[LOGO] Merrill Lynch Investment Managers
Annual Report
July 31, 2002
MuniHoldings
New Jersey
Insured Fund, Inc.
www.mlim.ml.com
MuniHoldings New Jersey Insured Fund, Inc.
The Benefits and Risks of Leveraging
MuniHoldings New Jersey Insured Fund, Inc. utilizes 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 investment principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in these securities.
The Fund may also invest in swap agreements, which are over-the-counter
contracts in which one party agrees to make periodic payments based on the
change in market value of a specified bond, basket of bonds, or index in return
for periodic payments based on a fixed or variable interest rate or the change
in market value of a different bond, basket of bonds or index. Swap agreements
may be used to obtain exposure to a bond or market without owning or taking
physical custody of securities.
MuniHoldings New Jersey Insured Fund, Inc., July 31, 2002
TO OUR SHAREHOLDERS
For the 12-month period ended July 31, 2002, the Common Stock of MuniHoldings
New Jersey Insured Fund, Inc. earned $0.871 per share income dividends, which
included earned and unpaid dividends, of $0.073. This represents a net
annualized yield of 5.85%, based on a year-end net asset value of $14.90 per
share. During the same period, the total investment return on the Fund's Common
Stock was +9.16%, based on a change in per share net asset value from $14.54 to
$14.90, and assuming reinvestment of $0.864 per share ordinary income dividends.
For the six-month period ended July 31, 2002, the Fund's Common Stock had a
total investment return of +6.31%, based on a change in per share net asset
value from $14.47 to $14.90, and assuming reinvestment of $0.438 per share
ordinary income dividends.
For the six-month period ended July 31, 2002, the Fund's Auction Market
Preferred Stock had an average yield as follows: Series A, 1.17%; Series B,
1.23%; Series C, 1.25%; Series D, 1.19%; and Series E, 1.27%.
The Municipal Market Environment
During the six-month period ended July 31, 2002, the direction of long-term
fixed income interest rates was driven as much by volatile U.S. equity markets
and continued worldwide political tensions as by economic fundamentals. In early
2002, economic indicators were mixed, signaling some strength in consumer
spending and housing-related industries, but further declines in manufacturing
employment. The index of leading economic indicators generally rose in late 2001
and early 2002, suggesting that economic activity was likely to expand later in
the year. Furthermore, in February 2002, U.S. gross domestic product (GDP)
growth for the fourth quarter of 2001 was revised higher to 1.7%, signaling
significantly improving economic conditions relative to earlier in 2001. These
positive economic fundamentals, however, were largely offset by U.S. equity
market volatility. The initial disclosure of accounting irregularities at Enron
Corporation in early February exacerbated earlier equity volatility. At the end
of February 2002, long-term U.S. Treasury bond yields were approximately 5.40%.
In early March 2002, a number of economic indicators, including surging existing
home sales, solid consumer spending and positive non-farm payroll growth
following several months of job losses, suggested U.S. economic activity was
continuing to strengthen. Also, in Congressional testimony, Federal Reserve
Board Chairman Alan Greenspan was cautiously optimistic regarding future U.S.
economic growth, noting that while any increase in activity was likely to be
moderate, "an economic expansion (was) well underway." These factors combined to
push U.S. equity prices higher and bond prices sharply lower in expectation of a
reversal of the Federal Reserve Board's actions taken during the past 15 months.
By the end of March 2002, long-term U.S. Treasury bond yields stood at 5.80%,
their highest level in over 18 months.
During the past few months, however, bond yields reversed course to move sharply
lower. Positive economic fundamentals were again overwhelmed by falling equity
valuations and declines in investor confidence. U.S. GDP activity in the first
quarter of 2002, while recently revised downward to 5%, was considerably above
the level of economic growth seen at the end of 2001. Additionally, a number of
economic indicators, such as housing activity, consumer spending and weekly
unemployment claims, have pointed to at least a modest economic recovery by the
end of 2002. However, steady dramatic declines in U.S. equity markets have
convinced most investors to conclude recently that the Federal Reserve Board is
unlikely to increase short-term interest rates for the remainder of the year.
U.S. Treasury issue prices have been boosted by erupting Middle East and India/
Pakistan conflicts, as many international investors prefer the safe haven status
of U.S. Treasury securities. At June 30, 2002, long-term U.S. Treasury bond
yields had declined to 5.50%.
In late July, U.S. GDP growth for the second quarter of 2002 was initially
estimated at 1.1%. While subject to considerable revision, this initial estimate
suggested that continued declines in U.S. equity prices were negatively
affecting not only consumer, but business confidence as well, and undermining
the economic growth witnessed earlier this year. Some analysts have extrapolated
that recent weakness will continue, if not accelerate. This brought about
forecasts that the Federal Reserve Board may soon be obliged to lower short-term
interest rates both to offset equity market declines and boost consumer and
business spending. The possibility of lower short-term interest rates helped
push longer-term bond yields lower still during late July. At July 31, 2002,
U.S. Treasury bond yield levels had fallen to 5.30%, a decline of approximately
15 basis points (0.15%) during the six-month period ended July 31, 2002.
During the period, municipal bond prices also generally rose. In early 2002,
tax-exempt bond yields traded in a relatively narrow range as an increasingly
positive technical position supported existing municipal bond prices. In March,
however, increased economic activity and associated concerns regarding near-term
Federal Reserve Board actions also pushed tax-exempt bond prices lower. By late
March, long-term municipal revenue bond yields, as measured by the Bond Buyer
Revenue Bond Index, had risen to 5.67%, their highest level in over a year.
During recent months, tax-exempt bond yields have generally declined largely in
response to the positive fixed income environment engendered by falling equity
valuations. The municipal bond market's recent price advances have also been
bolstered by the continued improvement in the tax-exempt market's technical
position. Despite sizeable advances in the rate of new municipal bond issuance,
investor demand has increased in recent months, allowing tax-exempt bond prices
to rise. By the end of July 2002, long-term municipal revenue bond yields stood
at 5.34%, a decline of over 30 basis points from their recent highs in March.
Solid investment demand during the six-month period ended July 31, 2002 allowed
the tax-exempt market to outperform its taxable counterpart in recent months.
The Investment Company Institute reported that thus far in 2002, municipal bond
fund net cash flows have remained very strong at over $7.7 billion, up more than
60% compared to the same period in 2001. Additionally, this past January and
February, investors received nearly $50 billion in investment proceeds from
coupon income, bond maturities and early redemptions. Given the recent weakness
in U.S. equity markets, much of these monies were likely reinvested in
tax-exempt products. Perhaps more importantly, short-term municipal interest
rates have continued to move lower in response to the Federal Reserve Board's
actions. In reaction to Federal Reserve Board interest rate reductions,
short-term municipal rates have declined to the 1% - 1.5% range. As interest
rates have declined, investors have extended maturities to take advantage of the
steep municipal bond yield curve. Also, it is forecast that investors will have
received from June to August approximately an additional $75 billion from bond
maturities, proceeds from early bond redemptions and coupon income. Given the
lack of strong investment alternatives, it is likely that these monies will
continue to support the municipal bond market's currently strong technical
environment.
Recent outperformance by the tax-exempt market has been even more impressive
considering the increase in new bond issuance seen thus far in 2002. Throughout
the past six months, more than $165 billion in new long-term municipal bonds was
issued, an increase of nearly 20% compared to the same period in 2001. More than
$100 billion in long-term tax-exempt securities was underwritten during the July
quarter, an increase of over 33% compared to the July 2001 quarter's level.
