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 811-07642
Name of Fund: MuniAssets Fund, 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, MuniAssets Fund, 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: 05/31/06
Date of reporting period: 06/01/05 - 05/31/06
Item 1 - Report to Stockholders
Annual Report
May 31, 2006
MuniAssets Fund, Inc.
MuniAssets Fund, Inc.
Announcement to Shareholders
On February 15, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch & Co.,
Inc. ("Merrill Lynch") entered into an agreement to contribute Merrill Lynch's
investment management business, Merrill Lynch Investment Managers, L.P. and
certain affiliates (including Fund Asset Management, L.P. and Merrill Lynch
Investment Managers International Limited), to BlackRock to create a new
independent company ("New BlackRock") that will be one of the world's largest
asset management firms with approximately $1 trillion in assets under management
(based on combined assets under management as of March 31, 2006) (the
"Transaction"). The Transaction is expected to close in the third quarter of
2006, at which time the new company will operate under the BlackRock name. The
Fund's Board of Directors has approved a new investment advisory agreement with
BlackRock Advisors, Inc. or its successor on substantially the same terms and
for the same advisory fee as the current investment advisory agreement with the
Investment Adviser. If the new agreement is approved by the Fund's shareholders,
BlackRock Advisors, Inc. or its successor is expected to become the investment
adviser of the Fund upon the closing of the Transaction.
Portfolio Information as of May 31, 2006
Percent of
Quality Ratings by Total
S&P/Moody's Investments
--------------------------------------------------------------------------------
AAA/Aaa ............................................................. 2.6%
A/A ................................................................. 2.8
BBB/Baa ............................................................. 20.2
BB/Ba ............................................................... 18.6
B/B ................................................................. 5.7
CCC/Caa ............................................................. 4.8
NR (Not Rated) ...................................................... 42.8
Other* .............................................................. 2.5
--------------------------------------------------------------------------------
* Includes portfolio holdings in variable rate demand notes, bond
anticipation notes and short-term investments.
About Inverse Floaters
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"). As of May 31, 2006, none of the Fund's total
net assets were invested in 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 securities, 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 these securities.
2 MUNIASSETS FUND, INC. MAY 31, 2006
A Letter From the President
Dear Shareholder
You may be aware that changes are on the horizon at Merrill Lynch Investment
Managers ("MLIM"). Earlier this year, Merrill Lynch announced plans to combine
its investment advisory business, including MLIM, with another highly regarded
investment manager -- BlackRock, Inc. ("BlackRock").
At the completion of the transaction, which is expected at the end of the third
quarter of this year (subject to regulatory and shareholder approvals), the
resultant firm will be a top-10 investment manager worldwide with approximately
$1 trillion in assets under management.* The combined company will provide a
wider selection of high-quality investment solutions across a range of asset
classes and investment styles. MLIM and BlackRock possess complementary
capabilities that together create a well-rounded organization uniting some of
the finest money managers in the industry. At the same time, the firms share
similar values and beliefs -- they are focused on delivering excellence on
behalf of clients, and both make investment performance their single most
important mission. In short, the combination only reinforces our commitment to
shareholders.
Most of MLIM's investment products -- including mutual funds, separately managed
accounts, annuities and variable insurance funds -- eventually will carry the
"BlackRock" name. As a shareholder in one or more MLIM-advised mutual funds, you
recently were mailed a proxy package asking you to vote on proposed changes that
affect those funds. The proposals vary based on the funds in which you invest.
However, all shareholders are asked to vote on a new investment advisory
agreement with BlackRock Advisors, Inc. Your Fund's Board of Directors has
approved, and recommends that you approve, the new agreement. Your Fund's Board
also has approved, and recommends that you approve, a contingent subadvisory
agreement that will serve to ensure that management services can continue during
the course of completing the transaction.
It is important that you exercise your right as a mutual fund shareholder by
voting on the proposals that are presented to you in your funds' proxy
statements. Your participation -- via phone, mail, online or in person -- is
critical. (Refer to your proxy card for detailed voting procedures and
deadlines.) You should know that your vote on these proposals will not affect
your brokerage account or change your relationship with your financial advisor.
If you are a client of Merrill Lynch, you will remain a client of Merrill Lynch.
Should you have any questions or concerns, please do not hesitate to call
1.866.752.6486.
As always, we thank you for entrusting us with your investment assets, and we
look forward to continuing to serve your investment needs with even greater
strength and scale as the new BlackRock.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Chief Investment Officer
Merrill Lynch Investment Managers
* $1.039 trillion in assets under management as of March 31, 2006.
MUNIASSETS FUND, INC. MAY 31, 2006 3
A Discussion With Your Fund's Portfolio Manager
The Fund outpaced the average return of the Lipper High Yield Municipal
Debt Funds category for the fiscal year, benefiting from the outperformance of
several individual holdings as credit spreads continued to contract in the
municipal market.
Describe the recent market environment relative to municipal bonds.
Long-term bond yields rose sharply during the 12-month period, with much of the
increase occurring in the final three months. Bond prices, which move opposite
of yields, declined as investors focused on solid economic growth, both globally
and in the United States, and renewed inflationary pressures deriving from
rising commodity prices.
The Federal Reserve Board (the Fed) increased short-term interest rates at each
of its meetings during the year, bringing the federal funds target rate to 5% at
period-end. The yield curve continued to flatten as short-term interest rates
rose more than longer-term interest rates. Over the past 12 months, 30-year U.S.
Treasury bond yields rose 89 basis points (.89%) to 5.21% and 10-year U.S.
Treasury note yields rose 112 basis points to 5.12%, the highest level since May
2002.
While municipal bond yields also rose sharply in recent months, the market's
strong technical position provided significant price support and allowed
municipal bond prices to decline much less than their taxable counterparts. As
measured by Municipal Market Data, yields on AAA-rated issues maturing in 30
years rose 27 basis points to 4.53% and yields on AAA-rated issues maturing in
10 years rose 53 basis points to 4.02%.
For the most part, the recent outperformance of the tax-exempt market has been
fostered by a dramatic decline in new bond issuance. In 2005, more than $408
billion in new long-term tax-exempt bonds was underwritten, a new annual record
and an increase of over 13% versus 2004. Over the past six-month and three-month
periods, however, new-issue volume declined 13.4% and 11%, respectively,
compared to the corresponding periods a year ago. The record new issuance in
2005 was largely triggered by a 47% increase in refunding activity as issuers
took advantage of historically low bond yields and a flattening yield curve to
refinance their outstanding higher-couponed debt. Year-to-date through May 2006,
refunding volume declined more than 55% relative to the first five months of
2005. Lower annual issuance would further solidify the tax-exempt market's
positive technical position.
The tax-exempt market has continued to enjoy strong investor demand. As reported
by the Investment Company Institute, during the first four months of 2006,
tax-exempt mutual funds experienced cash flows of over $5.9 billion,
significantly higher than the $689 million received during the same period in
2005. Recent statistics from AMG Data Services indicate that, thus far in 2006,
weekly cash flows into long-term municipal bond funds averaged over $275
million, a significant improvement from the weekly average of $65 million in
December 2005.
Looking ahead, the fundamentals for the municipal market appear positive. Demand
is expected to be sustained as investors receive cash flow from coupon income
and the proceeds of bond maturities and calls. In addition, new issuance should
be manageable. The favorable supply/demand dynamic, coupled with attractive
yields relative to comparable U.S. Treasury bonds, should continue to support
the municipal market in the coming months.
How did the Fund perform during the fiscal year?
For the 12-month period ended May 31, 2006, the Common Stock of MuniAssets Fund,
Inc. had net annualized yields of 6.11% and 5.90%, based on a year-end per share
net asset value of $13.65 and a per share market price of $14.13, respectively,
and $.834 per share income dividends. Over the same period, the total investment
return on the Fund's Common Stock was +8.31%, based on a change in per share net
asset value from $13.40 to $13.65, and assuming reinvestment of all
distributions.
The Fund's total return, based on net asset value, exceeded the +6.35% average
return of the Lipper High Yield Municipal Debt Funds category for the 12-month
period. (Funds in this Lipper category invest at least 50% of their assets in
lower-rated municipal debt issues.) Fund performance benefited from the
continued contraction of credit spreads in the municipal market, which had a
favorable impact on our positions in tax-backed and corporate-related debt,
where we have a significant concentration, as well as our health care-related
holdings. The greatest contribution to performance came from the Fund's
positions in airline-related debt. While this sector lagged in the first six
months, airlines resumed a strong rally in the latter half of the period that
resulted in considerable spread tightening. This proved beneficial to some of
our larger holdings in Continental Airlines Inc., American Airlines Inc. and US
Airways, Inc. Also
4 MUNIASSETS FUND, INC. MAY 31, 2006
contributing significantly to performance was strong appreciation in the
portfolio's largest exposure -- the bonds of Pocahontas Parkway, a toll road in
Virginia that was constructed within the past few years. The road has been
signed over to an infrastructure financing entity, with the transaction expected
to close in the summer. Given this development, the toll road's outstanding debt
is expected to be defeased (or called at its first call date), which has
resulted in a price increase in the existing bonds.
