MuniHoldings
Florida Insured
Fund II
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
June 30, 1998
<PAGE>
MuniHoldings Florida Insured Fund II
The Benefits and MuniHoldings Florida Insured Fund II has the ability to
Risks of leverage to seek to enhance the yield and net asset value of
Leveraging its Common Shares. However, these objectives cannot be
achieved in all interest rate environments. To leverage, the
Fund issues Preferred Shares, which pay dividends at
prevailing short-term interest rates, and invests the proceeds
in long-term municipal bonds. The interest earned on these
investments is paid to Common Shareholders in the form of
dividends, and the value of these portfolio holdings is
reflected in the per share net asset value of the Fund's
Common Shares. However, in order to benefit Common
Shareholders, the yield curve must be positively sloped; that
is, short-term interest rates must be lower than long-term
interest rates. At the same time, a period of generally
declining interest rates will benefit Common Shareholders. If
either of these conditions change, then the risks of
leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Share
capitalization of $100 million and the issuance of Preferred
Shares for an additional $50 million, creating a total value
of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are
approximately 3% and long-term interest rates are
approximately 6%, the yield curve has a strongly positive
slope. The fund pays dividends on the $50 million of Preferred
Shares based on the lower short-term interest rates. At the
same time, the fund's total portfolio of $150 million earns
the income based on long-term interest rates. Of course,
increases in short-term interest rates would reduce (and even
eliminate) the dividends on the Common Shares.
In this case, the dividends paid to Preferred Shareholders are
significantly lower than the income earned on the fund's
long-term investments, and therefore the Common Shareholders
are the beneficiaries of the incremental yield. However, if
short-term interest rates rise, narrowing the differential
between short-term and long-term interest rates, the
incremental yield pickup on the Common Shares will be reduced
or eliminated completely. At the same time, the market value
of the fund's Common Shares (that is, its price as listed on
the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common
Shares' net asset value will reflect the full decline in the
price of the portfolio's investments, since the value of the
fund's Preferred Shares does not fluctuate. In addition to the
decline in net asset value, the market value of the fund's
Common Shares may also decline.
As a part of its investment strategy, the Fund may invest in
certain securities whose potential income return is inversely
related to changes in a floating interest rate ("inverse
floaters"). In general, interest rates 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.
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1998
DEAR SHAREHOLDER
We are pleased to provide you with this first annual report for MuniHoldings
Florida Insured Fund II. In this and future reports to shareholders, we will
highlight the Fund's performance, describe the recent investment environment and
outline investment activities. The Fund seeks to provide shareholders with
current income exempt from Federal income tax and the opportunity to own shares,
the value of which is exempt from Florida intangible personal property tax, by
investing in a portfolio of long-term, investment-grade municipal obligations.
Since inception (February 25, 1998) through June 30, 1998, the Common Shares of
MuniHoldings Florida Insured Fund II earned $0.287 per share income dividends,
which included earned and unpaid dividends of $0.064. This represents a net
annualized yield of 5.55%, based on a month-end per share net asset value of
$14.97. Over the same period, the total investment return on the Fund's Common
Shares was +1.29%, based on a change in per share net asset value from $15.00 to
$14.97, and assuming reinvestment of $0.223 per share income dividends.
For the period February 25, 1998 through June 30, 1998, the Fund's Preferred
Shares had an average yield of 3.39% for Series A and 3.34% for Series B.
The Municipal Market Environment
Since the Fund's inception in late February through June 30, 1998, long-term
tax-exempt revenue bond yields were little changed. Throughout the period, the
near absence of inflationary pressures continued to support low interest rates.
However, consistently strong domestic economic growth has caused some investors
to fear that the Federal Reserve Board will be forced eventually to raise
short-term interest rates. Such action would be taken to ensure that the US
economy's present rate of growth would decelerate before any inflationary
pressures could develop. These concerns pushed bond yields modestly higher by
late April.
