MUNIYIELD
NEW YORK
INSURED
FUND III, INC.
FUND LOGO
Annual Report
October 31, 1996
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
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Roberto Roffo, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
<PAGE>
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 Schroder Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MYY
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. Statements and other information
herein are as dated and are subject to change.
MuniYield New York
Insured Fund III, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield New York Insured Fund III, Inc.
<PAGE>
TO OUR SHAREHOLDERS
For the year ended October 31, 1996, the Common Stock of MuniYield
New York Insured Fund III, Inc. earned $0.769 per share income
dividends, which included earned and unpaid dividends of $0.068.
This represents a net annualized yield of 5.36%, based on a month-
end per share net asset value of $14.35. Over the same period, the
total investment return on the Fund's Common Stock was +6.75%, based
on a change in per share net asset value from $14.27 to $14.35, and
assuming reinvestment of $0.767 per share income dividends.
For the six-month period ended October 31, 1996, the total
investment return on the Fund's Common Stock was +7.36%, based on a
change in per share net asset value from $13.77 to $14.35, and
assuming reinvestment of $0.379 per share income dividends.
For the six-month period ended October 31, 1996, the Fund's Auction
Market Preferred Stock had an average yield of 3.18%.
The Municipal Market Environment
Municipal bond yields generally moved lower during the six-month
period ended October 31, 1996. Long-term tax-exempt revenue bond
yields, as measured by the Bond Buyer Revenue Bond Index, declined
approximately 35 basis points (0.35%) to end the October period at
approximately 5.94%. The municipal bond market exhibited
considerable weekly yield volatility over the last six months with
bond yields vacillating as much as 20 basis points. This ongoing
volatility was in response to fluctuating evidence regarding the
degree to which recent economic growth will result in any
significant increase in inflationary pressures. Much of the evidence
supporting stronger growth centered around the strong employment
growth seen in April and June and bond yields rose in response.
Other, more recent, economic indicators suggested that economic
growth will not be excessive and inflationary pressures will remain
well-contained. This continued benign inflationary environment
supported lower tax-exempt bond yields in recent months. US Treasury
bond yields exhibited similar, albeit greater, volatility during the
period ended October 31, 1996, falling over 20 basis points to end
the period at 6.64%. Over the past six months, tax-exempt bond
yields registered significantly greater declines than shown by the
US Treasury bond market. This relative outperformance by the
municipal bond market was largely the result of the strong technical
support the tax-exempt market enjoyed throughout most of 1996.
Perhaps most significantly, the pace of new bond issuance recently
slowed.
<PAGE>
Over the last year, approximately $180 billion in long-term
municipal securities was issued, an increase of over 25% compared to
the same period a year ago. Much of this increase was the result of
issuers seeking to refinance their existing higher-couponed debt as
interest rates declined in 1995 and early 1996. As interest rates
rose, these financings became increasingly economically impractical,
and issuance declined. Over the last six months, approximately $90
billion in long-term tax-exempt securities was underwritten, an
increase of 5% versus the comparable period a year earlier. Only $41
billion in tax-exempt securities was issued in the last three
months, a 3% decline in issuance compared to the October 31, 1995
quarter.
At the same time, investor demand remained consistently strong. With
nominal new-issue yields generally above 6%, retail investor
interest was steady. Additionally, investors received over $50
billion this June and July in assets derived from coupon income,
bond maturities, and proceeds from early redemptions. Annual new
bond issuance declined in recent years and is expected to remain
below levels seen in the early 1990s. Consequently, as the higher-
couponed bonds issued in the early-to-mid 1980s were redeemed at
their first optional call dates, the total number of outstanding tax-
exempt bonds has declined. This combination of a declining net
supply and significant amounts of assets available for investment
helped maintain investor demand in recent months.
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance led to the yield
ratio between long-term taxable and tax-exempt securities falling
from in excess of 90% to approximately 85%. While historically still
very attractive, some institutional investors, particularly short-
term traders, began to view the tax-exempt bond market's recent
outperformance as an opportunity to sell a relatively expensive
asset. However, to the long-term investor, such a sale would
represent the loss of an attractively priced asset which may not be
easily replaced given the relative scarcity of municipal bonds under
present supply conditions.
