<PAGE>
As filed with the Securities and Exchange Commission on December 2, 1999
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement
[_] Confidential, For Use of the Com-
mission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive proxy statement
[X] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MUNIHOLDINGS NEW YORK INSURED FUND, INC.
MUNIHOLDINGS NEW YORK FUND, INC.
MUNIHOLDINGS NEW YORK INSURED FUND II, INC.
MUNIHOLDINGS NEW YORK INSURED FUND III, INC.
P.O. Box 9011
Princeton, New Jersey 08543-9011
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Same as above
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registrations statement
number, or the form or schedule and the date of its filing.
- --------------------------------------------------------------------------------
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
MUNIHOLDINGS NEW YORK INSURED FUND, INC.
MUNIHOLDINGS NEW YORK FUND, INC.
MUNIHOLDINGS NEW YORK INSURED FUND II, INC.
MUNIHOLDINGS NEW YORK INSURED FUND III, INC.
November 22, 1999
Dear Stockholder:
Recently, you received a joint proxy statement and prospectus describing a
proposed reorganization of the listed funds in which MuniHoldings New York
Insured Fund, Inc. (the "surviving fund") would acquire the assets and assume
the liabilities of MuniHoldings New York Fund, Inc., MuniHoldings New York
Insured Fund II, Inc., and MuniHoldings New York Insured Fund III, Inc. in
exchange for shares of the common stock and auction market preferred stock of
the surviving fund. At the time the proxy statement and prospectus was mailed,
the audited financial statements of the funds with a fiscal year ending
September 30, 1999 were not available.
For that reason and in order to ensure that you have all the information
you might need about the proposed reorganization, we have enclosed the Annual
Report to Stockholders for each of MuniHoldings New York Insured Fund II, Inc.
and MuniHoldings New York Insured Fund III, Inc. which contains that fund's
audited financial statements for the year ended September 30, 1999.
If you have not yet completed and returned your proxy card we urge you to
do so now. Your vote is important. If you have any questions regarding the
meeting agenda or the execution of your proxy, please call Shareholder
Communications Corporation at 1-800-645-4519.
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of MuniHoldings New York Insured Fund II, Inc. for their
information. It is not a prospectus, circular or representation intended for use
in the purchase of shares of the Fund or any securities mentioned in the report.
Past performance results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its Common Stock by
issuing Preferred Stock to provide the Common Stock shareholders with a
potentially higher rate of return. Leverage creates risks for Common Stock
shareholders, including the likelihood of greater volatility of net asset value
and market price of shares of the Common Stock, and the risk that fluctuations
in the short-term dividend rates of the Preferred Stock may affect the yield to
Common Stock shareholders. Statements and other information herein are as dated
and are subject to change.
MuniHoldings New York
Insured Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
#NYINS2--9/99
Muniholdings
New York Insured
Fund II, Inc.
Strategic
Performance
Annual Report
September 30, 1999
[RECYCLE LOGO] Printed on post-consumer recycled paper
<PAGE>
- --------------------------------------------------------------------------------
MuniHoldings New York Insured Fund II, Inc.
- --------------------------------------------------------------------------------
The Benefits and Risks of Leveraging
MuniHoldings New York Insured Fund II, Inc. has the ability to leverage to seek
to enhance the yield and net asset value of its Common Stock. However, these
objectives cannot be achieved in all interest rate environments. To leverage,
the Fund issues Preferred Stock, which pays dividends at prevailing short-term
interest rates, and invests the proceeds in long-term municipal bonds. The
interest earned on these investments is paid to Common Stock shareholders in the
form of dividends, and the value of these portfolio holdings is reflected in the
per share net asset value of the Fund's Common Stock. However, in order to
benefit Common Stock shareholders, the yield curve must be positively sloped;
that is, short-term interest rates must be lower than long-term interest rates.
At the same time, a period of generally declining interest rates will benefit
Common Stock shareholders. If either of these conditions change, then the risks
of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock capitalization of
$100 million and the issuance of Preferred Stock for an additional $50 million,
creating a total value of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are approximately 3%
and long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million of Preferred
Stock based on the lower short-term interest rates. At the same time, the fund's
total portfolio of $150 million earns the income based on long-term interest
rates. Of course, increases in short-term interest rates would reduce (and even
eliminate) the dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term investments,
and therefore the Common Stock shareholders are the beneficiaries of the
incremental yield. However, if short-term interest rates rise, narrowing the
differential between short-term and long-term interest rates, the incremental
yield pickup on the Common Stock will be reduced or eliminated completely. At
the same time, the market value of the fund's Common Stock (that is, its price
as listed on the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common Stock's net asset
value will reflect the full decline in the price of the portfolio's investments,
since the value of the fund's Preferred Stock does not fluctuate. In addition to
the decline in net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed-rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and net asset value
of the Fund's shares may also be more volatile than if the Fund did not invest
in these securities.
<PAGE>
MuniHoldings New York Insured Fund II, Inc., September 30, 1999
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER
- --------------------------------------------------------------------------------
Since inception (October 1, 1998) through September 30, 1999, the Common Stock
of MuniHoldings New York Insured Fund II, Inc. earned $0.794 per share income
dividends, which included earned and unpaid dividends of $0.067. This represents
a net annualized yield of 6.53%, based on a month-end net asset value of $12.16
per share. During the same period, the total investment return on the Fund's
Common Stock was -14.47%, based on a change in per share net asset value from
$15.00 to $12.16, and assuming reinvestment of $0.727 per share income
dividends.
For the six months ended September 30, 1999, the Fund's Auction Market Preferred
Stock had an average yield of 3.20% for Series A and 3.21% for Series B.
The Municipal Market Environment
The combination of steady strong domestic economic growth, improvement in
foreign economies (most notably in Japan) and increasing investor concerns
regarding potential increases in US inflation put upward pressure on bond yields
throughout the six-month period ended September 30, 1999. Continued strong US
employment growth, particularly the decline in the US unemployment rate to 4.2%
in early June, was among the reasons the Federal Reserve Board cited for raising
short-term interest rates in late June and again in late August. US Treasury
bond yields reacted by climbing above 6.25% by mid-August before improving
somewhat to 6.05% by September 30, 1999. During the period, yields on 30-year US
Treasury bonds increased over 40 basis points (0.40%).
Long-term tax-exempt bond yields also rose during the six months ended September
30, 1999. Until early May, the municipal bond market was able to withstand much
of the upward pressure on bond yields. However, investor concerns of additional
moves by the Federal Reserve Board to moderate US economic growth and, more
importantly, the loss of the strong technical support that the tax-exempt market
enjoyed in early 1999 helped push municipal bond yields significantly higher for
the remainder of the period. The yields on long-term tax-exempt revenue bonds
rose over 65 basis points to 5.96% by September 30, 1999, as measured by the
Bond Buyer Revenue Bond Index.
In recent months, the significant decline in new tax-exempt bond issuance has
remained a positive factor within the municipal bond market, as it had been for
much of the past year. During the last six months, more than $113 billion in
long-term municipal bonds was issued, a decline of over 20% compared to the same
period a year ago. During the past three months, $55 billion in municipal bonds
was underwritten, representing a decline of nearly 15% compared to the
corresponding period in 1998. Additionally, in June and July, investors received
more than $40 billion in coupon income and proceeds from bond maturities and
early bond redemptions. These proceeds have generated considerable retail
investor interest, which has helped absorb the recent diminished supply.
