MUNIHOLDINGS
NEW JERSEY
INSURED
FUND III, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
March 31, 1999
<PAGE>
MuniHoldings New Jersey Insured Fund III, Inc.
The Benefits and Risks of Leveraging
MuniHoldings New Jersey Insured Fund III, Inc. has the ability to leverage to
seek to enhance the yield and net asset value of its Common Stock. However,
these objectives cannot be achieved in all interest rate environments. To
leverage, the Fund issues Preferred Stock, which pays dividends at prevailing
short-term interest rates, and invests the proceeds in long-term municipal
bonds. The interest earned on these investments is paid to Common Stock
shareholders in the form of dividends, and the value of these portfolio holdings
is reflected in the per share net asset value of the Fund's Common Stock.
However, in order to benefit Common Stock shareholders, the yield curve must be
positively sloped; that is, short-term interest rates must be lower than
long-term interest rates. At the same time, a period of generally declining
interest rates will benefit Common Stock shareholders. If either of these
conditions change, then the risks of leveraging will begin to outweigh the
benefits.
To illustrate these concepts, assume a fund's Common Stock capitalization of
$100 million and the issuance of Preferred Stock for an additional $50 million,
creating a total value of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are approximately 3%
and long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million of Preferred
Stock based on the lower short-term interest rates. At the same time, the fund's
total portfolio of $150 million earns the income based on long-term interest
rates. Of course, increases in short-term interest rates would reduce (and even
eliminate) the dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock share holders are
significantly lower than the income earned on the fund's long-term investments,
and therefore the Common Stock shareholders are the beneficiaries of the
incremental yield. However, if short-term interest rates rise, narrowing the
differential between short-term and long-term interest rates, the incremental
yield pickup on the Common Stock will be reduced or eliminated completely. At
the same time, the market value of the fund's Common Stock (that is, its price
as listed on the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common Stock's net asset
value will reflect the full decline in the price of the portfolio's investments,
since the value of the fund's Preferred Stock does not fluctuate. In addition to
the decline in net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed-rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in these securities.
<PAGE>
MuniHoldings New Jersey Insured Fund III, Inc., March 31, 1999
DEAR SHAREHOLDER
We are pleased to provide you with this first semi-annual report for
MuniHoldings New Jersey Insured Fund III, Inc. In this and future shareholder
reports, we will highlight the Fund's performance and describe recent investment
activities. The Fund seeks to provide shareholders with current income exempt
from Federal and New Jersey income taxes by investing primarily in a portfolio
of long-term, investment-grade municipal obligations.
Since inception (January 29, 1999) through March 31, 1999, the Common Stock of
MuniHoldings New Jersey Insured Fund III, Inc. had earned and unpaid dividends
of $0.128 per share. This represents a net annualized yield of 5.08%, based on a
month-end per share net asset value of $14.85. Over the same period, the total
investment return on the Fund's Common Stock was -1.00%, based on a change in
per share net asset value from $15.00 to $14.85.
For the period January 29, 1999 through March 31, 1999, the Fund's Preferred
Stock had an average yield of 3.17%.
The Municipal Market Environment
Since the Fund's inception (January 29, 1999) through March 31, 1999, long-term
tax-exempt revenue bond yields were little changed. However, long-term US
Treasury bond yields were under significant pressure through out the March
period. Investors became increasingly concerned that the strong growth the US
economy displayed during the fourth quarter in 1998 would continue into the
first half of 1999. Continued strong US equity market performance also reduced
investor interest in long-term fixed-income products. Furthermore, foreign
economic growth, while clearly not expanding, appears to have stabilized. This
reduced much of the strong "flight to quality" benefit the US Treasury market
had enjoyed in recent quarters. These factors helped push US Treasury bond
yields higher throughout the period. US Treasury bond yields rose 50 basis
points (0.50%) to end the March period at 5.625%. Long-term municipal revenue
bond yields rose less than 5 basis points to end the March period at 5.29% as
measured by the Bond Buyer Revenue Bond Index.
