MUNIHOLDINGS
FLORIDA INSURED
FUND II
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
June 30, 1999
<PAGE>
MuniHoldings Florida Insured Fund II
The Benefits and Risks of Leveraging
MuniHoldings Florida Insured Fund II has the ability to leverage to seek to
enhance the yield and net asset value of its Common Shares. However, these
objectives cannot be achieved in all interest rate environments. To leverage,
the Fund issues Preferred Shares, which pay dividends at prevailing short-term
interest rates, and invests the proceeds in long-term municipal bonds. The
interest earned on these investments is paid to Common Shareholders in the form
of dividends, and the value of these portfolio holdings is reflected in the per
share net asset value of the Fund's Common Shares. However, in order to benefit
Common Shareholders, the yield curve must be positively sloped; that is,
short-term interest rates must be lower than long-term interest rates. At the
same time, a period of generally declining interest rates will benefit Common
Shareholders. If either of these conditions change, then the risks of leveraging
will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common 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, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed-rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in these securities.
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1999
DEAR SHAREHOLDER
For the year ended June 30, 1999, the Common Shares of MuniHoldings Florida
Insured Fund II earned $0.798 per share income dividends, which included earned
and unpaid dividends of $0.066. This represents a net annualized yield of 5.64%,
based on a month-end per share net asset value of $14.14. Over the same period,
the total investment return on the Fund's Common Shares was - 0.13%, based on a
change in per share net asset value from $14.97 to $14.14, and assuming
reinvestment of $0.817 per share ordinary income dividends and $0.004 per share
capital gains distributions.
For the six-month period ended June 30, 1999, the total investment return on the
Fund's Common Shares was - 5.00%, based on a change in per share net asset value
from $15.30 to $14.14, and assuming reinvestment of $0.398 per share income
dividends.
For the six-month period ended June 30, 1999, the Fund's Preferred Shares had an
average yield of 3.11% for Series A and 3.24% for Series B.
The Municipal Market Environment
Long-term bond yields moved higher during the first six months of 1999. US
Treasury bond yields rose throughout the period as the US economy continued to
exhibit considerable strength. An above-trend inflationary report in May coupled
with the May announcement by the Federal Reserve Board that it was considering
increasing short-term interest rates in order to slow domestic economic growth
also contributed to pushing US Treasury bond yields to an 18-month high of over
6.10%. The Federal Reserve Board's return to a neutral policy after the expected
increase in short-term interest rates of 25 basis points (0.25%) in late June
allowed long-term US Treasury bond yields to decline and close the six-month
period ended June 30, 1999 at 5.96%. During the same period, the yield on
long-term US Treasury securities rose almost 90 basis points.
For much of early 1999, long-term tax-exempt bond yields remained essentially
unchanged. However, in May and June municipal bond yields eventually followed
taxable bond yields higher. As measured by the Bond Buyer Revenue Bond Index,
long-term tax-exempt revenue bond yields rose more than 35 basis points to end
the six-month period at 5.61%, their highest level in 20 months.
The strong technical position that the tax-exempt bond market has enjoyed in
recent quarters has continued. Municipal investors are expected to have received
as much as $40 billion in June and early July from coupon income, bond
maturities and the proceeds from early bond redemptions. The receipt of these
assets has coincided with a significant decline in new bond issuance. Over the
last six months, over $115 billion in new long-term tax-exempt bonds were
issued, a decline of 22% as compared to the first six months of 1998. During the
quarter ended June 30, 1999, less than $60 billion in securities were issued by
US municipalities, a decline of nearly 25% versus the June 30, 1998 quarter.
New-issue volume of $22 billion for the month of June 1999 was 28% lower than
June 1998's issuance and the lowest June production since 1996. The combination
of reduced issuance and seasonally high reinvestment has produced a very
positive supply/demand function for the municipal bond market.
Prior to May 1999, this positive technical position had enabled the tax-exempt
bond market to outperform its taxable counterpart. This resulted in a decline of
the yield ratio between taxable and tax-exempt bonds. At the end of 1998,
long-term uninsured revenue bond yields were in excess of 100% of US Treasury
bond yields, far greater than their recent historic range of 85% - 88%. However,
by early May, tax-exempt revenue bond yield ratios had declined to nearly 90%.
