MUNIHOLDINGS
NEW JERSEY
INSURED
FUND II, INC.
FUND LOGO
Annual Report
May 31, 1999
This report, including the financial information herein, is
transmitted to the shareholders of MuniHoldings New Jersey 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 Jersey
Insured Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MUNIHOLDINGS NEW JERSEY INSURED FUND II, INC.
The Benefits and
Risks of
Leveraging
MuniHoldings New Jersey 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 Jersey Insured Fund II, Inc., May 31, 1999
DEAR SHAREHOLDER
Since inception (September 25, 1998), the Common Stock of
MuniHoldings New Jersey Insured Fund II, Inc. earned $0.533 per
share income dividends, which included earned and unpaid dividends
of $0.061. This represents a net annualized yield of 5.52%, based on
a month-end per share net asset value of $14.16. Over the same
period, the total investment return on the Fund's Common Stock was
- -2.46%, based on a change in per share net asset value from $15.00 to
$14.16, and assuming reinvestment of $0.472 per share income
dividends.
For the six-month period ended May 31, 1999, the total investment
return on the Fund's Common Stock was -1.59%, based on a change in
per share net asset value from $14.79 to $14.16, and assuming
reinvestment of $0.393 per share income dividends.
For the six-month period ended May 31, 1999, the Fund's Auction
Market Preferred Stock had an average yield of 3.12% for Series A
and 3.29% for Series B.
The Municipal Market Environment
Long-term bond yields generally moved higher during the six-month
period ended May 31, 1999. Investor concern that increasingly strong
domestic economic growth would eventually trigger inflationary
pressures gradually pushed yields higher, despite the absence of
visible increases in producer or retail prices. However, in May the
combination of an unexpectedly strong consumer price report and a
warning from the Federal Reserve Board that it was considering an
eventual increase in short-term interest rates pushed long-term bond
yields appreciably higher. By the end of May, US Treasury bond
yields stood at 5.83%, an increase of 75 basis points (0.75%) during
the six-month period. Long-term municipal bond yields followed a
similar although muted pattern, as measured by the Bond Buyer
Revenue Bond Index. Through April, tax-exempt bond yields traded in
a relatively narrow range, at approximately 5.25%. During May, long-
term municipal bond yields rose to end the month at 5.41%. During
the six-month period ended May 31, 1999, tax-exempt bond yields rose
just over 15 basis points.
The tax-exempt bond market's strong technical position has prevented
municipal bond yields from increasing as much as their taxable
counterparts in recent months. The principal factor promoting this
technical support has been the decline of municipal bond issuance.
During the six months ended May 31, 1999, less than $120 billion in
new long-term tax-exempt securities was under-written, a decline of
over 12% compared to the same period a year ago. During the three
months ended May 31, 1999, municipalities issued less than $60
billion in long-term tax-exempt securities, a decline of nearly 20%
compared to the May 31, 1998 quarter. During May 1999,
municipalities issued $15 billion in long-term securities, a decline
of nearly 40% compared to May 1998 levels. This represents the
lowest May issuance since 1995. Additionally, retail and
institutional demand remained positive, easily absorbing available
issuance. Investor demand is likely to remain positive going forward
since June and July usually are seasonally strong months.
Traditionally, investors receive significant cash inflows from bond
maturities and coupon payments during these months. Generally,
$15 billion--$20 billion becomes available for reinvestment each month.
Recent outperformance by the municipal bond market has come at the
expense of the very attractive yield ratios available in late 1998.
At year-end 1998, long-term municipal revenue bond yields were 102%
of comparable US Treasury bond yields. This ratio has declined as US
Treasury bond yields have risen faster than tax-exempt bond yields.
At the end of May, the yield ratio was approximately 92%, still well
above the historic average of 86%--88%. This yield ratio may rise
somewhat in the coming months if issue supply were to suddenly
increase. However, yield ratios in excess of 100% are unlikely in
the near future.
Further increases in bond yields are likely to be dependent on an
acceleration in US economic growth. However, it is also likely that
the increases in interest rates seen over recent months have yet to
fully impact the US economy. For example, recent increases in
mortgage rates have yet to slow home purchases or construction.
