MUNIHOLDINGS
NEW JERSEY
INSURED FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
July 31, 1998
<PAGE>
MuniHoldings New Jersey Insured Fund, Inc.
The Benefits and Risks of Leveraging
MuniHoldings New Jersey Insured Fund, Inc. has the ability to leverage to seek
to enhance the yield and net asset value of its Common Stock. However, these
objectives cannot be achieved in all interest rate environments. To leverage,
the Fund issues Preferred Stock, which pays dividends at prevailing short-term
interest rates, and invests the proceeds in long-term municipal bonds. The
interest earned on these investments is paid to Common Stock shareholders in the
form of dividends, and the value of these portfolio holdings is reflected in the
per share net asset value of the Fund's Common Stock. However, in order to
benefit Common Stock shareholders, the yield curve must be positively sloped;
that is, short-term interest rates must be lower than long-term interest rates.
At the same time, a period of generally declining interest rates will benefit
Common Stock shareholders. If either of these conditions change, then the risks
of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock capitalization of
$100 million and the issuance of Preferred Stock for an additional $50 million,
creating a total value of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are approximately 3%
and long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million of Preferred
Stock based on the lower short-term interest rates. At the same time, the fund's
total portfolio of $150 million earns the income based on long-term interest
rates. Of course, increases in short-term interest rates would reduce (and even
eliminate) the dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term investments,
and therefore the Common Stock shareholders are the beneficiaries of the
incremental yield. However, if short-term interest rates rise, narrowing the
differential between short-term and long-term interest rates, the incremental
yield pickup on the Common Stock will be reduced or eliminated completely. At
the same time, the market value of the fund's Common Stock (that is, its price
as listed on the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common Stock's net asset
value will reflect the full decline in the price of the portfolio's investments,
since the value of the fund's Preferred Stock does not fluctuate. In addition to
the decline in net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, interest rates on inverse
floaters will decrease when short-term interest rates increase and increase when
short-term interest rates decrease. Investments in inverse floaters may be
characterized as derivative securities and may subject the Fund to the risks of
reduced or eliminated interest payments and losses of investment principal. In
addition, inverse floaters have the effect of providing investment leverage and,
as a result, the market value of such securities will generally be more volatile
than that of fixed rate, tax-exempt securities.
<PAGE>
MuniHoldings New Jersey Insured Fund, Inc., July 31, 1998
DEAR SHAREHOLDER
We are pleased to provide you with this first annual report for MuniHoldings New
Jersey Insured Fund, Inc. In this and future shareholder reports, we will
highlight the Fund's performance and describe recent investment activities. The
Fund seeks to provide shareholders with current income exempt from Federal
income taxes and New Jersey personal income taxes by investing primarily in a
portfolio of long-term, investment-grade municipal obligations.
Since inception (March 11, 1998), the Common Stock of MuniHoldings New Jersey
Insured Fund, Inc. earned $0.334 per share income dividends, which included
earned and unpaid dividends of $0.074. This represents a net annualized yield of
5.66%, based on a month-end per share net asset value of $15.09. Over the same
period, the total investment return on the Fund's Common Stock was +2.35%, based
on a change in per share net asset value from $15.00 to $15.09, and assuming
reinvestment of $0.261 per share income dividends.
For the period March 11, 1998 through July 31, 1998, the Fund's Auction Market
Preferred Stock had an average yield of 3.71% for Series A and 3.51% for Series
B.
The Municipal Market Environment
During the four-month period since the Fund's inception (March 11, 1998) through
July 31, 1998, long-term tax-exempt revenue bond yields were little changed.
Thus far this year, the near absence of inflationary pressures continued to
support low interest rates. However, consistently strong domestic economic
growth has caused some investors to fear that the Federal Reserve Board will be
forced eventually to raise short-term interest rates. Such action would be taken
to ensure that the US economy's present rate of growth would decelerate before
any inflationary pressures could develop. These concerns served to push bond
yields modestly higher by mid-April.
However, the weakening financial conditions in many Asian countries subsequently
calmed investor fears of Federal Reserve Board intervention, and fixed-income
prices again moved higher. As measured by the Bond Buyer Revenue Bond Index,
long-term uninsured municipal bond yields fell approximately 5 basis points
(0.05%) to end the four-month period at 5.36%. As in late 1997 and early 1998,
US Treasury bond yields benefited from a "flight to quality" as foreign
investors were drawn to the relative safe haven of US Government securities.