Given the rapid rise in municipal bond yields in recent weeks, this ratio has
risen again to nearly 95%. The recent period of volatility has created
additional opportunities for long-term investors to purchase tax-exempt bonds at
historically attractive yields relative to US Treasury securities.
While the Federal Reserve Board announced that it has no immediate bias toward
raising short-term interest rates, we believe that additional US economic growth
will result in further action by the Federal Reserve Board. However, additional
action by the central bank, coupled with the increases in bond yields seen in
recent months, is likely to significantly impact US economic growth. A slowing
in US growth by late summer, especially given the continued lack of inflationary
pressures, could enable the Federal Reserve Board to avoid additional interest
rate adjustments. Without the potential for further Federal Reserve Board
action, we would expect interest rates to stabilize at current levels or begin a
modest decline.
Portfolio Strategy
At the beginning of 1999, our investment strategy was constructive as we looked
for a continuation of the decline in long-term interest rates. We believed the
slow growth, low inflation economic environment would continue to provide a
positive backdrop for debt securities. In addition, we expected that the tight
technical supply/demand environment for municipal bonds would cushion any
temporary downward movements in tax-exempt bond prices. Although the domestic
economy performed better than we had anticipated, inflation continued to decline
year-over-year. Interest rates declined for the first half of the year, enabling
the Fund to perform well. During the six months ended June 30, 1999, we shifted
to a slightly more neutral posture to seek to maintain an attractive tax-exempt
yield while protecting the Fund's net asset value. Although municipal bonds have
outperformed their taxable counterparts, total return for the Fund's Common
Shares was negatively impacted by the increase in interest rates that occurred
during the months of May and June.
Looking forward, we expect to maintain a neutral posture for the balance of
1999, focusing on seeking to enhance the yield to the Fund's Common
Shareholders. We believe the backup in long-term interest rates has created an
attractive buying opportunity.
In Conclusion
We appreciate your ongoing interest 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/ Terry K. Glenn
Terry K. Glenn
President and Trustee
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Robert D. Sneeden
Robert D. Sneeden
Vice President and Portfolio Manager
August 6, 1999
================================================================================
After more than 20 years of service, Arthur Zeikel recently retired as Chairman
of Merrill Lynch Asset Management, L.P. (MLAM). Mr. Zeikel served as President
of MLAM from 1977 to 1997 and as Chairman since December 1997. Mr. Zeikel is one
of the country's most respected leaders in asset management and presided over
the growth of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500 billion. Mr.
Zeikel will remain on MuniHoldings Florida Insured Fund II's Board of Trustees.
We are pleased to announce that Terry K. Glenn has been elected President and
Trustee of the Fund. Mr. Glenn has held the position of Executive Vice President
of MLAM since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Trustees in wishing him
well in his retirement from Merrill Lynch and are pleased that he will continue
as a member of the Fund's Board of Trustees.
================================================================================
2 & 3
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Florida -- 87.3% NR* Aaa $ 7,000 Broward County, Florida, Housing Finance Authority, S/F
Mortgage Revenue Refunding Bonds, AMT, Series B, 5.40%
due 4/01/2029 (b)(c) $ 6,798
---------------------------------------------------------------------------------------------------------
AAA NR* 7,500 Charlotte County, Florida, Utility Revenue Refunding
Bonds, 5% due 10/01/2023 (d) 7,096
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,500 Dade County, Florida, Water and Sewer System Revenue
Bonds, 5.25% due 10/01/2026 (d) 5,367
---------------------------------------------------------------------------------------------------------
Escambia County, Florida, HFA, S/F Mortgage Revenue
Refunding Bonds (Multi-County Program), AMT, Series A
(b)(c):
NR* Aaa 3,405 5.30% due 10/01/2019 3,302
NR* Aaa 4,400 5.35% due 4/01/2031 4,237