Additionally, economic indicators of future price inflation, such as
the price of gold or world commodity prices, all remain well
contained. In such an environment, any moves by the Federal Reserve
Board to slow economic growth are likely to be gradual and limited.
Furthermore, any Federal Reserve Board action is also likely to keep
inflation low in the United States for the remainder of 1999 and
into 2000. This suggests that while interest rates may have further
to rise, any increases are not likely to be major but are likely to
be temporary should the US economy slow later this year.
Portfolio Strategy
We restructured the Fund's portfolio slightly during the six months
ended May 31, 1999. Since the Fund's inception, our strategy was to
aggressively invest in the long-term maturity range of the New
Jersey insured market. However, the marketplace recently has been
subject to tremendous volatility with a trend toward higher interest
rates. As a result, we employed tactics that were somewhat more
defensive over the past six months, including a general shortening
of maturities for some of the Fund's holdings. However, we believe
that the portfolio is still positioned for an eventual market
recovery. New Jersey municipal bonds have outperformed the taxable
arena to a large degree, and the overall municipal market to a
lesser extent. This has provided a cushion for the Fund's net asset
valuation as interest rates have moved higher.
In Conclusion
We appreciate your investment in MuniHoldings New Jersey 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 Director
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Roberto Roffo)
Roberto Roffo
Vice President and Portfolio Manager
July 6, 1999
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chairman
since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on MuniHoldings New Jersey Insured
Fund II, Inc.'s Board of Directors. We are pleased to announce that
Terry K. Glenn has been elected President and Director of the Fund.
Mr. Glenn has held the position of Executive Vice President of MLAM
since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors
in wishing him well in his retirement from Merrill Lynch and are
pleased that he will continue as a member of the Fund's Board of
Directors.
MuniHoldings New Jersey Insured Fund II, Inc., May 31, 1999
Portfolio Abbreviations
To simplify the listings of MuniHoldings New Jersey 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)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
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 Jersey-- Atlantic City, New Jersey, Municipal Utilities
96.9% Revenue Bonds (a):
AAA Aaa $ 1,605 5% due 6/01/2022 $ 1,575
AAA Aaa 2,695 5% due 6/01/2029 2,630
NR* Aaa 2,000 Bayonne, New Jersey, Municipal Utilities Authority,
Water System Revenue Bonds, 5% due 1/01/2028 (d) 1,952
Black Horse Pike, New Jersey, Regional School
District, GO (b):
AAA Aaa 2,370 4.75% due 12/01/2014 2,332
AAA Aaa 2,780 4.75% due 12/01/2016 2,703
AAA Aaa 1,175 4.75% due 12/01/2017 1,134
AAA Aaa 1,000 Camden County, New Jersey, Improvement Authority,
Revenue Refunding Bonds (Health System-Catholic Health East),
Series B, 5.25% due 11/15/2011 (a) 1,029
AAA Aaa 7,040 Casino Reinvestment Development Authority, New Jersey,
Parking Fee Revenue Bonds, Series A, 5.25% due 10/01/2017 (c) 7,101
AAA Aaa 8,900 Delaware River Port Authority of Pennsylvania and New Jersey
Revenue Bonds (Port District Project), Series B, 5% due
1/01/2026 (d) 8,695
AAA NR* 3,195 Hudson County, New Jersey, Improvement Authority, Facility
Lease Revenue Refunding Bonds (Hudson County Lease Project),
5.25% due 10/01/2012 (b) 3,302
AAA Aaa 1,460 Jersey City, New Jersey, Municipal Utilities Authority,
Sewer Revenue Refunding Bonds, 5.25% due 12/01/2012 (c) 1,519
AAA Aaa 4,250 Middlesex County, New Jersey, COP, Refunding, 5% due