For the six-month period ended May 31, 2006, the total investment return on the
Fund's Common Stock was +4.73%, based on a change in per share net asset value
from $13.44 to $13.65, 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?
Portfolio activity was driven primarily by the need to reinvest the proceeds
from bonds that were called by their issuers prior to maturity. This is a
typical phenomenon in an environment where interest rates are low and credit
spreads are contracting, as issuers find it economical to refinance their
existing debt. As the portfolio's seasoned, higher-coupon holdings are called by
their issuers, our reinvestment prospects in the current environment are less
and less appealing. It is not possible to reinvest at the same levels as those
former holdings. This is an industry-wide experience that requires us -- and our
competitors -- to adjust to a lower interest rate environment.
Our efforts during the period also were focused on reducing exposure to weaker
credits that had participated in the spread rally. We sold a multi-family
housing bond and a couple of healthcare issues, while also trimming exposure to
the tobacco sector. Purchases during the period were largely confined to
healthcare-related issues and some tax-backed credits, largely because this is
where we have seen the most new issuance. We have found that the most attractive
prices available today are in the new-issue market, whereas opportunities in the
secondary market have been fairly sparse and priced rather aggressively.
How would you characterize the Fund's position at the close of the period?
In the conclusion of our last report to shareholders, we said that we had
postponed reducing the Fund's overweight position in airlines because we wanted
to avoid selling at a low point. We have once again decided to delay
implementing that reduction, this time for different reasons. First, given the
number of bond calls we are experiencing and the struggle to maintain an
attractive yield in the current environment, we want to avoid selling our
higher-yielding airline holdings. Second, the airlines' business prospects are
improving. As a result, the prices of their bonds have done significantly
better, and we believe there is room for continued appreciation. Also, in light
of the improvements in the industry, airlines are experiencing increased demand
from investors. So, whereas the portfolio was overweight to this sector a year
or two ago, that is no longer the case as more of our competitors increase their
airline exposure.
Looking ahead, we intend to continue trimming some of the portfolio's weaker
holdings while addressing bond calls as they arise. More so than ever, we
believe it is important to remain nimble in our approach, especially with
respect to new-issue bonds that come to market. We are taking a tactical
approach to these new purchases. We would not consider them longer-term core
holdings given the tight spreads that the market demands, but view them as an
opportunity to add value from a total return/price appreciation standpoint. We
maintain a positive outlook on the high yield municipal market, but believe the
prospect for further spread contraction is limited. For that reason, we intend
to remain flexible and cautious in our approach, taking opportunities to upgrade
our credit profile as they become available.
Theodore R. Jaeckel Jr., CFA
Vice President and Portfolio Manager
June 8, 2006
MUNIASSETS FUND, INC. MAY 31, 2006 5
Schedule of Investments (in Thousands)
Face
Amount Municipal Bonds Value
=======================================================================================
Alabama--0.9%
$ 2,420 Brewton, Alabama, IDB, PCR, Refunding (Container
Corporation of America--Jefferson Smurfit Corp.
Project), 8% due 4/01/2009 $ 2,448
=======================================================================================
Alaska--0.4%
1,125 Alaska Industrial Development and Export Authority
Revenue Bonds (Williams Lynxs Alaska Cargoport),
AMT, 7.80% due 5/01/2014 1,175
=======================================================================================
Arizona--6.9%
Coconino County, Arizona, Pollution Control
Corporation Revenue Refunding Bonds (Tucson Electric
Power--Navajo):
3,000 AMT, Series A, 7.125% due 10/01/2032 3,139
2,500 Series B, 7% due 10/01/2032 2,613
1,325 Maricopa County, Arizona, IDA, Education Revenue
Bonds (Arizona Charter Schools Project 1), Series A,
6.625% due 7/01/2020 1,321
1,615 Maricopa County, Arizona, IDA, M/F Housing Revenue
Bonds (Sun King Apartments Project), Series A, 6.75%
due 5/01/2031 1,383
7,600 Phoenix, Arizona, IDA, Airport Facility, Revenue
Refunding Bonds (America West Airlines Inc. Project),
AMT, 6.30% due 4/01/2023 6,972
Pima County, Arizona, IDA, Education Revenue Bonds:
1,420 (Arizona Charter Schools Project), Series E, 7.25%
due 7/01/2031 1,525
1,105 (Arizona Charter Schools Project II), Series A, 6.75%
due 7/01/2031 1,151
1,200 Show Low, Arizona, Improvement District No. 5, Special
Assessment Bonds, 6.375% due 1/01/2015 1,232
=======================================================================================
California--1.7%
California State, Various Purpose, GO:
1,900 5.25% due 11/01/2025 1,998
1,300 5.50% due 11/01/2033 1,404
1,320 Fontana, California, Special Tax, Refunding
(Community Facilities District Number 22--Sierra),
6% due 9/01/2034 1,389
=======================================================================================
Colorado--7.3%
2,000 Denver, Colorado, City and County Airport Revenue
Bonds, AMT, Series D, 7.75% due 11/15/2013 (a)(f) 2,284
Denver, Colorado, Urban Renewal Authority, Tax
Increment Revenue Bonds (Pavilions), AMT:
2,295 7.75% due 9/01/2016 2,358
3,000 7.75% due 9/01/2017 3,081
Elk Valley, Colorado, Public Improvement Revenue
Bonds (Public Improvement Fee):
1,690 Series A, 7.10% due 9/01/2014 1,805
2,095 Series A, 7.30% due 9/01/2022 2,232
800 Series B, 7% due 9/01/2031 819
1,760 North Range, Colorado, Metropolitan District Number 1,
GO, 7.25% due 12/15/2031 1,886
Plaza Metropolitan District Number 1, Colorado, Tax
Allocation Revenue Bonds (Public Improvement Fees):
2,850 8% due 12/01/2025 3,129
525 8.125% due 12/01/2025 524
1,170 Southlands, Colorado, Medical District, GO
(Metropolitan District Number 1), 7.125%
due 12/01/2034 1,282
1,160 University of Colorado Hospital Authority Revenue
Bonds, Series A, 5% due 11/15/2037 1,153
=======================================================================================
Connecticut--2.3%
2,350 Bridgeport, Connecticut, Senior Living Facilities
Revenue Bonds (3030 Park Retirement Community
Project), 7.25% due 4/01/2035 1,986
680 Connecticut State Development Authority, Airport
Facility Revenue Bonds (LearJet Inc. Project), AMT,
7.95% due 4/01/2026 808
3,490 Connecticut State Development Authority, IDR (AFCO
Cargo BDL-LLC Project), AMT, 8% due 4/01/2030 3,770
=======================================================================================
Florida--6.0%
675 Arbor Greene Community Development District,
Florida, Special Assessment Revenue Bonds, 7.60%
due 11/01/2006 (b) 692
1,130 Capital Projects Finance Authority, Florida, Continuing
Care Retirement Revenue Bonds (Glenridge on
Palmer Ranch), Series A, 8% due 6/01/2032 1,240
490 Harbor Bay, Florida, Community Development District,
Capital Improvement Special Assessment Revenue
Bonds, Series A, 7% due 5/01/2033 529
1,195 Highlands County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Adventist Health System),
Series C, 5.25% due 11/15/2036 1,236
2,000 Hillsborough County, Florida, IDA, Exempt Facilities
Revenue Bonds (National Gypsum Company), AMT,
Series A, 7.125% due 4/01/2030 2,204
3,255 Midtown Miami, Florida, Community Development
District, Special Assessment Revenue Bonds, Series A,
6.25% due 5/01/2037 3,529
1,180 Orlando, Florida, Greater Orlando Aviation Authority,
Airport Facilities Revenue Bonds (JetBlue Airways
Corp.), AMT, 6.375% due 11/15/2026 1,198
2,305 Orlando, Florida, Urban Community Development
District, Capital Improvement Special Assessment
Bonds, Series A, 6.95% due 5/01/2033 2,485
2,685 Santa Rosa Bay Bridge Authority, Florida, Revenue
Bonds, 6.25% due 7/01/2028 2,725
905 Waterchase, Florida, Community Development District,
Capital Improvement Revenue Bonds, Series A,
6.70% due 5/01/2032 965
=======================================================================================
Portfolio Abbreviations
To simplify the listings of MuniAssets Fund, Inc.'s portfolio holdings in the
Schedule of Investments, we have abbreviated the names of many of the securities
according to the list at right.
