MUNIHOLDINGS
NEW JERSEY INSURED
FUND II, INC.
FUND LOGO
Semi-Annual Report
November 30, 1998
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., November 30, 1998
DEAR SHAREHOLDER
We are pleased to provide you with this first semi-annual report for
MuniHoldings New Jersey 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 Jersey personal income taxes by investing primarily in a
portfolio of long-term, investment-grade municipal obligations.
Since inception (September 25, 1998), the Common Stock of
MuniHoldings New Jersey Insured Fund II, Inc. earned $0.147 per
share income dividends, which included earned and unpaid dividends
of $0.068. This represents a net annualized yield of 5.42%, based on
a month-end per share net asset value of $14.79. Over the same
period, the total investment return on the Fund's Common Stock was
- -0.88%, based on a change in per share net asset value from $15.00 to
$14.79, and assuming reinvestment of $0.079 per share income
dividends.
For the period September 25, 1998 through November 30, 1998, the
Fund's Auction Market Preferred Stock had an average yield of 3.58%
for Series A and 3.40% for Series B.
The Municipal Market Environment
During the six months ended November 30, 1998, long-term bond yields
declined significantly. The near absence of any inflationary
pressures in the United States continued to support historic low
interest rates. Additionally, foreign economic factors have
continued to outweigh US domestic fundamentals, as they have for
much of 1998. The economic crisis that began in Asia over a year ago
has spread both to Russia and South America. However, economic
factors in these countries have begun to negatively impact US
growth. For example, employment in the US manufacturing sector
declined in recent months as a result of reduced demand for export
goods. Concern that the modest decline in US economic growth seen
thus far would spread and intensify led the Federal Reserve Board to
lower short-term interest rates in late September, in mid-October
and in mid-November. These actions were taken to offset the drag of
foreign economies on future US growth.
US Treasury bond yields continued to benefit from a strong "flight
to quality" as foreign investors were drawn to the relative safe
haven of US Government securities. Additionally, the sharp equity
market correction, which began at the end of August, triggered a
further flight into US Treasury securities. Long-term US Treasury
bond yields fell over 75 basis points (0.75%) to approximately 5% by
the end of November.
By early October, worldwide investor confidence began to rise,
reducing the demand for the safety and liquidity of US Treasury
securities. Investor confidence was restored by the belief that
major world governments, as well as the International Monetary Fund,
would take the necessary action to support weak domestic economies
in Asia and Latin America. Additionally, rapid recovery in US and
world equity markets caused some investors to reallocate funds from
US debt investments back to various world equity markets. US
Treasury security yields rose through mid-November to approximately
5.375%. However, the resumption of the decline in foreign financial
markets, particularly in Asia, as well as renewed concerns of
additional US economic weakness, led to a further lowering of short-
term interest rates by the Federal Reserve Board in mid-November.
These factors pushed taxable interest rates lower for the remainder
of the period to end November at 5.07%. During the six-month period
ended November 30, 1998, long-term US Treasury bond yields declined
approximately 70 basis points.
During much of the past 12 months, the tax-exempt bond market has
contended with significant new-issue supply pressures. Over the past
year, more than $277 billion in new long-term tax-exempt bonds were
underwritten, an increase of almost 30% compared to the same period
a year ago. During the most recent six-month period, approximately
$140 billion in new long-term municipal bonds were underwritten,
representing an increase of nearly 10% compared to the same six-
month period last year. This increased supply, coupled with the high
returns the US equity market generated for much of 1998, was one of
the major reasons municipal bond yields declined less than their
taxable counterparts during the period.
The continued increase in new bond issuance has required ever-lower
tax-exempt bond yields to generate the economic savings necessary
for additional municipal bond financings. Consequently, the pace of
new bond issuance has slowed in recent months. In fact, the trend
may be reversing. During the three months ended November 30, 1998,
just under $60 billion in new long-term municipal bonds were
underwritten, a decline of 10% compared to the same quarter a year
ago. During the month of November, there were less than $20 billion
in new municipal bond securities issued, a decline of over 8%
compared to November 1997. We will monitor this trend closely in the
coming months to determine if the supply pressures exerted thus far
in 1998 are abating and fostering a more balanced supply/demand
environment.
