N-30D 1 d51113_n-30d.txt ANNUAL REPORT [LOGO] Merrill Lynch Investment Managers Annual Report May 31, 2002 MuniAssets Fund, Inc. www.mlim.ml.com MuniAssets Fund, Inc. Important Tax Information (unaudited) All of the net investment income distributions paid monthly by MuniAssets Fund, Inc. during its taxable year ended May 31, 2002 qualify as tax-exempt interest dividends for Federal income tax purposes. Please retain this information for your records. MuniAssets Fund, Inc., May 31, 2002 DEAR SHAREHOLDER For the year ended May 31, 2002, MuniAssets Fund, Inc. earned $0.781 per share income dividends, which included earned and unpaid dividends of $0.064. This represents a net annualized yield of 6.23%, based on a year-end per share net asset value of $12.55. Over the same period, the Fund's total investment return was +3.30%, based on a change in per share net asset value from $12.96 to $12.55, and assuming reinvestment of $0.790 per share income dividends. For the six-month period ended May 31, 2002, the Fund's total investment return was +1.48%, based on a change in per share net asset value from $12.75 to $12.55, and assuming reinvestment of $0.356 per share income dividends. The Municipal Market Environment During the six months ended May 31, 2002, long-term fixed income bond yields generally rose, while exhibiting considerable monthly volatility. However, throughout the period, tax-exempt bond yield volatility was appreciably lower and the overall increase in municipal bond yields was lower than its taxable counterpart. This relative outperformance by the tax-exempt market largely reflected an improving technical position in recent months. Following the September 11, 2001 terrorist attacks, US Treasury bond yields declined dramatically, while the decrease in municipal bond yields was more modest. Despite additional decreases in the short-term interest rate target to 1.75% by the Federal Reserve Board, long-term fixed income markets were unable to hold their October 2001 gains. Rapid, significant US military success in Afghanistan, stronger-than-expected retail sales, and recovering US equity markets combined to suggest to many investors that US economic recovery was far more imminent than had been expected earlier. Bond yields rose during December 2001 as investors sold securities both to realize recent profits and in anticipation of an early reversal of Federal Reserve Board policy. By the end of December, long-term US Treasury bond yields rose more than 50 basis points (0.50%) to approximately 5.45%. During January and February 2002, economic indicators were mixed, signaling some strength in consumer spending and in housing-related industries, but with continued declines in manufacturing employment. Interest rates remained in a narrow but volatile range as weak US equity markets generally supported fixed income products. By the end of January 2002, the Federal Reserve Board ended its aggressive series of short-term interest rate reductions by maintaining its overnight rate target at 1.75%, a 40-year low. The Federal Reserve Board noted that while US economic activity was beginning to strengthen, earlier weakness could easily resume should consumer spending falter. In recent months, however, the index of leading economic indicators has risen, suggesting that economic activity is likely to expand later this year. In its final revision, fourth quarter US gross domestic product growth was revised higher to 1.6%, signaling improving economic conditions relative to earlier in 2001. By the end of February 2002, long-term US Treasury bond yields stood at 5.42%. In early March, a number of economic indicators, including surging existing home sales, solid consumer spending, and positive nonfarm payroll growth following several months of job losses, suggested US economic activity was continuing to strengthen. Also, in Congressional testimony, Federal Reserve Board Chairman Alan Greenspan was cautiously optimistic regarding future US economic growth noting, while any increase in activity was likely to be moderate, "an economic expansion (was) well underway." These factors combined to push US equity prices higher and bond prices sharply lower in expectation of a reversal of the Federal Reserve Board actions taken during the past 15 months. By the end of March 2002, long-term US Treasury bond yields stood at 5.80%, their highest level in more than 18 months. During April and May 2002, bond yields reversed to move lower as US economic conditions, especially employment trends, weakened and US equity markets solidly declined. Also, first quarter 2002 US gross domestic product growth was initially estimated to have grown 1.0%. This decline in US economic activity from late 2001 levels suggested that earlier US economic strength was weakening, and the Federal Reserve Board would be unlikely to raise interest rates for much of 2002. US Treasury issue prices were also boosted by erupting Middle East and India/Pakistan conflicts that led many international investors to seek the safe haven of US Treasury securities. By May 31, 2002, long-term US Treasury bond yields declined to 5.61%. During the past six months, US Treasury bond yields rose more than 30 basis points. The municipal bond market displayed a similar pattern to its taxable counterpart during the six-month period ended May 31, 2002. The tax-exempt bond market was also unable to maintain the gains made in late September and October 2001. In addition to a modestly stronger financial environment, increased tax-exempt new bond issuance in late 2001 also put upward pressure on municipal bond yields. By year-end 2001, long-term tax-exempt revenue bond yields as measured by the Bond Buyer Revenue Bond Index stood at 5.60%, an increase of approximately 20 basis points during December 2001. In early 2002, tax-exempt bond yields traded in a relatively narrow range as an increasingly positive technical position supported existing municipal bond prices. However, in March, increased economic activity and associated concerns regarding near-term Federal Reserve Board actions also pushed tax-exempt bond prices lower. By late March, long-term municipal revenue bond yields rose to 5.67%, their highest level in more than a year. Similar to US Treasury issues, tax-exempt bond yields generally declined throughout April and May as economic conditions weakened. The municipal bond market's improvement was also bolstered by a continued improvement in the market's technical environments. Investor demand strengthened, in part aided by declining equity prices, as issuance levels declined. At May 31, 2002, long-term tax-exempt bond yields stood at 5.51%, an increase of approximately 10 basis points during the last six months. Interest rates are likely to remain near current levels as US economic conditions are expected to remain relatively weak. However, going forward, business activity is likely to accelerate, perhaps significantly. Immediately after the September 11 attacks, the Federal Government announced a $45 billion package to aid New York City, Washington, DC and the airline industry, with additional fiscal aid packages expected. The military response to these attacks will continue to require sizable increases in Defense Department spending. Eventually, this governmental spending should result in increased US economic activity, particularly in the construction and defense industries. This governmental stimulus, in conjunction with the actions already taken by the Federal Reserve Board, can be expected to generate significant increases in US gross domestic product growth sometime in mid-to-late 2002. As