on October 31, 2005, its highest level in more
than six months. Still, the difference between the two-year and 10-year Treasury
yield was just 17 basis points (.17%) at period end, compared to 149 basis
points a year earlier.
Financial markets are likely to face continued crosscurrents in the months
ahead. Nevertheless, opportunities do exist and we encourage you to work with
your financial advisor to diversify your portfolio among a variety of asset
types. This can help to diffuse risk while also tapping into the potential
benefits of a broader range of investment alternatives. As always, we thank you
for trusting Merrill Lynch Investment Managers with your investment assets.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director
MUNIVEST FUND II, INC. OCTOBER 31, 2005 3
A Discussion With Your Fund's Portfolio Manager
The Fund outperformed its comparable Lipper category average for the
fiscal year, benefiting from an ample exposure to higher-yielding issues,
favorable credit selection and an above-average income stream.
Describe the recent market environment relative to municipal bonds.
Over the past year, long-term bond yields were little changed. Initially, U.S.
Treasury prices rallied strongly, while their yields, which move in the opposite
direction, fell. By the end of June 2005, 30-year U.S. Treasury bond yields had
declined 60 basis points (.60%) to 4.19%. Bond prices improved in response to
several favorable factors, including moderating U.S. economic growth, slowing
growth in foreign economies, modest inflationary pressures and strong demand for
U.S. Treasury issues from Asian governments.
During the final months of the period, however, bond yields rose (prices fell)
as investors worried that higher energy costs in the wake of Hurricanes Katrina
and Rita would pressure inflation upward. Stronger-than-expected third quarter
gross domestic product growth also added to inflationary concerns. For its part,
the Federal Reserve Board (the Fed) continued to raise short-term interest rates
at each of its meetings, lifting the federal funds target rate to 4% on November
1, 2005. As short-term interest rates moved higher in concert with the Fed
interest rate hikes and longer-term bond yields remained steadier, the yield
curve continued to flatten.
Over the past 12 months, 30-year Treasury bond yields declined three basis
points to 4.76%, while 10-year Treasury note yields rose 52 basis points to
4.57%. Tax-exempt bond yields exhibited a similar pattern. According to
Municipal Market Data, the yield on AAA-rated issues maturing in 30 years
increased one basis point to 4.59%, while the yield on AAA-rated issues maturing
in 10 years rose 52 basis points to 3.92%.
Historically low nominal tax-exempt bond yields have continued to encourage
municipalities to issue new debt and refund outstanding, higher-couponed issues.
During the past year, more than $394 billion in new long-term tax-exempt bonds
was issued, an 8.4% increase over the previous year's total of $363 billion.
During the first nine months of 2005, the volume of refunding issues increased
by more than 55% versus the same period one year ago. Refunding issues were
heavily weighted in the 10-year - 20-year maturity range, putting pressure on
intermediate tax-exempt bond yields while supporting longer-term bond prices.
Investor demand remained positive during most of the period. The most current
statistics from the Investment Company Institute indicate that, year-to-date
through September 2005, net new cash flows into long-term municipal bond funds
exceeded $6.7 billion -- a significant improvement from the $12.9 billion net
outflow seen during the same period in 2004. Notably, throughout much of the
past year, high yield tax-exempt bond funds have been the principal target for
these new cash inflows. During recent months, these lower-rated and non-rated
bond funds received an average of $115 million per week. The need to invest
these cash flows has led to strong demand for lower-rated issues and a
consequent narrowing of credit spreads.
Solid investor demand for tax-exempt issues generally helped municipal bond
performance approach that of taxable bonds in recent months and reverse some of
their prior underperformance. In addition, the ratio of tax-exempt bond yields
to taxable bond yields remains attractive and should continue to draw both
traditional and non-traditional investors to the municipal marketplace,
especially if municipal bond issuance remains manageable.
The communities shattered by Hurricanes Katrina and Rita will require extensive
reconstruction. It is too early to estimate the amount of tax-exempt debt that
may be required to finance these efforts or to assess the overall impact on the
municipal market. However, much of the rebuilding is likely to be funded through
federal loans and grants, and the reconstruction will likely be spread over a
number of years. Consequently, any new municipal bond issuance prompted by the
hurricanes is not likely to disrupt the tax-exempt market in the near future.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended October 31, 2005, the Common Stock of MuniVest
Fund II, Inc. had net annualized yields of 7.30% and 7.17%, based on a year-end
per share net asset value of $15.13 and a per share market price of $15.40,
respectively, and $1.104 per share income dividends. Over the same period, the
total investment return on the Fund's Common Stock was +6.88%, based on a change
in per share net asset value from $15.21 to $15.13, and assuming reinvestment of
all distributions.
4 MUNIVEST FUND II, INC. OCTOBER 31, 2005
For the same 12-month period, the Fund's total return, based on net asset value,
outpaced the +5.08% average return of its comparable Lipper category of General
Municipal Debt Funds (Leveraged). (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.) The Fund's outperformance can be
attributed primarily to its overall neutral interest rate exposure, positive
security selection and a generally higher dividend yield than its Lipper peers.
In addition, our holdings in lower-rated bonds performed well as credit spreads
continued to narrow and demand for higher-yielding securities remained strong.
For the six-month period ended October 31, 2005, the total investment return on
the Fund's Common Stock was +2.21%, based on a change in per share net asset
value from $15.34 to $15.13, and assuming reinvestment of all distributions.
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
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 returns based on
changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
We continued to monitor the creditworthiness of the Fund's lower-rated holdings.
Credit spreads continued to narrow amid strong demand for high yield bonds,
prompting us to approach this sector with greater caution. If the incremental
yield provided by these higher-risk bonds declines further, we expect to reduce
the Fund's exposure and reinvest the proceeds in areas of the market offering
greater value.
New purchases during the period included A-rated hospital revenue bonds in
Florida as well as additional bonds issued by New York City with stated
maturities in the 2030 - 2035 range and 5% nominal coupons. Both issues offered
yields exceeding those of comparable U.S. Treasury bonds, making them very
attractive on a taxable-equivalent basis. At period-end, 55.7% of the Fund's
investments had credit ratings of A or higher, essentially unchanged from the
beginning of the year. Correspondingly, 44.2% of the portfolio was rated BBB or
below.
For the six-month period ended October 31, 2005, the Fund's Auction Market
Preferred Stock (AMPS) had average yields of 2.59% for Series A, 2.15% for
Series B, 2.34% for Series C and 2.43% for Series D. The Fed's interest rate
hikes are clearly having a material impact on the Fund's borrowing costs. The
Fed raised the short-term interest rate target 200 basis points during the
12-month period (and 25 basis points more on November 1). Still, the tax-exempt
yield curve remained relatively steep and continued to generate an income
benefit to the holders of Common Stock from the leveraging of Preferred Stock.
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 36.17% of total net assets, before the deduction of
Preferred 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?
The Fund continued to be positioned neutrally with respect to interest rate
risk. We expect to maintain this positioning in the near future in anticipation
of continued moderate economic expansion and negligible inflationary pressures.
Higher energy costs, especially for winter heating fuel, are expected to weigh
on consumer spending and confidence and could promote a relatively stable
interest rate environment. If, however, the U.S. economy strengthens or retail
prices rise beyond expectations, we would likely position the portfolio more
defensively in anticipation of higher interest rates down the road.
Regardless of the economic backdrop, we plan to keep the portfolio fully
invested to enhance shareholder income. Future portfolio activity is likely to
be driven by our ongoing efforts to maintain the Fund's attractive distribution
yield.
Fred K. Stuebe
Vice President and Portfolio Manager
November 10, 2005
MUNIVEST FUND II, INC. OCTOBER 31, 2005 5
Portfolio Information as of October 31, 2005
Percent of
Quality Ratings by Total
S&P/Moody's Investments
- --------------------------------------------------------------------------------
AAA/Aaa ................................................. 23.2%
AA/Aa ................................................... 12.2
A/A ..................................................... 20.3
BBB/Baa ................................................. 20.9
BB/Ba ................................................... 6.4
B/B ..................................................... 1.6
CCC/Caa ................................................. 0.7
NR (Not Rated) .......................................... 14.6
Other* .................................................. 0.1
- --------------------------------------------------------------------------------
* Includes portfolio holdings in variable rate demand notes.
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.