Throughout the six-month period ended November 30, 1998, municipal
bond yields followed a pattern that was similar to US Treasury
securities, although the yield declines were more muted. As measured
by the Bond Buyer Revenue Bond Index, long-term, uninsured tax-
exempt revenue bond yields declined approximately 30 points to 5.09%
by early October. Municipal bond yields then rose during the
remainder of October and November and ended the period at 5.25%.
Over the past six months, long-term tax-exempt bond yields declined
approximately 15 basis points.
Although municipal bond yields declined during the six-month period,
recent supply pressures and the absence of the safe-haven status
enjoyed by US Treasury bonds caused municipal bond yields to rise
relative to US Treasury bond yields. At November 30, 1998, long-term
tax-exempt bond yields were attractive relative to US Treasury
securities of comparable maturities (over 100%), well in excess of
their expected range of 85%--88%. Tax-exempt bond yield ratios have
rarely exceeded 90% in the 1980s and 1990s. Historically, yield
spreads have been wider than these levels when there have been
potential changes in Federal tax codes that would have adversely
affected the tax-favored status of municipal bonds.
Currently, municipal bond investors find themselves in a unique
investment environment. Previous opportunities to purchase tax-
exempt bonds with yields exceeding that of comparable US Treasury
issues have been limited to relatively brief episodes and then
further limited to a few municipal credits undergoing specific
financial pressures. However, the current opportunity may quickly
disappear should tax-exempt bond supply pressures diminish or the
safe-haven status of US Treasury securities become less desirable.
Under these conditions, municipal bond ratios should quickly revert
to more normal historic percentages, certainly well below their
presently attractive levels.
Portfolio Strategy
Since the Fund's inception on September 25, 1998, our portfolio
strategy has been to commit the proceeds of the Fund's initial
offering to the long-term end of the New Jersey tax-exempt
marketplace. The technical position of the New Jersey insured market
was conducive to investing in current coupon securities that
satisfied our initial yield targets once leverage was introduced
through the issuance of the Fund's Preferred Stock. (For a complete
explanation of the benefits and risks of leveraging, see page 1 of
this report to shareholders.) Since the Fund's inception, we have
slightly restructured the Fund's composition to better diversify the
portfolio. We have not made any significant changes to our
fundamental strategy.
Looking ahead, we plan to monitor economic data for signs that
interest rates could reverse and head higher. However, the scenario
for fixed-income securities remains positive. This is especially
true for New Jersey insured municipal bonds, which are at
historically attractive levels relative to taxable bonds.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Roberto Roffo)
Roberto Roffo
Vice President and Portfolio Manager
January 4, 1999
We are pleased to announce that Robert Roffo is responsible for the
day-to-day management of MuniHoldings New Jersey Insured Fund II,
Inc. Mr. Roffo has been employed by Merrill Lynch Asset Management,
L.P. (an affiliate of the Fund's investment adviser) since 1996 as
Vice President and since 1992 as Portfolio Manager.