Although tax-exempt bond yields are at their highest level in over two years and
have attracted significant retail investor interest, institutional demand has
declined sharply. Long-term municipal mutual funds have seen consistent outflows
in recent months as the yields of individual securities have risen faster than
those of larger, more diverse mutual funds. In addition, the demand from
property/casualty insurance companies has weakened as a result of the losses,
and anticipated losses, incurred as a result of the series of damaging storms
across much of the eastern United States. Additionally, many institutional
investors who were attracted to the municipal bond market in recent years by
historically attractive tax-exempt bond yield ratios of over 90% have found
other asset classes even more attractive. Even with a reduced supply position,
tax-exempt issuers have been forced to repeatedly raise municipal bond yields in
the attempt to attract adequate demand.
The recent relative underperformance of the municipal bond market has resulted
in an opportunity for long-term investors to purchase tax-exempt issues whose
yields are nearly identical to taxable US Treasury securities. At September 30,
1999, long-term uninsured municipal revenue bond yields were almost 99% of
comparable US Treasury securities. In recent months, many taxable asset classes,
such as corporate bonds, mortgage-backed securities and US agency debt, have all
accelerated debt issuance. This acceleration was initiated largely to avoid
issuing securities at year-end and to minimize any associated Year 2000 (Y2K)
problems that may develop. However, this increased issuance has also resulted in
higher yield levels in the various asset classes as lower bond prices became
necessary to attract sufficient investor demand. Going forward, it is believed
that the pace of non-US Government debt issuance is likely to slow
significantly. As the supply of this debt declines, we would expect many
institutional investors to return to the municipal bond market and the
attractive yield ratios available.
Looking ahead, it appears to us that long-term municipal bond yields will remain
under pressure, trading in a broad range centered near current levels. Investors
are likely to remain concerned about future action by the Federal Reserve Board.
Y2K considerations may prohibit a series of Federal Reserve Board moves at the
end of the year and the beginning of 2000. Any improvement in bond prices will
probably be contingent upon weakening in both US employment growth and consumer
spending. The 100 basis point rise in US Treasury bond yields seen thus far this
year may negatively affect US economic growth. The US housing market will be
among the first sectors likely to be affected, as some declines have already
been evidenced in response to higher mortgage rates. We believe that it is also
unrealistic to expect double-digit returns in US equity markets to continue
indefinitely. Much of the US consumer's wealth is tied to recent stock market
appreciation. Any slowing in these incredible growth rates is likely to reduce
consumer spending. We believe that these factors suggest that the worst of the
recent increase in bond yields has passed and stable, if not slightly improving,
bond prices may be expected.
In Conclusion
On September 23, 1999, MuniHoldings New York Insured Fund II, Inc.'s Board of
Directors approved a plan of reorganization, subject to shareholder approval and
certain other conditions, whereby MuniHoldings New York Insured Fund, Inc. would
acquire substantially all of the assets and liabilities of the Fund,
MuniHoldings New York Fund, Inc. and MuniHoldings New York Insured Fund III,
Inc. in exchange for newly issued shares of MuniHoldings New York Insured Fund,
Inc. These Funds are registered, non-diversified, closed-end management
investment companies. All four entities have similar investment objectives and
are managed by Fund Asset Management, L.P.
We appreciate your investment in MuniHoldings New York Insured Fund II, Inc.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Roberto Roffo
Roberto Roffo
Vice President and Portfolio Manager
October 22, 1999
<PAGE>
MuniHoldings New York Insured Fund II, Inc., September 30, 1999
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
New York - 99.3% AAA Aaa $ 4,000 Long Island Power Authority, New York, Electric System
Revenue Refunding Bonds, Series A, 5.125% due 12/01/2022 (d) $ 3,640
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,500 Metropolitan Transportation Authority, New York, Dedicated
Tax Fund Revenue Bonds, Series A, 5% due 4/01/2029 (d) 4,819
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Metropolitan Transportation Authority, New York, Transit
Facilities Revenue Refunding Bonds, Series C, 4.75% due
7/01/2016 (d) 3,534
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Nassau County, New York, GO, General Improvement, Series B,
5.25% due 6/01/2023 (a) 5,495
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Nassau County, New York, IDA, Civic Facilities Revenue
Refunding Bonds (Hofstra University Project), 4.75% due
7/01/2028 (e) 1,669
- ----------------------------------------------------------------------------------------------------------------------------------
New York City, New York, City Municipal Water Finance
Authority, Water and Sewer System Revenue Refunding Bonds:
AAA Aaa 2,500 Series B, 5% due 6/15/2029 (d) 2,189
AAA Aaa 5,000 Series B, 5.125% due 6/15/2030 (b) 4,461
AAA Aaa 1,000 Series D, 4.75% due 6/15/2025 (b) 843
- ----------------------------------------------------------------------------------------------------------------------------------
AAA NR* 8,000 New York City, New York, City Transitional Finance Authority
Revenue Bonds, RIB, Series 141, 6.87% due 5/01/2025 (b)(g) 7,400
- ----------------------------------------------------------------------------------------------------------------------------------
New York City, New York, GO:
AAA Aaa 5,000 Series C, 5% due 8/15/2028 (d) 4,385
AAA Aaa 10,000 Series H, 5% due 3/15/2029 (b) 8,762
A1c VMIG1+ 200 VRDN, Series B, Sub-Series B-6, 3.05% due 8/15/2005 (e)(f) 200
A1+ VMIG1+ 200 VRDN, Sub-Series A-4, 3.95% due 8/01/2022 (f) 200
- ----------------------------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Lease Revenue Bonds:
AAA Aaa 3,400 (Municipal Health Facilities Improvement Program), Series
1, 4.75% due 1/15/2029 (d) 2,833
AAA Aaa 645 (Office Facilities--Audit and Control), 5.50% due 4/01/2023 (e) 623
- ----------------------------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 4,100 (City University Systems Consolidation), Third Generation,
Series 1, 5.375% due 7/01/2025 (a) 3,868
AAA Aaa 2,325 (Gustavus Adolphus Childrens School), Series B, 5.50%
due 7/01/2018 (a) 2,257
AAA Aaa 4,000 (Mental Health Services Facilities), Series B, 5.375%
due 2/15/2026 (d) 3,756
NR* Aaa 2,000 RIB, Series 156, 6.853% due 8/01/2029 (a)(c)(g) 1,760
AAA Aaa 4,000 (Saint Barnabas Hospital), 5.45% due 8/01/2035 (a)(c) 3,738
AAA Aaa 5,000 (State University Educational Facilities), Series B, 4.75%
due 5/15/2028 (e) 4,174
- ----------------------------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Revenue Refunding Bonds:
AAA Aaa 4,300 (City University Systems), Third Generation Resources,
Series 1, 5.50% due 7/01/2024 (e) 4,142
AAA NR* 1,000 (Hospital Mortgage-United Health Services Hospitals),
5.375% due 8/01/2027 (a)(c) 938
NR* Aaa 2,445 (Ithaca College), 5% due 7/01/2026 (a) 2,153
A1+ VMIG1+ 1,700 (Memorial Sloan-Kettering), VRDN, Series A, 3.95%
due 7/01/2019 (f) 1,700
AAA Aaa 3,000 (North Shore University Hospital), 5% due 11/01/2023 (e) 2,662
AAA Aaa 1,425 (Rochester Institute of Technology), 5.25% due 7/01/2022 (e) 1,327
AAA Aaa 6,000 (University of Rochester), Series A, 5% due 7/01/2023 (e) 5,342
- ----------------------------------------------------------------------------------------------------------------------------------
New York State Energy Research and Development Authority,
PCR, Refunding, Series A (a):
AAA Aaa 2,000 (Central Hudson Gas and Electric),
5.45% due 8/01/2027 1,903
AAA Aaa 2,550 (Niagara Mohawk Power Project),
5.15% due 11/01/2025 2,309
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 New York State Environmental Facilities Corporation,
Special Obligation Revenue Refunding Bonds
(Riverbank State Park), 5.125% due 4/01/2022 (a) 2,734
- ----------------------------------------------------------------------------------------------------------------------------------
NR* Aa2 9,125 New York State Mortgage Agency Revenue Bonds
(Homeowner Mortgage), AMT, Series 73-A, 5.30% due 10/01/2028 8,264
- ----------------------------------------------------------------------------------------------------------------------------------
NR* Aa2 5,000 New York State Mortgage Agency, Revenue Refunding Bonds,
AMT, Series 82, 5.65% due 4/01/2030 4,743
- ----------------------------------------------------------------------------------------------------------------------------------
New York State Urban Development Corporation Revenue Bonds (a):
AAA Aaa 2,465 (Correctional Capital Facilities),
Series 6, 5.375% due 1/01/2025 2,327
AAA Aaa 3,000 (Correctional Facilities Service
Contract), Series B, 4.75% due 1/01/2028 2,507
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Saint Lawrence County, New York, Industrial Development
Civic Facility Revenue Bonds (Saint Lawrence University Project),