Recent months' issuance has been dominated by a number of issues each of whose
size has exceeded $1 billion. While these mega-deals have caused some temporary
price disruptions, imbalances have been short-lived as these underwritings have
been attractively priced and in-state demand has been very strong. Apart from
the mega-deals, increased issuance has been well received as investor demand for
the tax-advantaged, non-equity securities has been strong.
In the coming months, we believe interest rates are likely to remain volatile
with an expected upward bias. However, until equity market conditions stabilize,
interest rates could stay near their present historically low levels. While
recent stock market declines appear to have
2 & 3
MuniHoldings New Jersey Insured Fund, Inc., July 31, 2002
negatively affected economic growth in July 2002, business activity is likely to
accelerate going forward. Governmental stimulus in response to the September 11,
2001 attacks has been significant. The ongoing U.S. military response to
worldwide terrorism has helped reduce a once-sizable Federal surplus to a
material deficit. Further military action in early 2003 would only result in
increased Federal spending, higher deficits and increased Treasury financing.
Increased Federal borrowings can be expected to put upward pressure on interest
rates going forward.
Equity market declines have helped push interest rates to lower levels than
economic fundamentals alone would support. When U.S. equity markets stabilize
and economic activity resumes, associated interest rate increases should not be
extreme. Inflationary pressures have remained well contained, meaning that
significant interest rate increases are unlikely. As equity valuations are
likely to only gradually recover, the U.S. economic recovery is also likely to
be a moderate process. Similarly, this suggests that the pace of any interest
rate increases would be gradual. As the municipal bond market's strong technical
position can be expected to remain supportive in the coming months, future
tax-exempt interest rate increases should be more restrained than their taxable
counterparts.
Portfolio Strategy
Despite further market gains during the six months ended July 31, 2002, a
competitive distribution yield largely offset the Fund's more defensive
investment stance that we recently adopted. In positioning the Fund for higher
interest rates, some potential gains were sacrificed in exchange for a lower
degree of interest rate risk and volatility. We undertook a number of measures
to accomplish this goal, including a reduction in the average maturity of the
Fund and the implementation of a modest hedge employing 10-year U.S. Treasury
note futures. While cash reserves were minimal for the period, more than 65% of
the Fund's holdings are set to mature in less than 20 years. Our decision to
allocate Fund assets accordingly reflected the shape of the municipal yield
curve and our recognition that approximately 90%-95% of the yield available on
30-year municipal bonds can be derived by investing in the 15-year - 20-year
sector. In light of a generally cautious investment outlook, this appeared to be
a reasonable tradeoff, given the lower degree of interest rate risk achieved by
investing in shorter maturities.
With the foregoing strategy in mind, our efforts were also directed toward
maintaining the Fund's competitive income distribution by modestly raising the
credit risk profile of the Fund. This was accomplished through selective
increases in exposure to low investment-grade health care bonds. Municipal
credit spreads remain attractive compared to historical averages and, within the
context of a recovering economy, represent a good value and should offer solid
total return prospects in coming months. In addition, many of the Fund's housing
bonds were subject to prepayment calls that occur when individuals holding the
underlying mortgages refinance or sell their homes. These bond redemptions
typically happen at an inopportune time when interest rates are low. As such,
reinvestment of the proceeds generally entails accepting a reduced income
stream; however, given the favorable risk/reward ratio presently in the market,
the effect of these prepayments on the overall Fund was limited by reinvesting
in low investment-grade municipal bonds. Nevertheless, we continued to be
mindful of the relatively conservative approach mandated by the Fund's
investment restrictions. At July 31, 2002, 91% of the Fund's assets were insured
and were rated AAA by at least one of the major rating agencies. We implemented
our strategy as a means to capture perceived value in the marketplace and as
such we did not reflect a departure from past practices.
The State of New Jersey's general obligation rating has been downgraded by both
Moody's Investor Service and Standard & Poor's and presently stands at Aa2 and
AA, respectively. These actions, taken within the last six months, reflect a
deteriorating fiscal situation brought about by declining revenue projections
amidst sluggish economic growth. Balancing the budget for fiscal 2002 required a
significant reduction in the state's available general fund reserves that will
likely reduce fiscal flexibility in later years. While Moody's maintains a
negative outlook, both rating agencies cite such underlying fundamental
strengths as a highly educated workforce and a diverse economic base as reason
to be optimistic about the state's economic prospects over the long term.
Caution is expected to continue to characterize the Fund's investment stance
during the next six months as prospects for heavy new-issue municipal volume
will put pressure on a market expected to weaken against the backdrop of a
strengthening economy. Barring any major change in the stance of the Fund's
benchmark, we do not anticipate any significant alteration in Fund duration. As
evidenced by recent favorable performance results when interest rates rose, we
believe the Fund is positioned appropriately, given our investment outlook.
However, to the extent that fixed income markets remain buoyant, we expect that
the Fund may not be able to provide enhanced results.
The 475 basis point decline in short-term interest rates engineered by the
Federal Reserve Board in 2001 resulted in a material decrease in the Fund's
borrowing cost into the 1%-1.25% range. This decline, in combination with a
steep tax-exempt yield curve, has generated a material income benefit to the
Fund's Common Stock shareholders from the leveraging of the Preferred Stock.
While modest increases in short-term interest rates are a possibility later
this year, these increases are unlikely to result in significantly higher
borrowing costs for the Fund. However, should the spread between short-term and
long-term interest rates narrow, the benefits of leverage will decline and, as a
result, reduce the yield paid on the Common Stock. (For a more complete
explanation of the benefits and risks of leveraging, see page 1 of this report
to shareholders.)
In Conclusion
We appreciate your ongoing interest in MuniHoldings New Jersey Insured Fund,
Inc., and we look forward to serving your investment needs in the months and
years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Kenneth A. Jacob
Kenneth A. Jacob
Senior Vice President
/s/ John M. Loffredo
John M. Loffredo
Senior Vice President
/s/ Theodore R. Jaeckel Jr.
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
August 27, 2002
We are pleased to announce that Theodore R. Jaeckel Jr. is responsible for the
day-to-day management of MuniHoldings New Jersey Insured Fund, Inc. Mr. Jaeckel
joined Merrill Lynch Investment Managers, L.P. in 1991 as Portfolio Manager.