6 MUNIVEST FUND II, INC. OCTOBER 31, 2005
Schedule of Investments (in Thousands)
Face
Amount Municipal Bonds Value
==================================================================================================
Alabama -- 2.7%
$5,000 Huntsville, Alabama, Health Care Authority Revenue
Bonds, Series B, 5.75% due 6/01/2032 $ 5,253
2,900 Tuscaloosa, Alabama, Special Care Facilities Financing
Authority, Residential Care Facility Revenue Bonds
(Capstone Village, Inc. Project), Series A, 5.875%
due 8/01/2036 2,869
==================================================================================================
Arizona -- 2.2%
1,000 Maricopa County, Arizona, IDA, Education Revenue
Bonds (Arizona Charter Schools Project 1), Series A,
6.75% due 7/01/2029 1,002
2,315 Maricopa County, Arizona, Tempe Elementary Unified
School District Number 3, GO, Refunding, 7.50%
due 7/01/2010 (c) 2,699
2,000 Pima County, Arizona, IDA, Education Revenue Bonds
(Arizona Charter Schools Project), Series C, 6.75%
due 7/01/2031 2,089
1,000 Pima County, Arizona, IDA, Education Revenue
Refunding Bonds (Arizona Charter Schools Project II),
Series A, 6.75% due 7/01/2021 1,057
==================================================================================================
California -- 10.4%
California State, Various Purpose, GO:
3,300 5.50% due 4/01/2028 3,539
4,145 5.50% due 4/01/2030 4,433
5,000 5.50% due 11/01/2033 5,359
Golden State Tobacco Securitization Corporation of
California, Tobacco Settlement Revenue Bonds:
6,010 Series A-3, 7.875% due 6/01/2042 7,335
3,750 Series B, 5.375% due 6/01/2010 (i) 4,057
6,200 Series B, 5.50% due 6/01/2013 (i) 6,900
==================================================================================================
Colorado -- 3.5%
260 Colorado HFA, Revenue Refunding Bonds (S/F Program),
AMT, Senior Series A-2, 7.50% due 4/01/2031 275
Elk Valley, Colorado Public Improvement Revenue Bonds
(Public Improvement Fee):
3,025 Series A, 7.35% due 9/01/2031 3,205
930 Series B, 7% due 9/01/2031 950
1,325 North Range, Colorado, Metropolitan District Number 1,
GO, 7.25% due 12/15/2031 1,396
3,300 Plaza Metropolitan District Number 1, Colorado, Tax
Allocation Revenue Bonds (Public Improvement Fees),
8% due 12/01/2025 3,622
1,000 Southlands, Colorado, Medical District, GO
(Metropolitan District Number 1), 7% due 12/01/2024 1,087
==================================================================================================
Connecticut -- 1.2%
1,165 Connecticut State Development Authority, Airport
Facility Revenue Bonds (LearJet Inc. Project), AMT,
7.95% due 4/01/2026 1,390
2,000 Mohegan Tribe Indians Gaming Authority, Connecticut,
Public Improvement Revenue Refunding Bonds
(Priority Distribution), 6.25% due 1/01/2031 2,139
==================================================================================================
Florida -- 7.4%
Fiddlers Creek, Florida, Community Development
District Number 2, Special Assessment Revenue Bonds:
2,350 Series A, 6.375% due 5/01/2035 2,478
1,250 Series B, 5.75% due 5/01/2013 1,292
8,500 Highlands County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Adventist Health System),
Series D, 5% due 11/15/2035 8,530
4,000 Midtown Miami, Florida, Community Development
District, Special Assessment Revenue Bonds, Series A,
6.25% due 5/01/2037 4,224
1,280 Orange County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Adventist Health System),
5.625% due 11/15/2032 1,345
Orlando, Florida, Urban Community Development
District, Capital Improvement Special
Assessment Bonds:
1,135 6.25% due 5/01/2034 1,203
1,000 Series A, 6.95% due 5/01/2033 1,079
10 Panther Trace, Florida, Community Development District,
Special Assessment Revenue Bonds, Series B, 6.50%
due 5/01/2009 10
935 Park Place Community Development District, Florida,
Special Assessment Revenue Bonds, 6.75%
due 5/01/2032 993
950 Preserve at Wilderness Lake, Florida, Community
Development District, Capital Improvement Bonds,
Series A, 7.10% due 5/01/2033 1,032
310 Vista Lakes Community, Florida, Development District,
Capital Improvement Revenue Bonds, Series B, 5.80%
due 5/01/2008 312
==================================================================================================
Georgia -- 5.6%
Atlanta, Georgia, Tax Allocation Bonds (Atlantic
Station Project):
1,655 7.25% due 12/01/2005 1,660
2,000 7.90% due 12/01/2024 2,157
1,225 Brunswick and Glynn County, Georgia, Development
Authority, First Mortgage Revenue Bonds (Coastal
Community Retirement Corporation Project), Series A,
7.125% due 1/01/2025 1,281
2,000 Fulton County, Georgia, Residential Care Facilities,
Revenue Refunding Bonds (Canterbury Court Project),
Series A, 6.125% due 2/15/2026 2,068
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
S/F Single-Family
VRDN Variable Rate Demand Notes
MUNIVEST FUND II, INC. OCTOBER 31, 2005 7
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
==================================================================================================
Georgia (concluded)
Georgia Municipal Electric Authority, Power Revenue
Refunding Bonds:
$5,620 Series W, 6.60% due 1/01/2018 $ 6,579
380 Series W, 6.60% due 1/01/2018 (b) 445
1,250 Series X, 6.50% due 1/01/2020 1,481
1,350 Milledgeville-Baldwin County, Georgia, Development
Authority Revenue Bonds (Georgia College and State
University Foundation), 5.50% due 9/01/2024 1,408
==================================================================================================
Idaho -- 0.1%
355 Idaho Housing Agency, S/F Mortgage Revenue
Refunding Bonds, AMT, Series E-2, 6.90%
due 1/01/2027 362
==================================================================================================
Illinois -- 13.8%
3,000 Chicago, Illinois, O'Hare International Airport, Revenue
Refunding Bonds, DRIVERS, AMT, Series 253, 8.457%
due 1/01/2020 (h)(l) 3,440
4,000 Chicago, Illinois, O'Hare International Airport, Special
Facility Revenue Refunding Bonds (American Airlines
Inc. Project), 8.20% due 12/01/2024 3,385
300 Chicago, Illinois, S/F Mortgage Revenue Bonds, AMT,
Series C, 7% due 3/01/2032 (e)(f) 303
800 Chicago, Illinois, Special Assessment Bonds (Lake Shore
East), 6.75% due 12/01/2032 865
1,000 Chicago, Illinois, Tax Allocation Bonds (Kingsbury
Redevelopment Project), Series A, 6.57%
due 2/15/2013 1,052
2,800 Hodgkins, Illinois, Environmental Improvement Revenue
Bonds (Metro Biosolids Management LLC Project),
AMT, 6% due 11/01/2023 2,958
1,000 Illinois Development Finance Authority Revenue Bonds
(Community Rehabilitation Providers Facilities),
Series A, 6.50% due 7/01/2022 1,080
2,500 Illinois Development Finance Authority, Revenue
Refunding Bonds (Community Rehabilitation Providers
Facilities), Series A, 6% due 7/01/2015 2,571
950 Illinois HDA, Revenue Refunding Bonds (M/F Program),
Series 5, 6.75% due 9/01/2023 958
500 Illinois State Finance Authority Revenue Bonds
(Friendship Village of Schaumburg), Series A, 5.625%
due 2/15/2037 495
2,600 Kane and De Kalb Counties, Illinois, Community Unit
School District Number 302, GO, DRIVERS, Series 283,
8.487% due 2/01/2018 (c)(l) 3,176
2,000 McLean and Woodford Counties, Illinois, Community
Unit, School District Number 005, GO, Refunding,
6.375% due 12/01/2016 (g) 2,290
3,200 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax, Revenue Refunding Bonds,
DRIVERS, Series 269, 8.477% due 6/15/2023 (h)(l) 3,922
Regional Transportation Authority, Illinois, Revenue Bonds:
1,500 Series A, 7.20% due 11/01/2020 (a) 1,870
7,000 Series A, 6.70% due 11/01/2021 (c) 8,633
2,500 Series C, 7.75% due 6/01/2020 (c) 3,388
1,580 Village of Wheeling, Illinois, Revenue Bonds (North
Milwaukee/Lake-Cook Tax Increment Financing (TIF)
Redevelopment Project), 6% due 1/01/2025 1,548
==================================================================================================
Indiana -- 7.4%
5,545 Indiana State, HFA, S/F Mortgage Revenue Refunding
Bonds, Series A, 6.80% due 1/01/2017 (d) 5,553
Indiana Transportation Finance Authority, Highway
Revenue Bonds, Series A:
470 7.25% due 6/01/2015 542
1,530 7.25% due 6/01/2015 1,850
3,775 6.80% due 12/01/2016 4,505
8,750 Indianapolis, Indiana, Local Public Improvement Bond
