MUNIYIELD
NEW YORK
INSURED
FUND III, INC.
FUND LOGO
Semi-Annual Report
April 30, 1995
This report, including the financial information herein, is
transmitted to the shareholders of MuniYield New York Insured Fund
III, Inc. for their information. It is not a prospectus, circular or
representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its
Common Stock by issuing Preferred Stock to provide the Common Stock
shareholders with a potentially higher rate of return. Leverage
creates risks for Common Stock shareholders, including the
likelihood of greater volatility of net asset value and market price
of shares of the Common Stock, and the risk that fluctuations in the
short-term dividend rates of the Preferred Stock may affect the
yield to Common Stock shareholders.
<PAGE>
MuniYield
New York Insured
Fund III, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield New York Insured Fund III, Inc.
TO OUR SHAREHOLDERS
For the six months ended April 30, 1995, the Common Stock of
MuniYield New York Insured Fund III, Inc. earned $0.372 per share
income dividends, which included earned and unpaid dividends of
$0.062. This represents a net annualized yield of 5.53%, based on a
month-end net asset value of $13.55 per share. Over the same period,
the total investment return on the Fund's Common Stock was +9.09%,
based on a change in per share net asset value from $12.82 to
$13.55, and assuming reinvestment of $0.376 per share income
dividends.
For the six-month period ended April 30, 1995, the Fund's Auction
Market Preferred Stock had an average yield of 4.07%.
The Environment
During the six months ended April 30, 1995, the perception that the
US economy was overheating and inflationary pressures were
increasing gave way to a more benign economic outlook. With more
signs of slowing growth, investors now appear to be forecasting a
"soft landing" for the US economy. Although gross domestic product
was reported to have increased at a revised 5.1% rate during the
final quarter of 1994, declines in other indicators such as new home
sales and durable goods orders registered thus far in 1995 have led
investors to anticipate that the economy is losing enough momentum
to keep inflation under control and preclude further significant
monetary policy tightening by the Federal Reserve Board. A further
indication of a slowing economy was the reported decline in the
Index of Leading Economic Indicators for March.
As US stock and bond markets have risen on more positive economic
news, the value of the US dollar has reached new lows relative to
the yen and the Deutschemark. Persistent trade deficits and exports
of capital from the United States have kept the US currency in a
decade-long decline relative to the Japanese and German currencies.
Over the longer term, since the United States has the highest
productivity among industrialized nations and among the lowest labor
costs, demand for US dollar-denominated assets may improve. However,
a reduction of the still-widening US trade deficit may be necessary
before the US dollar appreciates substantially relative to the yen
and the Deutschemark.
<PAGE>
The first months of 1995 have been very positive for the stock and
bond markets. Continued signs of a moderating expansion and
well-contained inflationary pressures would provide further
assurance that the peak in interest rates is behind us. On the other
hand, indications of reaccelerating growth and further significant
monetary policy tightening by the Federal Reserve Board would be a
decided negative for the US financial markets.
The Municipal Market
During the six-month period ended April 30, 1995, the tax-exempt
bond market gradually recouped much of the losses sustained during
1994. Signs of a weakening domestic economy and ongoing moderate
inflationary pressures have fostered an environment of declining
interest rates. Since October 31, 1994, A-rated, uninsured municipal
revenue bond yields, as measured by the Bond Buyer Revenue Bond
Index, have declined over 65 basis points (0.65%) to close the
six-month period ended April 30, 1995 at 6.29%. Tax-exempt bond
yields initially continued to climb in late 1994, reaching a high of
7.37% in late November 1994. Municipal bond yields have since
declined over 100 basis points from their recent highs and are
presently lower than they were a year ago. US Treasury bond yields
have experienced similar declines over the last six months to end
the April period at 7.34%.