The relative stability of the municipal bond market in recent months was largely
the result of a return to a strong technical position within the tax-exempt
market. For much of 1998, new long-term municipal bond issuance was
significantly above recent historic trends. Additionally, the strong demand
exerted by world equity markets also sapped much of the demand for
tax-advantaged products. However, in recent months, a much stronger
supply/demand relationship has developed.
Over the last 12 months, nearly $275 billion in new long-term municipal bonds
was issued, an increase of approximately 10% compared to the same period a year
ago. As interest rates declined in recent quarters, it has become increasingly
difficult for municipalities to generate the economic savings necessary for
additional tax-free financings. Consequently, the pace of new bond issuance
slowed in recent quarters. During the six months ended March 31, 1999, more than
$125 billion in new long-term municipal securities was underwritten, a decrease
of 6% compared to the same six-month period a year ago. During the quarter ended
March 31, 1999, approximately $60 billion in new long-term tax-exempt bonds was
issued, a decline of almost 20% compared to the quarter ended March 31, 1998.
Additionally, in January and February, tax-exempt bondholders received over $40
billion from coupon payments, bond maturities and proceeds from early bond
redemptions. Consequently, retail investor demand has been strong in recent
months, easily matching, if not at times exceeding, available supply. We will
monitor this trend closely in the coming months to determine if the supply
pressures exerted in 1998 are abating and fostering a more balanced supply/
demand environment for 1999.
The recent relative outperformance of the municipal bond market has resulted in
a decline in their recent historic high yield ratios. As recently as the end of
1998, long-term, A-rated municipal revenue bond yields were in excess of 100% of
comparable US Treasury bond yields. At March 31, 1999, municipal bond yield
ratios were approximately 95% of their taxable counterparts, still well above
their recent historic average. During 1997, tax-exempt bond yield ratios
averaged 84%. Should the current positive technical environment in municipal
securities continue to improve, it is likely that tax-exempt bond yield ratios
will return to more historic levels.
Looking ahead, the direction and intensity of the next move in interest rates is
difficult to predict. In recent years, US bond yields tended to reach their
annual peak sometime in April and move downward for the remainder of the year.
However, such trends have been predicated on subsequent declines in US economic
activity. Currently, there appears to be little indication of significant
economic weakness going forward. On the other hand, by nearly every measure,
inflation is well contained. Future indicators of inflation, such as the prices
of gold and other commodities, are giving little evidence of any significant
inflationary increase. Additionally, inflation-adjusted real rates of return are
historically attractive to long-term investors. These factors suggest that
fixed-income bond yields may trade in a relatively narrow range, centered around
current levels, for a protracted period of time. Should the US economy weaken
later this year, it is likely that bond yields will decline as they have in
recent years.
Portfolio Strategy
Since its inception, we have focused on committing the Fund's initial proceeds
in the long-term and intermediate-term maturity range of the New Jersey insured
municipal market. Interest rates in the taxable arena, and to a much lesser
degree in the municipal market, have risen since the Fund commenced operations.
Therefore, we had to proceed carefully in making our initial investments in
order to seek to protect the port folio's net asset valuation. More of our
initial investments were focused in shorter maturity municipal bonds than would
otherwise be the case if the fixed-income market had been more stable. Our goal
is to have the Fund invested while tempering the impact of rising interest rates
so that Common Stock shareholders can begin to benefit from the higher yield
that leverage can provide. (For an explanation of the benefits and risks of
lever aging, see page 1 of this report to shareholders.)
As a result of inordinately tight credit quality spreads, we deliberately
underweighted the Fund's exposure to uninsured bonds. Our portfolio currently
reflects a balance of long-term and short-term holdings, with a high degree of
credit quality. Once interest rates have stabilized, we plan to recommit a
larger portion of Fund assets to longer-term, higher-yielding New Jersey bonds.