However, the weakening financial conditions in many Asian countries subsequently
calmed investor fears of Federal Reserve Board intervention, and fixed-income
prices again moved higher. Long-term uninsured municipal bond yields, as
measured by the Bond Buyer Revenue Bond Index, fell approximately 5 basis points
(0.05%) to end the June quarter at 5.34%. As in late 1997 and early 1998, US
Treasury bond yields benefited from a "flight to quality" as foreign investors
were drawn to the relative safe haven of US Government securities. Long-term US
Treasury bond yields declined approximately 30 basis points to end the June
quarter at 5.62%.
Thus far in 1998, the municipal bond market has experienced unexpectedly strong
supply pressures. These supply pressures have prevented tax-exempt bond yields
from declining as much as US Treasury bond yields. During the first six months
of 1998, more than $145 billion in new tax-exempt bonds were underwritten, an
increase of over 50% compared to the same period a year ago. During the quarter
ended June 30, 1998, municipalities issued over $75 billion in new securities,
an increase of more than 35% compared to the same three-month period in 1997.
Additionally, corporate issuers have also viewed current interest rate levels as
an opportunity to issue significant amounts of taxable securities. Thus far in
1998, over $500 billion in investment-grade corporate bonds have been
underwritten, an increase of more than 70% compared to the same period a year
ago. This sizeable corporate bond issuance has tended to both support generally
higher fixed-income yields and reduce the demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely to be
maintained. Continued increases in bond issuance will require lower and lower
tax-exempt bond yields to generate the economic savings necessary for additional
municipal bond refinancings. Preliminary estimates for 1998 total municipal bond
issuance are presently in the $200 billion-$225 billion range. These estimates
suggest that recent supply pressures are likely to abate later in the year.
Earlier this year, municipal bond investors received approximately $30 billion
in coupon payments, bond maturities and proceeds from early redemptions. The
demand generated by these assets has helped to offset the increase in supply
seen thus far in 1998. Historically, the month of July tends to be a period of
strong investor demand as seasonal factors generate strong income flows.
It is also possible that at least some of the recent economic strength seen in
the United States will be reversed in the coming months. A particularly mild
winter has been partially responsible for a strong housing sector, as well as
other construction industries. This past winter's economic strength may have
borrowed from future quarters' growth. This recent strong trend may not be
sustained and may lead to weaker construction growth later this year.
Additionally, strong economic growth in 1997 and the increased use of electronic
tax filings have resulted in larger and earlier Federal and state income tax
refunds to many individuals. These refunds appear to have supported strong
consumer spending in recent months, but may be borrowing against weaker spending
later this year.
The continued impact of the Asian financial crisis on the US domestic economy's
future growth remains unclear. Current Asian economic conditions continue to
reflect ongoing weakness. Recent trade data indicated that reduced US exports to
these countries may have lowered US economic growth by as much as 2% in the
first quarter of 1998. Since further trade deterioration is possible in the
coming months, we do not believe that the Federal Reserve Board will be willing
to raise interest rates, barring a dramatic and unexpected resurgence of
domestic inflation.
These factors suggest that over the near term, interest rates in general are
unlikely to rise by any appreciable amount. Recent supply pressures have caused
municipal bond yield ratios to rise relative to US Treasury bond yields. At June
30, 1998, long-term tax-exempt bond yields were at attractive yield ratios
relative to US Treasury securities of comparable maturities (over 90%), well in
excess of their expected range of 85%-88%. Tax-exempt bond yield ratios rarely
exceeded 90% in the 1980s and 1990s. Previous instances have usually been
associated with potential changes in the Federal tax code that would have
adversely affected the tax-favored status of municipal bonds. The present
situation has developed largely because of a temporary supply imbalance. These
imbalances should soon be corrected as tax-exempt bond issuance slows from its
current rapid pace later this year. Any further pressure on the municipal market
may well represent a very attractive investment opportunity.
