MUNIHOLDINGS
FLORIDA INSURED
FUND II
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
December 31, 1998
<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, December 31, 1998
DEAR SHAREHOLDER
For the six-month period ended December 31, 1998, the Common Shares of
MuniHoldings Florida Insured Fund II earned $0.404 per share income dividends,
which included earned and unpaid dividends of $0.069. This represents a net
annualized yield of 5.23%, based on a month-end per share net asset value of
$15.30. Over the same period, the total investment return on the Fund's Common
Shares was +5.12%, based on a change in per share net asset value from $14.97 to
$15.30, and assuming reinvestment of $0.420 per share ordinary income dividends
and $0.004 per share capital gains distributions.
For the six-month period ended December 31, 1998, the Fund's Auction Market
Preferred Shares had an average yield of 3.43% for Series A and 3.33% for Series
B.
The Municipal Market Environment
During the six months ended December 31, 1998, long-term bond yields generally
declined. Modest domestic economic growth coupled with a continued lack of
inflationary pressures has allowed bond yields to continue the decline seen for
most of 1998. The US Treasury market has also continued to benefit from its
"safe-haven" status. The earlier turmoil in foreign markets, especially in
Russia and Brazil, remains unresolved. The declines in foreign economies also
have led to reduced demand for US exports. This reduction has forced some US
manufacturers to scale back production and initiate significant contractions in
employment. Concerns that the declines in the US manufacturing sector seen thus
far would intensify and spread to the service sector of the US economy led the
Federal Reserve Board to lower short-term interest rates in September, October
and November. These actions were taken in large part to ensure that US economic
growth would remain at least at its current level of growth. During the six
months ended December 31, 1998, US Treasury bond yields declined over 50 basis
points (0.50%) to end the year at 5.09%. Long-term uninsured municipal revenue
bond yields, as measured by the Bond Buyer Revenue Bond Index, fell 10 basis
points to end the six-month period at 5.26%.
One of the two principal themes characterizing the municipal bond market for
much of the past year has been the significant increase in new municipal bond
issuance. Over $285 billion in new long-term tax-exempt bonds were underwritten
in 1998, an increase of almost 30% relative to 1997 levels. As tax-exempt bond
yields declined in recent years, increasingly lower municipal bond yields were
required to refinance existing debt. Consequently, the rate of increase in
municipal bond issuance has begun to slow in recent quarters. During the last
six months of 1998, nearly $135 billion in new tax-exempt bonds were issued, an
increase of nearly 10% as compared to the same period a year earlier. During the
three months ended December 31, 1998, $68 billion in new municipal bonds were
underwritten, an increase of just over 5% as compared to the quarter ended
December 31, 1997. Unless municipal bond yields decline dramatically in 1999,
new bond issuance in 1999 seems unlikely to match 1998 levels.
The second and perhaps more striking theme during the past year has been the
dramatic underperformance of the municipal bond market. At the end of 1998,
long-term tax-exempt bond yields were at attractive yield ratios relative to US
Treasury bond securities of comparable maturities (103%), matching their least
expensive level of the year. Municipal bond yield ratios have averaged
approximately 95% for the last six months and 92% for all of 1998. During 1997,
tax-exempt bond yield ratios averaged 84%. It is likely that the combination of
the increase in new-issue volume and the safe-haven status of US Treasury
securities has driven municipal bond yield ratios to their present attractive
levels. Should new-issue volume decline or foreign financial markets regain
stability in 1999, tax-exempt bond yield ratios could be expected to quickly
return to their more historic levels (85%-88%).
Looking ahead, the expected combination of moderate economic growth in the
United States and continued negligible inflation suggests a relatively stable
interest rate environment into early 1999. However, it is likely that foreign
financial markets will again be a critical factor in determining US bond yields.
At this time, it appears that there is little immediate risk of any significant
increase in long-term bond yields.
Portfolio Strategy
During the six months ended December 31, 1998, we maintained the Fund's
constructive portfolio position. We believed that a continuation of current
equity market volatility would have a negative impact on economic growth,
thereby constricting global inflation and forcing interest rates lower during
the next several months. This proved to be the case as turmoil increased in
various parts of the world, including Brazil and Russia. While the US economy
had performed much better than anticipated, inflation remained quite benign. Our
constructive strategy enabled the Fund to participate in the bond market rally
as well as realize an attractive total return.
Looking ahead, we will maintain our constructive position toward interest rates.
We expect to remain fully invested in order to seek to maintain a high level of
tax-exempt income, as we expect Florida new-issuance supply to remain moderate
and demand to remain quite strong.