4 & 5
MuniHoldings New Jersey Insured Fund, Inc., July 31, 2002
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
==================================================================================================================================
New Jersey--141.4% AAA Aaa $ 1,875 Atlantic Highlands, New Jersey, Highland Regional Sewer Authority,
Sewer Revenue Refunding Bonds, 5.50% due 1/01/2020 (b) $ 2,011
--------------------------------------------------------------------------------------------------------------
Camden County, New Jersey, Improvement Authority, Lease Revenue Bonds (c):
AAA Aaa 1,540 5.50% due 9/01/2016 1,674
AAA Aaa 2,635 5.375% due 9/01/2019 2,782
--------------------------------------------------------------------------------------------------------------
NR* Aaa 430 Carteret, New Jersey, Board of Education, COP, 6% due 1/15/2024 (d) 471
--------------------------------------------------------------------------------------------------------------
AAA Aaa 6,210 Casino Reinvestment Development Authority, New Jersey, Parking Fee Revenue
Bonds, Series A, 5.25% due 10/01/2017 (c) 6,454
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,005 Delaware River and Bay Authority Revenue Bonds, Series A,
5.625% due 1/01/2018 (a) 2,187
--------------------------------------------------------------------------------------------------------------
Delaware River Port Authority of Pennsylvania and New Jersey Revenue
Bonds (c):
AAA Aaa 5,000 5.50% due 1/01/2012 5,514
AAA Aaa 6,000 5.625% due 1/01/2013 6,649
AAA Aaa 500 5.75% due 1/01/2015 556
AAA Aaa 4,865 6% due 1/01/2018 5,491
AAA Aaa 5,525 6% due 1/01/2019 6,235
AAA Aaa 2,425 (Port District Project), Series B, 5.625% due 1/01/2026 2,632
--------------------------------------------------------------------------------------------------------------
AAA Aaa 7,895 East Orange, New Jersey, Board of Education, COP,
5.50% due 8/01/2012 (c) 8,905
--------------------------------------------------------------------------------------------------------------
NR* Aaa 1,000 East Orange, New Jersey, Water Utility, GO, Refunding,
5.70% due 6/15/2022 (a) 1,066
--------------------------------------------------------------------------------------------------------------
Essex County, New Jersey, Improvement Authority, Lease Revenue Bonds:
NR* Aaa 4,000 (Correctional Facility Project), 6% due 10/01/2025 (b) 4,502
NR* Aaa 3,100 (County Correctional Facility Project), 5.75% due 10/01/2030 3,422
--------------------------------------------------------------------------------------------------------------
AAA Aaa 3,300 Essex County, New Jersey, Improvement Authority, Lease Revenue Refunding
Bonds (County Jail and Youth House Project), 5.35% due 12/01/2024 (a) 3,396
--------------------------------------------------------------------------------------------------------------
Essex County, New Jersey, Improvement Authority, Utility System
Revenue Bonds (d):
AAA Aaa 2,705 (East Orange Franchise), 6% due 7/01/2018 2,997
AAA Aaa 3,050 (Orange Franchise), Series A, 5.75% due 7/01/2027 3,219
--------------------------------------------------------------------------------------------------------------
Ewing Township, New Jersey, School District, GO (b):
NR* Aaa 1,805 5.30% due 8/01/2019 1,881
NR* Aaa 1,780 5.30% due 8/01/2020 1,846
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,240 Freehold, New Jersey, Regional High School District, GO, Refunding,
5% due 3/01/2016 (b) 1,329
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,883 Freehold Township, New Jersey, Board of Education, GO,
5.25% due 2/15/2032 (d) 2,948
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Hoboken, New Jersey, Parking Authority, Parking Revenue Bonds, Series A,
5.30% due 5/01/2027 (a) 1,552
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,040 Hopewell Valley, New Jersey, Regional School District, GO, Refunding,
5% due 8/15/2014 (b) 2,169
--------------------------------------------------------------------------------------------------------------
AAA Aaa 765 Jersey City, New Jersey, GO, Refunding, Quality School, Series A,
5.375% due 9/01/2017 (c) 821
--------------------------------------------------------------------------------------------------------------
Lafayette Yard, New Jersey, Community Development Revenue Bonds
(Hotel/Conference Center Project) (d)(e):
NR* Aaa 5,250 6% due 4/01/2010 6,143
NR* Aaa 1,125 6.125% due 4/01/2010 1,326
--------------------------------------------------------------------------------------------------------------
AAA Aaa 825 Lopatcong Township, New Jersey, Board of Education, GO,
5.70% due 7/15/2010 (c)(e) 946
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Marlboro Township, New Jersey, Board of Education, GO,
5.25% due 7/15/2017 (c) 1,055
--------------------------------------------------------------------------------------------------------------
Middlesex County, New Jersey, COP (d):
AAA Aaa 1,375 5.50% due 8/01/2016 1,513
AAA Aaa 1,550 5.25% due 6/15/2023 1,596
--------------------------------------------------------------------------------------------------------------
Middlesex County, New Jersey, Improvement Authority, Lease Revenue
Bonds (Educational Services Community Projects):
AAA Aaa 3,970 5.70% due 7/15/2020 4,329
AAA Aaa 5,270 6% due 7/15/2025 5,834
--------------------------------------------------------------------------------------------------------------
AAA Aaa 500 Middlesex County, New Jersey, Improvement Authority Revenue Bonds (Senior
Citizens Housing Project), AMT, 5.50% due 9/01/2030 (a) 517
--------------------------------------------------------------------------------------------------------------
Monmouth County, New Jersey, Improvement Authority, Revenue Refunding
Bonds (a):
AAA Aaa 1,540 5.35% due 12/01/2017 1,647
AAA Aaa 1,470 5.375% due 12/01/2018 1,565
--------------------------------------------------------------------------------------------------------------
NR* Aaa 1,000 Monroe Township, New Jersey, Municipal Utilities Authority, Middlesex
County Revenue Refunding Bonds, 5.25% due 2/01/2016 (b) 1,069
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,304 Mount Laurel Township, New Jersey, Board of Education, GO,
5.60% due 8/01/2019 (b) 2,448
--------------------------------------------------------------------------------------------------------------
AAA Aaa 3,060 New Jersey EDA, Construction Revenue Bonds, GO (School Facilities),
Series A, 5.50% due 6/15/2012 (a) 3,458
--------------------------------------------------------------------------------------------------------------
A1+ NR* 300 New Jersey EDA, Economic Development Revenue Refunding Bonds (Foreign
Trade Zone Project), VRDN, 1.45% due 12/01/2007 (g) 300
--------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 New Jersey EDA, Lease Revenue Bonds (University of Medicine and
Dentistry--International Center for Public Health Project),
6% due 6/01/2032 (a) 5,454
--------------------------------------------------------------------------------------------------------------
New Jersey EDA, Natural Gas Facilities Revenue Refunding Bonds, AMT (d):
AAA Aaa 18,920 (NUI Corporation Projects), Series A, 5.70% due 6/01/2032 19,768
NR* Aaa 3,155 RIB, Series 161, 9.68% due 6/01/2032 (f) 3,438
--------------------------------------------------------------------------------------------------------------
New Jersey EDA, Parking Facility Revenue Bonds (Elizabeth Development
Company Project) (b):
AAA Aaa 1,430 5.60% due 10/15/2019 1,531
AAA Aaa 1,000 5.60% due 10/15/2026 1,053
--------------------------------------------------------------------------------------------------------------
AAA NR* 4,580 New Jersey EDA Revenue Bonds, DRIVERS, Series 219, 10.33%
due 5/01/2016 (c)(f) 5,637
--------------------------------------------------------------------------------------------------------------
New Jersey EDA, School Facilities Construction Revenue Bonds, Series A (a):