Portfolio Strategy
During the four months since the Fund's inception, our strategy was to maintain
a fully invested position. We were constructive on the interest rate outlook and
focused on bonds with price appreciation potential, while providing a high level
of tax-exempt income. This strategy enabled the Fund to perform extremely well
in the declining interest rate environment witnessed recently in the tax-exempt
fixed-income market. Looking ahead, we expect to continue our strategy. A slower
growth, low inflation economic environment will continue to supply a positive
backdrop for debt securities, and we believe that the relatively tight
technical, supply/demand outlook for municipal bonds will cushion any temporary
downward trends in tax-exempt bond prices.
In Conclusion
We appreciate your investment in MuniHoldings Florida Insured Fund II, and we
look forward to assisting you with your financial needs in the months and years
ahead.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Robert A. DiMella
Robert A. DiMella
Vice President and Portfolio Manager
August 3, 1998
2 & 3
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1998
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>
Colorado--2.4% AAA Aaa $ 5,000 Denver, Colorado, City and County Airport Revenue
Refunding Bonds, Series D, 5.50% due 11/15/2025 (f) $ 5,176
====================================================================================================================================
Florida--93.3% AAA Aaa 3,415 Bay Medical Center, Florida, Hospital Revenue Bonds
(Bay Medical Center Project), 5% due 10/01/2022 (a) 3,326
---------------------------------------------------------------------------------------------------
NR* Aaa 7,000 Broward County, Florida, HFA, S/F Mortgage Revenue
Refunding Bonds, AMT, Series B, 5.40% due 4/01/2029 (b)(c) 7,022
---------------------------------------------------------------------------------------------------
AAA Aaa 7,500 Charlotte County, Florida, Utility Revenue Refunding
Bonds, 5% due 10/01/2023 (d) 7,341
---------------------------------------------------------------------------------------------------
A1+ VMIG1+ 6,100 Dade County, Florida, IDA, IDR (Dolphins Stadium Project),
VRDN, Series B, 3.55% due 1/01/2016 (e) 6,100
---------------------------------------------------------------------------------------------------
Escambia County, Florida, HFA, S/F Mortgage Revenue Bonds
(Multi-County Program), AMT, Series A (b)(c):
NR* Aaa 3,405 5.30% due 10/01/2019 3,410
NR* Aaa 6,400 5.35% due 4/01/2031 6,410
---------------------------------------------------------------------------------------------------
BBB+ A3 4,500 Escambia County, Florida, Health Facilities Authority,
Health Facilities Revenue Bonds (Baptist Hospital and
Baptist Manor), 5.125% due 10/01/2019 (j) 4,378
---------------------------------------------------------------------------------------------------
AAA Aaa 6,545 Florida HFA, RITR, AMT, Series 12, 7.67% due 7/01/2029
(f)(g) 7,109
---------------------------------------------------------------------------------------------------
Florida Housing Financial Corporation Revenue Bonds
(Homeowner Mortgage) (f):
AAA Aaa 2,000 AMT, Series 2, 5.35% due 1/01/2021 2,002
AAA Aaa 2,355 Series 1, 5.15% due 1/01/2014 2,352
AAA Aaa 2,030 Series 1, 5.15% due 7/01/2014 2,028
---------------------------------------------------------------------------------------------------
AAA Aaa 11,500 Florida Ports Financing Commission Revenue Bonds
(State Transportation Trust Fund), AMT, 5.375% due
6/01/2027 (f) 11,618
---------------------------------------------------------------------------------------------------
