UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-08621
Name of Fund: MuniHoldings New Jersey Insured Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, MuniHoldings New Jersey Insured Fund, Inc., 800 Scudders Mill
Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011,
Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 07/31/05
Date of reporting period: 08/01/04 - 07/31/05
Item 1 - Report to Stockholders
MuniHoldings Fund II, Inc.
MuniHoldings New Jersey Insured Fund, Inc.
Annual Reports
July 31, 2005
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
These reports, including the financial information herein, are transmitted to
shareholders of MuniHoldings Fund II, Inc. and MuniHoldings New Jersey Insured
Fund, Inc. for their information. This is not a prospectus. Past performance
results shown in these reports should not be considered a representation of
future performance. The Funds have leveraged their Common Stock and intend 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.
A description of the policies and procedures that the Funds use to determine
how to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863);
(2) at www.mutualfunds.ml.com; and (3) on the Securities and Exchange
Commission's Web site at http://www.sec.gov. Information about how the
Funds vote proxies relating to securities held in the Funds' portfolios
during the most recent 12-month period ended June 30 is available (1) at
www.mutualfunds.ml.com; and (2) on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
MuniHoldings Fund II, Inc.
MuniHoldings New Jersey Insured Fund, Inc.
Box 9011
Princeton, NJ 08543-9011
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MuniHoldings Fund II, Inc.
MuniHoldings New Jersey Insured Fund, Inc.
The Benefits and Risks of Leveraging
The Funds utilize leveraging to seek to enhance the yield and net asset value
of their Common Stock. However, these objectives cannot be achieved in all
interest rate environments. To leverage, each 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, net of dividends to Preferred Stock, 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 each 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 Funds 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 Funds 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 Funds invest in inverse floaters, the market value of each
Fund's portfolio and the net asset value of each Fund's shares may also be
more volatile than if the Funds did not invest in these securities. As of July
31, 2005, the percentages of MuniHoldings Fund II, Inc. and MuniHoldings New
Jersey Insured Fund, Inc.'s total net assets invested in inverse floaters were
2.30% and 3.66%, respectively, before the deduction of Preferred Stock.
ANNUAL REPORTS JULY 31, 2005
A Letter From the President
Dear Shareholder
We have been referring to 2005 as a "muddle through" year for the financial
markets, characterized by positive and negative crosscurrents that have
conspired to create a fairly complicated investing environment. Amid these
conditions, the major market benchmarks managed to post positive results for
the current reporting period, as follows:
Total Returns as of July 31, 2005 6-month 12-month
U.S. equities (Standard & Poor's 500 Index) +5.45% +14.05%
Small-cap U.S. equities (Russell 2000 Index) +9.58% +24.78%
International equities (MSCI Europe Australasia Far East Index) +3.76% +21.06%
Fixed income (Lehman Brothers Aggregate Bond Index) +0.95% + 4.79%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +1.48% + 6.35%
High yield bonds (Credit Suisse First Boston High Yield Index) +2.16% +10.19%
On August 9, the Federal Reserve Board (the Fed) increased the federal funds
rate for the tenth consecutive time since June 2004, bringing the target short-
term interest rate to 3.5%. Just months ago, some observers felt that slowing
global economic growth and subdued inflation might cause the Fed to end its
monetary tightening campaign. Most recently, however, positive economic news
(including a favorable employment report for July and resilient consumer
spending) has prompted new concerns that the Fed may increase interest rates
more than is necessary to moderate economic growth and keep inflation in
check.
After ending 2004 in a strong rally, equity markets fell slightly into
negative territory in the first half of 2005. July, however, brought the
strongest monthly gain of the calendar year and helped to boost equity market
returns for the current reporting period. Working in favor of equities have
been surprisingly strong corporate earnings reports and low long-term bond
yields. Conversely, continued high oil prices and Fed interest rate hikes have
exerted downward pressure on stocks.
In the fixed income markets, the yield curve flattened considerably as short-
term rates rose in concert with the Fed rate hikes and long-term bond yields
fell. Over the past 12 months, the two-year Treasury yield rose 134 basis
points (1.34%) to 4.02% while the 10-year Treasury yield declined 22 basis
points to 4.28% - making the spread between the two just 26 basis points. At
period-end, the 10-year Treasury yield finally appeared to be on a slow upward
trend after falling below 4% in June.
Financial markets are likely to face continued crosscurrents for the remainder
of 2005. Nevertheless, opportunities do exist and we encourage you to work
with your financial advisor to diversify your portfolio among a variety of
asset types. This can help to diffuse risk while also tapping into the
potential benefits of a broader range of investment alternatives. As always,
we thank you for trusting Merrill Lynch Investment Managers with your
investment assets, and we look forward to serving you in the months and years
ahead.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Director
ANNUAL REPORTS JULY 31, 2005
A Discussion With Your Funds' Portfolio Managers
We focused our investment further out on the municipal yield curve, a strategy
that proved constructive as the curve flattened and long-term bonds
outperformed short-term issues.
Describe the recent market environment relative to municipal bonds.
Over the past year, long-term bond yields generally have moved sharply lower
as their prices, which move in the opposite direction, increased. The
improvement in long-term bond prices came in response to a number of favorable
conditions. Initial estimates for second quarter 2005 gross domestic product
growth came in at 3.4%, representing a slowdown from 2004 and the first
quarter of 2005. Fixed income investors also have focused on inflationary
trends, slowing foreign economies, and strong, currency-related demand for
U.S. Treasury issues from many Asian governments.
In the meantime, the Federal Reserve Board (the Fed) continued to raise short-
term interest rates at each of its meetings during the period, lifting the
federal funds target rate to 3.25% by period-end (and to 3.5% on August 9). As
short-term interest rates moved higher in concert with the Fed interest rate
hikes and longer-term bond yields declined, the result was a considerable
flattening of the yield curve. During the past 12 months, the 30-year U.S.
Treasury bond yield declined 73 basis points to 4.47% while the 10-year
Treasury yield fell 22 basis points to 4.28%.
Tax-exempt bond yields exhibited a similar pattern during the year. Yields
on 30-year revenue bonds, as measured by the Bond Buyer Revenue Bond Index,
fell 45 basis points to 4.86%. According to Municipal Market Data, yields on
AAA-rated issues maturing in 30 years declined 56 basis points to 4.35% while
AAA-rated bonds maturing in 10 years saw their yields decline 13 basis points
to end the July period at 3.66%.
The declining tax-exempt bond yields continued to encourage municipalities
to both issue new debt and refund outstanding, higher-couponed issues.
Over the past year, more than $388 billion in new long-term tax-exempt
bonds was issued, an increase of greater than 6% versus last year's total
of $364 billion. In recent months, the pace of new bond issuance has
strengthened. During the last six months, more than $222 billion in new
municipal bonds was underwritten, an increase of 13.8% compared to issuance in
the same six months of 2004. Issuance so far in 2005 has been boosted by a
nearly 50% increase in refunding issues, which have been heavily weighted in
the 10-year - 20-year maturity range to lower the overall interest cost of the
refunding issue. This concentration has put pressure on intermediate tax-exempt
bond yields while supporting longer-term bond prices.
Investor demand for municipal product has remained generally positive.
According to statistics from the Investment Company Institute, through June
30, 2005, year-to-date net new cash flows into long-term municipal bond funds
has exceeded $2.5 billion. This represents a significant improvement from the
$4.6 billion net outflow seen during the same period in 2004. Weekly figures
for July, as reported by AMG Data Service, also pointed to positive flows.
Throughout much of the past six months, higher-yielding tax-exempt bond funds
have been the principal target for the new cash inflows. During June, these
lower-rated/non-rated bond funds received an average of $170 million per week.
The need to invest these cash flows has led to strong demand for lower-rated
issues and a consequent narrowing of credit spreads. Additionally, for the
first six months of the year, the percentage of new issues bearing an
insurer's guarantee has risen to nearly 60%, up from 53.6% during the same
period a year ago. The increased percentage of insured issuance has further
reduced the availability of lower-rated municipal securities, lending more
support to higher prices for these issues.
Municipal bond issues have underperformed their taxable counterparts in recent
months as U.S. Treasury bonds have enjoyed increased demand from foreign
governments, which are unable to benefit from the tax advantage inherent in
tax-exempt products. This underperformance, however, has resulted in very
attractive tax-exempt bond yield ratios. We believe this should continue to
attract both traditional and nontraditional investors to the municipal
marketplace, especially if new municipal bond issuance remains manageable, as
expected.
MuniHoldings Fund II, Inc.
How did the Fund perform during the fiscal year?
For the 12-month period ended July 31, 2005, the Common Stock of MuniHoldings
Fund II, Inc. had net annualized yields of 6.95% and 6.85%, based on a year-
end per share net asset value of $15.03 and a per share market price of
$15.25, respectively, and $1.044 per share income dividends. Over the same
period, the total investment return on the Fund's Common Stock was +15.46%,
based on a change in per share net asset value from $13.98 to $15.03, and
assuming reinvestment of all distributions.
ANNUAL REPORTS JULY 31, 2005
The Fund's total return, based on net asset value, exceeded the +10.92%
average return of the Lipper General Municipal Debt Funds (Leveraged) category
for the 12-month period. (Funds in this Lipper category invest primarily in
municipal debt issues rated in the top four credit-rating categories. These
funds can be leveraged via use of debt, preferred equity and/or reverse
repurchase agreements.) The Fund's outperformance is primarily attributed to
two factors - an overweight exposure to spread product, which benefited from a
continued narrowing of credit spreads, and the Fund's yield curve strategies.
In general, credit spreads on lower investment grade and non-investment grade
securities narrowed due to improvements in corporate balance sheets and
municipal government finances. This improvement in creditworthiness and the
low level of absolute interest rates caused an increase in demand for
securities providing incremental yield. Several of the same credits that
contributed to the Fund's outperformance in previous periods continued to
enjoy above-average price appreciation during the past 12 months. Among them
were the bonds of Pocahontas Parkway Association, a toll road in Virginia. It
was announced during the period that a foreign entity was negotiating the
purchase of the parkway and will ultimately defease the existing debt. (When
bonds are defeased, the securities are retired at their first call date,
generally resulting in substantial price appreciation.) Spreads on the bonds
of National Gypsum Company, a producer of wallboard for the building industry,
continued to contract on positive earnings releases derived from the strong
housing market.
In terms of our yield curve positioning, the Fund began the period with an
emphasis on bonds with maturities between 15 years and 20 years. After the
municipal yield curve steepened to historical levels, we shifted the Fund's
maturity focus to longer maturities (specifically, between 23 years and 28
years). The recent flattening of the yield curve has helped the Fund's
performance as bonds with slightly longer maturities outperformed the broader
market.
For the six-month period ended July 31, 2005, the total investment return on
the Fund's Common Stock was +4.70%, based on a change in per share net asset
value from $14.87 to $15.03, and assuming reinvestment of all distributions.
For a description of the Fund's total investment return based on a change in
the per share market value of the Fund's Common Stock (as measured by the
trading price of the Fund's shares on the New York Stock Exchange), and
assuming reinvestment of dividends, please refer to the Financial Highlights
section of this report. As a closed-end fund, the Fund's shares may trade in
the secondary market at a premium or discount to the Fund's net asset value.
As a result, total investment returns based on changes in the market value of
the Fund's Common Stock may vary significantly from total investment returns
based on changes in the Fund's net asset value.
What changes were made to the portfolio during the year?
Over the past 12 months, we concentrated on reducing the Fund's exposure to
spread product and reinvesting the proceeds in the high-grade market, where we
believe a better balance of risk and reward exists. In particular, we reduced
exposure to credits rated BBB and lower, as these securities significantly
outperformed the broader market over the past 24 months.
Purchases during the 12-month period have been aimed at capitalizing on the
relative cheapness of AAA-rated New York, New Jersey and California tax-exempt
bonds. The Fund increased exposure to these states' debt as an increase in new-
issue supply caused a temporarily weak technical market, and presented us with
attractive buying opportunities. In addition, we've taken advantage of the
recent yield curve flattening by shifting a portion of the portfolio's assets
back into the 20-year sector of the curve. Relative value returned to the
20-year sector, allowing us to increase our exposures in that segment of the
curve.
For the six months ended July 31, 2005, the Fund's Auction Market Preferred
Stock (AMPS) had average yields of 2.21% for Series A and 2.10% for Series B.
At this point in the Fed's monetary tightening cycle, interest rate increases
are having an impact on the Fund's borrowing costs. The Fed raised the short-
term interest rate target 200 basis points during the 12-month period.
Nevertheless, we are still able to borrow at a lower rate than where we
invest, and this has continued to generate an income benefit to the holders of
Common Stock. However, should the spread between short-term and long-term
interest rates narrow, the benefits of leveraging will decline and, as a
result, reduce the yield on the Fund's Common Stock. At the end of the period,
the Fund's leverage amount, due to AMPS, was 34.17% of total net assets. (For
a more complete explanation of the benefits and risks of leveraging, see page
2 of this report to shareholders.)
ANNUAL REPORTS JULY 31, 2005
A Discussion With Your Funds' Portfolio Managers (concluded)
How would you characterize the Fund's position at the close of the period?
Our primary focus is on maintaining the portfolio's current yield and
protecting the Fund's net asset value in case of a future rise in long-term
interest rates. We expect the economy to continue to remain healthy over the
next several quarters, pushing interest rates slightly higher. We will
continue to reduce our exposure to spread product with the expectation of
reaching a market-neutral exposure within the next three months.
Robert A. DiMella, CFA
Vice President and Portfolio Manager
MuniHoldings New Jersey Insured Fund, Inc.
Describe conditions in the State of New Jersey.
New Jersey has remained active in the debt market, reflecting the state's
efforts to manage its fiscal challenges.
New Jersey's fiscal year 2006 budget was passed on the June 30 deadline. The
state closed a projected $4 billion budget gap by significantly cutting
government spending, freezing most direct aid to municipalities and school
districts at current levels, and expanding the sales tax. The gap also was
filled with help from larger-than-expected tax revenues in the fourth quarter
of the state's 2005 fiscal year. As a result of approximately $1.5 billion in
unexpected tax revenue, the state was able to restore a portion of property
tax rebates, providing relief for senior citizens and disabled homeowners and
tenants. In addition, other homeowners with incomes of up to $125,000 will
qualify for property tax rebates.