inflationary pressures are expected to remain well contained going forward, increased economic activity need not result in significant increases in long-term bond yields. Also, throughout much of 2001, the municipal bond market exhibited far less volatility than its taxable counterparts. Since the strong technical position that has supported the tax-exempt bond market's performance for much of this year can be expected to continue, any potential increases in municipal bond yields can also be expected to be limited. Portfolio Strategy During the 12 months ended May 31, 2002, the high-yield municipal bond market was characterized by general improvement in relative valuation across a wide range of disparate credit sectors from health care to various cyclical industrials. Perhaps the most glaring exception was the airline sector, which suffered significant price erosion in the aftermath of the terrorist attacks of September 11, 2001. Widespread losses in the steel 2 & 3 MuniAssets Fund, Inc., May 31, 2002 industry, along with revelations concerning fraudulent accounting and energy trading practices in the investor owned utility industry, also pressured valuations for related securities. Nevertheless, the overall picture conveyed an impression of recovery from depressed levels that prevailed throughout 1999 and 2000. To a degree, this was a reflection of developments in the taxable corporate bond market where credit spreads narrowed considerably since the Federal Reserve Board embarked on its campaign of monetary policy accommodation beginning in January 2001. In addition, the municipal market in particular benefited from improved cash flows as investors were drawn to the relative stability and predictability of recent bond market returns. Despite lower performance during the first seven months of the Fund's fiscal year, the Fund has experienced more favorable results in the last few months as contributions from a diverse group of current holdings demonstrated the broad-based nature of the improvement in credit spreads. Specifically, the Fund's exposure in the airline sector recovered substantially from losses incurred last fall, providing a welcome lift to relative performance since the beginning of January 2002. Our portfolio strategy continued to reflect our efforts to utilize analytical resources as a means to discover undervalued investment opportunities in the marketplace. This resulted in sector concentrations that included healthcare and transportation, while increasing exposure to infrastructure-related tax-backed financing for residential communities during the period. Future activity will likely reflect measures designed to further diversify portfolio holdings within the context of desired sector concentrations. In the past, significant exposure to individual credits occasionally contributed to heightened levels of volatility in the Fund's total return. By achieving greater diversification, we believe the Fund's returns should exhibit less volatility, as individual credit developments are less likely to significantly impact overall performance. In Conclusion We appreciate your investment in MuniAssets Fund, Inc., and we look forward to assisting you with your financial needs in the months and years ahead. Sincerely, /s/ Terry K. Glenn Terry K. Glenn President and Director /s/ Kenneth A. Jacob Kenneth A. Jacob Senior Vice President /s/ John M. Loffredo John M. Loffredo Senior Vice President /s/ Theodore R. Jaeckel Jr. Theodore R. Jaeckel Jr. Vice President and Portfolio Manager June 28, 2002 QUALITY PROFILE The quality ratings of securities in the Fund as of May 31, 2002 were as follows: -------------------------------------------------------------------------------- Percent of S&P Rating/Moody's Rating Total Assets -------------------------------------------------------------------------------- AAA/Aaa............................................................ 4.3% A/A................................................................ 2.4 BBB/Baa............................................................ 15.8 BB/Ba.............................................................. 17.5 B/B................................................................ 8.4 CCC/Caa............................................................ 1.6 CC/Ca.............................................................. 0.1 NR (Not Rated)..................................................... 48.2 Other*............................................................. 0.8 -------------------------------------------------------------------------------- * Temporary investments in short-term municipal securities. 4 & 5 MuniAssets Fund, Inc., May 31, 2002 SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Municipal Bonds Value ==================================================================================================================================== Alabama--1.0% B NR* $ 2,420 Brewton, Alabama, IDB, PCR, Refunding (Container Corporation of America--Jefferson Smurfit Corp. Project), 8% due 4/01/2009 $ 2,444 ==================================================================================================================================== Alaska--1.0% NR* NR* 1,540 Alaska Industrial Development and Export Authority Revenue Bonds (Williams Lynxs Alaska Cargoport), AMT, 7.80% due 5/01/2014 1,532 NR* Baa2 1,000 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (Amerada Hess Pipeline Corporation), 6.10% due 2/01/2024 1,002 ==================================================================================================================================== Arizona--7.0% Coconino County, Arizona, Pollution Control Corporation, Revenue Refunding Bonds (Tucson Electric Power Navajo): B+ Ba3 3,000 AMT, Series A, 7.125% due 10/01/2032 3,072 B+ Ba3 2,500 Series B, 7% due 10/01/2032 2,564 BBB Baa2 2,045 Maricopa County, Arizona, IDA, Health Facilities Revenue Bonds (Catholic Healthcare West Project), Series A, 5% due 7/01/2021 1,806 NR* NR* 2,395 Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds (Sun King Apartments Project), Sub-Series C, 9.50% due 11/01/2031 2,438 NR* Caa2 7,600 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds (America West Airlines Inc. Project), AMT, 6.30% due 4/01/2023 3,298 NR* NR* 1,235 Pima County, Arizona, IDA, Industrial Revenue Bonds (La Hacienda Project), 9.50% due 12/01/2016 1,280 B+ Ba3 1,815 Pima County, Arizona, IDA, Industrial Revenue Refunding Bonds (Tucson Electric Power Company Project), Series C, 6% due 9/01/2029 1,709 NR* NR* 1,625 Show Low, Arizona, Improvement District No. 5, Special Assessment Bonds, 6.375% due 1/01/2015 1,683 ==================================================================================================================================== California--2.5% AAA NR* 4,000 Los Angeles, California, Department of Water and Power, Electric Plant Revenue Bonds, RIB, Series 144, 9.32% due 6/15/2029 (a)(e) 4,647 NR* NR* 1,780 Pleasanton, California, Joint Powers Financing Authority, Revenue Refunding Bonds, Reassessment, Sub-Series B, 6.60% due 9/02/2008 1,855 ==================================================================================================================================== Colorado--7.7% A A2 2,000 Denver, Colorado, City and County Airport Revenue Bonds, AMT, Series D, 7.75% due 11/15/2013 2,409 NR* Baa2 3,000 Denver, Colorado, Urban Renewal Authority, Tax Increment and Allocation Bonds, AMT, 7.75% due 9/01/2017 3,201 NR* Baa2 2,500 Denver, Colorado, Urban Renewal Authority, Tax Increment Revenue Bonds (Pavilions), AMT, 7.75% due 9/01/2016 2,667 Elk Valley, Colorado, Public Improvement