2/15/2019 (d) 4,197
AAA Aaa 2,560 Middlesex County, New Jersey, Improvement Authority,
Utility System Revenue Refunding Bonds (Perth Amboy Franchise
Project), Series A, 5% due 9/01/2029 (a) 2,497
Montgomery Township, New Jersey, Board of Education, COP (d):
NR* Aaa 2,000 4.75% due 9/01/2018 1,924
NR* Aaa 1,100 4.875% due 9/01/2023 1,060
Moorestown Township, New Jersey, School District, GO (b):
AAA Aaa 1,180 4.90% due 1/01/2021 1,154
AAA Aaa 1,315 4.95% due 1/01/2023 1,291
AAA Aaa 1,405 New Brunswick, New Jersey, Housing Authority, Lease Revenue
Refunding Bonds (Rutgers University), 5% due 7/01/2013 (b) 1,414
New Jersey EDA, First Mortgage Revenue Refunding Bonds
(Fellowship Village), Series A:
BBB- NR* 3,500 5.50% due 1/01/2018 3,430
BBB- NR* 3,000 5.50% due 1/01/2025 2,881
A1+ VMIG1++ 2,000 New Jersey EDA, Natural Gas Facilities Revenue Bonds
(NUI Corporation Project), VRDN, AMT, Series A, 3.25%
due 6/01/2026 (a)(f) 2,000
AAA Aaa 1,430 New Jersey EDA, Parking Facility Revenue Bonds
(Elizabeth Development Company Project), 5.60% due
10/15/2019 (b) 1,503
New Jersey EDA, Water Facilities Revenue Bonds, AMT:
AAA Aaa 7,000 (American Water Company Inc.), Series A, 5.25%
due 7/01/2038 (b) 6,942
AAA Aaa 2,500 RITR, Series 35, 7.02% due 2/01/2038 (d)(e) 2,532
A1+ VMIG1++ 400 New Jersey EDA, Water Facilities Revenue Refunding
Bonds (United Water New Jersey Inc. Project), VRDN,
Series A, 3.35% due 11/01/2026 (a)(f) 400
New Jersey Health Care Facilities Financing Authority,
Revenue Refunding Bonds:
AAA Aaa 6,750 (Atlantic Health Systems Hospital Corporation),
Series A, 5% due 7/01/2027 (a) 6,581
AAA Aaa 6,750 (JFK Medical Center--Hartwyck), 5% due 7/01/2025 (d) 6,586
AAA Aaa 3,000 (Medical Center at Princeton Obligation Group),
5% due 7/01/2023 (a) 2,938
AAA Aaa 3,000 (Saint Barnabas Health), Series B, 5.25% due 7/01/2013 (d) 3,061
NR* Aaa 605 (Saint Barnabas Medical Center), Series A, 5% due 7/01/2023 (d) 593
New Jersey State Educational Facilities Authority
Revenue Bonds:
AAA Aaa 3,805 (Higher Education Facilities Trust Fund), Series A,
5.125% due 9/01/2009 (a) 3,949
AA+ Aaa 1,825 (Institute for Advanced Study), Series G, 5% due 7/01/2028 1,789
New Jersey State Higher Education Assistance Authority,
Student Loan Revenue Bonds, AMT, Series A (d):
AAA NR* 1,535 5.125% due 6/01/2014 1,536
AAA NR* 4,000 5.25% due 6/01/2018 4,009
AAA Aaa 2,800 New Jersey State Housing and Mortgage Finance Agency
Revenue Bonds, Home Buyer, AMT, Series U, 5.85% due
4/01/2029 (d) 2,930
New Jersey State Housing and Mortgage Finance Agency,
Revenue Refunding Bonds, Home Buyer (d):
AAA Aaa 500 AMT, Series X, 5.35% due 4/01/2029 503
AAA Aaa 3,000 Series V, 5.25% due 4/01/2026 3,012
AAA NR* 3,280 Port Authority of New York and New Jersey, Revenue Bonds,
RIB, Series 50, 7.109% due 1/15/2032 (d)(e) 3,381
A1+ VMIG1++ 3,700 Port Authority of New York and New Jersey, Special
Obligation Revenue Refunding Bonds (Versatile Structure
Obligation), VRDN, Series 3, 3.35% due 6/01/2020 (f) 3,700
AAA Aaa 3,000 Rutgers State University, New Jersey, Revenue Bonds,
Series A, 4.75% due 5/01/2029 (a) 2,813
South Jersey Transportation Authority, New Jersey,
Transportation System Revenue Bonds (a):
AAA Aaa 4,000 5% due 11/01/2017 3,962
AAA Aaa 1,900 5.125% due 11/01/2022 1,888
NR* Aaa 6,880 Union County, New Jersey, Utilities Authority, RITR,
AMT, Series 38, 7.07% due 6/01/2020 (a)(e) 7,164
Union County, New Jersey, Utilities Authority, Revenue
Refunding Bonds, AMT (a):
AAA Aaa 5,500 County Deficiency, Series A-2, 5% due 6/15/2028 5,328
AAA Aaa 5,000 Senior Lease (Ogden Martin), Series A, 5% due 6/01/2014 4,943
Wall Township, New Jersey, School District, GO (c):
AAA Aaa 2,250 4.50% due 7/15/2018 2,091
AAA Aaa 2,640 4.75% due 7/15/2022 2,517
</TABLE>