Although New Jersey's governor spoke at length in his budget address about the
need to control the rising costs of entitlements for state employees, the 2006
budget does not include recurring spending reductions in the state-run pension
plan or the free healthcare benefits provided to government employees and
teachers. The state will continue to make only minimal pension funding
contributions despite a rising shortfall in its pension obligation.
On a positive note, New Jersey Department of Labor statistics indicate that
the unemployment rate is improving. The state's unemployment rate declined
from 4.2% in April 2005 to 3.9% in May. This is well below the national
average of 5.1% in May 2005 and a full percentage point lower than the state's
May 2004 unemployment rate of 4.9%.
How did the Fund perform during the fiscal year?
For the 12-month period ended July 31, 2005, the Common Stock of MuniHoldings
New Jersey Insured Fund, Inc. had net annualized yields of 6.07% and 5.97%,
based on a year-end per share net asset value of $15.62 and a per share market
price of $15.89, respectively, and $.948 per share income dividends. Over the
same period, the total investment return on the Fund's Common Stock was
+10.63%, based on a change in per share net asset value from $15.03 to $15.62,
and assuming reinvestment of all distributions.
While the Fund provided a competitive yield, its total return, based on net
asset value, trailed the +11.96% average return of the Lipper New Jersey
Municipal Debt Funds category for the six-month period. (Funds in this Lipper
category limit their investment to those securities exempt from taxation in
the State of New Jersey.)
Several strategies contributed to Fund performance during the year. Most
notable was our yield curve positioning, which was designed to capitalize
on what we expected would be a flattening yield curve. We moved a portion of
bonds in the 10-year - 15-year maturity range further out on the curve to the
20-year - 30-year area. Our strategy paid off, as the yield curve did flatten
and shorter-term bonds significantly lagged longer-term issues. Also adding to
performance were our positions in zero-coupon, or capital appreciation, bonds,
as well as the portfolio's exposure to lower-rated investment grade credits.
These lower-quality issues continued to benefit as spreads (versus higher-
quality issues of comparable maturity) narrowed throughout the year.
Detracting from relative performance was, primarily, the fact that the Fund
has more limited investment parameters than many of its peers. This prohibited
us from taking fuller advantage of the outperformance of lower-quality issues,
particularly non-rated and non-investment grade bonds, which were among the
market's top performers. Still, the Fund was able to provide an above-average
yield and an attractive absolute return while maintaining a high credit-
quality portfolio. Late in the period, the Fund experienced significant
redemptions of several of its more seasoned, higher-yielding bonds as issuers
exercised their option to redeem higher-couponed outstanding debt. This left
us to reinvest the proceeds at current market rates, which were lower than the
rates offered on the original investments.
ANNUAL REPORTS JULY 31, 2005
For the six-month period ended July 31, 2005, the total investment return on
the Fund's Common Stock was +1.77%, based on a change in per share net asset
value from $15.83 to $15.62, and assuming reinvestment of all distributions.
For a description of the Fund's total investment return based on a change in
the per share market value of the Fund's Common Stock (as measured by the
trading price of the Fund's shares on the New York Stock Exchange), and
assuming reinvestment of dividends, please refer to the Financial Highlights
section of this report. As a closed-end fund, the Fund's shares may trade in
the secondary market at a premium or discount to the Fund's net asset value.
As a result, total investment returns based on changes in the market value of
the Fund's Common Stock may vary significantly from total investment returns
based on changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
As mentioned earlier, we focused on adding longer-dated bonds to the portfolio
and selling some of our shorter-dated holdings. For the fiscal year, issuance
of long-term municipal bonds in New Jersey increased a remarkable 82% versus
the same 12 months a year ago. (This compared to a much more modest increase
in national issuance of roughly 6% - 7%.) The significant increase in debt
issuance was prompted by the state's need to close its budget gap, particularly
in the third and fourth quarters of 2004, and also reflected the state's
efforts to aggressively refinance its debt in the low interest rate
environment. The net result was that New Jersey municipal bonds became less
expensive on a relative basis. Although much of the new issuance was in the
10-year - 20-year range (contributing to the yield curve flattening in this area
under the weight of the excess supply), we still found sufficient opportunity
to accomplish our restructuring goals.
While we did extend the Fund's duration to a more neutral posture, we were
reluctant to extend much further given our interest rate outlook and the likely
impact on the portfolio's distribution yield. In order to maintain a relatively
competitive accrual for our shareholders, we were inclined to hold onto several
of our shorter holdings that are booked at higher yields and generate
meaningful income for the portfolio. On balance, these holdings proved
beneficial not only from a yield perspective, but also with respect to
instances in which the bonds were advance refunded, which typically resulted in
an increase in market value.
For the six-month period ended July 31, 2005, the Fund's Auction Market
Preferred Stock (AMPS) had average yields as follows: Series A, 1.97%; Series
B, 1.93%; Series C, 1.96%; Series D, 2.02%; and Series E, 1.89%. At this point
in the Fed's monetary tightening cycle, interest rate increases are having an
impact on the Fund's borrowing costs. The Fed raised the short-term interest
rate target 200 basis points during the 12-month period. Nevertheless, we are
still able to borrow at a lower rate than where we invest, and this has
continued to generate an income benefit to the holders of Common Stock.
However, should the spread between short-term and long-term interest rates
narrow, the benefits of leveraging will decline and, as a result, reduce the
yield on the Fund's Common Stock. At the end of the period, the Fund's
leverage amount, due to AMPS, was 38.17% of total net assets. (For a more
complete explanation of the benefits and risks of leveraging, see page 2 of
this report to shareholders.)
How would you characterize the Fund's position at the close of the period?
The Fund ended the period relatively neutral with respect to interest rate
risk. Overall, we do not anticipate any major changes in terms of portfolio
composition or structure. We maintain a high-quality portfolio. In fact, the
Fund's average credit quality improved during the year as spreads tightened,
and we took profits on some of our lower-rated investment grade holdings,
particularly bonds backed by tobacco revenues, which were among the market's
best performers. Recently, it was anticipated that an additional $2.3 billion
in tobacco bonds would be brought to market from the refinancing of a 2003
tobacco deal. A challenge in the state legislature has resulted in the
postponement of this issuance. Nevertheless, we expect that New Jersey supply
will remain fairly robust as the state continues to refinance its debt, which
should keep New Jersey bonds inexpensive on a relative basis.
Theodore R. Jaeckel Jr., CFA
Vice President and Portfolio Manager
August 25, 2005
ANNUAL REPORTS JULY 31, 2005
Special Message to Shareholders
A Municipal Bonds Update in the Aftermath of Hurricane Katrina
Hurricane Katrina caused tremendous human suffering, and the total damage
estimates are currently ranging in excess of $50 billion, making it the worst
natural disaster to hit the United States. Despite the widespread devastation
from the storm, we believe that there should be no long-term negative effect
on the credit ratings of state and local governments in Louisiana, Mississippi
and Alabama. It is our view that the affected states should recover with no
major long-term financial or economic damage. These states possess broad-based
economies outside of the areas suffering hurricane destruction, and, as
sovereign entities, maintain the exclusive right to collect a broad array of
tax revenues.
Given the extent of the damage from the hurricane, the local entities most
heavily affected, including New Orleans, Biloxi and Mobile, could possibly
face credit rating downgrades in the near term due to constrained financial
operations resulting from reduced economic activity and short-term cash flow
disruptions. However, we do not view any credit deterioration as a long-term
trend and believe these areas also will recover. Like states, these
municipalities retain strong revenue-raising abilities, particularly property
and sales taxes, and also can reduce expenses.
The region's recovery likely will be aided by an injection of revenues in the
form of federal emergency aid, private insurance and charitable contributions.
However, given the severity of the damage from Hurricane Katrina, it is
difficult to predict the length of recovery and the amount and timing of
additional federal aid or claims paid by private municipal bond insurers. Many
public entities have issued insured debt, for which private insurers guarantee
timely payment of principal and interest. This especially benefits holders of
bonds secured by more economically sensitive revenues, such as hotel and sales
taxes, which are expected to slow significantly in the short term. We do not
foresee any widespread or prolonged debt service defaults. The few defaults
that may occur should be temporary in nature, and we believe there will be a
complete recovery over a short period of time.
John M. Loffredo
Managing Director and Co-Chief Investment Officer
Municipal Products Group of Merrill Lynch Investment Managers
September 6, 2005
Quality Profiles as of July 31, 2005
Percent of
MuniHoldings Fund II, Inc. Total
By S&P/Moody's Rating Investments
AAA/Aaa 32.4%
AA/Aa 8.0
A/A 14.5
BBB/Baa 21.3
BB/Ba 5.2
B/B 2.2
CCC/Caa 2.1
NR 13.7
Other* 0.6
* Includes portfolio holdings in short-term investments and
daily adjustable tax-exempt securities.
MuniHoldings New Jersey Percent of
Insured Fund, Inc. Total
By S&P/Moody's Rating Investments
AAA/Aaa 88.8%
AA/Aa 1.4
A/A 4.2
BBB/Baa 4.6
Other* 1.0
* Includes portfolio holdings in short-term investments.
ANNUAL REPORTS JULY 31, 2005
Schedule of Investments MuniHoldings Fund II, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
Alabama--2.2%
$ 3,450 Jefferson County, Alabama, Limited Obligation
School Warrants, Series A, 5% due 1/01/2024 $ 3,604
Arizona--5.0%
1,000 Arizona Health Facilities Authority Revenue Bonds
(Catholic Healthcare West), Series A, 6.625%
due 7/01/2020 1,125
1,500 Maricopa County, Arizona, IDA, Education Revenue
Bonds (Arizona Charter Schools Project 1), Series A,
6.50% due 7/01/2012 1,509
2,800 Phoenix, Arizona, IDA, Airport Facility, Revenue
Refunding Bonds (America West Airlines Inc.
Project), AMT, 6.30% due 4/01/2023 2,115
1,000 Pima County, Arizona, IDA, Education Revenue Bonds
(Arizona Charter Schools Project), Series C, 6.75%
due 7/01/2031 1,037
Pima County, Arizona, IDA, M/F Housing Revenue
Bonds (Columbus Village), Series A (f):
585 6% due 10/20/2031 588
770 6.05% due 10/20/2041 775
1,210 Show Low, Arizona, Improvement District No. 5,
Special Assessment Bonds, 6.375% due 1/01/2015 1,262
Arkansas--0.6%
1,000 University of Arkansas, University Construction
Revenue Bonds (UAMS Campus), Series B, 5%
due 11/01/2022 (d) 1,069
California--29.8%
2,000 Benicia, California, Unified School District, GO,
Refunding, Series A, 5.615%* due 8/01/2020 (b) 1,023
2,565 California Pollution Control Financing Authority, PCR,
Refunding, DRIVERS, AMT, Series 878Z, 7.778%
due 12/01/2009 (d)(e) 2,997
California State Department of Water Resources,
Power Supply Revenue Bonds, Series A:
5,000 5.25% due 5/01/2020 5,371
250 5.375% due 5/01/2022 270
2,250 California State, GO, Refunding, 5.375%
due 10/01/2027 2,421
5,200 California State Public Works Board, Lease Revenue
Bonds (Department of Corrections), Series C, 5.25%
due 6/01/2028 5,520
1,000 East Side Union High School District, California,
Santa Clara County, GO (Election of 2002), Series D,
5% due 8/01/2020 (i) 1,072
Face
Amount Municipal Bonds Value
California (concluded)
Golden State Tobacco Securitization Corporation of
California, Tobacco Settlement Revenue Bonds:
$ 870 Series A-3, 7.875% due 6/01/2042 $ 1,084
1,330 Series B, 5.625% due 6/01/2013 (h) 1,503
6,030 Los Angeles, California, Unified School District, GO,
Series A, 5% due 1/01/2028 (d) 6,365
1,750 Poway, California, Unified School District, Special Tax
(Community Facilities District Number 6 Area),
Series A, 6.125% due 9/01/2033 1,838
5,000 Sacramento County, California, Sanitation District,
Financing Authority, Revenue Refunding Bonds,
Series A, 6% due 12/01/2019 5,102
5,400 San Diego, California, Unified Port District, Revenue
Refunding Bonds, AMT, Series A, 5.25%
due 9/01/2019 (d) 5,829
San Marino, California, Unified School District, GO,
Series A (d):
1,820 5.50%* due 7/01/2017 1,091
1,945 5.55%* due 7/01/2018 1,107
2,070 5.60%* due 7/01/2019 1,119
5,000 Tracy, California, Area Public Facilities Financing
Agency, Special Tax Refunding Bonds (Community
Facilities District No. 87-1), Series H, 5.875%
due 10/01/2019 (d) 5,266
2,440 William S. Hart Union High School District, California,
Capital Appreciation, GO (Election of 2001), Series B,
4.70%* due 9/01/2023 (c) 1,047
