<PAGE>
As filed with the Securities and Exchange Commission on December 2, 1999
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement
[_] Confidential, For Use of the Com-
mission Only [as permitted by
Rule 14a-6(e)(2))
[_] Definitive proxy statement
[X] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MUNIYIELD PENNSYLVANIA FUND
MUNIVEST PENNSYLVANIA INSURED FUND
MUNIHOLDINGS PENNSYLVANIA INSURED FUND
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>
MUNIYIELD PENNSYLVANIA FUND
MUNIVEST PENNSYLVANIA INSURED FUND
MUNIHOLDINGS PENNSYLVANIA INSURED FUND
November 22, 1999
Dear Shareholder:
Recently, you received a joint proxy statement and prospectus describing a
proposed reorganization of the listed funds in which MuniYield Pennsylvania Fund
(the "surviving fund") would acquire the assets and assume the liabilities of
MuniVest Pennsylvania Insured Fund and MuniHoldings Pennsylvania Insured Fund 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 of MuniHoldings of Pennsylvania Insured Fund 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>
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
Vincent R. Giordano, Senior Vice President
William R. Bock, Vice President
Robert A. DiMella, Vice President
Kenneth A. Jocob, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Shares:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Shares:
The Bank of New York
100 Church Street
New York, NY 10286
AMEX Symbol
MPI
This report, including the financial information herein, is transmitted to the
shareholders of MuniHoldings Pennsylvania Insured Fund 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 provied the Common Shareholders
with a potentially higher rate of return. Leverage crates risks for Comon
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 divident 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 Pennsylvania
Insured Fund
Box 9011
Princeton, NJ
08543-9011 #PAINS--9/99
[LOGO OF RECYCLE] Printed on post-consumer recycled paper
MuniHoldings
Pennsylvania
Insured Fund
STRATEGIC
Performance
Annual Report
September 30, 1999
- --------------------------------------------------------------------------------
MuniHoldings Pennsylvania Insured Fund
- --------------------------------------------------------------------------------
The Benefits and Risks of Leveraging
MuniHoldings Pennsylvania Insured Fund 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 Shares 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 American 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 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 Pennsylvania Insured Fund, September 30, 1999
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER
- --------------------------------------------------------------------------------
Since inception (February 26, 1999) through September 30, 1999, the Common
Shares of MuniHoldings Pennsylvania Insured Fund earned $0.460 per share income
dividends, which included earned and unpaid dividends of $0.065. This represents
a net annualized yield of 5.96%, based on a month-end net asset value of $12.98
per share. During the same period, the total investment return on the Fund's
Common Shares was -10.91%, based on a change in per share net asset value from
$15.00 to $12.98, and assuming reinvestment of $0.395 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 3.30%.
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 Pennsylvania Insured Fund's Board of
Trustees approved a plan of reorganization, subject to shareholder approval and
certain other conditions, whereby MuniYield Pennsylvania Fund would acquire
substantially all of the assets and liabilities of the Fund and MuniVest
Pennsylvania Insured Fund in exchange for newly issued shares of MuniYield
Pennsylvania Fund. These Funds are registered, non-diversified, closed-end
management investment companies. All three entities have similar investment
objectives and are managed by Fund Asset Management, L.P.
We appreciate your investment in MuniHoldings Pennsylvania Insured Fund.
Sincerely,
/s/ TERRY K. GLENN
Terry K. Glenn
President and Director
/s/ VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/s/ WILLIAM R. BOCK
William R. Bock
Vice President and Portfolio Manager
October 26, 1999
- --------------------------------------------------------------------------------
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.