In Conclusion
We appreciate your investment in MuniHoldings New Jersey Insured Fund III, Inc.,
and we look forward to assisting you with your financial needs in the months and
years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Robert A. DiMella
Robert A. DiMella
Vice President and Portfolio Manager
/s/ Roberto Roffo
Roberto Roffo
Vice President and Portfolio Manager
May 12, 1999
2 & 3
<PAGE>
MuniHoldings New Jersey Insured Fund III, Inc., March 31, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
New Jersey-- Essex County, New Jersey, GO, General Improvement (a):
89.9% NR* Aaa $ 3,250 5% due 8/01/2008 $ 3,433
NR* Aaa 6,250 5% due 8/01/2009 6,590
- ------------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,825 Lacey Municipal Utilities Authority, New Jersey, Water Revenue Refunding Bonds,
5.20% due 12/01/2024 (d) 2,885
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Lenape, New Jersey, Regional High School District, GO, 5% due 4/01/2020 (b) 3,000
- ------------------------------------------------------------------------------------------------------------------------------------
AAA NR* 1,120 Metuchen, New Jersey, School District, GO, UT, 5.20% due 9/15/2022 (b) 1,134
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,500 Middlesex County, New Jersey, Improvement Authority, Utility System Revenue
Refunding Bonds (Perth Amboy Franchise Project), Series A, 5% due 9/01/2029 (a) 5,474
- ------------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Mount Holly, New Jersey, Municipal Utilities Authority, Sewer Revenue Bonds,
4.75% due 12/01/2028 (d) 4,778
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,015 New Brunswick, New Jersey, Housing Authority, Lease Revenue Refunding Bonds
(Rutgers University), 4.625% due 7/01/2024 (b) 4,733
- ------------------------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,200 New Jersey EDA, Natural Gas Facilities Revenue Bonds (NUI Corporation Project),
VRDN, AMT, Series A, 2.90% due 6/01/2026 (a)(e) 1,200
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,975 New Jersey EDA, Natural Gas Facilities Revenue Refunding Bonds (NUI Corporation
Projects), AMT, Series A, 5.70% due 6/01/2032 (d) 3,159
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,400 New Jersey EDA, Revenue Refunding Bonds (Educational Testing Service), Series A,
4.75% due 5/15/2025 (d) 4,203
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 New Jersey EDA, Water Facilities Revenue Bonds (United Water New Jersey Inc.
Project), AMT, 5% due 11/01/2028 (a) 1,963
- ------------------------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 100 New Jersey EDA, Water Facilities Revenue Refunding Bonds (United Water New Jersey
Inc. Project), VRDN, Series A, 2.15% due 11/01/2026 (a)(e) 100
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 New Jersey Health Care Facilities Financing Authority Revenue Bonds (Catholic
Health East), Series E, 4.75% due 11/15/2029 (a) 4,730
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority, Revenue Refunding Bonds:
AAA Aaa 5,500 (Centrastate Medical Center Obligation Group), 4.50% due 7/01/2028 (a) 5,009
AAA Aaa 2,125 (Hackensack University Medical Center), Series A, 5% due 1/01/2028 (d) 2,099
AAA Aaa 2,265 (Virtua Health Issue), 4.75% due 7/01/2018 (c) 2,187
- ------------------------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,800 New Jersey Sports and Exposition Authority, State Contract Revenue Bonds, VRDN,
Series C, 2.80% due 9/01/2024 (d)(e) 1,800
- ------------------------------------------------------------------------------------------------------------------------------------
AA+ Aaa 1,000 New Jersey State Educational Facilities Authority Revenue Bonds (Institute for
Advanced Study), Series G, 5% due 7/01/2028 995
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,730 New Jersey State Educational Facilities Authority, Revenue Refunding Bonds
(Ramapo College), Series G, 4.625% due 7/01/2028 (a) 2,557
- ------------------------------------------------------------------------------------------------------------------------------------