Much of the recent improvement in the tax-exempt bond market,
however, has occurred over the last three months. During this most
recent quarter, municipal bond yields have fallen approximately 50
basis points, while US Treasury bond yields declined only 35 basis
points. Tax-exempt bond yields declined more than their taxable
counterparts in recent months, largely in response to the
significant decline in new bond issuance in recent quarters. Over
the last six months, less than $60 billion in new long-term
municipal securities were underwritten, a decline of nearly 45%
versus the comparable period a year earlier. Issuance was
particularly low this past January and February, with monthly volume
of less than $8 billion. These levels are the lowest monthly totals
since the mid-1980s.
To compound the municipal market's already strong technical posture,
both institutional and individual investors have seen significant
cash inflows in recent months. These assets were derived from
regular coupon payments, bond maturities and the proceeds from early
bond calls and redemptions. It has been estimated that investors
received over $20 billion in principal redemptions and coupon income
in January 1995 alone. With monthly issuance in the $10 billion
range thus far this year, the current supply/demand imbalance has
dominated the municipal market, and bond prices have risen
accordingly. The tax-exempt bond market's technical position is
likely to remain very strong throughout most of 1995. Investors are
expected to receive almost $40 billion in principal and coupon
payments on July 1, 1995. Investor proceeds from all sources have
been estimated to exceed $200 billion for all of 1995. Estimates of
total new bond issuance for 1995 have continued to be lowered with
most estimates now in the $125 billion range. Investors should find
it increasingly difficult to replace existing holdings as they
mature and to reinvest coupon income in such an environment.
<PAGE>
The municipal bond market's outperformance thus far this year caused
the tax-exempt market to become temporarily expensive relative to
its taxable counterpart in late April. Investor concerns regarding
the international currency situation and the future impact of
proposed revisions to US taxation policies upon the tax advantage
inherent to municipal bonds have combined to cause tax-exempt bond
yields to increase marginally in recent weeks. Municipal bond yields
have risen approximately 15 basis points from their lows in
mid-April 1995. Long-term US Treasury bond yields have remained
essentially stable.
Such an underperformance by the tax-exempt bond market is likely to
be limited in duration. The recent increase in tax-exempt bond
yields has already begun to attract institutional investors since
some municipal bonds yielding in excess of 85% of US Treasury bond
yields are again available. Also, concerns regarding the implication
for municipal bonds' tax advantage resulting from various proposed
tax law changes (for example, flat-tax, value-added tax or national
sales tax) are all likely to quickly recede as investors realize
that such, if any, changes are unlikely to be enacted before late
1996 at the earliest. Long-term investors will also recall 1986 when
similar tax proposals were made, and tax-exempt bond yields
initially rose and then quickly fell. Investors are likely to view
the current situation as an opportunity to purchase very
attractively priced tax-advantaged products. This should cause
municipal bond yields to quickly return to their more historic
relationship.
Portfolio Strategy
We continued to take advantage of the declining interest rate
environment by adding lower coupon, longer maturity issues to the
Fund's portfolio. As interest rates continued to decline throughout
the April quarter, these holdings appreciated accordingly. Evidence
of a slowing economy caused a general decline in interest rates.
Many of the Government's recent data releases indicate that the
Federal Reserve Board's monetary policy has slowed economic growth.
Along with the apparent slowing of growth, there was no significant
increase in inflationary pressures at the retail level, indicating
that the Federal Reserve Board may have mastered a soft landing for
the domestic economy. Other world economies also kept prices under
control in an effort to maintain their own growth. With that as a
backdrop, investors believe additional interest rate increases may
not be needed. Economic data for the second quarter of 1995 will
give us a better indication as to whether the Federal Reserve Board
was successful.
The New York municipal market performed as well as the national
market in spite of the absence of a new state budget. Negotiations
continue between Governor Pataki and the legislature, and passage of
a new budget is expected soon. Once the budget is ratified, we
expect a surge of issuance. Since issuance in New York is more than
50% below 1994, this supply should present no problem for the
municipal market as demand has far exceeded supply.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
June 1, 1995
THE BENEFITS AND RISKS OF LEVERAGING
MuniYield New York Insured Fund III, Inc. utilizes leveraging 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.
