As filed with the Securities and Exchange Commission on December 1, 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 FLORIDA INSURED FUND
MUNIHODLINGS FLORIDA INSURED FUND II
MUNIHOLDINGS FLORIDA INSURED FUND III
MUNIHOLDINGS FLORIDA INSURED FUND IV
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 FLORIDA INSURED FUND
MUNIHOLDINGS FLORIDA INSURED FUND II
MUNIHOLDINGS FLORIDA INSURED FUND III
MUNIHOLDINGS FLORIDA INSURED FUND IV
November 22, 1999
Dear Shareholder:
Recently, you received a joint proxy statement and prospectus
describing a proposed reorganization of the listed funds in which MuniHoldings
Florida Insured Fund (the "surviving fund") would acquire the assets and assume
the liabilities of MuniHoldings Florida Insured Fund II, MuniHoldings Florida
Insured Fund III, and MuniHoldings Florida Insured Fund IV in exchange for
common shares and auction market preferred shares 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 Shareholders for each of MuniHoldings Florida Insured Fund
III and MuniHoldings Florida Insured Fund IV 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>
MUNIHOLDINGS
FLORIDA INSURED
FUND III
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
September 30, 1999
<PAGE>
MuniHoldings Florida Insured Fund III
The Benefits and Risks of Leveraging
MuniHoldings Florida Insured Fund III has the ability to leverage to seek to
enhance the yield and net asset value of its Common Shares. However, these
objectives cannot be achieved in all interest rate environments. To leverage,
the Fund issues Preferred Shares, which pay 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 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 Shares. However, in order to benefit
Common 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
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 Share capitalization of
$100 million and the issuance of Preferred Shares 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
Shares 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 Shares.
In this case, the dividends paid to Preferred Shareholders are significantly
lower than the income earned on the fund's long-term investments, and therefore
the Common 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 Shares
will be reduced or eliminated completely. At the same time, the market value of
the fund's Common Shares (that is, their price as listed on the New York Stock
Exchange) may, as a result, decline. Furthermore, if long-term interest rates
rise, the Common Shares' net asset value will reflect the full decline in the
price of the portfolio's investments, since the value of the fund's Preferred
Shares does not fluctuate. In addition to the decline in net asset value, the
market value of the fund's Common Shares 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 Florida Insured Fund III, September 30, 1999
DEAR SHAREHOLDER
Since inception (October 1, 1998) through September 30, 1999, the Common Shares
of MuniHoldings Florida Insured Fund III earned $0.777 per share income
dividends, which included earned and unpaid dividends of $0.064. This represents
a net annualized yield of 6.24%, based on a month-end net asset value of $12.44
per share. During the same period, the total investment return on the Fund's
Common Shares was -12.62%, based on a change in per share net asset value from
$15.00 to $12.44, and assuming reinvestment of $0.713 per share income
dividends.
For the six-month period ended September 30, 1999, the Fund's Auction Market
Preferred Shares had an average yield of 3.28% for Series A and 3.25% 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 Florida Insured Fund III's Board of Trustees
approved a plan of reorganization, subject to shareholder approval and certain
other conditions, whereby MuniHoldings Florida Insured Fund would acquire
substantially all of the assets and liabilities of the Fund, MuniHoldings
Florida Insured Fund II and MuniHoldings Florida Insured Fund IV in exchange for
newly issued shares of MuniHoldings Florida Insured Fund. 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 Florida Insured Fund III.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Trustee
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Robert D. Sneeden
Robert D. Sneeden
Vice President and Portfolio Manager
October 28, 1999
2 & 3
<PAGE>
MuniHoldings Florida Insured Fund III, 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>
Florida--93.8% NR* Aaa $ 5,000 Clay County, Florida, HFA, S/F Mortgage Revenue Refunding Bonds
(Multi-County), AMT, 5.45% due 4/01/2031 (b)(c) $ 4,567
-------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,400 Dade County, Florida, IDA, Exempt Facilities Revenue Refunding Bonds
(Florida Power & Light Co.), VRDN, 3.85% due 6/01/2021 (f) 1,400
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Dade County, Florida, Seaport, GO, Refunding, 5.125% due 10/01/2026 (e) 3,624
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Dade County, Florida, Water and Sewer System Revenue Bonds, 5.25% due
10/01/2021 (d) 5,621
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Florida, HFA, Revenue Bonds (Wentworth Apartments Project), AMT, Series I-1,
5.45% due 10/01/2037 (a) 3,238
-------------------------------------------------------------------------------------------------------------------
Florida Housing Finance Corporation, Housing Revenue Bonds, AMT (a):
AAA Aaa 6,750 (Riley Chase Apartments), Series L-1, 6% due 10/01/2039 6,720
AAA NR* 2,300 (Spring Harbor Apartments), Series C-1, 5.50% due 8/01/2019 2,198
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,250 Florida Housing Finance Corporation, Revenue Refunding Bonds (Homeowner
Mortgage), AMT, Series 2, 5.35% due 1/01/2021 (e) 2,983
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Florida Ports Financing Commission Revenue Bonds (State Transportation Trust
Fund--Intermodal Program), AMT, 5.50% due 10/01/2023 (d) 2,410
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Florida State Turnpike Authority, Turnpike Revenue Bonds (Department of
Transportation), Series A, 5% due 7/01/2021 (d) 2,695
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,825 Hillsborough County, Florida, Capital Improvement Revenue Bonds (Warehouse