Bank Revenue Refunding Bonds, Series D, 6.75%
due 2/01/2014 10,175
==================================================================================================
Louisiana -- 8.1%
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 (a) 5,432
4,960 Louisiana Public Facilities Authority, Hospital Revenue
Bonds (Franciscan Missionaries of Our Lady Health
System, Inc.), Series A, 5.25% due 8/15/2036 5,040
10,000 Port New Orleans, Louisiana, IDR, Refunding
(Continental Grain Company Project), 6.50%
due 1/01/2017 10,215
3,600 Sabine River Authority, Louisiana, Water Facilities
Revenue Refunding Bonds (International Paper
Company), 6.20% due 2/01/2025 3,849
==================================================================================================
Maryland -- 1.6%
2,000 Maryland State Energy Financing Administration, Solid
Waste Disposal Revenue Bonds, Limited Obligation
(Wheelabrator Water Projects), AMT, 6.45%
due 12/01/2016 2,076
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) 1,283
1,240 Montgomery County, Maryland, Special Obligation, GO
(West Germantown Development District), Series A,
6.70% due 7/01/2027 (k) 1,393
==================================================================================================
Massachusetts -- 4.9%
1,000 Massachusetts State College Building Authority, Project
Revenue Refunding Bonds, Senior Series A, 7.50%
due 5/01/2011 1,184
1,250 Massachusetts State Development Finance Agency,
Revenue Refunding Bonds (Eastern Nazarene College),
5.625% due 4/01/2029 1,232
5,000 Massachusetts State School Building Authority,
Dedicated Sales Tax Revenue Bonds, DRIVERS, Series
1052, 6.998% due 8/15/2013 (g)(l) 5,336
6,000 Massachusetts State Water Resource Authority Revenue
Bonds, Series A, 6.50% due 7/15/2019 7,137
==================================================================================================
8 MUNIVEST FUND II, INC. OCTOBER 31, 2005
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
==================================================================================================
Michigan -- 6.0%
$2,300 Delta County, Michigan, Economic Development
Corporation, Environmental Improvement Revenue
Refunding Bonds (Mead Westvaco-Escanaba), Series A,
6.25% due 4/15/2012 (i) $ 2,627
3,100 Flint, Michigan, Hospital Building Authority, Revenue
Refunding Bonds (Hurley Medical Center), Series A,
6% due 7/01/2020 (m) 3,355
5,320 Macomb County, Michigan, Hospital Finance Authority,
Hospital Revenue Bonds (Mount Clemens General
Hospital), Series B, 5.875% due 11/15/2034 5,368
3,425 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Ascension Health Credit), Series A,
6.125% due 11/15/2009 (i) 3,780
3,000 Pontiac, Michigan, Tax Increment Finance Authority,
Revenue Refunding Bonds (Development Area
Number 3), 6.375% due 6/01/2031 3,197
==================================================================================================
Mississippi -- 3.6%
Mississippi Business Finance Corporation, Mississippi,
PCR, Refunding (System Energy Resources Inc. Project):
7,200 5.875% due 4/01/2022 7,333
3,465 5.90% due 5/01/2022 3,529
==================================================================================================
Missouri -- 0.1%
190 Missouri State Housing Development Commission, S/F
Mortgage Revenue Bonds (Homeowner Loan), AMT,
Series A, 7.50% due 3/01/2031 (f) 197
==================================================================================================
Nebraska -- 0.5%
Nebraska Investment Finance Authority, S/F Housing
Revenue Bonds, AMT (f):
625 Series C, 6.30% due 9/01/2028 (e) 629
770 Series D, 6.45% due 3/01/2028 789
==================================================================================================
Nevada -- 2.2%
3,300 Clark County, Nevada, IDR (Power Company Project),
AMT, Series A, 6.70% due 6/01/2022 (c) 3,432
620 Clark County, Nevada, Improvement District Number 142
Special Assessment, 6.375% due 8/01/2023 642
80 Nevada Housing Division Revenue Bonds (S/F Program),
AMT, Senior Series E, 7% due 10/01/2019 (d) 81
2,500 Washoe County, Nevada, Gas Facilities Revenue Bonds
(Sierra Pacific Power Company), AMT, 6.65%
due 12/01/2017 (a) 2,519
==================================================================================================
New Jersey -- 7.4%
4,250 New Jersey EDA, Cigarette Tax Revenue Bonds, 5.50%
due 6/15/2024 4,412
New Jersey EDA, Retirement Community Revenue Bonds
(Cedar Crest Village Inc. Facility), Series A:
1,335 7.25% due 11/15/2021 1,455
1,100 7.25% due 11/15/2031 1,189
3,000 New Jersey EDA, Special Facility Revenue Bonds
(Continental Airlines Inc. Project), AMT, 6.25%
due 9/15/2029 2,425
New Jersey Economic Development Authority, School
Facilities Construction Revenue Bonds, Series O:
2,655 5.125% due 3/01/2028 2,754
1,650 5.125% due 3/01/2030 1,706
1,680 New Jersey Health Care Facilities Financing Authority
Revenue Bonds (Pascack Valley Hospital Association),
6.625% due 7/01/2036 1,720
5,785 Tobacco Settlement Financing Corporation of New
Jersey, Asset-Backed Revenue Bonds, 7%
due 6/01/2041 6,766
==================================================================================================
New Mexico -- 1.1%
3,160 Farmington, New Mexico, PCR, Refunding (Tucson
Electric Power Co. -- San Juan Project), Series A,
6.95% due 10/01/2020 3,297
==================================================================================================
New York -- 17.7%
4,000 Metropolitan Transportation Authority, New York,
Revenue Refunding Bonds, Series A, 5.125%
due 11/15/2031 4,132
New York City, New York, City IDA, Civic Facility
Revenue Bonds:
690 Series C, 6.80% due 6/01/2028 741
890 (Special Needs Facility Pooled Program), Series C-1,
6.50% due 7/01/2017 924
1,920 New York City, New York, City IDA, Special Facility
Revenue Bonds (British Airways Plc Project), AMT,
7.625% due 12/01/2032 2,065
New York City, New York, City Municipal Water Finance
Authority, Water and Sewer System, Revenue
Refunding Bonds:
5,000 Series B, 5% due 6/15/2036 (g) 5,149
3,000 Series D, 5% due 6/15/2037 3,075
3,125 Series E, 5% due 6/15/2034 3,194
3,375 New York City, New York, City Transitional Finance
Authority Revenue Bonds, RIB, Series 283, 9.50%
due 11/15/2018 (l) 4,237
New York City, New York, GO:
1,720 Series A, 5% due 8/01/2030 1,750
1,000 Series D, 5% due 11/01/2027 1,023
3,500 Series F, 5.25% due 1/15/2033 3,649
4,700 Series M, 5% due 4/01/2035 4,774
2,500 Series O, 5% due 6/01/2030 2,543
New York City, New York, GO, Refunding:
530 Series A, 6.375% due 5/15/2015 (c) 597
3,400 Series G, 5% due 12/01/2033 3,452
7,000 New York State Dormitory Authority Revenue
Refunding Bonds, RIB, Series 305, 9%
due 5/15/2015 (h)(l) 8,605
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 1,029
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 2,859
==================================================================================================
MUNIVEST FUND II, INC. OCTOBER 31, 2005 9
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
==================================================================================================
North Carolina -- 2.2%
$1,520 Gaston County, North Carolina, Industrial Facilities and
Pollution Control Financing Authority, Revenue Bonds
(National Gypsum Company Project), AMT, 5.75%
due 8/01/2035 $ 1,573
1,400 Haywood County, North Carolina, Industrial Facilities
and Pollution Control Financing Authority Revenue
Bonds (Champion International Corporation Project),
AMT, 6.25% due 9/01/2025 1,430
2,000 North Carolina Medical Care Commission, Health Care
Housing Revenue Bonds (The ARC of North Carolina
Projects), Series A, 5.80% due 10/01/2034 2,045
1,500 North Carolina Medical Care Commission, Retirement
Facilities, First Mortgage Revenue Bonds (Givens
Estates Project), Series A, 6.375% due 7/01/2023 1,590
==================================================================================================
Pennsylvania -- 5.0%
2,000 Delaware River Port Authority of Pennsylvania and
New Jersey Revenue Bonds, RIB, Series 396, 9.003%
due 1/01/2019 (g)(l) 2,369
Montgomery County, Pennsylvania, IDA, Revenue Bonds
(Whitemarsh Continuing Care Project):