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
EDA Economic Development Authority
GO General Obligation Bonds
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
VRDN Variable Rate Demand Notes
6 MUNIASSETS FUND, INC. MAY 31, 2006
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
=======================================================================================
Georgia--3.5%
Atlanta, Georgia, Tax Allocation Bonds:
$ 3,000 (Atlantic Station Project), 7.90% due 12/01/2024 $ 3,323
590 (Eastside Project), Series B, 5.40% due 1/01/2020 598
740 (Princeton Lakes Project), 5.50% due 1/01/2031 743
Brunswick & Glynn County, Georgia, Development
Authority, First Mortgage Revenue Bonds (Coastal
Community Retirement Corporation Project), Series A:
1,165 7.125% due 1/01/2025 1,181
1,690 7.25% due 1/01/2035 1,710
1,060 Fulton County, Georgia, Development Authority, PCR
(General Motors Corporation), Refunding, VRDN, 8%
due 4/01/2010 (d) 1,060
1,170 Savannah, Georgia, EDA, Revenue Bonds (Marshes of
Skidaway), First Mortgage, Series A, 7.40%
due 1/01/2034 1,221
=======================================================================================
Idaho--0.4%
1,000 Idaho Health Facilities Authority, Revenue Refunding
Bonds (Valley Vista Care Corporation), Series A, 7.75%
due 11/15/2016 1,047
=======================================================================================
Illinois--7.3%
2,630 Caseyville, Illinois, Senior Tax Increment Revenue Bonds
(Forest Lakes Project), 7% due 12/30/2022 2,736
4,000 Chicago, Illinois, O'Hare International Airport, Special
Facility Revenue Refunding Bonds (American Airlines
Inc. Project), 8.20% due 12/01/2024 4,019
Illinois Development Finance Authority Revenue Bonds
(Primary Health Care Centers Facilities
Acquisition Program):
290 7.50% due 12/01/2006 292
60 7.50% due 12/01/2006 (c) 61
475 7.75% due 12/01/2006 (b) 493
2,720 7.75% due 12/01/2016 2,802
Illinois State Finance Authority Revenue Bonds:
2,950 (Clare At Water Tower Project), Series A, 6.125%
due 5/15/2038 3,015
600 (Landing At Plymouth Place Project), Series A, 6%
due 5/15/2037 617
685 (Primary Health Care Centers Program), 6.60%
due 7/01/2024 703
1,070 Lincolnshire, Illinois, Special Service Area Number 1,
Special Tax Bonds (Sedgebrook Project), 6.25%
due 3/01/2034 1,123
2,600 Lombard, Illinois, Public Facilities Corporation, First
Tier Revenue Bonds (Conference Center and Hotel),
Series A-1, 7.125% due 1/01/2036 2,755
1,165 Naperville, Illinois, IDR (General Motors Corporation),
Refunding, VRDN, 8% due 12/01/2012 (d) 1,165
825 Village of Wheeling, Illinois, Revenue Bonds (North
Milwaukee/Lake-Cook Tax Increment Financing (TIF)
Redevelopment Project), 6% due 1/01/2025 795
=======================================================================================
Indiana--1.3%
2,320 Delaware County, Indiana, Hospital Authority, Hospital
Revenue Bonds (Cardinal Health System Obligated
Group), 5.25% due 8/01/2036 2,333
1,200 Vanderburgh County, Indiana, Redevelopment District
Tax Increment Revenue Bonds, 5.25% due 2/01/2031 1,227
=======================================================================================
Iowa--0.9%
2,235 Iowa Finance Authority, Health Care Facilities, Revenue
Refunding Bonds (Care Initiatives Project), 9.25%
due 7/01/2025 2,660
=======================================================================================
Kansas--0.6%
1,770 Wyandotte County, Kansas, Kansas City Unified
Government Revenue Refunding Bonds (General
Motors Corporation Project), 6% due 6/01/2025 1,569
=======================================================================================
Kentucky--1.0%
2,850 Kenton County, Kentucky, Airport Board, Special Facilities
Revenue Bonds (Mesaba Aviation Inc. Project), AMT,
Series A, 6.70% due 7/01/2029 2,833
=======================================================================================
Louisiana--1.3%
1,870 Louisiana Public Facilities Authority, Hospital Revenue
Bonds (Franciscan Missionaries of Our Lady Health
System, Inc.), Series A, 5.25% due 8/15/2036 1,912
1,860 New Orleans, Louisiana, Sewer Service Revenue Notes,
BAN, 3% due 7/26/2006 1,849
=======================================================================================
Maine--0.4%
1,160 Maine Finance Authority, Solid Waste Recycling
Facilities Revenue Bonds (Great Northern Paper
Project--Bowater), AMT, 7.75% due 10/01/2022 1,166
=======================================================================================
Maryland--1.8%
540 Baltimore, Maryland, Convention Center Hotel Revenue
Bonds, Sub-Series B, 5.875% due 9/01/2039 563
1,910 Maryland State Economic Development Corporation
Revenue Refunding Bonds (Baltimore Association for
Retarded Citizens--Health and Mental Hygiene
Program), Series A, 7.75% due 3/01/2025 2,042
2,500 Maryland State Energy Financing Administration,
Limited Obligation Revenue Bonds (Cogeneration --
AES Warrior Run), AMT, 7.40% due 9/01/2019 2,525
=======================================================================================
Massachusetts--1.7%
1,680 Massachusetts State Development Finance Agency,
Revenue Refunding Bonds (Eastern Nazarene College),
5.625% due 4/01/2029 1,699
1,150 Massachusetts State Health and Educational Facilities
Authority Revenue Bonds (Jordan Hospital), Series E,
6.75% due 10/01/2033 1,242
1,945 Massachusetts State Health and Educational Facilities
Authority, Revenue Refunding Bonds (Bay Cove Human
Services Issue), Series A, 5.90% due 4/01/2028 1,959
=======================================================================================
Michigan--0.6%
1,635 Macomb County, Michigan, Hospital Finance Authority,
Hospital Revenue Bonds (Mount Clemens General
Hospital), Series B, 5.875% due 11/15/2034 1,726
=======================================================================================
Minnesota--0.9%
1,770 Saint Paul, Minnesota, Port Authority, Hotel Facility,
Revenue Refunding Bonds (Radisson Kellogg Project),
Series 2, 7.375% due 8/01/2008 (b) 1,947
440 Virginia, Minnesota, Housing and Redevelopment
Authority, Health Care Facility Lease Revenue Bonds,
5.25% due 10/01/2025 446
=======================================================================================
Missouri--0.8%
920 Fenton, Missouri, Tax Increment Revenue Refunding
and Improvement Bonds (Gravois Bluffs), 7%
due 10/01/2011 (b) 1,065
1,000 Kansas City, Missouri, IDA, First Mortgage Health
Facilities Revenue Bonds (Bishop Spencer Place),
Series A, 6.50% due 1/01/2035 1,046
=======================================================================================
Nevada--0.2%
645 Clark County, Nevada, Improvement District Number 142,
Special Assessment Bonds, 6.375% due 8/01/2023 666
MUNIASSETS FUND, INC. MAY 31, 2006 7
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
=======================================================================================
New Hampshire--0.4%
$ 1,165 New Hampshire Health and Education Facilities
Authority, Hospital Revenue Bonds (Catholic Medical
Center), 5% due 7/01/2036 $ 1,163
=======================================================================================
New Jersey--15.2%
Camden County, New Jersey, Improvement Authority,
Lease Revenue Bonds (Holt Hauling & Warehousing),
AMT, Series A (e)(j):
5,600 9.625% due 1/01/2011 790
5,800 9.875% due 1/01/2021 818
325 Camden County, New Jersey, Pollution Control Financing
Authority, Solid Waste Resource Recovery, Revenue
Bonds, Series D, 7.25% due 12/01/2010 330
Camden County, New Jersey, Pollution Control Financing
Authority, Solid Waste Resource Recovery, Revenue
Refunding Bonds, AMT:
9,000 Series A, 7.50% due 12/01/2010 9,073
765 Series B, 7.50% due 12/01/2009 771
3,065 New Jersey EDA, Cigarette Tax Revenue Bonds, 5.50%
due 6/15/2024 3,189
2,500 New Jersey EDA, IDR, Refunding (Newark Airport
Marriott Hotel), 7% due 10/01/2014 2,561
New Jersey EDA, Retirement Community Revenue Bonds,
Series A:
1,665 (Cedar Crest Village Inc. Facility), 7.25%
due 11/15/2021 1,811
5,800 (Seabrook Village Inc.), 8.125% due 11/15/2023 6,510
New Jersey EDA, Special Facility Revenue Bonds
(Continental Airlines Inc. Project), AMT:
2,000 6.25% due 9/15/2019 1,990
4,650 6.25% due 9/15/2029 4,599
1,250 9% due 6/01/2033 1,381
2,650 New Jersey Health Care Facilities Financing Authority
Revenue Bonds (Pascack Valley Hospital Association),
6.625% due 7/01/2036 2,728
1,500 New Jersey Health Care Facilities Financing Authority,
Revenue Refunding Bonds (Trinitas Hospital
Obligation Group), 7.40% due 7/01/2020 1,660
3,450 New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Bonds, Series C, 5.05%
due 12/15/2035 (a)(h) 799
Tobacco Settlement Financing Corporation of New
Jersey, Asset-Backed Revenue Bonds:
1,990 5.75% due 6/01/2032 2,063
1,425 7% due 6/01/2041 1,614