Series A, 5% due 7/01/2028 (e) 1,316
- ----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,500 Schenectady, New York, IDA, Civic Facility Revenue Bonds
(Union College Project), Series A, 5.45% due 12/01/2029 (a) 2,374
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Triborough Bridge and Tunnel Authority, New York,
Special Obligation Revenue Refunding Bonds,
Series A, 4.75% due 1/01/2024 (e) 2,968
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost -- $131,104) -- 99.3% 120,315
Other Assets Less Liabilities -- 0.7% 811
---------
Net Assets -- 100.0% $ 121,126
=========
==================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FHA Insured
(d) FSA Insured.
(e) MBIA Insured.
(f) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at September 30,
1999.
(g) 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
September 30, 1999.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
================================================================================
Portfolio Abbreviations
To simplify the listings of MuniHoldings New York Insured Fund II, Inc.'s
portfolio holdings in the Schedule of Investments, we have abbreviated the names
of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
<PAGE>
MuniHoldings New York Insured Fund II, Inc., September 30, 1999
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of September 30, 1999
===================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $131,103,616)(Note 1a).......... $120,314,544
Interest receivable....................................................... 1,912,343
Deferred organization expenses (Note 1e).................................. 10,602
Prepaid expenses and other assets......................................... 358,692
------------
Total assets.............................................................. 122,596,181
------------
===================================================================================================================================
Liabilities: Payables:
Securities purchased.................................................... $ 840,051
Custodian bank (Note 1g)................................................ 333,925
Dividends to shareholders (Note 1f)..................................... 177,629
Offering costs (Note 1e)................................................ 53,282
Investment adviser (Note 2)............................................. 5,460 1,410,347
------------
Accrued expenses.......................................................... 60,268
------------
Total liabilities......................................................... 1,470,615
------------
===================================================================================================================================
Net Assets: Net assets................................................................ $121,125,566
============
===================================================================================================================================
Capital: Capital Stock (200,000,000 shares authorized)(Note 4):
Preferred Stock, par value $.10 per share (2,120 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference)..... $ 53,000,000
Common Stock, par value $.10 per share (5,601,930 shares issued and
outstanding)............................................................ $ 560,193
Paid-in capital in excess of par.......................................... 82,667,379
Undistributed investment income -- net.................................... 409,889
Accumulated realized capital losses on investments -- net (Note 5)........ (4,722,823)
Unrealized depreciation on investments -- net ........................... (10,789,072)
------------
Total -- Equivalent to $12.16 net asset value per share of Common
Stock (market price -- $12.125)......................................... 68,125,566
------------
Total capital............................................................. $121,125,566
============
===================================================================================================================================
</TABLE>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period October 1, 1998+ to September 30, 1999
===================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned.................. $ 6,705,056
Income (Note 1d):
===================================================================================================================================
Expenses: Investment advisory fees (Note 2)......................................... $ 700,480
Commission fees (Note 4).................................................. 123,893
Professional fees......................................................... 49,182
Accounting services (Note 2).............................................. 49,112
Transfer agent fees....................................................... 35,014
Directors' fees and expenses.............................................. 23,102
Listing fees.............................................................. 16,151
Custodian fees............................................................ 9,007
Printing and shareholder reports.......................................... 8,943
Pricing fees.............................................................. 4,565
Amortization of organization expenses (Note 1e)........................... 648
Other..................................................................... 8,485
------------
Total expenses before reimbursement....................................... 1,028,582
Reimbursement of expenses (Note 2)........................................ (379,059)
------------
Total expenses after reimbursement........................................ 649,523
------------
Investment income -- net.................................................. 6,055,533
------------
===================================================================================================================================
Realized & Realized loss on investments -- net....................................... (4,722,823)
Unrealized Loss on Unrealized depreciation on investments -- net ............................ (10,789,072)
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Decrease in Net Assets Resulting from Operations...................... $ (9,456,362)
============
===================================================================================================================================
</TABLE>
+Commencement of operations.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
October 1, 1998+ to
Increase (Decrease) in Net Assets: September 30, 1999
===================================================================================================================================
<S> <C> <C>
Operations: Investment income -- net.............................................................. $ 6,055,533
Realized loss on investments -- net................................................... (4,722,823)
Unrealized depreciation on investments -- net......................................... (10,789,072)
------------
Net decrease in net assets resulting from operations.................................. (9,456,362)
------------
===================================================================================================================================
Dividends to Investment income -- net:
Shareholders Common Stock........................................................................ (4,059,270)
(Note 1f): Preferred Stock..................................................................... (1,586,374)
------------
Net decrease in net assets resulting from dividends to shareholders................... (5,645,644)
------------
===================================================================================================================================
Capital Stock Proceeds from issuance of Common Stock................................................ 83,250,000
Transactions Proceeds from issuance of Preferred Stock............................................. 53,000,000
(Notes 1e & 4): Value of shares issued to Common Stock shareholders in reinvestment of dividends...... 641,004
Offering costs resulting from the issuance of Common Stock............................ (230,865)
Offering and underwriting costs resulting from the issuance of Preferred Stock........ (532,572)
------------
Net increase in net assets derived from capital stock transactions.................... 136,127,567
------------
===================================================================================================================================
Net Assets: Total increase in net assets.......................................................... 121,025,561
Beginning of period................................................................... 100,005
------------
End of period*........................................................................ $121,125,566
============
===================================================================================================================================
*Undistributed investment income -- net................................................ $ 409,889
============
===================================================================================================================================
</TABLE>
+Commencement of operations.
See Notes to Financial Statements.