Long-term US Treasury bond yields declined approximately 10 basis points to end
the four-month period at 5.71%.
Thus far in 1998, the municipal bond market has experienced unexpectedly strong
supply pressures. These supply pressures have prevented tax-exempt bond yields
from declining as much as US Treasury bond yields. During the first seven months
of 1998, almost $153 billion in new tax-exempt bonds were underwritten, an
increase of almost 50% compared to the same period a year ago. During the most
recent three months, municipalities issued over $75 billion in new securities,
an increase of nearly 35% compared to the same three-month period in 1997.
Additionally, corporate issuers have also viewed current interest rate levels as
an opportunity to issue significant amounts of taxable securities. For the first
half of 1998, over $500 billion in investment-grade corporate bonds have been
underwritten, an increase of more than 70% compared to the same period a year
ago. This sizeable corporate bond issuance has tended to both support generally
higher fixed-income yields and reduce the demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely to be
maintained. Continued increases in bond issuance will require lower and lower
municipal bond yields to generate the economic savings necessary for additional
tax-exempt bond refinancings. Preliminary estimates for 1998 total municipal
bond issuance are in the $200 billion-$225 billion range. These estimates
suggest that recent supply pressures are likely to abate later in the year.
Recently, municipal bond investors received approximately $30 billion in June
and July in coupon payments, bond maturities and proceeds from early
redemptions. The demand generated by these assets has helped to offset the
increase in supply seen thus far this year.
The continued impact of the Asian financial crisis on the US domestic economy's
future growth remains unclear. Current Asian economic conditions continue to
reflect ongoing weakness. Recent trade data indicated that reduced US exports to
these countries might have lowered US economic growth by as much as 2% in the
first half of 1998. Since further trade deterioration is possible in the coming
months, we do not believe the Federal Reserve Board will be willing to raise
interest rates, barring a dramatic and unexpected resurgence of domestic
inflation.
These factors suggest that over the near term, interest rates in general are
unlikely to rise by any appreciable amount. Recent supply pressures have caused
municipal bond yield ratios to rise relative to US Treasury bond yields. At July
31, 1998, long-term tax-exempt bond yields were at attractive yield ratios
relative to US Treasury securities of comparable maturities (over 90%), well in
excess of their expected range of 85%-88%. Tax-exempt bond yield ratios rarely
exceeded 90% in the 1980s and 1990s. Previous instances have usually been
associated with potential changes in Federal tax codes that would have adversely
affected the tax-favored status of municipal bonds. The present situation has
developed largely because of a temporary supply imbalance. These imbalances
should soon be corrected as tax-exempt bond issuance slows from its current
rapid pace later this year. Any further pressure on the municipal market may
well represent a very attractive investment opportunity.
Portfolio Strategy
Since the Fund's inception in March 1998, our portfolio strategy has been
influenced by factors specific to the New Jersey municipal market. Available
supply of New Jersey paper has been extremely limited despite an overall
increase in national tax-exempt new-issue volume, while consistently strong
retail demand has further exacerbated the situation. Nonetheless, we were able
to swiftly invest the proceeds of the Fund's Common Stock offering and thereby
capitalize on a temporary rise in long-term interest rates. Subsequently, we
successfully implemented the Fund's leverage strategy through the issuance of
Preferred Stock. As a result, Common Stock shareholders benefited from a
resumption in the decline in long-term interest rates. (For a complete
explanation of the benefits and risks of leveraging, see page 1 of this report
to shareholders.)
Most of the Fund's holdings are insured and carry the highest bond rating from
either Moody's Investors Service, Inc. or Standard & Poor's Corp. With credit
spreads currently at historically narrow levels, the rationale for maintaining a
portfolio of highly rated, tax-exempt securities is compelling. In addition, the
vast majority of these holdings possess attractive call features, making the
portfolio well insulated from the possibility of early redemption. Given the
recent declines in long-term interest rates, early redemption has become a
legitimate concern for many bondholders as issuers seek to refinance outstanding
debt. The portfolio's current structure is designed to perform well in a
declining interest rate environment. We believe the Fund is likely to generate a
competitive total return for shareholders in the months ahead.