and Sheriffs Facilities Project), 5% due 7/01/2028 (g) 3,380
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Hillsborough County, Florida, Court Facilities Revenue Bonds, 5.40% due
5/01/2030 (a) 2,371
-------------------------------------------------------------------------------------------------------------------
AAA NR* 12,990 Jacksonville, Florida, HFA, Hospital Revenue Refunding Bonds, RIB, Series
49, 6.085% due 8/15/2027 (e)(h) 10,218
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Jupiter Island, Florida, Utility System Revenue Bonds (South Martin Regional
Utility), 5% due 10/01/2018 (e) 2,729
-------------------------------------------------------------------------------------------------------------------
Lakeland, Florida, Electric and Water Revenue Refunding Bonds, Series A (e):
AAA Aaa 2,040 5% due 10/01/2019 1,851
AAA Aaa 2,500 5% due 10/01/2028 2,208
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,400 Lakeland, Florida, Hospital System Revenue Bonds (Lakeland Regional Health
System), Series A, 5.50% due 11/15/2026 (e) 1,350
-------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 700 Martin County, Florida, PCR, Refunding (Florida Power & Light Co. Project),
VRDN, 3.95% due 9/01/2024 (f) 700
-------------------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Miami-Dade County, Florida, Public Service Tax Revenue Bonds (UMSA Public
Improvements), 5% due 10/01/2023 (g) 4,467
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Miami-Dade County, Florida, School Board, COP, Refunding, Series C, 5% due
8/01/2025 (g) 889
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,750 North Springs, Florida, Improvement District, Water Management, GO,
Refunding, 5% due 5/01/2019 (e) 1,585
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,950 Okeechobee, Florida, Utility Authority, Utility System Revenue Refunding
Bonds, Capital Improvements, 5% due 10/01/2019 (g) 2,676
-------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,525 Orange County, Florida, HFA, Homeowner Revenue Refunding Bonds, AMT, Series
A-1, 5.60% due 9/01/2024 (c) 2,376
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Orange County, Florida, Health Facilities Authority, Mortgage Revenue Bonds
(South Central Nursing Homes), Series A, 5.50% due 7/01/2032 (g) 2,860
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Orlando and Orange County Expressway Authority, Florida, Expressway Revenue
Refunding Bonds, Junior Lien, 5% due 7/01/2021 (d) 4,503
-------------------------------------------------------------------------------------------------------------------
AAA NR* 2,500 Peace River/Manasota, Florida, Regional Water Supply Authority, Revenue
Refunding Bonds (Peace River Option Project), Series A, 5% due 10/01/2028 (e) 2,211
-------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,425 Pembroke Pines, Florida, Capital Improvement Revenue Refunding Bonds, 5.25%
due 12/01/2026 (a) 1,322
-------------------------------------------------------------------------------------------------------------------
NR* Aaa 3,325 Pinellas County, Florida, HFA, S/F Housing Revenue Bonds (Multi-County
Program), AMT, Series B-1, 5.60% due 9/01/2025 (b)(c) 3,122
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,285 Pinellas County, Florida, Sewer Revenue Refunding Bonds, 5% due 10/01/2024 (d) 2,928
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Polk County, Florida, School Board, COP, Series A, 5% due 1/01/2024 (g) 3,121
-------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,205 Saint Petersburg, Florida, Public Utilities Revenue Bonds, Series A, 5% due
10/01/2028 (g) 1,948
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,430 Seminole County, Florida, School Board, COP, Series A, 5% due 7/01/2023 (e) 4,847
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 8,000 Sunrise, Florida, Utility System Revenue Refunding Bonds, 5% due 10/01/2028 (a) 7,107
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,140 Tallahassee, Florida, Energy System Revenue Refunding Bonds, Series A, 5%
due 10/01/2028 (g) 1,890
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Tampa Bay, Florida, Water Utility System Revenue Bonds, 6% due 10/01/2024 (d) 2,587
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 7,500 Tampa, Florida, Sports Authority Revenue Bonds, Sales Tax Payments (Stadium
Project), 5.25% due 1/01/2027 (e) 6,967
-------------------------------------------------------------------------------------------------------------------
AAA NR* 5,600 Tampa, Florida, Utility Tax Improvement Revenue Bonds, 5% due 10/01/2019 (g) 5,080
===================================================================================================================================
Illinois--0.3% A1+ VMIG1+ 400 Illinois Health Facilities Authority Revenue Refunding Bonds (University of
Chicago Hospitals), VRDN, 4% due 8/01/2026 (e)(f) 400
===================================================================================================================================
New York--0.1% A1+ VMIG1+ 200 Long Island Power Authority, New York, Electric System Revenue Bonds, VRDN,
Sub-Series 5, 3.90% due 5/01/2033 (f) 200
===================================================================================================================================
</TABLE>
Portfolio Abbreviations
To simplify the listings of MuniHoldings Florida Insured Fund III'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)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
MuniHoldings Florida Insured Fund III, September 30, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Texas--7.0% AAA Aaa $10,000 Houston, Texas, Water and Sewer System Revenue Refunding Bonds, Junior Lien,
Series A, 5.25% due 12/01/2025 (d) $ 9,150
===================================================================================================================================
Total Investments (Cost--$141,026)--101.2% 132,499
Liabilities in Excess of Other Assets--(1.2%) (1,588)
--------
Net Assets--100.0% $130,911
========
===================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FNMA Collateralized.
(c) GNMA Collateralized.
(d) FGIC 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) FSA Insured.
(h) 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.