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Florida HFA (Barrington Place), AMT, Series K-1, 5.45%
due 12/01/2037 (a) 4,429
---------------------------------------------------------------------------------------------------------
NR* Aaa 6,530 Florida HFA, Revenue Refunding Bonds, RITR, AMT, Series
12, 7.57% due 7/01/2029 (e)(f) 6,968
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,945 Florida Housing Finance Corporation, Revenue Refunding
Bonds (Homeowner Mortgage), AMT, Series 2, 5.35% due
1/01/2021 (e) 1,904
---------------------------------------------------------------------------------------------------------
Florida Housing Finance Corporation, Revenue Refunding
Bonds (Homeowner Mortgage), Series 1 (e):
AAA Aaa 2,240 5.15% due 1/01/2014 2,191
AAA Aaa 1,930 5.15% due 7/01/2014 1,882
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,500 Florida Ports Financing Commission Revenue Bonds (State
Transportation Trust Fund), AMT, 5.375% due 6/01/2027 (e) 5,387
---------------------------------------------------------------------------------------------------------
NR* Aaa 1,700 Florida State Governmental Utility Authority, Utility
Revenue Bonds (Barefoot Bay Utility System), 5% due
10/01/2029 (a) 1,594
---------------------------------------------------------------------------------------------------------
Florida State Turnpike Authority, Turnpike Revenue Bonds
(Department of Transportation), Series A (d):
AAA Aaa 4,250 5% due 7/01/2021 4,036
AAA Aaa 10,000 4.50% due 7/01/2027 8,669
---------------------------------------------------------------------------------------------------------
A- Baa1 3,400 Highlands County, Florida, Health Facilities Authority
Revenue Bonds (Adventist Health Systems), 5.25% due
11/15/2028 3,093
---------------------------------------------------------------------------------------------------------
NR* Aaa 10,000 Hillsborough County, Florida, School Board, COP, RITR,
Series 31, 6.57% due 7/01/2021 (e)(f) 9,885
---------------------------------------------------------------------------------------------------------
AAA NR* 5,000 Jacksonville, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Charity Obligation Group), Series
C, 5.375% due 8/15/2029 (e) 4,901
---------------------------------------------------------------------------------------------------------
Lakeland, Florida, Electric and Water Revenue Refunding
Bonds, Series A (e):
AAA Aaa 2,500 5% due 10/01/2018 2,404
AAA Aaa 2,500 5% due 10/01/2028 2,347
---------------------------------------------------------------------------------------------------------
NR* Aaa 970 Lee County, Florida, Housing Finance Authority, S/F
Mortgage Revenue Refunding Bonds, AMT, Series A-2, 6.30%
due 3/01/2029 (b)(c)(i)(j) 1,057
---------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Miami-Dade County, Florida, Public Service Tax Revenue
Bonds (UMSA Public Improvements), 5% due 10/01/2023 (g) 4,731
---------------------------------------------------------------------------------------------------------
AAA Aaa 6,320 Miami-Dade County, Florida, Water and Sewer Revenue
Bonds, Series A, 5% due 10/01/2029 (d) 5,918
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,345 North Springs, Florida, Improvement District, Water
Management, GO, Refunding, 5% due 5/01/2019 (e) 2,240
---------------------------------------------------------------------------------------------------------
AAA NR* 4,015 Orange County, Florida, HFA, M/F Revenue Bonds (Metro
Place Apartments), AMT, Series A, 5.375%
due 10/01/2030 (b) 3,970
---------------------------------------------------------------------------------------------------------
AAA NR* 4,965 Orange County, Florida, HFA, S/F Mortgage Revenue Bonds,
AMT, Series B, 5.875% due 3/01/2028 (b)(c) 5,087
---------------------------------------------------------------------------------------------------------
NR* Aaa 7,650 Orange County, Florida, School Board, COP, Refunding
Bonds, Series A, 5.375% due 8/01/2022 (e) 7,604
---------------------------------------------------------------------------------------------------------
Orlando and Orange County Expressway Authority, Florida,
Expressway Revenue Refunding Bonds, Junior Lien (d):
AAA Aaa 1,500 5% due 7/01/2021 1,423
AAA Aaa 5,000 5% due 7/01/2028 4,709
---------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Orlando, Florida, Greater Orlando Aviation Authority,
Airport Facilities Revenue Bonds, AMT, Series A, 5.125%
due 10/01/2028 (d) 5,691
---------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Osceola County, Florida, Sales Tax Revenue Bonds, 5% due
4/01/2019 (g) 4,788