In Conclusion
We appreciate your ongoing interest in MuniHoldings New Jersey Insured Fund,
Inc., 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 D. Sneeden
Robert D. Sneeden
Vice President and Portfolio Manager
September 8, 1998
2 & 3
<PAGE>
MuniHoldings New Jersey Insured Fund, Inc., July 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
New Jersey--98.5% Bernards Township, New Jersey, School District Revenue
Refunding Bonds, UT:
AA A1 $ 3,205 5.30% due 1/01/2022 $ 3,224
AA A1 3,370 5.30% due 1/01/2023 3,390
------------------------------------------------------------------------------------------------------
AAA Aaa 3,350 Brick Township, New Jersey, Municipal Utilities Authority
Revenue Refunding Bonds, 5% due 12/01/2016 (b) 3,318
------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Delaware River and Bay Authority Revenue Bonds, 5.25% due
1/01/2026 (b) 10,007
------------------------------------------------------------------------------------------------------
AAA Aaa 2,845 East Orange, New Jersey, Board of Education, COP (AGH
Leasing, Inc.), 5.36%** due 8/01/2025 (c) 721
------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Essex County, New Jersey, Improvement Authority, Lease
Revenue Refunding Bonds (County Jail and Youth House
Project), 5.35% due 12/01/2024 (d) 5,083
Freehold Township, New Jersey, Board of Education, GO, UT (c):
AAA Aaa 1,455 5.40% due 7/15/2024 1,479
AAA Aaa 1,540 5.40% due 7/15/2025 1,565
------------------------------------------------------------------------------------------------------
Greenwich Township, New Jersey, Board of Education, GO, UT (c):
AAA Aaa 860 5% due 1/15/2009 884
AAA Aaa 795 5% due 1/15/2010 811
AAA Aaa 820 5% due 1/15/2012 824
------------------------------------------------------------------------------------------------------
Hudson County, New Jersey, Improvement Authority, Facility
Lease Revenue Refunding Bonds (Hudson County Lease Project) (b):
AAA NR* 3,360 5.25% due 10/01/2013 3,436
AAA NR* 3,545 5.25% due 10/01/2014 3,609
------------------------------------------------------------------------------------------------------
Lenape, New Jersey, Regional High School District, GO, UT (b):
AAA Aaa 3,000 5% due 4/01/2019 2,943
AAA Aaa 3,500 5% due 4/01/2020 3,423
------------------------------------------------------------------------------------------------------
Metuchen, New Jersey, School District, GO, UT (b):
AAA Aaa 1,185 5.20% due 9/15/2023 1,184
AAA Aaa 1,245 5.20% due 9/15/2024 1,244
AAA Aaa 1,315 5.20% due 9/15/2025 1,313
AAA Aaa 1,385 5.20% due 9/15/2026 1,383
AAA Aaa 1,460 5.20% due 9/15/2027 1,458
------------------------------------------------------------------------------------------------------
Middlesex County, New Jersey, COP (e):
AAA Aaa 4,855 5.25% due 6/15/2023 4,885
AAA Aaa 8,575 5.30% due 6/15/2029 8,688
------------------------------------------------------------------------------------------------------
A1+ NR* 1,900 New Jersey EDA, Economic Development Revenue Refunding Bonds
(Foreign Trade Zone Project), VRDN, 3.50% due 12/01/2007 (a) 1,900
------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 New Jersey EDA, Natural Gas Facilities Revenue Refunding
Bonds (NUI Corporation), AMT, Series A, 5.70% due 6/01/2032 (e) 5,222
------------------------------------------------------------------------------------------------------
BBB- NR* 7,000 New Jersey EDA, Revenue Refunding Bonds (First Mortgage-Fellowship
Village), Series A, 5.50% due 1/01/2025 6,908
New Jersey EDA, Water Facilities Revenue Bonds, RITR, AMT (f):
AAA Aaa 8,960 Series 34, 6.77% due 5/01/2032 (b) 9,216
AAA Aaa 7,400 Series 35, 6.72% due 2/01/2038 (e) 7,514
------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority Revenue
Bonds:
AAA Aaa 3,270 Refunding (AHS Hospital Corporation), Series A, 5.375% due
7/01/2019 (d) 3,333
A- Baa1 3,000 Refunding (Capital Health System Obligation Group), 5.25%
due 7/01/2017 2,986
AAA Aaa 1,725 Refunding (Cathedral Health Services), 5.20% due 8/01/2015 (e) 1,737
AAA Aaa 2,750 Refunding (Cathedral Health Services), 5.25% due 8/01/2021 (e) 2,759
