MUNIHOLDINGS
NEW YORK INSURED
FUND II, INC.
FUND LOGO
Semi-Annual Report
March 31, 1999
This report, including the financial information herein, is
transmitted to the shareholders of MuniHoldings New York Insured
Fund II, 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 York
Insured Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MUNIHOLDINGS NEW YORK INSURED FUND II, INC.
The Benefits and
Risks of
Leveraging
MuniHoldings New York Insured Fund II, 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, 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 net
asset value of the Fund's shares may also be more volatile than if
the Fund did not invest in these securities.
MuniHoldings New York Insured Fund II, Inc., March 31, 1999
DEAR SHAREHOLDER
We are pleased to provide you with this first semi-annual report for
MuniHoldings New York Insured Fund II, 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 tax and
New York state and New York City personal income taxes by investing
primarily in a portfolio of long-term, investment-grade New York
municipal obligations.
Since inception (October 1, 1998) through March 31, 1999, the Common
Stock of MuniHoldings New York Insured Fund II, Inc. earned $0.404
per share income dividends, which included earned and unpaid
dividends of $0.068. This represents a net annualized yield of
5.59%, based on a month-end per share net asset value of $14.50.
Over the same period, the total investment return on the Fund's
Common Stock was -1.09%, based on a change in per share net asset
value from $15.00 to $14.50, and assuming reinvestment of $0.337 per
share income dividends.
For the period October 1, 1998 through March 31, 1999, the Fund's
Preferred Stock had an average yield of 3.08% for Series A and 3.23%
for Series B.
The Municipal Market Environment
Since the Fund's inception (October 1, 1998) through March 31, 1999,
long-term tax-exempt revenue bond yields were little changed.
However, long-term US Treasury bond yields were under significant
pressure throughout the March period. Investors became increasingly
concerned that the strong growth the US economy displayed during the
fourth quarter in 1998 would continue into the first half of 1999.
Continued strong US equity market performance also reduced investor
interest in long-term fixed-income products. Furthermore, foreign
economic growth, while clearly not expanding, appears to have
stabilized. This reduced much of the strong "flight to quality"
benefit the US Treasury market had enjoyed in recent quarters. These
factors helped push US Treasury bond yields higher throughout the
period. US Treasury bond yields rose 65 basis points (0.65%) to end
the March period at 5.625%. Long-term municipal revenue bond yields
rose less than 10 basis points to end the March period at 5.29% as
measured by the Bond Buyer Revenue Bond Index.
The relative stability of the municipal bond market in recent months
was largely the result of a return to a strong technical position
within the tax-exempt market. For much of 1998, new long-term
municipal bond issuance was significantly above recent historic
trends. Additionally, the strong demand exerted by world equity
markets also sapped much of the demand for tax-advantaged products.
However, in recent months, a much stronger supply/demand
relationship has developed.
Over the last 12 months, nearly $275 billion in new long-term
municipal bonds was issued, an increase of approximately 10%
compared to the same period a year ago. As interest rates declined
in recent quarters, it has become increasingly difficult for
municipalities to generate the economic savings necessary for
additional tax-free financings. Consequently, the pace of new bond
issuance slowed in recent quarters. During the six months ended
March 31, 1999, more than $125 billion in new long-term municipal
securities was underwritten, a decrease of 6% compared to the same
six-month period a year ago. During the quarter ended March 31,
1999, approximately $60 billion in new long-term tax-exempt bonds
was issued, a decline of almost 20% compared to the quarter ended
March 31, 1998.
Additionally, in January and February, tax-exempt bondholders
received over $40 billion from coupon payments, bond maturities and
proceeds from early bond redemptions. Consequently, retail investor
demand has been strong in recent months, easily matching, if not at
times exceeding, available supply. We will monitor this trend
closely in the coming months to determine if the supply pressures
exerted in 1998 are abating and fostering a more balanced
supply/demand environment for 1999.
The recent relative outperformance of the municipal bond market has
resulted in a decline in their recent historic high yield ratios. As
recently as the end of 1998, long-term, A-rated municipal revenue
bond yields were in excess of 100% of comparable US Treasury bond
yields. At March 31, 1999, municipal bond yield ratios were
approximately 95% of their taxable counterparts, still well above
their recent historic average. During 1997, tax-exempt bond yield
ratios averaged 84%. Should the current positive technical
environment in municipal securities continue to improve, it is
likely that tax-exempt bond yield ratios will return to more
historic levels.