MuniHoldings New Jersey Insured Fund II, Inc., May 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Puerto Rico-- AAA Aaa $ 640 Puerto Rico Commonwealth, GO, 5.40% due 7/01/2025 (a) $ 651
4.7%
AAA Aaa 6,000 Puerto Rico Electric Power Authority, Power Revenue
Bonds, Series DD, 5% due 7/01/2028 (d) 5,830
AAA Aaa 500 Puerto Rico Public Buildings Authority Revenue Bonds
(Government Facilities), Series B, 5% due 7/01/2027 (a) 486
Total Investments (Cost--$152,256)--101.6% 149,438
Liabilities in Excess of Other Assets--(1.6%) (2,343)
---------
Net Assets--100.0% $ 147,095
=========
<FN>
(a)AMBAC Insured.
(b)FGIC Insured.
(c)FSA Insured.
(d)MBIA Insured.
(e)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 May 31, 1999.
(f)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at May 31, 1999.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
</TABLE>
QUALITY PROFILE
The quality ratings of securities in the Fund as of May 31, 1999
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 93.2%
BBB/Baa 4.3
Other++ 4.1
[FN]
++Temporary investments in short-term municipal securities.
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of May 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$152,255,917)(Note 1a) $149,437,717
Cash 83,177
Receivables:
Securities sold $ 5,302,112
Interest 2,709,605 8,011,717
------------
Deferred organization expenses (Note 1e) 10,796
Prepaid expenses and other assets 13,879
------------
Total assets 157,557,286
------------
Liabilities: Payables:
Securities purchased 10,059,368
Dividends to shareholders (Note 1f) 189,531
Offering costs (Note 1e) 101,128
Investment adviser (Note 2) 43,655 10,393,682
------------
Accrued expenses and other liabilities 68,358
------------
Total liabilities 10,462,040
------------
Net Assets: Net assets $147,095,246
============
Capital: Capital Stock (200,000,000 shares authorized)(Note 4):
Preferred Stock, par value $.10 per share (2,400 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) $ 60,000,000
Common Stock, par value $.10 per share (6,151,635 shares
issued and outstanding) $ 615,164
Paid-in capital in excess of par 90,851,407
Undistributed investment income--net 401,833
Accumulated realized capital losses on investments--net (Note 5) (1,954,958)
Unrealized depreciation on investments--net (2,818,200)
------------
Total--Equivalent to $14.16 net asset value per share of
Common Stock (market price--$12.9375) 87,095,246
------------
Total capital $147,095,246
============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
MuniHoldings New Jersey Insured Fund II, Inc., May 31, 1999
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period September 25, 1998++ to May 31, 1999
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 4,887,915
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 531,241
Commission fees (Note 4) 90,936
Accounting services (Note 2) 36,517
Professional fees 33,676
Transfer agent fees 25,830
Directors' fees and expenses 18,332
Listing fees 10,913
Printing and shareholder reports 9,271
Custodian fees 6,747
Pricing fees 2,821
Amortization of organization expenses (Note 1e) 2,454
Other 4,218
------------
Total expenses before reimbursement 772,956
Reimbursement of expenses (Note 2) (375,291)
------------
Total expenses after reimbursement 397,665
------------
Investment income--net 4,490,250
------------
Realized & Realized loss on investments--net (1,954,958)
Unrealized Loss on Unrealized depreciation on investments--net (2,818,200)
Investments--Net ------------
(Notes 1b, 1d Net Decrease in Net Assets Resulting from Operations $ (282,908)
& 3): ============
<FN>
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
For the Period
Sept. 25, 1998++
to May 31,
Increase (Decrease) in Net Assets: 1999
<S> <S> <C>
Operations: Investment income--net $ 4,490,250
Realized loss on investments--net (1,954,958)