470 6.125% due 2/01/2028 488
1,090 6.25% due 2/01/2035 1,134
2,000 Pennsylvania Economic Development Financing
Authority, Exempt Facilities Revenue Bonds (National
Gypsum Company), AMT, Series B, 6.125%
due 11/01/2027 2,114
1,250 Pennsylvania State Higher Educational Facilities
Authority Revenue Bonds (University of Pennsylvania
Medical Center Health System), Series A, 6%
due 1/15/2031 1,355
1,265 Philadelphia, Pennsylvania, Authority for IDR,
Commercial Development, 7.75% due 12/01/2017 1,293
Sayre, Pennsylvania, Health Care Facilities Authority,
Revenue Bonds (Guthrie Healthcare System), Series B:
2,425 5.85% due 12/01/2020 2,605
3,350 7.125% due 12/01/2031 3,952
==================================================================================================
Rhode Island -- 0.4%
1,140 Rhode Island State Health and Educational Building
Corporation, Hospital Financing Revenue Bonds
(Lifespan Obligation Group), 6.50% due 8/15/2032 1,244
==================================================================================================
South Carolina -- 1.5%
1,200 Lexington County, South Carolina, Health Services
District Inc., Hospital Revenue Bonds (Lexington
Medical Center), 5.50% due 5/01/2032 1,243
1,500 Lexington County, South Carolina, Health Services
District Inc., Hospital Revenue Refunding and
Improvement Bonds, 5.50% due 11/01/2032 1,551
1,230 Medical University Hospital Authority, South Carolina,
Hospital Facilities Revenue Refunding Bonds, 6.50%
due 8/15/2012 (i) 1,431
355 South Carolina Housing Finance and Development
Authority, Mortgage Revenue Bonds, AMT, Series A,
6.70% due 7/01/2027 362
==================================================================================================
Tennessee -- 3.8%
1,000 Johnson City, Tennessee, Health and Educational
Facilities Board, Retirement Facility Revenue Bonds
(Appalachian Christian Village Project), Series A, 6%
due 2/15/2024 1,000
4,000 McMinn County, Tennessee, IDB, Solid Waste Revenue
Bonds (Recycling Facility -- Calhoun Newsprint), AMT,
7.40% due 12/01/2022 4,048
600 Sevier County, Tennessee, Public Building Authority,
Local Government Public Improvement Revenue Bonds,
VRDN, Series IV-E-5, 2.74% due 6/01/2020 (a)(j) 600
5,000 Shelby County, Tennessee, Health, Educational and
Housing Facility Board, Hospital Revenue Refunding
Bonds (Methodist Healthcare), 6.50%
due 9/01/2012 (i) 5,819
==================================================================================================
Texas -- 17.3%
Austin, Texas, Convention Center Revenue Bonds
(Convention Enterprises Inc.), First Tier, Series A:
1,600 6.70% due 1/01/2028 1,708
4,510 6.70% due 1/01/2032 4,756
Brazos River Authority, Texas, PCR, Refunding, AMT:
1,500 (Texas Utility Company), Series A, 7.70%
due 4/01/2033 1,775
6,805 (Utilities Electric Company), Series B, 5.05%
due 6/01/2030 6,858
1,810 Brazos River Authority, Texas, Revenue Refunding Bonds
(Reliant Energy Inc. Project), Series B, 7.75%
due 12/01/2018 1,990
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 6,442
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 2,573
2,500 Gulf Coast, Texas, Waste Disposal Authority Revenue
Refunding Bonds (International Paper Company),
AMT, Series A, 6.10% due 8/01/2024 2,638
5,000 Harris County, Texas, Health Facilities Development
Corporation, Revenue Refunding Bonds, DRIVERS,
Series 1018, 8.477% due 7/01/2010 (l) 6,656
1,000 Kerrville, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Sid Peterson
Memorial Hospital Project), 5.125% due 8/15/2026 989
1,150 Lufkin, Texas, Health Facilities Development Corporation,
Health System Revenue Bonds (Memorial Health
System of East Texas), 5.70% due 2/15/2008 (i) 1,181
3,440 Matagorda County, Texas, Navigation District Number 1,
Revenue Refunding Bonds (Reliant Energy Inc.),
Series C, 8% due 5/01/2029 3,744
3,060 Port Corpus Christi, Texas, Individual Development
Corporation, Environmental Facilities Revenue Bonds
(Citgo Petroleum Corporation Project), AMT, 8.25%
due 11/01/2031 3,240
Port Corpus Christi, Texas, Revenue Refunding Bonds
(Celanese Project):
2,500 AMT, Series B, 6.70% due 11/01/2030 2,681
800 Series A, 6.45% due 11/01/2030 847
3,750 San Antonio, Texas, Electric and Gas Revenue Bonds,
RIB, Series 469X, 8.54% due 2/01/2014 (l) 4,430
==================================================================================================
10 MUNIVEST FUND II, INC. OCTOBER 31, 2005.
Schedule of Investments (concluded) (in Thousands)
Face
Amount Municipal Bonds Value
==================================================================================================
Virginia -- 2.8%
$1,000 Chesterfield County, Virginia, IDA, PCR, Refunding
(Virginia Electric and Power Company), Series B,
5.875% due 6/01/2017 $ 1,072
7,215 Pocahontas Parkway Association, Virginia, Toll Road
Revenue Bonds, Senior Series A, 5.50% due 8/15/2028 7,430
==================================================================================================
Washington -- 7.7%
2,425 Chelan County, Washington, Public Utility District
Number 001, Consolidated Revenue Refunding Bonds
(Chelan Hydro System), AMT, Series D, 6.35%
due 7/01/2028 (h) 2,577
Energy Northwest, Washington, Electric Revenue
Refunding Bonds, DRIVERS (l):
2,250 Series 248, 8.487% due 7/01/2018 (h) 2,720
1,125 Series 255, 8.983% due 7/01/2018 (a) 1,403
5,000 Washington State, GO, Trust Receipts, Class R, Series 6,
8.91% due 1/01/2014 (g)(l) 5,957
2,200 Washington State Health Care Facilities Authority
Revenue Bonds (Kadlec Medical Center), 6%
due 12/01/2030 (k) 2,386
Washington State Public Power Supply System, Revenue
Refunding Bonds, Series B:
5,000 (Nuclear Project No. 1), 7.125% due 7/01/2016 6,186
1,900 (Nuclear Project No. 3), 7.125% due 7/01/2016 (h) 2,362
==================================================================================================
Wisconsin -- 1.5%
2,030 Badger Tobacco Asset Securitization Corporation,
Wisconsin, Asset-Backed Revenue Bonds, 6.125%
due 6/01/2027 2,151
2,215 Wisconsin State Health and Educational Facilities
Authority Revenue Bonds (Synergyhealth Inc.), 6%
due 11/15/2032 2,348
==================================================================================================
Wyoming -- 2.0%
Sweetwater County, Wyoming, Solid Waste Disposal
Revenue Bonds (FMC Corporation Project), AMT:
1,000 Series A, 7% due 6/01/2024 1,008
5,000 Series B, 6.90% due 9/01/2024 5,046
==================================================================================================
U.S. Virgin Islands -- 2.2%
6,000 Virgin Islands Government Refinery Facilities, Revenue
Refunding Bonds (Hovensa Coker Project), AMT,
6.50% due 7/01/2021 6,761
==================================================================================================
Total Investments (Cost -- $434,582*) -- 153.9% 467,492
Other Assets Less Liabilities -- 3.7% 11,228
Preferred Stock, at Redemption Value -- (57.6%) (175,019)
---------
Net Assets Applicable to Common Stock -- 100.0% $ 303,701
=========
Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund (3,092) $15
--------------------------------------------------------------------------
* The cost and unrealized appreciation (depreciation) of investments as of
October 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost .............................................. $434,403
========
Gross unrealized appreciation ............................... $ 34,803
Gross unrealized depreciation ............................... (1,714)
--------
Net unrealized appreciation ................................. $ 33,089
========
(a) AMBAC Insured.
(b) Escrowed to maturity.
(c) FGIC Insured.
(d) FHA Insured.
(e) FHLMC Collateralized.
(f) FNMA/GNMA Collateralized.
(g) FSA Insured.
(h) MBIA Insured.
(i) Prerefunded.
(j) Security may have a maturity of more than one year at time of issuance,
but has variable rate and demand features that qualify it as a short-term
security. The rate disclosed is that currently in effect. This rate
changes periodically based upon prevailing market rates.
(k) Radian Insured.
(l) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(m) ACA Insured.
See Notes to Financial Statements.