Colorado--1.2%
1,890 Elk Valley, Colorado, Public Improvement Revenue
Bonds (Public Improvement Fee), Series A, 7.10%
due 9/01/2014 2,039
Connecticut--1.1%
1,715 Bridgeport, Connecticut, Senior Living Facilities
Revenue Bonds (3030 Park Retirement Community
Project), 7.25% due 4/01/2035 1,780
Florida--8.1%
1,700 Ballantrae, Florida, Community Development District,
Capital Improvement Revenue Bonds, 6%
due 5/01/2035 1,769
1,000 Broward County, Florida, Airport Exempt Facility
Revenue Bonds (Learjet Inc. Project), AMT, 7.50%
due 11/01/2020 1,140
2,000 Hollywood, Florida, GO, 5% due 6/01/2026 (b) 2,129
1,765 Miami-Dade County, Florida, Subordinate Special
Obligation Revenue Bonds, Series A, 5.24%*
due 10/01/2037 (d) 336
Portfolio Abbreviations
To simplify the listings of 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
DATES Daily Adjustable Tax-Exempt Securities
DRIVERS Derivative Inverse Tax-Exempt Receipts
EDA Economic Development Authority
EDR Economic Development Revenue Bonds
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single Family
ANNUAL REPORTS JULY 31, 2005
Schedule of Investments (continued) MuniHoldings Fund II, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
Florida (concluded)
$ 2,450 Midtown Miami, Florida, Community Development
District, Special Assessment Revenue Bonds,
Series A, 6.25% due 5/01/2037 $ 2,587
2,400 Orange County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Orlando Regional
Healthcare), 6% due 12/01/2028 2,615
1,625 Pinellas County, Florida, Health Facilities Authority,
Revenue Refunding Bonds (Pooled Hospital Loan
Program), DATES, 2.23% due 12/01/2015 (a)(j) 1,625
1,275 Preserve at Wilderness Lake, Florida, Community
Development District, Capital Improvement Bonds,
Series A, 5.90% due 5/01/2034 1,309
Georgia--2.4%
1,250 Atlanta, Georgia, Tax Allocation Bonds (Atlantic Station
Project), 7.90% due 12/01/2024 1,359
1,315 Brunswick & Glynn County, Georgia, Development
Authority, First Mortgage Revenue Bonds (Coastal
Community Retirement Corporation Project), Series A,
7.25% due 1/01/2035 1,410
1,250 Milledgeville-Baldwin County, Georgia, Development
Authority Revenue Bonds (Georgia College and State
University Foundation), 5.50% due 9/01/2024 1,308
Idaho--1.2%
2,000 Power County, Idaho, Industrial Development
Corporation, Solid Waste Disposal Revenue Bonds
(FMC Corporation Project), AMT, 6.45%
due 8/01/2032 2,082
Illinois--2.5%
1,000 Chicago, Illinois, O'Hare International Airport, Special
Facility Revenue Refunding Bonds (American Airlines
Inc. Project), 8.20% due 12/01/2024 985
1,000 Chicago, Illinois, Special Assessment Bonds (Lake Shore
East), 6.75% due 12/01/2032 1,091
2,000 Illinois HDA, Homeowner Mortgage Revenue Bonds,
AMT, Sub-Series C-2, 5.25% due 8/01/2022 2,067
Louisiana--0.8%
1,310 Louisiana Public Facilities Authority, Mortgage Revenue
Refunding Bonds (Baton Rouge General Medical
Center Project), 5.25% due 7/01/2033 (d)(l) 1,384
Maine--2.2%
3,455 Maine State Housing Authority, Mortgage Purchase
Revenue Refunding Bonds, Series B, 5.30%
due 11/15/2023 3,616
Maryland--2.5%
1,250 Maryland State Economic Development Corporation,
Student Housing Revenue Bonds (University of
Maryland College Park Project), 6.50% due 6/01/2027 1,373
1,050 Maryland State Energy Financing Administration, Limited
Obligation Revenue Bonds (Cogeneration--AES
Warrior Run), AMT, 7.40% due 9/01/2019 1,071
1,600 Maryland State Health and Higher Educational Facilities
Authority Revenue Bonds (Calvert Health System),
5.50% due 7/01/2036 1,704
Massachusetts--4.5%
1,000 Massachusetts Bay Transportation Authority,
Massachusetts, Assessment Revenue Bonds,
Series A, 5% due 7/01/2034 1,051
Face
Amount Municipal Bonds Value
Massachusetts (concluded)
Massachusetts State Development Finance Agency
Revenue Bonds (Neville Communities Home),
Series A (f):
$ 600 5.75% due 6/20/2022 $ 673
1,500 6% due 6/20/2044 1,679
1,000 Massachusetts State, HFA, Housing Revenue Bonds
(Rental Mortgage), AMT, Series C, 5.625%
due 7/01/2040 (a) 1,036
2,925 Massachusetts State School Building Authority,
Dedicated Sales Tax Revenue Bonds, Series A,
5% due 8/15/2030 (c) 3,103
Michigan--2.4%
1,100 Flint, Michigan, Hospital Building Authority, Revenue
Refunding Bonds (Hurley Medical Center), Series A,
6% due 7/01/2020 (k) 1,194
2,500 Michigan State Strategic Fund, Limited Obligation
Revenue Refunding Bonds, DRIVERS, AMT,
Series 857Z, 8.378% due 3/01/2010 (e)(i) 2,852
Minnesota--4.5%
1,680 Minneapolis, Minnesota, Community Development
Agency, Supported Development Revenue Refunding
Bonds (Common Bond), Series G-3, 5.35%
due 12/01/2021 1,776
Rockford, Minnesota, Independent School District
Number 883, GO (c):
2,870 5.60% due 2/01/2019 3,118
2,390 5.60% due 2/01/2020 2,589
Mississippi--1.5%
Mississippi Business Finance Corporation, Mississippi,
PCR, Refunding (System Energy Resources
Inc. Project):
2,000 5.875% due 4/01/2022 2,030
500 5.90% due 5/01/2022 508
Missouri--2.1%
Fenton, Missouri, Tax Increment Revenue Refunding
and Improvement Bonds (Gravois Bluffs):
395 6.75% due 10/01/2015 398
1,000 7% due 10/01/2021 1,078
1,000 Kansas City, Missouri, IDA, First Mortgage Health
Facilities Revenue Bonds (Bishop Spencer Place),
Series A, 6.50% due 1/01/2035 1,051
1,000 Missouri State Development Finance Board,
Infrastructure Facilities Revenue Refunding Bonds
(Branson), Series A, 5.50% due 12/01/2032 1,050
New Jersey--11.3%
New Jersey EDA, Cigarette Tax Revenue Bonds:
4,050 5.75% due 6/15/2029 4,340
1,890 5.50% due 6/15/2031 1,982
New Jersey EDA, Retirement Community Revenue
Bonds, Series A:
1,000 (Cedar Crest Village Inc. Facility),
7.25% due 11/15/2031 1,087
2,000 (Seabrook Village Inc.), 8.125%
due 11/15/2023 2,271
2,000 New Jersey EDA, Special Facility Revenue Bonds
(Continental Airlines Inc. Project), AMT, 6.625%
due 9/15/2012 1,944
ANNUAL REPORTS JULY 31, 2005
Schedule of Investments (continued) MuniHoldings Fund II, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
New Jersey (concluded)
$ 2,375 New Jersey Health Care Facilities Financing Authority
Revenue Bonds (South Jersey Hospital), 6%
due 7/01/2026 $ 2,564
2,500 New Jersey State Turnpike Authority, Turnpike
Revenue Bonds, Series C, 5% due 1/01/2030 (c) 2,650
1,725 Tobacco Settlement Financing Corporation of New
Jersey Revenue Bonds, 7% due 6/01/2041 2,086
New Mexico--2.3%
3,675 Farmington, New Mexico, PCR, Refunding (Public
Service Company--San Juan Project), Series A,
5.80% due 4/01/2022 3,789
New York--9.8%
1,000 Dutchess County, New York, IDA, Civic Facility Revenue
Refunding Bonds (Saint Francis Hospital), Series A,
7.50% due 3/01/2029 1,063
415 New York City, New York, City IDA, Civic Facility
Revenue Bonds, Series C, 6.80% due 6/01/2028 439
3,205 New York City, New York, Sales Tax Asset Receivable
Corporation Revenue Bonds, Series A, 5.25%
due 10/15/2027 (a) 3,501
2,200 New York State Dormitory Authority, Non-State
Supported Debt, Revenue Bonds (Mount Sinai--NYU
Medical Center Health System), 5.50% due 7/01/2026 2,238
2,030 New York State Dormitory Authority Revenue Bonds
(School Districts Financing Program), Series D, 5.25%
due 10/01/2023 (d) 2,210
85 New York State Dormitory Authority, Supported Debt
Revenue Bonds (Mental Health Facilities), Series B,
5.75% due 2/15/2020 (d) 93
40 Suffolk County, New York, IDA, Civic Facility Revenue
Bonds (Special Needs Facilities Pooled Program),
Series D-1, 5.50% due 7/01/2007 41
Tobacco Settlement Financing Corporation of New York
Revenue Bonds:
1,100 Series A-1, 5.50% due 6/01/2015 1,203
2,400 Series A-1, 5.50% due 6/01/2018 2,669
1,100 Series C-1, 5.50% due 6/01/2022 1,202
1,575 Westchester County, New York, IDA, Continuing Care
Retirement, Mortgage Revenue Bonds (Kendal on
Hudson Project), Series A, 6.50% due 1/01/2034 1,683
North Carolina--1.9%
2,000 North Carolina Eastern Municipal Power Agency,
Power System Revenue Bonds, Series D, 6.75%
due 1/01/2026 2,226
1,000 North Carolina Medical Care Commission, Health
Care Housing Revenue Bonds (The ARC of North
Carolina Projects), Series A, 5.80% due 10/01/2034 1,015
Ohio--6.0%
10,000 Ohio State Air Quality Development Authority, Revenue
Refunding Bonds (Dayton Power & Light Company),
Series B, 6.40% due 8/15/2027 (d) 10,028
Oklahoma--1.6%
1,535 Oklahoma State Housing Finance Agency, S/F Mortgage
Revenue Bonds (Homeownership Loan Program),
Series D-2, AMT, 6.25% due 9/01/2029 (m) 1,547
1,075 Tulsa, Oklahoma, Municipal Airport Trust Revenue
Refunding Bonds (AMR Corporation), AMT, Series A,
5.375% due 12/01/2035 1,056
Face
Amount Municipal Bonds Value
Pennsylvania--5.5%
$ 2,575 Lehigh County, Pennsylvania, IDA, PCR, Refunding
(Pennsylvania Power and Light Utilities Corporation
Project), 4.75% due 2/15/2027 (b) $ 2,630
2,750 Pennsylvania Economic Development Financing
Authority, Exempt Facilities Revenue Bonds
(National Gypsum Company), AMT, Series A,
6.25% due 11/01/2027 2,956
540 Philadelphia, Pennsylvania, Authority for IDR,
Commercial Development, 7.75% due 12/01/2017 552
2,630 Sayre, Pennsylvania, Health Care Facilities Authority,
Revenue Bonds (Guthrie Healthcare System),
Series B, 7.125% due 12/01/2031 3,124
Rhode Island--1.5%
2,190 Rhode Island State Health and Educational Building
Corporation, Hospital Financing Revenue Bonds
(Lifespan Obligation Group), 6.50% due 8/15/2032 2,431
South Carolina--2.7%
2,080 Medical University Hospital Authority, South Carolina,
Hospital Facilities Revenue Refunding Bonds,
Series A, 6.375% due 8/15/2012 (h) 2,444
2,000 South Carolina Jobs, EDA, Economic Development
Revenue Bonds (Westminster Presbyterian Center),
7.75% due 11/15/2030 2,153
Tennessee--3.8%
2,200 Hardeman County, Tennessee, Correctional Facilities
Corporation Revenue Bonds, Series B, 7.375%
due 8/01/2017 2,270
3,450 Shelby County, Tennessee, Health, Educational
and Housing Facility Board, Hospital Revenue
Refunding Bonds (Methodist Healthcare), 6.50%
due 9/01/2012 (h) 4,075
Texas--10.5%
2,665 Austin, Texas, Convention Center Revenue Bonds
(Convention Enterprises Inc.), First Tier, Series A,
6.70% due 1/01/2028 2,872
1,000 Brazos River Authority, Texas, PCR, Refunding
(TXU Energy Company LLC Project), Series B,
4.75% due 5/01/2029 1,018
2,875 Brazos River, Texas, Harbor Navigation District,
Brazoria County Environmental Revenue Refunding
Bonds (Dow Chemical Company Project), AMT,
Series A-7, 6.625% due 5/15/2033 3,193
1,000 Dallas-Fort Worth, Texas, International Airport
Facility, Improvement Corporation Revenue Bonds
(Learjet Inc.), AMT, Series 2001-A-1, 6.15%
due 1/01/2016 1,027
1,000 Dallas-Fort Worth, Texas, International Airport Facility,
Improvement Corporation Revenue Refunding
Bonds (American Airlines), AMT, Series B, 6.05%
due 5/01/2029 996
1,300 Houston, Texas, Health Facilities Development
Corporation, Retirement Facility Revenue Bonds
(Buckingham Senior Living Community), Series A,
7.125% due 2/15/2034 1,428
2,965 Matagorda County, Texas, Navigation District
No. 1, Revenue Refunding Bonds (Reliant
Energy Inc.), Series C, 8% due 5/01/2029 3,256
ANNUAL REPORTS JULY 31, 2005
Schedule of Investments (concluded) MuniHoldings Fund II, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
Texas (concluded)
$ 1,100 Port Corpus Christi, Texas, Individual Development
Corporation, Environmental Facilities Revenue Bonds
(Citgo Petroleum Corporation Project), AMT, 8.25%
due 11/01/2031 $ 1,176
2,495 Red River Authority, Texas, PCR, Refunding (Celanese
Project), Series A, 6.45% due 11/01/2030 2,650
Vermont--0.6%
1,000 Vermont Educational and Health Buildings, Financing
Agency Revenue Bonds (Developmental and Mental
Health), Series A, 6.50% due 6/15/2032 1,056
Virginia--14.3%
425 Chesterfield County, Virginia, IDA, PCR (Virginia
Electric and Power Company), Series A, 5.875%
due 6/01/2017 465
575 Chesterfield County, Virginia, IDA, PCR, Refunding
(Virginia Electric and Power Company), Series B,
5.875% due 6/01/2017 629
5,000 Fairfax County, Virginia, EDA, Resource Recovery
Revenue Refunding Bonds, AMT, Series A, 6.10%
due 2/01/2011 (a) 5,570
Pocahontas Parkway Association, Virginia, Toll Road
Revenue Bonds:
3,885 Senior-Series A, 5.50% due 8/15/2028 4,043
18,400 Senior-Series B, 7.35%* due 8/15/2030 4,402
3,800 Tobacco Settlement Financing Corporation of
Virginia, Asset-Backed Revenue Bonds, 5.625%
due 6/01/2037 4,007
365 Virginia State, HDA, Commonwealth Mortgage
Revenue Bonds, Series J, Sub-Series J-1, 5.20%
due 7/01/2019 (d) 367
1,095 Virginia State, HDA, Rental Housing Revenue Bonds,
AMT, Series B, 5.625% due 8/01/2011 1,168
3,200 Virginia State, HDA, Revenue Bonds, AMT, Series D,
6% due 4/01/2024 3,381
Face
Amount Municipal Bonds Value
Washington--0.6%
$ 1,050 Seattle, Washington, Housing Authority Revenue
Bonds (Replacement Housing Project), 6.125%
due 12/01/2032 $ 1,046
Wisconsin--0.9%
1,360 Wisconsin State Health and Educational Facilities
Authority Revenue Bonds (Synergyhealth Inc.),
6% due 11/15/2032 1,464
Puerto Rico--2.7%
3,040 Puerto Rico Electric Power Authority, Power Revenue
Bonds, Series RR, 5% due 7/01/2027 (i) 3,243
1,550 Puerto Rico Industrial, Medical and Environmental
Pollution Control Facilities Financing Authority,
Special Facilities Revenue Bonds (American
Airlines Inc.), Series A, 6.45% due 12/01/2025 1,247
U.S. Virgin Islands--1.8%
2,680 Virgin Islands Government Refinery Facilities,
Revenue Refunding Bonds (Hovensa Coker Project),
AMT, 6.50% due 7/01/2021 3,050
Total Municipal Bonds
(Cost--$239,938)--152.4% 255,390
Shares
Held Short-Term Securities
12 Merrill Lynch Institutional Tax-Exempt Fund (g) 12
Total Short-Term Securities
(Cost--$12)--0.0% 12
Total Investments (Cost--$239,950**)--152.4% 255,402
Liabilities in Excess of Other Assets--(0.5%) (795)
Preferred Stock, at Redemption Value--(51.9%) (87,019)
-----------
Net Assets Applicable to Common Stock--100.0% $ 167,588
===========
* Represents a zero coupon bond; the interest rate shown reflects the effective yield
at the time of purchase by the Fund.