BBB NR* 3,075 Refunding (Christian Health Care Center), Series A, 5.50%
due 7/01/2018 3,056
AAA Aaa 1,950 Refunding (Holy Name Hospital), 5.25% due 7/01/2020 (d) 1,952
AAA Aaa 3,000 Refunding (JFK Medical Center--Hartwyck), 5% due 7/01/2025 (e) 2,909
AAA Aaa 3,000 Refunding (Medical Center at Princeton Obligation Group),
5% due 7/01/2023 (d) 2,921
BBB Baa2 6,130 Refunding (Saint Elizabeth Hospital Obligation Group), 6%
due 7/01/2027 6,402
AAA Aaa 1,570 Refunding (Shoreline Behavioral Health), 5.50% due
7/01/2017 (e) 1,621
AAA Aaa 3,270 Refunding (Shoreline Behavioral Health), 5.50% due
7/01/2027 (e) 3,378
------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 500 New Jersey Sports and Exposition Authority (State Contract),
VRDN, Series C,
3.25% due 9/01/2024 (a)(e) 500
------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 New Jersey State, COP, Series A, 5% due 6/15/2013 (d) 4,984
------------------------------------------------------------------------------------------------------
New Jersey State Educational Facilities Authority Revenue Bonds:
BBB Baa2 2,030 (Monmouth University), Series C, 5.75% due 7/01/2017 2,105
BBB Baa2 2,000 (Monmouth University), Series C, 5.80% due 7/01/2022 2,070
AAA Aaa 2,850 Refunding (University of Medicine and Dentistry), Series B,
5.25% due 12/01/2021 (d) 2,864
BBB Baa3 1,485 (Saint Peter's College), Series B, 5.375% due 7/01/2012 1,508
AAA Aaa 2,200 (Trenton State College), Series A, 5.125% due 7/01/2024 (e) 2,177
------------------------------------------------------------------------------------------------------
New Jersey State Housing and Mortgage Finance Agency Revenue
Bonds (Home Buyer), AMT (e):
AAA Aaa 4,195 Series K, 6.375% due 10/01/2026 4,485
AAA Aaa 2,000 Series U, 5.60% due 10/01/2012 2,084
AAA Aaa 2,820 Series U, 5.65% due 10/01/2013 2,938
AAA Aaa 7,800 Series U, 5.85% due 4/01/2029 8,131
------------------------------------------------------------------------------------------------------
AAA Aaa 1,200 North Hudson, New Jersey, Sewer Authority Revenue Bonds,
5.125% due 8/01/2022 (b) 1,186
------------------------------------------------------------------------------------------------------
Perth Amboy, New Jersey, Board of Education, Refunding:
AAA Aaa 1,200 5% due 12/15/2017 (c) 1,182
AAA Aaa 2,045 UT, 5.25% due 8/01/2019 (e) 2,060
------------------------------------------------------------------------------------------------------
AA A1 3,500 Rutgers State University, New Jersey, Series A, 5.20% due
5/01/2027 3,505
------------------------------------------------------------------------------------------------------
</TABLE>
Portfolio Abbreviations
To simplify the listings of MuniHoldings New Jersey Insured Fund, Inc.'s
portfolio holdings in the Schedule of Investments, we have abbreviated the names
of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
MuniHoldings New Jersey Insured Fund, Inc., July 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>
New York and AAA Aaa $ 5,000 Port Authority of New York and New Jersey, Special Obligation
New Jersey--7.0% Revenue Bonds (JFK International
Air Terminal), AMT, Series 6, 4th Installment, 5.75% due
12/01/2025 (e) $ 5,231
------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, Special Obligation
Revenue Bonds (Versatile Structure Obligation), VRDN (a):
A1+ VMIG1+ 1,400 AMT, Series 6, 3.65% due 12/01/2017 1,400
A1+ VMIG1+ 2,400 Series 2, 3.60% due 5/01/2019 2,400
A1+ VMIG1+ 2,500 Series 3, 3.65% due 6/01/2020 2,500
A1+ VMIG1+ 500 Series 5, 3.65% due 8/01/2024 500
==================================================================================================================================
Total Investments (Cost--$181,367)--105.5% 182,496
Liabilities in Excess of Other Assets--(5.5%) (9,529)
--------
Net Assets--100.0% $172,967
========
==================================================================================================================================
</TABLE>
(a) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at July 31,
1998.