<PAGE>
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pick-up 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.
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield New York 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)
GO General Obligation Bonds
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
New York--97.9%
AAA Aaa $2,070 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds,
Series A, 6.375% due 7/01/2018 (d) $ 2,109
AAA Aaa 5,650 Metropolitan Transportation Authority, New York, Transportation Facilities Revenue
Bonds, Series J, 6.375% due 7/01/2010 (c) 5,846
AAA Aaa 2,000 Monroe County, New York, Public Improvement, GO, UT, 6.15% due 6/01/2018 (b) 2,019
AAA Aaa 1,005 Mount Sinai, New York, Union Free School District, Refunding, GO, UT, 6.20% due
2/15/2019 (b) 1,038
New York City, New York, GO, UT (d):
AAA Aaa 2,375 Refunding, Series C, Sub-series C-1, 6.625% due 8/01/2002 (e) 2,623
AAA Aaa 1,240 Series E, 5.625% due 8/01/2013 1,177
AAA Aaa 2,500 New York City, New York, IDA, Civic Facilities Revenue Bonds (USTA National Tennis
Center Project), 6.40% due 11/15/2008 (f) 2,627
A1+ NR* 2,500 New York City, New York, IDA, IDR (Japan Airlines Company Ltd. Project), VRDN, AMT,
5.25% due 11/01/2015 (a) 2,500
New York City, New York, Municipal Water Finance Authority, Water and Sewer System
Revenue Bonds:
AAA Aaa 3,000 Series B, 5.50% due 6/15/2019 (d) 2,777
AAA Aaa 5,000 Series F, 5.50% due 6/15/2023 (d) 4,583
A1+ VMIG1++ 500 VRDN, Series C, 5.10% due 6/15/2022 (a)(c) 500
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 3,200 (City University), Third Generation Reserves, Series 2, 6.875% due 7/01/2014 (d) 3,458
A1+ VMIG1++ 1,400 (Cornell University), VRDN, Series B, 4.85% due 7/01/2025 (a) 1,400
AAA Aaa 4,250 (Mount Sinai School of Medicine), Series A, 5% due 7/01/2021 (d) 3,630
BBB Baa1 2,000 Refunding (Department of Health), 5.50% due 7/01/2020 1,740
New York State Energy, Research and Development Authority, Facilities Revenue Bonds
(Con Edison Company, New York, Inc.), AMT (d):
AAA Aaa 2,500 Series A, 6.75% due 1/15/2027 2,561
AAA Aaa 1,000 Series B, 6.375% due 12/01/2027 990
New York State Energy, Research and Development Authority, Gas Facilities Revenue
Bonds (Brooklyn Union Gas Company), AMT (d):
AAA Aaa 2,000 Series A, 6.75% due 2/01/2024 2,082
AAA Aaa 3,000 Series C, 5.60% due 6/01/2025 2,718
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
NR* NR* $ 800 New York State Energy, Research and Development Authority, PCR (Niagara Mohawk
Corporation Project), VRDN, Series A, 4.80% due 3/01/2027 (a) $ 800
A A 3,000 New York State Local Government Assistance Corporation Revenue Refunding Bonds,
Series E, 5% due 4/01/2021 2,528
New York State Medical Care Facilities, Finance Agency Revenue Bonds:
AAA Aaa 1,000 (Long-Term Health Care), Series A, 6.80% due 11/01/2014 (g) 1,056
AAA Aaa 3,000 (Mental Health), Series E, 6.50% due 8/15/2015 (g) 3,099
AAA Aaa 2,000 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (b) 2,132
AAA Aaa 1,000 New York State Thruway Authority, General Revenue Bonds, Series A, 5.75% due
1/01/2012 (c) 974
AAA Aaa 3,000 New York State Thruway Authority Revenue Bonds (Highway and Bridge Trust Fund),
UT, Series B, 6.25% due 4/01/2012 (c) 3,062
New York State Urban Development Corporation, Revenue Refunding Bonds
(Correctional Facilities):
BBB Baa1 3,000 5.50% due 1/01/2015 2,654
AAA Aaa 3,000 Series A, 6.50% due 1/01/2011 (f) 3,214
AA- A1 3,000 Port Authority of New York and New Jersey, Consolidated Revenue Bonds, 72nd
Series, 7.35% due 10/01/2027 3,314
Suffolk County, New York, Refunding, GO, UT:
AAA Aaa 580 Series B, 6.20% due 5/01/2012 (c) 594
AAA Aaa 250 Series B, 6.20% due 5/01/2015 (c) 254
AAA Aaa 1,000 Series G, 5.40% due 4/01/2013 (d) 937
AAA Aaa 2,500 Triborough Bridge and Tunnel Authority, New York, Special Obligation Revenue
Refunding Bonds, Series A, 6% due 1/01/2019 (d) 2,444
Total Investments (Cost--$71,418)--97.9% 73,440
Other Assets Less Liabilities--2.1% 1,558
-------
Net Assets--100.0% $74,998