MUNIVEST FUND II, INC. OCTOBER 31, 2005 11
Statement of Net Assets
As of October 31, 2005
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified
cost -- $434,581,529) ........................................... $ 467,492,428
Cash ............................................................. 236,383
Receivables:
Interest ..................................................... $ 9,324,303
Securities sold .............................................. 4,682,304 14,006,607
-------------
Prepaid expenses ................................................. 9,293
-------------
Total assets ..................................................... 481,744,711
-------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Payables:
Securities purchased ......................................... 2,766,804
Investment adviser ........................................... 190,978
Other affiliates ............................................. 6,285 2,964,067
-------------
Accrued expenses ................................................. 59,996
-------------
Total liabilities ................................................ 3,024,063
-------------
===================================================================================================================================
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) and $.10 per share (1,600 Series D
Shares) of AMPS* authorized, issued and outstanding at
$25,000 per share liquidation preference ........................ 175,019,184
-------------
===================================================================================================================================
Net Assets Applicable to Common Stock
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock ............................ $ 303,701,464
=============
===================================================================================================================================
Analysis of Net Assets Applicable to Common Stock
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.10 per share (20,071,497 shares
issued and outstanding) ......................................... $ 2,007,150
Paid-in capital in excess of par ................................. 279,502,720
Undistributed investment income -- net ........................... $ 5,314,418
Accumulated realized capital losses -- net ....................... (16,033,723)
Unrealized appreciation -- net ................................... 32,910,899
-------------
Total accumulated earnings -- net ................................ 22,191,594
-------------
Total -- Equivalent to $15.13 net asset value per share of
Common Stock (market price -- $15.40) ........................... $ 303,701,464
=============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
12 MUNIVEST FUND II, INC. OCTOBER 31, 2005
Statement of Operations
For the Year Ended October 31, 2005
===================================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------------
Interest ......................................................... $ 27,009,186
Dividends from affiliates ........................................ 14,752
-------------
Total income ..................................................... 27,023,938
-------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ......................................... $ 2,364,268
Commission fees .................................................. 419,684
Accounting services .............................................. 162,333
Transfer agent fees .............................................. 75,317
Professional fees ................................................ 48,237
Printing and shareholder reports ................................. 40,934
Directors' fees and expenses ..................................... 33,024
Custodian fees ................................................... 28,040
Pricing fees ..................................................... 24,965
Listing fees ..................................................... 19,249
Other ............................................................ 51,981
-------------
Total expenses before reimbursement .............................. 3,268,032
Reimbursement of expenses ........................................ (2,049)
-------------
Total expenses after reimbursement ............................... 3,265,983
-------------
Investment income -- net ......................................... 23,757,955
-------------
===================================================================================================================================
Realized & Unrealized Gain (Loss) -- Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments -- net ........................................... 3,774,147
Futures contracts and forward interest rate swaps -- net ..... (539,232) 3,234,915
-------------
Change in unrealized appreciation/depreciation on:
Investments -- net ........................................... (2,802,266)
Forward interest rate swaps -- net ........................... 230,413 (2,571,853)
---------------------------------
Total realized and unrealized gain -- net ........................ 663,062
-------------
===================================================================================================================================
Dividends to Preferred Stock Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ......................................... (3,494,922)
-------------
Net Increase in Net Assets Resulting from Operations ............. $ 20,926,095
=============
See Notes to Financial Statements.
MUNIVEST FUND II, INC. OCTOBER 31, 2005 13
Statements of Changes in Net Assets
For the Year Ended
October 31,
---------------------------------
Increase (Decrease) in Net Assets: 2005 2004
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ......................................... $ 23,757,955 $ 23,321,149
Realized gain -- net ............................................. 3,234,915 2,475,190
Change in unrealized appreciation/depreciation -- net ............ (2,571,853) 6,348,033
Dividends to Preferred Stock shareholders ........................ (3,494,922) (1,374,858)
---------------------------------
Net increase in net assets resulting from operations ............. 20,926,095 30,769,514
---------------------------------
===================================================================================================================================
Dividends to Common Stock Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ......................................... (22,075,616) (21,646,818)
---------------------------------
Net decrease in net assets resulting from dividends to
Common Stock shareholders ....................................... (22,075,616) (21,646,818)
---------------------------------
===================================================================================================================================
Stock Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Value of shares issued to Common Stock shareholders in
reinvestment of dividends ....................................... 1,950,702 573,097
Offering and underwriting costs resulting from the
issuance of Preferred Stock ..................................... (548,100) --
---------------------------------
Net increase in net assets resulting from stock transactions ..... 1,402,602 --
---------------------------------
===================================================================================================================================
Net Assets Applicable to Common Stock
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets applicable to Common Stock .......... 253,081 9,695,793
Beginning of year ................................................ 303,448,383 293,752,590
---------------------------------
End of year* ..................................................... $ 303,701,464 $ 303,448,383
=================================
* Undistributed investment income -- net ..................... $ 5,314,418 $ 7,127,001
=================================
See Notes to Financial Statements.
14 MUNIVEST FUND II, INC. OCTOBER 31, 2005
Financial Highlights
For the Year Ended October 31,
The following per share data and ratios have been derived ------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ................. $ 15.21 $ 14.76 $ 14.16 $ 14.29 $ 13.32
------------------------------------------------------------
Investment income -- net ........................... 1.19+ 1.17+ 1.17+ 1.11 1.02
Realized and unrealized gain (loss) -- net ......... .04 .44 .49 (.25) .97
Dividends to Preferred Stock shareholders
from investment income -- net ..................... (.18) (.07) (.07) (.09) (.22)
------------------------------------------------------------
Total from investment operations ................... 1.05 1.54 1.59 .77 1.77
------------------------------------------------------------
Less dividends to Common Stock shareholders
from investment income -- net ..................... (1.10) (1.09) (.99) (.90) (.80)
------------------------------------------------------------
Offering and underwriting costs resulting
from the issuance of Preferred Stock .............. (.03) -- -- -- --
------------------------------------------------------------
Net asset value, end of year ....................... $ 15.13 $ 15.21 $ 14.76 $ 14.16 $ 14.29
============================================================
Market price per share, end of year ................ $ 15.40 $ 15.15 $ 14.26 $ 13.36 $ 13.69
============================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ................. 6.88% 10.94% 11.88% 5.86% 14.06%
============================================================
Based on market price per share .................... 9.21% 14.38% 14.56% 4.25% 25.20%
============================================================
===================================================================================================================================
Ratios Based on Average Net Assets of Common Stock
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net reimbursement* ................. 1.07% .99% 1.01% 1.05% 1.02%
============================================================
Total expenses* .................................... 1.07% .99% 1.01% 1.05% 1.02%
============================================================
Total investment income -- net* .................... 7.76% 7.86% 8.01% 7.79% 7.42%
============================================================
Amount of dividends to Preferred Stock
shareholders ...................................... 1.14% .46% .46% .66% 1.57%
============================================================
Investment income -- net, to Common Stock
shareholders ...................................... 6.62% 7.40% 7.55% 7.13% 5.85%
============================================================
===================================================================================================================================
Ratios Based on Average Net Assets of Preferred Stock
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders .......... 2.09% 1.02% .98% 1.38% 3.22%
============================================================
MUNIVEST FUND II, INC. OCTOBER 31, 2005 15
Financial Highlights (concluded)
For the Year Ended October 31,
The following per share data and ratios have been derived ------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock, end
of year (in thousands) ............................ $303,701 $303,448 $293,753 $281,830 $284,547
============================================================
Preferred Stock outstanding, end of year
(in thousands) .................................... $175,000 $135,000 $135,000 $135,000 $135,000
============================================================
Portfolio turnover ................................. 74.96% 22.39% 31.50% 66.07% 87.80%
============================================================
===================================================================================================================================
Leverage
- -----------------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 .......................... $ 2,735 $ 3,248 $ 3,176 $ 3,088 $ 3,108
============================================================
===================================================================================================================================
Dividends Per Share on Preferred Stock Outstanding
- -----------------------------------------------------------------------------------------------------------------------------------
Series A -- Investment income -- net ............... $ 527 $ 262 $ 251 $ 338 $ 793
============================================================
Series B -- Investment income -- net ............... $ 503 $ 234 $ 248 $ 319 $ 834
============================================================
Series C -- Investment income -- net ............... $ 512 $ 268 $ 240 $ 375 $ 784
============================================================
Series D++ -- Investment income -- net ............. $ 450 -- -- -- --
============================================================
* 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 effect of sales
charges.
+ Based on average shares outstanding.
++ Series D was issued on January 14, 2005.
See Notes to Financial Statements.
16 MUNIVEST FUND II, INC. OCTOBER 31, 2005
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 U.S.
generally accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. The Fund determines and makes available for publication the net asset
value of its Common Stock on a daily basis. The Fund's Common Stock shares are
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 ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values as obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the general direction
of the Board of Directors. Such valuations and procedures are reviewed
periodically by the Board of Directors of the Fund. 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 OTC 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's pricing service.
Short-term investments with a remaining maturity of 60 days or less are valued
at amortized cost, which approximates market value, under which method the
investment is valued at cost and any premium or discount is amortized on a
straight line basis to maturity. Investments in open-end investment companies
are valued at their net asset value each business day. Securities and other
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.
(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.
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.
MUNIVEST FUND II, INC. OCTOBER 31, 2005 17
Notes to Financial Statements (continued)
(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.
(f) Offering costs -- Direct expenses relating to the public offering of the
Fund's Preferred Stock were charged to capital at the time of issuance of the
shares.
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. The Investment Adviser has agreed
to reimburse its management fee by the amount of the management fees the Fund
pays to FAM indirectly through its investment in Merrill Lynch Institutional
Tax-Exempt Fund. For the year ended October 31, 2005, FAM reimbursed the Fund in
the amount of $2,049.
For the year ended October 31, 2005, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), an affiliate of FAM, received underwriting fees of
$400,000 in connection with the issuance of the Fund's Preferred Stock.
In addition, MLPF&S received $3,105 in commissions on the execution of portfolio
security transactions for the Fund for the year ended October 31, 2005.
For the year ended October 31, 2005, the Fund reimbursed FAM $11,877 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, 2005 were $384,246,052 and $345,454,828, respectively.
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 years ended October 31, 2005 and
October 31, 2004 increased by 126,778 and 37,664 as a result of dividend
reinvestment, respectively.