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.............................................................. 99.1%
Other+............................................................... 2.1
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of September 30, 1999
=======================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$141,025,911) (Note 1a) ......... $132,499,058
Cash .................................................................... 14,039
Receivables:
Interest .............................................................. $ 2,560,831
Securities sold ....................................................... 1,072,546 3,633,377
------------
Deferred organization expenses (Note 1e) ................................ 10,601
Prepaid expenses and other assets ....................................... 7,214
------------
Total assets ............................................................ 136,164,289
------------
=======================================================================================================================
Liabilities: Payables:
Securities purchased .................................................. 5,010,049
Dividends to shareholders (Note 1f) ................................... 95,814
Offering costs (Note 1e) .............................................. 71,752
Investment adviser (Note 2) ........................................... 5,927 5,183,542
------------
Accrued expenses and other liabilities .................................. 69,913
------------
Total liabilities ....................................................... 5,253,455
------------
=======================================================================================================================
Net Assets: Net assets .............................................................. $130,910,834
============
=======================================================================================================================
Capital: Capital Shares (unlimited number of shares of beneficial interest
authorized) (Note 4):
Preferred Shares, par value $.10 per share (2,160 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) ... $ 54,000,000
Common Shares, par value $.10 per share (6,181,830 shares issued
and outstanding) ...................................................... $ 618,183
Paid-in capital in excess of par ........................................ 91,319,191
Undistributed investment income--net .................................... 429,491
Accumulated realized capital losses on investments--net (Note 5) ........ (6,929,178)
Unrealized depreciation on investments--net ............................. (8,526,853)
------------
Total--Equivalent to $12.44 net asset value per Common Share (market
price--$11.875) ......................................................... 76,910,834
------------
Total capital ........................................................... $130,910,834
============
=======================================================================================================================
</TABLE>
* Auction Market Preferred Shares.
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings Florida Insured Fund III, September 30, 1999
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 ... $ 7,170,478
Income (Note 1d):
====================================================================================================================
Expenses: Investment advisory fees (Note 2) .......................... $ 751,750
Commission fees (Note 4) ................................... 126,425
Accounting services (Note 2) ............................... 87,360
Professional fees .......................................... 55,970
Transfer agent fees ........................................ 36,768
Trustees' fees and expenses ................................ 23,203
Listing fees ............................................... 16,152
Custodian fees ............................................. 11,064
Printing and shareholder reports ........................... 9,379
Pricing fees ............................................... 4,542
Amortization of organization expenses (Note 1e) ............ 2,899
Other ...................................................... 8,609
------------
Total expenses before reimbursement ........................ 1,134,121
Reimbursement of expenses (Note 2) ......................... (399,371)
------------
Total expenses after reimbursement ......................... 734,750
------------
Investment income--net ..................................... 6,435,728
------------
====================================================================================================================
Realized & Realized loss on investments--net .......................... (6,929,178)
Unrealized Loss on Unrealized depreciation on investments--net ................ (8,526,853)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Decrease in Net Assets Resulting from Operations ....... $ (9,020,303)
============
====================================================================================================================
</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 ............................................................. $ 6,435,728
Realized loss on investments--net .................................................. (6,929,178)
Unrealized depreciation on investments--net ........................................ (8,526,853)
------------
Net decrease in net assets resulting from operations ............................... (9,020,303)
------------
===============================================================================================================================
Dividends to Investment income--net:
Shareholders Common Shares .................................................................... (4,401,217)
(Note 1f): Preferred Shares ................................................................. (1,605,020)
------------
Net decrease in net assets resulting from dividends to shareholders ................ (6,006,237)
------------
===============================================================================================================================
Beneficial Interest Proceeds from issuance of Common Shares ............................................ 92,250,000
Transactions Proceeds from issuance of Preferred Shares ......................................... 54,000,000
(Notes 1e & 4): Value of shares issued to Common Shareholders in reinvestment of dividends ......... 370,420
Offering costs resulting from the issuance of Common Shares ........................ (233,700)
Offering and underwriting costs resulting from the issuance of Preferred Shares .... (549,351)
------------
Net increase in net assets derived from beneficial interest transactions ........... 145,837,369
------------
===============================================================================================================================
Net Assets: Total increase in net assets ....................................................... 130,810,829
Beginning of period ................................................................ 100,005
------------
End of period* ..................................................................... $130,910,834
============
===============================================================================================================================
* Undistributed investment income--net ............................................... $ 429,491
============
===============================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings Florida Insured Fund III, 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 .............................................. 1.04
Realized and unrealized loss on investments--net .................... (2.49)
---------
Total from investment operations .................................... (1.45)
---------
Less dividends to Common Shareholders from investment income--net ... (.71)
---------
Capital charge resulting from issuance of Common Shares ............. (.04)
---------
Effect of Preferred Share activity:++
Dividends to Preferred Shareholders:
Investment income--net .......................................... (.26)
Capital charge resulting from issuance of Preferred Shares ........ (.10)
---------
Total effect of Preferred Share activity ............................ (.36)
---------
Net asset value, end of period ...................................... $ 12.44
=========
Market price per share, end of period ............................... $ 11.875
=========
==================================================================================================================
Total Investment Based on market price per share ..................................... (16.59%)@
Return:** =========
Based on net asset value per share .................................. (12.62%)@
=========
==================================================================================================================
Ratios Based on Total expenses, net of reimbursement*** ............................. .86%
Average Net Assets =========
Of Common Shares: Total expenses*** ................................................... 1.32%
=========
Total investment income--net*** ..................................... 7.50%
=========
Amount of dividends to Preferred Shareholders ....................... 1.87%
=========
Investment income--net, to Common Shareholders ...................... 5.63%
=========
==================================================================================================================
Ratios Based on Total expenses, net of reimbursement ................................ .54%
Total Average =========
Net Assets:+++*** Total expenses ...................................................... .83%
=========
Total investment income--net ........................................ 4.71%
=========
==================================================================================================================
Ratios Based on Dividends to Preferred Shareholders ................................. 3.15%*
Average Net Assets =========
Of Preferred Shares:
==================================================================================================================
Supplemental Net assets, net of Preferred Shares, end of period (in thousands) ... $ 76,911
Data: =========
Preferred Shares outstanding, end of period (in thousands) .......... $ 54,000
=========
Portfolio turnover .................................................. 228.00%
=========
==================================================================================================================
Leverage: Asset coverage per $1,000 ........................................... $ 2,424
=========
==================================================================================================================
Dividends Per Series A--Investment income--net .................................... $ 740
Share on Preferred =========
Shares Outstanding: Series B--Investment income--net .................................... $ 746
=========
==================================================================================================================
</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 Shareholders.