NR* Aaa 4,000 Florida State Mid-Bay Bridge Authority Revenue Bonds,
Series A, 5.321%** due 10/01/2024 (a) 999
---------------------------------------------------------------------------------------------------
Florida State Turnpike Authority, Turnpike Revenue Bonds
(Department of Transportation):
AAA Aaa 10,000 Series A, 4.50% due 7/01/2027 (d) 9,041
AAA Aaa 4,370 Series B, 5.25% due 7/01/2012 (f) 4,537
AAA Aaa 7,050 Series B, 5% due 7/01/2014 (f) 7,062
---------------------------------------------------------------------------------------------------
A NR* 3,000 Halifax Hospital Medical Center, Florida, Health Care
Facilities Revenue Bonds (Halifax Management System),
Series A, 5.20% due 4/01/2018 2,970
---------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Hillsborough County, Florida, School Board, COP, RITR,
Series 31, 6.72% due 7/01/2021 (f)(g) 10,437
---------------------------------------------------------------------------------------------------
NR* Aaa 1,650 Indian Trace Community Development District, Florida,
Water Management Special Benefit Assessment, 5% due
5/01/2017 (f) 1,628
---------------------------------------------------------------------------------------------------
Jacksonville, Florida, Health Facilities Authority,
Hospital Revenue Bonds:
AAA Aaa 3,750 (Charity Obligation Group), Series A, 5.125% due
8/15/2027 (f) 3,691
NR* VMIG1+ 2,300 Refunding (Genesis Rehabilitation Hospital), VRDN,
4.10% due 5/01/2021 (e) 2,300
---------------------------------------------------------------------------------------------------
NR* Aaa 1,000 Lee County, Florida, HFA, S/F Mortgage Revenue Bonds,
AMT, Series A-2, 6.30% due 3/01/2029 (b)(c)(j) 1,101
---------------------------------------------------------------------------------------------------
NR* Aaa 3,800 Marion County, Florida, School Board, COP, 5% due
6/01/2023 (h) 3,710
---------------------------------------------------------------------------------------------------
Miami-Dade County, Florida, Special Obligation
Refunding Bonds, Series A (f):
AAA Aaa 3,875 5.472%** due 10/01/2025 899
AAA Aaa 10,000 5.402%** due 10/01/2026 2,189
---------------------------------------------------------------------------------------------------
AAA NR* 4,015 Orange County, Florida, HFA, M/F Housing Revenue Bonds
(Metro Place Apartments), AMT, Series A, 5.375% due
10/01/2030 (b) 4,027
---------------------------------------------------------------------------------------------------
AAA NR* 5,750 Orange County, Florida, HFA, S/F Mortgage Revenue
Refunding Bonds (Mortgage Backed Securities), AMT,
Series B, 5.875% due 3/01/2028 (b)(c) 5,996
---------------------------------------------------------------------------------------------------
NR* Aaa 7,650 Orange County, Florida, School Board, COP, Refunding,
Series A, 5.375% due 8/01/2022 (f) 7,790
---------------------------------------------------------------------------------------------------
AAA Aaa 10,500 Orlando and Orange County Expressway Authority, Florida,
Expressway Revenue Refunding Bonds (Junior Lien), 5% due
7/01/2028 (d) 10,229
---------------------------------------------------------------------------------------------------
Palm Beach County, Florida, Water and Wastewater Revenue
Bonds (h):
AAA Aaa 1,815 4.70% due 10/01/2013 1,773
AAA Aaa 1,000 4.75% due 10/01/2014 977
AAA Aaa 2,180 5% due 10/01/2017 2,159
---------------------------------------------------------------------------------------------------
AAA Aaa 6,900 Polk County, Florida, School Board, COP, 5% due 1/01/2023
(h) 6,738
---------------------------------------------------------------------------------------------------
AAA Aaa 8,430 Seminole County, Florida, School Board, COP, Series A, 5%