<PAGE>
Muniholdings New York Insured Fund II, Inc., September 30, 1999
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
October 1, 1998+ to
Increase (Decrease) in Net Asset Value: September 30, 1999
===================================================================================================================================
<S> <C> <C>
Per Share Net asset value, beginning of period......................................... $ 15.00
Operating -----------
Performance: Investment income -- net..................................................... 1.08
Realized and unrealized loss on investments -- net........................... (2.77)
-----------
Total from investment operations............................................. (1.69)
-----------
Less dividends to Common Stock shareholders from investment income -- net (.73)
-----------
Capital charge resulting from issuance of Common Stock....................... (.04)
-----------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income -- net................................................ (.28)
Capital charge resulting from issuance of Preferred Stock.................. (.10)
-----------
Total effect of Preferred Stock activity..................................... (.38)
-----------
Net asset value, end of period............................................... $ 12.16
===========
Market price per share, end of period........................................ $ 12.125
===========
===================================================================================================================================
Total Investment Based on market price per share.............................................. (14.71%)++
Return:** ===========
Based on net asset value per share........................................... (14.47%)++
===========
===================================================================================================================================
Ratios Based on Total expenses, net of reimbursement***...................................... .84%
Average Net Assets of ===========
Common Stock: Total expenses***............................................................ 1.33%
===========
Total investment income -- net***............................................ 7.82%
===========
Amount of dividends to Preferred Stock shareholders.......................... 2.05%
===========
Investment income -- net, to Common Stock shareholders....................... 5.77%
===========
===================================================================================================================================
Ratios Based on Total expenses, net of reimbursement......................................... .51%
Total Average Net ===========
Assets:+++*** Total expenses............................................................... .81%
===========
Total investment income -- net............................................... 4.75%
===========
===================================================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders.................................... 3.18%*
Average Net Assets of ===========
Preferred Stock:
===================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of period (in thousands)............. $ 68,126
Data: ===========
Preferred Stock outstanding, end of period (in thousands).................... $ 53,000
===========
Portfolio turnover........................................................... 164.59%
===========
===================================================================================================================================
Leverage: Asset coverage per $1,000.................................................... $ 2,285
===========
===================================================================================================================================
Dividends Per Share on Series A -- Investment income -- net......................................... $ 745
Preferred Stock ===========
Outstanding: Series B -- Investment income -- net......................................... $ 752
===========
===================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
***Do not reflect the effect of dividends to Preferred Stock shareholders.
+Commencement of operations.
++The Fund's Preferred Stock was issued on October 22, 1998.
+++Includes Common and Preferred Stock average net assets.
++Aggregate total investment return.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
MuniHoldings New York Insured Fund II, 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 accordance
with generally accepted accounting principles, which may require the use of
management accruals and estimates. Prior to commencement of operations on
October 1, 1998, the Fund had no operations other than those relating to
organizational matters and the sale of 6,667 shares of Common Stock on September
18, 1998 to Fund Asset Management, L.P. ("FAM") for $100,005. 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 MNU. 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 most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities 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
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
. 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.
. Options -- The Fund is authorized to write covered call options and purchase
call and 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.
<PAGE>
Muniholdings New York Insured Fund II, Inc., September 30, 1999
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
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).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Deferred organization and offering expenses -- Deferred organization
expenses are amortized on a straight-line basis over a period not exceeding five
years. In accordance with Statement of Position 98-5, any unamortized
organization expenses will be expensed on October 1, 1999. This charge will not
have any material impact on the operations of the Fund. Direct expenses relating
to the public offering of the Fund's Common and Preferred Stock were charged to
capital at the time of issuance of the shares.
(f) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(g) Custodian bank -- The Fund recorded an amount payable to the custodian bank
reflecting an overnight overdraft resulting from an unprojected payment of net
investment income dividends.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM. The general
partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of .55% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Stock. For the period October 1, 1998 to
September 30, 1999, FAM earned fees of $700,480, of which $348,082 was
voluntarily waived. In addition, FAM also reimbursed the Fund $30,977 in
additional expenses.
During the period October 1, 1998 to September 30, 1999, Merrill, Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, received
underwriting fees of $397,500 in connection with the issuance of the Fund's
Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
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
period October 1, 1998 to September 30, 1999 were $340,101,198 and $206,199,097,
respectively.
Net realized gains (losses) for the period October 1, 1998 to September 30, 1999
and net unrealized losses as of September 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
- --------------------------------------------------------------------------------
Long-term investments...................... $(4,826,018) $(10,789,072)
Financial futures contracts................ 103,195 --
----------- ------------
Total...................................... $(4,722,823) $(10,789,072)
=========== ============
- --------------------------------------------------------------------------------
As of September 30, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $10,837,040, all of which related to depreciated securities.
The aggregate cost of investments at September 30, 1999 for Federal income tax
purposes was $131,151,584.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of holders of
Common Stock.
Common Stock
Shares issued and outstanding during the period October 1, 1998 to September 30,
1999 increased by 5,550,000 from shares sold and by 45,263 as a result of
dividend reinvestment.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.10 per share and a liquidation preference of $25,000
per share, that entitle their holders to receive cash dividends at an annual
rate that may vary for the successive dividend periods. The yields in effect at
September 30, 1999 were for Series A, 3.40% and Series B, 4.10%.
In connection with the offering of AMPS, the Board of Directors reclassified
2,120 shares of unissued capital stock as AMPS. Shares issued and outstanding
during the period October 1, 1998 to September 30, 1999 increased by 2,120 as a
result of the AMPS offering.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of each
auction. For the period October 1, 1998 to September 30, 1999, MLPF&S, an
affiliate of FAM, earned $65,883 as commissions.
5. Capital Loss Carryforward:
At September 30, 1999, the Fund had a net capital loss carryforward of
approximately $529,000, all of which expires in 2007. This amount will be
available to offset like amounts of any future taxable gains.
6. Reorganization Plan:
On September 23, 1999, the Fund's Board of Directors approved a plan of
reorganization, subject to shareholder approval and certain other conditions,
whereby MuniHoldings New York Insured Fund, Inc. would acquire substantially all
of the assets and liabilities of the Fund, MuniHoldings New York Fund, Inc. and
MuniHoldings New York Insured Fund III, Inc. in exchange for newly issued shares
of MuniHoldings New York Insured Fund, Inc. These Funds are registered,
non-diversified, closed-end management investment companies. All four entities
have similar investment objectives and are managed by FAM.
7. Subsequent Event:
On October 6, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.067000 per share,
payable on October 28, 1999 to shareholders of record as of October 22, 1999.
<PAGE>
Muniholdings New York Insured Fund II, Inc., September 30, 1999
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors,
MuniHoldings New York Insured Fund II, Inc.:
We have audited the accompanying statement of assets, liabilities and capital of
MuniHoldings New York Insured Fund II, Inc., including the schedule of
investments, as of September 30, 1999, and the related statements of operations
and changes in net assets, and financial highlights for the period from October
1, 1998 (commencement of operations) to September 30, 1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of September 30, 1999, by correspondence with the custodian and brokers. 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 audit provides 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
MuniHoldings New York Insured Fund II, Inc. at September 30, 1999, and the
results of its operations, the changes in its net assets, and the financial
highlights for the period from October 1, 1998 to September 30, 1999 in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
November 11, 1999
- --------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION (unaudited)
- --------------------------------------------------------------------------------
All of the net investment income distributions paid by MuniHoldings New York
Insured Fund II, Inc. during its taxable year ended September 30, 1999 qualify
as tax-exempt interest dividends for Federal income tax purposes. Additionally,
there were no capital gains distributions paid by the Fund during the year.