+ Commencement of operations.
++ The Fund's Preferred Shares were issued on October 22, 1998.
+++ Includes Common and Preferred Shares average net assets.
@ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings Florida Insured Fund III (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 Shares 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 Shares on a weekly basis. The Fund's Common Shares are listed on the New
York Stock Exchange under the symbol MFD. 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 Trustees 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 Trustees.
(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.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures
10 & 11
<PAGE>
MuniHoldings Florida Insured Fund III, September 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
contracts are contracts for delayed delivery of securities at a specific future
date and at a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase
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) 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 Shares 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 Shares. For the period October 1, 1998
to September 30, 1999, FAM earned fees of $751,750, of which $369,582 was
voluntarily waived. FAM also reimbursed the Fund $29,789 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 $405,000 in connection with the issuance of the Fund's
Preferred Shares.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees 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 $445,143,515 and 299,605,658,
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 ....................... $(7,230,084) $(8,526,853)
Financial futures contracts ................. 300,906 --
----------- -----------
Total ....................................... $(6,929,178) $(8,526,853)
=========== ===========
- --------------------------------------------------------------------------------
As of September 30, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $8,603,291, of which $10,546 related to appreciated
securities and $8,613,837 related to depreciated securities. The aggregate cost
of investments at September 30, 1999 for Federal income tax purposes was
$141,102,349.
4. Beneficial Interest Transactions:
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, including Preferred Shares, par value $.10 per share, all of which
were initially classified as Common Shares. The Board of Trustees is authorized,
however, to reclassify any unissued shares of beneficial interest without
approval of holders of Common Shares.
Common Shares
Shares issued and outstanding for the period October 1, 1998 to September 30,
1999, increased by 6,150,000 from shares sold and by 25,163 as a result of
dividend reinvestment.
Preferred Shares
Auction Market Preferred Shares ("AMPS") are Preferred Shares 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, 3.95% and Series B, 3.60%.
In connection with the offering of AMPS, the Board of Trustees reclassified
2,160 shares of unissued beneficial interest as AMPS. Shares issued and
outstanding during the period October 1, 1998 to September 30, 1999 increased by
2,160 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 $100,262 as commissions.
5. Capital Loss Carryforward:
At September 30, 1999, the Fund had a net capital loss carryforward of
approximately $174,000, 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 Trustees approved a plan of
reorganization, subject to shareholder approval and certain other conditions,
whereby MuniHoldings Florida Insured Fund would acquire substantially all of the
assets and liabilities of the Fund, MuniHoldings Florida Insured Fund II and
MuniHoldings Florida Insured Fund IV in exchange for newly issued shares of
MuniHoldings Florida Insured Fund. 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 Trustees declared an ordinary income
dividend to Common Shareholders in the amount of $.064000 per share, payable on
October 28, 1999 to shareholders of record as of October 22, 1999.
12 & 13
<PAGE>
MuniHoldings Florida Insured Fund III, September 30, 1999
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees,
MuniHoldings Florida Insured Fund III:
We have audited the accompanying statement of assets, liabilities and capital of
MuniHoldings Florida Insured Fund III, 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 Florida Insured Fund III 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 Florida
Insured Fund III 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 the Fund's Common Shares, 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 TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Robert A. DiMella, Vice President
Robert D. Sneeden, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Transfer Agents
Common Shares:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Preferred Shares:
The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
MFD
14 & 15
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of MuniHoldings Florida Insured Fund III 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 the ability to leverage its
Common Shares by issuing Preferred Shares to provide the Common Shareholders
with a potentially higher rate of return. Leverage creates risks for Common
Shareholders, including the likelihood of greater volatility of net asset value
and market price of shares of the Common Shares, and the risk that fluctuations
in the short-term dividend rates of the Preferred Shares may affect the yield to
Common Shareholders. Statements and other information herein are as dated and
are subject to change.
MuniHoldings Florida
Insured Fund III
Box 9011
Princeton, NJ
08543-9011 #HOLDFL3--9/99
[RECYCLE LOGO] Printed on post-consumer recycled paper
<PAGE>
MUNIHOLDINGS
FLORIDA INSURED
FUND IV
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
September 30, 1999
<PAGE>
MuniHoldings Florida Insured Fund IV
The Benefits and Risks of Leveraging
MuniHoldings Florida Insured Fund IV has the ability to leverage to seek to
enhance the yield and net asset value of its Common Shares. However, these
objectives cannot be achieved in all interest rate environments. To leverage,
the Fund issues Preferred Shares, which pay 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 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 Shares. However, in order to benefit
Common 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
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 Share capitalization of
$100 million and the issuance of Preferred Shares 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
Shares 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 Shares.