Revenue Bonds (Public Improvement Fee): NR* NR* 1,890 Series A, 7.10% due 9/01/2014 1,843 NR* NR* 2,095 Series A, 7.30% due 9/01/2022 2,028 NR* NR* 1,000 Series B, 7% due 9/01/2031 974 NR* NR* 2,360 Lincoln Park, Colorado, Metropolitan District, GO, Refunding, 7.75% due 12/01/2026 2,363 NR* NR* 1,760 North Range, Colorado, Metropolitan District Number 1, GO, 7.25% due 12/15/2031 1,704 BB+ Ba1 1,635 Northwest Parkway, Colorado, Public Highway Authority Revenue Bonds, First Tier, Sub-Series D, 7.125% due 6/15/2041 1,672 NR* NR* 650 San Miguel County, Colorado (Mountain Village Metropolitan District), GO, Refunding, 8.10% due 12/01/2011 666 ==================================================================================================================================== Connecticut--3.0% NR* NR* 3,490 Connecticut State Development Authority, IDR (AFCO Cargo BDL-LLC Project), AMT, 8% due 4/01/2030 3,523 BBB- NR* 1,450 Mohegan Tribe Indians, Connecticut, Gaming Authority, Revenue Refunding Bonds (Priority Distribution), 6.25% due 1/01/2021 1,480 NR* B1 2,615 New Haven, Connecticut, Facility Revenue Bonds (Hill Health Corporation Project), 9.25% due 5/01/2017 2,672 ==================================================================================================================================== Florida--4.8% NR* NR* 870 Arbor Greene Community Development District, Florida, Special Assessment Revenue Bonds, 7.60% due 5/01/2018 919 NR* NR* 900 Grand Haven Community Development District, Florida, Special Assessment Bonds, Series B, 6.90% due 5/01/2019 912 NR* NR* 500 Harbor Bay, Florida, Community Development District, Capital Improvement Special Assessment Revenue Bonds, Series A, 7% due 5/01/2033 499 NR* NR* 2,000 Hillsborough County, Florida, IDA, Exempt Facilities Revenue Bonds (National Gypsum), AMT, Series A, 7.125% due 4/01/2030 1,717 NR* NR* 2,350 Orlando, Florida, Urban Community Development District, Capital Improvement Special Assessment Bonds, Series A, 6.95% due 5/01/2033 2,303 NR* NR* 5,800 Parkway Center, Florida, Community Development District, Special Assessment Refunding Bonds, Series B, 8.25%** due 5/01/2010 4,829 NR* NR* 1,000 Waterchase, Florida, Community Development District, Capital Improvement Revenue Bonds, Series A, 6.70% due 5/01/2032 996 ==================================================================================================================================== Georgia--1.9% NR* NR* 3,000 Atlanta, Georgia, Tax Allocation Revenue Bonds (Atlantic Station Project), 7.90% due 12/01/2024 2,987 NR* NR* 1,840 Atlanta, Georgia, Urban Residential Finance Authority, M/F Mortgage Revenue Bonds (Northside Plaza Apartments Project), AMT, 9.75% due 11/01/2020 1,880 ==================================================================================================================================== Idaho--0.4% NR* NR* 1,000 Idaho Health Facilities Authority, Revenue Refunding Bonds (Valley Vista Care Corporation), Series A, 7.75% due 11/15/2016 1,015 ==================================================================================================================================== Illinois--6.6% NR* Caa1 1,500 Chicago, Illinois, O'Hare International Airport, Special Facility Revenue Bonds (United Airlines Project), AMT, Series A-2, 6.375% due 11/01/2035 792 BB B1 4,000 Chicago, Illinois, O'Hare International Airport, Special Facility Revenue Refunding Bonds (American Airlines Inc. Project), 8.20% due 12/01/2024 4,004 Illinois Development Finance Authority Revenue Bonds (Primary Health Care Centers Facilities Acquisition Program): NR* NR* 1,510 7.50% due 12/01/2006 1,575 NR* NR* 3,195 7.75% due 12/01/2016 3,430 ====================================================================================================================================
Portfolio Abbreviations To simplify the listings of MuniAssets Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list below and at right. AMT Alternative Minimum Tax (subject to) 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 RIB Residual Interest Bonds VRDN Variable Rate Demand Notes 6 & 7 MuniAssets Fund, Inc., May 31, 2002 SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Municipal Bonds Value ==================================================================================================================================== Illinois NR* NR* $ 2,000 Illinois Educational Facilities Authority, Revenue Refunding Bonds (concluded) (Chicago Osteopathic Health System), 7.25% due 11/15/2019 (d) $ 2,330 Illinois Health Facilities Authority Revenue Bonds: BBB+ NR* 1,000 (Community Hospital of Ottawa Project), 6.75% due 8/15/2014 1,034 BBB+ NR* 2,000 (Community Hospital of Ottawa Project), 6.85% due 8/15/2024 2,039 NR* Ba3 2,150 (Holy Cross Hospital Project), 6.70% due 3/01/2014 1,805 ==================================================================================================================================== Indiana--0.7% NR* NR* 2,000 Indianapolis, Indiana, M/F Revenue Bonds (Lake Nora Fox Club Project), Series B, 7.50% due 10/01/2029 1,937 ==================================================================================================================================== Iowa--1.1% NR* NR* 2,300 Iowa Finance Authority, Health Care Facilities Revenue Refunding Bonds (Care Initiatives Project), 9.25% due 7/01/2025 2,721 ==================================================================================================================================== Kentucky--1.0% NR* NR* 2,850 Kenton County, Kentucky, Airport Board, Special Facilities Revenue Bonds (Mesaba Aviation Inc. Project), AMT, Series A, 6.70% due 7/01/2029 2,590 ==================================================================================================================================== Louisiana--3.0% BB- NR* 7,500 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain Company Project), 7.50% due 7/01/2013 7,680 ==================================================================================================================================== Maryland--1.8% NR* NR* 1,930 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 1,991 NR* NR* 2,500 Maryland State Energy Financing Administration, Limited Obligation Revenue Bonds (Cogeneration--AES Warrior Run), AMT, 7.40% due 9/01/2019 2,573 ==================================================================================================================================== Massachusetts--3.8% BBB- NR* 1,680 Massachusetts State Development Finance Agency, Revenue Refunding Bonds (Eastern Nazarine College), 5.625% due 4/01/2029 1,259 NR* NR* 2,007 Massachusetts State Health and Educational Facilities Authority Revenue Bonds (New England Memorial Hospital Project), Series C, 7% due 4/01/2014 (b) 187 Massachusetts State Health and Educational Facilities Authority, Revenue Refunding Bonds: NR* Ba2 2,220 (Bay Cove Human Services Issue), Series A, 5.90% due 4/01/2028 1,865 NR* Ca 2,407 (New England Memorial Hospital), Series B, 6.125% due 7/01/2013 (b) 224 Massachusetts State Industrial Finance Agency, Resource Recovery Revenue Refunding Bonds (Ogden Haverhill Project), AMT, Series A: BBB NR* 1,000 5.45% due 12/01/2012 830 BBB NR* 1,000 5.60% due 12/01/2019 784 NR* Aaa 4,145 Massachusetts State Industrial Finance Agency, Revenue Refunding Bonds (Bay Cove Human Services Inc.), 8.375% due 4/01/2004 (d) 4,574 ==================================================================================================================================== Michigan--0.7% A1+ Aaa 200 Eastern Michigan University Revenue Refunding Bonds, VRDN, 1.50% due 6/01/2027 (c)(f) 200 BBB- Baa3 