** The cost and unrealized appreciation (depreciation) of investments as of July 31, 2005,
as computed for federal income tax purposes, were as follows:
(in Thousands)
Aggregate cost $ 239,586
===============
Gross unrealized appreciation $ 16,781
Gross unrealized depreciation (965)
---------------
Net unrealized appreciation $ 15,816
===============
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) The rate disclosed is that currently in effect. This rate changes periodically and
inversely based upon prevailing market rates.
(f) GNMA Collateralized.
(g) Investments in companies considered to be an affiliate of the Fund, for purposes of
Section 2(a)(3) of the Investment Company Act of 1940, were as follows:
(in Thousands)
Net Dividend
Affiliate Activity Income
Merrill Lynch Institutional Tax-Exempt Fund -- $4
(h) Prerefunded.
(i) XL Capital Insured.
(j) Security may have a maturity of more than one year at time of issuance, but has
variable rate and demand features that qualify it as a short-term security. The rate
disclosed is that currently in effect. This rate changes periodically based upon
prevailing market rates.
(k) ACA Insured.
(l) FHA Insured.
(m) GNMA/FNMA Collateralized.
See Notes to Financial Statements.
ANNUAL REPORTS JULY 31, 2005
Schedule of Investments MuniHoldings New Jersey Insured Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
New Jersey--157.8%
$ 1,875 Atlantic Highlands, New Jersey, Highland Regional
Sewer Authority, Sewer Revenue Refunding Bonds,
5.50% due 1/01/2020 (b) $ 2,061
Camden County, New Jersey, Improvement Authority,
Lease Revenue Bonds (c)(e):
2,635 5.375% due 9/01/2010 2,897
1,540 5.50% due 9/01/2010 1,702
430 Carteret, New Jersey, Board of Education, COP, 6%
due 1/15/2024 (d) 479
6,210 Casino Reinvestment Development Authority, New
Jersey, Parking Fee Revenue Bonds, Series A, 5.25%
due 10/01/2007 (c)(e) 6,515
Delaware River and Bay Authority Revenue Bonds:
2,500 5% due 1/01/2033 (d)(j) 2,623
2,005 Series A, 5.625% due 1/01/2010 (a)(e) 2,220
4,630 Delaware River Joint Toll Bridge Commission,
New Jersey, Bridge Revenue Refunding Bonds,
5% due 7/01/2028 4,827
Delaware River Port Authority of Pennsylvania and
New Jersey Revenue Bonds (c):
5,000 5.50% due 1/01/2012 5,421
6,000 5.625% due 1/01/2013 6,551
500 5.75% due 1/01/2015 547
4,865 6% due 1/01/2018 5,384
5,525 6% due 1/01/2019 6,110
2,425 (Port District Project), Series B, 5.625%
due 1/01/2026 2,631
7,895 East Orange, New Jersey, Board of Education, COP,
5.50% due 8/01/2012 (c) 8,793
1,000 East Orange, New Jersey, Water Utility, GO, Refunding,
5.70% due 6/15/2008 (a)(e) 1,083
4,000 Essex County, New Jersey, Improvement Authority,
Lease Revenue Bonds (Correctional Facility Project),
6% due 10/01/2010 (b)(e) 4,522
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) 3,457
4,400 Essex County, New Jersey, Improvement Authority
Revenue Bonds, Series A, 5% due 10/01/2028 (b) 4,632
2,705 Essex County, New Jersey, Improvement Authority,
Utility System Revenue Bonds (East Orange Franchise),
6% due 7/01/2018 (d) 2,939
Garden State Preservation Trust of New Jersey, Capital
Appreciation Revenue Bonds, Series B (c):
9,000 5.12%** due 11/01/2023 3,938
10,000 5.20%** due 11/01/2025 3,933
Garden State Preservation Trust of New Jersey, Open
Space and Farmland Preservation Revenue Bonds,
Series A (c):
1,960 5.80% due 11/01/2021 2,261
2,730 5.80% due 11/01/2023 3,124
9,160 5.75% due 11/01/2028 11,079
Face
Amount Municipal Bonds Value
New Jersey (continued)
$ 765 Jersey City, New Jersey, GO, Refunding, Quality School,
Series A, 5.375% due 9/01/2017 (c) $ 829
2,230 Jersey City, New Jersey, GO, Series B, 5.25%
due 9/01/2023 (c) 2,444
5,250 Lafayette Yard, New Jersey, Community Development
Revenue Bonds (Hotel/Conference Center
Project--Trenton), 6% due 4/01/2010 (d)(e) 5,931
1,550 Middlesex County, New Jersey, COP, 5.25%
due 6/15/2023 (d) 1,652
1,375 Middlesex County, New Jersey, COP, Refunding,
5.50% due 8/01/2016 (d) 1,512
5,270 Middlesex County, New Jersey, Improvement
Authority, Lease Revenue Bonds (Educational
Services Commission Projects), 6% due 7/15/2010 (e) 5,979
500 Middlesex County, New Jersey, Improvement
Authority Revenue Bonds (Senior Citizens
Housing Project), AMT, 5.50% due 9/01/2030 (a) 529
Monmouth County, New Jersey, Improvement
Authority, Revenue Refunding Bonds (a):
1,540 5.35% due 12/01/2017 1,678
1,470 5.375% due 12/01/2018 1,602
1,000 Monroe Township, New Jersey, Municipal Utilities
Authority, Middlesex County Revenue Refunding
Bonds, 5.25% due 2/01/2016 (b) 1,080
2,465 New Jersey Building Authority, State Building Revenue
Refunding Bonds, Series B, 5.25% due 12/15/2016 (b) 2,771
New Jersey EDA, Cigarette Tax Revenue Bonds:
2,700 5.625% due 6/15/2019 2,899
2,000 5.75% due 6/15/2029 2,143
585 5.50% due 6/15/2031 614
1,180 5.75% due 6/15/2034 1,258
4,315 New Jersey EDA, EDR, Refunding (The Seeing Eye, Inc.
Project), 5% due 12/01/2024 (a) 4,598
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) 5,559
New Jersey EDA, Motor Vehicle Surcharge Revenue
Bonds, Series A (d):
7,500 5.25% due 7/01/2026 8,600
11,105 5.25% due 7/01/2033 12,016
4,485 5% due 7/01/2034 4,732
New Jersey EDA, Natural Gas Facilities Revenue
Refunding Bonds, AMT (d):
18,920 (NUI Corporation Projects), Series A, 5.70%
due 6/01/2032 19,786
3,155 RIB, Series 161, 8.74% due 6/01/2032 (k) 3,444
New Jersey EDA, Parking Facility Revenue Bonds
(Elizabeth Development Company Project) (b):
1,430 5.60% due 10/15/2019 1,532
1,000 5.60% due 10/15/2026 1,068
ANNUAL REPORTS JULY 31, 2005
Schedule of Investments (continued) MuniHoldings New Jersey Insured Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
New Jersey (continued)
$ 4,580 New Jersey EDA, Revenue Bonds, DRIVERS, Series 219,
9.372% due 5/01/2016 (c)(k) $ 5,493
New Jersey EDA, School Facilities Construction
Revenue Bonds (e):
7,200 Series A, 5.25% due 6/15/2011 (a) 7,890
5,240 Series C, 5% due 6/15/2012 (d) 5,704
9,000 Series L, 5% due 3/01/2030 (c) 9,549
2,500 New Jersey EDA, Solid Waste Disposal Facilities
Revenue Bonds (Waste Management Inc.), AMT,
Series A, 5.30% due 6/01/2015 2,634
New Jersey EDA, State Lease Revenue Bonds:
2,670 (Liberty State Park Project), Series C, 5%
due 3/01/2022 (c) 2,854
1,400 (Liberty State Park Project), Series C, 5%
due 3/01/2023 (c) 1,493
1,000 (Liberty State Park Project), Series C, 5%
due 3/01/2027 (c) 1,061
3,000 (State Office Buildings Projects), 6%
due 6/15/2010 (a)(e) 3,373
4,620 (State Office Buildings Projects), 6.25%
due 6/15/2010 (a)(e) 5,246
New Jersey Health Care Facilities Financing Authority
Revenue Bonds:
2,315 (RWJ Healthcare Corporation), Series B, 5%
due 7/01/2025 2,416
3,015 (RWJ Healthcare Corporation), Series B, 5%
due 7/01/2035 3,137
2,820 (Society of the Valley Hospital), 5.375%
due 7/01/2025 (a) 3,035
2,135 (Somerset Medical Center), 5.50% due 7/01/2033 2,184
5,440 (South Jersey Hospital), 6% due 7/01/2026 5,874
New Jersey Health Care Facilities Financing Authority,
Revenue Refunding Bonds:
4,000 (AHS Hospital Corporation), Series A, 6%
due 7/01/2013 (a) 4,594
1,455 (Atlantic City Medical Center), 6.25%
due 7/01/2017 1,650
3,500 (Atlantic City Medical Center), 5.75%
due 7/01/2025 3,773
1,775 (Holy Name Hospital), 6% due 7/01/2025 1,851
1,000 (Meridian Health System Obligation Group),
5.375% due 7/01/2024 (c) 1,071
2,215 (Saint Clare's Hospital Inc.), Series A, 4.25%
due 7/01/2017 (i) 2,197
New Jersey Sports and Exposition Authority, Luxury Tax
Revenue Refunding Bonds, (Convention Center) (d):
2,000 5.50% due 3/01/2021 2,315
1,000 5.50% due 3/01/2022 1,159
Face
Amount Municipal Bonds Value
New Jersey (continued)
$ 2,400 New Jersey Sports and Exposition Authority,
State Contract Revenue Bonds, Series A, 6%
due 3/01/2013 (d) $ 2,660
7,500 New Jersey State Educational Facilities Authority,
Higher Education, Capital Improvement Revenue
Bonds, Series A, 5.125% due 9/01/2022 (a) 8,054
New Jersey State Educational Facilities Authority
Revenue Bonds:
18,325 (Capital Improvement Fund), Series A, 5.75%
due 9/01/2010 (c)(e) 20,231
3,615 (Rowan University), Series C, 5.125%
due 7/01/2028 (d) 3,859
3,260 (Rowan University), Series C, 5%
due 7/01/2034 (d) 3,440
New Jersey State Educational Facilities Authority,
Revenue Refunding Bonds:
7,510 (Montclair State University), Series L, 5%
due 7/01/2034 (d) 7,924
1,355 (Rowan University), 4.50% due 7/01/2027 (a) 1,364
2,375 (Rowan University), Series C, 5.25%
due 7/01/2017 (b) 2,597
2,820 (Rowan University), Series C, 5.25%
due 7/01/2018 (b) 3,079
2,635 (Rowan University), Series C, 5.25%
due 7/01/2019 (b) 2,877
1,410 (Rowan University), Series C, 5%
due 7/01/2031 (b) 1,474
4,000 (University of Medicine and Dentistry), Series B,
5.25% due 12/01/2017 (a) 4,069
New Jersey State Housing and Mortgage Finance
Agency, Home Buyer Revenue Bonds, AMT, Series U (d):
1,000 5.60% due 10/01/2012 1,040
2,820 5.65% due 10/01/2013 2,925
3,000 5.75% due 4/01/2018 3,109
805 5.85% due 4/01/2029 833
1,205 New Jersey State Housing and Mortgage Finance
Agency, Home Buyer Revenue Refunding Bonds,
AMT, Series S, 5.95% due 10/01/2017 (d) 1,244
11,225 New Jersey State Housing and Mortgage Financing
Agency, Capital Fund Program Revenue Bonds,
Series A, 4.70% due 11/01/2025 (c) 11,418
2,590 New Jersey State Housing and Mortgage Financing
Agency, M/F Revenue Bonds, Series D, 4.60%
due 11/01/2025 (b) 2,603
5,000 New Jersey State Transit Corporation, COP (Federal
Transit Administration Grants), Series A, 6.125%
due 9/15/2009 (a)(e) 5,550
ANNUAL REPORTS JULY 31, 2005
Schedule of Investments (continued) MuniHoldings New Jersey Insured Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
New Jersey (continued)
$ 7,500 New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Bonds, Series A,
6% due 6/15/2010 (e) $ 8,433
New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Refunding Bonds,
Series B (d):
7,410 5.50% due 12/15/2015 8,429
9,165 5.50% due 12/15/2021 10,672
7,615 New Jersey State Turnpike Authority, Turnpike Revenue
Bonds, Series B, 5.15%** due 1/01/2035 (a) 4,946
New Jersey State Turnpike Authority, Turnpike Revenue
Refunding Bonds (d):
20,000 Series A, 5.75% due 1/01/2010 (e) 22,122
1,165 Series C, 6.50% due 1/01/2016 1,397
4,355 Series C, 6.50% due 1/01/2016 (g) 5,214
4,665 Series C-1, 4.50% due 1/01/2031 (a) 4,665
North Bergen Township, New Jersey, Board of
Education, COP (c):
1,000 6% due 12/15/2010 (e) 1,143
3,260 6.25% due 12/15/2010 (e) 3,767
1,250 5% due 12/15/2018 1,326
3,035 Orange Township, New Jersey, Municipal Utility
and Lease, GO, Refunding, Series C, 5.10%
due 12/01/2017 (d) 3,228
Paterson, New Jersey, Public School District, COP (d):
1,980 6.125% due 11/01/2015 2,219
2,000 6.25% due 11/01/2019 2,249
4,750 Port Authority of New York and New Jersey,
Consolidated Revenue Refunding Bonds, AMT,
119th Series, 5.50% due 9/15/2019 (b) 4,912
Port Authority of New York and New Jersey, Special
Obligation Revenue Bonds, AMT (d):
2,375 DRIVERS, Series 192, 8.845% due 12/01/2025 (k) 2,637
2,165 (JFK International Air Terminal LLC), RIB, Series 157,
8.85% due 12/01/2022 (k) 2,484
13,500 (JFK International Air Terminal LLC), Series 6,
6.25% due 12/01/2011 15,191
1,500 (JFK International Air Terminal LLC), Series 6,
6.25% due 12/01/2015 1,725
9,600 Rahway Valley Sewerage Authority, New Jersey,
Sewer Revenue Bonds (Capital Appreciation),
Series A, 4.79%** due 9/01/2028 (d) 3,206
South Jersey Port Corporation of New Jersey, Revenue
Refunding Bonds:
3,750 4.50% due 1/01/2015 3,857
1,920 4.50% due 1/01/2016 1,962
1,500 5% due 1/01/2026 1,560
2,000 5.10% due 1/01/2033 2,084
Face
Amount Municipal Bonds Value
New Jersey (concluded)
$ 4,755 Tobacco Settlement Financing Corporation of New
Jersey Revenue Bonds, 7% due 6/01/2041 $ 5,749
4,325 Trenton, New Jersey, Parking Authority, Parking
Revenue Bonds, DRIVERS, Series 221, 10.76%
due 4/01/2010 (b)(e)(k) 5,409
4,740 University of Medicine and Dentistry, New Jersey,
Revenue Bonds, Series A, 5.50% due 12/01/2027 (a) 5,265
2,000 University of Medicine and Dentistry of New Jersey,
COP, 5% due 6/15/2029 (d) 2,102
8,580 West Deptford Township, New Jersey, GO, 5.625%
due 9/01/2010 (b)(e) 9,534
West Orange, New Jersey, Board of Education,
COP (d)(e):
2,040 5.75% due 10/01/2009 2,263
3,615 6% due 10/01/2009 4,045
Puerto Rico--7.5%
4,500 Puerto Rico Commonwealth Highway and
Transportation Authority, Transportation
Revenue Refunding Bonds, Series J, 5%
due 7/01/2029 (d) 4,783
Puerto Rico Electric Power Authority, Power
Revenue Bonds:
10,000 Series HH, 5.25% due 7/01/2029 (c) 10,779
5,100 Series RR, 5% due 7/01/2028 (f) 5,432
Puerto Rico Industrial, Tourist, Educational, Medical
and Environmental Control Facilities Revenue Bonds,
Series A:
1,780 (Hospital Auxilio Mutuo Obligation Group),
6.25% due 7/01/2024 (d) 1,816
1,750 (Hospital de la Concepcion), 6.50%
due 11/15/2020 1,993
Total Municipal Bonds
(Cost--$509,447)--165.3% 543,486
Shares
Held Short-Term Securities
6,132 CMA New Jersey Municipal Money Fund (h) 6,132
Total Short-Term Securities
(Cost--$6,132)--1.8% 6,132
Total Investments (Cost--$515,579*)--167.1% 549,618
Liabilities in Excess of Other Assets--(5.4%) (17,745)
Preferred Stock, at Redemption Value--(61.7%) (203,020)
-----------
Net Assets Applicable to Common Stock--100.0% $ 328,853
===========
ANNUAL REPORTS JULY 31, 2005
Schedule of Investments (concluded) MuniHoldings New Jersey Insured Fund, Inc.