---------------------------------------------------------------------------------------------------------
AAA NR* 3,000 Peace River/Manasota, Florida, Regional Water Supply
Authority, Revenue Refunding Bonds (Peace River Option
Project), Series A, 5.20% due 10/01/2018 (e) 2,938
---------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 900 Pinellas County, Florida, Health Facilities Authority,
Revenue Refunding Bonds (Pooled Hospital Loan Program),
DATES, 4% due 12/01/2015 (a)(h) 900
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,750 Saint John's County, Florida, Sales Tax Revenue Refunding
Bonds, 5% due 10/01/2019 (d) 3,588
---------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Saint Petersburg, Florida, Public Utilities Revenue
Bonds, Series A, 5% due 10/01/2028 (g) 4,693
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Sarasota County, Florida, Public Hospital Board, Revenue
Refunding Bonds (Sarasota Memorial Hospital), Series B,
5.25% due 7/01/2024 (e) 4,898
---------------------------------------------------------------------------------------------------------
AAA Aaa 8,430 Seminole County, Florida, School Board, COP, Series A, 5%
due 7/01/2023 (e) 7,979
---------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Sunrise Lakes, Florida, Phase 4 Recreation District,
Refunding Bonds, GO, 5.25% due 8/01/2024 (a) 9,768
---------------------------------------------------------------------------------------------------------
AAA Aaa 14,350 Tampa, Florida, Sports Authority Revenue Bonds
(Local Option Sales Tax -- Stadium Project),
5.25% due 1/01/2027 (e) 14,003
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,720 Tampa, Florida, Water and Sewer Revenue Refunding Bonds,
5.125% due 10/01/2017 (d) 1,685
====================================================================================================================================
Illinois -- 4.2% AAA Aaa 9,200 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Refunding Bonds (McCormick
Place Expansion Project), Series A, 5.25% due 6/15/2027 (a) 8,810
====================================================================================================================================
Massachusetts -- 3.1% AAA Aaa 6,750 Massachusetts State Turnpike Authority, Metropolitan
Highway System Revenue Refunding Bonds, Sub-Series B,
5.25% due 1/01/2029 (e) 6,467
====================================================================================================================================
Pennsylvania -- 0.9% NR* Aaa 2,050 Beaver County, Pennsylvania, GO, Refunding, 5.30% due
10/01/2026 (e) 1,989
====================================================================================================================================
</TABLE>
Portfolio Abbreviations
To simplify the listings of 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
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HFA Housing Finance Agency
M/F Multi-Family
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Texas -- 5.2% A1+ NR* $ 800 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Refunding Bonds (Methodist
Hospital), VRDN, 4% due 12/01/2025 (h) $ 800
---------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Houston, Texas, Water and Sewer System Revenue Refunding
Bonds, Junior Lien, Series A, 5.25% due 12/01/2025 (d) 5,768
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Matagorda County, Texas, Navigation District Number 1
Revenue Refunding Bonds (Reliant Energy Inc.), Series A,
5.25% due 6/01/2026 (a) 4,312
====================================================================================================================================
Puerto Rico -- 0.9% AAA Aaa 2,000 Puerto Rico Commonwealth, GO, Refunding, 5.25% due
7/01/2018 (e) 2,000
====================================================================================================================================
Total Investments (Cost -- $220,579) -- 101.6% 214,306
Variation Margin on Financial Futures Contracts** -- (0.1%) (245)
Liabilities in Excess of Other Assets -- (1.5%) (3,085)
--------
Net Assets -- 100.0% $210,976
========
====================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FNMA Collateralized.
(c) GNMA Collateralized.
(d) FGIC Insured.
(e) MBIA Insured.
(f) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at June 30, 1999.
(g) FSA Insured.
(h) 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,
1999.
(i) FHLMC Collateralized.
(j) Security held as collateral in connection with open financial futures
contracts.
See Notes to Financial Statements.
* Not rated.