<PAGE>
MuniHoldings Pennsylvania Insured Fund, 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>
Pennsylvania -- NR* VMIG1+ $1,355 Allegheny County, Pennsylvania, Hospital Development
96.6% Authority Revenue Bonds (Presbyterian University
Hospital), ACES, Series B-3, 3.85% due 3/01/2018 (f) $1,355
-----------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Bucks County, Pennsylvania, IDA, Revenue Refunding Bonds
(Grand View Hospital), Series A, 5.25% due 7/01/2021 (a) 915
-----------------------------------------------------------------------------------------------------------
NR* Aaa 1,000 Bucks County, Pennsylvania, Water and Sewer Authority,
Revenue Refunding Bonds (Neshaminy Interceptor Sewer
System), 5.60% due 6/01/2024 (a) 973
-----------------------------------------------------------------------------------------------------------
AAA NR* 1,295 Deer Lakes School District, Pennsylvania, GO, Series A,
5.25% due 1/15/2017 (c) 1,227
-----------------------------------------------------------------------------------------------------------
AAA NR* 1,200 Erie, Pennsylvania, Parking Authority, Parking Facilities
Revenue Refunding Bonds, Series B, 5.125% due 9/01/2020 (d) 1,096
-----------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,300 Geisinger Authority, Pennsylvania, Health System Revenue
Refunding Bonds (Penn State -- Geisinger Health), VRDN,
Series B, 3.90% due 8/15/2028 (f) 1,300
-----------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Lehigh County, Pennsylvania, General Purpose Authority,
Revenue Refunding Bonds (St. Francis de Sales College),
Series A, 5% due 12/15/2020 (a) 896
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Lower Providence Township, Pennsylvania, Sewer Authority,
Sewer Revenue Refunding Bonds, 5.25% due 5/01/2022 (d) 1,860
-----------------------------------------------------------------------------------------------------------
NR* Aaa 1,195 North Allegheny, Pennsylvania, School District, GO,
Series D, 5.45% due 5/01/2018 (b) 1,157
-----------------------------------------------------------------------------------------------------------
AA+ Aa2 4,000 Pennsylvania HFA, Revenue Bonds, RIB, AMT, 8.668% due
4/01/2025 (e) 4,115
-----------------------------------------------------------------------------------------------------------
AA+ Aa2 1,000 Pennsylvania HFA, S/F Mortgage Revenue Refunding Bonds,
AMT, Series 67A, 5.90% due 10/01/2030 975
-----------------------------------------------------------------------------------------------------------
Pennsylvania Intergovernmental Co-Op Authority, Special Tax
Revenue Refunding Bonds (Philadelphia Funding Program) (b):
AAA Aaa 2,000 5.25% due 6/15/2015 1,919
AAA Aaa 1,400 5% due 6/15/2021 1,252
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Pennsylvania State Higher Educational Facilities Authority
Revenue Bonds (UPMC Health System), Series A, 5% due
8/01/2029 (c) 2,155
-----------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Pennsylvania State Higher Educational Facilities Authority,
Revenue Refunding Bonds (Temple University), First Series,
5.25% due 4/01/2017 (d) 943
-----------------------------------------------------------------------------------------------------------
AAA NR* 1,300 Pennsylvania State Public School Building Authority, School
Revenue Refunding Bonds (Pittston Area School District),
Series P, 5% due 7/15/2021 (c) 1,162
-----------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Pennsylvania State Turnpike Commission, Oil Franchise Tax
Revenue Refunding Bonds, Senior Series A, 5% due
12/01/2023 (a) 3,544
-----------------------------------------------------------------------------------------------------------
AAA Aaa 5,300 Philadelphia, Pennsylvania, Authority for Industrial
Development, Airport Revenue Bonds (Philadelphia Airport
System Project), AMT, Series A, 5.125% due 7/01/2028 (b) 4,635
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Philadelphia, Pennsylvania, GO, 5% due 3/15/2028 (c) 2,185
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Philadelphia, Pennsylvania, Gas Works Revenue Bonds,
First Series B, 5% due 7/01/2028 (c) 1,740
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Philadelphia, Pennsylvania, Parking Authority, Airport
Parking Revenue Bonds, 5.25% due 9/01/2022 (c) 1,859
-----------------------------------------------------------------------------------------------------------
AAA Aaa 5,500 Philadelphia, Pennsylvania, School District, GO, Series
B, 5.375% due 4/01/2027 (a) 5,166
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Pittsburgh, Pennsylvania, Water and Sewer Authority, Water
and Sewer System Revenue Refunding Bonds, First Lien,
Series A, 5% due 9/01/2018 (b) 1,815
4
-----------------------------------------------------------------------------------------------------------
Schuylkill County, Pennsylvania, IDA, Resource Recovery 5
Revenue Refunding Bonds (Northeastern Power Company),
VRDN (f):
A1+ NR* 800 AMT, Series B, 4.05% due 12/01/2022 800
A1+ NR* 100 Series A, 3.95% due 12/01/2022 100
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Southeastern Pennsylvania Transportation Authority,
Pennsylvania, Special Revenue Bonds, Series A, 5.25% due
3/01/2017 (b) 1,895
Puerto Rico -- A1+ VMIG1+ 1,000 Puerto Rico Commonwealth Highway and Transportation
2.1% Authority, Transportation Revenue Refunding Bonds, VRDN,
Series A, 3.45% due 7/01/2028 (a)(f) 1,000
Total Investments (Cost -- $51,053) -- 98.7% 48,039
Other Assets Less Liabilities -- 1.3% 643
-------
Net Assets -- 100.0% $48,682
=======
</TABLE>
(a) AMBAC Insured. (e) The interest rate is subject to change
(b) FGIC Insured. periodically and inversely based upon
(c) FSA Insured. prevailing market rates. The interest
(d) MBIA Insured. rate shown is the rate in effect at
September 30, 1999.