Looking forward, no clear consensus for the direction of interest
rates currently exists. Perhaps, the primary focus going forward
will be the extent to which the increase in interest rates seen thus
far in 1996 will negatively impact future economic growth. Should
growth slow in the interest rate-sensitive sectors of the economy,
like housing, auto, and consumer spending, as many economists assert
is likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of US Treasury bond market.
<PAGE>
Portfolio Strategy
For the 12 months ended October 31, 1996, we managed the Fund with
the intention of sustaining an attractive level of tax-exempt income
while trying to achieve an above-average total return. We entered
the 12-month period optimistic that interest rates would decline.
This opinion was based on the belief that higher interest rates
earlier in the year would cause a drag on the economy. To take
advantage of this scenario, we extended the Fund's duration and
lowered our cash reserve position to a minimal level. From October
1995 to January 1996, the impression that the economy had slowed and
that there was no inflation on the horizon was enough to lower
interest rates by almost 50 basis points. Two rounds of Federal
Reserve Board easings in December 1995 and January 1996 made
investors complacent. This set the stage for a sudden loss of
investor confidence as an undeniably strong employment number in
March blindsided the market and began a period of extreme
volatility, which continued through the end of October. Looking
ahead, we expect this volatility to continue, and our portfolio
strategy is expected to remain neutral until the direction of the
economy becomes clearer.
In Conclusion
We appreciate your ongoing interest in MuniYield New York Insured
Fund III, Inc., and we look forward to serving your investment needs
and objectives in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Roberto Roffo)
Roberto Roffo
Vice President and Portfolio Manager
<PAGE>
November 29, 1996
We are pleased to announce that Roberto Roffo is responsible for the
day-to-day management of MuniYield New York Insured Fund III, Inc.
Mr. Roffo has been employed by Merrill Lynch Asset Management, L.P.
(an affiliate of the Fund's investment adviser) since 1996 as Vice
President and Portfolio Manager and was Assistant Portfolio Manager
thereof from 1992 to 1996. Prior thereto, he was Operations Manager
with State Street Bank and Trust Company.
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 objecives 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 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.
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)
CP Commercial Paper
GO General Obligation Bonds
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
RIB Residual Interest Bonds
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
New York--98.6%
<S> <S> <C> <S> <C>
AAA Aaa $ 1,625 Battery Park City Authority, New York, Revenue Refunding Bonds, Senior
Series A, 5.25% due 11/01/2017 (d) $ 1,538
Metropolitan Transportation Authority, New York, Commuter Facilities Revenue
Bonds, Series A:
AAA Aaa 2,070 6.375% due 7/01/2018 (d) 2,218
AAA Aaa 2,000 6.10% due 7/01/2026 (c) 2,074
<PAGE>
AAA Aaa 3,000 Metropolitan Transportation Authority, New York, Dedicated Tax Fund, Series A,
5.25% due 4/01/2026 (d) 2,837
AAA Aaa 5,650 Metropolitan Transportation Authority, New York, Transportation Facilities
Revenue Bonds, Series J, 6.375% due 7/01/2010 (c) 6,065
AAA Aaa 1,005 Mount Sinai, New York, Union Free School District, Refunding, GO, UT,
6.20% due 2/15/2019 (b) 1,096
AAA Aaa 2,000 New York City, New York, GO, UT, Series J, 6% due 2/15/2005 (d) 2,130
New York City, New York, IDA, Civic Facilities Revenue Bonds:
A1+ NR* 500 (National Audobon Society), VRDN, 3.40% due 12/01/2014 (a) 500