Please retain this information for your records.
- --------------------------------------------------------------------------------
MANAGED DIVIDEND POLICY
- --------------------------------------------------------------------------------
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. However, 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.
- --------------------------------------------------------------------------------
QUALITY PROFILE (unaudited)
- --------------------------------------------------------------------------------
The quality ratings of securities in the Fund as of September 30, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa 86.9%
- --------------------------------------------------------------------------------
AA/Aa 10.7
- --------------------------------------------------------------------------------
Other+ 1.7
- --------------------------------------------------------------------------------
+Temporary investments in short-term municipal securities.
<PAGE>
Muniholdings New York Insured Fund II, Inc., September 30, 1999
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Terry K. Glenn, President and Director Custodian
James H. Bodurtha, Director State Street Bank and Trust Company
Herbert I. London, Director 225 Franklin Street
Robert R. Martin, Director Boston, MA 02110
Joseph L. May, Director
Andre F. Perold, Director Transfer Agents
Arthur Zeikel, Director Common Stock:
Vincent R. Giordano, Senior Vice President State Street Bank and Trust Company
Robert A. DiMella, Vice President 225 Franklin Street
Kenneth A. Jacob, Vice President Boston, MA 02110
Roberto Roffo, Vice President
Donald C. Burke, Vice President and Treasurer Preferred Stock:
Alice A. Pellegrino, Secretary The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
MNU
</TABLE>
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of MuniHoldings New York Insured Fund III, Inc. for their
information. It is not a prospectus, circular or representation intended for use
in the purchase of shares of the Fund or any securities mentioned in the report.
Past performance results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its Common Stock by
issuing Preferred Stock to provide the Common Stock shareholders with a
potentially higher rate of return. Leverage creates risks for Common Stock
shareholders, including the likelihood of greater volatility of net asset value
and market price of shares of the Common Stock, and the risk that fluctuations
in the short-term dividend rates of the Preferred Stock may affect the yield to
Common Stock shareholders. Statements and other information herein are as dated
and are subject to change.
MuniHoldings New York
Insured Fund III, Inc.
Box 9011
Princeton, NJ
08543-9011 NYINS3--9/99
[LOGO] Printed on post-consumer recycled paper
MUNIHOLDINGS
NEW YORK INSURED
FUND III, INC.
[GRAPHIC]
Annual Report
September 30, 1999
<PAGE>
- --------------------------------------------------------------------------------
MuniHoldings New York Insured Fund III, Inc.
- --------------------------------------------------------------------------------
The Benefits and Risks of Leveraging
MuniHoldings New York Insured Fund III, Inc. has the ability to leverage to seek
to enhance the yield and net asset value of its Common Stock. However, these
objectives cannot be achieved in all interest rate environments. To leverage,
the Fund issues Preferred Stock, which pays dividends at prevailing short-term
interest rates, and invests the proceeds in long-term municipal bonds. The
interest earned on these investments is paid to Common Stock shareholders in the
form of dividends, and the value of these portfolio holdings is reflected in the
per share net asset value of the Fund's Common Stock. However, in order to
benefit Common Stock shareholders, the yield curve must be positively sloped;
that is, short-term interest rates must be lower than long-term interest rates.
At the same time, a period of generally declining interest rates will benefit
Common Stock shareholders. If either of these conditions change, then the risks
of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock capitalization of
$100 million and the issuance of Preferred Stock for an additional $50 million,
creating a total value of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are approximately 3%
and long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million of Preferred
Stock based on the lower short-term interest rates. At the same time, the fund's
total portfolio of $150 million earns the income based on long-term interest
rates. Of course, increases in short-term interest rates would reduce (and even
eliminate) the dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term investments,
and therefore the Common Stock shareholders are the beneficiaries of the
incremental yield. However, if short-term interest rates rise, narrowing the
differential between short-term and long-term interest rates, the incremental
yield pickup on the Common Stock will be reduced or eliminated completely. At
the same time, the market value on the fund's Common Stock (that is, its price
as listed on the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common Stock's net asset
value will reflect the full decline in the price of the portfolio's investments,
since the value of the fund's Preferred Stock does not fluctuate. In addition to
the decline in net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed-rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in these securities.
<PAGE>
MuniHoldings New York Insured Fund III, Inc., September 30, 1999
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER
- --------------------------------------------------------------------------------
Since inception (January 29, 1999) through September 30, 1999, the Common Stock
of MuniHoldings New York Insured Fund III, Inc. earned $0.550 per share income
dividends, which included earned and unpaid dividends of $0.067. This represents
a net annualized yield of 6.70%, based on a month-end net asset value of $12.22
per share. During the same period, the total investment return on the Fund's
Common Stock was -15.55%, based on a change in per share net asset value from
$15.00 to $12.22, and assuming reinvestment of $0.483 per share income
dividends.
For the six-month period ended September 30, 1999, the Fund's Auction Market
Preferred Stock had an average yield of 3.15%.
The Municipal Market Environment
The combination of steady strong domestic economic growth, improvement in
foreign economies (most notably in Japan) and increasing investor concerns
regarding potential increases in US inflation put upward pressure on bond yields
throughout the six-month period ended September 30, 1999. Continued strong US
employment growth, particularly the decline in the US unemployment rate to 4.2%
in early June, was among the reasons the Federal Reserve Board cited for raising
short-term interest rates in late June and again in late August. US Treasury
bond yields reacted by climbing above 6.25% by mid-August before improving
somewhat to 6.05% by September 30, 1999. During the period, yields on 30-year US
Treasury bonds increased over 40 basis points (0.40%).
Long-term tax-exempt bond yields also rose during the six months ended September
30, 1999. Until early May, the municipal bond market was able to withstand much
of the upward pressure on bond yields. However, investor concerns of additional
moves by the Federal Reserve Board to moderate US economic growth and, more
importantly, the loss of the strong technical support that the tax-exempt market
enjoyed in early 1999 helped push municipal bond yields significantly higher for
the remainder of the period. The yields on long-term tax-exempt revenue bonds
rose over 65 basis points to 5.96% by September 30, 1999, as measured by the
Bond Buyer Revenue Bond Index.
In recent months, the significant decline in new tax-exempt bond issuance has
remained a positive factor within the municipal bond market, as it had been for
much of the past year. During the last six months, more than $113 billion in
long-term municipal bonds was issued, a decline of over 20% compared to the same
period a year ago. During the past three months, $55 billion in municipal bonds
was underwritten, representing a decline of nearly 15% compared to the
corresponding period in 1998. Additionally, in June and July, investors received
more than $40 billion in coupon income and proceeds from bond maturities and
early bond redemptions. These proceeds have generated considerable retail
investor interest, which has helped absorb the recent diminished supply.