In Conclusion
We appreciate your ongoing interest in MuniHoldings Florida Insured Fund, 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
/s/ Robert D. Sneeden
Robert D. Sneeden
Vice President and Portfolio Manager
February 1, 1999
================================================================================
We are pleased to announce that Robert D. Sneeden has become co-portfolio
manager of MuniHoldings Florida Insured Fund II. Mr. Sneeden has been employed
by Merrill Lynch Asset Management, L.P. (an affiliate of the Fund's investment
adviser) since 1994 as Portfolio Manager.
================================================================================
QUALITY PROFILE
The quality ratings of securities in the Fund as of December 31, 1998 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa................................................................ 83.4%
AA/Aa.................................................................. 2.2
A/A.................................................................... 4.0
NR (Not Rated)......................................................... 4.0
Other+................................................................. 4.8
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
2 & 3
<PAGE>
MuniHoldings Florida Insured Fund II, December 31, 1998
PROXY RESULTS
During the six-month period ended December 31, 1998, MuniHoldings Florida
Insured Fund II Common Shareholders voted on the following proposals. The
proposals were approved at a shareholders' meeting on December 16, 1998. The
description of each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect the Fund's Trustees: Ronald W. Forbes 8,717,103 76,016
Cynthia A. Montgomery 8,714,035 79,084
Kevin A. Ryan 8,710,303 82,816
Arthur Zeikel 8,692,098 101,021
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche llp as the Fund's
independent auditors for the current fiscal year. 8,646,749 76,037 70,333
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
During the six-month period ended December 31, 1998, MuniHoldings Florida
Insured Fund II Preferred Shareholders voted on the following proposals. The
proposals were approved at a shareholders' meeting on December 16, 1998. The
description of each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect the Fund's Board of Trustees: Ronald W. Forbes, Cynthia A.
Montgomery, Charles C. Reilly, Kevin A. Ryan, Richard R. West,
Arthur Zeikel as follows:
Series A 1,579 0
Series B 1,690 0
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche llp as the Fund's independent
auditors for the current fiscal year as follows:
Series A 1,579 0 0
Series B 1,690 0 0
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
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--98.4% AAA Aaa $ 3,415 Bay Medical Center, Florida, Hospital Revenue Bonds (Bay
Medical Center Project), 5% due 10/01/2022 (a) $ 3,377
- ---------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 7,000 Broward County, Florida, HFA, S/F Mortgage Revenue Refunding
Bonds, AMT, Series B, 5.40% due 4/01/2029 (c) 7,060
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 7,500 Charlotte County, Florida, Utility Revenue Refunding Bonds, 5%
due 10/01/2023 (d) 7,457
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Dade County, Florida, Water and Sewer System Revenue Bonds,
5.25% due 10/01/2026 (d) 5,115
- ---------------------------------------------------------------------------------------------------------------------------------
Escambia County, Florida, HFA, S/F Mortgage Revenue Refunding
Bonds (Multi-County Project), AMT, Series A (c):
NR* Aaa 3,405 5.30% due 10/01/2019 3,456
NR* Aaa 4,400 5.35% due 4/01/2031 4,466
- ---------------------------------------------------------------------------------------------------------------------------------
BBB+ A3 4,500 Escambia County, Florida, Health Facilities Authority, Health
Facilities Revenue Refunding Bonds (Baptist Hospital & Baptist
Manor), 5.125% due 10/01/2019 4,379
- ---------------------------------------------------------------------------------------------------------------------------------
AA+ Aa2 5,000 Escambia County, Florida, Health Facilities Authority, Hospital
Revenue Bonds (Charity Obligation Group), Series C, 5% due
11/01/2028 4,893
- ---------------------------------------------------------------------------------------------------------------------------------
A1 NR* 1,700 Escambia County, Florida, PCR, Refunding (Gulf Power Company
Project), VRDN, 5.10% due 7/01/2022 (h) 1,700
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Florida HFA (Barrington Place), AMT, Series K-1, 5.45% due
12/01/2037 (a) 4,578
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 6,530 Florida HFA, RITR, Series 12, 7.27% due 7/01/2029 (f) 7,219
- ---------------------------------------------------------------------------------------------------------------------------------
Florida Housing Finance Corporation Revenue Bonds (Homeowner
Mortgage) (e):
AAA Aaa 2,000 AMT, Series 2, 5.35% due 1/01/2021 2,027
AAA Aaa 2,325 Series 1, 5.15% due 1/01/2014 2,349
AAA Aaa 2,005 Series 1, 5.15% due 7/01/2014 2,026
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 11,500 Florida Ports Financing Commission Revenue Bonds (State
Transport Trust Fund), AMT, 5.375% due 6/01/2027 (e) 11,697
- ---------------------------------------------------------------------------------------------------------------------------------