AAA Aaa 2,500 (USTA National Tennis Center Project), 6.375% due 11/15/2014 (f) 2,673
A1+ Aaa 500 New York City, New York, IDA, IDR (Japan Airlines Company Ltd. Project), VRDN,
AMT, 3.75% due 11/01/2015 (a)(f) 500
New York City, New York, Municipal Water Finance Authority, Water and Sewer
System Revenue Bonds:
A- A 2,000 RIB, 7.564% due 6/15/2025 (h) 2,038
AAA Aaa 1,350 Series A-1994, 7% due 6/15/2015 (c) 1,488
AAA Aaa 1,500 New York State Dormitory Authority, Lease Revenue Refunding Bonds (State
University Dormitory Facilities), Series A, 5.30% due 7/01/2024 (b) 1,433
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 4,250 (City University), Third Generation Resources, Series 2, 6.875% due 7/01/2014 (d) 4,747
AAA Aaa 2,000 (Consolidated City University Systems), Second Generation, Series A, 5.375%
due 7/01/2014 (c) 1,961
AAA Aaa 1,000 (Consolidated City University Systems), Second Generation, Series A, 5.75%
due 7/01/2018 (f) 1,031
A1+ VMIG1++ 2,100 (Cornell University), VRDN, Series B, 3.40% due 7/01/2025 (a) 2,100
NR* Aa 1,000 (Grace Manor Healthcare Facility), 6.15% due 7/01/2018 1,015
AAA Aaa 3,000 (Mental Health Services Facilities Improvement), Series B, 5.125% due
8/15/2021 (d) 2,802
AAA Aaa 3,000 (Mount Sinai School of Medicine), Series A, 5% due 7/01/2016 (d) 2,777
AAA Aaa 1,000 Refunding (Colgate University), 6% due 7/01/2016 (d) 1,068
AAA Aaa 800 Refunding (Long Beach Medical Center), 5.625% due 8/01/2022 (d)(g) 787
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<CAPTION>
New York (concluded)
<S> <S> <C> <S> <C>
AAA Aaa $ 2,500 New York State Energy Research and Development Authority, Facilities Revenue
Bonds (Consolidated Edison Company Inc.), AMT, Series A, 6.75% due 1/15/2027 (d) $ 2,671
<PAGE>
AAA Aaa 2,000 New York State Energy Research and Development Authority, Gas Facilities Revenue
Bonds (Brooklyn Union Gas Company), AMT, Series A, 6.75% due 2/01/2024 (d) 2,167
A1+ VMIG1++ 2,200 New York State Local Government Assistance Corporation, VRDN, Series F,
3.40% due 4/01/2025 (a) 2,200
New York State Medical Care Facilities Finance Agency Revenue Bonds:
AAA Aaa 3,000 (Mental Health), Series E, 6.50% due 8/15/2015 (f) 3,257
AAA Aaa 2,000 (Mental Health), Series F, 6.50% due 8/15/2012 (f) 2,121
AAA Aaa 2,000 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (b)(g) 2,208
AAA Aaa 1,250 (New York Hospital Mortgage), Series A, 6.50% due 8/15/2029 (b)(g) 1,345
NR* Aa 1,125 New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds, AMT,
Series 50, 6.625% due 4/01/2025 1,182
AAA Aaa 3,000 New York State Thruway Authority, Highway and Bridge Trust Fund, UT, Series B,
6.25% due 4/01/2012 (c) 3,195
AAA Aaa 1,000 New York State Urban Development Corporation, Revenue Refunding Bonds (Correctional
Capital Facilities), Series A, 5.25% due 1/01/2014 (f) 975
Port Authority of New York and New Jersey, Consolidated Revenue Bonds:
AAA Aaa 2,000 71st Series, 6.50% due 1/15/2026 (c) 2,132
AA- A1 3,000 72nd Series, 7.35% due 10/01/2002 (e) 3,446
A1+ VMIG1++ 200 Port Authority of New York and New Jersey, Special Obligation Revenue Bonds
(Versatile Structure Obligation), VRDN, AMT, Series 1, 3.55% due 8/01/2028 (a) 200
AAA Aaa 2,000 Triborough Bridge and Tunnel Authority, New York, General Purpose Revenue
Refunding Bonds, Series Y, 6.125% due 1/01/2021 (i) 2,155
Triborough Bridge and Tunnel Authority, New York, Special Obligation Refunding
Bonds:
AAA Aaa 1,500 Series A, 6.625% due 1/01/2017 (d) 1,620
AAA Aaa 1,000 Series B, 6.875% due 1/01/2015 (c) 1,097
Total Investments (Cost--$73,254)--98.6% 76,849
Other Assets Less Liabilities--1.4% 1,087
---------
Net Assets--100.0% $ 77,936
=========
<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 October 31, 1996.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)Prerefunded.