In this case, the dividends paid to Preferred Shareholders are significantly
lower than the income earned on the fund's long-term investments, and therefore
the Common 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 Shares
will be reduced or eliminated completely. At the same time, the market value of
the fund's Common Shares (that is, their price as listed on the New York Stock
Exchange) may, as a result, decline. Furthermore, if long-term interest rates
rise, the Common Shares' net asset value will reflect the full decline in the
price of the portfolio's investments, since the value of the fund's Preferred
Shares does not fluctuate. In addition to the decline in net asset value, the
market value of the fund's Common Shares 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 Florida Insured Fund IV, September 30, 1999
DEAR SHAREHOLDER
Since inception (January 29, 1999) through September 30, 1999, the Common Shares
of MuniHoldings Florida Insured Fund IV earned $0.540 per share income
dividends, which included earned and unpaid dividends of $0.067. This represents
a net annualized yield of 6.43%, based on a month-end net asset value of $12.52
per share. During the same period, the total investment return on the Fund's
Common Shares was--13.51%, based on a change in per share net asset value from
$15.00 to $12.52, and assuming reinvestment of $0.474 per share income
dividends.
For the six-month period ended September 30, 1999, the Fund's Auction Market
Preferred Shares had an average yield of 3.22% for Series A and 3.25% 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 9, 1999, MuniHoldings Florida Insured Fund IV's Board of Trustees
approved a plan of reorganization, subject to shareholder approval and certain
other conditions, whereby MuniHoldings Florida Insured Fund would acquire
substantially all of the assets and liabilities of the Fund, MuniHoldings
Florida Insured Fund II and MuniHoldings Florida Insured Fund III in exchange
for newly issued shares of MuniHoldings Florida Insured Fund. 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 Florida Insured Fund IV.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Trustee
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Robert D. Sneeden
Robert D. Sneeden
Vice President and Portfolio Manager
October 28, 1999
2 & 3
<PAGE>
MuniHoldings Florida Insured Fund IV, 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>
Florida--93.1% AAA Aaa $ 6,195 Alachua County, Florida, Public Improvement Revenue Refunding Bonds,
5% due 8/01/2014 (f) $ 5,895
-------------------------------------------------------------------------------------------------------------
NR* Aaa 3,200 Broward County, Florida, HFA, S/F Mortgage Revenue Refunding Bonds,
AMT, Series B, 5.25% due 4/01/2031 (b)(c)(e) 2,904
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Charlotte County, Florida, Health Care Facilities Revenue Refunding
Bonds (Bon Secours Health Systems), RIB, 5.858% due 8/26/2027 (f)(i) 5,092
-------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 5,900 Dade County, Florida, IDA, Exempt Facilities Revenue Refunding Bonds
(Florida Power & Light Co.), VRDN, 3.90% due 6/01/2021 (g) 5,900
-------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Dade County, Florida, Water and Sewer System Revenue Bonds, 5.25%
due 10/01/2026 (d) 9,293
-------------------------------------------------------------------------------------------------------------
NR* Aaa 6,000 Duval County, Florida, HFA, S/F Mortgage Revenue Refunding Bonds,
AMT, 5.30% due 4/01/2029 (b)(c)(h) 5,369
-------------------------------------------------------------------------------------------------------------
Florida, HFA, Revenue Bonds (Willow Lake Apartments), AMT, Series J-1
(a):
AAA Aaa 3,750 5.35% due 7/01/2027 3,494
AAA Aaa 6,000 5.45% due 1/01/2038 5,549
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,960 Florida Housing Finance Corporation, Housing Revenue Bonds (Logan
Heights Apartments), AMT, Series M-1, 6% due 10/01/2039 (a) 4,938
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,665 Florida Municipal Loan Council Revenue Bonds, 5% due 4/01/2029 (e) 4,999
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Florida Ports Financing Commission Revenue Bonds (State
Transportation Trust Fund), AMT, 5.375% due 6/01/2027 (e) 3,751
-------------------------------------------------------------------------------------------------------------
Florida State Governmental Utility Authority, Utility Revenue Bonds
(a):
NR* Aaa 3,740 (Poinciana Utility System), 5.25% due 10/01/2018 3,530
NR* Aaa 1,525 (Sarasota Utility System), 5% due 10/01/2029 1,345
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Florida State Turnpike Authority, Turnpike Revenue Bonds (Department
of Transportation), Series A, 5% due 7/01/2021 (d) 3,593
-------------------------------------------------------------------------------------------------------------
AAA NR* 5,000 Jacksonville, Florida, Health Facilities Authority, Hospital Revenue
Bonds (Charity Obligation Group), Series C, 5.375% due 8/15/2029 (e) 4,727
-------------------------------------------------------------------------------------------------------------
NR* VMIG1+ 1,000 Jacksonville, Florida, Health Facilities Authority, Hospital Revenue
Refunding Bonds (Genesis Rehabilitation Hospital), VRDN, 3.95% due
5/01/2021 (g) 1,000
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,900 Jupiter Island, Florida, Utility System Revenue Bonds (South Martin
Regional Utility), 5% due 10/01/2028 (e) 1,678
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Lakeland, Florida, Hospital System Revenue Bonds (Lakeland Regional
Health System), Series A, 5.50% due 11/15/2026 (e) 2,893
-------------------------------------------------------------------------------------------------------------
AAA Aaa 7,500 Lee County, Florida, Water and Sewer Revenue Bonds, Series A, 5% due
10/01/2029 (a) 6,613
-------------------------------------------------------------------------------------------------------------
AAA Aaa 8,250 Miami Beach, Florida, Parking Revenue Bonds, 5.125% due 9/01/2022
(f) 7,568
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,400 Miami-Dade County, Florida, School Board, COP, Refunding, Series C,