1,000 Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Detroit Medical Center Obligation Group), Series A, 6.50% due 8/15/2018 972 A1+ NR* 400 Michigan State Strategic Fund, Limited Obligation Revenue Bonds (Detroit Symphony Orchestra Project), VRDN, Series B, 1.40% due 6/01/2031 (f) 400 NR* VMIG1+ 300 Michigan State Strategic Fund, PCR, Refunding (Consumers Power Project), VRDN, 1.50% due 4/15/2018 (f)(g) 300 ==================================================================================================================================== Minnesota--0.4% A1+ NR* 900 Beltrami County, Minnesota, Environmental Control Revenue Bonds (Northwood Panelboard Co. Project), VRDN, AMT, 1.40% due 7/01/2025 (f) 900 ==================================================================================================================================== Missouri--0.8% Fenton, Missouri, Tax Increment Revenue Refunding and Improvement Bonds (Gravois Bluffs): NR* NR* 975 6.75% due 10/01/2015 992 NR* NR* 1,000 7% due 10/01/2021 1,017 ==================================================================================================================================== Nevada--0.9% BBB Baa2 2,500 Henderson, Nevada, Health Care Facility Revenue Bonds (Catholic Healthcare West--Saint Rose Dominican Hospital), 5.375% due 7/01/2026 2,198 ==================================================================================================================================== New Jersey--15.3% Camden County, New Jersey, Improvement Authority, Lease Revenue Bonds (Holt Hauling & Warehousing), AMT, Series A (b): NR* NR* 5,600 9.625% due 1/01/2011 4,256 NR* NR* 5,800 9.875% due 1/01/2021 4,408 CCC B2 1,700 Camden County, New Jersey, Pollution Control Financing Authority, Solid Waste Resource Recovery Revenue Bonds, Series D, 7.25% due 12/01/2010 1,693 Camden County, New Jersey, Pollution Control Financing Authority, Solid Waste Resource Recovery Revenue Refunding Bonds, AMT: CCC B2 9,000 Series A, 7.50% due 12/01/2010 8,989 CCC B2 1,700 Series B, 7.50% due 12/01/2009 1,698 NR* NR* 1,980 New Jersey EDA, Economic Development Revenue Bonds (Glimcher Properties LP Project), AMT, 6% due 11/01/2028 1,909 NR* NR* 500 New Jersey EDA, First Mortgage Revenue Bonds (The Presbyterian Home), Series A, 6.25% due 11/01/2020 496 NR* Ba3 2,500 New Jersey EDA, IDR, Refunding (Newark Airport Marriott Hotel), 7% due 10/01/2014 2,530 New Jersey EDA, Retirement Community Revenue Bonds, Series A: NR* NR* 1,665 (Cedar Crest Village Inc. Facility), 7.25% due 11/15/2021 1,646 NR* NR* 5,800 (Seabrook Village Inc.), 8.125% due 11/15/2023 6,062 BB- B3 2,000 New Jersey EDA, Special Facility Revenue Bonds (Continental Airlines Inc. Project), AMT, 6.25% due 9/15/2019 1,781 NR* Baa1 1,960 New Jersey Health Care Facilities Financing Authority, Revenue Bonds (South Jersey Hospital), 6% due 7/01/2026 1,964 BBB- Baa3 1,500 New Jersey Health Care Facilities Financing Authority, Revenue Refunding Bonds (Trinitas Hospital Obligation Group), 7.40% due 7/01/2020 1,637 ==================================================================================================================================== New Mexico--0.4% B+ Ba3 1,000 Farmington, New Mexico, PCR, Refunding (Tucson Electric Power Co.--San Juan Project), Series A, 6.95% due 10/01/2020 1,017 ==================================================================================================================================== New York--2.3% Utica, New York, GO, Public Improvement Bonds: BB Ba1 700 9.25% due 8/15/2002 705 BB Ba1 700 9.25% due 8/15/2003 729 BB Ba1 3,520 8.50% due 8/15/2006 (d) 4,349 ==================================================================================================================================== North Carolina--1.0% NR* NR* 2,400 North Carolina Medical Care Commission, Health Care Facilities, First Mortgage Revenue Refunding Bonds (Presbyterian Homes Project), 7% due 10/01/2031 2,495 ====================================================================================================================================
8 & 9 MuniAssets Fund, Inc., May 31, 2002 SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face STATE Ratings Ratings Amount Municipal Bonds Value ==================================================================================================================================== Ohio--1.1% BB- B3 $ 3,365 Cleveland, Ohio, Airport Special Revenue Refunding Bonds (Continental Airlines Inc. Project), AMT, 5.70% due 12/01/2019 $ 2,688 NR* VMIG1+ 100 Montgomery County, Ohio, Revenue Refunding Bonds (Miami Valley Hospital), VRDN, Series A, 1.35% due 11/15/2022 (f) 100 ==================================================================================================================================== Oregon--2.2% Western Generation Agency, Oregon, Cogeneration Project Revenue Bonds (Wauna Cogeneration Project): NR* NR* 1,000 AMT, Series B, 7.40% due 1/01/2016 1,027 NR* NR* 700 Series A, 7.125% due 1/01/2021 702 B NR* 3,955 Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint Corporation Project), 8% due 12/01/2003 4,014 ==================================================================================================================================== Pennsylvania--9.0% NR* Ba2 2,500 Lehigh County, Pennsylvania, General Purpose Authority, Revenue Refunding Bonds (Kidspeace Obligation Group), 6% due 11/01/2023 2,197 NR* NR* 3,250 Pennsylvania Economic Development Financing Authority, Exempt Facilities Revenue Bonds (National Gypsum Company), AMT, Series A, 6.25% due 11/01/2027 2,507 AAA NR* 1,455 Pennsylvania State Higher Educational Facilities Authority, College and University Revenue Refunding Bonds (Eastern College), Series A, 8% due 10/15/2006 (d) 1,767 Philadelphia, Pennsylvania, Authority for IDR, AMT: NR* Ba1 2,270 (Air Cargo), Series A, 7.50% due 1/01/2025 2,254 NR* NR* 9,000 Commercial Development, 7.75% due 12/01/2017 9,275 NR* NR* 5,550 Philadelphia, Pennsylvania, Authority for Industrial Development, Health Care Facility Revenue Refunding Bonds (Paul's Run), Series A, 5.875% due 5/15/2028 4,946 ==================================================================================================================================== South Carolina--1.9% BBB NR* 3,500 South Carolina Jobs, EDA, Economic Development Revenue Bonds (Westminster Presbyterian Center), 7.75% due 11/15/2030 3,866 BBB- NR* 1,000 South Carolina Jobs, EDA, Revenue Bonds (Myrtle Beach Convention Center), Series A, 6.625% due 4/01/2036 1,004 ==================================================================================================================================== Texas--3.6% BBB- Baa3 1,000 Austin, Texas, Convention Center Revenue Bonds (Convention Enterprises Inc.), First Tier, Series A, 6.70% due 1/01/2028 1,008 A A3 3,500 Brazos River, Texas, Harbor Navigation District, Brazoria County Environmental Revenue Refunding Bonds (Dow Chemical Company Project), AMT, Series A-7, 6.625% due 5/15/2033 3,572 Harris County, Texas, Health Facilities Development Corporation, Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN (f): A1+ NR* 30 1.35% due 12/01/2025 30 A1+ NR* 100 1.35% due 12/01/2026 100 BBB+ Baa2 4,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin Semiconductor), AMT, 6.375% due 4/01/2027 4,483 ==================================================================================================================================== Utah--0.7% NR* NR* 1,660 Carbon County, Utah, Solid Waste Disposal Revenue Refunding Bonds (Laidlaw Environmental), AMT, Series A, 7.45% due 7/01/2017 1,662 NR* NR* 3,200 Tooele County, Utah, PCR, Refunding (Laidlaw Environmental), AMT, Series A, 7.55% due 7/01/2027 (b) 0 ==================================================================================================================================== Vermont--1.8% NR* NR* 4,350 Vermont Educational and Health Buildings Financing Agency, Revenue Refunding Bonds (College of Saint Joseph Project), 8.50% due 11/01/2024 4,686 ==================================================================================================================================== Virginia--5.6% NR* NR* 1,500 Dulles Town Center, Virginia, Community Development Authority, Special Assessment Tax (Dulles Town Center Project), 6.25% due 3/01/2026 1,500 Pittsylvania County, Virginia, IDA, Revenue Refunding Bonds, Exempt-Facility, AMT, Series A: NR* NR* 3,700 7.50% due 1/01/2014 3,618 NR* NR* 1,000 7.55% due 1/01/2019 983 Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds, Capital Appreciation: NR* Ba1 5,500 First Tier, Sub-Series C, 6.25%** due 8/15/2027 395 NR* Ba1 6,200 First Tier, Sub-Series C, 6.25%** due 8/15/2032 264 NR* Ba1 9,000 First Tier, Sub-Series C, 6.25%** due 8/15/2035 280 BBB- Baa3 48,400 Senior Series B, 5.95%** due 8/15/2031 3,716 BBB- Baa3 48,400 Senior Series B, 5.95%** due 8/15/2032 3,403 ==================================================================================================================================== Washington--1.1% NR* NR* 2,900 Port Seattle, Washington, Special Facilities Revenue Bonds (Northwest Airlines Project), AMT, 7.25% due 4/01/2030 2,689 ==================================================================================================================================== West Virginia--0.4% BB+ Ba2 1,320 Princeton, West Virginia, Hospital Revenue Refunding Bonds (Community Hospital Association Inc. Project), 6% due 5/01/2019 1,113 ==================================================================================================================================== Wisconsin--1.2% Wisconsin State Health and Educational Facilities Authority Revenue Bonds, Series A: NR* NR* 1,175 (New Castle Place Project), 7% due 12/01/2031 1,141 NR* NR* 2,000 (Oakwood Village Project), 7.625% due 8/15/2030 2,036 ==================================================================================================================================== Total Municipal Bonds (Cost--$269,583)--97.7% 249,182 ==================================================================================================================================== Shares Held Common Stock ==================================================================================================================================== Virginia--1.4% 328,501 Horizon Natural Resources Co. (h) 3,613 ==================================================================================================================================== Total Common Stock (Cost--$3,613)--1.4% 3,613 ==================================================================================================================================== Total Investments (Cost--$273,196)--99.1% 252,795 Other Assets Less Liabilities--0.9% 2,355 -------- Net Assets--100.0% $255,150 ======== ====================================================================================================================================
(a) FSA Insured. (b) Non-income producing security. (c) FGIC Insured. (d) Prerefunded. (e) The interest rate is subject to change periodically and inversely based upon prevailing market rates. The interest rate shown is the rate in effect at May 31, 2002. (f) The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at May 31, 2002. (g) AMBAC Insured. (h) Represents entitlement received from a bankruptcy exchange for Peninsula Ports, 6.90% due 5/22/2022. * Not Rated. ** Represents a zero coupon bond; the interest rate shown reflects the effective yield at the time of purchase by the Fund. + Highest short-term rating by Moody's Investors Service, Inc. Ratings of issues shown have not been audited by Deloitte & Touche LLP. See Notes to Financial Statements. 10 & 11 MuniAssets Fund, Inc., May 31, 2002 STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of May 31, 2002 ==================================================================================================================================== Assets: Investments, at value (identified cost--$273,196,262) ..................... $ 252,794,850 Cash ...................................................................... 35,237 Interest receivable ....................................................... 4,707,333 Prepaid expenses and other assets ......................................... 94,979 ------------- Total assets .............................................................. 257,632,399 ------------- ==================================================================================================================================== Liabilities: Payables: Securities purchased .................................................... $ 1,951,820 Dividends to shareholders ............................................... 309,105 Investment adviser ...................................................... 107,580 2,368,505 ------------- Accrued expenses and other liabilities .................................... 114,187 ------------- Total liabilities ......................................................... 2,482,692 ------------- ==================================================================================================================================== Net Assets: Net assets ................................................................ $ 255,149,707 ============= ==================================================================================================================================== Capital: Common Stock, par value $.10 per share; 200,000,000 shares authorized; 20,333,910 shares issued and outstanding .................................. $ 2,033,391 Paid-in capital in excess of par .......................................... 297,436,650 Undistributed investment income--net ...................................... $ 1,758,088 Accumulated realized capital losses on investments--net ................... (25,677,010) Unrealized depreciation on investments--net ............................... (20,401,412) ------------- Total accumulated losses--net ............................................. (44,320,334) ------------- Total capital--Equivalent to $12.55 net asset value per share of Common Stock (market price--$11.66) .............................................. $ 255,149,707 ============= ====================================================================================================================================
See Notes to Financial Statements. STATEMENT OF OPERATIONS