Although tax-exempt bond yields are at their highest level in over two years and
have attracted significant retail investor interest, institutional demand has
declined sharply. Long-term municipal mutual funds have seen consistent outflows
in recent months as the yields of individual securities have risen faster than
those of larger, more diverse mutual funds. In addition, the demand from
property/ casualty insurance companies has weakened as a result of the losses,
and anticipated losses, incurred as a result of the series of damaging storms
across much of the eastern United States. Additionally, many institutional
investors who were attracted to the municipal bond market in recent years by
historically attractive tax-exempt bond yield ratios of over 90% have found
other asset classes even more attractive. Even with a reduced supply position,
tax-exempt issuers have been forced to repeatedly raise municipal bond yields in
the attempt to attract adequate demand.
The recent relative underperformance of the municipal bond market has resulted
in an opportunity for long-term investors to purchase tax-exempt issues whose
yields are nearly identical to taxable US Treasury securities. At September 30,
1999, long-term uninsured municipal revenue bond yields were almost 99% of
comparable US Treasury securities. In recent months, many taxable asset classes,
such as corporate bonds, mortgage-backed securities and US agency debt, have all
accelerated debt issuance. This acceleration was initiated largely to avoid
issuing securities at year-end and to minimize any associated Year 2000 (Y2K)
problems that may develop. However, this increased issuance has also resulted in
higher yield levels in the various asset classes as lower bond prices became
necessary to attract sufficient investor demand. Going forward, it is believed
that the pace of non-US Government debt issuance is likely to slow
significantly. As the supply of this debt declines, we would expect many
institutional investors to return to the municipal bond market and the
attractive yield ratios available.
Looking ahead, it appears to us that long-term municipal bond yields will remain
under pressure, trading in a broad range centered near current levels. Investors
are likely to remain concerned about future action by the Federal Reserve Board.
Y2K considerations may prohibit a series of Federal Reserve Board moves at the
end of the year and the beginning of 2000. Any improvement in bond prices will
probably be contingent upon weakening in both US employment growth and consumer
spending. The 100 basis point rise in US Treasury bond yields seen thus far this
year may negatively affect US economic growth. The US housing market will be
among the first sectors likely to be affected, as some declines have already
been evidenced in response to higher mortgage rates. We believe that it is also
unrealistic to expect double-digit returns in US equity markets to continue
indefinitely. Much of the US consumer's wealth is tied to recent stock market
appreciation. Any slowing in these incredible growth rates is likely to reduce
consumer spending. We believe that these factors suggest that the worst of the
recent increase in bond yields has passed and stable, if not slightly improving,
bond prices may be expected.
In Conclusion
On September 23, 1999, MuniHoldings New York Insured Fund III, Inc.'s Board of
Directors approved a plan of reorganization, subject to shareholder approval and
certain other conditions, whereby MuniHoldings New York Insured Fund, Inc. would
acquire substantially all of the assets and liabilities of the Fund,
MuniHoldings New York Fund, Inc. and MuniHoldings New York Insured Fund II, Inc.
in exchange for newly issued shares of MuniHoldings New York Insured Fund, Inc.
These Funds are registered, non-diversified, closed-end management investment
companies. All four entities have similar investment objectives and are managed
by Fund Asset Management, L.P. We appreciate your investment in the MuniHoldings
New York Insured Fund III, Inc.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Roberto Roffo
Roberto Roffo
Vice President and
Portfolio Manager
October 25, 1999
<PAGE>
MuniHoldings New York Insured Fund III, Inc., September 30, 1999
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
New York--99.4% NR* Aaa $1,705 Albany County, New York, Airport Authority, Airport Revenue Bonds, AMT,
RITR, Series RI-7, 7.72% due 12/15/2023 (d)(g) $ 1,725
--------------------------------------------------------------------------------------------------------------
NR* Aaa 3,000 Allegany County, New York, IDA, Civic Facilities Revenue Refunding Bonds
(Alfred University), 5% due 8/01/2028 (b) 2,631
--------------------------------------------------------------------------------------------------------------
Long Island Power Authority, New York, Electric System Revenue Refunding
Bonds, Series A:
AAA Aaa 2,000 5.125% due 12/01/2022 (d) 1,820
AAA Aaa 5,000 5.50% due 12/01/2029 (b) 4,787
--------------------------------------------------------------------------------------------------------------
Metropolitan Transportation Authority, New York, Dedicated Tax Fund Revenue
Bonds, Series A:
AAA Aaa 5,250 5% due 4/01/2023 (c) 4,678
AAA Aaa 4,000 5.25% due 4/01/2026 (b) 3,684
AAA Aaa 3,000 5% due 4/01/2029 (d) 2,628
--------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Metropolitan Transportation Authority, New York, Transit Facilities Revenue
Refunding Bonds, Series A, 4.75% due 7/01/2021 (b) 4,295
--------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Nassau County, New York, IDA, Civic Facilities Revenue Refunding Bonds
(Hofstra University Project), 4.75% due 7/01/2028 (b) 3,338
--------------------------------------------------------------------------------------------------------------
NR* A1 4,000 New York City, New York, City Municipal Water Finance Authority, Water and
Sewer System Revenue Bonds, RITR, Series 21, 7.07% due 6/15/2029 (g) 3,810
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,250 New York City, New York, City Municipal Water Finance Authority, Water and
Sewer System Revenue Refunding Bonds, Series D, 4.75% due 6/15/2025 (b) 1,054
--------------------------------------------------------------------------------------------------------------
AA Aa3 3,500 New York City, New York, City Transitional Finance Authority Revenue Bonds,
Future Tax Secured, Series C, 5.50% due 5/01/2025 3,365
--------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Lease Revenue Bonds (Municipal Health
Facilities Improvement Program), Series 1 (d):
AAA Aaa 2,000 5% due 1/15/2019 1,800
AAA Aaa 4,250 4.75% due 1/15/2029 3,541
--------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority Revenue Bonds:
NR* Aaa 2,000 RIB, Series 156, 7.393% due 8/01/2029 (a)(e)(g) 1,760
AAA Aaa 3,500 (Saint Barnabas Hospital), 5.45% due 8/01/2035 (a)(e) 3,271
AAA Aaa 2,500 (State University Educational Facilities), Series B, 4.75% due
5/15/2028 (b) 2,087
--------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Revenue Refunding Bonds:
AAA NR* 5,000 (City University), Consolidated Third, Series 1, 5.25% due 7/01/2025 (c) 4,615
AAA NR* 1,000 (Hospital Mortgage--United Health Services Hospitals), 5.375% due
8/01/2027 (a)(e) 938
AAA Aaa 6,250 (Hospital for Special Surgery), 5% due 2/01/2028 (b)(e) 5,472
NR* Aaa 1,020 (Ithaca College), 5% due 7/01/2026 (a) 898
AAA Aaa 8,000 (New York and Presbyterian Hospitals), 4.75% due 8/01/2027 (a)(e) 6,692
AAA Aaa 3,750 (New York Medical College), 4.75% due 7/01/2027 (b) 3,138
AAA Aaa 3,000 (State University Educational Facilities), Series A, 4.75% due 5/15/2025(b) 2,529
--------------------------------------------------------------------------------------------------------------
A1+ NR* 2,550 New York State Energy Research and Development Authority, PCR
(Niagara Mohawk Power Corporation Project), DATES, Series A, 3.95%
due 7/01/2015 (f) 2,550
--------------------------------------------------------------------------------------------------------------
New York State Energy Research and Development Authority, PCR, Refunding,
Series A (a):
AAA Aaa 2,000 (Central Hudson Gas and Electric), 5.45% due 8/01/2027 1,903
AAA Aaa 3,800 (Niagara Mohawk Power Project), 5.15% due 11/01/2025 3,441
--------------------------------------------------------------------------------------------------------------
New York State Mortgage Agency, Revenue Refunding Bonds, AMT:
NR* NR* 2,997 RITR, Series 24, 7.27% due 10/01/2028 (g) 2,972
NR* Aa2 5,000 Series 82, 5.65% due 4/01/2030 4,743
--------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 550 New York State Thruway Authority, General Revenue Bonds, VRDN, 3.90%
due 1/01/2024 (c)(f) 550
--------------------------------------------------------------------------------------------------------------
New York State Urban Development Corporation Revenue Bonds (a):
AAA NR* 5,500 (Community Enhancement Facilities), 5.125% due 4/01/2015 5,177
AAA Aaa 1,500 (Correctional Facilities Service Contract), Series B, 4.75% due 1/01/2028 1,253
--------------------------------------------------------------------------------------------------------------
AAA Aaa 6,250 Port Authority of New York and New Jersey, Consolidated Revenue Bonds,
116th Series, 4.375% due 10/01/2033 (c) 4,836
--------------------------------------------------------------------------------------------------------------
NR* Aaa 2,500 Schenectady, New York, IDA, Civic Facility Revenue Bonds (Union College
Project), Series A, 5.45% due 12/01/2029 (a) 2,374
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,055 Suffolk County, New York, GO, Refunding, Public Improvement, Series
D, 4.75% due 11/01/2019 (c) 910
--------------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Triborough Bridge and Tunnel Authority, New York, General Purpose
Revenue Bonds, Series B, 5.20% due 1/01/2027 (c) 5,468
=================================================================================================================================
Total Investments (Cost--$121,671)--99.4% 110,733
Other Assets Less Liabilities--0.6% 702
--------
Net Assets--100.0% $111,435
=================================================================================================================================
(a) AMBAC Insured.