AAA Aaa 1,100 5.125% due 6/15/2014 1,184
AAA Aaa 7,000 5.25% due 6/15/2017 7,449
AAA Aaa 7,200 5.25% due 6/15/2018 7,607
--------------------------------------------------------------------------------------------------------------
New Jersey EDA, State Lease Revenue Bonds (State Office Buildings
Projects) (a):
AAA Aaa 3,000 6% due 6/15/2015 3,406
AAA Aaa 4,620 6.25% due 6/15/2020 5,239
--------------------------------------------------------------------------------------------------------------
Portfolio Abbreviations
To simplify the listings of MuniHoldings New Jersey Insured Fund, Inc.'s
portfolio holdings in the Schedule of Investments, we have abbreviated the names
of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DRIVERS Derivative Inverse Tax-Exempt Receipts
EDA Economic Development Authority
GO General Obligation Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
6 & 7
MuniHoldings New Jersey Insured Fund, Inc., July 31, 2002
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
==================================================================================================================================
New Jersey New Jersey EDA, Water Facilities Revenue Refunding Bonds (United Water of
(continued) New Jersey Inc. Project), VRDN (a)(g):
A1+ VMIG1@ $ 890 AMT, Series C, 1.40% due 11/01/2025 $ 890
A1+ VMIG1@ 600 Series A, 1.45% due 11/01/2026 600
--------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority Revenue Bonds:
AAA Aaa 2,820 (Society of the Valley Hospital), 5.375% due 7/01/2025 (a) 2,914
NR* Baa1 5,440 (South Jersey Hospital), 6% due 7/01/2026 5,505
--------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority, Revenue
Refunding Bonds:
AAA Aaa 4,000 (AHS Hospital Corporation), Series A, 6% due 7/01/2013 4,675
A- A3 1,455 (Atlantic City Medical Center), 6.25% due 7/01/2017 1,595
A- A3 3,500 (Atlantic City Medical Center), 5.75% due 7/01/2025 3,577
BBB+ NR* 1,775 (Holy Name Hospital), 6% due 7/01/2025 1,775
AAA Aaa 1,000 (Meridian Health System Obligation Group), 5.375% due 7/01/2024 (c) 1,035
--------------------------------------------------------------------------------------------------------------
New Jersey Sports and Exposition Authority, State Contract Revenue
Bonds (d):
AAA Aaa 2,400 Series A, 6% due 3/01/2013 2,736
A1+ VMIG1@ 100 VRDN, Series C, 1.30% due 9/01/2024 (g) 100
--------------------------------------------------------------------------------------------------------------
New Jersey State Educational Facilities Authority Revenue Bonds:
AAA Aaa 8,905 (Capital Improvement Fund), Series A, 5.75% due 9/01/2017 (c) 9,913
AAA Aaa 9,420 (Capital Improvement Fund), Series A, 5.75% due 9/01/2018 (c) 10,418
AAA Aaa 2,000 (Princeton Theological), Series B, 5.90% due 7/01/2026 2,110
--------------------------------------------------------------------------------------------------------------
New Jersey State Educational Facilities Authority, Revenue Refunding
Bonds:
AA NR* 2,045 (Rider University), 5.25% due 7/01/2012 2,268
AA NR* 1,000 (Rider University), 5.25% due 7/01/2014 1,092
AAA Aaa 2,375 (Rowan University), Series C, 5.25% due 7/01/2017 (b) 2,542
AAA Aaa 2,820 (Rowan University), Series C, 5.25% due 7/01/2018 (b) 2,995
AAA Aaa 2,635 (Rowan University), Series C, 5.25% due 7/01/2019 (b) 2,779
AAA Aaa 4,000 (University of Medicine and Dentistry), Series B,
5.25% due 12/01/2017 (a) 4,140
--------------------------------------------------------------------------------------------------------------
New Jersey State Highway Authority, Garden State Parkway, General
Revenue Refunding Bonds:
AAA Aaa 3,200 5.75% due 1/01/2015 (b) 3,589
AA- A1 1,900 5.625% due 1/01/2030 2,015
--------------------------------------------------------------------------------------------------------------
New Jersey State Highway Authority, Garden State Parkway, General
Revenue Refunding Bonds, Senior Parkway (b):
AAA Aaa 2,000 5.25% due 1/01/2018 2,119
AAA Aaa 3,085 5.25% due 1/01/2019 3,246
--------------------------------------------------------------------------------------------------------------
New Jersey State Housing and Mortgage Finance Agency, Home Buyer
Revenue Bonds (d):
AAA Aaa 8,140 AMT, Series K, 6.375% due 10/01/2026 8,453
AAA Aaa 1,555 AMT, Series M, 6.95% due 10/01/2022 1,630
AAA Aaa 5,310 AMT, Series M, 7% due 10/01/2026 5,570
AAA Aaa 1,000 AMT, Series U, 5.60% due 10/01/2012 1,063
AAA Aaa 2,820 AMT, Series U, 5.65% due 10/01/2013 2,987
AAA Aaa 3,000 AMT, Series U, 5.75% due 4/01/2018 3,141
AAA Aaa 2,320 AMT, Series U, 5.85% due 4/01/2029 2,400
AAA Aaa 2,540 Series L, 6.65% due 10/01/2014 2,655
--------------------------------------------------------------------------------------------------------------
New Jersey State Housing and Mortgage Finance Agency, Home Buyer
Revenue Refunding Bonds, AMT, Series S (d):
AAA Aaa 2,440 5.95% due 10/01/2017 2,574
AAA Aaa 2,050 6.05% due 10/01/2028 2,142
--------------------------------------------------------------------------------------------------------------
New Jersey State Transit Corporation, COP (Federal Transit
Administration Grants), Series A (a)(e):
AAA Aaa 4,000 6% due 9/15/2009 4,658
AAA Aaa 5,000 6.125% due 9/15/2009 5,862
--------------------------------------------------------------------------------------------------------------
New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Bonds, Series A:
AA- Aa3 7,740 6% due 6/15/2010 (e) 9,015
AA- Aa3 7,500 6% due 6/15/2010 (e)(h) 8,735
AAA Aaa 2,000 5% due 6/15/2015 (c) 2,079
AAA NR* 10,000 5.25% due 6/15/2015 (d) 10,635
AAA Aaa 3,000 5.75% due 6/15/2015 (d) 3,462
--------------------------------------------------------------------------------------------------------------
New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Refunding Bonds, Series B:
AAA Aaa 2,500 6% due 12/15/2017 (d) 2,871
AAA Aaa 6,605 6% due 12/15/2018 7,545
AAA Aaa 7,440 6% due 12/15/2019 8,462
--------------------------------------------------------------------------------------------------------------
New Jersey State Turnpike Authority, Turnpike Revenue
Refunding Bonds (d):
AAA Aaa 20,000 Series A, 5.75% due 1/01/2019 21,864
AAA Aaa 5,520 Series C, 6.50% due 1/01/2016 6,773
--------------------------------------------------------------------------------------------------------------
North Bergen Township, New Jersey, Board of Education, COP (c):
NR* Aaa 1,250 5% due 12/15/2018 1,295
NR* Aaa 1,000 6% due 12/15/2019 1,128
NR* Aaa 1,580 6.25% due 12/15/2020 1,813
NR* Aaa 1,680 6.25% due 12/15/2021 1,914
--------------------------------------------------------------------------------------------------------------
NR* Aaa 3,035 Orange Township, New Jersey, Municipal Utility and Lease, GO,
Refunding, Series C, 5.10% due 12/01/2017 (d) 3,177
--------------------------------------------------------------------------------------------------------------
Passaic County, New Jersey, GO, Refunding (c):
NR* Aaa 2,170 5.25% due 6/01/2014 2,382
NR* Aaa 2,360 5.25% due 6/01/2015 2,572
NR* Aaa 2,350 5.25% due 6/01/2016 2,543
--------------------------------------------------------------------------------------------------------------
Paterson, New Jersey, Public School District, COP (d):
NR* Aaa 1,980 6.125% due 11/01/2015 2,272
NR* Aaa 2,000 6.25% due 11/01/2019 2,293
--------------------------------------------------------------------------------------------------------------
Salem County, New Jersey, Industrial Pollution Control Financing
Authority, Revenue Refunding Bonds:
AAA Aaa 5,000 (Atlantic City Electric Company), 6.15% due 6/01/2029 (c) 5,457
AAA Aaa 2,000 (Public Service Electric & Gas), Series C, 5.55% due 11/01/2033 (d) 2,072
--------------------------------------------------------------------------------------------------------------
8 & 9
MuniHoldings New Jersey Insured Fund, Inc., July 31, 2002
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