For the Year Ended May 31, 2002 ==================================================================================================================================== Investment Interest .................................................................. $ 14,152,601 Income: ==================================================================================================================================== Expenses: Investment advisory fees .................................................. $ 1,106,810 Reorganization expense .................................................... 173,973 Professional fees ......................................................... 118,274 Accounting services ....................................................... 78,959 Transfer agent fees ....................................................... 38,141 Directors' fees and expenses .............................................. 36,676 Printing and shareholder reports .......................................... 33,963 Listing fees .............................................................. 28,293 Pricing fees .............................................................. 17,975 Custodian fees ............................................................ 15,923 Other ..................................................................... 26,239 ------------- Total expenses ............................................................ 1,675,226 ------------- Investment income--net .................................................... 12,477,375 ------------- ==================================================================================================================================== Realized & Unreal- Realized loss on investments--net ......................................... (9,698,526) ized Gain (Loss) on Change in unrealized depreciation on investments--net ..................... 2,834,098 Investments--Net: ------------- Total realized and unrealized loss on investments--net .................... (6,864,428) ------------- Net Increase in Net Assets Resulting from Operations ...................... $ 5,612,947 ============= ====================================================================================================================================
See Notes to Financial Statements. 12 & 13 MuniAssets Fund, Inc., May 31, 2002 STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended May 31, ------------------------------ Increase (Decrease) in Net Assets: 2002 2001 ==================================================================================================================================== Operations: Investment income--net .................................................... $ 12,477,375 $ 8,671,386 Realized loss on investments--net ......................................... (9,698,526) (2,286,735) Change in unrealized appreciation/depreciation on investments--net ........ 2,834,098 4,301,686 ------------- ------------- Net increase in net assets resulting from operations ...................... 5,612,947 10,686,337 ------------- ------------- ==================================================================================================================================== Dividends to Dividends to shareholders from investment income--net ..................... (11,774,839) (8,588,342) Shareholders: ------------- ------------- ==================================================================================================================================== Common Stock Proceeds from issuance of Common Stock resulting from reorganization ...... 125,685,331 -- Transactions: Value of shares issued to Common Stock shareholders in reinvestment of dividends ................................................................. 177,783 285,115 ------------- ------------- Net increase in net assets derived from capital share transaction ......... 125,863,114 285,115 ------------- ------------- ==================================================================================================================================== Net Assets: Total increase in net assets .............................................. 119,701,222 2,383,110 Beginning of year ......................................................... 135,448,485 133,065,375 ------------- ------------- End of year* .............................................................. $ 255,149,707 $ 135,448,485 ============= ============= ==================================================================================================================================== * Undistributed investment income--net ...................................... $ 1,758,088 $ 845,463 ============= ============= ====================================================================================================================================
See Notes to Financial Statements. FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived from information provided in the financial For the Year Ended May 31, statements. ---------------------------------------------------- Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998 ==================================================================================================================================== Per Share Net asset value, beginning of year ............... $ 12.96 $ 12.76 $ 14.46 $ 14.77 $ 14.16 Operating -------- -------- -------- -------- -------- Performance: Investment income--net ......................... .79 .83 .80 .83 .84 Realized and unrealized gain (loss) on investments--net ............................... (.41) .19 (1.69) (.32) .62 -------- -------- -------- -------- -------- Total from investment operations ................. .38 1.02 (.89) .51 1.46 -------- -------- -------- -------- -------- Less dividends from investment income--net ....... (.79) (.82) (.81) (.82) (.85) -------- -------- -------- -------- -------- Net asset value, end of year ..................... $ 12.55 $ 12.96 $ 12.76 $ 14.46 14.77 ======== ======== ======== ======== ======== Market price per share, end of year .............. $ 11.66 $ 13.00 $11.1875 $ 13.00 $ 13.75 ======== ======== ======== ======== ======== ==================================================================================================================================== Total Investment Based on net asset value per share ............... 3.30% 8.58% (5.45%) 3.74% 10.87% Return:* ======== ======== ======== ======== ======== Based on market price per share .................. (4.32%) 24.22% (7.79%) .19% 15.76% ======== ======== ======== ======== ======== ==================================================================================================================================== Average Expenses, excluding reorganization expenses ...... .74% .76% .74% .72% .75% Net Assets: ======== ======== ======== ======== ======== Expenses ......................................... .83% .76% .74% .72% .75% ======== ======== ======== ======== ======== Investment income--net ........................... 6.16% 6.44% 5.96% 5.66% 5.75% ======== ======== ======== ======== ======== ==================================================================================================================================== Supplemental Net assets, end of year (in thousands) ........... $255,150 $135,448 $133,065 $150,883 $153,947 Data: ======== ======== ======== ======== ======== Portfolio turnover ............................... 20.07% 17.11% 32.38% 40.57% 36.39% ======== ======== ======== ======== ======== ====================================================================================================================================