NR Aaa 4,000 Florida State Mid-Bay Bridge Authority Revenue Bonds, Series A,
5.321%** due 10/01/2024 (a) 1,030
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Florida State Turnpike Authority, Turnpike Revenue Bonds,
Department of Transportation, Series A, 4.50% due 7/01/2027 (d) 9,201
- ---------------------------------------------------------------------------------------------------------------------------------
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 2,939
- ---------------------------------------------------------------------------------------------------------------------------------
A- Baa1 6,000 Highlands County, Florida, Health Facilities Authority Revenue
Bonds (Adventist Hospital Health System), 5.25% due 11/15/2028 5,909
- ---------------------------------------------------------------------------------------------------------------------------------
</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
GO General Obligation Bonds
HFA Housing Finance Agency
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
MuniHoldings Florida Insured Fund II, December 31, 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>
Florida AAA NR* $10,000 Hillsborough County, Florida, Port District Revenue Bonds
(concluded) (Tampa Port Authority Project), 5% due 6/01/2023 (e) $ 9,806
- ---------------------------------------------------------------------------------------------------------------------------------
NR* VMIG1+ 10,000 Hillsborough County, Florida, School Board, COP, RITR, Series
31, 6.32% due 7/01/2021 (f) 10,720
- ---------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,650 Indian Trace Community Development District, Florida, Water
Management Special Benefit Assessment, 5% due 5/01/2017 (e) 1,659
- ---------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,000 Lee County, Florida, HFA, S/F Mortgage Revenue Refunding Bonds,
AMT, Series A-2, 6.30% due 3/01/2029 (c) 1,116
- ---------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,000 Marion County, Florida, School Board, COP, 5% due 6/01/2023 (g) 1,980
- ---------------------------------------------------------------------------------------------------------------------------------
Miami-Dade County, Florida, School Board, COP:
AAA Aaa 4,000 Revenue Refunding Bonds, Series C, 5% due 8/01/2025 (g) 3,948
AAA Aaa 5,000 Series B, 4.875% due 8/01/2027 (a) 4,832
- ---------------------------------------------------------------------------------------------------------------------------------
Miami-Dade County, Florida, Special Obligation Revenue Bonds (e):
AAA Aaa 3,875 Refunding, Series A, 5.472%** due 10/01/2025 932
AAA Aaa 10,000 Refunding, Series A, 5.402%** due 10/01/2026 2,274
AAA Aaa 5,000 Series B, 5% due 10/01/2037 4,941
- ---------------------------------------------------------------------------------------------------------------------------------
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) 4,084
- ---------------------------------------------------------------------------------------------------------------------------------
AAA NR* 5,345 Orange County, Florida, HFA, S/F Mortgage Revenue Bonds, Series
B, 5.875% due 3/01/2028 (c) 5,577
- ---------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 7,650 Orange County, Florida, School Board, COP, Refunding Bonds,
Series A, 5.375% due 8/01/2022 (e) 7,890
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Orlando and Orange County Expressway Authority, Florida,
Expressway Revenue Refunding Bonds (Junior Lien), 5% due
7/01/2028 (d) 4,969
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,085 Palm Bay, Florida, Utility Systems Capital Improvement Revenue
Bonds, 5% due 10/01/2028 (e) 3,047
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,180 Palm Beach County, Florida, Water and Wastewater Revenue Bonds,
5% due 10/01/2017 (g) 2,196
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 6,900 Polk County, Florida, School Board, COP, 5% due 1/01/2023 (g) 6,852
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Sarasota County, Florida, Public Hospital Board, Revenue
Refunding Bonds (Sarasota Memorial Hospital), Series B, 5.50%
due 7/01/2028 (e) 3,228
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 8,430 Seminole County, Florida, School Board, COP, Series A, 5% due
7/01/2023 (e) 8,371
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 7,000 Sunrise, Florida, Utility Systems Revenue Refunding Bonds, 5%
due 10/01/2028 (a) 7,036
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Sunrise Lakes, Florida, Phase 4 Recreation District, Refunding
Bonds, GO, 5.25% due 8/01/2024 (a) 10,211
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 14,350 Tampa, Florida, Sports Authority Revenue Bonds (Local Option
Sales Tax--Stadium Project), 5.25% due 1/01/2027 (e) 14,664
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,720 Tampa, Florida, Water and Sewer Revenue Refunding Bonds, 5.125%
due 10/01/2017 (d) 1,748
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Winter Haven, Florida, Utility System Revenue Refunding and
Improvement Bonds, 4.75% due 10/01/2028 (e) 4,770
=================================================================================================================================
Total Investments (Cost--$214,855)--98.4% 217,729
Other Assets Less Liabilities--1.6% 3,539
--------
Net Assets--100.0% $221,268
========
=================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FNMA Collateralized.