MuniHoldings New Jersey Insured Fund II, Inc., November 30, 1998
<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-- NR* Aaa $ 2,000 Bayonne, New Jersey, Municipal Utilities Authority,
78.5% Water System Revenue Bonds, 5% due 1/01/2028 (d) $ 2,015
AAA Aaa 7,040 Casino Reinvestment Development Authority,
New Jersey, Parking Fee Revenue Bonds,
Series A, 5.25% due 10/01/2017 (c) 7,245
AAA Aaa 8,900 Delaware River Port Authority, Pennsylvania and
New Jersey (Port District Project),
Series B, 5% due 1/01/2026 (d) 8,944
AAA Aaa 3,195 Hudson County, New Jersey, Improvement Authority,
Facility Lease Revenue Refunding Bonds (Hudson County Lease
Project), 5.25% due 10/01/2012 (b) 3,368
AAA Aaa 4,250 Middlesex County, New Jersey, COP, Refunding,
5% due 2/15/2019 (d) 4,277
Montgomery Township, New Jersey, Board of Education, COP (d):
NR* Aaa 2,000 4.75% due 9/01/2018 1,970
NR* Aaa 1,100 4.875% due 9/01/2023 1,094
BBB- NR* 5,000 New Jersey EDA, Economic Development Revenue Refunding
Bonds (United Methodist Homes), 5.125% due 7/01/2025 4,739
New Jersey EDA, First Mortgage Revenue Refunding Bonds
(Fellowship Village), Series A:
BBB- NR* 3,500 5.50% due 1/01/2018 3,431
BBB- NR* 3,000 5.50% due 1/01/2025 2,931
A1+ VMIG1++ 500 New Jersey EDA, Natural Gas Facilities Revenue Bonds
(NUI Corporation Project), VRDN, AMT, Series A, 3.30%
due 6/01/2026 (a)(f) 500
AAA Aaa 1,430 New Jersey EDA, Parking Facility Revenue Bonds
(Elizabeth Development Company Project), 5.60%
due 10/15/2019 (b) 1,521
AAA Aaa 2,500 New Jersey EDA, Water Facilities Revenue Bonds, RITR, AMT,
Series 35, 6.87% due 2/01/2038 (d)(e) 2,635
A1+ Aaa 1,000 New Jersey EDA, Water Facilities Revenue Refunding
Bonds (United Water New Jersey Inc. Project),
VRDN, Series A, 3.30% due 11/01/2026 (a)(f) 1,000
New Jersey Health Care Facilities Financing Authority,
Revenue Refunding Bonds:
AAA Aaa 6,750 (Atlantic Health Systems Hospital Corporation),
5% due 7/01/2025 (a) 6,777
NR* Aaa 5,800 (Bayonne Hospital Obligation Group), 4.75%
due 7/01/2027 (c) 5,641
AAA Aaa 1,850 (Hackensack University Medical Center), Series A,
5% due 1/01/2028 (d) 1,857
AAA Aaa 6,750 (JFK Medicial Center-Hartwyck), 5% due 7/01/2025 (d) 6,779
AAA Aaa 3,000 (Medical Center at Princeton Obligation Group),
5% due 7/01/2023 (a) 3,013
NR* Aaa 605 (Saint Barnabas Medical Center), Series A, 5%
due 7/01/2023 (d) 607
NR* Aaa 5,130 (Saint Barnabas Medical Center), Series A, 4.75%
due 7/01/2028 (d) 4,987
AA+ Aaa 1,825 New Jersey State Educational Facilities Authority
Revenue Bonds (Institute for Advanced Study), Series G,
5% due 7/01/2028 1,838
New Jersey State Housing and Mortgage Finance
Agency Revenue Bonds, Home Buyer (d):
AAA Aaa 2,800 AMT, Series U, 5.85% due 4/01/2029 2,959
AAA Aaa 500 AMT, Series X, 5.35% due 4/01/2029 506
AAA Aaa 3,000 Series V, 5.25% due 4/01/2026 3,037
AAA Aaa 5,250 Port Authority of New York and New Jersey,
Consolidated Revenue Bonds, 116th Series,
4.375% due 10/01/2033 (b) 4,751
AAA NR* 3,280 Port Authority of New York and New Jersey, Revenue
Bonds, Residual Certificates, RITR, Series 50,
6.865% due 1/15/2032 (e) 3,537
Port Authority of New York and New Jersey, Special
Obligation Revenue Refunding Bonds
(Versatile Structure Obligation), VRDN (f):
A1+ VMIG1++ 300 3.35% due 8/01/2024 300
A1+ VMIG1++ 400 Series 3, 3.35% due 6/01/2020 400
AAA Aaa 3,000 Rutgers State University, New Jersey, Revenue Bonds,
Series A, 4.75% due 5/01/2029 (a) 2,925
Union County, New Jersey, Utilities Authority,
County Deficiency Revenue Refunding Bonds:
AA+ Aaa 3,250 Series C-1, 5% due 6/15/2028 3,278
AA+ Aaa 2,035 Series C-2, 5% due 6/15/2028 2,053
AAA Aaa 6,880 Union County, New Jersey, Utilities Authority, RITR,
AMT, Series 38, 6.92% due 6/01/2020 (a)(e) 7,353
AAA Aaa 5,000 Union County, New Jersey, Utilities Authority,
Senior Lease Revenue Refunding Bonds
(Ogden Martin), Series A, 5% due 6/01/2014 (a) 5,048
Wall Township, New Jersey, School District, GO, UT (c):
AAA Aaa 2,250 4.50% due 7/15/2018 2,156
AAA Aaa 2,640 4.75% due 7/15/2022 2,587
Puerto Rico-- A Baa1 13,000 Puerto Rico Commonwealth, Highway and Transportation
20.1% Authority, Transportation Revenue Refunding Bonds,
Series A, 5% due 7/01/2038 12,779
AAA Aaa 6,000 Puerto Rico Commonwealth, Infrastructure Financing
Authority, Special Revenue Bonds,
Series A, 5% due 7/01/2028 (a) 6,010
AAA Aaa 6,000 Puerto Rico Electric Power Authority, Power Revenue
Bonds, Series DD, 5% due 7/01/2028 (d) 6,010