Preferred Stock
Auction Market Preferred Stock are shares of Preferred Stock of the Fund, with a
par value of $.05 per share on Series A Shares, Series B Shares and Series C
Shares, and $.10 per share on Series D Shares. In addition, there is 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,
2005 were as follows: Series A, 2.59%; Series B, 2.66%; Series C, 2.55%; and
Series D, 2.50%.
Shares issued and outstanding during the year ended October 31, 2005 increased
by 1,600 shares from the issuance of an additional series of Preferred Stock.
Shares issued and outstanding during the year ended October 31, 2004 remained
constant.
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, 2005, MLPF&S earned $225,105 as
commissions.
18 MUNIVEST FUND II, INC. OCTOBER 31, 2005
Notes to Financial Statements (concluded)
5. Distributions to Shareholders:
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of $.092000 per share on November 29, 2005 to shareholders of record on
November 15, 2005.
The tax character of distributions paid during the fiscal years ended October
31, 2005 and October 31, 2004 was as follows:
- --------------------------------------------------------------------------------
10/31/2005 10/31/2004
- --------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $25,570,538 $23,021,676
-------------------------------
Total distributions .................... $25,570,538 $23,021,676
===============================
As of October 31, 2005, the components of accumulated earnings on a tax basis
were as follows:
- -----------------------------------------------------------------------------
Undistributed tax-exempt income -- net .................. $ 5,093,491
Undistributed long-term capital gains -- net ............ --
------------
Total undistributed earnings -- net ..................... 5,093,491
Capital loss carryforward ............................... (12,488,454)*
Unrealized gains -- net ................................. 29,586,557**
------------
Total accumulated earnings -- net ....................... $ 22,191,594
============
* On October 31, 2005, the Fund had a net capital loss carryforward of
$12,488,454, of which $3,730,020 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 wash sales, the
tax deferral of losses on straddles and the difference between book and
tax amortization methods for premiums and discounts on fixed income
securities.
MUNIVEST FUND II, INC. OCTOBER 31, 2005 19
Report of Independent Registered Public Accounting Firm
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, 2005, 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 the standards of the Public Company
Accounting Oversight Board (United States). 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2005, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, 2005, 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 U.S. generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 19, 2005
Fund Certification (unaudited)
In February 2005, the Fund filed its Chief Executive Officer Certification for
the prior year with the New York Stock Exchange pursuant to Section 303A.12(a)
of the New York Stock Exchange Corporate Governance Listing Standards.
The Fund's Chief Executive Officer and Chief Financial Officer Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the
Fund's Form N-CSR and are available on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
Important Tax Information (unaudited)
All of the net investment income distributions paid by MuniVest Fund II, Inc.
during the taxable year ended October 31, 2005 qualify as tax-exempt interest
dividends for federal income tax purposes.
20 MUNIVEST FUND II, INC. OCTOBER 31, 2005
Automatic Dividend Reinvestment Plan
How the Plan Works -- The Fund offers a Dividend Reinvestment Plan (the "Plan")
under which income and capital gains dividends paid by the Fund are
automatically reinvested in additional shares of Common Stock of the Fund. The
Plan is administered on behalf of the shareholders by The Bank of New York (the
"Plan Agent"). Under the Plan, whenever the Fund declares a dividend,
participants in the Plan will receive the equivalent in shares of Common Stock
of the Fund. The Plan Agent will acquire the shares for the participant's
account either (i) through receipt of additional unissued but authorized shares
of the Fund ("newly issued shares") or (ii) by purchase of outstanding shares of
Common Stock on the open market on the New York Stock Exchange or elsewhere. If,
on the dividend payment date, the Fund's net asset value per share is equal to
or less than the market price per share plus estimated brokerage commissions (a
condition often referred to as a "market premium"), the Plan Agent will invest
the dividend amount in newly issued shares. If the Fund's net asset value per
share is greater than the market price per share (a condition often referred to
as a "market discount"), the Plan Agent will invest the dividend amount by
purchasing on the open market additional shares. If the Plan Agent is unable to
invest the full dividend amount in open market purchases, or if the market
discount shifts to a market premium during the purchase period, the Plan Agent
will invest any uninvested portion in newly issued shares. The shares acquired
are credited to each shareholder's account. The amount credited is determined by
dividing the dollar amount of the dividend by either (i) when the shares are
newly issued, the net asset value per share on the date the shares are issued or
(ii) when shares are purchased in the open market, the average purchase price
per share.
Participation in the Plan -- Participation in the Plan is automatic, that is, a
shareholder is automatically enrolled in the Plan when he or she purchases
shares of Common Stock of the Fund unless the shareholder specifically elects
not to participate in the Plan. Shareholders who elect not to participate will
receive all dividend distributions in cash. Shareholders who do not wish to
participate in the Plan, must advise the Plan Agent in writing (at the address
set forth below) that they elect not to participate in the Plan. Participation
in the Plan is completely voluntary and may be terminated or resumed at any time
without penalty by writing to the Plan Agent.
Benefits of the Plan -- The Plan provides an easy, convenient way for
shareholders to make additional, regular investments in the Fund. The Plan
promotes a long-term strategy of investing at a lower cost. All shares acquired
pursuant to the Plan receive voting rights. In addition, 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 for less than they could otherwise
purchase them and with a cash value greater than the value of any cash
distribution they would have received. However, there may not be enough 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.
Plan Fees -- There are no enrollment fees or brokerage fees for participating in
the Plan. The Plan Agent's service fees for handling the reinvestment of
distributions are paid for by the Fund. However, brokerage commissions may be
incurred when the Fund purchases shares on the open market and shareholders will
pay a pro rata share of any such commissions.
Tax Implications -- 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. Therefore, income and
capital gains may still be realized even though shareholders do not receive
cash. 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
market premium, 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 the discount from the market value (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.
Contact Information -- All correspondence concerning the Plan, including any
questions about 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, 2005 21
Disclosure of Investment Advisory Agreement
Activities of and Composition of the Board of Directors
All but one member of the Board of Directors is an independent director whose
only affiliation with Fund Asset Management, L.P. (the "Investment Adviser") or
other Merrill Lynch affiliates is as a director of the Fund and certain other
funds advised by the Investment Adviser or its affiliates. The Chairman of the
Board is also an independent director. New director nominees are chosen as
nominees by a Nominating Committee comprised of independent directors. All
independent directors also are members of the Board's Audit Committee and the
independent directors meet in executive session at each in-person Board meeting.
The Board and the Audit Committee meet in person for at least two days each
quarter and conduct other in-person and telephone meetings throughout the year,
some of which are formal board meetings, and some of which are informational
meetings. The independent counsel to the independent directors attends all
in-person Board and Audit Committee meetings and other meetings at the
independent directors' request.
Investment Advisory Agreement -- Matters Considered by the Board
Every year, the Board considers approval of the Fund's investment advisory
agreement (the "Investment Advisory Agreement"). The Board assesses the nature,
scope and quality of the services provided to the Fund by the personnel of the
Investment Adviser and its affiliates, including administrative services,
shareholder services, oversight of fund accounting, marketing services and
assistance in meeting legal and regulatory requirements. The Board also receives
and assesses information regarding the services provided to the Fund by certain
unaffiliated service providers.
At various times throughout the year, the Board also considers a range of
information in connection with its oversight of the services provided by the
Investment Adviser and its affiliates. Among the matters considered are: (a)
fees (in addition to management fees) paid to the Investment Adviser and its
affiliates by the Fund; (b) Fund operating expenses paid to third parties; (c)
the resources devoted to and compliance reports relating to the Fund's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and the Investment Adviser's compliance policies and procedures;
and (d) the nature, cost and character of non-investment management services
provided by the Investment Adviser and its affiliates.
The Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall services provided by the
Investment Adviser to be generally of high quality. The Board also believes that
the Investment Adviser is financially sound and well managed and notes that the
Investment Adviser is affiliated with one of America's largest financial firms.
The Board works closely with the Investment Adviser in overseeing the Investment
Adviser's efforts to achieve good performance. As part of this effort, the Board
discusses portfolio manager effectiveness and, when performance is not
satisfactory, discusses with the Investment Adviser taking steps such as
changing investment personnel.
Annual Consideration of Approval by the Board of Directors
In the period prior to the Board meeting to consider renewal of the Investment
Advisory Agreement, the Board requests and receives materials specifically
relating to the Fund's Investment Advisory Agreement. These materials include
(a) information compiled by Lipper Inc. ("Lipper") on the fees and expenses and
the investment performance of the Fund as compared to a comparable group of
funds as classified by Lipper; (b) information comparing the Fund's market price
with its net asset value per share; (c) a discussion by the Fund's portfolio
management team of investment strategies used by the Fund during its most recent
fiscal year; (d) information on the profitability to the Investment Adviser and
its affiliates of the Investment Advisory Agreement and other relationships with
the Fund; and (e) information provided by the Investment Adviser concerning
investment advisory fees charged to other retail closed-end funds under similar
investment mandates. The Board also considers other matters it deems important
to the approval process such as services related to the valuation and pricing of
Fund portfolio holdings, allocation of Fund brokerage fees, the Fund's portfolio
turnover statistics, and direct and indirect benefits to the Investment Adviser
and its affiliates from their relationship with the Fund.