==================================================================================================================================
New Jersey AAA Aaa $ 4,325 Trenton, New Jersey, Parking Authority, Parking Revenue
(concluded) Bonds, DRIVERS, Series 221, 10.76% due 4/01/2010 (b)(e)(f) $ 5,787
--------------------------------------------------------------------------------------------------------------
AAA Aaa 4,740 University of Medicine and Dentistry, New Jersey, Revenue
Bonds, Series A, 5.50% due 12/01/2027 (a) 5,016
--------------------------------------------------------------------------------------------------------------
West Deptford Township, New Jersey, GO (b):
NR* Aaa 4,170 5.625% due 9/01/2026 4,438
NR* Aaa 4,410 5.625% due 9/01/2027 4,692
NR* Aaa 3,615 5.625% due 9/01/2028 3,843
NR* Aaa 4,940 5.625% due 9/01/2029 5,251
--------------------------------------------------------------------------------------------------------------
West Orange, New Jersey, Board of Education, COP (d):
NR* Aaa 2,040 5.75% due 10/01/2014 2,285
NR* Aaa 3,615 6% due 10/01/2024 3,961
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,600 West Windsor-Plainsboro, New Jersey, Regional School District, GO,
5.50% due 12/01/2013 (b) 1,708
==================================================================================================================================
New York--8.6% AAA Aaa 4,750 Port Authority of New York and New Jersey, Consolidated Revenue
Refunding Bonds, AMT, 119th Series, 5.50% due 9/15/2019 (b) 4,937
--------------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, Special Obligation Revenue
Bonds, AMT (d):
AAA NR* 2,375 DRIVERS, Series 192, 9.79% due 12/01/2025 (f) 2,520
NR* Aaa 2,165 (JFK International Air Terminal LLC), RIB, Series 157,
9.78% due 12/01/2022 (f) 2,354
AAA Aaa 13,500 (JFK International Air Terminal--Special Project), Series 6,
6.25% due 12/01/2011 15,528
AAA Aaa 1,500 (JFK International Airport Terminal), Series 6,
6.25% due 12/01/2015 1,735
==================================================================================================================================
Puerto Rico--12.9% NR* Aaa 7,875 Puerto Rico Commonwealth, GO, RIB, Series 365, 10.36%
due 7/01/2005 (d)(e)(f) 9,704
--------------------------------------------------------------------------------------------------------------
A Baa1 6,000 Puerto Rico Commonwealth Highway and Transportation Authority,
Transportation Revenue Bonds, Series B, 6% due 7/01/2026 (c) 6,398
--------------------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority, Power Revenue Bonds:
AAA Aaa 10,000 Series HH, 5.25% due 7/01/2029 (c) 10,235
AAA Aaa 2,355 Series X, 5.50% due 7/01/2025 (d) 2,437
--------------------------------------------------------------------------------------------------------------
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Revenue Bonds, Series A:
AAA Aaa 1,780 (Hospital Auxilio Mutuo Obligation Group), 6.25% due 7/01/2024 (d) 1,955
AA Aa2 1,750 (Hospital de la Concepcion), 6.50% due 11/15/2020 1,973
--------------------------------------------------------------------------------------------------------------
AAA Aaa 7,120 Puerto Rico Public Financing Corporation Revenue Bonds (Commonwealth
Appropriation), Series A, 5.50% due 8/01/2019 (d) 7,713
--------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$481,495)--162.9% 510,813
Variation Margin on Financial Futures Contracts**--(0.1%) (446)
Other Assets Less Liabilities--2.0% 6,163
Preferred Stock, at Redemption Value--(64.8%) (203,015)
---------
Net Assets Applicable to Common Stock--100.0% $ 313,515
=========
==================================================================================================================================
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) Prerefunded.
(f) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at July 31, 2002.
(g) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at July 31,
2002.
(h) All or a portion of security held as collateral in connection with open
financial futures contracts.
@ Highest short-term rating by Moody's Investors Service, Inc.
* Not Rated.
** Financial futures contracts sold as of July 31, 2002 were as follows:
(in Thousands)
-------------------------------------------------------------------------------
Number of Expiration
Contracts Issue Date Value
-------------------------------------------------------------------------------
510 U.S. Treasury Bonds September 2002 $56,411
-------------------------------------------------------------------------------
Total Financial Futures Contracts Sold
(Total Contract Price--$54,719) $56,411
=======
-------------------------------------------------------------------------------
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
STATEMENT OF NET ASSETS
As of July 31, 2002
===================================================================================================================================
Assets: Investments, at value (identified cost--$481,495,137) ....................... $510,813,375
Cash ........................................................................ 42,443
Interest receivable ......................................................... 6,608,894
Prepaid expenses ............................................................ 15,341
------------
Total assets ................................................................ 517,480,053
------------
===================================================================================================================================
Liabilities: Payables:
Variation margin .......................................................... $ 446,250
Dividends to Common Stock shareholders .................................... 229,060
Investment adviser ........................................................ 220,809 896,119
------------
Accrued expenses ............................................................ 53,678
------------
Total liabilities ........................................................... 949,797
------------
===================================================================================================================================
Preferred Stock: Preferred Stock, at redemption value, par value $.10 per share
(8,120 shares of AMPS* issued and outstanding at $25,000 per share
liquidation preference) ..................................................... 203,015,386
------------
===================================================================================================================================
Net Assets Net assets applicable to Common Stock ....................................... $313,514,870
Applicable to ============
Common Stock:
===================================================================================================================================
Analysis of Net Common Stock, par value $.10 per share (21,038,614 shares issued and
Assets Applicable to outstanding) ................................................................ $ 2,103,861
Common Stock: Paid-in capital in excess of par ............................................ 316,252,102
Undistributed investment income--net ........................................ $ 2,804,638
Accumulated realized capital losses on investments--net ..................... (35,272,172)
Unrealized appreciation on investments--net ................................. 27,626,441
------------
Total accumulated losses--net ............................................... (4,841,093)
------------
Total--Equivalent to $14.90 net asset value per share of Common Stock
(market price--$14.24) ...................................................... $313,514,870
============
===================================================================================================================================
* Auction Market Preferred Stock.
See Notes to Financial Statements.