Unrealized depreciation on investments--net (2,818,200)
-------------
Net decrease in net assets resulting from operations (282,908)
-------------
Dividends to Investment income--net:
Shareholders Common Stock (2,894,873)
(Note 1f): Preferred Stock (1,193,544)
-------------
Net decrease in net assets resulting from dividends to shareholders (4,088,417)
-------------
Capital Stock Proceeds from issuance of Common Stock 91,425,000
Transactions Proceeds from issuance of Preferred Stock 60,000,000
(Notes 1e & 4): Value of shares issued to Common Stock shareholders in reinvestment of dividends 735,916
Offering costs resulting from the issuance of Common Stock (200,945)
Offering and underwriting costs resulting from the issuance of Preferred Stock (593,405)
-------------
Net increase in net assets derived from capital stock transactions 151,366,566
-------------
Net Assets: Total increase in net assets 146,995,241
Beginning of period 100,005
-------------
End of period* $ 147,095,246
=============
<FN>
*Undistributed investment income--net $ 401,833
=============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
MuniHoldings New Jersey Insured Fund II, Inc., May 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
Sept. 25, 1998++ to
Increase (Decrease) in Net Asset Value: May 31, 1999
<S> <S> <C>
Per Share Net asset value, beginning of period $ 15.00
Operating -------------
Performance: Investment income--net .73
Realized and unrealized loss on investments--net (.78)
-------------
Total from investment operations (.05)
-------------
Less dividends to Common Stock shareholders:
Investment income--net (.47)
-------------
Capital charge resulting from issuance of Common Stock (.03)
-------------
Effect of Preferred Stock activity:++++
Dividends to Preferred Stock shareholders:
Investment income--net (.19)
Capital charge resulting from issuance of Preferred Stock (.10)
-------------
Total effect of Preferred Stock activity (.29)
-------------
Net asset value, end of period $ 14.16
=============
Market price per share, end of period $ 12.9375
=============
Total Investment Based on market price per share (10.88%)+++
Return:** =============
Based on net asset value per share (2.46%)+++
=============
Ratios Based on Total expenses, net of reimbursement*** .66%*
Average Net Assets =============
of Common Stock: Total expenses*** 1.29%*
=============
Total investment income--net*** 7.49%*
=============
Amount of dividends to Preferred Stock shareholders 1.99%*
=============
Investment income--net, to Common Stock shareholders 5.50%*
=============
Ratios Based Expenses, net of reimbursement .41%*
on Total =============
Average Net Total expenses .80%*
Assets:++++++*** =============
Total investment income--net 4.65%*
=============
Ratios Based on Dividends to Preferred Stock shareholders 3.26%*
Average Net =============
Assets of
Preferred Stock:
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) $ 87,095
Data: =============
Preferred Stock outstanding, end of period (in thousands) $ 60,000
=============
Portfolio turnover 92.47%
=============
Leverage: Asset coverage per $1,000 $ 2,452
=============
Dividends Per Series A--Investment income--net $ 489
Share On =============
Preferred Stock Series B--Investment income--net $ 506
Outstanding: =============
<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 19, 1998.
++++++Includes Common and Preferred Stock average net assets.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings New Jersey 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. Prior to commencement of
operations on September 25, 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 MWJ. 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 and assets 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.
* 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.