=======
<PAGE>
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at April 30, 1995.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)Prerefunded.
(f)FSA Insured.
(g)Capital guaranteed.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of April 30, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$71,417,638) (Note 1a) $73,439,744
Receivables:
Interest $ 1,295,983
Securities sold 1,107,757 2,403,740
-----------
Deferred organization expenses (Note 1e) 22,617
Prepaid expenses and other assets 3,585
-----------
Total assets 75,869,686
-----------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 101,112
Investment adviser (Note 2) 29,247 130,359
-----------
Accrued expenses and other liabilities 741,390
-----------
Total liabilities 871,749
-----------
Net Assets: Net assets $74,997,937
===========
<PAGE>
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (1,000 shares of
AMPS* issued and outstanding at $25,000 per share liquidation
preference) $25,000,000
Common Stock, par value $.10 per share (3,688,900 shares
issued and outstanding) $ 368,890
Paid-in capital in excess of par 51,141,408
Undistributed investment income--net 238,124
Accumulated realized capital losses on investments--net (Note 5) (3,772,591)
Unrealized appreciation on investments--net 2,022,106
-----------
Total--Equivalent to $13.55 net asset value per share of
Common Stock (market price--$12.125) 49,997,937
-----------
Total capital $74,997,937
===========
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended April 30, 1995
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,162,478
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 179,472
Professional fees 38,755
Commission fees (Note 4) 32,453
Printing and shareholder reports 20,143
Transfer agent fees 18,352
Accounting services (Note 2) 16,137
Directors' fees and expenses 10,650
Listing fees 8,256
Amortization of organization expenses (Note 1e) 3,664
Custodian fees 2,866
Pricing fees 2,508
Other 9,054
-----------
Total expenses 342,310
-----------
Investment income--net 1,820,168
-----------
<PAGE>V
Realized & Unrea- Realized loss on investments--net (2,801,916)
lized Gain Change in unrealized appreciation/depreciation on investments--net 5,564,879
(Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 4,583,131
(Notes 1b, ===========
1d & 3)
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 1995 Oct. 31, 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 1,820,168 $ 3,802,637
Realized loss on investments--net (2,801,916) (970,676)
Change in unrealized appreciation/depreciation on investments--net 5,564,879 (8,602,309)
----------- ------------
Net increase (decrease) in net assets resulting from operations 4,583,131 (5,770,348)
----------- -----------
Dividends & Investment income--net:
Distributions to Common Stock (1,386,503) (3,157,490)
Shareholders Preferred Stock (500,070) (624,540)
(Note 1f): Realized gain on investments--net:
Common Stock -- (285,706)
Preferred Stock -- (33,255)
----------- -----------
Net decrease in net assets resulting from dividends and
distributions to shareholders (1,886,573) (4,100,991)
----------- -----------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends and distributions -- 197,662
(Notes 1e & 4): Offering and underwriting costs resulting from the issuance of
Preferred Stock -- (29,641)
----------- -----------
Net increase in net assets resulting from capital stock
transactions -- 168,021
----------- -----------
Net Assets: Total increase (decrease) in net assets 2,696,558 (9,703,318)
Beginning of period 72,301,379 82,004,697
----------- -----------
End of period* $74,997,937 $72,301,379
=========== ===========
<PAGE>
<FN>
*Undistributed investment income--net $ 238,124 $ 304,529
=========== ===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
For the For the Period
The following per share data and ratios have been derived Six Months Year Nov. 27
from information provided in the financial statements. Ended Ended 1992++ to