* 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. See Notes to Financial Statements. 14 & 15 MuniAssets Fund, Inc., May 31, 2002 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: MuniAssets Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. The Fund's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require the use of management accruals and estimates. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MUA. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the last available bid price in the over-the-counter market or on the basis of yield equivalents as obtained by the Fund's pricing service from one or more dealers that make markets in the securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options written or purchased are valued at the last sale price in the case of exchange-traded options. In the case of options traded in the over-the-counter market, valuation is the last asked price (options written) or the last bid price (options purchased). Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost, which approximates market value. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio investment strategies to increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. o Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. o Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable 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. As required, effective June 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing all premiums and discounts on debt securities. The cumulative effect of this accounting change had no impact on total net assets of the Fund, but resulted in a $43,627 increase in cost of securities (which, in turn, results in a corresponding $43,627 increase in net unrealized depreciation and a corresponding $43,627 increase in undistributed net investment income), based on securities held by the Fund as of May 31, 2001. The effect of this change for the year ended May 31, 2002 was to increase net investment income by $117,670, decrease net unrealized appreciation by $146,833 and decrease net realized capital losses by $14,464. The statement of changes in net assets and financial highlights for prior periods have not been restated to reflect this change in presentation. (e) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. (f) Reclassification--Accounting principles generally accepted in the United States of America require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, the current year's permanent book/tax differences of $7,511 have been reclassified between undistributed net investments income and accumulated net realized capital losses, $173,973 has been reclassified between paid-in capital in excess of par and undistributed net investment income and $53,667 has been reclassified between paid-in capital in excess of par and accumulated realized capital losses. These reclassifications have no effect on net assets or net asset value per share. 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. For the year ended May 31, 2002, the Fund reimbursed FAM $10,576 for certain accounting services. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended May 31, 2002 were $43,483,106 and $39,314,320, respectively. Net realized losses for the year ended May 31, 2002 and net unrealized losses as of May 31, 2002 were as follows: -------------------------------------------------------------------------------- Realized Unrealized Losses Losses -------------------------------------------------------------------------------- Long-term investments .......................... $ (9,684,061) $(20,401,412) ------------ ------------ Total .......................................... $ (9,684,061) $(20,401,412) ============ ============ -------------------------------------------------------------------------------- As of May 31, 2002, net unrealized depreciation for Federal income tax purposes aggregated $20,254,580, of which $8,714,124 related to appreciated securities and $28,968,704 related to depreciated securities. The aggregate cost of investments at May 31, 2002 for Federal income tax purposes was $273,049,430. 4. Common Stock Transactions: At May 31, 2002, 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, 2002 increased by 9,866,013 as a result of reorganization and 13,538 as a result of dividend reinvestment and during the year ended May 31, 2001 increased by 22,168 as a result of dividend reinvestment. 5. Reorganization Plan: On November 19, 2001, the Fund acquired all of the net assets of Merrill Lynch High Income Municipal Bond Fund, Inc. 16 & 17 MuniAssets Fund, Inc., May 31, 2002 NOTES TO FINANCIAL STATEMENTS (concluded) pursuant to a plan of reorganization. The acquisition was accomplished by a tax-free exchange of 13,689,695 Common Stock shares of Merrill Lynch High Income Municipal Bond Fund, Inc. for 9,866,013 Common Stock shares of the Fund. Merrill Lynch High Income Municipal Bond Fund, Inc.'s net assets on that date of $125,685,331, including $15,049,801 of net unrealized depreciation and $8,924,776 of accumulated net realized capital losses, were combined with those of the Fund. The aggregate net assets of the Fund immediately after the acquisition amounted to $259,037,987. 6. Distributions to Shareholders: On June 6, 2002, an ordinary income dividend of $.064408 was declared. The dividend was paid on June 27, 2002, to shareholders of record on June 17, 2002. The tax character of distributions paid during the fiscal years ended May 31, 2002 and May 31, 2001 was as follows: -------------------------------------------------------------------------------- 5/31/2002 5/31/2001 -------------------------------------------------------------------------------- Distributions paid from: Tax-exempt income ................................ $11,774,839 $ 8,588,342 ----------- ----------- Total taxable distributions ........................ $11,774,839 $ 8,588,342 =========== =========== -------------------------------------------------------------------------------- As of May 31, 2002, the components of accumulated losses on a tax basis were as follows: -------------------------------------------------------------------------------- Undistributed tax-exempt income--net ......................... $ 2,475,159 Undistributed long-term capital gains--net ................... -- ------------ Total undistributed earnings--net ............................ 2,475,159 Capital loss carryforward .................................... (15,707,622)* Unrealized losses--net ....................................... (31,087,871)** ------------ Total accumulated losses--net ................................ $(44,320,334) ============ -------------------------------------------------------------------------------- * On May 31, 2002, the Fund had a net capital loss carryforward of approximately $15,707,622, of which $1,047,086 expires in 2004; $2,052,069 expires in 2007; $6,860,553 expires in 2008; $3,487,083 expires in 2009 and $2,260,831 expires in 2010. This amount will be available to offset like amounts of any future taxable gains. ** The difference between book-basis and tax-basis net unrealized losses is attributable primarily to distributions applicable to 2002 for tax purposes, the tax deferral of losses on wash sales, the tax deferral of losses on straddles, the difference between book and tax amortization methods for premiums and discounts on fixed income securities, the deferral of post-October capital losses for tax purposes and premium accrued for bonds in default and cumulative interest adjustment on defaulted bonds. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders, MuniAssets Fund, Inc.: We have audited the accompanying statement of assets, liabilities and capital, including the schedule of investments, of MuniAssets Fund, Inc. as of May 31, 2002, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years presented. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at May 31, 2002 by correspondence with the custodian and broker; where replies were not received from the broker, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of MuniAssets Fund, Inc. as of May 31, 2002, the results of its operations, the changes in its net assets and the financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP New York, New York July 12, 2002 18 & 19 MuniAssets Fund, Inc., May 31, 2002 MANAGED 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 consistent yield to the current trading price of shares of Common Stock of the Fund, the Fund may at times pay out less than the entire amount of net investment income earned in any particular month and may at times in any particular month pay out such accumulated but undistributed income in addition to net investment income earned in that month. As a result, the dividends paid by the Fund for any particular month may be more or less than the amount of net investment income earned by the Fund during such month. The Fund's current accumulated but undistributed net investment income, if any, is disclosed in the Statement of Assets, Liabilities and Capital, which comprises part of the financial information included in this report. 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"). 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. 20 & 21 MuniAssets Fund, Inc., May 31, 2002 OFFICERS AND DIRECTORS