(b) MBIA Insured.
(c) FGIC Insured.
(d) FSA Insured.
(e) FHA Insured.
(f) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at
September 30, 1999.
(g) 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 September 30, 1999.
*Not Rated.
+Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
=================================================================================================================================
Portfolio To simplify the listings of MuniHoldings New York Insured
Abbreviations Fund III, 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)
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
=================================================================================================================================
Quality Profile The quality ratings of securities in the Fund as of September 30,
1999 were as follows:
----------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
----------------------------------------------------------------
AAA/Aaa............................................... 83.2%
AA/Aa ................................................ 7.3
A/A .................................................. 3.4
NR (Not Rated) ....................................... 2.7
Other+................................................ 2.8
-----------------------------------------------------------
+Temporary investments in short-term municipal securities.
</TABLE>
<PAGE>
MuniHoldings New York Insured Fund III, Inc., September 30, 1999
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of September 30, 1999
=================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$121,671,340) (Note 1a).................... $110,733,475
Cash............................................................................... 100,959
Receivables:
Interest......................................................................... $ 2,067,497
Securities sold.................................................................. 3,000 2,070,497
------------
Prepaid expenses................................................................... 7,239
------------
Total assets....................................................................... 112,912,170
------------
=================================================================================================================================
Liabilities: Payables:
Securities purchased............................................................. 1,260,076
Offering costs (Note 1e)......................................................... 157,003
Investment adviser (Note 2)...................................................... 3,899 1,420,978
------------
Accrued expenses and other liabilities............................................. 55,745
------------
Total liabilities.................................................................. 1,476,723
------------
=================================================================================================================================
Net Assets: Net assets......................................................................... $111,435,447
------------
=================================================================================================================================
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (2,000 shares of AMPS* issued
and outstanding at $25,000 per share liquidation preference)..................... $ 50,000,000
Common Stock, par value $.10 per share (5,026,212 shares issued and outstanding). $ 502,621
Paid-in capital in excess of par................................................... 74,095,304
Undistributed investment income--net............................................... 351,323
Accumulated realized capital losses on investments--net (Note 5)................... (2,575,936)
Unrealized depreciation on investments--net........................................ (10,937,865)
------------
Total--Equivalent to $12.22 net asset value per share of Common Stock
(market price--$13.25) .......................................................... 61,435,447
------------
Total capital...................................................................... $111,435,447
------------
=================================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period January 29, 1999+ to September 30, 1999
=================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned........................... $ 4,064,849
Income (Note 1d):
=================================================================================================================================
Expenses: Investment advisory fees (Note 2).................................................. $ 418,133
Commission fees (Note 4)........................................................... 75,638
Professional fees.................................................................. 40,224
Transfer agent fees................................................................ 21,044
Directors' fees and expenses....................................................... 20,955
Accounting services (Note 2)....................................................... 19,326
Printing and shareholder reports................................................... 11,444
Listing fees....................................................................... 10,362
Custodian fees..................................................................... 6,860
Pricing fees....................................................................... 3,804
Other.............................................................................. 5,964
------------
Total expenses before reimbursement................................................ 633,754
Reimbursement of expenses (Note 2)................................................. (283,722)
------------
Total expenses after reimbursement................................................. 350,032
------------
Investment income--net............................................................. 3,714,817
------------
=================================================================================================================================
Realized & Realized loss on investments--net.................................................. (2,575,936)
Unrealized Loss on Unrealized depreciation on investments--net........................................ (10,937,865)
Investments - Net ------------
(Notes 1b, 1d & 3) Net Decrease in Net Assets Resulting from Operations............................... $ (9,798,984)
------------
=================================================================================================================================
+ Commencement of operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
MuniHoldings New York Insured Fund III, Inc., September 30, 1999
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
January 29, 1999+ to
Increase (Decrease) in Net Assets: September 30, 1999
=================================================================================================================================
<S> <C> <C>
Operations: Investment income -- net........................................................... $ 3,714,817
Realized loss on investments -- net................................................ (2,575,936)
Unrealized depreciation on investments -- net...................................... (10,937,865)
------------
Net decrease in net assets resulting from operations............................... (9,798,984)
------------
=================================================================================================================================
Dividends to Investment income -- net:
Shareholders Common Stock..................................................................... (2,420,632)
(Note 1f): Preferred Stock.................................................................. (942,862)
------------
Net decrease in net assets resulting from dividends to shareholders................ (3,363,494)
------------
=================================================================================================================================
Capital Stock Proceeds from issuance of Common Stock............................................. 75,000,000
Transactions Proceeds from issuance of Preferred Stock.......................................... 50,000,000
(Notes 1e & 4): Value of shares issued to Common Stock shareholders in reinvestment of dividends... 257,958
Offering costs resulting from the issuance of Common Stock......................... (239,038)
Offering and underwriting costs resulting from the issuance of Preferred Stock..... (521,000)
------------
Net increase in net assets derived from capital stock transactions................. 124,497,920
------------
=================================================================================================================================
Net Assets: Total increase in net assets....................................................... 111,335,442
Beginning of period................................................................ 100,005
------------
End of period*..................................................................... $111,435,447
------------
=================================================================================================================================
* Undistributed investment income -- net $ 351,323
------------
=================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. January 29, 1999+ to
Increase (Decrease) in Net Asset Value: September 30, 1999
=================================================================================================================================
<S> <C> <C>
Per Share Net asset value, beginning of period............................................... $ 15.00
Operating ------------
Performance: Investment income -- net........................................................... .74
Realized and unrealized loss on investments -- net................................. (2.70)
------------
Total from investment operations................................................... (1.96)
------------
Less dividends to Common Stock shareholders from investment income -- net.......... (.48)
------------
Capital charge resulting from issuance of Common Stock............................. (.05)
------------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income -- net....................................................... (.19)
Capital charge resulting from issuance of Preferred Stock........................ (.10)
------------
Total effect of Preferred Stock activity........................................... (.29)
------------
Net asset value, end of period..................................................... $ 12.22
------------
Market price per share, end of period.............................................. $ 13.25
------------
=================================================================================================================================
Total Investment Based on market price per share.................................................... (8.43%)++
Return:** ------------
Based on net asset value per share................................................. (15.55%)++
------------
=================================================================================================================================
Ratios Based on Total expenses, net of reimbursement***............................................ .77%*
Average Net Assets ------------
Of Common Stock: Total expenses***.................................................................. 1.39%*
------------
Total investment income -- net***.................................................. 8.12%*
------------
Amount of dividends to Preferred Stock shareholders................................ 2.06%*
------------
Investment income -- net, to Common Stock shareholders............................. 6.06%*
------------
=================================================================================================================================
Ratios Based on Total expenses, net of reimbursement............................................... .46%*
Total Average ------------
Net Assets:+++*** Total expenses..................................................................... .83%*
------------
Total investment income -- net..................................................... 4.89%*
------------
=================================================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders.......................................... 3.11%*
Average Net Assets ------------
Of Preferred Stock:
=================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of period (in thousands)................... $ 61,435
Data: ------------
Preferred Stock outstanding, end of period (in thousands).......................... $ 50,000
------------
Portfolio turnover................................................................. 75.38%
------------
=================================================================================================================================
Leverage: Asset coverage per $1,000.......................................................... $ 2,229
------------
=================================================================================================================================
Dividends Per Investment income -- net $ 471
Share on Preferred ------------
Stock Outstanding:
=================================================================================================================================
</TABLE>
* Annualized.