AAA Aaa 5,500 Puerto Rico Public Buildings Authority Revenue Bonds,
Guaranteed Government Facilities, Series B,
5% due 7/01/2027 (a) 5,509
Total Investments (Cost--$148,587)--98.6% 148,367
Other Assets Less Liabilities--1.4% 2,131
---------
Net Assets--100.0% $ 150,498
=========
<FN>
(a)AMBAC Insured.
(b)FGIC Insured.
(c)FSA Insured.
(d)MBIA Insured.
See Notes to Financial Statements.
(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 November 30, 1998.
(f)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at November 30, 1998.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
</TABLE>
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
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
MuniHoldings New Jersey Insured Fund II, Inc., November 30, 1998
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of November 30, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$148,586,619) (Note 1a) $148,367,342
Cash 99,151
Receivables:
Interest $ 2,451,005
Investment adviser (Note 2) 17,659 2,468,664
------------
Deferred organization expenses (Note 1e) 10,796
Prepaid expenses and other assets 9,758
------------
Total assets 150,955,711
------------
Liabilities: Payables:
Offering costs (Note 1e) 419,665
Dividends to shareholders (Note 1f) 37,968 457,633
------------ ------------
Total liabilities 457,633
------------
Net Assets: Net assets $150,498,078
============
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 (6,117,197 shares
issued and outstanding) $ 611,720
Paid-in capital in excess of par 90,273,740
Undistributed investment income--net 424,991
Accumulated realized capital losses on investments--net (593,096)
Unrealized depreciation on investments--net (219,277)
------------
Total--Equivalent to $14.79 net asset value per share of
Common Stock (market price--$15.75) 90,498,078
------------
Total capital $150,498,078
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period September 25, 1998++ to November 30, 1998
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 1,173,931
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 120,897
Commission fees (Note 4) 21,301
Professional fees 6,284
Accounting services (Note 2) 5,672
Directors' fees and expenses 4,074
Transfer agent fees 2,867
Listing fees 2,419
Custodian fees 2,113
Printing and shareholder reports 1,571
Pricing fees 1,103
Amortization of organization expenses (Note 1e) 46
Other 3,250
------------
Total expenses before reimbursement 171,597
Reimbursement of expenses (Note 2) (138,556)
------------
Total expenses after reimbursement 33,041
------------
Investment income--net 1,140,890
------------
Realized & Realized loss on investments--net (593,096)
Unrealized Loss on Unrealized depreciation on investments--net (219,277)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 328,517
============
<FN>
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
MuniHoldings New Jersey Insured Fund II, Inc., November 30, 1998
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
For the Period
September 25, 1998++
Increase (Decrease) in Net Assets: to November 30, 1998
<S> <S> <C>
Operations: Investment income--net $ 1,140,890
Realized loss on investments--net (593,096)
Unrealized depreciation on investments--net (219,277)
------------
Net increase in net assets resulting from operations 328,517
------------
Dividends to Investment income--net:
Shareholders Common Stock (480,567)
(Note 1f): Preferred Stock (235,332)
------------
Net decrease in net assets resulting from dividends to shareholders (715,899)
------------
Capital Stock Proceeds from issuance of Common Stock 91,657,368
Transactions Proceeds from issuance of Preferred Stock 60,000,000
(Notes 1e & 4): Offering costs resulting from the issuance of Common Stock (270,213)
Offering and underwriting costs resulting from the issuance of Preferred Stock (601,700)
------------
Net increase in net assets derived from capital stock transactions 150,785,455
------------
Net Assets: Total increase in net assets 150,398,073
Beginning of period 100,005
------------
End of period* $150,498,078
============
<FN>
*Undistributed investment income--net $ 424,991
============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
September 25, 1998++
Increase (Decrease) in Net Asset Value: to November 30, 1998
<S> <S> <C>
Per Share Net asset value, beginning of period $ 15.00
Operating ------------
Performance: Investment income--net .19