Looking ahead, the direction and intensity of the next move in
interest rates is difficult to predict. In recent years, US bond
yields tended to reach their annual peak sometime in April and move
downward for the remainder of the year. However, such trends have
been predicated on subsequent declines in US economic activity.
Currently, there appears to be little indication of significant
economic weakness going forward. On the other hand, by nearly every
measure, inflation is well contained. Future indicators of
inflation, such as the prices of gold and other commodities, are
giving little evidence of any significant inflationary increase.
Additionally, inflation-adjusted real rates of return are
historically attractive to long-term investors. These factors
suggest that fixed-income bond yields may trade in a relatively
narrow range, centered around current levels, for a protracted
period of time. Should the US economy weaken later this year, it is
likely that bond yields will decline as they have in recent years.
Portfolio Strategy
Since its inception, we have focused on committing the Fund's
initial proceeds in the long-term and intermediate-term maturity
range of the New York insured municipal market. Interest rates in
the taxable arena, and to a much lesser degree in the municipal
market, have risen since the Fund commenced operations. Therefore,
we had to proceed carefully in making our initial investments in
order to seek to protect the portfolio's net asset valuation. More
of our initial investments were focused in shorter maturity
municipal bonds than would otherwise be the case if the fixed-income
market had been more stable. Our goal is to have the Fund invested
while tempering the impact of rising interest rates so that Common
Stock shareholders can begin to benefit from the higher yield that
leverage can provide. (For an explanation of the benefits and risks
of leveraging, see page 1 of this report to shareholders.)
As a result of inordinately tight credit quality spreads, we
deliberately underweighted the Fund's exposure to uninsured bonds.
Our portfolio currently reflects a balance of long-term and short-
term holdings, with a high degree of credit quality. Once interest
rates have stabilized, we plan to recommit a larger portion of Fund
assets to longer-term, higher-yielding New York municipal bonds.
In Conclusion
We appreciate your investment in MuniHoldings New York Insured Fund
II, Inc., and we look forward to assisting you with your financial
needs in the months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Trustee
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Robert A. DiMella)
Robert A. DiMella
Vice President and
Portfolio Manager
(Roberto Roffo)
Roberto Roffo
Vice President and
Portfolio Manager
May 12, 1999
MuniHoldings New York Insured Fund II, Inc., March 31, 1999
Portfolio Abbreviations
To simplify the listings of MuniHoldings New York Insured Fund II,
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)
GO General Obligation Bonds
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New York - 100.8% AAA Aaa $ 6,000 Long Island Power Authority, New York, Electric System
Revenue Bonds, Series A, 5.125% due 12/01/2022 (e) $ 6,002
AAA Aaa 8,000 Metropolitan Transportation Authority, New York,
Commuter Facilities Revenue Bonds, Series C-1,
5.375% due 7/01/2027 (c) 8,251
AAA Aaa 3,500 Metropolitan Transportation Authority, New York,
Commuter Facilities Revenue Refunding Bonds (Service
Contract), Series Q, 5.125% due 7/01/2012 (b) 3,629
AAA NR* 6,045 Nassau County, New York, GO, General Improvement,
Series V, 5.25% due 3/01/2010 (b) 6,389
Nassau County, New York, IDA, Civic Facility Revenue