* The cost and unrealized appreciation (depreciation) of investments, as of
July 31, 2005, as computed for federal income tax purposes, were as
follows:
(in Thousands)
Aggregate cost $ 515,533
===============
Gross unrealized appreciation $ 34,129
Gross unrealized depreciation (44)
---------------
Net unrealized appreciation $ 34,085
===============
** Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) Prerefunded.
(f) CIFG Insured.
(g) Escrowed to maturity.
(h) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were
as follows:
(in Thousands)
Net Dividend
Affiliate Activity Income
CMA New Jersey Municipal Money Fund 5,984 $ 100
(i) Radian Insured.
(j) All or a portion of security held as collateral in connection with open
financial futures contracts.
(k) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
Forward interest rate swaps outstanding as of July 31, 2005 were as follows:
(in Thousands)
Notional Unrealized
Amount Depreciation
Receive a variable rate equal to the 7-Day Bond
Market Association Municipal Swap Index Rate
and pay a fixed rate of 3.82%
Broker, JPMorgan Chase Bank
Expires November 2018 $ 4,210 $ (21)
Receive a variable rate equal to the 7-Day Bond
Market Association Municipal Swap Index Rate
and pay a fixed rate of 4.042%
Broker, JPMorgan Chase Bank
Expires August 2026 $ 8,905 $ (98)
----------
Total $ (119)
==========
Financial futures contracts sold as of July 31, 2005 were as follows:
(in Thousands)
Number of Expiration Face Unrealized
Contracts Issue Date Value Appreciation
265 10-Year U.S. September
Treasury Notes 2005 $29,770 $359
See Notes to Financial Statements.
ANNUAL REPORTS JULY 31, 2005
Statements of Net Assets
MuniHoldings
New Jersey
MuniHoldings Insured
As of July 31, 2005 Fund II, Inc Fund, Inc.
Assets
Investments in unaffiliated securities, at value* $ 255,390,145 $ 543,485,676
Investments in affiliated securities, at value** 11,703 6,132,250
Cash 1,018,574 19,802
Interest receivable 3,619,599 5,329,247
Receivable for securities sold 66,693 200,318
Receivable for variation margin -- 173,906
Dividends receivable from affiliates -- 294
Prepaid expenses and other assets 1,535 2,256
--------------- ---------------
Total assets 260,108,249 555,343,749
--------------- ---------------
Liabilities
Unrealized depreciation on forward interest rate swaps -- 119,480
Payable for securities purchased 5,352,437 23,077,264
Payable to the investment adviser 103,625 203,128
Payable for other affiliates 1,798 8,190
Accrued expenses 43,182 62,878
--------------- ---------------
Total liabilities 5,501,042 23,470,940
--------------- ---------------
Preferred Stock
Preferred Stock, at redemption value, par value $.10 per share*** of AMPS+++
at $25,000 per share liquidation preference 87,018,757 203,020,001
--------------- ---------------
Net Assets Applicable to Common Stock
Net assets applicable to Common Stock $ 167,588,450 $ 328,852,808
=============== ===============
Net Assets Consist of
Undistributed investment income--net $ 2,695,188 $ 4,369,798
Accumulated realized capital losses--net (16,576,080) (28,337,028)
Unrealized appreciation--net 15,452,099 34,278,458
--------------- ---------------
Total accumulated earnings--net 1,571,207 10,311,228
--------------- ---------------
Common Stock, par value $.10 per share++ 1,114,695 2,105,031
Paid-in capital in excess of par 164,902,548 316,436,549
--------------- ---------------
Net Assets $ 167,588,450 $ 328,852,808
=============== ===============
Net asset value per share of Common Stock $ 15.03 $ 15.62
=============== ===============
Market price $ 15.25 $ 15.89
=============== ===============
* Identified cost on unaffiliated securities $ 239,938,046 $ 509,447,233
=============== ===============
** Identified cost on affiliated securities $ 11,703 $ 6,132,250
=============== ===============
*** Preferred Shares authorized, issued and outstanding:
Series A Shares 1,740 1,360
=============== ===============
Series B Shares 1,740 1,360
=============== ===============
Series C Shares -- 2,400
=============== ===============
Series D Shares -- 1,880
=============== ===============
Series E Shares -- 1,120
=============== ===============
++ Common Stock issued and outstanding 11,146,945 21,050,312
=============== ===============
+++ Auction Market Preferred Stock.
See Notes to Financial Statements.
ANNUAL REPORTS JULY 31, 2005
Statements of Operations
MuniHoldings
New Jersey
MuniHoldings Insured
For the Year Ended July 31, 2005 Fund II, Inc. Fund, Inc.
Investment Income
Interest and amortization of premium and discount earned $ 13,994,596 $ 25,501,200
Dividends from affiliates 3,589 100,410
--------------- ---------------
Total income 13,998,185 25,601,610
--------------- ---------------
Expenses
Investment advisory fees 1,374,993 2,911,978
Commission fees 220,440 515,002
Accounting services 101,248 176,658
Professional fees 54,046 55,300
Transfer agent fees 44,424 82,742
Directors' fees and expenses 33,433 33,433
Printing and shareholder reports 29,505 39,501
Listing fees 19,248 19,117
Pricing fees 16,459 21,870
Custodian fees 15,761 30,287
Other 34,457 51,149
--------------- ---------------
Total expenses before waiver and/or reimbursement 1,944,014 3,937,037
Waiver and/or reimbursement of expenses (682) (202,100)
--------------- ---------------
Total expenses after waiver and/or reimbursement of expenses 1,943,332 3,734,937
--------------- ---------------
Investment income--net 12,054,853 21,866,673
--------------- ---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net 2,156,742 10,231,368
Futures contracts and forward interest rate swaps--net -- (976,713)
--------------- ---------------
Total realized gain--net 2,156,742 9,254,655
--------------- ---------------
Change in unrealized appreciation/depreciation on:
Investments--net 10,744,979 3,268,531
Futures contracts and forward interest rate swaps--net -- 1,374,188
--------------- ---------------
Total unrealized appreciation--net 10,744,979 4,642,719
--------------- ---------------
Total realized and unrealized gain--net 12,901,721 13,897,374
--------------- ---------------
Dividends to Preferred Shareholders
Investment income--net (1,593,265) (3,321,072)
--------------- ---------------
Net Increase in Net Assets Resulting from Operations $ 23,363,309 $ 32,442,975
=============== ===============
See Notes to Financial Statements.
ANNUAL REPORTS JULY 31, 2005
Statements of Changes in Net Assets MuniHoldings Fund II, Inc.
For the Year Ended
July 31,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 12,054,853 $ 12,730,739
Realized gain--net 2,156,742 1,473,299
Change in unrealized appreciation--net 10,744,979 4,093,131
Dividends to Preferred Stock shareholders (1,593,265) (1,075,425)
--------------- ---------------
Net increase in net assets resulting from operations 23,363,309 17,221,744
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (11,625,476) (11,454,921)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common Stock shareholders (11,625,476) (11,454,921)
--------------- ---------------
Common Stock Transactions
Value of shares issued to Common Stock shareholders in reinvestment of dividends 267,353 554,819
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase in net assets applicable to Common Stock 12,005,186 6,321,642
Beginning of year 155,583,264 149,261,622
--------------- ---------------
End of year* $ 167,588,450 $ 155,583,264
=============== ===============
* Undistributed investment income--net $ 2,695,188 $ 3,859,076
=============== ===============
See Notes to Financial Statements.
MuniHoldings New Jersey Insured Fund, Inc.
For the Year Ended
July 31,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 21,866,673 $ 22,408,048
Realized gain (loss)--net 9,254,655 (597,531)
Change in unrealized appreciation/depreciation--net 4,642,719 11,546,144
Dividends to Preferred Stock shareholders (3,321,072) (1,745,502)
--------------- ---------------
Net increase in net assets resulting from operations 32,442,975 31,611,159
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (19,944,606) (19,565,910)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common Stock shareholders (19,944,606) (19,565,910)
--------------- ---------------
Common Stock Transactions
Value of shares issued to Common Stock shareholders in reinvestment of dividends 183,190 --
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase in net assets applicable to Common Stock 12,681,559 12,045,249
Beginning of year 316,171,249 304,126,000
--------------- ---------------
End of year* $ 328,852,808 $ 316,171,249
=============== ===============
* Undistributed investment income--net $ 4,369,798 $ 5,768,803
=============== ===============
See Notes to Financial Statements.
ANNUAL REPORTS JULY 31, 2005
Financial Highlights MuniHoldings Fund II, Inc.
The following per share data and ratios have been derived For the Year Ended July 31,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 13.98 $ 13.46 $ 13.51 $ 13.42 $ 12.45
---------- ---------- ---------- ---------- ----------
Investment income--net 1.08++ 1.15++ 1.16++ 1.10 1.06
Realized and unrealized gain (loss)--net 1.15 .50 (.15) (.04) .95
Less dividends to Preferred Stock shareholders from
investment income--net (.14) (.10) (.10) (.13) (.28)
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.09 1.55 .91 .93 1.73
---------- ---------- ---------- ---------- ----------
Less dividends to Common Stock shareholders from
investment income--net (1.04) (1.03) (.96) (.84) (.76)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 15.03 $ 13.98 $ 13.46 $ 13.51 $ 13.42
---------- ---------- ---------- ---------- ----------
Market price per share, end of year $ 15.25 $ 13.53 $ 13.16 $ 12.96 $ 12.35
========== ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 15.46% 11.88% 7.15% 7.56% 14.86%
========== ========== ========== ========== ==========
Based on market price per share 21.04% 10.75% 9.21% 12.12% 15.06%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of reimbursement* 1.19% 1.21% 1.26% 1.29% 1.28%
========== ========== ========== ========== ==========
Total expenses* 1.19% 1.22% 1.26% 1.29% 1.28%
========== ========== ========== ========== ==========
Total investment income--net* 7.38% 8.13% 8.48% 8.27% 8.29%
========== ========== ========== ========== ==========
Amount of dividends to Preferred Stock shareholders .98% .69% .74% .95% 2.20%
========== ========== ========== ========== ==========
Investment income--net, to Common Stock
shareholders 6.40% 7.44% 7.74% 7.32% 6.09%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders 1.84% 1.23% 1.28% 1.60% 3.59%
========== ========== ========== ========== ==========
ANNUAL REPORTS JULY 31, 2005
Financial Highlights (concluded) MuniHoldings Fund II, Inc.