=======================================================================================
New Mexico--1.2%
Farmington, New Mexico, PCR, Refunding:
870 (Public Service Company of New Mexico--San
Juan Project), Series B, 4.875% due 4/01/2033 857
2,500 (Tucson Electric Power Company--San Juan
Project), Series A, 6.95% due 10/01/2020 2,607
=======================================================================================
New York--5.3%
1,400 Dutchess County, New York, IDA, Civic Facility Revenue
Refunding Bonds (Saint Francis Hospital), Series A,
7.50% due 3/01/2029 1,521
New York City, New York, City IDA, Civic Facility
Revenue Bonds:
510 Series C, 6.80% due 6/01/2028 549
1,515 (Special Needs Facilities Pooled Program), Series C-1,
6.625% due 7/01/2029 1,510
2,400 New York City, New York, City IDA, Special Facility
Revenue Bonds (British Airways Plc Project), AMT,
7.625% due 12/01/2032 2,652
2,920 New York State Dormitory Authority, Non-State
Supported Debt, Revenue Bonds (Mount Sinai-NYU
Medical Center Health System), 5.50% due 7/01/2026 2,950
2,635 New York State Dormitory Authority, Non-State
Supported Debt, Revenue Refunding Bonds (Mount
Sinai Hospital), Series C, 5.50% due 7/01/2026 2,662
1,475 Suffolk County, New York, IDA, Continuing Care and
Retirement, Revenue Refunding Bonds (Jeffersons
Ferry Project), 5% due 11/01/2028 1,459
1,575 Westchester County, New York, IDA, Continuing Care
Retirement, Mortgage Revenue Bonds (Kendal on
Hudson Project), Series A, 6.50% due 1/01/2034 1,673
=======================================================================================
North Carolina--0.6%
1,500 North Carolina Medical Care Commission, Retirement
Facilities, First Mortgage Revenue Bonds (Givens
Estates Project), Series A, 6.50% due 7/01/2032 1,604
=======================================================================================
Oklahoma--0.5%
1,295 Norman, Oklahoma, Regional Hospital Authority,
Hospital Revenue Bonds, 5.375% due 9/01/2036 1,310
=======================================================================================
Oregon--0.8%
Western Generation Agency, Oregon, Cogeneration
Project Revenue Bonds (Wauna Cogeneration Project):
1,440 AMT, Series B, 7.40% due 1/01/2016 1,445
700 Series A, 7.125% due 1/01/2021 702
=======================================================================================
Pennsylvania--6.0%
Bucks County, Pennsylvania, IDA, Retirement Community
Revenue Bonds, (Ann's Choice Inc.), Series A:
200 6.125% due 1/01/2025 207
1,550 6.25% due 1/01/2035 1,610
2,330 Montgomery County, Pennsylvania, IDA, Revenue
Bonds (Whitemarsh Continuing Care Project), 6.125%
due 2/01/2028 2,459
3,250 Pennsylvania Economic Development Financing Authority,
Exempt Facilities Revenue Bonds (National Gypsum
Company), AMT, Series A, 6.25% due 11/01/2027 3,446
Philadelphia, Pennsylvania, Authority for IDR:
2,270 (Air Cargo), AMT, Series A, 7.50% due 1/01/2025 2,481
6,440 Commercial Development, 7.75% due 12/01/2017 6,517
=======================================================================================
Rhode Island--1.0%
2,495 Central Falls, Rhode Island, Detention Facility
Corporation, Detention Facility, Revenue Refunding
Bonds, 7.25% due 7/15/2035 2,724
=======================================================================================
South Carolina--1.5%
3,500 South Carolina Jobs, EDA, Economic Development
Revenue Bonds (Westminster Presbyterian Center),
7.75% due 11/15/2010 (b) 4,118
=======================================================================================
Tennessee--0.9%
2,500 Shelby County, Tennessee, Health, Educational and
Housing Facilities Board Revenue Bonds (Germantown
Village), Series A, 7.25% due 12/01/2034 2,646
=======================================================================================
8 MUNIASSETS FUND, INC. MAY 31, 2006
Schedule of Investments (concluded) (in Thousands)
Face
Amount Municipal Bonds Value
=======================================================================================
Texas--6.6%
$ 1,000 Austin, Texas, Convention Center Revenue Bonds
(Convention Enterprises Inc.), First Tier, Series A,
6.70% due 1/01/2028 $ 1,063
Brazos River Authority, Texas, PCR, Refunding, AMT:
2,550 (Texas Utility Company), Series A, 7.70%
due 4/01/2033 2,975
3,865 (Utilities Electric Company), Series B, 5.05%
due 6/01/2030 3,866
1,680 Brazos River Authority, Texas, Revenue Refunding
Bonds (Reliant Energy Inc. Project), Series B, 7.75%
due 12/01/2018 1,816
1,170 Grand Prairie, Texas, Housing Finance Corporation
Revenue Bonds (Independent Senior Living Center),
7.75% due 1/01/2034 1,212
1,400 Houston, Texas, Health Facilities Development
Corporation, Retirement Facility Revenue Bonds
(Buckingham Senior Living Community), Series A,
7.125% due 2/15/2034 1,547
750 Kerrville, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Sid Peterson
Memorial Hospital Project), 5.375% due 8/15/2035 757
3,190 Matagorda County, Texas, Navigation District Number 1,
Revenue Refunding Bonds (Reliant Energy Inc.),
Series C, 8% due 5/01/2029 3,421
1,860 Port Corpus Christi, Texas, Individual Development
Corporation, Environmental Facilities Revenue Bonds
(Citgo Petroleum Corporation Project), AMT, 8.25%
due 11/01/2031 1,943
=======================================================================================
Utah--0.6%
1,660 Carbon County, Utah, Solid Waste Disposal, Revenue
Refunding Bonds (Laidlaw Environmental), AMT,
Series A, 7.45% due 7/01/2017 1,736
=======================================================================================
Virginia--8.4%
1,475 Dulles Town Center, Virginia, Community Development
Authority, Special Assessment Tax (Dulles Town
Center Project), 6.25% due 3/01/2026 1,543
Pocahontas Parkway Association, Virginia, Toll Road
Revenue Bonds, Capital Appreciation, Senior
Series B (h):
48,400 5.95% due 8/15/2031 11,293
48,400 5.95% due 8/15/2032 10,649
=======================================================================================
Wisconsin--0.7%
1,855 Wisconsin State Health and Educational Facilities
Authority Revenue Bonds (New Castle Place Project),
Series A, 7% due 12/01/2031 1,913
=======================================================================================
U.S. Virgin Islands--1.2%
3,000 Virgin Islands Government Refinery Facilities, Revenue
Refunding Bonds (Hovensa Coker Project), AMT,
6.50% due 7/01/2021 3,368
---------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$271,931)--99.1% 278,265
=======================================================================================
Shares
Held Short-Term Securities
=======================================================================================
3,306 Merrill Lynch Institutional Tax-Exempt Fund. 3.31% (g)(i) 3,306
---------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$3,306)--1.2% 3,306
=======================================================================================
Total Investments (Cost--$275,237*)--100.3% 281,571
Liabilities in Excess of Other Assets--(0.3%) (778)
--------
Net Assets--100.0% $280,793
========
* The cost and unrealized appreciation (depreciation) of investments as of
May 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost ................................................ $274,903
========
Gross unrealized appreciation ................................. $ 17,945
Gross unrealized depreciation ................................. (11,277)
--------
Net unrealized appreciation ................................... $ 6,668
========
(a) AMBAC Insured.
(b) Prerefunded.
(c) Escrowed to maturity.
(d) 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.
(e) Non-income producing security; issuer filed for bankruptcy or is in
default of interest payments.
(f) Tradable Custodial Receipts (TRACERS).
(g) 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 3,306 $71
--------------------------------------------------------------------------
(h) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
(i) Represents the current yield as of 5/31/2006.
(j) Restricted securities as to resale, representing approximately 0.6% of net
assets, were as follows:
--------------------------------------------------------------------------
Acquisition
Issue Date(s) Cost Value
--------------------------------------------------------------------------
Camden County, New Jersey,
Improvement Authority, Lease
Revenue Bonds (Holt Hauling &
Warehousing), AMT, Series A,
9.625% due 1/01/2011 1/29/1997 $ 5,925 $ 790
Camden County, New Jersey,
Improvement Authority, Lease
Revenue Bonds (Holt Hauling &
Warehousing), AMT, Series A, 2/06/1996 -
9.875% due 1/01/2021 1/29/1997 5,944 818
--------------------------------------------------------------------------
Total $11,869 $1,608
=====================
See Notes to Financial Statements.