Refunding Bonds (Hofstra University Project):
AAA Aaa 2,000 5% due 7/01/2023 (f) 1,967
AAA Aaa 2,000 4.75% due 7/01/2028 1,882
New York City, New York, GO:
AAA NR* 5,000 Series C, 5% due 8/15/2028 (e) 4,894
A1+ VMIG1++ 1,100 VRDN, Series B-2, Sub-Series B-5, 3% due 8/15/2011 (a)(f) 1,100
New York City, New York, Municipal Water Finance
Authority, Water and Sewer System Revenue Bonds:
AAA NR* 2,750 Refunding, Series B, 5.25% due 8/15/2029 (e) 2,786
AAA Aaa 5,000 Series B, 5.125% due 6/15/2030 (c) 4,980
A1+ VMIG1++ 3,000 VRDN, Series G, 2.95% due 6/15/2024 (a)(c) 3,000
AAA NR* 2,500 New York City, New York, Transitional Finance
Authority Revenue Bonds, Future Tax
Secured, Series B, 5% due 11/01/2008 (c) 2,636
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 5,000 (Consolidated City University System), Series 1,
5.125% due 7/01/2027 (f) 4,989
AAA NR* 2,325 (Gustavus Adolphus Childrens School), Series B,
5.50% due 7/01/2018 (b) 2,435
AAA Aaa 1,425 (Rochester Institute of Technology), 5.25% due
7/01/2022 (f)(h) 1,445
AAA Aaa 4,000 (Saint Barnabas Hospital), 5.45% due 8/01/2035 (d) 4,124
AAA Aaa 6,000 (University of Rochester), Series A, 5% due 7/01/2023 (f) 5,900
New York State Dormitory Authority, Revenue Refunding Bonds:
BBB+ Baa1 5,000 (City University System), Consolidated Third, Series 1,
5.25% due 7/01/2025 4,985
AAA NR* 6,535 (Consolidated City University), Series A, 5.75%
due 7/01/2009 (e) 7,263
NR* Aaa 2,445 (Ithaca College), 5% due 7/01/2026 (b) 2,395
AAA NR* 3,315 (Mental Health Services Facilities), Series C, 5.125%
due 8/15/2015 (f) 3,372
AAA Aaa 3,000 (North Shore University Hospital), 5% due 11/01/2023 (f) 2,942
AAA NR* 14,435 RIB, Series 45, 7.115% due 7/01/2025 (f)(g) 14,874
BBB+ NR* 5,000 (Secured Hospital--Wyckoff Heights), Series H, 5.30%
due 8/15/2021 4,948
AAA Aaa 2,550 New York State Energy Research and Development Authority,
PCR, Refunding (Niagara Mohawk Power Project), Series A,
5.15% due 11/01/2025 (b) 2,563
AAA Aaa 3,000 New York State Environmental Facilities Corporation,
Special Obligation Revenue Refunding Bonds (Riverbank
State Park), 5.125% due 4/01/2022 (b) 3,001
NR* Aa2 9,125 New York State Mortgage Agency Revenue Bonds (Homeowner
Mortgage), AMT, Series 73-A, 5.30% due 10/01/2028 9,163
AAA Aaa 2,465 New York State Urban Development Corporation,
Revenue Bonds (Correctional Capital Facilities),
Series 6, 5.375% due 1/01/2025 (b) 2,533
AAA NR* 2,000 New York State Urban Development Corporation, Revenue
Refunding Bonds (Correctional Facilities), 5% due
1/01/2019 (e) 1,990
A1+ VMIG1++ 900 Port Authority of New York and New Jersey, Special
Obligation Revenue Refunding Bonds (Versatile Structure
Obligation), VRDN, Series 2, 2.90% due 5/01/2019 (a) 900
AAA Aaa 1,500 Saint Lawrence County, New York, Industrial Development
Civic Facility Revenue Bonds (Saint Lawrence University
Project), Series A, 5% due 7/01/2028 (f) 1,468
A1+ VMIG1++ 6,300 Syracuse, New York, IDA, Civic Facility Revenue Bonds
(Multi-Modal--Syracuse University Project), VRDN,
2.80% due 3/01/2023 (a) 6,300
Total Investments (Cost--$136,200)--100.8%135,106
Variation Margin on Financial Futures Contracts**--0.1% 110
Liabilities in Excess of Other Assets--(0.9%) (1,156)
---------
Net Assets--100.0% $ 134,060
=========
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at March 31, 1999.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)FHA Insured
(e)FSA Insured.
(f)MBIA Insured.
(g)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at March 31, 1999.
(h)All or a portion of security held as collateral in conjunction
with open financial futures contracts.
++Highest short-term rating by Moody's Investors Service, Inc.
*Not Rated.