5% due 8/01/2025 (f) 4,798
-------------------------------------------------------------------------------------------------------------
AAA Aaa 6,505 Miami-Dade County, Florida, Water and Sewer Revenue Bonds, Series A,
5% due 10/01/2029 (d) 5,736
-------------------------------------------------------------------------------------------------------------
NR* Aaa 3,000 Mirimar, Florida, Wastewater Improvement Assessment Revenue
Refunding Bonds, 5% due 10/01/2025 (e) 2,665
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,970 Orange County, Florida, Health Facilities Authority, Mortgage
Revenue Bonds (South Central Nursing Homes), Series A, 5.50% due
7/01/2032 (f) 1,878
-------------------------------------------------------------------------------------------------------------
NR* Aaa 7,620 Orange County, Florida, School Board, COP, Series A, 5% due
8/01/2024 (e) 6,786
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,160 Orange County, Florida, Tourist Development Tax Revenue Refunding
Bonds, 5% due 10/01/2019 (e) 4,681
-------------------------------------------------------------------------------------------------------------
AAA Aaa 13,400 Orlando and Orange County Expressway Authority, Florida, Expressway
Revenue Refunding Bonds, Junior Lien, 5% due 7/01/2021 (d) 12,068
-------------------------------------------------------------------------------------------------------------
Osceola County, Florida, Sales Tax Revenue Bonds (f):
NR* Aaa 5,000 5% due 4/01/2019 4,542
NR* Aaa 3,000 5% due 4/01/2024 2,677
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,750 Palm Bay, Florida, Utility Systems Capital Improvement Revenue
Bonds, 5% due 10/01/2028 (e) 3,312
-------------------------------------------------------------------------------------------------------------
NR* Aaa 1,000 Pinellas County, Florida, HFA, S/F Housing Revenue Bonds
(Multi-County Program), Series B-2, 5.45% due 9/01/2017 (b)(c) 965
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Saint John's River Management District, Florida, Land Acquisition
Revenue Refunding Bonds, 5.125% due 7/01/2016 (f) 1,409
-------------------------------------------------------------------------------------------------------------
Saint Lucie County, Florida, PCR, Refunding (Florida Power and Light
Company Project), VRDN (g):
A1+ VMIG1+ 1,400 3.95% due 1/01/2026 1,400
A1+ VMIG1+ 300 3.95% due 3/01/2027 300
-------------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Saint Petersburg, Florida, Public Utilities Revenue Bonds, Series A,
5% due 10/01/2028 (f) 4,416
-------------------------------------------------------------------------------------------------------------
NR* Aaa 9,500 Sarasota County, Florida, Public Hospital Board, Revenue Refunding
Bonds, RITR, Series 99, 6.835% due 7/01/2028 (e)(i) 8,705
-------------------------------------------------------------------------------------------------------------
Sunrise, Florida, Utility System Revenue Refunding Bonds (a):
AAA Aaa 6,000 5.20% due 10/01/2022 5,599
AAA Aaa 3,295 5% due 10/01/2028 2,927
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Tampa Bay, Florida, Water Utility System Revenue Bonds, 6% due
10/01/2024 (d) 5,173
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,965 Tampa, Florida, Solid Waste System, Revenue Refunding Bonds (McKay
Bay Refuse-to-Energy), AMT, Series B, 5.25% due 10/01/2016 (a) 4,677
-------------------------------------------------------------------------------------------------------------
NR* Aaa 7,500 Tampa, Florida, Sports Authority Revenue Bonds, RITR, Series 98,
6.332% due 1/01/2027 (e)(i) 6,434
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,115 Tampa-Hillsborough County, Florida, Expressway Authority, Revenue
Refunding Bonds, 5.125% due 7/01/2019 (a) 2,863
===================================================================================================================================
Illinois--1.6% AAA Aaa 3,500 Illinois Development Finance Authority, PCR, Refunding (Illinois
Power Company Project), Series B, 5.40% due 3/01/2028 (e) 3,228
===================================================================================================================================
Minnesota--0.3% A1+ NR* 600 Beltrami County, Minnesota, Environmental Control Revenue Refunding
Bonds (Northwood Panelboard Co. Project), VRDN, 3.90% due 12/01/2021
(g) 600
===================================================================================================================================
</TABLE>
Portfolio Abbreviations
To simplify the listings of MuniHoldings Florida Insured Fund IV'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)
COP Certificates of Participation
HFA Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
MuniHoldings Florida Insured Fund IV, September 30, 1999
SCHEDULE OF INVESTMENTS (Concluded) (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--3.6% A1+ VMIG1+ $ 4,800 Long Island Power Authority, New York, Electric System Revenue
Bonds, VRDN, Sub-Series 7, 4% due 4/01/2025 (e)(g) $ 4,800
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Long Island Power Authority, New York, Electric System Revenue
Refunding Bonds, Series A, 5% due 12/01/2018 (f) 2,260
===================================================================================================================================
North Carolina--0.5% A1+ NR* 900 Raleigh Durham, North Carolina, Airport Authority, Special Facility
Revenue Refunding Bonds (American Airlines Inc.), VRDN, Series B,
3.95% due 11/01/2015 (g) 900
===================================================================================================================================
Texas--4.1% AAA Aaa 9,000 Matagorda County, Texas, Navigation District Number 1, Revenue
Refunding Bonds (Reliant Energy Inc.), Series A, 5.25% due
6/01/2026 (a) 8,085
===================================================================================================================================
Total Investments (Cost--$218,026)--103.2% 204,015
Liabilities in Excess of Other Assets--(3.2%) (6,260)
--------
Net Assets--100.0% $197,755
========
===================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FNMA Collateralized.
(c) GNMA Collateralized.
(d) FGIC Insured.