April 30, Oct. 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1995 1992 1993
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.82 $ 15.51 $ 14.18
Operating ------- ------- -------
Performance: Investment income--net .50 1.03 .85
Realized and unrealized gain (loss) on invest-
ments--net .75 (2.59) 1.45
------- ------- -------
Total from investment operations 1.25 (1.56) 2.30
------- ------- -------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net (.38) (.86) (.68)
Realized gain on investments--net -- (.08) --
------- ------- -------
Total dividends and distributions to Common Stock
shareholders (.38) (.94) (.68)
------- ------- -------
Capital charge resulting from issuance of Common
Stock -- -- (.05)
------- ------- -------
Effect of Preferred Stock activity:++++
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net (.14) (.17) (.09)
Realized gain on investments--net -- (.01) --
Capital charge resulting from issuance of
Preferred Stock -- (.01) (.15)
------- ------- -------
Total effect of Preferred Stock activity (.14) (.19) (.24)
<PAGE> ------- ------- -------
Net asset value, end of period $ 13.55 $ 12.82 $ 15.51
======= ======= =======
Market price per share, end of period $12.125 $10.625 $ 15.00
======= ======= =======
Total Investment Based on market price per share 17.79%+++ (24.11%) 4.69%+++
Return:**
Based on net asset value per share 9.09%+++ (11.44%) 14.51%+++
======= ======= =======
Ratios to Average Expenses, net of reimbursement . .96%* .88% .55%*
Net Assets:*** ======= ======= =======
Expenses . .96%* .88% .87%*
======= ======= =======
Investment income--net . 5.08%* 4.88% 4.86%*
======= ======= =======
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) $49,998 $47,301 $57,005
Preferred Stock outstanding, end of period
(in thousands) $25,000 $25,000 $25,000
======= ======= =======
Portfolio turnover 84.34% 65.22% 11.06%
======= ======= =======
Dividends Per Investment income--net $ 500 $ 625 $ 325
Share on
Preferred Stock
Outstanding:++++++
<FN>
*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 March 25, 1993.
++++++Dividends per share have been adjusted to reflect a two-for-
one stock split.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield New York Insured Fund III, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified,
closed-end management investment company. 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. 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 MYY. 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, which are traded on exchanges, are valued
at their last sale price as of the close of such exchanges or,
lacking any sales, at the last available bid price. Securities with
remaining maturities of sixty days or less are valued at amortized
cost, which approximates market value. Securities for which market
quotations are not readily available are valued at their fair value
as determined in good faith by or under the direction of the Board
of Directors of the Fund.
(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 interest
rate 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.
<PAGE>
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When
an option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of the
premiums received or paid (or gain or loss to the extent the cost of
the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses and offering expenses--Deferred
organization expenses are amortized on a straight-line basis over a
five-year period. Direct expenses relating to the public offering of
the Common and Preferred Stock were charged to capital at the time
of issuance.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
(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 Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
<PAGE>
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 0.50% of
the Fund's average weekly net assets.
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, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended April 30, 1995 were $56,687,881 and
$55,610,276, respectively.