** Financial futures contracts sold as of June 30, 1999 were as follows:
- --------------------------------------------------------------------------------
(in Thousands)
- --------------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
- --------------------------------------------------------------------------------
280 US Treasury September 1999 $32,454
Bonds
- --------------------------------------------------------------------------------
(Total Contract Price -- $31,954) $32,454
=======
- --------------------------------------------------------------------------------
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
Quality Profile
The quality ratings of securities in the Fund as of June 30, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ........................................................... 99.3%
A/A ............................................................... 1.5
Other+ ............................................................ 0.8
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of June 30, 1999
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $220,578,523) (Note 1a)............... $214,305,974
Cash............................................................................ 104,628
Receivables:
Interest...................................................................... $ 3,861,262
Securities sold............................................................... 3,118,367 6,979,629
------------
Deferred organization expenses (Note 1e)........................................ 12,429
Prepaid expenses and other assets............................................... 12,590
------------
Total assets.................................................................... 221,415,250
------------
====================================================================================================================================
Liabilities: Payables:
Securities purchased.......................................................... 9,779,913
Variation margin (Note 1b).................................................... 245,000
Dividends to shareholders (Note 1f)........................................... 148,613
Investment adviser (Note 2)................................................... 89,752
Offering costs (Note 1e)...................................................... 55,000 10,318,278
------------
Accrued expenses and other liabilities.......................................... 121,092
------------
Total liabilities............................................................... 10,439,370
------------
====================================================================================================================================
Net Assets: Net assets...................................................................... $210,975,880
====================================================================================================================================
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.......................................... 705,318
Accumulated realized capital losses on investments -- net....................... (151,674)
Accumulated distributions in excess of realized capital gains on investments --
net (Note 1f)................................................................. (323,966)
Unrealized depreciation on investments -- net................................... (6,772,236)
------------
Total -- Equivalent to $14.14 net asset value per Common Share
(market price -- $12.9375).................................................... 124,975,880
------------
Total capital................................................................... $210,975,880
============
====================================================================================================================================
</TABLE>
* Auction Market Preferred Shares.
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended June 30, 1999
====================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned........................ $ 11,420,060
Income
(Note 1d):
====================================================================================================================================
Expenses: Investment advisory fees (Note 2)............................................... $ 1,212,392
Commission fees (Note 4)........................................................ 198,083
Professional fees............................................................... 68,921
Accounting services (Note 2).................................................... 38,560
Transfer agent fees............................................................. 31,372
Printing and shareholder reports................................................ 21,426
Trustees' fees and expenses..................................................... 20,064
Custodian fees.................................................................. 19,371
Listing fees.................................................................... 16,431
Pricing fees.................................................................... 7,016
Amortization of organization expenses (Note 1e)................................. 3,398
Other........................................................................... 7,440
------------
Total expenses before reimbursement............................................. 1,644,474
Reimbursement of expenses (Note 2).............................................. (124,545)
------------
Total expenses after reimbursement.............................................. 1,519,929
------------
Investment income -- net ....................................................... 9,900,131
------------
====================================================================================================================================
Realized & Realized gain on investments -- net............................................. 337,624
Unrealized Gain Change in unrealized appreciation/depreciation on investments -- net............ (7,527,700)
(Loss) on ------------
Investments -- Net Increase in Net Assets Resulting from Operations............................ $ 2,710,055
Net (Notes 1b, ============
1d & 3):
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year For the Period
Ended Feb. 25, 1998+
Increase (Decrease) in Net Assets: June 30, 1999 to June 30, 1998
===================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income -- net........................................................ $ 9,900,131 $ 3,487,407
Realized gain (loss) on investments -- net...................................... 337,624 (489,175)
Change in unrealized appreciation/depreciation on investments -- net............ (7,527,700) 755,464
------------ ------------
Net increase in net assets resulting from operations............................ 2,710,055 3,753,696
------------ ------------
===================================================================================================================================
Dividends & Investment income -- net:
Distributions to Common Shares................................................................. (7,040,096) (1,961,155)
Shareholders Preferred Shares.............................................................. (2,721,298) (959,794)
(Note 1f): In excess of realized gain on investments -- net:
Common Shares................................................................. (223,828) --
Preferred Shares.............................................................. (100,138) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions to