due 7/01/2023 (f) 8,230
---------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Sunrise Lakes, Florida, Recreation District Refunding
Bonds (Phase 4), 5.25% due 8/01/2024 (a) 10,046
---------------------------------------------------------------------------------------------------
AAA Aaa 7,000 Sunrise Lakes, Florida, Utility System Revenue
Refunding Bonds, 5% due 10/01/2028 (a) 6,967
---------------------------------------------------------------------------------------------------
AAA Aaa 14,350 Tampa, Florida, Sports Authority Revenue Bonds (Local
Option Sales Tax-Stadium Project), 5.25% due 1/01/2027 (f) 14,419
---------------------------------------------------------------------------------------------------
Tampa, Florida, Water and Sewer Revenue Refunding Bonds (d):
NR* Aaa 3,950 6.60% due 10/01/2002 (i) 4,368
AAA Aaa 1,720 5.125% due 10/01/2017 1,722
---------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Winter Haven, Florida, Utility System Revenue Refunding
and Improvement Bonds, 4.75% due 10/01/2028 (f) 4,695
====================================================================================================================================
Illinois--2.8% AAA Aaa 6,065 Chicago, Illinois, GO, UT, 5.25% due 1/01/2027 (d) 6,047
====================================================================================================================================
Ohio--3.2% AAA Aaa 7,000 Cleveland, Ohio, COP (Cleveland Stadium Project),
5.25% due 11/15/2022 (a) 7,011
====================================================================================================================================
Pennsylvania--0.6% Philadelphia, Pennsylvania, Hospitals and Higher Education
Facilities Authority, Hospital Revenue Bonds (Children's
Hospital of Philadelphia Project), VRDN (e):
A1+ VMIG1+ 300 4% due 3/01/2027 300
A1+ VMIG1+ 1,000 Series A, 4% due 3/01/2027 1,000
====================================================================================================================================
Texas--0.4% AAA Aaa 1,000 Texas State Turnpike Authority, Dallas North Thruway
Revenue Bonds (President George Bush Turnpike), 5.25%
due 1/01/2023 (d) 1,001
====================================================================================================================================
</TABLE>
================================================================================
Portfolio To simplify the listings of Merrill Lynch
Abbreviations MuniHoldings Florida Insured Fund II's portfolio
holdings in the Schedule of Investments, we
have abbreviated the names of many of the
securities according to the list below and at
right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Wyoming--0.1% NR* P1 $ 200 Uinta County, Wyoming, PCR, Refunding (Chevron USA
Inc. Project), VRDN, 4% due 8/15/2020 (e) $ 200
====================================================================================================================================
Total Investments (Cost--$223,366)--102.8% 224,531
Variation Margin on Financial Futures Contracts***--(0.0%) (79)
Liabilities in Excess of Other Assets--(2.8%) (6,101)
--------
Net Assets--100.0% $218,351
========
</TABLE>
================================================================================
(a) AMBAC Insured.
(b) FNMA Collateralized.
(c) GNMA Collateralized.
(d) FGIC Insured.
(e) The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in effect
at June 30, 1998.
(f) MBIA Insured.
(g) 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 June 30, 1998.
(h) FSA Insured.
(i) Prerefunded.
(j) Portion of security held as collateral in connection with open
financial futures contracts.
* Not rated.
** Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase by the Fund.
*** Financial futures contracts sold as of June 30, 1998 were as follows:
- --------------------------------------------------------------------------------
(in Thousands)
- --------------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1b)
----------------------------------------------------------------------------
255 US Treasury Smith Barney September 1998 $31,516
Bonds
----------------------------------------------------------------------------
(Total Contract Price--$31,106) $31,516
=======
----------------------------------------------------------------------------
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
================================================================================
Quality Profile The quality ratings of securities in the Fund
as of June 30, 1998 were as follows:
------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
------------------------------------------------
AAA/Aaa.............................. 95.0%
A/A.................................. 3.4
Other+............................... 4.4
------------------------------------------------
+ Temporary investments in short-term municipal
securities.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of June 30, 1998
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$223,365,955) (Note 1a)... $224,531,263
Cash................................................................ 78,283
Receivables:
Interest......................................................... $ 3,337,299
Securities sold.................................................. 20,000 3,357,299
-----------
Deferred organization expenses (Note 1e)............................ 15,827
Prepaid expenses and other assets................................... 12,010
------------
Total assets........................................................ 227,994,682
------------
====================================================================================================================================
Liabilities: Payables:
Securities purchased............................................. 9,081,993
Dividends to shareholders (Note 1f).............................. 134,894
Variation margin (Note 1b)....................................... 78,594
Investment adviser (Note 2)...................................... 50,203 9,345,684
-----------
Accrued expenses and other liabilities.............................. 297,813
------------
Total liabilities................................................... 9,643,497
------------
====================================================================================================================================
Net Assets: Net assets.......................................................... $218,351,185
============
====================================================================================================================================
Capital: Capital Shares (unlimited number of shares of beneficial interest
authorized) (Note 4):
Preferred Shares, par value $.10 per share (3,440 shares
of AMPS* issued and outstanding at $25,000 per share
liquidation preference).......................................... $ 86,000,000
Common Shares, par value $.10 per share (8,840,687 shares
issued and outstanding).......................................... $ 884,069
Paid-in capital in excess of par.................................... 130,634,369
Undistributed investment income--net................................ 566,458
Accumulated realized capital losses on investments--net............. (489,175)
Unrealized appreciation on investments--net......................... 755,464
-------------
Total--Equivalent to $14.97 net asset value per Common Share
(market price--$15.50).............................................. 132,351,185
------------
Total capital ...................................................... $218,351,185
============
====================================================================================================================================
</TABLE>
*Auction Market Preferred Shares.
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period February 25, 1998+ to June 30, 1998
=========================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned $ 3,657,318
Income (Note 1d):
=========================================================================================================
Expenses: Investment advisory fees (Note 2) ....................... $ 382,315
Commission fees (Note 4) ................................ 60,003
Professional fees ....................................... 23,500
Accounting services (Note 2) ............................ 16,100
Transfer agent fees ..................................... 11,255
Trustees' fees and expenses ............................. 10,613
Listing fees ............................................ 6,804
Custodian fees .......................................... 4,077
Pricing fees ............................................ 2,128
Amortization of organization expenses (Note 1e) ......... 1,173
Other ................................................... 11,631
---------
Total expenses before reimbursement ..................... 529,599
Reimbursement of expenses (Note 2) ...................... (359,688)
---------
Total expenses after reimbursement ...................... 169,911
-----------
Investment income--net .................................. 3,487,407
-----------
=========================================================================================================
Realized & Realized loss on investments--net ....................... (489,175)
Unrealized Unrealized appreciation on investments--net ............. 755,464
Gain (Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations .... $ 3,753,696
(Notes 1b, 1d & 3): ===========
=========================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
Feb. 25, 1998+
Increase (Decrease) in Net Assets: to June 30, 1998
=========================================================================================================
<S> <C> <C>
Operations: Investment income-net ............................................... $ 3,487,407
Realized loss on investments-net .................................... (489,175)
Unrealized appreciation on investments-net .......................... 755,464
------------
Net increase in net assets resulting from operations ................ 3,753,696
------------
=========================================================================================================
Dividends to Investment income-net: ..............................................