(c) FNMA/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 December 31, 1998.
(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 December 31, 1998.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective
yield at time of purchase by the Fund.
+ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of December 31, 1998
=================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$214,855,317) (Note 1a) ........... $217,728,970
Cash ...................................................................... 25,670
Receivables:
Interest ................................................................ $ 3,860,802
Securities sold ......................................................... 70,000 3,930,802
------------
Deferred organization expenses (Note 1e) .................................. 15,827
Prepaid expenses and other assets ......................................... 12,010
------------
Total assets .............................................................. 221,713,279
------------
=================================================================================================================================
Liabilities: Payables:
Dividends to shareholders (Note 1f) ..................................... 188,176
Investment adviser (Note 2) ............................................. 106,285
Distributor (Note 2) .................................................... 60,000 354,461
------------
Accrued expenses and other liabilities .................................... 91,028
------------
Total liabilities ......................................................... 445,489
------------
=================================================================================================================================
Net Assets: Net assets ................................................................ $221,267,790
============
=================================================================================================================================
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 ...................................... 751,303
Undistributed realized capital gains on investments--net .................. 124,396
Unrealized appreciation on investments--net ............................... 2,873,653
------------
Total--Equivalent to $15.30 net asset value per Common Share
(market price--$15.25) .................................................... 135,267,790
------------
Total capital ............................................................. $221,267,790
============
=================================================================================================================================
</TABLE>
* Auction Market Preferred Shares.
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings Florida Insured Fund II, December 31, 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended December 31, 1998
=================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned .................. $ 5,827,471
Income (Note 1d):
=================================================================================================================================
Expenses: Investment advisory fees (Note 2) ......................................... $ 623,120
Commission fees (Note 4) .................................................. 70,081
Professional fees ......................................................... 37,014
Transfer agent fees ....................................................... 16,786
Accounting services (Note 2) .............................................. 15,633
Trustees' fees and expenses ............................................... 10,138
Printing and shareholder reports .......................................... 9,783
Custodian fees ............................................................ 8,693
Listing fees .............................................................. 6,629
Pricing fees .............................................................. 3,403
Amortization of organization expenses (Note 1e) ........................... 1,513
Other ..................................................................... 8,885
----------
Total expenses before reimbursement ....................................... 811,678
Reimbursement of expenses (Note 2) ........................................ (83,017)
----------
Total expenses after reimbursement ........................................ 728,661
-----------
Investment income--net .................................................... 5,098,810
-----------
=================================================================================================================================
Realized & Unrealized Realized gain on investments--net ......................................... 937,538
Gain on Investments-- Change in unrealized appreciation on investments--net ..................... 2,118,189
Net (Notes 1b, 1d & 3): -----------
Net Increase in Net Assets Resulting from Operations ...................... $ 8,154,537
===========
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the Period
Months Ended Feb. 25, 1998+
Increase (Decrease) in Net Assets: Dec. 31, 1998 to June 30, 1998
=================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ............................................... $ 5,098,810 $ 3,487,407
Realized gain (loss) on investments--net ............................. 937,538 (489,175)
Change in unrealized appreciation on investments--net ................ 2,118,189 755,464
------------ ------------
Net increase in net assets resulting from operations ................. 8,154,537 3,753,696
------------ ------------
===============================================================================================================================
Dividends & Investment income--net:
Distributions to Common Shares ...................................................... (3,525,701) (1,961,155)
Shareholders (Note 1f): Preferred Shares ................................................... (1,388,264) (959,794)
Realized gain on investments--net:
Common Shares ...................................................... (223,828) --
Preferred Shares ................................................... (100,139) --
Net decrease in net assets resulting from dividends and
------------ ------------
distributions to shareholders ........................................ (5,237,932) (2,920,949)
------------ ------------
===============================================================================================================================
Beneficial Interest 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 beneficial interest
transactions ......................................................... -- 217,418,433
------------ ------------
===============================================================================================================================
Net Assets: Total increase in net assets ......................................... 2,916,605 218,251,180