The following per share data and ratios have been derived For the Year Ended July 31,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Supplemental Data
Net assets applicable to Common Stock,
end of year (in thousands) $ 167,588 $ 155,583 $ 149,262 $ 149,633 $ 148,618
========== ========== ========== ========== ==========
Preferred Stock outstanding, end of year
(in thousands) $ 87,000 $ 87,000 $ 87,000 $ 87,000 $ 87,000
========== ========== ========== ========== ==========
Portfolio turnover 45.11% 31.03% 44.03% 46.31% 57.57%
========== ========== ========== ========== ==========
Leverage
Asset coverage per $1,000 $ 2,926 $ 2,788 $ 2,716 $ 2,720 $ 2,708
========== ========== ========== ========== ==========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 445 $ 223 $ 279 $ 409 $ 908
========== ========== ========== ========== ==========
Series B--Investment income--net $ 471 $ 395 $ 363 $ 394 $ 890
========== ========== ========== ========== ==========
* Do not reflect the effect of dividends to Preferred Stock shareholders.
** 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.
++ Based on average shares outstanding.
See Notes to Financial Statements.
ANNUAL REPORTS JULY 31, 2005
Financial Highlights MuniHoldings New Jersey Insured Fund, Inc.
The following per share data and ratios have been derived For the Year Ended July 31,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 15.03 $ 14.46 $ 14.90 $ 14.54 $ 13.14
---------- ---------- ---------- ---------- ----------
Investment income--net 1.04++ 1.07++ 1.08++ 1.06++ 1.08
Realized and unrealized gain (loss)--net .66 .51 (.54) .31 1.39
Less dividends to Preferred Stock shareholders from
investment income--net (.16) (.08) (.09) (.15) (.34)
Capital write-off resulting from issuance of
Preferred Stock -- -- -- -- --+++
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.54 1.50 .45 1.22 2.13
---------- ---------- ---------- ---------- ----------
Less dividends to Common Stock shareholders from
investment income--net (.95) (.93) (.89) (.86) (.73)
---------- ---------- ---------- ---------- ----------
Capital write-off resulting from issuance of
Common Stock -- -- -- -- --+++
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 15.62 $ 15.03 $ 14.46 $ 14.90 $ 14.54
---------- ---------- ---------- ---------- ----------
Market price per share, end of year $ 15.89 $ 14.17 $ 13.59 $ 14.24 $ 12.64
========== ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 10.63% 10.90% 3.32% 9.16% 17.26%
========== ========== ========== ========== ==========
Based on market price per share 19.37% 11.24% 1.61% 20.01% 14.60%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of waiver and reimbursement
and excluding reorganization expenses* 1.14% 1.13% 1.15% 1.19% 1.18%
========== ========== ========== ========== ==========
Total expenses, net of waiver and reimbursement* 1.14% 1.13% 1.15% 1.22% 1.18%
========== ========== ========== ========== ==========
Total expenses* 1.20% 1.21% 1.23% 1.29% 1.29%
========== ========== ========== ========== ==========
Total investment income--net* 6.69% 6.97% 7.05% 7.32% 7.72%
========== ========== ========== ========== ==========
Amount of dividends to Preferred Stock shareholders 1.02% .54% .61% 1.00% 2.43%
========== ========== ========== ========== ==========
Investment income--net, to Common Stock
shareholders 5.67% 6.43% 6.44% 6.32% 5.29%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders 1.64% .86% .97% 1.51% 3.46%
========== ========== ========== ========== ==========
ANNUAL REPORTS JULY 31, 2005
Financial Highlights (concluded) MuniHoldings New Jersey Insured Fund, Inc.
The following per share data and ratios have been derived For the Year Ended July 31,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Supplemental Data
Net assets applicable to Common Stock,
end of year (in thousands) $ 328,853 $ 316,171 $ 304,126 $ 313,515 $ 305,913
========== ========== ========== ========== ==========
Preferred Stock outstanding, end of year
(in thousands) $ 203,000 $ 203,000 $ 203,000 $ 203,000 $ 203,000
========== ========== ========== ========== ==========
Portfolio turnover 29.61% 8.53% 28.89% 20.05% 55.60%
========== ========== ========== ========== ==========
Leverage
Asset coverage per $1,000 $ 2,620 $ 2,557 $ 2,498 $ 2,544 $ 2,507
========== ========== ========== ========== ==========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 402 $ 206 $ 233 $ 356 $ 830
========== ========== ========== ========== ==========
Series B--Investment income--net $ 403 $ 210 $ 240 $ 381 $ 872
========== ========== ========== ========== ==========
Series C--Investment income--net $ 419 $ 235 $ 247 $ 389 $ 871
========== ========== ========== ========== ==========
Series D--Investment income--net $ 415 $ 210 $ 240 $ 363 $ 901
========== ========== ========== ========== ==========
Series E--Investment income--net $ 394 $ 197 $ 247 $ 393 $ 310
========== ========== ========== ========== ==========
* Do not reflect the effect of dividends to Preferred Stock shareholders.
** 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.
++ Based on average shares outstanding.
+++ Amount is less than $(.01) per share.
See Notes to Financial Statements.
ANNUAL REPORTS JULY 31, 2005
Notes to Financial Statements
1. Significant Accounting Policies:
MuniHoldings Fund II, Inc. and MuniHoldings New Jersey Insured Fund, Inc. (the
"Funds" or individually as the "Fund") are registered under the Investment
Company Act of 1940, as amended, as non-diversified, closed-end management
investment companies. The Funds' financial statements are prepared in
conformity with U.S. generally accepted accounting principles, which may
require the use of management accruals and estimates. Actual results may
differ from these estimates. The Funds determine and make available for
publication the net asset value of their Common Stock on a daily basis. The
Funds' Common Stock shares are listed on the New York Stock Exchange under the
symbols MUH and MUJ, respectively. The following is a summary of significant
accounting policies followed by the Funds.
(a) Valuation of investments--Municipal bonds are traded primarily in the over-
the-counter markets ("OTC") and are valued at the last available bid price in
the OTC market or on the basis of values as obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Funds under the general
direction of the Board of Directors. Such valuations and procedures are
reviewed periodically by the Board of Directors of the Funds. 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 OTC market, valuation is
the last asked price (options written) or the last bid price (options
purchased). Swap agreements are valued by quoted fair values received daily by
the Funds' pricing service. Short-term investments with a remaining maturity
of 60 days or less are valued at amortized cost, which approximates market
value, under which method the investment is valued at cost and any premium or
discount is amortized on a straight line basis to maturity. Investments in
open-end investment companies are valued at their net asset value each
business day. Securities and other 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 Funds.
(b) Derivative financial instruments--Each Fund may engage in various
portfolio investment strategies both to increase the return of the Fund and to
hedge, or protect, its exposure to interest rate movements and movements in
the securities 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--Each Fund may purchase or sell financial futures
contracts and options on such futures contracts. 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--Each Fund may 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.
* Forward interest rate swaps--Each Fund may enter into forward interest rate
swaps. In a forward interest rate swap, the Fund and the counterparty agree to
make periodic net payments on a specified notional contract amount, commencing
on a specified future effective date, unless terminated earlier. When the
agreement is closed, the Fund records a realized gain or loss in an amount
equal to the value of the agreement.
ANNUAL REPORTS JULY 31, 2005
Notes to Financial Statements (continued)
(c) Income taxes--It is each 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. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Funds amortize all
premiums and discounts on debt securities.
(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.
2. Investment Advisory Agreement and Transactions with Affiliates:
Each 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 each Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, each 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, 2005. The Investment Adviser has agreed to reimburse its management
fee by the amount of management fees each Fund pays to FAM indirectly through
its investment described below:
Investment Reimbursement
MuniHoldings Fund II, Inc. Merrill Lynch
Institutional
Tax-Exempt Fund $ 682
MuniHoldings New Jersey CMA New Jersey
Insured Fund, Inc. Municipal Money Fund $31,353
In addition, FAM earned fees of $2,911,978 of which $170,747 was waived,
relating to MuniHoldings New Jersey Insured Fund, Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate of
FAM, received $1,000 in commissions on the execution of portfolio security
transactions for MuniHoldings Fund II, Inc. for the year ended July 31, 2005.
For the year ended July 31, 2005, MuniHoldings Fund II, Inc. and MuniHoldings
New Jersey Insured Fund, Inc. reimbursed FAM $5,673 and $12,006, respectively,
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, 2005 were as follows:
MuniHoldings
New Jersey
MuniHoldings Insured
Fund II, Inc. Fund, Inc.
Total Purchases $111,825,961 $159,010,897
Total Sales $110,829,669 $157,781,722
4. Stock Transactions:
Each 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 are authorized, however, to
reclassify any unissued shares of stock without approval of holders of Common
Stock.
Common Stock
Shares issued and outstanding for MuniHoldings Fund II, Inc. during the years
ended July 31, 2005 and July 31, 2004 increased by 18,116 and 38,841,
respectively, as a result of dividend reinvestment.
Shares issued and outstanding for MuniHoldings New Jersey Insured Fund, Inc.
during the year ended July 31, 2005 increased by 11,698 as a result of
dividend reinvestment and during the year ended July 31, 2004 remained
constant.
ANNUAL REPORTS JULY 31, 2005
Notes to Financial Statements (concluded)
Preferred Stock
Auction Market Preferred Stock are shares of Preferred Stock of the Funds,
with a par value of $.10 per share and a liquidation preference of $25,000 per
share, plus accrued and unpaid dividends, 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, 2005 were as follows:
MuniHoldings
New Jersey
MuniHoldings Insured
Fund II, Inc. Fund, Inc.
Series A 2.20% 1.75%
Series B 2.249% 1.80%
Series C -- 1.90%
Series D -- 1.85%
Series E -- 1.60%
Each 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, 2005, MLPF&S earned
commissions as follows:
Commissions
MuniHoldings Fund II, Inc. $ 94,769
MuniHoldings New Jersey Insured Fund, Inc. $ 260,686
5. Distributions to Shareholders:
Each Fund paid a tax-exempt income dividend to holders of Common Stock in the
amounts of $.087000 per share and $.079000 per share relating to MuniHoldings
Fund II, Inc. and MuniHoldings New Jersey Insured Fund, Inc. respectively, on
August 30, 2005 to shareholders of record on August 15, 2005.
MuniHoldings Fund II, Inc.
The tax character of distributions paid during the fiscal years ended July 31,
2005 and July 31, 2004 was as follows:
7/31/2005 7/31/2004
Distributions paid from:
Tax-exempt income $ 13,218,741 $ 12,530,346
--------------- ---------------
Total distributions $ 13,218,741 $ 12,530,346
=============== ===============
As of July 31, 2005, the components of accumulated earnings on a tax basis
were as follows:
Undistributed tax-exempt income--net $ 2,331,369
Undistributed long-term capital gains--net --
---------------
Total undistributed earnings--net 2,331,369
Capital loss carryforward (16,576,080)*
Unrealized gains--net 15,815,918**
---------------
Total accumulated earnings--net $ 1,571,207
===============
* On July 31, 2005, the Fund had a net capital loss carryforward of
$16,576,080, of which $3,589,486 expires in 2008, $12,107,981
expires in 2009, $689,205 expires in 2010 and $189,408 expires
in 2011. 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 difference between book and
tax amortization methods for premiums and discounts on fixed
income securities.
MuniHoldings New Jersey Insured Fund, Inc.
The tax character of distributions paid during the fiscal years ended
July 31, 2005 and July 31, 2004 was as follows:
7/31/2005 7/31/2004
Distributions paid from:
Tax-exempt income $ 23,265,678 $ 21,311,412
--------------- ---------------
Total distributions $ 23,265,678 $ 21,311,412
=============== ===============
As of July 31, 2005, the components of accumulated earnings on a tax basis
were as follows:
Undistributed tax-exempt income--net $ 4,323,390
Undistributed long-term capital gains--net --
---------------
Total undistributed earnings--net 4,323,390
Capital loss carryforward (27,784,060)*
Unrealized gains--net 33,771,898**
---------------
Total accumulated earnings--net $ 10,311,228
===============
* On July 31, 2005, the Fund had a net capital loss carryforward
of $27,784,060, of which $750,299 expires in 2008, $26,797,867
expires in 2009 and $235,894 expires in 2011. 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 losses on straddles, the difference
between book and tax amortization methods for premiums and
discounts on fixed income securities and the realization for tax
purposes of unrealized gains (losses) on certain futures contracts.
ANNUAL REPORTS JULY 31, 2005
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
MuniHoldings Fund II, Inc. and
MuniHoldings New Jersey Insured Fund, Inc.:
We have audited the accompanying statements of net assets of MuniHoldings
Fund II, Inc. and MuniHoldings New Jersey Insured Fund, Inc. (the "Funds"),
including the schedules of investments, as of July 31, 2005, and the related
statements 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 the
financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Funds' 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Funds' internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Funds' internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of July 31, 2005 by
correspondence with the custodian and brokers. 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 positions of
MuniHoldings Fund II, Inc. and MuniHoldings New Jersey Insured Fund, Inc. at
July 31, 2005, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended, in conformity with U.S. generally accepted accounting principles.
(Ernst & Young LLP)
Philadelphia, Pennsylvania
September 12, 2005
Fund Certification (unaudited)
In February 2005, MuniHoldings Fund II, Inc. and MuniHoldings New Jersey
Insured Fund, Inc. filed their Chief Executive Officer Certification for the
prior year with the New York Stock Exchange pursuant to Section 303A.12(a) of
the New York Stock Exchange Corporate Governance Listing Standards.
The Funds' Chief Executive Officer and Chief Financial Officer Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the
Funds' Form N-CSR and are available on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
Important Tax Information (unaudited)
All of the net investment income distributions paid by MuniHoldings Fund II,
Inc. and MuniHoldings New Jersey Insured Fund, Inc. during the taxable year
ended July 31, 2005 qualify as tax-exempt interest dividends for federal
income tax purposes.