AAA NR* 2,500 New Jersey State Housing and Mortgage Finance Agency, M/F Housing Revenue Bonds,
RITR, AMT, Series 110, 6.915% due 11/01/2030 (c)(f) 2,469
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey State Housing and Mortgage Finance Agency Revenue Bonds (Home
Buyer) (d):
AAA Aaa 2,000 AMT, Series K, 6.375% due 10/01/2026 2,142
AAA Aaa 2,000 AMT, Series M, 6.95% due 10/01/2022 2,182
AAA Aaa 2,000 AMT, Series M, 7% due 10/01/2026 2,179
AAA Aaa 3,000 Series L, 6.65% due 10/01/2014 3,272
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 6,680 New Jersey State Housing and Mortgage Finance Agency Revenue Refunding Bonds
(Home Buyer), AMT, Series X, 5.25% due 10/01/2018 (d) 6,749
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey State Transportation Trust Fund Authority, Transportation System
Revenue Bonds, Series A:
AA- Aa2 5,000 5.25% due 6/15/2008 5,346
AAA Aaa 2,500 4.50% due 6/15/2019 (c) 2,351
- ------------------------------------------------------------------------------------------------------------------------------------
Ocean County, New Jersey, Utilities Authority, Wastewater Revenue Refunding
Bonds, Series A:
NR* Aa2 1,700 4.35% due 1/01/2011 1,667
NR* Aa2 2,005 4.45% due 1/01/2012 1,970
NR* Aa2 2,055 4.65% due 1/01/2014 2,032
- ------------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,000 Plainfield, New Jersey, Municipal Utilities Authority, Sewer Revenue Bonds,
Series A, 4.75% due 12/15/2023 (c) 962
- ------------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,000 Plainfield, New Jersey, Municipal Utilities Authority, Solid Waste Revenue
Bonds, Series A, 4.75% due 12/15/2023 (c) 962
- ------------------------------------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, Special Obligation Revenue Refunding
Bonds (Versatile Structure Obligation), VRDN (e):
NR* VMIG1+ 100 AMT, Series 6, 3.05% due 12/01/2017 100
A1+ VMIG1+ 400 Series 2, 2.90% due 5/01/2019 400
A1+ VMIG1+ 1,500 Series 3, 2.85% due 6/01/2020 1,500
- ------------------------------------------------------------------------------------------------------------------------------------
AA A1 5,500 Rutgers State University, New Jersey, Series A, 4.75% due 5/01/2029 5,238
- ------------------------------------------------------------------------------------------------------------------------------------
A1+ P1 200 Union County, New Jersey, Industrial Pollution Control Financing Authority,
PCR, Refunding (Exxon Project), VRDN, 2.40% due 10/01/2024 (e) 200
- ------------------------------------------------------------------------------------------------------------------------------------
Union County, New Jersey, Utilities Authority Revenue Refunding Bonds (County
Deficiency):
AAA Aaa 4,500 AMT, Series A-2, 5% due 6/15/2028 (a) 4,422
AA+ Aaa 3,250 Series C-1, 5% due 6/15/2028 3,235
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,685 Wall Township, New Jersey, School District, GO, 4.75% due 7/15/2023 (c) 1,623
====================================================================================================================================
</TABLE>
Portfolio Abbreviations
To simplify the listings of MuniHoldings New Jersey Insured Fund III, Inc.'s
portfolio holdings in the Schedule of Investments, we have abbreviated the names
of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
EDA Economic Development Authority
GO General Obligation Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
MuniHoldings New Jersey Insured Fund III, Inc., March 31, 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>
Pennsylvania-- Delaware River Port Authority of Pennsylvania and New Jersey Revenue
9.3% Refunding Bonds, Series B (a):
AAA Aaa $ 5,090 5.25% due 1/01/2006 $ 5,429
AAA Aaa 5,795 5.25% due 1/01/2009 6,196
====================================================================================================================================
Total Investments (Cost--$125,270)--99.2% 124,655
Variation Margin on Financial Futures Contracts**--0.0% 47
Other Assets Less Liabilities--0.8% 989
--------
Net Assets--100.0% $125,691
========
====================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at March 31,
1999.