Beginning of period .................................................. 218,351,185 100,005
------------ ------------
End of period* ....................................................... $221,267,790 $218,351,185
============ ============
===============================================================================================================================
* Undistributed investment income--net ................................. $ 751,303 $ 566,458
============ ============
===============================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings Florida Insured Fund II, December 31, 1998
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived from information
provided in the financial statements. For the Six For the Period
Months Ended Feb. 25, 1998+
Increase (Decrease) in Net Asset Value: Dec. 31, 1998 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 ........................................... .58 .39
Realized and unrealized gain on investments--net ................. .35 .04
------------ ------------
Total from investment operations ................................. .93 .43
------------ ------------
Less dividends to Common Shareholders:
Investment income--net ......................................... (.40) (.22)
Realized gain on investments--net .............................. (.03) --
------------ ------------
Total dividends and distributions to Common Shareholders ......... (.43) (.22)
------------ ------------
Capital charge resulting from issuance of Common Shares .......... -- (.04)
------------ ------------
Effect of Preferred Share activity:++
Dividends to Preferred Shareholders:
Investment income--net ....................................... (.16) (.11)
Realized gain on investments--net ............................ (.01) --
Capital charge resulting from issuance of Preferred Shares ..... -- (.09)
------------ ------------
Total effect of Preferred Share activity ......................... (.17) (.20)
------------ ------------
Net asset value, end of period ................................... $ 15.30 $ 14.97
============ ============
Market price per share, end of period ............................ $ 15.25 $ 15.50
============ ============
==============================================================================================================================
Total Investment Based on market price per share .................................. 1.20%+++ 4.87%+++
Return:** ============ ============
Based on net asset value per share ............................... 5.12%+++ 1.29%+++
============ ============
==============================================================================================================================
Ratios to Average Expenses, net of reimbursement ................................... .64%* .24%*
Net Assets:*** ============ ============
Expenses ......................................................... .72%* .76%*
============ ============
Investment income--net ........................................... 4.50%* 5.02%*
============ ============
==============================================================================================================================
Supplemental Net assets, net of Preferred Shares, end of period ............... $ 135,268 $ 132,351
Data: (in thousands) ============ ============
Preferred Shares outstanding, end of period ...................... $ 86,000 $ 86,000
(in thousands) ============ ============
Portfolio turnover ............................................... 47.35% 59.25%
============ ============
==============================================================================================================================
Leverage: Asset coverage per $1,000 ........................................ $ 2,573 $ 2,539
============ ============
==============================================================================================================================
Dividends Per Series A--Investment income--net ................................. $ 410 $ 281
Share on Preferred ============ ============
Shares Outstanding: Series B--Investment income--net ................................. $ 398 $ 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.
*** 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. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. The Fund will determine and make available for
publication the net asset value of its Common Shares on weekly basis. The Fund's
Common Shares is 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 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
10 & 11
<PAGE>
MuniHoldings Florida Insured Fund II, December 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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 the first day of the next fiscal year beginning
after December 15, 1998. 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.
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 six months ended
December 31, 1998, FAM earned fees of $623,120, of which $83,017 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 six
months ended December 31, 1998 were $103,702,623 and $105,450,560, respectively.
Net realized gains (losses) for the six months ended December 31, 1998 and net
unrealized gains as of December 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments ............................ $1,358,665 $2,873,653
Financial futures contracts ...................... (421,127) --
---------- ----------
Total ............................................ $ 937,538 $2,873,653
========== ==========
- --------------------------------------------------------------------------------
As of December 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $2,873,653, all of which related to appreciated securities.
The aggregate cost of investments at December 31, 1998 for Federal income tax
purposes was $214,855,317.
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 six months ended December 31, 1998
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 investments.
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 December 31,
1998 were as follows: Series A, 1.00% and Series B, 4.44%.
Shares issued and outstanding during the six months ended December 31, 1998
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 six months ended December 31, 1998, MLPF&S earned $95,591
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 January 7, 1999, the Fund's Board of Trustees declared an ordinary income
dividend to Common Share shareholders in the amount of $.069002 per share,
payable on January 28, 1999 to shareholders of record as of January 22, 1999.
12 & 13
<PAGE>
MuniHoldings Florida Insured Fund II, December 31, 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.
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
Robert D. Sneeden, 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 #HOLDFL II--12/98
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