(e) MBIA Insured.
(f) FSA Insured.
(g) 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.
(h) FHA Insured.
(i) 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.
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.............................................................. 95.6%
Other+............................................................... 7.6
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of September 30, 1999
=====================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$218,025,793) (Note 1a) ........ $204,015,033
Cash ................................................................... 101,196
Receivables:
Interest ............................................................. $ 3,697,584
Securities sold ...................................................... 489,202 4,186,786
------------
Prepaid expenses and other assets ...................................... 26,319
------------
Total assets ........................................................... 208,329,334
------------
=====================================================================================================================
Liabilities: Payables:
Securities purchased ................................................. 10,149,062
Offering costs (Note 1e) ............................................. 208,126
Dividends to shareholders (Note 1f) .................................. 151,494
Investment adviser (Note 2) .......................................... 4,531 10,513,213
------------
Accrued expenses and other liabilities ................................. 61,570
------------
Total liabilities ...................................................... 10,574,783
------------
=====================================================================================================================
Net Assets: Net assets ............................................................. $197,754,551
============
=====================================================================================================================
Capital: Capital Shares (unlimited number of shares of beneficial interest
authorized) (Note 4):
Preferred Shares, par value $.10 per share (3,340 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) .. $ 83,500,000
Common Shares, par value $.10 per share (9,126,034 shares issued
and outstanding) ..................................................... $ 912,603
Paid-in capital in excess of par ....................................... 134,928,999
Undistributed investment income--net ................................... 673,288
Accumulated realized capital losses on investments--net (Note 5) ....... (8,249,579)
Unrealized depreciation on investments--net ............................ (14,010,760)
------------
Total--Equivalent to $12.52 net asset value per Common Share (market
price--$12.625) ........................................................ 114,254,551
------------
Total capital .......................................................... $197,754,551
============
=====================================================================================================================
</TABLE>
* Auction Market Preferred Shares.
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings Florida Insured Fund IV, September 30, 1999
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 ... $ 7,115,503
Income
(Note 1d):
====================================================================================================================
Expenses: Investment advisory fees (Note 2) .......................... $ 733,239
Commission fees (Note 4) ................................... 124,265
Professional fees .......................................... 34,252
Accounting services (Note 2) ............................... 31,274
Transfer agent fees ........................................ 25,716
Trustees' fees and expenses ................................ 18,329
Printing and shareholder reports ........................... 11,161
Listing fees ............................................... 10,362
Custodian fees ............................................. 9,618
Pricing fees ............................................... 3,424
Other ...................................................... 7,026
------------
Total expenses before reimbursement ........................ 1,008,666
Reimbursement of expenses (Note 2) ......................... (519,165)
------------
Total expenses after reimbursement ......................... 489,501
------------
Investment income--net ..................................... 6,626,002
------------
====================================================================================================================
Realized & Realized loss on investments--net .......................... (8,249,579)
Unrealized Loss on Unrealized depreciation on investments--net ................ (14,010,760)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Decrease in Net Assets Resulting from Operations ....... $(15,634,337)
============
====================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
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 ............................................................ $ 6,626,002
Realized loss on investments--net ................................................. (8,249,579)
Unrealized depreciation on investments--net ....................................... (14,010,760)
------------
Net decrease in net assets resulting from operations .............................. (15,634,337)
------------
===============================================================================================================================
Dividends to Investment income--net:
Shareholders Common Shares ................................................................... (4,320,556)
(Note 1f): Preferred Shares ................................................................ (1,632,158)
------------
Net decrease in net assets resulting from dividends to shareholders ............... (5,952,714)
------------
===============================================================================================================================
Beneficial Interest Proceeds from issuance of Common Shares ........................................... 136,650,000
Transactions Proceeds from issuance of Preferred Shares ........................................ 83,500,000
(Notes 1e & 4): Value of shares issued to Common Shareholders in reinvestment of dividends ........ 134,510
Offering costs resulting from the issuance of Common Shares ....................... (251,525)
Offering and underwriting costs resulting from the issuance of Preferred Shares ... (791,388)
------------
Net increase in net assets derived from beneficial interest transactions .......... 219,241,597
------------
===============================================================================================================================
Net Assets: Total increase in net assets ...................................................... 197,654,546
Beginning of period ............................................................... 100,005
------------
End of period* .................................................................... $197,754,551
============
===============================================================================================================================
* Undistributed investment income--net .............................................. $ 673,288
============
===============================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings Florida Insured Fund IV, 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
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 ......................................................... .72
Realized and unrealized loss on investments--net ............................... (2.43)
----------
Total from investment operations ............................................... (1.71)
----------
Less dividends to Common Shareholders from investment income--net .............. (.47)
----------
Capital charge resulting from issuance of Common Shares ........................ (.03)
----------
Effect of Preferred Share activity:++
Dividends to Preferred Shareholders:
Investment income--net ..................................................... (.18)
Capital charge resulting from issuance of Preferred Shares ................... (.09)
----------
Total effect of Preferred Share activity ....................................... (.27)
----------
Net asset value, end of period ................................................. $ 12.52
==========
Market price per share, end of period .......................................... $ 12.625
==========
==============================================================================================================================
Total Investment Based on market price per share ................................................ (12.78%)@
Return:** ==========
Based on net asset value per share ............................................. (13.51%)@
==========
==============================================================================================================================
Ratios Based on Total expenses, net of reimbursement*** ........................................ .59%*
Average Net Assets ==========
Of Common Shares: Total expenses*** .............................................................. 1.22%*
==========
Total investment income--net*** ................................................ 8.01%*
==========
Amount of dividends to Preferred Shareholders .................................. 1.97%*
==========
Investment income--net, to Common Shareholders ................................. 6.04%*
==========
==============================================================================================================================
Ratios Based on Total expenses, net of reimbursement ........................................... .37%*
Total Average ==========
Net Assets:+++*** Total expenses ................................................................. .76%*
==========
Total investment income--net ................................................... 4.97%*
==========
==============================================================================================================================
Ratios Based on Dividends to Preferred Shareholders ............................................ 3.23%*
Average Net Assets ==========
Of Preferred Shares:
==============================================================================================================================
Supplemental Net assets, net of Preferred Shares, end of period (in thousands) .............. $ 114,255
Data: ==========
Preferred Shares outstanding, end of period (in thousands) ..................... $ 83,500
==========
Portfolio turnover ............................................................. 115.57%
==========
==============================================================================================================================
Leverage: Asset coverage per $1,000 ...................................................... $ 2,368
==========
==============================================================================================================================
Dividends Per
Share on Preferred Series A--Investment income--net ............................................... $ 494
Shares Outstanding: ==========
Series B--Investment income--net ............................................... $ 484
==========
==============================================================================================================================
</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 Shareholders.