Certain Specific Renewal Data
In connection with the most recent renewal of the Fund's Investment Advisory
Agreement in May 2005, the independent directors' and Board's review included
the following:
Services Provided by the Investment Adviser -- The Board reviewed the nature,
extent and quality of services provided by the Investment Adviser, including the
investment advisory services and the resulting performance of the Fund. The
Board focused primarily on the Investment Adviser's investment advisory services
and the Fund's investment performance, having concluded that the other services
provided to the Fund by the Investment Adviser were satisfactory. The
22 MUNIVEST FUND II, INC. OCTOBER 31, 2005
Board compared Fund performance -- both including and excluding the effects of
the Fund's fees and expenses -- to the performance of a comparable group of
funds, and the performance of a relevant index or combination of indexes. While
the Board reviews performance data at least quarterly, consistent with the
Investment Adviser's investment goals, the Board attaches more importance to
performance over relatively long periods of time, typically three to five years.
The Fund's performance after fees and expenses ranked in the first quintile for
each of the one-, three- and five-year periods ended February 28, 2005.
Considering these factors, the Board concluded that the Fund's performance
supported the continuation of the Investment Advisory Agreement.
The Investment Adviser's Personnel and Investment Process -- The Board reviews
at least annually the Fund's investment objectives and strategies. The Board
discusses with senior management of the Investment Adviser responsible for
investment operations and the senior management of the Investment Adviser's
municipal investing group the strategies being used to achieve the stated
objectives. Among other things, the Board considers the size, education and
experience of the Investment Adviser's investment staff, its use of technology,
and the Investment Adviser's approach to training and retaining portfolio
managers and other research, advisory and management personnel. The Board also
reviews the Investment Adviser's compensation policies and practices with
respect to the Fund's portfolio managers. The Board also considered the
experience of the Fund's portfolio manager and noted that Mr. Stuebe has more
than fifteen years of experience in portfolio management. The Investment Adviser
and its investment staff have extensive experience in analyzing and managing the
types of investments used by the Fund. The Board concluded that the Fund
benefits from that expertise.
Management Fees and Other Expenses -- The Board reviews the Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels -- the actual rate includes advisory and
administrative service fees and the effects of any fee waivers -- compared to
the other funds in its Lipper category. It also compares the Fund's total
expenses to those of other comparable funds. The Board considered the services
provided to and the fees charged by the Investment Adviser to other retail
closed-end funds, with similar investment mandates and noted that the fees
charged by the Investment Adviser in those cases typically exceeded those being
charged to the Fund. The Fund's contractual and actual management fee rates as
well as its total expenses were below the median of management fees charged by
comparable funds as determined by Lipper. The Board has concluded that the
Fund's management fee and fee rate and overall expense ratio are reasonable
compared to those of other comparable funds.
Profitability -- The Board considers the cost of the services provided to the
Fund by the Investment Adviser, and the Investment Adviser's and its affiliates'
profits relating to the management and distribution of the Fund and the
MLIM/FAM-advised funds. As part of its analysis, the Board reviewed the
Investment Adviser's methodology in allocating its costs to the management of
the Fund and concluded that there was a reasonable basis for the allocation. The
Board also considered the federal court decisions discussing an investment
adviser's profitability and profitability levels considered to be reasonable in
those decisions. The Board believes the Investment Adviser's profits are
acceptable in relation to the nature and quality of services provided and given
the level of fees and expenses overall.
Economies of Scale -- The Board considered the extent to which economies of
scale might be realized as the assets of the Fund increase and whether there
should be changes in the management fee rate or structure in order to enable the
Fund to participate in these economies of scale. The Board noted that, because
of the Fund's closed-end structure, it is unlikely there will be available
economies of scale.
Conclusion
After the independent directors deliberated in executive session, the entire
Board, including all of the independent directors, approved the renewal of the
existing Investment Advisory Agreement, concluding that the advisory fee was
reasonable in relation to the services provided and that a contract renewal was
in the best interests of the shareholders.
MUNIVEST FUND II, INC. OCTOBER 31, 2005 23
Officers and Directors
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to President of the MLIM/FAM-advised funds since 2005; 131 Funds None
Doll, Jr.* Princeton, NJ and present President of MLIM and FAM since 2001; Co-Head 177 Portfolios
08543-9011 Director (Americas Region) thereof from 2000 to 2001 and
Age: 51 Senior Vice President from 1999 to 2001; President
and Director of Princeton Services, Inc. ("Princeton
Services") since 2001; President of Princeton
Administrators, L.P. ("Princeton Administrators")
since 2001; Chief Investment Officer of Oppenheimer-
Funds, Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which MLIM
or FAM acts as investment adviser. Mr. Doll is an "interested person," as described in the Investment Company Act, of
the Fund based on his current positions with MLIM, FAM, Princeton Services and Princeton Administrators. Directors
serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund
President, Mr. Doll 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, 49 Funds None
Forbes** Princeton, NJ present State University of New York at Albany since 2000 50 Portfolios
08543-9095 and Professor thereof from 1989 to 2000; Interna-
Age: 65 tional Consultant, Urban Institute, Washington, D.C.
from 1995 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Cynthia A. P.O. Box 9095 Director 1993 to Professor, Harvard Business School since 1989; 49 Funds Newell
Montgomery Princeton, NJ present Associate Professor, J.L. Kellogg Graduate School 50 Portfolios Rubbermaid,
08543-9095 of Management, Northwestern University from Inc.
Age: 53 1985 to 1989; Associate Professor, Graduate (manufac-
School of Business Administration, University of turing)
Michigan from 1979 to 1985. Director, Harvard
Business School of Publishing since 2005.
- ------------------------------------------------------------------------------------------------------------------------------------
Jean Margo P.O. Box 9095 Director 2004 to Self-employed consultant since 2001; Counsel of 49 Funds None
Reid Princeton, NJ present Alliance Capital Management (investment adviser) 50 Portfolios
08543-9095 in 2000; General Counsel, Director and Secretary
Age: 60 Sanford C. Bernstein & Co., Inc. (investment
adviser/broker-dealer) from 1997 to 2000;
Secretary, Sanford C. Bernstein Fund, Inc. from
1994 to 2000; Director and Secretary of SCB, Inc.
since 1998; Director and Secretary of SCB
Partners, Inc. since 2000; and Director of Covenant
House from 2001 to 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Roscoe S. P.O. Box 9095 Director 2000 to President, Middle East Institute from 1995 to 2001; 49 Funds None
Suddarth Princeton, NJ present Foreign Service Officer, United States Foreign 50 Portfolios
08543-9095 Service from 1961 to 1995 and Career Minister from
Age: 70 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.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard R. P.O. Box 9095 Director 1993 to Professor of Finance from 1984 to 1995; Dean from 49 Funds Bowne &
West Princeton, NJ present 1984 to 1993 and since 1995 Dean Emeritus of 50 Portfolios Co., Inc.
08543-9095 New York University's Leonard N. Stern School of (financial
Age: 67 Business Administration. printers);
Vornado
Realty Trust
(real estate
company);
Alexander's,
Inc. (real
estate
company)
24 MUNIVEST FUND II, INC. OCTOBER 31, 2005
Officers and Directors (concluded)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Edward D. P.O. Box 9095 Director 2000 to Self-employed financial consultant since 1994; 49 Funds None
Zinbarg Princeton, NJ present Executive Vice President of the Prudential Insurance 50 Portfolios
08543-9095 Company of America from 1988 to 1994; Former
Age: 71 Director of Prudential Reinsurance Company and
former Trustee of the Prudential Foundation.
------------------------------------------------------------------------------------------------------------------------
* Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Chairman of the Board and the Audit Committee.
- ------------------------------------------------------------------------------------------------------------------------------------
Position(s) Length of
Held with Time
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
08543-9011 and and 1999 since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999; Vice
Age: 45 Treasurer to President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from 1990
present to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9011 Senior Vice 2002 to Managing Director of MLIM since 2000; Director (Tax-Exempt Fund Management)
Jacob Princeton, NJ President present of MLIM from 1997 to 2000.
08543-9011
Age: 54
- ------------------------------------------------------------------------------------------------------------------------------------
John M. P.O. Box 9011 Senior Vice 2002 to Managing Director of MLIM since 2000; Director (Tax-Exempt Fund Management)
Loffredo Princeton, NJ President present of MLIM from 1997 to 2000.
08543-9011
Age: 41
- ------------------------------------------------------------------------------------------------------------------------------------
Fred K. P.O. Box 9011 Vice 1998 to Director (Tax-Exempt Fund Management) of MLIM since 2000; Vice President
Stuebe Princeton, NJ President present of MLIM from 1994 to 2000.