MUNIASSETS FUND, INC. MAY 31, 2006 9
Statement of Assets, Liabilities and Capital
As of May 31, 2006
===============================================================================================================================
Assets
-------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified cost--$271,931,282) $ 278,265,214
Investments in affiliated securities, at value (identified cost--$3,305,430) ... 3,305,430
Cash ........................................................................... 24,283
Receivables:
Interest .................................................................... $ 4,958,228
Securities sold ............................................................. 45,000 5,003,228
-------------
Prepaid expenses and other assets .............................................. 5,607
-------------
Total assets ................................................................... 286,603,762
-------------
===============================================================================================================================
Liabilities
-------------------------------------------------------------------------------------------------------------------------------
Payables:
Securities purchased ........................................................ 4,708,982
Investment adviser .......................................................... 100,115
Other affiliates ............................................................ 2,375 4,811,472
-------------
Accrued expenses and other liabilities ......................................... 999,332
-------------
Total liabilities .............................................................. 5,810,804
-------------
===============================================================================================================================
Net Assets
-------------------------------------------------------------------------------------------------------------------------------
Net Assets ..................................................................... $ 280,792,958
=============
===============================================================================================================================
Capital
-------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.10 per share; 200,000,000 shares authorized;
20,564,183 shares issued and outstanding ...................................... $ 2,056,418
Paid-in capital in excess of par ............................................... 299,360,807
Undistributed investment income--net ........................................... $ 2,984,713
Accumulated realized capital losses--net ....................................... (29,942,912)
Unrealized appreciation--net ................................................... 6,333,932
-------------
Total accumulated losses--net .................................................. (20,624,267)
-------------
Total capital--Equivalent to $13.65 net asset value per share of Common Stock
(market price--$14.13) ........................................................ $ 280,792,958
=============
See Notes to Financial Statements.
10 MUNIASSETS FUND, INC. MAY 31, 2006
Statement of Operations
For the Year Ended May 31, 2006
===============================================================================================================================
Investment Income
-------------------------------------------------------------------------------------------------------------------------------
Interest ....................................................................... $ 18,334,296
Dividends from affiliates ...................................................... 71,267
-------------
Total income ................................................................... 18,405,563
-------------
===============================================================================================================================
Expenses
-------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ....................................................... $ 1,522,285
Accounting services ............................................................ 98,983
Transfer agent fees ............................................................ 67,741
Professional fees .............................................................. 59,193
Printing and shareholder reports ............................................... 43,910
Directors' fees and expenses ................................................... 18,643
Pricing fees ................................................................... 17,807
Listing fees ................................................................... 16,572
Custodian fees ................................................................. 16,302
Other .......................................................................... 34,275
-------------
Total expenses ................................................................. 1,895,711
Reimbursement of expenses ...................................................... (4,642)
-------------
Total expenses after reimbursement ............................................. 1,891,069
-------------
Investment income--net ......................................................... 16,514,494
-------------
===============================================================================================================================
Realized & Unrealized Gain--Net
-------------------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net .............................................. 1,597,787
Change in unrealized appreciation on investments--net .......................... 4,122,867
-------------
Total realized and unrealized gain--net ........................................ 5,720,654
-------------
Net Increase in Net Assets Resulting from Operations ........................... $ 22,235,148
=============
See Notes to Financial Statements.
MUNIASSETS FUND, INC. MAY 31, 2006 11
Statements of Changes in Net Assets
For the Year Ended
May 31,
-------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===============================================================================================================================
Operations
-------------------------------------------------------------------------------------------------------------------------------
Investment income--net ......................................................... $ 16,514,494 $ 16,585,812
Realized gain (loss)--net ...................................................... 1,597,787 (37,012)
Change in unrealized appreciation--net ......................................... 4,122,867 21,092,669
-------------------------------
Net increase in net assets resulting from operations ........................... 22,235,148 37,641,469
-------------------------------
===============================================================================================================================
Dividends to Shareholders
-------------------------------------------------------------------------------------------------------------------------------
Investment income--net ......................................................... (17,054,653) (16,462,568)
-------------------------------
Net decrease in net assets resulting from dividends to Common Stock shareholders (17,054,653) (16,462,568)
-------------------------------
===============================================================================================================================
Common Stock Transactions
-------------------------------------------------------------------------------------------------------------------------------
Value of shares issued to Common Stock shareholders in reinvestment of dividends 2,230,610 --
-------------------------------
===============================================================================================================================
Net Assets
-------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ................................................... 7,411,105 21,178,901
Beginning of year .............................................................. 273,381,853 252,202,952
-------------------------------
End of year* ................................................................... $ 280,792,958 $ 273,381,853
===============================
* Undistributed investment income--net ...................................... $ 2,984,713 $ 3,524,872
===============================
See Notes to Financial Statements.
12 MUNIASSETS FUND, INC. MAY 31, 2006
Financial Highlights
For the Year Ended May 31,
The following per share data and ratios have been derived -------------------------------------------------------------------
from information provided in the financial statements. 2006 2005 2004 2003 2002
==================================================================================================================================
Per Share Operating Performance
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ............. $ 13.40 $ 12.36 $ 11.94 $ 12.55 $ 12.96
-------------------------------------------------------------------
Investment income--net ......................... .81+ .81+ .83+ .81+ .79
Realized and unrealized gain (loss)--net ....... .27 1.04 .38 (.64) (.41)
-------------------------------------------------------------------
Total from investment operations ............... 1.08 1.85 1.21 .17 .38
-------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ...................... (.83) (.81) (.78) (.78) (.79)
Realized gain--net .......................... -- -- (.01) -- --
-------------------------------------------------------------------
Total dividends and distributions .............. (.83) (.81) (.79) (.78) (.79)
-------------------------------------------------------------------
Net asset value, end of year ................... $ 13.65 $ 13.40 $ 12.36 $ 11.94 $ 12.55
===================================================================
Market price per share, end of year ............ $ 14.13 $ 13.27 $ 11.38 $ 11.91 $ 11.66
===================================================================
==================================================================================================================================
Total Investment Return*
----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ............. 8.31% 15.65% 10.74% 1.61% 3.30%
===================================================================
Based on market price per share ................ 13.22% 24.39% 2.22% 9.09% (4.32%)
===================================================================
==================================================================================================================================
Ratios to Average Net Assets
----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement and excluding
reorganization expenses ..................... .68% .67% .67% .78% .74%
===================================================================
Expenses ....................................... .68% .67% .67% .78% .83%
===================================================================
Investment income--net ......................... 5.97% 6.30% 6.71% 6.76% 6.16%
===================================================================
==================================================================================================================================
Supplemental Data
----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ......... $280,793 $273,382 $252,203 $243,671 $255,150
===================================================================
Portfolio turnover ............................. 17.22% 19.67% 19.14% 26.98% 20.07%
===================================================================
* Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
+ Based on average shares outstanding.
See Notes to Financial Statements.
MUNIASSETS FUND, INC. MAY 31, 2006 13
Notes to Financial Statements
1. Significant Accounting Policies:
MuniAssets Fund, 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 MUA. The following is a
summary of significant accounting policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter ("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. Valuation of other short-term investment
vehicles is generally based on the net asset value of the underlying investment
vehicle or amortized cost. 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,
14 MUNIASSETS FUND, INC. MAY 31, 2006
Notes to Financial Statements (concluded)
unless terminated earlier. The value of the agreement is determined by
quoted fair values received daily by the Fund from the counterparty. When
the agreement is closed, the Fund records a realized gain or loss in an
amount equal to the value of the agreement.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis. The
Fund amortizes all premiums and discounts on debt securities.
(e) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee of
..55% based upon the average weekly value of the Fund's net assets. The
Investment Adviser has agreed to reimburse its management fee by the amount of
management fees the Fund pays to FAM indirectly through its investments in
Merrill Lynch Institutional Tax-Exempt Fund. For the year ended May 31, 2006,
FAM reimbursed the Fund in the amount of $4,642.
For the year ended May 31, 2006, the Fund reimbursed FAM $6,326 for certain
accounting services.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction is expected to
close in the third quarter of 2006.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended May 31, 2006, were $46,765,551 and $46,251,624, respectively.
4. Common Stock Transactions:
At May 31, 2006, the Fund had one class of shares of Common Stock, par value
$.10 per share, of which 200,000,000 shares were authorized.
Shares issued and outstanding during the year ended May 31, 2006, increased by
164,470 as a result of dividend investment and for the year ended May 31, 2005
remained constant.
5. Distributions to Shareholders:
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of $.070000 per share on June 29, 2006 to shareholders of record on June
13, 2006.