10 & 11
MuniHoldings New Jersey Insured Fund, Inc., July 31, 2002
STATEMENT OF OPERATIONS
For the Year Ended July 31, 2002
========================================================================================================================
Investment Interest ......................................................... $ 26,104,331
Income:
========================================================================================================================
Expenses: Investment advisory fees ......................................... $ 2,798,957
Commission fees .................................................. 519,588
Accounting services .............................................. 174,254
Professional fees ................................................ 92,961
Transfer agent fees .............................................. 75,239
Reorganization expenses .......................................... 74,780
Printing and shareholder reports ................................. 34,858
Custodian fees ................................................... 31,429
Directors' fees and expenses ..................................... 30,120
Listing fees ..................................................... 28,293
Pricing fees ..................................................... 22,896
Other ............................................................ 67,287
------------
Total expenses before reimbursement .............................. 3,950,662
Reimbursement of expenses ........................................ (231,829)
------------
Total expenses after reimbursement ............................... 3,718,833
------------
Investment income--net ........................................... 22,385,498
------------
========================================================================================================================
Realized & Realized gain on investments--net ................................ 913,120
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net 5,534,667
On Investments--Net: ------------
Total realized and unrealized gain on investments--net ........... 6,447,787
------------
========================================================================================================================
Dividends to Investment income--net ........................................... (3,057,485)
Preferred Stock ------------
Shareholders: Net Increase in Net Assets Resulting from Operations ............. $ 25,775,800
============
========================================================================================================================
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended
July 31,
------------------------------
Increase (Decrease) in Net Assets: 2002 2001+
=================================================================================================================================
Operations: Investment income--net ......................................................... $ 22,385,498 $ 20,489,071
Realized gain (loss) on investments--net ....................................... 913,120 (26,158)
Change in unrealized appreciation/depreciation on investments--net ............. 5,534,667 25,706,635
Dividends to Preferred Stock shareholders ...................................... (3,057,485) (6,446,254)
Write-off of offering costs resulting from the initial issuance of Preferred
Stock .......................................................................... -- 67,167
------------- -------------
Net increase in net assets resulting from operations ........................... 25,775,800 39,790,461
------------- -------------
=================================================================================================================================
Dividends to Investment income--net ......................................................... (18,173,596) (13,742,015)
Common Stock ------------- -------------
Shareholders: Net decrease in net assets resulting from dividends to Common Stock shareholders (18,173,596) (13,742,015)
------------- -------------
=================================================================================================================================
Common Stock Proceeds from issuance of Common Stock resulting from reorganization ........... -- 45,753,117
Transactions: Offering costs resulting from the initial issuance of Common Stock ............. -- (24,359)
------------- -------------
Net increase in net assets derived from Common Stock transactions .............. -- 45,728,758
------------- -------------
=================================================================================================================================
Net Assets Total increase in net assets applicable to Common Stock ........................ 7,602,204 71,777,204
Applicable to Beginning of year .............................................................. 305,912,666 234,135,462
Common Stock: ------------- -------------
End of year* ................................................................... $ 313,514,870 $ 305,912,666
============= =============
=================================================================================================================================
*Undistributed investment income--net ........................................... $ 2,804,638 $ 1,440,501
============= =============
=================================================================================================================================
+ Certain prior year amounts have been reclassified to current year
presentation.
See Notes to Financial Statements.
12 & 13
MuniHoldings New Jersey Insured Fund, Inc., July 31, 2002
FINANCIAL HIGHLIGHTS
For the
The following per share data and ratios Period
have been derived from information For the Year Ended March 11,
provided in the financial statements. July 31, 1998+ to
---------------------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998
===============================================================================================================================
Per Share Net asset value, beginning of period ....... $ 14.54 $ 13.14 $ 14.47 $ 15.09 $ 15.00
Operating -------- -------- -------- -------- --------
Performance:# Investment income--net ..................... 1.06++ 1.08 1.07 1.13 .46
Realized and unrealized gain (loss) on
investments--net .......................... .31 1.39 (1.27) (.58) .16
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net .................. (.15) (.34) (.35) (.30) (.12)
Realized gain on investments--net ....... -- -- -- (.02) --
Capital write-off (charge) resulting from
issuance of Preferred Stock ................ -- --@@ -- -- (.12)
-------- -------- -------- -------- --------
Total from investment operations ........... 1.22 2.13 (.55) .23 .38
-------- -------- -------- -------- --------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net .................. (.86) (.73) (.78) (.81) (.26)
Realized gain on investments--net ....... -- -- -- (.01) --
In excess of realized gain on
investments--net ........................ -- -- -- (.03) --
-------- -------- -------- -------- --------
Total dividends and distributions to
Common Stock shareholders .................. (.86) (.73) (.78) (.85) (.26)
-------- -------- -------- -------- --------
Capital charge resulting from issuance of
Common Stock ............................... -- --@@ -- -- (.03)
-------- -------- -------- -------- --------
Net asset value, end of period ............. $ 14.90 $ 14.54 $ 13.14 $ 14.47 $ 15.09
======== ======== ======== ======== ========
Market price per share, end of period ...... $ 14.24 $ 12.64 $11.6875 $13.4375 $ 15.375
======== ======== ======== ======== ========
===============================================================================================================================
Total Investment Based on market price per share ............ 20.01% 14.60% (7.13%) (7.44%) 4.29%@
Return:** ======== ======== ======== ======== ========
Based on net asset value per share ......... 9.16% 17.26% (3.04%) 1.56% 2.35%@
======== ======== ======== ======== ========
===============================================================================================================================
Ratios Based on Total expenses, net of reimbursement and
Average Net Assets of excluding reorganization expenses*** ....... 1.19% 1.18% 1.27% 1.22% .29%*
Common Stock: ======== ======== ======== ======== ========
Total expenses, net of reimbursement*** .... 1.22% 1.18% 1.55% 1.22% .29%*
======== ======== ======== ======== ========
Total expenses*** .......................... 1.29% 1.29% 1.67% 1.31% 1.21%*
======== ======== ======== ======== ========
Total investment income--net*** ............ 7.32% 7.72% 8.52% 7.32% 8.17%*
======== ======== ======== ======== ========
Amount of dividends to Preferred Stock
shareholders ............................... 1.00% 2.43% 2.96% 1.93% 2.14%*
======== ======== ======== ======== ========
Investment income--net, to Common Stock
shareholders ............................... 6.32% 5.29% 5.56% 5.39% 6.03%*
======== ======== ======== ======== ========
===============================================================================================================================
Ratios Based on Total expenses, net of reimbursement and
Average Net Assets excluding reorganization expenses .......... .72% .69% .72% .75% .18%*
Of Common & ======== ======== ======== ======== ========
Preferred Stock:*** Total expenses, net of reimbursement ....... .73% .69% .88% .75% .18%*
======== ======== ======== ======== ========
Total expenses ............................. .78% .76% .94% .80% .76%*
======== ======== ======== ======== ========
Total investment income--net ............... 4.40% 4.53% 4.81% 4.48% 5.13%*
======== ======== ======== ======== ========
===============================================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders .. 1.51% 3.46% 3.84% 3.04% 3.61%*
Average Net Assets of ======== ======== ======== ======== ========
Preferred Stock:
===============================================================================================================================
Supplemental Data: Net assets applicable to Common Stock, end
of period (in thousands) ................... $313,515 $305,913 $234,135 $101,300 $104,967
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) ............................. $203,000 $203,000 $175,000 $ 68,000 $ 68,000
======== ======== ======== ======== ========
Portfolio turnover ......................... 20.05% 55.60% 100.11% 64.93% 32.46%
======== ======== ======== ======== ========
===============================================================================================================================
Leverage: Asset coverage per $1,000 .................. $ 2,544 $ 2,507 $ 2,338 $ 2,490 $ 2,544
======== ======== ======== ======== ========
===============================================================================================================================
Dividends Per Share Series A--Investment income--net ........... $ 356 $ 830 $ 896 $ 763 $ 317
On Preferred Stock ======== ======== ======== ======== ========
Outstanding:+++ Series B--Investment income--net ........... $ 381 $ 872 $ 898 $ 766 $ 300
======== ======== ======== ======== ========
Series C--Investment income--net ........... $ 389 $ 871 $ 439 -- --
======== ======== ======== ======== ========
Series D--Investment income--net ........... $ 363 $ 901 $ 418 -- --
======== ======== ======== ======== ========
Series E--Investment income--net ........... $ 393 $ 310 -- -- --
======== ======== ======== ======== ========
===============================================================================================================================
* 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
charges. If applicable, the Fund's Investment Adviser waived a portion of
its management fee. Without such waiver, the Fund's performance would
have been lower.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ The Fund's Preferred Stock was issued on October 19, 1998 (Series A and
B), March 6, 2000 (Series C and D), and March 5, 2001 (Series E).
# Certain prior year amounts have been reclassified to conform to current
year presentation.
@ Aggregate total investment return.
@@ Amount is less than $.01 per share.
See Notes to Financial Statements.