(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.
* Not Rated.
+ Highest short-term rating by Moody's
Investors Service, Inc.
See Notes to Financial Statements. Ratings of issues shown have not been
audited by Deloitte & Touche LLP.
<TABLE>
<S> <C> <C>
Portfolio To simplify the listings of MuniHoldings Pennsylvania ACES/SM/ Adjustable Convertible Extendable Securities
Abbreviations Insured Fund's portfolio holdings in the Schedule of AMT Alternative Minimum Tax (subject to)
Investments, we have abbreviated the names of many of GO General Obligation Bonds
the securities according to the list at right. HFA Housing Finance Agency
IDA Industrial Development Authority
RIB Residual Interest Bonds
S/F Single-Family
VRDN Variable Rate Demand Notes
</TABLE>
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 78.9%
----------------------------------------------------------------
AA/Aa 10.4
----------------------------------------------------------------
Other+ 9.4
----------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
<PAGE>
MuniHoldings Pennsylvania Insured Fund, September 30, 1999
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of September 30, 1999
===================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $51,053,132) (Note 1a) .. $ 48,039,483
Cash .............................................................. 66,576
------------
Receivables:
Interest ........................................................ $ 766,745
Investment adviser (Note 2) ..................................... 166 766,911
------------
Prepaid expenses .................................................. 3,783
------------
Total assets ...................................................... 48,876,753
------------
===================================================================================================================================
Liabilities: Payables:
Offering costs (Note 1e) ........................................ 93,426
Dividends to shareholders (Note 1f) ............................. 63,623 157,049
------------
Accrued expenses and other liabilities ............................ 37,801
------------
Total liabilities ................................................. 194,850
------------
===================================================================================================================================
Net Assets: Net assets ........................................................ $ 48,681,903
============
===================================================================================================================================
Capital: Capital Shares (unlimited number of shares of beneficial interest
authorized)(Note 4):
Preferred Shares, par value $.10 per share (820 shares of AMPS*
issued and outstanding at $25,000 per share liquidation
preference) ..................................................... $ 20,500,000
Common Shares, par value $.10 per share (2,170,570 shares issued
and outstanding) ................................................ $ 217,057
Paid-in capital in excess of par .................................. 31,931,267
Undistributed investment income -- net ............................ 133,624
Accumulated realized capital losses on investments -- net (Note 5) (1,086,396)
Unrealized depreciation on investments -- net ..................... (3,013,649)
------------
Total -- Equivalent to $12.98 net asset value per Common Share
(market price -- $12.00) .......................................... 28,181,903
------------
Total capital ..................................................... $ 48,681,903
============
===================================================================================================================================
</TABLE>
* Auction Market Preferred Shares.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period February 26, 1999+ to September 30, 1999
===================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned........... $ 1,494,453
Income (Note 1d):
===================================================================================================================================
Expenses: Investment advisory fees (Note 2).................................. $ 157,619
Commission fees (Note 4)........................................... 26,986
Professional fees.................................................. 21,777
Trustees' fees and expenses ....................................... 20,855
Accounting services (Note 2)....................................... 18,101
Transfer agent fees................................................ 15,356
Printing and shareholder reports................................... 7,101
Listing fees....................................................... 4,247
Pricing fees....................................................... 2,348
Custodian fees..................................................... 2,348
Other.............................................................. 5,431
------------
Total expenses before reimbursement................................ 282,169
Reimbursement of expenses (Note 2)................................. (146,782)
------------
Total expenses after reimbursement................................. 135,387
------------
Investment income -- net........................................... 1,359,066
------------
===================================================================================================================================
Realized & Realized loss on investments -- net................................ (1,086,396)
Unrealized Loss on Unrealized depreciation on investments -- net...................... (3,013,649)
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Decrease in Net Assets Resulting from Operations............... $ (2,740,979)
============
===================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
February 26, 1999+ to
Increase (Decrease) in Net Assets: September 30, 1999
===================================================================================================================================
<S> <C> <C>
Operations: Investment income -- net............................................................ $ 1,359,066
Realized loss on investments -- net................................................. (1,086,396)