(f)FSA Insured.
(g)FHA Insured.
(h)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at October 31, 1996.
(i)CAPMAC Insured.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$73,254,064) (Note 1a) $ 76,848,535
Cash 70,655
Interest receivable 1,199,006
Deferred organization expenses (Note 1e) 7,921
Prepaid expenses and other assets 5,034
------------
Total assets 78,131,151
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) $ 86,177
Investment adviser (Note 2) 32,873 119,050
------------
Accrued expenses and other liabilities 76,475
------------
Total liabilities 195,525
------------
Net Assets: Net assets $ 77,935,626
============
<PAGE>
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 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 305,720
Accumulated realized capital losses on investments--net (Note 5) (2,474,863)
Unrealized appreciation on investments--net 3,594,471
------------
Total--Equivalent to $14.35 net asset value per share of Common
Stock (market price--$12.875) 52,935,626
------------
Total capital $ 77,935,626
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
October 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 4,400,819
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 387,251
Professional fees 82,244
Commission fees (Note 4) 63,180
Accounting services (Note 2) 43,255
Transfer agent fees 27,458
Printing and shareholder reports 24,958
Directors' fees and expenses 22,946
Listing fees 16,420
Amortization of organization expenses (Note 1e) 7,358
Custodian fees 5,703
Pricing fees 4,971
Other 8,764
------------
Total expenses 694,508
------------
Investment income--net 3,706,311
------------
<PAGE>
Realized & Realized gain on investments--net 492,800
Unrealized Change in unrealized appreciation on investments--net (202,145)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 3,996,966
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 3,706,311 $ 3,725,455
Realized gain (loss) on investments--net 492,800 (1,996,988)
Change in unrealized appreciation on investments--net (202,145) 7,339,389
------------ ------------
Net increase in net assets resulting from operations 3,996,966 9,067,856
------------ ------------
Dividends to Investment income--net:
Shareholders Common Stock (2,831,172) (2,771,523)
(Note 1f): Preferred Stock (883,840) (944,040)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (3,715,012) (3,715,563)
------------ ------------
Net Assets: Total increase in net assets 281,954 5,352,293
Beginning of year 77,653,672 72,301,379
------------ ------------
End of year* $ 77,935,626 $ 77,653,672
============ ============
<FN>
*Undistributed investment income--net $ 305,720 $ 314,421
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
Period
The following per share data and ratios have been derived Nov. 27,
from information provided in the financial statements. For the Year Ended 1992++ to
October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 14.27 $ 12.82 $ 15.51 $ 14.18
Operating -------- -------- -------- --------
Performance: Investment income--net 1.00 1.02 1.03 .85
Realized and unrealized gain (loss) on
investments--net .09 1.44 (2.59) 1.45
-------- -------- -------- --------
Total from investment operations 1.09 2.46 (1.56) 2.30
-------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.77) (.75) (.86) (.68)
Realized gain on investments--net -- -- (.08) --
-------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.77) (.75) (.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 (.24) (.26) (.17) (.09)
Realized gain on investments--net -- -- (.01) --
Capital charge resulting from issuance of
Preferred Stock -- -- (.01) (.15)
-------- -------- -------- --------
Total effect of Preferred Stock activity (.24) (.26) (.19) (.24)
-------- -------- -------- --------
Net asset value, end of period $ 14.35 $ 14.27 $ 12.82 $ 15.51
======== ======== ======== ========
Market price per share, end of period $ 12.875 $ 12.375 $ 10.625 $ 15.00
======== ======== ======== ========
Total Investment Based on market price per share 10.44% 23.93% (24.11%) 4.69%+++
Return:** ======== ======== ======== ========
Based on net asset value per share 6.75% 18.43% (11.44%) 14.51%+++
======== ======== ======== ========
<PAGE>
Ratios to Average Expenses, net of reimbursement .89% .92% .88% .55%*
Net Assets:*** ======== ======== ======== ========
Expenses .89% .92% .88% .87%*
======== ======== ======== ========
Investment income--net 4.77% 4.98% 4.88% 4.86%*
======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) $ 52,936 $ 52,654 $ 47,301 $ 57,005
======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $ 25,000 $ 25,000 $ 25,000 $ 25,000
======== ======== ======== ========
Portfolio turnover 113.99% 176.98% 65.22% 11.06%
======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,117 $ 3,106 $ 2,892 $ 3,280
======== ======== ======== ========
Dividends Per Investment income--net $ 884 $ 944 $ 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 that occurred on December 1, 1994.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
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. 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.