(b) FGIC Insured.
(c) FSA Insured.
(d) AMBAC 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 July 31, 1998.
+ Highest short-term rating by Moody's Investors Service, Inc.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase by the Fund.
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
Quality Profile (unaudited)
The quality ratings of securities in the Fund as of July 31, 1998 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ............................................................ 79.9%
AA/Aa .............................................................. 5.9
A/A ................................................................ 1.7
BBB/Baa ............................................................ 12.7
Other+ ............................................................. 5.3
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of July 31, 1998
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$181,367,161) (Note 1a) ............. $182,495,825
Cash ........................................................................ 24,856
Interest receivable ......................................................... 1,830,696
Deferred organization expenses (Note 1e) .................................... 18,754
Prepaid expenses and other assets ........................................... 11,122
------------
Total assets ................................................................ 184,381,253
------------
====================================================================================================================================
Liabilities: Payables:
Securities purchased ...................................................... $ 11,162,760
Offering costs (Note 1e) .................................................. 91,359
Dividends to shareholders (Note 1f) ....................................... 44,989
Investment adviser (Note 2) ............................................... 16,873 11,315,981
Accrued expenses and other liabilities ...................................... ------------ 98,137
------------
Total liabilities ........................................................... 11,414,118
------------
====================================================================================================================================
Net Assets: Net assets .................................................................. $172,967,135
============
====================================================================================================================================
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (2,720 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) ....... $ 68,000,000
Common Stock, par value $.10 per share (6,955,568 shares
issued and outstanding) ................................................... $ 695,557
Paid-in capital in excess of par ............................................ 102,696,023
Undistributed investment income--net ........................................ 563,622
Accumulated realized capital losses on investments--net (Note 5) ............ (116,731)
Unrealized appreciation on investments--net ................................. 1,128,664
Total--Equivalent to $15.09 net asset value per share ------------
of Common Stock (market price--$15.375) ..................................... 104,967,135
------------
Total capital ............................................................... $172,967,135
============
====================================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings New Jersey Insured Fund, Inc., July 31, 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period March 11, 1998+ to July 31, 1998
====================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned .................... $ 3,326,139
Income
(Note 1d):
====================================================================================================================================
Expenses: Investment advisory fees (Note 2) ........................................... $ 344,408
Commission fees (Note 4) .................................................... 44,785
Professional fees ........................................................... 21,530
Accounting services (Note 2) ................................................ 18,118
Transfer agent fees ......................................................... 11,065
Directors' fees and expenses ................................................ 10,688
Listing fees ................................................................ 6,375
Custodian fees .............................................................. 5,374
Pricing fees ................................................................ 2,023
Amortization of organization expenses (Note 1e) ............................. 1,620
Other ....................................................................... 10,773
------------
Total expenses before reimbursement ......................................... 476,759
Reimbursement of expenses (Note 2) .......................................... (363,542)
------------
Total expenses after reimbursement .......................................... 113,217
------------
Investment income--net ...................................................... 3,212,922
------------
====================================================================================================================================
Realized & Realized loss on investments--net ........................................... (116,731)
Unrealized Gain Unrealized appreciation on investments--net ................................. 1,128,664
(Loss) on ------------
Investments-- Net Increase in Net Assets Resulting from Operations ........................ $ 4,224,855
Net (Notes 1b, ============
1d & 3):
====================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
March 11, 1998+
Increase (Decrease) in Net Assets: to July 31, 1998
====================================================================================================================================
<S> <C> <C>
Operations: Investment income--net ...................................................... $ 3,212,922
Realized loss on investments--net ........................................... (116,731)
Unrealized appreciation on investments--net ................................. 1,128,664
------------
Net increase in net assets resulting from operations ........................ 4,224,855
------------
====================================================================================================================================
Dividends to Investment income--net:
Shareholders Common Stock .............................................................. (1,809,255)