Unrealized depreciation on investments -- net....................................... (3,013,649)
------------
Net decrease in net assets resulting from operations................................ (2,740,979)
------------
===================================================================================================================================
Dividends to Investment income -- net:
Shareholders Common Shares..................................................................... (855,511)
(Note 1f): Preferred Shares.................................................................. (369,931)
------------
Net decrease in net assets resulting from dividends to shareholders 1,225,442)
------------
===================================================================================================================================
Beneficial Interest Proceeds from issuance of Common Shares............................................. 32,248,500
Transactions Proceeds from issuance of Preferred Shares.......................................... 20,500,000
(Notes 1e & 4): Value of shares issued to Common Shareholders in reinvestment of dividends.......... 195,897
Offering costs resulting from the issuance of Common Shares......................... (126,632)
Offering and underwriting costs resulting from the issuance of
Preferred Shares.................................................................... (269,446)
------------
Net increase in net assets derived from beneficial interest transactions............. 52,548,319
------------
===================================================================================================================================
Net Assets: Total increase in net assets........................................................ 48,581,898
Beginning of period................................................................. 100,005
------------
End of period*...................................................................... $ 48,681,903
------------
===================================================================================================================================
* Undistributed investment income -- net............................................ $ 133,624
============
===================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
<PAGE>
MuniHoldings Pennsylvania Insured Fund, 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
February 26, 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........................................... .63
Realized and unrealized loss on investments -- net................. (1.88)
-------------
Total from investment operations................................... (1.25)
-------------
Less dividends to Common Shareholders from investment income -- net (.40)
-------------
Capital charge resulting from issuance of Common Shares............ (.07)
-------------
Effect of Preferred Share activity:++
Dividends to Preferred Shareholders:
Investment income -- net....................................... (.17)
Capital charge resulting from issuance of Preferred Shares....... (.13)
-------------
Total effect of Preferred Share activity........................... (.30)
-------------
Net asset value, end of period..................................... $ 12.98
=============
Market price per share, end of period.............................. $ 12.00
=============
===================================================================================================================================
Total Investment Based on market price per share.................................... (17.63%)++
Return:** =============
Based on net asset value per share................................. (10.91%)++
=============
===================================================================================================================================
Ratios Based on Total expenses, net of reimbursement***............................ .77%*
Average Net Assets of =============
Common Shares: Total expenses***.................................................. 1.61%*
=============
Total investment income -- net***.................................. 7.75%*
=============
Amount of dividends to Preferred Shareholders...................... 2.11%*
=============
Investment income -- net, to Common Shareholders................... 5.64%*
=============
===================================================================================================================================
Ratios Based on Total expenses, net of reimbursement............................... .47%*
Total Average Net =============
Assets:+++*** Total expenses..................................................... .98%*
=============
Total investment income -- net..................................... 4.74%*
=============
===================================================================================================================================
Ratios Based on Dividends to Preferred Shareholders................................ 3.33%*
Average Net Assets of =============
Preferred Shares:
===================================================================================================================================
Supplemental Net assets, net of Preferred Shares, end of period (in thousands).. $ 28,182
Data: =============
Preferred Shares outstanding, end of period (in thousands)......... $ 20,500
=============
Portfolio turnover................................................. 55.37%
=============
===================================================================================================================================
Leverage: Asset coverage per $1,000.......................................... $ 2,375
=============
===================================================================================================================================
Dividends Per Share on Investment income -- net........................................... $ 451
Preferred Shares =============
Outstanding:
===================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns based on market value,
which can be significantly greater or lesser than
the net asset value, may result in substantially
different returns. Total investment returns exclude
the effects of sales charges.