Shareholders Common Shares ..................................................... (1,961,155)
(Note 1f): Preferred Shares .................................................. (959,794)
------------
Net decrease in net assets resulting from dividends
to shareholders ..................................................... (2,920,949)
------------
=========================================================================================================
Capital Share Net proceeds from issuance of Common Shares ......................... 132,000,000
Transactions Proceeds from issuance of Preferred Shares .......................... 86,000,000
(Notes 1e & 4): Value of shares issued to Common Shareholders in
reinvestment of dividends ........................................... 509,781
Offering costs resulting from the issuance of Common Shares ......... (294,647)
Offering and underwriting costs resulting from the issuance
of Preferred Shares ................................................. (796,701)
------------
Net increase in net assets derived from capital share transactions .. 217,418,433
------------
=========================================================================================================
Net Assets: Total increase in net assets ........................................ 218,251,180
Beginning of period ................................................. 100,005
------------
End of period* ...................................................... $218,351,185
============
=========================================================================================================
*Undistributed investment income--net ................................ $ 566,458
============
=========================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1998
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
Feb. 25, 1998+
Increase (Decrease) in Net Asset Value: to June 30, 1998
=========================================================================================================
<S> <C> <C>
Per Share Net asset value, beginning of period ................................ $ 15.00
Operating -----------
Performance: Investment income--net .............................................. .39
Realized and unrealized gain on investments--net .................... .04
-----------
Total from investment operations .................................... .43
-----------
Less dividends to Common Shareholders:
Investment income--net ........................................... (.22)
-----------
Capital charge resulting from issuance of Common Shares ............. (.04)
-----------
Effect of Preferred Share activity:++
Dividends to Preferred Shareholders:
Investment income--net ........................................ (.11)
-----------
Capital charge resulting from issuance of Preferred Shares ....... (.09)
-----------
Total effect of Preferred Share activity ............................ (.20)
-----------
Net asset value, end of period ...................................... $ 14.97
===========
Market price per share, end of period ............................... $ 15.50
===========
=========================================================================================================
Total Investment Based on market price per share ..................................... 4.87%+++
Return:** ===========
Based on net asset value per share .................................. 1.29%+++
===========
=========================================================================================================
Ratios to Average Expenses, net of reimbursement ...................................... .24%*
Net Assets:*** ===========
Expenses ............................................................ .76%*
===========
Investment income--net .............................................. 5.02%*
===========
=========================================================================================================
Supplemental Net assets, net of Preferred Shares, end of period (in thousands) ... $ 132,351
Data: ===========
Preferred Shares outstanding, end of period (in thousands) .......... $ 86,000
===========
Portfolio turnover .................................................. 59.25%
===========
=========================================================================================================
Leverage: Asset coverage per $1,000 ........................................... $ 2,539
===========
=========================================================================================================
Dividends Series A--Investment income--net .................................... $ 281
Per Share on ===========
Preferred Shares Series B--Investment income--net .................................... $ 277
Outstanding: ===========
=========================================================================================================
</TABLE>
* Annualized.
** Total investment returns based on market value,
which can be significantly greater or lesser than
the net asset value, may result in substantially
different returns. Total investment returns
exclude the effects of sales loads.
*** Do not reflect the effect of dividends to
Preferred Shareholders.
+ Commencement of operations.
++ The Fund's Preferred Shares were issued on
March 31, 1998.
+++ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings Florida Insured Fund II (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. Prior to commencement of operations on February 25, 1998 the
Fund had no operations other than those relating to organizational matters and
the sale of 6,667 shares of Common Shares on January 16, 1998 to Fund Asset
Management, L.P. ("FAM") for $100,005. The Fund will determine and make
available for publication the net asset value of its Common Shares on a weekly
basis. The Fund's Common Shares are listed on the New York Stock Exchange under
the symbol MUF. 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 and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Fund, including valuations furnished by a pricing
service retained by the Fund, which may utilize a matrix system for valuations.
The procedures of the pricing service and its valuations are reviewed by the
officers of the Fund under the general supervision of the Board of Trustees.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase
call and put options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
10 & 11
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income-- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Deferred organization and offering expenses--Deferred organization expenses
are amortized on a straight-line basis over a period not exceeding five years.
In accordance with Statement of Position 98-5, any unamortized organization
expenses will be expensed on the first day of the next fiscal year beginning
after December 15, 1998. This change will not have any material impact on the
operations of the Fund. Direct expenses relating to the public offering of the
Fund's Common and Preferred Shares were charged to capital at the time of
issuance of the shares.
(f) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM. The general
partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.55% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Shares. For the period February 25, 1998
to June 30, 1998, FAM earned fees of $382,315, of which $359,688 was voluntarily
waived.
During the period February 25, 1998 to June 30, 1998, Merrill Lynch, Pierce,
Fenner & Smith Inc. ("MLPF&S"), an affiliate of FAM, received underwriting fees
of $645,000 in connection with the issuance of the Fund's Preferred Shares.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or trustees of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period February 25, 1998 to June 30, 1998 were $320,008,923 and $106,319,597,
respectively.