14 & 15
MuniHoldings New Jersey Insured Fund, Inc., July 31, 2002
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings New Jersey Insured Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in conformity
with accounting principles generally accepted in the United States of America,
which may require the use of management accruals and estimates. The Fund
determines and makes available for publication the net asset value of its Common
Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock
Exchange under the symbol MUJ. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options 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 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
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. Losses may arise due to changes in the value of the contract or if
the counterparty does not perform under the contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase
call and put options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis. As
required, effective August 1, 2001, the Fund has adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
all premiums and discounts on debt securities. The cumulative effect of this
accounting change had no impact on total net assets of the Fund, but resulted in
a $52,416 increase in cost of securities (which, in turn, results in a
corresponding $52,416 decrease in net unrealized appreciation and a
corresponding $52,416 increase in undistributed net investment income), based on
securities held by the Fund as of July 31, 2001.
The effect of this change for the year ended July 31, 2002 was to increase net
investment income by $18,154, decrease net unrealized appreciation by $17,267
and increase net realized capital losses by $53,303. The statement of changes in
net assets and financial highlights for prior periods have not been restated to
reflect this change in presentation.
(e) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(f) Change in financial statement classification for Auction Market Preferred
Stock ("AMPS")--In accordance with the provisions of the Financial Accounting
Standards Board's Emerging Issues Task Force D-98 ("EITF D-98"), "Classification
and Measurement of Redeemable Securities," effective for the current period, the
Fund has reclassified its AMPS outside of permanent equity in the Net Assets
section of the Statement of Net Assets. In addition, dividends to Preferred
Stock shareholders are now classified as a component of the "Net Increase in Net
Assets Resulting from Operations" on the Statement of Operations and Changes in
Net Assets and as a component of the "Total from investment operations" in the
Financial Highlights. Prior year amounts presented have been reclassified to
conform to this period's presentation. The application of EITF D-98 related
entirely to presentation and had no impact on net asset value or the allocation
of net investment income or net realized capital gains or losses to Common Stock
shareholders.
(g) Reclassification--Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax differences of $85,167 have been
reclassified between accumulated net realized capital losses and undistributed
net investment income and $72,137 has been reclassified between paid-in capital
in excess of par and undistributed net investment income. These
reclassifications have no effect on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("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 .55% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Stock. For the year ended July 31, 2002,
FAM earned fees of $2,798,957 of which $231,829 was waived.
For the year ended July 31, 2002, the Fund reimbursed FAM $18,079 for certain
accounting services.
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
year ended July 31, 2002 were $101,228,975 and $100,257,580, respectively.
Net realized gains (losses) for the year ended July 31, 2002 and net unrealized
gains (losses) as of July 31, 2002 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
--------------------------------------------------------------------------------
Long-term investments ........................ $ 1,387,394 $ 29,318,238
Financial futures contracts .................. (474,274) (1,691,797)
------------ ------------
Total ........................................ $ 913,120 $ 27,626,441
============ ============
--------------------------------------------------------------------------------
16 & 17
MuniHoldings New Jersey Insured Fund, Inc., July 31, 2002
NOTES TO FINANCIAL STATEMENTS (concluded)
As of July 31, 2002, net unrealized appreciation for Federal income tax purposes
aggregated $29,335,505, of which $29,374,337 related to appreciated securities
and $38,832 related to depreciated securities. The aggregate cost of investments
at July 31, 2002 for Federal income tax purposes was $481,477,870.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of 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 stock without approval of holders of Common Stock.
Common Stock
Shares issued and outstanding during the year ended July 31, 2002 remained
constant and during the year ended July 31, 2001 increased by 3,221,459 as a
result of reorganization.
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 July 31, 2002 were Series
A, 1.00%; Series B, .91%; Series C, 1.15%; Series D, 1.05% and Series E, 1.15%.
Shares issued and outstanding during the year ended July 31, 2002 remained
constant and during the year ended July 31, 2001 increased by 1,120 as a result
of reorganization.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of each
auction. For the year ended July 31, 2002, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, an affiliate of FAM, earned $281,802 as commissions.
5. Distributions to Shareholders:
On August 8, 2002, an ordinary income dividend of $.073000 was declared. The
dividend was paid on August 29, 2002, to shareholders of record on August 19,
2002.
The tax character of distributions paid during the fiscal years ended July 31,
2002 and July 31, 2001 was as follows:
--------------------------------------------------------------------------------
7/31/2002 7/31/2001
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $21,231,081 $20,188,269
----------- -----------
Total distributions .................... $21,231,081 $20,188,269
=========== ===========
--------------------------------------------------------------------------------
As of July 31, 2002, the components of accumulated losses on a tax basis were as
follows:
------------------------------------------------------------------------------
Undistributed tax-exempt income--net .................... $ 2,789,860
Undistributed long-term capital gains--net .............. --
------------
Total undistributed earnings--net ....................... 2,789,860
Capital loss carryforward ............................... (35,328,697)*
Unrealized gains--net ................................... 27,697,744**
------------
Total accumulated losses--net ........................... $ (4,841,093)
============
------------------------------------------------------------------------------
* On July 31, 2002, the Fund had a net capital loss carryforward of
$35,328,697, of which $2,713,832 expires in 2006, $4,022,894 expires in
2007, $1,794,104 expires in 2008 and $26,797,867 expires in 2009. This
amount will be available to offset like amounts of any future taxable
gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on straddles, the
difference between book and tax amortization methods for premiums and
discounts on fixed income securities, unamortized organization costs, the
realization for tax purposes of unrealized gains (losses) on certain
futures contracts and the deferral of post-October capital losses for tax
purposes.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
MuniHoldings New Jersey Insured Fund, Inc.
We have audited the accompanying statement of net assets of MuniHoldings New
Jersey Insured Fund, Inc., including the schedule of investments, as of July 31,
2002, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and financial highlights for each of the periods indicated therein. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of July 31, 2002, by correspondence with the
custodian. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
MuniHoldings New Jersey Insured Fund, Inc. at July 31, 2002, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the indicated periods in conformity with accounting principles generally
accepted in the United States.
As discussed in Note 1f to the financial statements, in 2002 the Fund changed
its method of classifying Preferred Stock.
/s/ Ernst & Young LLP
MetroPark, New Jersey
September 6, 2002
18 & 19
MuniHoldings New Jersey Insured Fund, Inc., July 31, 2002
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute all or a portion of its net
investment income to its shareholders on a monthly basis. 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 Net Assets, which comprises part of the financial
information included in this report.
QUALITY PROFILE (unaudited)
The quality ratings of securities in the Fund as of July 31, 2002 were as
follows:
--------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Total Investments
--------------------------------------------------------------------------------
AAA/Aaa ..................................................... 91.0%
AA/Aa ....................................................... 4.9
A/A ......................................................... 2.3
BBB/Baa ..................................................... 1.4
Other* ...................................................... 0.4
--------------------------------------------------------------------------------
* Temporary investments in short-term municipal securities.
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniHoldings New Jersey
Insured Fund, Inc. during its taxable year ended July 31, 2002 qualify as
tax-exempt interest dividends for Federal income tax purposes.
Please retain this information for your records.
20 & 21
MuniHoldings New Jersey Insured Fund, Inc., July 31, 2002
OFFICERS AND DIRECTORS
Number of
Portfolios in Other
Position(s) Length Fund Complex Directorships
Held of Time Principal Occupation(s) Overseen by Held by
Name Address & Age with Fund Served During Past 5 Years Director Director
-----------------------------------------------------------------------------------------------------------------------------------
Interested Director
-----------------------------------------------------------------------------------------------------------------------------------
Terry K. Glenn* P.O. Box 9011 President 1999 to Chairman, Americas 118 Funds None
Princeton, NJ 08543-9011 and present Region since 2001, and 169 Portfolios
Age: 61 Director and 1998 Executive Vice President
to present since 1983 of Fund Asset
Management, L.P. ("FAM")
and Merrill Lynch
Investment Managers,
L.P. ("MLIM"); President
of Merrill Lynch Mutual
Funds since 1999;
President of FAM
Distributors, Inc.