<PAGE>
(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, including valuations furnished by a
pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the
general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
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.
* 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).
<PAGE>
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--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(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.
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
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 year ended October 31, 1996 were $81,198,509 and
$86,432,516, respectively.
<PAGE>
Net realized and unrealized gains (losses) as of October 31, 1996
were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ 550,626 $ 3,594,471
Financial futures contracts (57,826) --
----------- -----------
Total $ 492,800 $ 3,594,471
=========== ===========
As of October 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $3,594,471, of which $3,721,141
related to appreciated securities and $126,670 related to
depreciated securities. The aggregate cost of investments at October
31, 1996 for Federal income tax purposes was $73,254,064.
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 year ended October 31, 1996, shares issued and outstanding
remained constant at 3,688,900. As of October 31, 1996, total paid-
in capital amounted to $51,510,298.
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
dividend periods. The yield in effect at October 31, 1996 was 2.50%.
As of October 31, 1996, there were 1,000 AMPS shares authorized,
issued and outstanding with a liquidation preference of $25,000 per
share.
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 year ended
October 31, 1996, MLPF&S, an affiliate of FAM, earned $40,746 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1996, the Fund had a net capital loss carryforward of
approximately $2,052,000, of which $446,000 expires in 2002 and
$1,606,000 expires in 2003. This amount will be available to offset
like amounts of any future taxable gains.
<PAGE>
6. Subsequent Event:
On November 8, 1996, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.067957 per share, payable on November 27, 1996 to shareholders
of record as of November 18, 1996.
7. Reorganization Plan:
On May 3, 1996, the Board of Directors approved a plan of
reorganization, subject to shareholder approval and certain other
conditions, whereby MuniYield New York Insured Fund II, Inc. would
acquire substantially all of the assets and liabilities of the Fund
and MuniVest New York Insured Fund, Inc. in exchange for newly
issued shares of MuniYield New York Insured Fund II, Inc. MuniYield
New York Insured Fund II, Inc. and MuniVest New York Insured Fund,
Inc. are registered, non-diversified, closed-end management
investment companies. All three entities have a similar investment
objective and are managed by FAM.
<AUDIT-REPORT>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
MuniYield New York Insured Fund III, Inc.:
We have audited the accompanying statement of assets, liabilities
and capital of MuniYield New York Insured Fund III, Inc., including
the schedule of investments, as of October 31, 1996, and the related
statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then
ended and financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at October
31, 1996 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 audits provide
a reasonable basis for our opinion.
<PAGE>
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of MuniYield New York Insured Fund III, Inc. at
October 31, 1996, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in
the period then ended and financial highlights for each of the
indicated periods, in conformity with generally accepted accounting
principles.
(Ernst & Young LLP)
Princeton, New Jersey
December 4, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniYield New
York Insured Fund III, Inc. during its taxable year ended October
31, 1996 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.