**Financial futures contracts sold as of March 31, 1999 were as
follows:
(in Thousands)
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
110 Municipal Bonds June 1999 $ 13,595
110 US Treasury Bonds June 1999 13,262
--------------
Total Financial Futures Contracts Sold
(Total Contract Price--$26,722) $ 26,857
==============
See Notes to Financial Statements.
</TABLE>
Quality
Profile
The quality ratings of securities in the Fund as of March 31, 1999
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 78.1%
AA/Aa 6.8
BBB/Baa 7.4
Other++ 8.5
[FN]
++Temporary investment in short-term municipal securities.
MuniHoldings New York Insured Fund II, Inc., March 31, 1999
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of March 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$136,199,552)(Note 1a) $135,106,485
Receivables:
Interest $ 1,768,093
Variation margin (Note 1b) 110,000 1,878,093
------------
Deferred organization expenses (Note 1e) 10,602
Other assets 75,336
------------
Total assets 137,070,516
------------
Liabilities: Payables:
Securities purchased 2,457,995
Offering costs (Note 1e) 239,272
Dividends to shareholders (Note 1f) 181,022
Investment adviser (Note 2) 39,518 2,917,807
------------
Accrued expenses and other liabilities 92,236
------------
Total liabilities 3,010,043
------------
Net Assets: Net assets $134,060,473
============
Capital: Capital Stock (200,000,000 shares authorized)(Note 4):
Preferred Stock, par value $.10 per share (2,120 shares
of AMPS* issued and outstanding at $25,000
per share liquidation preference) $ 53,000,000
Common Stock, par value $.10 per share (5,591,168
shares issued and outstanding) $ 559,117
Paid-in capital in excess of par 82,480,635
Undistributed investment income--net 436,647
Accumulated realized capital losses on investments--net (1,187,547)
Unrealized depreciation on investments--net (1,228,379)
------------
Total--Equivalent to $14.50 net asset value per share of
Common Stock (market price--$14.3125) 81,060,473
------------
Total capital $134,060,473
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
<CAPTION>
STATEMENT OF OPERATIONS
For the Period October 1, 1998++ to March 31, 1999
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 3,266,160
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 345,264
Commission fees (Note 4) 56,657
Accounting services (Note 2) 29,641
Professional fees 18,486
Transfer agent fees 17,129
Directors' fees and expenses 9,584
Listing fees 7,372
Custodian fees 3,527
Printing and shareholder reports 3,346
Pricing fees 3,013
Amortization of organization expenses (Note 1e) 296
Other 7,035
------------
Total expenses before reimbursement 501,350
Reimbursement of expenses (Note 2) (281,337)
------------
Total expenses after reimbursement 220,013
------------
Investment income--net 3,046,147
------------
Realized & Realized loss on investments--net (1,187,547)
Unrealized Loss on Unrealized depreciation on investments--net (1,228,379)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 630,221
============
<FN>
++Commencement of operations.
See Notes to Financial Statements.
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the Period
Oct. 1, 1998++ to
Increase (Decrease) in Net Assets: March 31, 1999
<S> <S> <C>
Operations: Investment income--net $ 3,046,147
Realized loss on investments--net (1,187,547)
Unrealized depreciation on investments--net (1,228,379)
------------
Net increase in net assets resulting from operations 630,221
------------
Dividends to Investment income--net:
Shareholders Common Stock (1,876,479)
(Note 1f): Preferred Stock (733,021)
------------
Net decrease in net assets resulting from dividends to shareholders (2,609,500)
------------
Capital Stock Proceeds from issuance of Common Stock 83,250,000
Transactions Proceeds from issuance of Preferred Stock 53,000,000
(Notes 1e & 4): Value of shares issued to Common Stock shareholders in reinvestment of dividends 505,295
Offering costs resulting from the issuance of Common Stock (270,213)
Offering and underwriting costs resulting from the issuance of Preferred Stock (545,335)
------------
Net increase in net assets derived from capital stock transactions 135,939,747
------------
Net Assets: Total increase in net assets 133,960,468
Beginning of period 100,005
------------
End of period* $134,060,473
============
<FN>
*Undistributed investment income--net $ 436,647
============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
MuniHoldings New York Insured Fund II, Inc., March 31, 1999
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
Oct. 1, 1998++ to
Increase (Decrease) in Net Asset Value: March 31, 1999
<S> <S> <C>
Per Share Net asset value, beginning of period $ 15.00
Operating ------------
Performance: Investment income--net .55
Realized and unrealized loss on investments--net (.43)
------------
Total from investment operations .12
------------
Less dividends to Common Stock shareholders from investment income--net (.34)
------------
Capital charge resulting from issuance of Common Stock (.05)
------------