08543-9011
Age: 55
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief Compliance
08543-9011 Officer Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Age: 54 Investment Management from 2002 to 2004; Managing Director and Global Director of
Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance
Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential
Financial from 1995 to 2000; Senior Counsel in the Commission's Division of
Enforcement in Washington, D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD and
08543-9011 Princeton Services since 2004.
Age: 45
------------------------------------------------------------------------------------------------------------------------
* 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 -- 11 East
New York, NY 10286
Preferred Stock:
The Bank of New York
101 Barclay Street -- 7 West
New York, NY 10286
NYSE Symbol
MVT
MUNIVEST FUND II, INC. OCTOBER 31, 2005 25
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
26 MUNIVEST FUND II, INC. OCTOBER 31, 2005
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 Web
site at 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, 2005 27
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
- --------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.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)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
MuniVest Fund II, Inc.
Box 9011
Princeton, NJ 08543-9011
#16807 -- 10/05
Item 2 - Code of Ethics - 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 - Audit Committee Financial Expert - 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 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending October 31, 2005 - $27,500
Fiscal Year Ending October 31, 2004 - $26,000
(b) Audit-Related Fees - Fiscal Year Ending October 31, 2005 - $13,700
Fiscal Year Ending October 31, 2004 - $3,000
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees, and services rendered in
connection with the registration and issuance of a new series of AMPS.
(c) Tax Fees - Fiscal Year Ending October 31, 2005 - $5,700
Fiscal Year Ending October 31, 2004 - $5,610
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending October 31, 2005 - $0
Fiscal Year Ending October 31, 2004 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending October 31, 2005 - $6,277,749
Fiscal Year Ending October 31, 2004 - $13,270,096
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's 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.
Regulation S-X Rule 2-01(c)(7)(ii) - $1,227,000, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals are
members of the registrant's separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act (15 U.S.C. 78c(a)(58)(A)):
Ronald W. Forbes
Cynthia A. Montgomery
Jean Margo Reid
Kevin A. Ryan (retired as of December 31, 2004)
Roscoe S. Suddarth
Richard R. West
Edward D. Zinbarg
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -
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 - Portfolio Managers of Closed-End Management Investment Companies - as
of October 31, 2005.
(a)(1) Mr. Fred K. Stuebe is primarily responsible for the day-to-day
management of the registrant's portfolio ("Portfolio Manager"). Mr.
Stuebe has been a portfolio manager with MLIM since 1989 and
Director (Tax-Exempt Fund Management) of MLIM since 2000. He was a
Vice President of MLIM from 1994 to 2000. He has been the portfolio
manager and a Vice President of the Fund since 1993.
(a)(2) As of October 31, 2005:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
Registered Other Pooled Registered Other Pooled
(i) Name of Investment Investment Other Investment Investment Other
Portfolio Manager Companies Vehicles Accounts Companies Vehicles Accounts
Fred K. Stuebe 3 0 0 0 0 0
$ 1,659,553,109 $ 0 $ 0 $ 0 $ 0 $ 0
(iv) Potential Material Conflicts of Interest
Real, potential or apparent conflicts of interest may arise when a
portfolio manager has day-to-day portfolio management responsibilities with
respect to more than one fund or account, including the following:
Certain investments may be appropriate for the Fund and also for other
clients advised by the Investment. Adviser and its affiliates, including other
client accounts managed by the Fund's portfolio management team. Investment
decisions for the Fund and other clients are made with a view to achieving their
respective investment objectives and after consideration of such factors as
their current holdings, availability of cash for investment and the size of
their investments generally. Frequently, a particular security may be bought or
sold for only one client or in different amounts and at different times for more
than one but less than all clients. Likewise, because clients of the Investment
Adviser and its affiliates may have differing investment strategies, a
particular security may be bought for one or more clients when one or more other
clients are selling the security. The investment results for the Fund may differ
from the results achieved by other clients of the Investment Adviser and its
affiliates and results among clients may differ. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Investment Adviser and its affiliates to be equitable to each.
The Investment Adviser will not determine allocations based on whether it
receives a performance based fee from the client. In some cases, the allocation
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Investment Adviser and its
affiliates in the interest of achieving the most favorable net results to the
Fund.
To the extent that the Fund's portfolio management team has
responsibilities for managing accounts in addition to the Fund, a portfolio
manager will need to divide his time and attention among relevant accounts.
In some cases, a real, potential or apparent conflict may also arise where
(i) the Investment Adviser may have an incentive, such as a performance based
fee, in managing one account and not with respect to other accounts it manages
or (ii) where a member of the Fund's portfolio management team owns an interest
in one fund or account he or she manages and not another.
(a)(3) As of October 31, 2005:
Portfolio Manager Compensation
The Portfolio Manager Compensation Program of MLIM and its affiliates,
including the Investment Adviser, is critical to MLIM's ability to attract and
retain the most talented asset management professionals. This program ensures
that compensation is aligned with maximizing investment returns and it provides
a competitive pay opportunity for competitive performance.
Compensation Program
The elements of total compensation for MLIM and its affiliates portfolio
managers are a fixed base salary, annual performance-based cash and stock
compensation (cash and stock bonus) and other benefits. MLIM has balanced these
components of pay to provide portfolio managers with a powerful incentive to
achieve consistently superior investment performance. By design, portfolio
manager compensation levels fluctuate -- both up and down -- with the relative
investment performance of the portfolios that they manage.
Base Salary
Under the MLIM approach, like that of many asset management firms, base
salaries represent a relatively small portion of a portfolio manager's total
compensation. This approach serves to enhance the motivational value of the
performance-based (and therefore variable) compensation elements of the
compensation program.
Performance-Based Compensation
MLIM believes that the best interests of investors are served by
recruiting and retaining exceptional asset management talent and managing their
compensation within a consistent and disciplined framework that emphasizes pay
for performance in the context of an intensely competitive market for talent. To
that end, MLIM and its affiliates portfolio manager incentive compensation is
based on a formulaic compensation program. MLIM's formulaic portfolio manager
compensation program includes: investment performance relative to a subset of
general closed-end, leveraged, municipal debt funds over 1-, 3- and 5-year
performance periods and a measure of operational efficiency. Portfolio managers
are compensated based on the pre-tax performance of the products they manage. If
a portfolio manager's tenure is less than 5 years, performance periods will
reflect time in position. Portfolio managers are compensated based on products
they manage. A discretionary element of portfolio manager compensation may
include consideration of: financial results, expense control, profit margins,
strategic planning and implementation, quality of client service, market share,
corporate reputation, capital allocation, compliance and risk control,
leadership, workforce diversity, supervision, technology and innovation. MLIM
and its affiliates also consider the extent to which individuals exemplify and
foster ML & Co.'s principles of client focus, respect for the individual,
teamwork, responsible citizenship and integrity. All factors are considered
collectively by MLIM management.
Cash Bonus
Performance-based compensation is distributed to portfolio managers in a
combination of cash and stock. Typically, the cash bonus, when combined with
base salary, represents more than 60% of total compensation for portfolio
managers.
Stock Bonus
A portion of the dollar value of the total annual performance-based bonus
is paid in restricted shares of ML & Co. stock. Paying a portion of annual
bonuses in stock puts compensation earned by a portfolio manager for a given
year "at risk" based on the company's ability to sustain and improve its
performance over future periods. The ultimate value of stock bonuses is
dependent on future ML & Co. stock price performance. As such, the stock bonus
aligns each portfolio manager's financial interests with those of the ML & Co.
shareholders and encourages a balance between short-term goals and long-term
strategic objectives. Management strongly believes that providing a significant
portion of competitive performance-based compensation in stock is in the best
interests of investors and shareholders. This approach ensures that portfolio
managers participate as shareholders in both the "downside risk" and "upside
opportunity" of the company's performance. Portfolio managers therefore have a
direct incentive to protect ML & Co.'s reputation for integrity.
Other Compensation Programs
Portfolio managers who meet relative investment performance and financial
management objectives during a performance year are eligible to participate in a
deferred cash program. Awards under this program are in the form of deferred
cash that may be benchmarked to a menu of MLIM mutual funds (including their own
fund) during a five-year vesting period. The deferred cash program aligns the
interests of participating portfolio managers with the investment results of
MLIM products and promotes continuity of successful portfolio management teams.
Other Benefits
Portfolio managers are also eligible to participate in broad-based plans
offered generally to employees of ML & Co. and its affiliates, including
broad-based retirement, 401(k), health, and other employee benefit plans.
(a)(4) Beneficial Ownership of Securities. As of October 31, 2005, Mr.
Stuebe beneficially owns stock issued by the Fund in the range of
$100,001-$500,000.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(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.
11(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 second 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 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(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/ Robert C. Doll, Jr.
---------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
MuniVest Fund II, Inc.
Date: December 16, 2005
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/ Robert C. Doll, Jr.
---------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
MuniVest Fund II, Inc.
Date: December 16, 2005
By: /s/ Donald C. Burke
---------------------------
Donald C. Burke,
Chief Financial Officer of
MuniVest Fund II, Inc.
Date: December 16, 2005