(f) 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 March 31, 1999.
* Not Rated.
** Financial futures contracts purchased as of March 31, 1999 were as
follows:
- --------------------------------------------------------------------------------
(in Thousands)
- --------------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
- --------------------------------------------------------------------------------
100 US Treasury Bonds June 1999 $12,359
- --------------------------------------------------------------------------------
Total Financial Futures Contracts Purchased
(Total Contract Price--$12,303) $12,359
=======
- --------------------------------------------------------------------------------
+ Highest short-term ratings by Moody's Investors Service, Inc.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of March 31, 1999
====================================================================================================================================
<S> <C> <C>
Assets: Investments, at value (identified cost--$125,269,858) (Note 1a) ........................ $124,655,007
Cash ................................................................................... 23,365
Receivables:
Securities sold ...................................................................... $ 4,807,425
Interest ............................................................................. 1,944,329
Variation margin (Note 1b) ........................................................... 46,875
Investment adviser (Note 2) .......................................................... 15,352 6,813,981
------------
Other assets ........................................................................... 22,125
------------
Total assets ........................................................................... 131,514,478
------------
====================================================================================================================================
Liabilities: Payables:
Securities purchased ................................................................. 5,442,038
Offering costs (Note 1e) ............................................................. 137,500
Dividends to shareholders (Note 1f) .................................................. 29,478 5,609,016
------------
Accrued expenses and other liabilities ................................................. 214,160
------------
Total liabilities ...................................................................... 5,823,176
------------
====================================================================================================================================
Net Assets: Net assets ............................................................................. $125,691,302
============
====================================================================================================================================
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (1,880 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) .................. $ 47,000,000
Common Stock, par value $.10 per share (5,297,667 shares issued and outstanding) ..... $ 529,767
Paid-in capital in excess of par ....................................................... 78,216,291
Undistributed investment income--net ................................................... 678,779
Accumulated realized capital losses on investments--net ................................ (62,434)
Unrealized depreciation on investments--net ............................................ (671,101)
------------
Total--Equivalent to $14.85 net asset value per share of Common Stock
(market price--$14.25) ............................................................... 78,691,302
------------
Total capital .......................................................................... $125,691,302
============
====================================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings New Jersey Insured Fund III, Inc., March 31, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period January 29, 1999+ to March 31, 1999
====================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned .................... $ 859,505
Income (Note 1d):
====================================================================================================================================
Expenses: Investment advisory fees (Note 2) ........................................... $ 88,631
Commission fees (Note 4) .................................................... 14,596
Accounting services (Note 2) ................................................ 6,786
Professional fees ........................................................... 5,131
Directors' fees and expenses ................................................ 3,725
Transfer agent fees ......................................................... 3,722
Listing fees ................................................................ 2,213
Custodian fees .............................................................. 1,636
Printing and shareholder reports ............................................ 1,314
Pricing fees ................................................................ 836
Other ....................................................................... 1,188
---------
Total expenses before reimbursement ......................................... 129,778
Reimbursement of expenses (Note 2) .......................................... (103,983)
---------
Total expenses after reimbursement .......................................... 25,795
---------
Investment income--net ...................................................... 833,710
---------
====================================================================================================================================
Realized & Realized loss on investments--net ........................................... (62,434)
Unrealized Loss Unrealized depreciation on investments--net ................................. (671,101)
On Investments--Net ---------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ........................ $ 100,175
=========
====================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
Jan. 29, 1999+ to
Increase (Decrease) in Net Assets: March 31, 1999
====================================================================================================================================
<S> <C> <C>
Operations: Investment income--net ................................................................. $ 833,710
Realized loss on investments--net ...................................................... (62,434)
Unrealized depreciation on investments--net ............................................ (671,101)
-------------