Effect of Preferred Stock activity:++++
Dividends to Preferred Stock shareholders:
Investment income--net (.13)
Capital charge resulting from issuance of Preferred Stock (.10)
------------
Total effect of Preferred Stock activity (.23)
------------
Net asset value, end of period $ 14.50
============
Market price per share, end of period $ 14.3125
============
Total Investment Based on market price per share (2.37%)+++
Return:** ============
Based on net asset value per share (1.09%)+++
============
Ratios to Average Expenses, net of reimbursement .35%*
Net Assets:*** ============
Expenses .80%*
============
Investment income--net 4.85%*
============
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) $ 81,060
Data: ============
Preferred Stock outstanding, end of period (in thousands) $ 53,000
============
Portfolio turnover 92.01%
============
Leverage: Asset coverage per $1,000 $ 2,529
Dividends ============
Per Share on Series A--Investment income--net $ 337
Preferred Stock ============
Outstanding: Series B--Investment income--net $ 355
============
<FN>
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
***Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Commencement of operations.
++++The Fund's Preferred Stock was issued on October 22, 1998.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings New York Insured Fund II, Inc. (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. Prior to commencement of operations on October 1,
1998, the Fund had no operations other than those relating to
organizational matters and the sale of 6,667 shares of Common Stock
on September 18, 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 MNU. 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 Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
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.
* Options--The Fund is authorized to write covered call options and
purchase call and put options. When the Fund writes an option, an
amount equal to the premium received by the Fund is reflected as an
asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization and offering expenses--Deferred
organization expenses are amortized on a straight-line basis over a
period not exceeding five years. In accordance with Statement of
Position 98-5, any unamortized organization expenses will be
expensed on 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 Stock were charged to
capital at the time of issuance of the shares.
MuniHoldings New York Insured Fund II, Inc., March 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
(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 Stock. For the period October 1, 1998 to March
31, 1999, FAM earned fees of $345,264, of which $250,360 was
voluntarily waived. In addition, FAM also reimbursed the Fund
$30,977 in additional expenses.
During the period October 1, 1998 to March 31, 1999, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM,
received underwriting fees of $397,500, 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 October 1, 1998 to March 31, 1999 were $243,094,462
and $116,768,903, respectively.
Net realized gains (losses) for the period October 1, 1998 to March
31, 1999 and net unrealized losses as of March 31, 1999 were as
follows:
Realized Unrealized
Gains (Losses) Losses
Long-term investments $(1,396,859) $(1,093,067)
Financial futures contracts 209,312 (135,312)
----------- -----------
Total $(1,187,547) $(1,228,379)
=========== ===========
As of March 31, 1999, net unrealized depreciation for Federal income
tax purposes aggregated $1,093,067, of which $83,025 related to
appreciated securities and $1,176,092 related to depreciated
securities. The aggregate cost of investments at March 31, 1999 for
Federal income tax purposes was $136,199,552.
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 October 1, 1998 to
March 31, 1999 increased by 5,543,333 from shares sold and by 41,168
as a result of dividend reinvestment.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund, with a par value of $.10 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 March
31, 1999 were for Series A, 3.30% and Series B, 3.30%.
In connection with the offering of AMPS, the Board of Directors
reclassified 2,120 shares of unissued capital stock as AMPS. Shares
issued and outstanding during the period October 1, 1998 to March
31, 1999 increased by 2,120 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 October
1, 1998 to March 31, 1999, MLPF&S, an affiliate of FAM, earned
$28,518 as commissions.
5. Subsequent Event:
On April 8, 1999, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.067666 per share, payable on April 29, 1999 to shareholders of
record as of April 22, 1999.
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
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
Roberto Roffo, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Transfer Agents
Common Stock:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Preferred Stock:
IBJ Whitehall Bank & Trust Comapny
One State Street
New York, NY 10004
NYSE Symbol
MNU