shareholders.................................................................. (10,085,360) (2,920,949)
------------ ------------
===================================================================================================================================
Beneficial Net proceeds from issuance of Common Shares..................................... -- 132,000,000
Interest Proceeds from issuance of Preferred Shares...................................... -- 86,000,000
Transactions Value of shares issued to Common Shareholders in reinvestment of dividends...... -- 509,781
(Notes 1e & 4): 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 beneficial interest transactions........ -- 217,418,433
------------ ------------
===================================================================================================================================
Net Assets: Total increase (decrease) in net assets......................................... (7,375,305) 218,251,180
Beginning of period............................................................. 218,351,185 100,005
------------ ------------
End of period*.................................................................. $210,975,880 $218,351,185
============ ============
===================================================================================================================================
* Undistributed investment income -- net (Note 1g)................................ $ 705,318 $ 566,458
============ ============
===================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1999
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year For the Period
Ended Feb. 25, 1998+
Increase (Decrease) in Net Asset Value: June 30, 1999 to June 30, 1998
===================================================================================================================================
<S> <C> <C> <C>
Per Share Net asset value, beginning of period........................................ $ 14.97 $ 15.00
Operating --------- ---------
Performance: Investment income -- net.................................................... 1.13 .39
Realized and unrealized gain (loss) on investments -- net................... (.81) .04
--------- ---------
Total from investment operations............................................ .32 .43
--------- ---------
Less dividends to Common Shareholders:
Investment income -- net.................................................. (.80) (.22)
In excess of realized gain on investments -- net.......................... (.03) --
--------- ---------
Total dividends and distributions to Common Shareholders.................... (.83) (.22)
--------- ---------
Capital charge resulting from issuance of Common Shares..................... -- (.04)
--------- ---------
Effect of Preferred Share activity:++
Dividends to Preferred Shareholders:
Investment income -- net................................................ (.31) (.11)
In excess of realized gain on investments -- net........................ (.01) --
Capital charge resulting from issuance of Preferred Shares................ -- (.09)
--------- ---------
Total effect of Preferred Share activity.................................... (.32) (.20)
--------- ---------
Net asset value, end of period.............................................. $ 14.14 $ 14.97
========= =========
Market price per share, end of period....................................... $ 12.9375 $ 15.50
========= =========
====================================================================================================================================
Total Investment Based on market price per share............................................. (11.75%) 4.87%@
Return:** ========= =========
Based on net asset value per share.......................................... (.13%) 1.29%@
========= =========
====================================================================================================================================
Ratios Based on Expenses, net of reimbursement***........................................... 1.13% .35%*
Average Net ========= =========
Assets Of Total expenses***........................................................... 1.22% 1.10%*
Common Shares: ========= =========
Total investment income -- net***........................................... 7.36% 7.26%*
========= =========
Amount of dividends to Preferred Shareholders............................... 2.02% 2.00%*
========= =========
Investment income -- net, to Common Shareholders............................ 5.34% 5.26%*
========= =========
====================================================================================================================================
Ratios Based on Expenses, net of reimbursement.............................................. .69% .24%*
Total Average Net ========= =========
Assets:+++*** Total expenses.............................................................. .75% .76%*
========= =========
Total investment income -- net.............................................. 4.49% 5.00%*
========= =========
====================================================================================================================================
Ratios Based on Dividends to Preferred Shareholders......................................... 3.16% 4.43%*
Average Net Assets ========= =========
Of Preferred Shares:
====================================================================================================================================
Supplemental Net assets, net of Preferred Shares, end of period (in thousands)........... $ 124,976 $ 132,351
Data: ========= =========
Preferred Shares outstanding, end of period (in thousands).................. $ 86,000 $ 86,000
========= =========
Portfolio turnover.......................................................... 108.45% 59.25%
========= =========
====================================================================================================================================
Leverage: Asset coverage per $1,000................................................... $ 2,453 $ 2,539
========= =========
====================================================================================================================================
Dividends Series A -- Investment income -- net........................................ $ 789 $ 281
Per Share on ========= =========
Preferred Shares Series B -- Investment income -- net........................................ $ 793 $ 277
========= =========
====================================================================================================================================
</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.
*** Does not reflect the effect of dividends to Preferred Shareholders.
+ Commencement of operations.
++ The Fund's Preferred Shares were issued on March 31, 1998.
+++ Includes Common and Preferred Shares average net assets.
@ 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. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. 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 written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general supervision of the
Board of Trustees.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
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
10 & 11
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
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).