Net increase in net assets resulting from operations ................................... 100,175
-------------
====================================================================================================================================
Dividends to Investment income--net to Preferred Stock shareholders ................................. (154,931)
Shareholders -------------
(Note 1f): Net decrease in net assets resulting from dividends to shareholders .................... (154,931)
-------------
====================================================================================================================================
Capital Stock Proceeds from issuance of Common Stock ................................................. 79,365,000
Transactions Proceeds from issuance of Preferred Stock .............................................. 47,000,000
(Notes 1e & 4): Offering costs resulting from the issuance of Common Stock ............................. (223,447)
Offering and underwriting costs resulting from the issuance of Preferred Stock ......... (495,500)
-------------
Net increase in net assets derived from capital stock transactions ..................... 125,646,053
-------------
====================================================================================================================================
Net Assets: Total increase in net assets ........................................................... 125,591,297
Beginning of period .................................................................... 100,005
-------------
End of period* ......................................................................... $ 125,691,302
=============
====================================================================================================================================
*Undistributed investment income--net ................................................... $ 678,779
=============
====================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings New Jersey Insured Fund III, Inc., March 31, 1999
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
Jan. 29, 1999+ to
Increase (Decrease) in Net Asset Value: March 31, 1999
================================================================================================================================
<S> <C> <C>
Per Share Net asset value, beginning of period ................................................ $ 15.00
Operating --------
Performance: Investment income--net .............................................................. .16
Realized and unrealized loss on investments--net .................................... (.13)
--------
Total from investment operations .................................................... .03
--------
Capital charge resulting from issuance of Common Stock .............................. (.05)
--------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income--net ........................................................... (.03)
Capital charge resulting from issuance of Preferred Stock ......................... (.10)
--------
Total effect of Preferred Stock activity ............................................ (.13)
--------
Net asset value, end of period ...................................................... $ 14.85
========
Market price per share, end of period ............................................... $ 14.25
========
================================================================================================================================
Total Investment Based on market price per share ..................................................... (5.00%)++
Return:** ========
Based on net asset value per share .................................................. (1.00%)++
========
================================================================================================================================
Ratios to Average Expenses, net of reimbursement ...................................................... .16%*
Net Assets:*** ========
Expenses ............................................................................ .81%*
========
Investment income--net .............................................................. 5.17%*
========
================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) .................... $ 78,691
Data: ========
Preferred Stock outstanding, end of period (in thousands) ........................... $ 47,000
========
Portfolio turnover .................................................................. 32.08%
========
================================================================================================================================
Leverage: Asset coverage per $1,000 ........................................................... $ 2,674
========
================================================================================================================================
Dividends Per Investment income--net .............................................................. $ 82
Share on Preferred ========
Stock Outstanding:
================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on February 22, 1999.
++ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings New Jersey Insured Fund III, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. Prior to commencement of operations on January
29, 1999, the Fund had no operations other than those relating to organizational
matters and the sale of 6,667 shares of Common Stock on January 13, 1999, to
Fund Asset Management, L.P. ("FAM") for $100,005. The Fund determines and makes
available for publication the net asset value of its Common Stock on a weekly
basis. The Fund's Common Stock is listed on the New York Stock Exchange under
the symbol MNJ. The following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general supervision of the
Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase put
options. When the Fund writes an
10 & 11
<PAGE>
MuniHoldings New Jersey Insured Fund III, Inc., March 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
option, an amount equal to the premium received by the Fund is reflected as an
asset and an equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option written. When
a security is purchased or sold through an exercise of an option, the related
premium paid (or received) is added to (or deducted from) the basis of the
security acquired or deducted from (or added to) the proceeds of the security
sold. When an option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the closing
transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income-- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Offering expenses--Direct expenses relating to the public offering of the
Fund's Common and Preferred Stock were charged to capital at the time of
issuance of the shares.