("FAMD") since 1986 and
Director thereof since
1991; Executive Vice
President and Director
of Princeton Services,
Inc. ("Princeton
Services") since 1993;
President of Princeton
Administrators, L.P.
since 1988; Director of
Financial Data Services,
Inc. since 1985.
------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for
which FAM or MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the
Investment Company Act, of the Fund based on his positions as Chairman (Americas Region) and Executive Vice
President of FAM and MLIM; President of FAMD; Executive Vice President of Princeton Services; and President
of Princeton Administrators, L.P. The Director's term is unlimited. Directors serve until their
resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund President,
Mr. Glenn serves at the pleasure of the Board of Directors.
------------------------------------------------------------------------------------------------------------
Number of
Portfolios in Other
Position(s) Length Fund Complex Directorships
Held of Time Principal Occupation(s) Overseen by Held by
Name Address & Age with Fund Served* During Past 5 Years Director Director
-----------------------------------------------------------------------------------------------------------------------------------
Independent Directors
-----------------------------------------------------------------------------------------------------------------------------------
Ronald W. Forbes P.O. Box 9011 Director 1998 to Professor Emeritus of 45 Funds None
Princeton, NJ 08543-9011 present Finance, School of 54 Portfolios
Age: 61 Business, State
University of New York
at Albany since 2000;
and Professor thereof
from 1989 to 2000.
-----------------------------------------------------------------------------------------------------------------------------------
Cynthia A. Montgomery P.O. Box 9011 Director 1998 to Professor, Harvard 45 Funds UnumProvi-
Princeton, NJ 08543-9011 present Business School since 54 Portfolios dent Corp-
Age: 50 1989. oration;
Newell Rub-
bermaid Inc.
-----------------------------------------------------------------------------------------------------------------------------------
Charles C. Reilly P.O. Box 9011 Director 1998 to Self-employed financial 45 Funds None
Princeton, NJ 08543-9011 present consultant since 1990. 54 Portfolios
Age: 71
-----------------------------------------------------------------------------------------------------------------------------------
Kevin A. Ryan P.O. Box 9011 Director 1998 to Founder and currently 45 Funds None
Princeton, NJ 08543-9011 present Director Emeritus of The 54 Portfolios
Age: 69 Boston University Center
for the Advancement of
Ethics and Character and
Director thereof from
1989 to 1999; Professor
from 1982 to 1999 at
Boston University.
-----------------------------------------------------------------------------------------------------------------------------------
Roscoe S. Suddarth P.O. Box 9011 Director 2000 to Former President, Middle 45 Funds None
Princeton, NJ 08543-9011 present East Institute from 54 Portfolios
Age: 67 1995 to 2001.
-----------------------------------------------------------------------------------------------------------------------------------
Richard R. West P.O. Box 9011 Director 1998 to Professor of Finance 45 Funds Bowne &
Princeton, NJ 08543-9011 present since 1984, and 54 Portfolios Co., Inc.;
Age: 64 currently Dean Emeritus Vornado
of New York University, Realty Trust;
Leonard N. Stern School Alexander's
of Business Inc.
Administration.
-----------------------------------------------------------------------------------------------------------------------------------
Edward D. Zinbarg P.O. Box 9011 Director 2000 to Self-employed financial 45 Funds None
Princeton, NJ 08543-9011 present consultant since 1994. 54 Portfolios
Age: 67
------------------------------------------------------------------------------------------------------------
* The Director's term is unlimited. Directors serve until their resignation, removal or death, or until
December 31 of the year in which they turn 72.
------------------------------------------------------------------------------------------------------------
Position(s) Length
Held of Time
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
-----------------------------------------------------------------------------------------------------------------------------------
Fund Officers
-----------------------------------------------------------------------------------------------------------------------------------
Donald C. Burke P.O. Box 9011 Vice 1998 to First Vice President of FAM and MLIM since 1997 and the
Princeton, NJ 08543-9011 President present Treasurer thereof since 1999; Senior Vice President and
Age: 42 and and Treasurer of Princeton Services since 1999; Vice
Treasurer 1999 to President of FAMD since 1999; Vice President of FAM and
present MLIM from 1990 to 1997; Director of Taxation of MLIM
since 1990.
-----------------------------------------------------------------------------------------------------------------------------------
Kenneth A. Jacob P.O. Box 9011 Senior 2002 to Managing Director of the Adviser and MLIM since 1997;
Princeton, NJ 08543-9011 Vice present Vice President of MLIM from 1984 to 1997.
Age: 50 President
-----------------------------------------------------------------------------------------------------------------------------------
John M. Loffredo P.O. Box 9011 Senior 2002 to Managing Director of the Adviser and MLIM since 1997;
Princeton, NJ 08543-9011 Vice present Vice President of MLIM from 1991 to 1997.
Age: 38 President
-----------------------------------------------------------------------------------------------------------------------------------
Theodore R. Jaeckel Jr. P.O. Box 9011 Vice 2002 to Director (Municipal Tax-Exempt Fund Management) of the
Princeton, NJ 08543-9011 President present Adviser since 1997; Vice President of the Adviser since
Age: 41 and 1991.
Portfolio
Manager
-----------------------------------------------------------------------------------------------------------------------------------
Alice A. Pellegrino P.O. Box 9011 Secretary 2001 to Director (Legal Advisory) of MLIM since 2002; Vice
Princeton, NJ 08543-9011 present President of MLIM since 1999: Attorney associated with
Age: 42 MLIM since 1997; Associate with Kirkpatrick & Lockhart
LLP from 1992 to 1997.
------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
-----------------------------------------------------------------------------------------------------------------------------------
Custodian Transfer Agents NYSE Symbol
The Bank of New York Common Stock: Preferred Stock: MUJ
100 Church Street The Bank of New York The Bank of New York
New York, NY 10286 101 Barclay Street 100 Church Street
New York, NY 10286 New York, NY 10286
22 & 23
[LOGO] Merrill Lynch Investment Managers
[GRAPHICS OMITTED]
MuniHoldings New Jersey Insured Fund, Inc. seeks to provide shareholders with
current income exempt from Federal income tax and New Jersey personal income
taxes by investing in a portfolio of long-term, investment-grade municipal
obligations the interest on which, in the opinion of bond counsel to the issuer,
is exempt from Federal income tax and New Jersey personal income taxes.
This report, including the financial information herein, is transmitted to
shareholders of MuniHoldings New Jersey Insured Fund, Inc. for their
information. It is not a prospectus. Past performance results shown in this
report should not be considered a representation of future performance. The Fund
has leveraged its Common Stock and intends to remain leveraged by issuing
Preferred Stock to provide the Common Stock shareholders with a potentially
higher rate of return. Leverage creates risks for Common Stock shareholders,
including the likelihood of greater volatility of net asset value and market
price of shares of the Common Stock, and the risk that fluctuations in the
short-term dividend rates of the Preferred Stock may affect the yield to Common
Stock shareholders. Statements and other information herein are as dated and are
subject to change.
MuniHoldings New Jersey Insured Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
[RECYCLED LOGO] Printed on post-consumer recycled paper #HOLDNJ2--7/02