The tax character of distributions paid during the fiscal years ended May 31,
2006 and May 31, 2005 was as follows:
--------------------------------------------------------------------------------
5/31/2006 5/31/2005
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $17,054,653 $16,462,568
-------------------------------
Total distributions .................... $17,054,653 $16,462,568
===============================
As of May 31, 2006, the components of accumulated losses on a tax basis were as
follows:
------------------------------------------------------------------------------
Undistributed tax-exempt income -- net .................... $ 2,991,056
Undistributed long-term capital gains -- net .............. --
------------
Total undistributed earnings -- net ....................... 2,991,056
Capital loss carryforward ................................. (29,921,653)*
Unrealized gains -- net ................................... 6,306,330**
------------
Total accumulated losses -- net ........................... $(20,624,267)
============
* The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on straddles, the
difference between book and tax amortization methods for premiums and
discounts on fixed income securities and the book/tax difference in the
accrual of income on securities in default.
** On May 31, 2006, the Fund had a net capital loss carryforward of
$29,921,653, of which $611,976 expires in 2007, $6,860,553 expires in
2008, $3,487,083 expires in 2009, $2,260,830 expires in 2010, $7,452,325
expires in 2011, $5,486,273 expires in 2012 and $3,762,613 expires in
2013. This amount will be available to offset like amounts of any future
taxable gains.
MUNIASSETS FUND, INC. MAY 31, 2006 15
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of MuniAssets Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniAssets Fund, Inc. as of May 31,
2006, 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 controls over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purposes
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 May 31, 2006, 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
MuniAssets Fund, Inc. as of May 31, 2006, 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
July 20, 2006
Fund Certification (unaudited)
In September 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 monthly by MuniAssets Fund,
Inc. during the taxable year ended May 31, 2006 qualify as tax-exempt interest
dividends for federal income tax purposes.
16 MUNIASSETS FUND, INC. MAY 31, 2006
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.
MUNIASSETS FUND, INC. MAY 31, 2006 17
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreement -- Matters Considered by the Board
In connection with the Transaction between Merrill Lynch and BlackRock, the
Fund's Board of Directors considered a new investment advisory agreement (the
"New Investment Advisory Agreement") between the Fund and BlackRock Advisors,
Inc. or its successor ("BlackRock Advisors"). If the New Investment Advisory
Agreement is approved by the Fund's shareholders, it will become effective upon
the closing of the Transaction, which is expected in the third quarter of 2006.
The Board discussed the New Investment Advisory Agreement at telephonic and
in-person meetings held during April and May 2006. The Board, including the
independent directors, approved the New Investment Advisory Agreement at a
meeting held on May 9, 2006.
To assist the Board in its consideration of the New Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors, through their independent legal counsel,
also requested and received additional information from Merrill Lynch and
BlackRock in connection with their consideration of the New Investment Advisory
Agreement. The additional information was provided in advance of the May 9, 2006
meeting. In addition, the independent directors consulted with their counsel and
Fund counsel on numerous occasions, discussing, among other things, the legal
standards and certain other considerations relevant to the directors'
deliberations.
At the Board meetings, members of the Board discussed with Merrill Lynch
management and certain BlackRock representatives the Transaction, its strategic
rationale and BlackRock's general plans and intentions regarding the Fund. At
these Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from the Board. The directors also
inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of the Investment Adviser and certain affiliates
being transferred to BlackRock in connection with the Transaction. The
independent directors of the Board also conferred separately and with their
counsel about the Transaction and other matters related to the Transaction on a
number of occasions, including in connection with the April and May 2006
meetings. After the presentations and after reviewing the written materials
provided, the independent directors met in executive sessions with their counsel
to consider the New Investment Advisory Agreement.
In connection with the Board's review of the New Investment Advisory Agreement,
Merrill Lynch and/or BlackRock advised the directors about a variety of matters.
The advice included the following, among other matters:
o that there is not expected to be any diminution in the nature, quality and
extent of services provided to the Fund and its shareholders by BlackRock
Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm will enhance its ability to attract and retain talented
professionals;
o that the Fund should benefit from having access to BlackRock's state of
the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions(R) brand name;
o that BlackRock has no present intention to alter any applicable expense
waivers and reimbursements currently in effect and, while it reserves the
right to do so in the future, it would seek the approval of the Board
before making any changes;
o that under the Transaction Agreement, Merrill Lynch and BlackRock have
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Investment Adviser (or its affiliates), respectively; and
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they have a different financial
interest in the matters that were being considered than do Fund
shareholders;
The directors considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
o the potential benefits to Fund shareholders from being part of a combined
fund family with BlackRock-sponsored funds, including possible economies
of scale and access to investment opportunities;
18 MUNIASSETS FUND, INC. MAY 31, 2006
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
o the terms and conditions of the New Investment Advisory Agreement,
including the fact that the schedule of the Fund's total advisory fees
will not increase by virtue of the New Investment Advisory Agreement, but
will remain the same;
o that within the past year the Board performed a full annual review of the
investment advisory agreement currently in effect for the Fund (the
"Current Investment Advisory Agreement") as required by the 1940 Act and
has determined that the Investment Adviser has the capabilities, resources
and personnel necessary to provide the advisory and administrative
services currently provided to the Fund; and that the advisory and/or
management fees paid by the Fund, taking into account any applicable
agreed-upon fee waivers and breakpoints, represent reasonable compensation
to the Investment Adviser in light of the services provided, the costs to
the Investment Adviser of providing those services, economies of scale,
the fees and other expenses paid by similar funds (including information
provided by Lipper), and such other matters as the directors have
considered relevant in the exercise of their reasonable judgment (the
Board had most recently performed a full annual review of the Current
Investment Advisory Agreement in November 2005); and
o that Merrill Lynch agreed to pay all expenses of the Fund in connection
with the Board's consideration of the New Investment Advisory Agreement
and related agreements and all costs of shareholder approval of the New
Investment Advisory Agreement and as a result the Fund would bear no costs
in obtaining shareholder approval of the New Investment Advisory
Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the New Investment Advisory Agreement, the Board assessed the
nature, scope and quality of the services to be provided to the Fund by the
personnel of BlackRock Advisors and its affiliates, including administrative
services, shareholder services, oversight of fund accounting, marketing services
and assistance in meeting legal and regulatory requirements. In its review of
the New Investment Advisory Agreement, the Board also considered a range of
information in connection with its oversight of the services to be provided by
BlackRock Advisors and its affiliates. Among the matters considered were: (a)
fees (in addition to management fees) to be paid to BlackRock Advisors 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 BlackRock Advisors' compliance policies and procedures; and
(d) the nature, cost and character of non-investment management services to be
provided by BlackRock Advisors and its affiliates.
In the period prior to the Board meetings to consider renewal of the Current
Investment Advisory Agreement, the Board had requested and received materials
specifically relating to the agreement. These materials included (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 on
investment strategies used by the Fund during its most recent fiscal year; (d)
information on the profitability to the Investment Adviser of the Current
Investment Advisory Agreement and other payments received by the Investment
Adviser and its affiliates from the Fund; and (e) information provided by the
Investment Adviser concerning services related to the valuation and pricing of
Fund portfolio holdings, the Fund's portfolio turnover statistics, and direct
and indirect benefits to the Investment Adviser and its affiliates from their
relationship with the Fund.
In their deliberations, the directors considered information received in
connection with their most recent continuation of the Current Investment
Advisory Agreement, in addition to information provided by BlackRock and
BlackRock Advisors in connection with their evaluation of the terms and
conditions of the New Investment Advisory Agreement. The directors did not
identify any particular information that was all-important or controlling. The
directors, including a majority of the independent directors, concluded that the
terms of the New Investment Advisory Agreement are appropriate, that the fees to
be paid are reasonable in light of the services to be provided to the Fund, and
that the New Invest-
MUNIASSETS FUND, INC. MAY 31, 2006 19
Disclosure of New Investment Advisory Agreement (continued)
ment Advisory Agreement should be approved and recommended to Fund shareholders.
Nature, Quality and Extent of Services Provided -- 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, as well as the nature, quality and extent of services expected to be
provided by BlackRock Advisors. The Board focused primarily on the Investment
Adviser's advisory services and the Fund's investment performance, but also
considered certain areas in which both the Investment Adviser and the Fund
receive services as part of the Merrill Lynch complex. The Board compared the
Fund's 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.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the New Investment Advisory Agreement, the directors
considered, among other things, the expected impact of the Transaction on the
operations, facilities, organization and personnel of New BlackRock and how it
would affect the Fund; the ability of BlackRock Advisors to perform its duties
after the Transaction; and any anticipated changes to the current investment and
other practices of the Fund.
The directors were given information with respect to the potential benefits to
the Fund and its shareholders from having access to BlackRock's state of the art
technology and risk management analytic tools, including the investment tools
provided under the BlackRock Solutions brand name.