(Note 1f): Preferred Stock ........................................................... (840,045)
------------
Net decrease in net assets resulting from dividends to shareholders.......... (2,649,300)
------------
====================================================================================================================================
Capital Stock Proceeds from issuance of Common Stock ...................................... 104,025,000
Transactions Proceeds from issuance of Preferred Stock ................................... 68,000,000
(Notes 1e & 4): Value of shares issued to Common Stock shareholders in reinvestment
of dividends ................................................................ 228,035
Offering costs resulting from the issuance of Common Stock .................. (190,000)
Offering and underwriting costs resulting from the issuance of
Preferred Stock ............................................................. (771,460)
------------
Net increase in net assets derived from capital stock transactions .......... 171,291,575
------------
====================================================================================================================================
Net Assets: Total increase in net assets ................................................ 172,867,130
Beginning of period ......................................................... 100,005
------------
End of period* .............................................................. $172,967,135
============
====================================================================================================================================
*Undistributed investment income--net ........................................ $ 563,622
============
====================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings New Jersey Insured Fund, Inc., July 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 Period
March 11, 1998+
Increase (Decrease) in Net Asset Value: to July 31, 1998
===================================================================================================================================
<S> <C> <C>
Per Share Net asset value, beginning of period ........................................ $ 15.00
Operating ------------
Performance: Investment income--net ...................................................... .46
Realized and unrealized gain on investments--net ............................ .16
------------
Total from investment operations ............................................ .62
------------
Less dividends to Common Stock shareholders:
Investment income--net .................................................... (.26)
------------
Capital charge resulting from issuance of Common Stock ...................... (.03)
------------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income--net ................................................... (.12)
Capital charge resulting from issuance of Preferred Stock ................... (.12)
------------
Total effect of Preferred Stock activity .................................... (.24)
------------
Net asset value, end of period .............................................. $ 15.09
============
Market price per share, end of period ....................................... $ 15.375
============
===================================================================================================================================
Total Based on market price per share ............................................. 4.29%+++
Investment ============
Return:** Based on net asset value per share .......................................... 2.35%+++
============
===================================================================================================================================
Ratios to Expenses, net of reimbursement .............................................. .18%*
Average Net ============
Assets:*** Expenses .................................................................... .76%*
============
Investment income--net ...................................................... 5.13%*
============
===================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) ............ $ 104,967
Data: ============
Preferred Stock outstanding, end of period (in thousands) ................... $ 68,000
============
Portfolio turnover .......................................................... 32.46%
============
===================================================================================================================================
Leverage: Asset coverage per $1,000 ................................................... $ 2,544
============
===================================================================================================================================
Dividends Series A--Investment income--net ............................................ $ 317
Per Share ============
On Preferred Series B--Investment income--net ............................................ $ 300
Stock ============
Outstanding:
===================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on March 30, 1998.
+++ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings New Jersey Insured Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. Prior to commencement of operations on March 11, 1998, the
Fund had no operations other than those relating to organizational matters and
the sale of 6,667 shares of Common Stock on February 11, 1998 to Fund Asset
Management, L.P. ("FAM") for $100,005. The Fund determines and makes available
for publication the net asset value of its Common Stock on a weekly basis. The
Fund's Common Stock is listed on the New York Stock Exchange under the symbol
MUJ. The following is a summary of significant accounting policies followed by
the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options, which are traded on exchanges, are valued at
their last sale price as of the close of such exchanges or, lacking any sales,
at the last available bid price. Securities with remaining maturities of sixty
days or less are valued at amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Directors of the Fund, including valuations furnished by a pricing service
retained by the Fund, which may utilize a matrix system for valuations. The
procedures of the pricing service and its valuations are reviewed by the
officers of the Fund under the general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase
call and put options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
10 & 11
<PAGE>
MuniHoldings New Jersey Insured Fund, Inc., July 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Deferred organization and offering expenses--Deferred organization expenses
are amortized on a straight-line basis over a period not exceeding five years.