Number of Portfolios in Other Position(s) Length Fund Complex Directorships Held of Time Principal Occupation(s) Overseen by Held by Name Address & Age with Fund Served During Past 5 Years Director Director ==================================================================================================================================== Interested Director ==================================================================================================================================== Terry K. Glenn* 800 Scudders Mill Road President 1999 to Chairman, Americas 127 Funds None Plainsboro, NJ 08536 and present Region since 2001, and 184 Portfolios Age: 61 Director Executive Vice President since 1983 of Fund Asset Management, L.P. ("FAM") and Merrill Lynch Investment Managers, L.P. ("MLIM"); President of Merrill Lynch Mutual Funds since 1999; President of FAM Distributors, Inc. ("FAMD") since 1986 and Director thereof since 1991; Executive Vice President and Director of Princeton Services, Inc. ("Princeton Services") since 1993; President of Princeton Administrators, L.P. since 1988; Director of Financial Data Services, Inc. since 1985. =========================================================================================================== * Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM or MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of the Fund based on his positions as Chairman (Americas Region) and Executive Vice President of FAM and MLIM; President of FAMD; Executive Vice President of Princeton Services; and President of Princeton Administrators, L.P. The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of Directors. ==================================================================================================================================== Number of Portfolios in Other Position(s) Length Fund Complex Directorships Held of Time Principal Occupation(s) Overseen by Held by Name Address & Age with Fund Served* During Past 5 Years Director Director ==================================================================================================================================== Independent Directors ==================================================================================================================================== Joe Grills P.O. Box 98 Director 1994 to Member of Committee on 43 Funds Duke Man- Rapidan, VA 22733 present Investment of Employee 71 Portfolios agement Age: 67 Benefit Assets of the Company; Association for Kimco Financial Professional Realty; since 1986. Montpelier Foundation ==================================================================================================================================== Robert S. Salomon, Jr. 106 Dolphin Cove Quay Director 1997 to Principal of STI 43 Funds Common- Stamford, CT 06902 present Management since 1994. 71 Portfolios Fund; Age: 65 Investment Manage- ment Workshop ==================================================================================================================================== Melvin R. Seiden 780 Third Avenue, Suite 2502 Director 1981 to Retired. 43 Funds Silbanc New York, NY 10017 present 71 Portfolios Properties, Age: 71 Ltd. ==================================================================================================================================== Stephen B. Swensrud 88 Broad Street, 2nd Floor Director 1983 to Chairman, Fernwood 43 Funds Interna- Boston, MA 02110 present Advisors since 1996. 71 Portfolios tional Age: 68 Mobile Communi- cations, Inc. =========================================================================================================== * The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. ==================================================================================================================================== Position(s) Length Held of Time Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years ==================================================================================================================================== Fund Officers ==================================================================================================================================== Donald C. Burke P.O. Box 9011 Vice 1993 to First Vice President of FAM and MLIM since 1997 and Princeton, NJ 08543-9011 President present Treasurer thereof since 1999; Senior Vice President Age: 41 and and and Treasurer of Princeton Services since 1999; Vice Treasurer 1999 to President of FAMD since 1999; Vice President of FAM present and MLIM from 1990 to 1997; Director of Taxation of MLIM since 1990. ==================================================================================================================================== Kenneth A. Jacob P.O. Box 9011 Senior 1993 to First Vice President of MLIM since 1997 and Vice Princeton, NJ 08543-9011 Vice present President thereof from 1984 to 1997; Vice President of Age: 50 President FAM since 1984. ==================================================================================================================================== John M. Loffredo P.O. Box 9011 Senior 2001 to First Vice President of MLIM since 1997; Vice Princeton, NJ 08543-9011 Vice present President of MLIM from 1991 to 1997. Age: 38 President ==================================================================================================================================== Theodore R. Jaeckel Jr. P.O. Box 9011 Vice 1997 to Director (Municipal Tax-Exempt Fund Management) of Princeton, NJ 08543-9011 President present MLIM since 1997; Vice President of MLIM from 1991 to Age: 42 and 1997. Portfolio Manager ==================================================================================================================================== Stephen M. Benham P.O. Box 9011 Secretary 2002 to Vice President (Legal Advisory) of FAM and certain of Princeton, NJ 08543-9011 present its affiliates since 2000; Associate, Kirkpatrick & Age: 43 Lockhart LLP from 1997 to 2000. =========================================================================================================== * Officers of the Fund serve at the pleasure of the Board of Directors. ==================================================================================================================================== Custodian Transfer Agent NYSE Symbol The Bank of New York The Bank of New York MUA 90 Washington Street 101 Barclay Street, 22W New York, NY 10286 New York, NY 10286
22 & 23 [LOGO] Merrill Lynch Investment Managers [GRAPHIC OMITTED] 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. MuniAssets Fund, Inc. Box 9011 Princeton, NJ 08543-9011 -------------------------------------------------------------------------------- [RECYCLE LOGO] Printed on post-consumer recycled paper #16716--5/02