Realized and unrealized loss on investments--net (.14)
------------
Total from investment operations .05
------------
Less dividends to Common Stock shareholders:
Investment income--net (.08)
------------
Capital charge resulting from issuance of Common Stock (.04)
------------
Effect of Preferred Stock activity:++++
Dividends to Preferred Stock shareholders:
Investment income--net (.04)
Capital charge resulting from issuance of Preferred Stock (.10)
------------
Total effect of Preferred Stock activity (.14)
------------
Net asset value, end of period $ 14.79
============
Market price per share, end of period $ 15.75
============
Total Investment Based on market price per share 5.55%+++
Return:** ============
Based on net asset value per share (.88%)+++
============
Ratios to Average Expenses, net of reimbursement .15%*
Net Assets:*** ============
Expenses .78%*
============
Investment income--net 5.19%*
============
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) $ 90,498
Data: ============
Preferred Stock outstanding, end of period (in thousands) $ 60,000
============
Portfolio turnover 21.84%
============
Leverage: Asset coverage per $1,000 $ 2,508
============
Dividends Series A--Investment income--net $ 101
Per Share on ============
Preferred Stock Series B--Investment income--net $ 96
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.
See Notes to Financial Statements.
***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.
+++Aggregate total investment return.
</TABLE>
MuniHoldings New Jersey Insured Fund II, Inc., November 30, 1998
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. 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 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 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.
(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
November 30, 1998, FAM earned fees of $120,897, all of which was
voluntarily waived. In addition, FAM also reimbursed the Fund
$17,659 in additional expenses.
During the period September 25, 1998 to November 30, 1998, 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 November 30, 1998 were
$170,906,702 and $23,911,188, respectively.
Net realized losses for the period September 25, 1998 to November
30, 1998 and net unrealized losses as of November 30, 1998 were as
follows:
Realized Unrealized
Losses Losses
Long-term investments $ (593,096) $ (219,277)
------------ -----------
Total $ (593,096) $ (219,277)
============ ===========
As of November 30, 1998, net unrealized depreciation for Federal
income tax purposes aggregated $219,277, of which $473,432 related
to appreciated and $692,709 related to depreciated securities. The
aggregate cost of investments at November 30, 1998 for Federal
income tax purposes was $148,586,619.
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 November 30, 1998 increased by 6,110,530 as a result of the
initial offering. Prior to September 25, 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, 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
November 30, 1998 were as follows: Series A, 3.20% and Series B,
3.10%.
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
November 30, 1998 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 November 30, 1998, MLPF&S, an affiliate of FAM, earned
$15,945 as commissions.
5. Subsequent Event:
On December 7, 1998, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.068411 per share, payable on December 30, 1998 to shareholders
of record as of December 23, 1998.
MuniHoldings New Jersey Insured Fund II, Inc., November 30, 1998
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its
net investment income to its shareholders on a monthly basis.
However, in order to provide shareholders with a more consistent
yield to the current trading price of 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.
QUALITY PROFILE
The quality ratings of securities in the Fund as of
November 30, 1998 were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 81.2%
A/A 8.5
BBB/Baa 7.4
Other++ 1.5
[FN]
++Temporary investments in short-term municipal securities.
MuniHoldings New Jersey Insured Fund II, Inc., November 30, 1998
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
Roberto Roffo, Vice President
Gerald M. Richard, 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 Schroder Bank &Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MWJ