In accordance with Statement of Position 98-5, any unamortized organization
expenses will be expensed on the first day of the next fiscal year beginning
after December 15, 1998. This change will not have any material impact on the
operations of the Fund. Direct expenses relating to the public offering of the
Fund's Common and Preferred Stock 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. For the period
March 11, 1998 to July 31, 1998, FAM earned fees of $344,408, of which $311,130
was voluntarily waived. In addition, FAM also reimbursed the Fund $52,412 in
additional expenses.
During the period March 11, 1998 to July 31, 1998, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), an affiliate of FAM, received underwriting fees of
$510,000 in connection with the issuance of the Fund's Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period March 11, 1998 to July 31, 1998 were $220,215,075 and $47,906,763,
respectively.
Net realized losses for the period March 11, 1998 to July 31, 1998 and net
unrealized gains as of July 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Losses Gains
- --------------------------------------------------------------------------------
Long-term investments ......................... $(116,731) $1,128,664
--------- ----------
Total ......................................... $(116,731) $1,128,664
========= ==========
- --------------------------------------------------------------------------------
As of July 31, 1998, net unrealized appreciation for Federal income tax purposes
aggregated $1,128,664, of which $1,210,216 related to appreciated securities and
$81,552 related to depreciated securities. The aggregate cost of investments at
July 31, 1998 for Federal income tax purposes was $181,367,161.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of holders of
Common Stock.
Common Stock
Shares issued and outstanding during the period March 11, 1998 to July 31, 1998
increased by 6,935,000 as a result of the initial offering and by 13,901 as a
result of dividend reinvestment. Prior to March 11, 1998 (commencement of
operations), the Fund issued 6,667 shares to FAM for $100,005.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund that entitle their holders to receive cash dividends at an annual rate that
may vary for the successive dividend periods. The yields in effect at July 31,
1998 were as follows: Series A, 3.40% and Series B, 3.50%.
In connection with the offering of AMPS, the Board of Directors reclassified
2,720 shares of unissued capital stock as AMPS. Shares issued and outstanding
during the period March 11, 1998 to July 31, 1998 increased by 2,720 as a result
of the AMPS offering.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the period March 11, 1998 to July 31, 1998, MLPF&S earned
$43,069 as commissions.
5. Capital Loss Carryforward:
At July 31, 1998, the Fund had a net capital loss carryforward of approximately
$117,000, all of which expires in 2006. This amount will be available to offset
like amounts of any future taxable gains.
6. Subsequent Event:
On August 6, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.073763 per share,
payable on August 28, 1998 to shareholders of record as of August 21, 1998.
12 & 13
<PAGE>
MuniHoldings New Jersey Insured Fund, Inc., July 31, 1998
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors, MuniHoldings New Jersey Insured
Fund, Inc.
We have audited the accompanying statement of assets, liabilities and capital of
MuniHoldings New Jersey Insured Fund, Inc., including the schedule of
investments, as of July 31, 1998, and the related statements of operations and
changes in net assets, and financial highlights for the period from March 11,
1998 (commencement of operations) to July 31, 1998. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and 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 and
financial highlights. Our procedures included confirmation of securities owned
as of July 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
MuniHoldings New Jersey Insured Fund, Inc. as of July 31, 1998 and the results
of its operations, the changes in its net assets, and the financial highlights
for the period from March 11, 1998 to July 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Princeton, New Jersey
September 2, 1998
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniHoldings New Jersey
Insured Fund, Inc. during its taxable year ended July 31, 1998 qualify as
tax-exempt interest dividends for Federal income tax purposes. Additionally,
there were no capital gains distributed by the Fund during the year.
Please retain this information for your records.
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 shares of Common Stock of the Fund, 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 DIRECTORS
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
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 Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MUJ
14 & 15
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of MuniHoldings New Jersey Insured Fund, Inc. for their
information. It is not a prospectus, circular or representation intended for use
in the purchase of shares of the Fund or any securities mentioned in the report.
Past performance results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its Common Stock by
issuing Preferred Stock to provide the Common Stock shareholders with a
potentially higher rate of return. Leverage creates risks for Common Stock
shareholders, including the likelihood of greater volatility of net asset value
and market price of shares of the Common Stock, and the risk that fluctuations
in the short-term dividend rates of the Preferred Stock may affect the yield to
Common Stock shareholders. Statements and other information herein are as dated
and are subject to change.
MuniHoldings New Jersey
Insured Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #HOLDNJ2--7/98
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