(f) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM. The general
partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's port folio 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 0.55% of the Fund's average weekly net assets including
proceeds from the issuance of Preferred Stock. For the period January 29, 1999
to March 31, 1999, FAM earned fees of $88,631, all of which was voluntarily
waived. FAM also reimbursed the Fund additional expenses of $15,352.
During the period January 29, 1999 to March 31, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S") received underwriting fees of $352,500 in
connection with the issuance of the Fund's Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period January 29, 1999 to March 31, 1999 were $149,627,487 and $29,387,770,
respectively.
Net realized gains (losses) for the period January 29, 1999 to March 31, 1999
and net unrealized losses as of March 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
- --------------------------------------------------------------------------------
Long-term investments .................. $(246,629) $(614,851)
Foreign financial futures .............. 184,195 (56,250)
--------- ---------
Total................................... $ (62,434) $(671,101)
========= =========
- --------------------------------------------------------------------------------
As of March 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $614,851 of which $21,952 related to appreciated securities
and $636,803 related to depreciated securities. The aggregate cost of
investments at March 31, 1999 for Federal income tax purposes was $125,269,858.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of holders of
Common Stock.
Common Stock
Shares issued and outstanding during the period January 29, 1999 to March 31,
1999 increased by 5,291,000 from shares sold.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.10 per share and a liquidation preference of $25,000
per share, that entitle their holders to receive cash dividends at an annual
rate that may vary for the successive dividend periods. The yield in effect at
March 31, 1999 was 3.27%.
In connection with the offering of AMPS, the Board of Directors reclassified
1,880 shares of unissued capital stock as AMPS. Shares issued and outstanding
during the period January 29, 1999 to March 31, 1999 increased by 1,880 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 0.25% to 0.375%, calculated on the proceeds of
each auction. For the period January 29, 1999 to March 31, 1999, MLPF&S, an
affiliate of FAM, earned $8,785 as commissions.
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. However, in order to
provide shareholders with a more consistent yield to the current trading price
of shares of Common Stock of the Fund, the Fund may at times pay out less than
the entire amount of net investment income earned in any particular month and
may at times in any particular month pay out such accumulated but undistributed
income in addition to net investment income earned in that month. As a result,
the dividends paid by the Fund for any particular month may be more or less than
the amount of net investment income earned by the Fund during such month. The
Fund's current accumulated but undistributed net investment income, if any, is
disclosed in the Statement of Assets, Liabilities and Capital, which comprises
part of the financial information included in this report.
12 & 13
<PAGE>
MuniHoldings New Jersey Insured Fund III, Inc., March 31, 1999
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
Roberto Roffo, 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 Stock:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Preferred Stock:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MNJ
QUALITY PROFILE
The quality ratings of securities in the Fund as of March 31, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ............................................................ 82.0%
AA/Aa .............................................................. 13.0
Other+ ............................................................. 4.2
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
14 & 15
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of MuniHoldings New Jersey Insured Fund III, Inc. for their
information. It is not a prospectus, circular or representation intended for use
in the purchase of shares of the Fund or any securities mentioned in the report.
Past performance results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its Common Stock by
issuing Preferred Stock to provide the Common Stock share holders with a
potentially higher rate of return. Leverage creates risks for Common Stock
shareholders, including the likelihood of greater volatility of net asset value
and market price of shares of the Common Stock, and the risk that fluctuations
in the short-term dividend rates of the Preferred Stock may affect the yield to
Common Stock shareholders. Statements and other information herein are as dated
and are subject to change.
MuniHoldings New Jersey
Insured Fund III, Inc.
Box 9011
Princeton, NJ
08543-9011 NJINS3--3/99
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