ANNUAL REPORTS JULY 31, 2005
Automatic Dividend Reinvestment Plan
The following description of the Funds' Automatic Dividend Reinvestment Plan
(the "Plan") is sent to you annually as required by federal securities laws.
Pursuant to each Fund's Plan, unless a holder of Common Stock otherwise
elects, all dividend and capital gains distributions will be automatically
reinvested by The Bank of New York (the "Plan Agent"), as agent for
shareholders in administering the Plan, in additional shares of Common Stock
of the Fund. Holders of Common Stock who elect not to participate in the Plan
will receive all distributions in cash paid by check mailed directly to the
shareholder of record (or, if the shares are held in street or other nominee
name then to such nominee) by The Bank of New York, as dividend paying agent.
Such participants may elect not to participate in the Plan and to receive all
distributions of dividends and capital gains in cash by sending written
instructions to The Bank of New York, as dividend paying agent, at the address
set forth below. Participation in the Plan is completely voluntary and may be
terminated or resumed at any time without penalty by written notice if
received by the Plan Agent not less than ten days prior to any dividend record
date; otherwise such termination will be effective with respect to any
subsequently declared dividend or distribution.
Whenever the Funds declare an income dividend or capital gains distribution
(collectively referred to as "dividends") payable either in shares or in cash,
non-participants in the Plan will receive cash and participants in the Plan
will receive the equivalent in shares of Common Stock. The shares will be
acquired by the Plan Agent for the participant's account, depending upon the
circumstances described below, either (i) through receipt of additional
unissued but authorized shares of Common Stock from each Fund ("newly issued
shares") or (ii) by purchase of outstanding shares of Common Stock on the open
market ("open-market purchases") on the New York Stock Exchange or elsewhere.
If, on the payment date for the dividend, the net asset value per share of the
Common Stock is equal to or less than the market price per share of the Common
Stock plus estimated brokerage commissions (such conditions being referred to
herein as "market premium"), the Plan Agent will invest the dividend amount in
newly issued shares on behalf of the participant. The number of newly issued
shares of Common Stock to be credited to the participant's account will be
determined by dividing the dollar amount of the dividend by the net asset
value per share on the date the shares are issued, provided that the maximum
discount from the then current market price per share on the date of issuance
may not exceed 5%. If, on the dividend payment date, the net asset value per
share is greater than the market value (such condition being referred to
herein as "market discount"), the Plan Agent will invest the dividend amount
in shares acquired on behalf of the participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on an "ex-dividend" basis or in no event more than 30 days after the
dividend payment date (the "last purchase date") to invest the dividend amount
in shares acquired in open-market purchases. It is contemplated that each Fund
will pay monthly income dividends. Therefore, the period during which open-
market purchases can be made will exist only from the payment date on the
dividend through the date before the next "ex-dividend" date, which typically
will be approximately ten days. If, before the Plan Agent has completed its
open-market purchases, the market price of a share of Common Stock exceeds the
net asset value per share, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of each Fund's shares, resulting in
the acquisitions of fewer shares than if the dividend had been paid in newly
issued shares on the dividend payment date. Because of the foregoing
difficulty with respect to open-market purchases, the Plan provides that if
the Plan Agent is unable to invest the full dividend amount in open-market
purchases during the purchase period or if the market discount shifts to a
market premium during the purchase period, the Plan Agent will cease making
open-market purchases and will invest the uninvested portion of the dividend
amount in newly issued shares at the close of business on the last purchase
date determined by dividing the uninvested portion of the dividend by the net
asset value per share.
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent in non-certificated form in the
name of the participant, and each shareholder's proxy will include those
shares purchased or received pursuant to the Plan. The Plan Agent will forward
all proxy solicitation materials to participants and vote proxies for shares
held pursuant to the Plan in accordance with the instructions of the
participants.
ANNUAL REPORTS JULY 31, 2005
In the case of shareholders such as banks, brokers or nominees which hold
shares of others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by
the record shareholders as representing the total amount registered in the
record shareholder's name and held for the account of beneficial owners who
are to participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by
the Funds as a result of dividends or capital gains distributions payable
either in shares or in cash. However, each participant will pay a pro rata
share of brokerage commissions incurred with respect to the Plan Agent's open-
market purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not relieve
participants of any federal, state or local income tax that may be payable (or
required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus
commissions of the Funds' shares is above the net asset value, participants in
the Plan will receive shares of the Funds at less than they could otherwise
purchase them and will have shares with a cash value greater than the value of
any cash distribution they would have received on their shares. If the market
price plus commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Funds do not redeem
shares, the price on resale may be more or less than the net asset value.
The value of shares acquired pursuant to the Plan will generally be excluded
from gross income to the extent that the cash amount reinvested would be
excluded from gross income. If, when each Fund's shares are trading at a
premium over net asset value, each Fund issues shares pursuant to the Plan
that have a greater fair market value than the amount of cash reinvested, it
is possible that all or a portion of such discount (which may not exceed 5% of
the fair market value of each Fund's shares) could be viewed as a taxable
distribution. If the discount is viewed as a taxable distribution, it is also
possible that the taxable character of this discount would be allocable to all
the shareholders, including shareholders who do not participate in the Plan.
Thus, shareholders who do not participate in the Plan might be required to
report as ordinary income a portion of their distributions equal to their
allocable share of the discount.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Funds reserve the right to amend or terminate the Plan. There
is no direct service charge to participants in the Plan; however, the Funds
reserve the right to amend the Plan to include a service charge payable by the
participants.
All correspondence concerning the Plan should be directed to the Plan Agent at
The Bank of New York, Church Street Station, P.O. Box 11258, New York , NY
10286-1258, Telephone: 800-432-8224.
ANNUAL REPORTS JULY 31, 2005
Disclosure of Investment Advisory Agreement
Activities of and Composition of the Board of Directors
All but one member of each Board of Directors is an independent director whose
only affiliation with Fund Asset Management, L.P. (the "Investment Adviser") or
other Merrill Lynch affiliates is as a director of each Fund and certain other
funds advised by the Investment Adviser or its affiliates. The Chairman of the
Board is also an independent director. New director nominees are chosen as
nominees by a Nominating Committee comprised of independent directors. All
independent directors also are members of the Board's Audit Committee and the
independent directors meet in executive session at each in-person Board
meeting. The Board and the Audit Committee meet in person for at least two days
each quarter and conduct other in-person and telephone meetings throughout the
year, some of which are formal board meetings, and some of which are
informational meetings. The independent counsel to the independent directors
attends all in-person Board and Audit Committee meetings and other meetings at
the independent directors' request.
Investment Advisory Agreement--Matters Considered by the Board
Every year, the Board considers approval of each Fund's investment advisory
agreement (each an "Investment Advisory Agreement" and together, the
"Investment Advisory Agreements"). The Board assesses the nature, scope and
quality of the services provided to each Fund by the personnel of the
Investment Adviser and its affiliates, including administrative services,
shareholder services, oversight of fund accounting, marketing services and
assistance in meeting legal and regulatory requirements. The Board also
receives and assesses information regarding the services provided to each Fund
by certain unaffiliated service providers.
At various times throughout the year, the Board also considers a range of
information in connection with its oversight of the services provided by the
Investment Adviser and its affiliates. Among the matters considered are: (a)
fees (in addition to management fees) paid to the Investment Adviser and its
affiliates by each Fund, such as transfer agency fees and fees for marketing
and distribution; (b) Fund operating expenses paid to third parties; (c) the
resources devoted to and compliance reports relating to each Fund's investment
objective, policies and restrictions, and its compliance with its Code of
Ethics and the Investment Adviser's compliance policies and procedures; and
(d) the nature, cost and character of non-investment management services
provided by the Investment Adviser and its affiliates.
The Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall services provided by
the Investment Adviser to be of high quality. The Board also believes that the
Investment Adviser is financially sound and well managed and notes that the
Investment Adviser is affiliated with one of America's largest financial
firms. The Board works closely with the Investment Adviser in overseeing the
Investment Adviser's efforts to achieve good performance. As part of this
effort, the Board discusses portfolio manager effectiveness and, when
performance is not satisfactory, discusses with the Investment Adviser taking
steps such as changing investment personnel.
Annual Consideration of Approval by the Board of Directors--In the period
prior to the Board meeting to consider renewal of the Investment Advisory
Agreement, the Board requested and received materials specifically relating to
each Fund's Investment Advisory Agreement. These materials are prepared with
respect to each Fund, and include (a) information compiled by Lipper Inc.
("Lipper") on the fees and expenses and the investment performance of each
Fund as compared to a comparable group of funds as classified by Lipper;
(b) sales data for each Fund; (c) a discussion by each Fund's portfolio
management team of investment strategies used by each Fund during its most
recent fiscal year; (d) information on the profitability to the Investment
Adviser and its affiliates of the Investment Advisory Agreement and other
relationships with each Fund; and (e) information provided by the Investment
Adviser concerning investment advisory fees charged to other clients under
similar investment mandates. The Board also considers other matters it deems
important to the approval process such as payments made to the Investment
Adviser or its affiliates relating to the distribution of Fund shares, services
related to the valuation and pricing of Fund portfolio holdings, allocation of
Fund brokerage fees, each Fund's portfolio turnover statistics, and direct and
indirect benefits to the Investment Adviser and its affiliates from their
relationship with each Fund.
ANNUAL REPORTS JULY 31, 2005
Certain Specific Renewal Data
In connection with the most recent renewal of each Fund's Investment Advisory
Agreement in February 2005, the independent directors' and Board's review
included the following:
Services Provided by the Investment Adviser--The Board reviewed the nature,
extent and quality of services provided by the Investment Adviser, including
the investment advisory services and the resulting performance of each Fund.
The Board focused primarily on the Investment Adviser's investment advisory
services and each Fund's investment performance, having concluded that the
other services provided to each Fund by the Investment Adviser were
satisfactory. The Board compared Fund performance - both including and
excluding the effects of the Fund's fees and expenses - to the performance of a
comparable group of funds, and the performance of a relevant index or
combination of indexes. The Board considered the small number of funds
classified by Lipper as comparable funds to MuniHoldings New Jersey Insured
Fund, Inc. While the Board reviews performance data at least quarterly,
consistent with the Investment Adviser's investment goals, the Board attaches
more importance to performance over relatively long periods of time, typically
three to five years. MuniHoldings Fund II, Inc.'s performance after fees and
expenses ranked in the first quartile for each of the one-, three- and
five-year periods ended November 30, 2004. MuniHoldings New Jersey Insured
Fund, Inc.'s performance after fees and expenses ranked in the third quartile
for the one-year period, in the second quartile for the three-year period, and
in the first quartile for the five-year period, ended November 30, 2004.
Considering these factors, the Board concluded that each Fund's performance
supported the continuation of the Investment Advisory Agreement.
The Investment Adviser's Personnel and Investment Process--The Board reviewed
each Fund's investment objectives and strategies. The Board discussed with
senior management of the Investment Adviser responsible for investment
operations and the senior management of the Investment Adviser's municipal
investing group the strategies being used to achieve the stated objectives.
Among other things, the Board considered the size, education and experience of
the Investment Adviser's investment staff, its use of technology, and the
Investment Adviser's approach to training and retaining portfolio managers and
other research, advisory and management personnel. The Board also reviewed the
Investment Adviser's compensation policies and practices with respect to each
Fund's portfolio managers. The Board also considered the experience of each
Fund's portfolio management team and noted that Mr. DiMella, the portfolio
manager for MuniHoldings Fund II, Inc., has more than 12 years experience in
portfolio management, and Mr. Jaeckel, the portfolio manager for MuniHoldings
New Jersey Insured Fund, Inc., has more than 14 years experience in portfolio
management. The Investment Adviser and its investment staff have extensive
experience in analyzing and managing the types of investments used by each
Fund. The Board concluded that each Fund benefits from that expertise.
Management Fees and Other Expenses--The Board reviewed each Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels - the actual rate includes advisory and
administrative service fees and the effects of any fee waivers - compared to
the other funds in its Lipper category. It also compared each Fund's total
expenses to those of other comparable funds. The Board considered the services
provided to and the fees charged by the Investment Adviser to other types of
clients with similar investment mandates and noted that the fees charged by
the Investment Adviser in those cases were slightly less than those being
charged to each Fund. Each Fund's contractual and actual management fee rates
were lower than the median fees charged by comparable funds. The Board has
concluded that each Fund's management fee and fee rate (including fee waivers)
and overall expense ratio are reasonable compared to those of other comparable
funds.
Profitability--The Board considered the cost of the services provided to each
Fund by the Investment Adviser, and the Investment Adviser's and its
affiliates' profits in relation to the management and distribution of the Fund
and the MLIM/FAM-advised funds. As part of its analysis, the Board reviewed
the Investment Adviser's methodology in allocating its costs to the management
of each Fund and concluded that there was a reasonable basis for the
allocation. The Board concluded the Investment Adviser's profits are
acceptable in relation to the nature and quality of services provided and
given the level of fees and expenses overall.
Economies of Scale--The Board noted that because each Fund is a closed-end
fund and assets will not increase significantly, no economies of scale will be
realized.
Conclusion
After the independent directors deliberated in executive session, the entire
Board, including all of the independent directors, approved the renewal of the
existing Investment Advisory Agreements, concluding that each advisory fee was
reasonable in relation to the services provided and that a contract renewal
was in the best interests of the shareholders.
ANNUAL REPORTS JULY 31, 2005
Swap Agreements
The Funds may 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. Swap agreements involve the risk that the
party with whom each Fund has entered into the swap will default on its
obligation to pay the Fund and the risk that the Fund will not be able to meet
its obligations to pay the other party to the agreement.
Dividend Policy
The Funds' dividend policy is to distribute all or a portion of its net
investment income to their shareholders on a monthly basis. In order to
provide shareholders with a more stable level of dividend distributions, the
Funds 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
Funds for any particular month may be more or less than the amount of net
investment income earned by the Funds during such month. The Funds' 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 these reports.
Officers and Directors
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Funds Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Robert C. Doll, Jr.* President 2005 to President of the MLIM/FAM-advised funds since 130 Funds None
P.O. Box 9011 and present 2005; President of MLIM and FAM since 2001; 178 Portfolios
Princeton, Director Co-Head (Americas Region) thereof from 2000
NJ 08543-9011 to 2001 and Senior Vice President from 1999
Age: 50 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") since 2001;
President of Princeton Administrators, L.P.