** 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.
***Do not reflect the effect of dividends to Preferred
Stock shareholders.
+Commencement of operations.
++The Fund's Preferred Stock was issued on February 22,
1999.
+++Includes Common and Preferred Stock average net assets.
++Aggregate total investment return.
<PAGE>
MuniHoldings New York Insured Fund III, Inc., September 30, 1999
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
MuniHoldings New York Insured Fund III, 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 accordance
with generally accepted accounting principles, which may require the use of
management accruals and estimates. Prior to commencement of operations on
January 29, 1999, the Fund had no operations other than those relating to
organizational matters and the sale of 6,667 shares of Common Stock on January
13, 1999 to Fund Asset Management, L.P. ("FAM") for $100,005. 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 MNK. 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 most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities 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
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
. 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.
. Options -- The Fund is authorized to write covered call options and purchase
call and 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).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Offering expenses -- Direct expenses relating to the public offering of the
Fund's Common and Preferred Stock were charged to capital at the time of
issuance of the shares.
(f) 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 FAM. The general
partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of .55% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Stock. For the period January 29, 1999
to September 30, 1999, FAM earned fees of $418,133, of which $268,226 was
voluntarily waived. In addition, FAM also reimbursed the Fund $15,496 in
additional expenses.
During the period January 29, 1999 to September 30, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, received
underwriting fees of $375,000 in connection with the issuance of the Fund's
Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
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
period January 29, 1999 to September 30, 1999 were $203,396,182 and $82,131,412,
respectively.
Net realized gains (losses) for the period January 29, 1999 to September 30,
1999 and net unrealized losses as of September 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
- --------------------------------------------------------------------------------
Long-term investments........................... $(2,637,736) $(10,937,865)
Financial futures contracts..................... 61,800 --
----------- ------------
Total........................................... $(2,575,936) $(10,937,865)
=========== ============
- --------------------------------------------------------------------------------
As of September 30, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $11,016,287, of which $11,607 related to appreciated
securities and $11,027,894 related to depreciated securities. The aggregate cost
of investments at September 30, 1999 for Federal income tax purposes was
$121,749,762.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of holders of
Common Stock.
Common Stock
Shares issued and outstanding during the period January 29, 1999 to
September 30, 1999 increased by 5,000,000 from shares sold and by 19,545 as a
result of dividend reinvestment.
<PAGE>
MuniHoldings New York Insured Fund III, Inc., September 30, 1999
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.10 per share and a liquidation preference of $25,000
per share, that entitle their holders to receive cash dividends at an annual
rate that may vary for the successive dividend periods. The yield in effect at
September 30, 1999 was 3.95%.
In connection with the offering of AMPS, the Board of Directors reclassified
2,000 shares of unissued capital stock as AMPS. Shares issued and outstanding
during the period January 29, 1999 to September 30, 1999 increased by 2,000 as a
result of the AMPS offering.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of each
auction. For the period January 29, 1999 to September 30, 1999, MLPF&S, an
affiliate of FAM, earned $62,757 as commissions.
5. Capital Loss Carryforward:
At September 30, 1999, the Fund had a net capital loss carryforward of
approximately $2,498,000, all of which expires in 2007. This amount will be
available to offset like amounts of any future taxable gains.
6. Reorganization Plan:
On September 23, 1999, the Fund's Board of Directors approved a plan of
reorganization, subject to shareholder approval and certain other conditions,
whereby MuniHoldings New York Insured Fund, Inc. would acquire substantially all
of the assets and liabilities of the Fund, MuniHoldings New York Fund, Inc. and
MuniHoldings New York Insured Fund II, Inc. in exchange for newly issued shares
of MuniHoldings New York Insured Fund, Inc. These Funds are registered,
non-diversified, closed-end management investment companies. All four entities
have similar investment objectives and are managed by FAM.
7. Subsequent Event:
On October 6, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.067000 per share,
payable on October 28, 1999 to shareholders of record as of October 22, 1999.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors,
MuniHoldings New York Insured Fund III, Inc.:
We have audited the accompanying statement of assets, liabilities and capital of
MuniHoldings New York Insured Fund III, Inc., including the schedule of
investments, as of September 30, 1999, and the related statements of operations
and changes in net assets, and financial highlights for the period from January
29, 1999 (commencement of operations) to September 30, 1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of September 30, 1999, by correspondence with the custodian and brokers. 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 audit provides 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
MuniHoldings New York Insured Fund III, Inc. at September 30, 1999 and the
results of its operations, the changes in its net assets, and the financial
highlights for the period from January 29, 1999 to September 30, 1999, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young, LLP
MetroPark, New Jersey
November 11, 1999
<PAGE>
MuniHoldings New York Insured Fund III, Inc., September 30, 1999
- --------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION (unaudited)
- --------------------------------------------------------------------------------
All of the net investment income distributions paid by MuniHoldings New York
Insured Fund III, Inc. during its taxable year ended September 30, 1999 qualify
as tax-exempt interest dividends for Federal income tax purposes. Additionally,
there were no capital gains distributions paid by the Fund during the year.
Please retain this information for your records.
- --------------------------------------------------------------------------------
MANAGED DIVIDEND POLICY
- --------------------------------------------------------------------------------
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. However, 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.
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
- --------------------------------------------------------------------------------
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Robert A. DiMella, Vice President
Roberto Roffo, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
MNK