+ Commencement of operations.
++ The Fund's Preferred Shares were issued on February 22, 1999.
+++ Includes Common and Preferred Shares average net assets.
@ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings Florida Insured Fund IV (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 Shares 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
Shares on a weekly basis. The Fund's Common Shares are listed on the New York
Stock Exchange under the symbol MFR. 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 Trustees 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 Trustees.
(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.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as
10 & 11
<PAGE>
MuniHoldings Florida Insured Fund IV, September 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the value of the contract at the time it was opened and the value at the time it
was closed.
o Options--The Fund is authorized to write covered call options and purchase
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 Shares 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 Shares. For the period January 29, 1999
to September 30, 1999, FAM earned fees of $733,239, of which $500,269 was
voluntarily waived. FAM also reimbursed the Fund additional expenses of $18,896.
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 $626,250 in connection with the issuance of the Fund's
Preferred Shares.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees 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 $416,426,858 and
$204,580,285, 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 ........................ $(8,649,018) $(14,010,760)
Financial futures contracts .................. 399,439 --
----------- ------------
Total ........................................ $(8,249,579) $(14,010,760)
=========== ============
- --------------------------------------------------------------------------------
As of September 30, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $14,010,760, of which $48,599 related to appreciated
securities and $14,059,359 related to depreciated securities. The aggregate cost
of investments at September 30, 1999 for Federal income tax purposes was
$218,025,793.
4. Beneficial Interest Transactions:
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, including Preferred Shares, par value $.10 per share, all of which
were initially classified as Common Shares. The Board of Trustees is authorized,
however, to reclassify any unissued shares of beneficial interest without
approval of holders of Common Shares.
Common Shares
Shares issued and outstanding during the period January 29, 1999 to September
30, 1999 increased by 9,110,000 from shares sold and by 9,367 as a result of
dividend reinvestment.
Preferred Shares
Auction Market Preferred Shares ("AMPS") are Preferred Shares 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 3.85% for Series A and 3.20% for Series B.
In connection with the offering of AMPS, the board of Trustees reclassified
3,340 shares of unissued beneficial interest as AMPS. Shares issued and
outstanding during the period January 29, 1999 to September 30, 1999 increased
by 3,340 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 $90,313 as commissions.
5. Capital Loss Carryforward:
At September 30, 1999, the Fund had a capital loss carryforward of approximately
$8,250,000, 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 9, 1999, the Fund's Board of Trustees approved a plan of
reorganization, subject to shareholder approval and certain other conditions,
whereby MuniHoldings Florida Insured Fund would acquire substantially all of the
assets and liabilities of the Fund, MuniHoldings Florida Insured Fund II and
MuniHoldings Florida Insured Fund III in exchange for newly issued shares of
MuniHoldings Florida Insured Fund. 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 Trustees declared an ordinary income
dividend to Common Shareholders in the amount of $.066557 per share, payable on
October 28, 1999 to shareholders of record as of October 22, 1999.
12 & 13
<PAGE>
MuniHoldings Florida Insured Fund IV, September 30, 1999
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees,
MuniHoldings Florida Insured Fund IV:
We have audited the accompanying statement of assets, liabilities and capital of
MuniHoldings Florida Insured Fund IV, 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 Florida Insured Fund IV 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
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniHoldings Florida
Insured Fund IV 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 the Fund's Common Shares, 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 TRUSTEES
Terry K. Glenn, President and Trustee
Ronald W. Forbes, Trustee
Cynthia A. Montgomery, Trustee
Charles C. Reilly, Trustee
Kevin A. Ryan, Trustee
Richard R. West, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
Robert D. Sneeden, Jr., Vice President
Donald C. Burke, Vice President and Treasurer
William E. Zitelli, Secretary
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Transfer Agents
Common Shares:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Preferred Shares:
The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
MFR
14 & 15
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of MuniHoldings Florida Insured Fund IV 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 the ability to leverage its
Common Shares by issuing Preferred Shares to provide the Common Shareholders
with a potentially higher rate of return. Leverage creates risks for Common
Shareholders, including the likelihood of greater volatility of net asset value
and market price of shares of the Common Shares, and the risk that fluctuations
in the short-term dividend rates of the Preferred Shares may affect the yield to
Common Shareholders. Statements and other information herein are as dated and
are subject to change.
MuniHoldings Florida
Insured Fund IV
Box 9011
Princeton, NJ
08543-9011 FLINS4--9/99
[RECYCLE LOGO] Printed on post-consumer recycled paper