*** Do not reflect the effect of dividends to Preferred
Shareholders.
+ Commencement of operations.
++ The Fund's Preferred Shares were issued on
March 17, 1999.
+++ Includes Common and Preferred Share average net
assets.
++ Aggregate total investment return.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
MuniHoldings Pennsylvania Insured Fund (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
February 26, 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 American
Stock Exchange under the symbol MPI. 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.
. Financial futures contracts -- The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
. Options -- The Fund is authorized to write covered call options and purchase
call and put options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated
<PAGE>
MuniHoldings Pennsylvania Insured Fund, September 30, 1999
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
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 February 26, 1999
to September 30, 1999, FAM earned fees of $157,619, of which $131,498 was
voluntarily waived. In addition, FAM also reimbursed the Fund $15,284 in
additional expenses.
During the period February 26, 1999 to September 30, 1999, Merrill, Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, received
underwriting fees of $153,750 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 February 26, 1999 to September 30, 1999 were $70,185,586 and $22,597,069,
respectively.
Net realized losses for the period February 26, 1999 to September 30, 1999 and
net unrealized losses as of September 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
- --------------------------------------------------------------------------------
Long-term Investments............. $(1,062,377 $(3,013,649)
Financial futures contracts....... (24,019) --
----------- -----------
Total............................. $(1,086,396) $(3,013,649)
=========== ===========
- --------------------------------------------------------------------------------
As of September 30, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $3,067,276, all of which related to depreciated securities.
The aggregate cost of investments at September 30, 1999 for Federal income tax
purposes was $51,106,759.
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 capital without approval of
holders of Common Shares.
Common Shares
Shares issued and outstanding during the period February 26, 1999 to September
30, 1999 increased by 2,149,900 from shares sold and by 14,003 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 yield in effect at September 30,
1999 was 4.10%.
In connection with the offering of AMPS, the Board of Trustees reclassified 820
shares of unissued beneficial interest as AMPS. Shares issued and outstanding
during the period February 26, 1999 to September 30, 1999 increased by 820 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 February 26, 1999 to September 30, 1999, MLPF&S, an
affiliate of FAM, earned $22,281 as commissions.
5. Capital Loss Carryforward:
At September 30, 1999, the Fund had a net capital loss carryforward of
approximately $1,033,000, 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 MuniYield Pennsylvania Fund would acquire substantially all of the
assets and liabilities of the Fund and MuniVest Pennsylvania Insured Fund in
exchange for newly issued shares of MuniYield Pennsylvania Fund. These Funds are
registered, non-diversified, closed-end management investment companies. All
three 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 $.064743 per share, payable on
October 28, 1999 to shareholders of record as of October 22, 1999.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of
MuniHoldings Pennsylvania Insured Fund:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniHoldings Pennsylvania Insured Fund
as of September 30, 1999, the related statements of operations and changes in
net assets, and the financial highlights for the period February 26, 1999
(commencement of operations) to September 30, 1999. These financial statements
and the financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
the financial highlights based on our 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 the financial highlights
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at September 30, 1999 by
correspondence with the custodian. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MuniHoldings
Pennsylvania Insured Fund as of September 30, 1999, the results of its
operations, the changes in its net assets, and the financial highlights for the
period February 26, 1999 (commencement of operations) to September 30, 1999 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
November 12, 1999
- --------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION (unaudited)
- --------------------------------------------------------------------------------
All of the net investment income distributions paid by Muni-Holdings
Pennsylvania Insured Fund 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 distributed by the Fund during the
year.
Please retain this information for your records.