MuniHoldings New Jersey Insured Fund II, Inc., May 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
(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 September 25, 1998 to
May 31, 1999, FAM earned fees of $531,241, of which $357,632 was
voluntarily waived. In addition, FAM also reimbursed the Fund
$17,659 in additional expenses.
During the period September 25, 1998 to May 31, 1999, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM,
received underwriting fees of $450,000 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 September 25, 1998 to May 31, 1999 were $266,501,824
and $118,294,800, respectively.
Net realized gains (losses) for the period September 25, 1998 to May
31, 1999 and net unrealized losses as of May 31, 1999 were as
follows:
Realized Unrealized
Gains (Losses) Losses
Long-term investments $ (1,958,932) $(2,818,200)
Financial futures contracts 3,974 --
------------ -----------
Total $ (1,954,958) $(2,818,200)
============ ===========
As of May 31, 1999, net unrealized depreciation for Federal income
tax purposes aggregated $2,818,200, of which $25,680 related to
appreciated and $2,843,880 related to depreciated securities. The
aggregate cost of investments at May 31, 1999 for Federal income tax
purposes was $152,255,917.
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 September 25, 1998
to May 31, 1999 increased by 6,095,000 as a result of the initial
offering and by 49,968 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 May 31,
1999 were as follows: Series A, 3.20% and Series B, 3.30%.
In connection with the offering of AMPS, the Board of Directors
reclassified 2,400 shares of unissued capital stock as AMPS. Shares
issued and outstanding during the period September 25, 1998 to May
31, 1999 increased by 2,400 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 September
25, 1998 to May 31, 1999, MLPF&S, an affiliate of FAM, earned
$73,944 as commissions.
5. Capital Loss Carryforward:
At May 31, 1999, the Fund had a net capital loss carryforward of
approximately $523,000, all of which expires in 2007. This amount
will be available to offset like amounts of any future taxable
gains.
6. Subsequent Event:
On June 9, 1999, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.060907 per share, payable on June 29, 1999 to shareholders of
record as of June 23, 1999.
<AUDIT-REPORT>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
MuniHoldings New Jersey Insured Fund II, Inc.
We have audited the accompanying statement of assets, liabilities
and capital of MuniHoldings New Jersey Insured Fund II, Inc.,
including the schedule of investments, as of May 31, 1999, and the
related statements of operations and changes in net assets, and
financial highlights for the period from September 25, 1998
(commencement of operations) to May 31, 1999. 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 May 31, 1999, by correspondence with the
custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our 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 II, Inc.,
at May 31, 1999 and the results of its operations, the changes in
its net assets and the financial highlights for the period from
September 25, 1998 to May 31, 1999, in conformity with generally
accepted accounting principles.
Princeton, New Jersey
June 24, 1999
</AUDIT-REPORT>
MuniHoldings New Jersey Insured Fund II, Inc., May 31, 1999
MANAGED DIVIDEND POLICY (unaudited)
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.
YEAR 2000 ISSUES (unaudited)
Many computer systems were designed using only two digits to
designate years. These systems may not be able to distinguish the
Year 2000 from the Year 1900 (commonly known as the "Year 2000
Problem"). The Fund could be adversely affected if the computer
systems used by the Fund's management or other Fund service
providers do not properly address this problem before January 1,
2000. The Fund's management expects to have addressed this problem
before then, and does not anticipate that the services it provides
will be adversely affected. The Fund's other service providers have
told the Fund's management that they also expect to resolve the Year
2000 Problem and the Fund's management will continue to monitor the
situation as the Year 2000 approaches. However, if the problem has
not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the
securities in which the Fund invests, and this could hurt the Fund's
investment returns.
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniHoldings
New Jersey Insured Fund II, Inc. during its taxable year ended May
31, 1999 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.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, 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
William E. Zitelli, Secretary
Gerald M. Richard, Treasurer of MuniHoldings New Jersey Insured Fund
II, Inc. has recently retired. His colleagues at Merrill Lynch Asset
Management, L.P. join the Fund's Board of Directors in wishing Mr.
Richard well in his retirement.
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:
IBJWhitehall Bank &Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MWJ