The directors were advised that, as a result of Merrill Lynch's equity interest
in BlackRock after the Transaction, the Fund will continue to be subject to
restrictions concerning certain transactions involving Merrill Lynch affiliates
(for example, transactions with a Merrill Lynch broker-dealer acting as
principal) absent revised or new regulatory relief. The directors were advised
that a revision of existing regulatory relief with respect to these restrictions
was being sought from the Securities and Exchange Commission and were advised of
the possibility of receipt of such revised regulatory relief. There can be no
assurance that such relief will be obtained.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the directors
determined that the nature and quality of services to be provided to the Fund
under the New Investment Advisory Agreement were expected to be as good or
better than that provided under the Current Investment Advisory Agreement. It
was noted, however, that it is expected that there will be changes in personnel
following the Transaction and the combination of the operations of the
Investment Adviser and its affiliates with those of BlackRock. The directors
noted that if current portfolio managers or other personnel cease to be
available, the Board would consider all available options, which could include
seeking the investment advisory or other services of BlackRock affiliates.
Accordingly, the directors concluded that, overall, they were satisfied at the
present time with assurances from BlackRock and BlackRock Advisors as to the
expected nature, extent and quality of the services to be provided to the Fund
under the New Investment Advisory Agreement.
Costs of Services Provided and Profitability -- It was noted that, in
conjunction with the recent review of the Current Investment Advisory Agreement,
the directors had received, among other things, a report from Lipper comparing
the Fund's fees, expenses and performance to those of a peer group selected by
Lipper, and information as to the fees charged by the Investment Adviser or its
affiliates to other registered investment company clients for investment
management services. The Board reviewed 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 fees and the effects of any
fee waivers -- compared to the other funds in its Lipper category. They also
compared the Fund's total expenses to those of other comparable funds. The
information showed that the Fund had fees and expenses within the range of fees
and expenses of comparable funds. The Board considered the services to be
provided by and the fees to be charged by BlackRock Advisors to other funds with
similar investment mandates and noted that the fees charged by BlackRock
Advisors in those cases, including fee waivers and expense reimbursements, were
generally comparable to those being charged to the Fund. The Board also noted
that, as a general matter, according to the information provided by BlackRock,
fees charged to institutional clients were lower than the fees charged to the
Fund, but BlackRock Advisors provided less extensive services to such clients.
The Board concluded that the Fund's management fee and fee rate
20 MUNIASSETS FUND, INC. MAY 31, 2006
and overall expense ratio are reasonable compared to those of other comparable
funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the New Investment Advisory Agreement, the directors considered, among
other things, whether advisory fees or other expenses would change as a result
of the Transaction. Based on their review of the materials provided and the fact
that the New Investment Advisory Agreement is substantially similar to the
Current Investment Advisory Agreement in all material respects, including the
rate of compensation, the directors determined that the Transaction should not
increase the total fees payable, including any fee waivers and expense
reimbursements, for advisory and administrative services. The directors noted
that it was not possible to predict how the Transaction would affect BlackRock
Advisors' profitability from its relationship with the Fund.
The directors discussed with BlackRock Advisors its general methodology to be
used in determining its profitability with respect to its relationship with the
Fund. The directors noted that they expect to receive profitability information
from BlackRock Advisors on at least an annual basis and thus be in a position to
evaluate whether any adjustments in Fund fees and/or fee breakpoints would be
appropriate.
Fees and 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
considered economies of scale to the extent applicable to the Fund's closed-end
structure and determined that the Fund currently appropriately benefits from any
economies of scale and no changes were currently necessary.
In reviewing the Transaction, the directors considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that the New Investment Advisory Agreement is
substantially similar to the Current Investment Advisory Agreement in all
material respects, including the rate of compensation, the directors determined
that as a result of the Transaction, the Fund's total advisory fees would be no
higher than the fees under its Current Investment Advisory Agreement. The
directors noted that in conjunction with their most recent deliberations
concerning the Current Investment Advisory Agreement, the directors had
determined that the total fees for advisory and administrative services for the
Fund were reasonable in light of the services provided. It was noted that in
conjunction with the recent review of the Current Investment Advisory Agreement,
the directors had received, among other things, a report from Lipper comparing
the Fund's fees, expenses and performance to those of a peer group selected by
Lipper, and information as to the fees charged by the Investment Adviser or its
affiliates to other registered investment company clients for investment
management services. The directors concluded that, because the rates for
advisory fees for the Fund would be no higher than its current fee rates, the
proposed management fee structure, including any fee waivers, was reasonable and
that no additional changes were currently necessary.
Fall-Out Benefits -- In evaluating the fall-out benefits to be received by
BlackRock Advisors under the New Investment Advisory Agreement, the directors
considered whether the Transaction would have an impact on the fall-out benefits
received by the Investment Adviser by virtue of the Current Investment Advisory
Agreement. Based on their review of the materials provided, including materials
received in connection with their most recent approval or continuance of the
Current Investment Advisory Agreement, and their discussions with management of
the Investment Adviser and BlackRock, the directors determined that those
benefits could include increased ability for BlackRock to distribute shares of
its funds and other investment products. The directors noted that any such
benefits were difficult to quantify with certainty at this time, and indicated
that they would continue to evaluate them going forward.
Investment Performance -- The directors considered investment performance for
the Fund. The directors compared the Fund's 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. The comparative information received from Lipper showed
Fund performance at various levels within the range of performance of comparable
funds over different time periods. While the Board reviews performance data at
least quarterly, consistent with the Investment Adviser's investment goals, the
Board attaches more importance over relatively long periods of time, typically
three to five years. The directors believed the Fund's performance was
satisfactory. Also, the directors took into account the investment performance
of funds currently advised by BlackRock Advisors. The Board considered
comparative information from Lipper which showed that the performance of the
funds advised by BlackRock Advisors was
MUNIASSETS FUND, INC. MAY 31, 2006 21
Disclosure of New Investment Advisory Agreement (concluded)
within the range of performance of comparable funds over different time periods.
The Board noted BlackRock's considerable investment management experience and
capabilities, but were unable to predict what effect, if any, consummation of
the Transaction would have on the future performance of the Fund.
Conclusion -- After the independent directors of the Fund deliberated in
executive session, the entire Board, including the independent directors,
approved the New Investment Advisory Agreement, concluding that the advisory fee
rate was reasonable in relation to the services provided and that the New
Investment Advisory Agreement was in the best interests of the shareholders. In
approving the New Investment Advisory Agreement, the Board noted that it
anticipated reviewing the continuance of the agreement in advance of the
expiration of the initial two-year period.
Contingent BlackRock Subadvisory Agreement -- Matters Considered by the Board
At the telephonic and in-person meetings held during April and May 2006 at which
the Board of Directors discussed and approved the New Investment Advisory
Agreement, the Board, including the independent directors, also discussed and
approved a contingent subadvisory agreement (the "Contingent Subadvisory
Agreement") between the Investment Adviser and BlackRock Advisors (the
"BlackRock Subadviser"). The Contingent Subadvisory Agreement is intended to
ensure that the Fund operates with efficient portfolio management services until
the closing of the Transaction, in the event that the Board deems it necessary
and in the best interests of the Fund and its shareholders that the BlackRock
Subadviser assist in managing the operations of the Fund during the interim
period until the closing of the Transaction. If shareholders approve the
Contingent Subadvisory Agreement, it will take effect only upon recommendation
from the Investment Adviser and upon subsequent approval of the Board in the
period up to the closing of the Transaction. The effectiveness of the Contingent
Subadvisory Agreement, therefore, would be contingent on further Board approval
after shareholders approve it. Pursuant to the Contingent Subadvisory Agreement,
the BlackRock Subadviser would receive a monthly fee from the Investment Adviser
equal to 50% of the advisory fee received by the Investment Adviser. The
Investment Adviser would pay the BlackRock Subadviser out of its own resources.
There would be no increase in Fund expenses as a result of the Contingent
Subadvisory Agreement.
In making its approval, the Board considered the Contingent Subadvisory
Agreement in conjunction with the New Investment Advisory Agreement and reviewed
the same information and factors discussed above, and came to the same
conclusions. The Board also considered in conjunction with the Contingent
Subadvisory Agreement the necessity of ensuring that the Fund operates with
effective management services until the closing of the Transaction. In reviewing
the subadvisory fee rate provided in the Contingent Subadvisory Agreement, the
Board took note of the fact that both the Investment Adviser and the BlackRock
Subadviser would have significant responsibilities under their respective
advisory agreements. The Investment Adviser would remain responsible for
oversight of the Fund's operations and administration and the BlackRock
Subadviser would provide advisory services to the Fund under the Contingent
Subadvisory Agreement. The Board also took into account the expected short
duration of the term of any Contingent Subadvisory Agreement and the fact that
total advisory fees paid by the Fund would not increase as a result of the
Contingent Subadvisory Agreement. Under all of the circumstances, the Board
concluded that it was a reasonable allocation of fees for the BlackRock
Subadviser to receive 50% of the advisory fee paid by the Fund to the Investment
Adviser.
After the independent directors deliberated in executive session, the entire
Board, including the independent directors, approved the Contingent Subadvisory
Agreement, concluding that the advisory fee was reasonable in relation to the
services provided and that the Contingent Subadvisory Agreement was in the best
interests of shareholders.