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 July 1, 1999. This charge 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. Distributions in excess of realized capital gains are due
primarily to differing tax treatments for futures transactions and post-October
losses.
(g) Reclassification -- Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $123 have been reclassified between accumulated net
realized capital losses and undistributed net investment income. These
reclassifications have no effect on net assets or net asset value per share.
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 year ended June 30,
1999, FAM earned fees of $1,212,392, of which $124,545 was voluntarily waived.
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
year ended June 30, 1999 were $240,728,898 and $235,986,803, respectively.
Net realized gains (losses) for the year ended June 30, 1999 and net unrealized
losses as of June 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
- --------------------------------------------------------------------------------
Long-term investments ................ $ 564,442 $(6,272,549)
Financial futures contracts .......... (226,818) (499,687)
----------- -----------
Total ................................ $ 337,624 $(6,772,236)
=========== ===========
- --------------------------------------------------------------------------------
As of June 30, 1999, net unrealized depreciation for Federal income tax purposes
aggregated $6,272,549, of which $25,994 related to appreciated securities and
$6,298,543 related to depreciated securities. The aggregate cost of investments
at June 30, 1999 for Federal income tax purposes was $220,578,523.
4. Beneficial Interest Transactions:
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, including Preferred Shares, par value $.10 per share, all of which
were initially classified as Common Shares. The Board of Trustees is authorized,
however, to reclassify any unissued shares of beneficial interest without
approval of holders of Common Shares.
Common Shares
Shares issued and outstanding during the year ended June 30, 1999 remained
constant and for 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, with
a par value of $.05 per share and a liquidation preference of $25,000 per share,
that entitle their holders to receive cash dividends at an annual rate that may
vary for the successive dividend periods. The yields in effect at June 30, 1999
were as follows: Series A, 3.95%; and Series B, 3.60%.
Shares issued and outstanding during the year ended June 30, 1999 remained
constant and for 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 year ended June 30, 1999, MLPF&S earned $164,154 as
commissions.
5. Subsequent Event:
On July 8, 1999, the Fund's Board of Trustees declared an ordinary income
dividend to Common Shareholders in the amount of $.065777 per share, payable on
July 29, 1999 to shareholders of record as of July 23, 1999.
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, 1999, the related statements of operations for the year then
ended and changes in net assets and the financial highlights for the year then
ended and 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
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 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,
1999 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 audits provide 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, 1999, the results of its operations, the changes
in its net assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 6, 1999
12 & 13
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1999
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniHoldings Florida
Insured Fund II during its taxable year ended June 30, 1999 qualify as
tax-exempt interest dividends for Federal income tax purposes.
Additionally, the following table summarizes the taxable distributions paid by
the Fund during the year:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Payable Ordinary Long-Term
Date Income Capital Gains*
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shareholders 12/30/98 $ .020994 $ .004324
- -------------------------------------------------------------------------------------------
Preferred Shareholders: Series A 11/10/98 $ 21.32 $ 4.31
11/17/98 $ 3.13 $ 0.72
--------------------------------------------------------------
Series B 11/12/98 $ 21.26 $ 4.31
11/19/98 $ 2.57 $ 0.60
- -------------------------------------------------------------------------------------------
</TABLE>
* The entire distribution is subject to the 20% tax rate.
Please retain this information for your records.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund's management that they
also expect to resolve the Year 2000 Problem, and the Fund's management will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the securities in which
the Fund invests and this could hurt the Fund's investment returns.
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.
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
Ronald W. Forbes, Trustee
Cynthia A. Montgomery, Trustee
Charles C. Reilly, Trustee
Kevin A. Ryan, Trustee
Richard R. West, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
Robert D. Sneeden, Vice President
Donald C. Burke, Vice President and Treasurer
William E. Zitelli, Secretary
- --------------------------------------------------------------------------------
Gerald M. Richard, Treasurer of MuniHoldings Florida Insured Fund II, has
recently retired. His colleagues at Merrill Lynch Asset Management, L.P. join
the Fund's Board of Trustees in wishing Mr. Richard well in his retirement.
- --------------------------------------------------------------------------------
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 Whitehall 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 #HOLDFL II -- 6/99
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