Net realized losses for the period February 25, 1998 to June 30, 1998 and net
unrealized gains (losses) as of June 30, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Losses Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments ................. $ (253,500) $ 1,165,308
Financial futures contracts ........... (235,675) (409,844)
---------- -----------
Total ................................. $ (489,175) $ 755,464
========== ===========
- --------------------------------------------------------------------------------
As of June 30, 1998, net unrealized appreciation for Federal income tax purposes
aggregated $1,165,308, of which $1,316,911 related to appreciated securities and
$151,603 related to depreciated securities. The aggregate cost of investments at
June 30, 1998 for Federal income tax purposes was $223,365,955.
4. Capital Share Transactions:
The Fund is authorized to issue 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 25, 1998 to June 30,
1998 increased by 8,800,000 as a result of the initial offering and by 34,020 as
a result of dividend reinvestments.
Preferred Shares
Auction Market Preferred Shares ("AMPS") are Preferred Shares of the Fund that
entitle their holders to receive cash dividends at an annual rate that may vary
for the successive dividend periods. The yields in effect at June 30, 1998 were
for Series A, 3.74% and Series B, 3.695%.
In connection with the offering of AMPS, the Board of Trustees reclassified
3,440 shares of unissued capital shares of beneficial interest as AMPS. Shares
issued and outstanding during the period February 25, 1998 to June 30, 1998
increased by 3,440 as a result of the AMPS offering.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the period February 25, 1998 to June 30, 1998, MLPF&S earned
$38,276 as commissions.
5. Capital Loss Carryforward:
At June 30, 1998, the Fund had a net capital loss carryforward of approximately
$844,000, all of which expires in 2006. This amount will be available to offset
like amounts of any future taxable gains.
6. Subsequent Event:
On July 9, 1998, the Fund's Board of Trustees declared an ordinary income
dividend to Common Shareholders in the amount of $.064067 per share, payable on
July 30, 1998 to shareholders of record as of July 23, 1998.
12 & 13
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1998
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
MuniHoldings Florida Insured Fund II:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniHoldings Florida Insured Fund II
as of June 30, 1998, the related statements of operations and changes in net
assets, and the financial highlights for the period from February 25, 1998
(commencement of operations) to June 30, 1998. 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 June 30, 1998 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of MuniHoldings Florida
Insured Fund II as of June 30, 1998, the results of its operations, the changes
in its net assets, and the financial highlights for the period February 25, 1998
to June 30, 1998 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 6, 1998
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.
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniHoldings Florida
Insured Fund II during its taxable period ended June 30, 1998 qualify as
tax-exempt interest dividends for Federal income tax purposes.
Additionally, there were no capital gains distributed by the Fund during the
period.
Please retain this information for your records.
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Ronald W. Forbes, Trustee
Cynthia A. Montgomery, Trustee
Charles C. Reilly, Trustee
Kevin A. Ryan, Trustee
Richard R. West, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, 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:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MUF
14 & 15
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of MuniHoldings Florida Insured Fund II for their information. It
is not a prospectus, circular or representation intended for use in the purchase
of shares of the Fund or any securities mentioned in the report. Past
performance results shown in this report should not be considered a
representation of future performance. The Fund has the ability to leverage its
Common Shares by issuing Preferred Shares to provide the Common Shareholders
with a potentially higher rate of return. Leverage creates risks for Common
Shareholders, including the likelihood of greater volatility of net asset value
and market price of shares of the Common Shares, and the risk that fluctuations
in the short-term dividend rates of the Preferred Shares may affect the yield to
Common Shareholders. Statements and other information herein are as dated and
are subject to change.
Muniholdings Florida
Insured Fund II
Box 9011
Princeton, NJ
08543-9011 #HOLDF II--6/98
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