22 MUNIASSETS FUND, INC. MAY 31, 2006
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 defined in the Investment Company
Act, of the Fund based on his 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*
------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Director 2002 to Director, The China Business Group, Inc. since 1996 39 Funds None
Bodurtha** Princeton, NJ present and Executive Vice President thereof from 1996 to 59 Portfolios
08543-9095 2003; Chairman of the Board, Berkshire Holding
Age: 62 Corporation since 1980; Partner, Squire, Sanders &
Dempsey from 1980 to 1993.
------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9095 Director 2005 to Professor, Harvard University since 1992; Professor, 39 Funds None
Froot Princeton, NJ present Massachusetts Institute of Technology from 1986 to 59 Portfolios
08543-9095 1992.
Age: 48
------------------------------------------------------------------------------------------------------------------------------------
Joe P.O. Box 9095 Director 1994 to Member of the Committee of Investment of Employee 39 Funds Kimco
Grills** Princeton, NJ present Benefit Assets of the Association of Financial 59 Portfolios Realty
08543-9095 Professionals ("CIEBA") since 1986; Member of Corporation
Age: 71 CIEBA's Executive Committee since 1988 and its
Chairman from 1991 to 1992; Assistant Treasurer of
International Business Machines Corporation ("IBM")
and Chief Investment Officer of IBM Retirement Funds
from 1986 to 1993; Member of the Investment Advisory
Committee of the State of New York Common Retirement
Fund since 1989; Member of the Investment Advisory
Committee of the Howard Hughes Medical Institute
from 1997 to 2000; Director, Duke University
Management Company from 1992 to 2004, Vice Chairman
thereof from 1998 to 2004, and Director Emeritus
thereof since 2004; Director, LaSalle Street Fund
from 1995 to 2001; Director, Kimco Realty
Corporation since 1997; Member of the Investment
Advisory Committee of the Virginia Retirement System
since 1998, Vice Chairman thereof from 2002 to 2005,
and Chairman thereof since 2005; Director,
Montpelier Foundation since 1998 and its Vice
Chairman since 2000; Member of the Investment
Committee of the Woodberry Forest School since 2000;
Member of the Investment Committee of the National
Trust for Historic Preservation since 2000.
MUNIASSETS FUND, INC. MAY 31, 2006 23
Officers and Directors (continued)
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)
------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Director 2002 to Chairman of the Board of Directors of Vigilant 39 Funds None
London Princeton, NJ present Research, Inc. since 2006; Director of Reflex 59 Portfolios
08543-9095 Security since 2006; Director of Cerego, LLC since
Age: 67 2006; Director of InnoCentive, Inc. since 2006;
Professor Emeritus, New York University since 2005;
John M. Olin Professor of Humanities, New York
University from 1993 to 2005 and Professor thereof
from 1980 to 2005; President, Hudson Institute since
1997 and Trustee thereof since 1980; Dean, Gallatin
Division of New York University from 1976 to 1993;
Distinguished Fellow, Herman Kahn Chair, Hudson
Institute from 1984 to 1985; Director, Damon Corp.
from 1991 to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993.
------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Director 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 39 Funds None
Cooper Princeton, NJ present Sisk, P.A. since 1993; President, American Bar 59 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of the
Age: 63 Board of Governors thereof from 1994 to 1997;
Shareholder, Poole, Kelly and Ramo, Attorneys at Law
P.C. from 1977 to 1993; Director of ECMC Group
(service provider to students, schools and lenders)
since 2001; Director, United New Mexico Bank (now
Wells Fargo) from 1983 to 1988; Director, First
National Bank of New Mexico (now Wells Fargo) from
1975 to 1976; Vice President, American Law Institute
since 2004.
------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Director 1996 to Principal of STI Management (investment adviser) 39 Funds None
Salomon, Princeton, NJ present from 1994 to 1995; Chairman and CEO of Salomon 59 Portfolios
Jr. 08543-9095 Brothers Asset Management Inc. from 1992 to 1995;
Age: 69 Chairman of Salomon Brothers Equity Mutual Funds
from 1992 to 1995; regular columnist with Forbes
Magazine from 1992 to 2002; Director of Stock
Research and U.S. Equity Strategist at Salomon
Brothers Inc. from 1975 to 1991; Trustee, Commonfund
from 1980 to 2001.
------------------------------------------------------------------------------------------------------------------------
* Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Co-Chairman of the Board of Directors and the Audit Committee.
24 MUNIASSETS FUND, INC. MAY 31, 2006
Officers and Directors (concluded)
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 Managing Director of MLIM and FAM since 2006 and Treasurer thereof since 1999;
Burke Princeton, NJ President present First Vice President of MLIM and FAM from 1997 to 2005; Senior Vice President and
08543-9011 and and Treasurer of Princeton Services since 1999 and Director since 2004; Vice President
Age: 45 Treasurer 1999 of FAM Distributors, Inc. ("FAMD") since 1999 and Director since 2004; Vice
to President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from
present 1990 to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9011 Senior 2003 to Managing Director (Municipal Tax-Exempt Fund Management) of MLIM since 2000;
Jacob Princeton, NJ Vice present Director of MLIM from 1997 to 2000.
08543-9011 President
Age: 55
------------------------------------------------------------------------------------------------------------------------------------
John M. P.O. Box 9011 Senior 2003 to Managing Director (Municipal Tax-Exempt Fund Management) of MLIM since 2000;
Loffredo Princeton, NJ Vice present Director of MLIM from 1997 to 2000.
08543-9011 President
Age: 42
------------------------------------------------------------------------------------------------------------------------------------
Theodore P.O. Box 9011 Vice 1997 to Managing Director (Municipal Tax-Exempt Fund Management) of MLIM since 2005;
R. Jaeckel Princeton, NJ President present Director of MLIM from 1997 to 2005; Vice President of MLIM from 1991 to 1997.
Jr. 08543-9011
Age: 46
------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
Hiller Princeton, NJ Compliance present and Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief
08543-9011 Officer Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
Age: 54 Morgan Stanley 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 Securities and Exchange 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: 46
------------------------------------------------------------------------------------------------------------------------
* 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 Agent
The Bank of New York
101 Barclay Street -- 11 East
New York, NY 10286
NYSE Symbol
MUA
MUNIASSETS FUND, INC. MAY 31, 2006 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.
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 Assets, Liabilities
and Capital, which comprises part of the financial information included in this
report.
26 MUNIASSETS FUND, INC. MAY 31, 2006
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.
MUNIASSETS FUND, INC. MAY 31, 2006 27
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
--------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
MuniAssets Fund, Inc. seeks to provide shareholders with current income exempt
from federal income taxes by investing primarily in a portfolio of
medium-to-lower grade or unrated 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 MuniAssets Fund, 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. 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 1-800-637-3863; (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.
MuniAssets Fund, Inc.
Box 9011
Princeton, NJ 08543-9011
#16716 -- 5/06
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) Joe Grills,
(2) Robert S. Salomon, Jr., and (3) Stephen B. Swensrud (retired as of
December 31, 2005).
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending May 31, 2006 - $28,000
Fiscal Year Ending May 31, 2005 - $27,500
(b) Audit-Related Fees - Fiscal Year Ending May 31, 2006 - $0
Fiscal Year Ending May 31, 2005 - $0
(c) Tax Fees - Fiscal Year Ending May 31, 2006 - $6,000
Fiscal Year Ending May 31, 2005 - $5,700
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending May 31, 2006 - $0
Fiscal Year Ending May 31, 2005 - $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 May 31, 2006 - $3,124,717
Fiscal Year Ending May 31, 2005 - $9,030,943
(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)):
James H. Bodurtha
Kenneth A. Froot
Joe Grills
Herbert I. London
Roberta Cooper Ramo
Robert S. Salomon, Jr.
Stephen B. Swensrud (retired as of December 31, 2005)
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 May 31, 2006.
(a)(1) Mr. Theodore R. Jaeckel, Jr. is primarily responsible for the
day-to-day management of the registrant's portfolio ("Portfolio
Manager"). Mr. Jaeckel has been a Managing Director of MLIM
since 2005. He was a Director of MLIM from 1997 to 2005. Mr.
Jaeckel has been a portfolio manager with the Investment Adviser
and MLIM since 1991 and has been the Fund's portfolio manager
since 1997.
(a)(2) As of May 31, 2006:
(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
-------------- --------------
Theodore R.
Jaeckel, Jr 7 1 0 0 1 0
$2,414,858,271 $ 23,409,341 $ 0 $ 0 $ 23,409,341 $ 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 May 31, 2006:
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
closed-end, high yield 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 May 31, 2006, Mr.
Jaeckel does not beneficially own any stock issued by the Fund.
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.
MuniAssets Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
MuniAssets Fund, Inc.
Date: July 21, 2006
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
MuniAssets Fund, Inc.
Date: July 21, 2006
By: /s/ Donald C. Burke
-----------------------------
Donald C. Burke,
Chief Financial Officer of
MuniAssets Fund, Inc.
Date: July 21, 2006