Net realized and unrealized gains (losses) as of April 30, 1995 were
as follows:
Realized Unrealized
Losses Gains
Long-term investments $(2,245,333) $2,022,106
Short-term investments (645) --
Financial futures contracts (555,938) --
----------- ----------
Total $(2,801,916) $2,022,106
=========== ==========
As of April 30, 1995, net unrealized appreciation for Federal income
tax purposes aggregated $2,022,106, of which $2,282,702 related to
appreciated securities and $260,596 related to depreciated
securities. The aggregate cost of investments at April 30, 1995 for
Federal income tax purposes was $71,417,638.
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 the holders of Common Stock.
Common Stock
For the six months ended April 30, 1995, shares issued and
outstanding remained constant at 3,688,900. At April 30, 1995, total
paid-in capital amounted to $51,510,298.
<PAGE>
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund that entitle their holders to receive cash
dividends at an annual rate that may vary for the successive divi-
dend periods. The yield in effect at April 30, 1995 was 4.15%.
A two-for-one stock split occurred on December 1, 1994. As a result,
at April 30, 1995, there were 1,000 AMPS shares authorized, issued
and outstanding with a liquidation preference of $25,000 per share,
plus accumulated and unpaid dividends of $5,685.
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 six months ended
April 30, 1995, MLPF&S, an affiliate of FAM, earned $27,755 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1994, the Fund had a capital loss carryforward of
approximately $971,000, all of which expires in 2002. This amount
will be available to offset like amounts of any future taxable
gains.
6. Subsequent Event:
On May 9, 1995, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$0.062468 per share, payable on May 30, 1995 to shareholders of
record as of May 19, 1995.
PER SHARE INFORMATION
<TABLE>
Per Share Selected Quarterly Financial Data*
<CAPTION>
Dividends/Distributions
Net Realized Unrealized
Investment Gains Gains Net Investment Income Capital Gains
For the Quarter Income (Losses) (Losses) Common Preferred Common Preferred
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1993 to July 31, 1993 $.27 -- $ .27 $.23 $.04 -- --
August 1, 1993 to October 31, 1993 .26 $ .09 .48 .22 .04 -- --
November 1, 1993 to January 31, 1994 .27 .04 .10 .22 .05 $.08 $.01
February 1, 1994 to April 30, 1994 .25 .01 (1.89) .22 .04 -- --
May 1, 1994 to July 31, 1994 .25 .02 .25 .21 .04 -- --
August 1, 1994 to October 31, 1994 .26 (.33) (.79) .21 .04 -- --
November 1, 1994 to January 31, 1995 .25 (.74) 1.09 .19 .08 -- --
February 1, 1995 to April 30, 1995 .25 (.02) .42 .19 .06 -- --
<PAGE>
<CAPTION>
Net Asset Value Market Price**
For the Quarter High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
May 1, 1993 to July 31, 1993 $15.18 $14.64 $15.50 $14.50 156
August 1, 1993 to October 31, 1993 15.81 14.95 15.875 14.875 284
November 1, 1993 to January 31, 1994 15.58 15.00 15.25 14.00 354
February 1, 1994 to April 30, 1994 15.53 13.01 15.375 12.125 275
May 1, 1994 to July 31, 1994 14.32 13.33 13.75 12.625 244
August 1, 1994 to October 31, 1994 13.96 12.82 13.25 10.625 366
November 1, 1994 to January 31, 1995 13.15 11.87 11.75 9.875 900
February 1, 1995 to April 30, 1995 13.98 13.15 12.50 11.75 246
<FN>
*Calculations are based upon shares of Common Stock outstanding at
the end of each quarter.
**As reported in the consolidated transaction reporting system.
***In thousands.
</TABLE>
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Donald Cecil, Director
M. Colyer Crum, Director
Edward H. Meyer, Director
Jack B. Sunderland, Director
J. Thomas Touchton, Director
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
<PAGE>
Transfer Agents
Common Stock:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MYY