("Princeton Administrators") since 2001; Chief
Investment Officer of Oppenheimer Funds, Inc.
in 1999 and Executive Vice President thereof
from 1991 to 1999.
* Mr. Doll is a director, trustee or member of an advisory board of certain
other investment companies for which MLIM or FAM acts as investment adviser.
Mr. Doll is an "interested person," as defined in the Investment Company Act,
of the Fund based on his current positions with MLIM, FAM, Princeton Services
and Princeton Administrators. Directors serve until their resignation,
removal or death, or until December 31 of the year in which they turn 72. As
Fund President, Mr. Doll serves at the pleasure of the Board of Directors.
ANNUAL REPORTS JULY 31, 2005
Officers and Directors (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Funds Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors*
Ronald W. Forbes** Director 1998 to Professor Emeritus of Finance, School of 48 Funds None
P.O. Box 9095 present Business, State University of New York at 48 Portfolios
Princeton, Albany since 2000 and Professor thereof from
NJ 08543-9095 1989 to 2000; International Consultant, Urban
Age: 64 Institute, Washington D.C. from 1995 to 1999.
Cynthia A. Montgomery Director 1998 to Professor, Harvard Business School since 48 Funds Newell
P.O. Box 9095 present 1989; Associate Professor, J.L. Kellogg 48 Portfolios Rubbermaid, Inc.
Princeton, Graduate School of Management, Northwestern (manufacturing)
NJ 08543-9095 University from 1985 to 1989; Associate
Age: 53 Professor, Graduate School of Business
Administration, University of Michigan from
1979 to 1985; Director, Harvard Business School
of Publishing since 2005.
Jean Margo Reid Director 2004 to Self-employed consultant since 2001; Counsel 48 Funds None
P.O. Box 9095 present of Alliance Capital Management (investment 48 Portfolios
Princeton, adviser) in 2000; General Counsel, Director
NJ 08543-9095 and Secretary of Sanford C. Bernstein & Co., Inc.
Age: 59 (investment adviser/broker-dealer) from 1997
to 2000; Secretary, Sanford C. Bernstein Fund,
Inc. from 1994 to 2000; Director and Secretary
of SCB, Inc. since 1998; Director and Secretary
of SCB Partners, Inc. since 2000; Director of
Covenant House from 2001 to 2004.
Roscoe S. Suddarth Director 2000 to President, Middle East Institute from 1995 48 Funds None
P.O. Box 9095 present to 2001; Foreign Service Officer, United 48 Portfolios
Princeton, States Foreign Service from 1961 to 1995;
NJ 08543-9095 Career Minister, from 1989 to 1995; Deputy
Age: 69 Inspector General, U.S. Department of State
from 1991 to 1994; U.S. Ambassador to The
Hashemite Kingdom of Jordan from 1987 to 1990.
Richard R. West Director 1998 to Professor of Finance from 1984 to 1995, 48 Funds Bowne & Co.,
P.O. Box 9095 present Dean from 1984 to 1993 and Dean Emeritus 48 Portfolios Inc. (financial
Princeton, since 1995 of New York University Leonard printers);
NJ 08543-9095 N. Stern School of Business Administration. Vornado Realty
Age: 67 Trust (real estate
company);
Alexander's, Inc.
(real estate
company)
Edward D. Zinbarg Director 2000 to Self-employed financial consultant since 48 Funds None
P.O. Box 9095 present 1994; Executive Vice President of The 48 Portfolios
Princeton, Prudential Insurance Company of America from
NJ 08543-9095 1988 to 1994; former Director of Prudential
Age: 70 Reinsurance Company and former Trustee of the
Prudential Foundation.
* Directors serve until their resignation, removal or death, or until December 31
of the year in which they turn 72.
** Chairman of the Board and the Audit Committee.
ANNUAL REPORTS JULY 31, 2005
Officers and Directors (concluded)
Position(s) Length of
Held with Time
Name, Address & Age Funds Served Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since
P.O. Box 9011 President present 1999; Senior Vice President and Treasurer of Princeton Services since 1999 and
Princeton, and and Director since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999;
NJ 08543-9011 Treasurer 1999 to Vice President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from
Age: 45 present 1990 to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
Kenneth A. Jacob Senior 2002 to Managing Director of MLIM since 2000; Director (Tax-Exempt Fund Management)
P.O. Box 9011 Vice present of MLIM from 1997 to 2000.
Princeton, President
NJ 08543-9011
Age: 54
John M. Loffredo Senior 2002 to Managing Director of MLIM since 2000; Director (Tax-Exempt Fund Management)
P.O. Box 9011 Vice present of MLIM from 1997 to 2000.
Princeton, President
NJ 08543-9011
Age: 41
Robert A. DiMella Vice 1998 to Managing Director of MLIM since 2004; Director (Municipal Tax-Exempt Fund
P.O. Box 9011 President present Management) of MLIM from 2002 to 2004; Vice President of MLIM from 1996
Princeton, to 2001.
NJ 08543-9011
Age: 38
Theodore R. Jaeckel Jr. Vice 1998 to Managing Director of MLIM since 2005; Director (Municipal Tax-Exempt Fund
P.O. Box 9011 President present Management) of MLIM from 1997 to 2005; Vice President of MLIM from 1991
Princeton, to 1997.
NJ 08543-9011
Age: 45
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
P.O. Box 9011 Compliance present and Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief
Princeton, Officer Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
NJ 08543-9011 Morgan Stanley Investment Management from 2002 to 2004; Managing Director
Age: 53 and Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance Officer
at Prudential Financial from 1995 to 2000; Senior Counsel in the Commission's
Division of Enforcement in Washington, D.C. from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
P.O. Box 9011 present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD
Princeton, and Princeton Services since 2004.
NJ 08543-9011
Age: 45
* Officers of the Funds serve at the pleasure of the Board of Directors.
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street - 11 East
New York, NY 10286
Preferred Stock:
The Bank of New York
101 Barclay Street - 7 West
New York, NY 10286
Investment Objectives
NYSE Symbol MuniHoldings Fund II, Inc. seeks to provide shareholders with
MUH current income exempt from federal income taxes by investing
primarily in a portfolio of long-term, investment grade municipal
obligations the interest on which, in the opinion of the bond
counsel to the issuer, is exempt from federal income taxes.
NYSE Symbol MuniHoldings New Jersey Insured Fund, Inc. seeks to provide
MUJ 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.
ANNUAL REPORTS JULY 31, 2005
Availability of Quarterly Schedule of Investments
The Funds file their complete schedules of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third quarters
of each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the
SEC's Web site at http://www.sec.gov. The Funds' Forms N-Q may also be
reviewed and copied at the SEC's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained
by calling 1-800-SEC-0330.
Electronic Delivery
The Funds offer electronic delivery of communications to their shareholders.
In order to receive this service, you must register your account and provide
us with e-mail information. To sign up for this service, simply access this
Web site at http://www.icsdelivery.com/live and follow the instructions. When
you visit this site, you will obtain a personal identification number (PIN).
You will need this PIN should you wish to update your e-mail address, choose
to discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
ANNUAL REPORTS JULY 31, 2005
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of
the end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial
officer and principal accounting officer, or persons performing
similar functions. A copy of the code of ethics is available
without charge upon request by calling toll-free 1-800-MER-FUND
(1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors has determined that (i) the registrant has the following
audit committee financial experts serving on its audit committee and
(ii) each audit committee financial expert is independent: (1)
Ronald W. Forbes, (2) Richard R. West, and (3) Edward D. Zinbarg.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending July 31, 2005 - $32,000
Fiscal Year Ending July 31, 2004 - $31,500
(b) Audit-Related Fees - Fiscal Year Ending July 31, 2005 - $3,500
Fiscal Year Ending July 31, 2004 - $3,000
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
(c) Tax Fees - Fiscal Year Ending July 31, 2005 - $5,700
Fiscal Year Ending July 31, 2004 - $5,200
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending July 31, 2005 - $0
Fiscal Year Ending July 31, 2004 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services provided
to the registrant on an annual basis require specific pre-approval
by the Committee. The Committee also must approve other non-audit
services provided to the registrant and those non-audit services
provided to the registrant's affiliated service providers that
relate directly to the operations and the financial reporting of the
registrant. Certain of these non-audit services that the Committee
believes are a) consistent with the SEC's auditor independence rules
and b) routine and recurring services that will not impair the
independence of the independent accountants may be approved by the
Committee without consideration on a specific case-by-case basis
("general pre-approval"). However, such services will only be
deemed pre-approved provided that any individual project does not
exceed $5,000 attributable to the registrant or $50,000 for all of
the registrants the Committee oversees. Any proposed services
exceeding the pre-approved cost levels will require specific pre-
approval by the Committee, as will any other services not subject to
general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to
general pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending July 31, 2005 - $9,200
Fiscal Year Ending July 31, 2004 - $8,200
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant that were not pre-
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation
S-X is compatible with maintaining the principal accountant's
independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $0, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals
are members of the registrant's separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act (15 U.S.C. 78c(a)(58)(A)):
Ronald W. Forbes
Cynthia A. Montgomery
Jean Margo Reid (as of August 20, 2004)
Kevin A. Ryan (retired as of December 31, 2004)
Roscoe S. Suddarth
Richard R. West
Edward D. Zinbarg
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill
Lynch Investment Managers, L.P. and/or Fund Asset Management, L.P.
(the "Investment Adviser") authority to vote all proxies relating to
the Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("Proxy Voting Procedures") with respect to
the voting of proxies related to the portfolio securities held in
the account of one or more of its clients, including a Fund.
Pursuant to these Proxy Voting Procedures, the Investment Adviser's
primary objective when voting proxies is to make proxy voting
decisions solely in the best interests of each Fund and its
shareholders, and to act in a manner that the Investment Adviser
believes is most likely to enhance the economic value of the
securities held by the Fund. The Proxy Voting Procedures are
designed to ensure that the Investment Adviser considers the
interests of its clients, including the Funds, and not the interests
of the Investment Adviser, when voting proxies and that real (or
perceived) material conflicts that may arise between the Investment
Adviser's interest and those of the Investment Adviser's clients are
properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment
professionals appointed by the CIO, portfolio managers and
investment analysts appointed by the CIO and any other personnel the
CIO deems appropriate. The Committee will also include two non-
voting representatives from the Investment Adviser's Legal
department appointed by the Investment Adviser's General Counsel.
The Committee's membership shall be limited to full-time employees
of the Investment Adviser. No person with any investment banking,
trading, retail brokerage or research responsibilities for the
Investment Adviser's affiliates may serve as a member of the
Committee or participate in its decision making (except to the
extent such person is asked by the Committee to present information
to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser
might be asked to do so). The Committee determines how to vote the
proxies of all clients, including a Fund, that have delegated proxy
voting authority to the Investment Adviser and seeks to ensure that
all votes are consistent with the best interests of those clients
and are free from unwarranted and inappropriate influences. The
Committee establishes general proxy voting policies for the
Investment Adviser and is responsible for determining how those
policies are applied to specific proxy votes, in light of each
issuer's unique structure, management, strategic options and, in
certain circumstances, probable economic and other anticipated
consequences of alternate actions. In so doing, the Committee may
determine to vote a particular proxy in a manner contrary to its
generally stated policies. In addition, the Committee will be
responsible for ensuring that all reporting and recordkeeping
requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires
a case-by-case determination. In such cases, the Committee may
elect not to adopt a specific voting policy applicable to that
issue. The Investment Adviser believes that certain proxy voting
issues require investment analysis - such as approval of mergers and
other significant corporate transactions - akin to investment
decisions, and are, therefore, not suitable for general guidelines.
The Committee may elect to adopt a common position for the
Investment Adviser on certain proxy votes that are akin to
investment decisions, or determine to permit the portfolio manager
to make individual decisions on how best to maximize economic value
for a Fund (similar to normal buy/sell investment decisions made by
such portfolio managers). While it is expected that the Investment
Adviser will generally seek to vote proxies over which the
Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in
conjunction with a Fund's portfolio manager, may determine that the
Fund's specific circumstances require that its proxies be voted
differently.
To assist the Investment Adviser in voting proxies, the Committee
has retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address
special circumstances that can arise in connection with proxy
voting. For instance, under the Proxy Voting Procedures, the
Investment Adviser generally will not seek to vote proxies related
to portfolio securities that are on loan, although it may do so
under certain circumstances. In addition, the Investment Adviser
will vote proxies related to securities of foreign issuers only on a
best efforts basis and may elect not to vote at all in certain
countries where the Committee determines that the costs associated
with voting generally outweigh the benefits. The Committee may at
any time override these general policies if it determines that such
action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote proxies in
respect of an issuer where an affiliate of the Investment Adviser (each, an
"Affiliate"), or a money management or other client of the Investment Adviser
(each, a "Client") is involved. The Proxy Voting Procedures and the Investment
Adviser's adherence to those procedures are designed to address such conflicts
of interest. The Committee intends to strictly adhere to the Proxy Voting
Procedures in all proxy matters, including matters involving Affiliates and
Clients. If, however, an issue representing a non-routine matter that is
material to an Affiliate or a widely known Client is involved such that the
Committee does not reasonably believe it is able to follow its guidelines (or
if the particular proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes of ensuring
that an independent determination is reached, retain an independent fiduciary
to advise the Committee on how to vote or to cast votes on behalf of the
Investment Adviser's clients.
In the event that the Committee determines not to retain an
independent fiduciary, or it does not follow the advice of such an
independent fiduciary, the powers of the Committee shall pass to a
subcommittee, appointed by the CIO (with advice from the Secretary
of the Committee), consisting solely of Committee members selected
by the CIO. The CIO shall appoint to the subcommittee, where
appropriate, only persons whose job responsibilities do not include
contact with the Client and whose job evaluations would not be
affected by the Investment Adviser's relationship with the Client
(or failure to retain such relationship). The subcommittee shall
determine whether and how to vote all proxies on behalf of the
Investment Adviser's clients or, if the proxy matter is, in their
judgment, akin to an investment decision, to defer to the applicable
portfolio managers, provided that, if the subcommittee determines to
alter the Investment Adviser's normal voting guidelines or, on
matters where the Investment Adviser's policy is case-by-case, does
not follow the voting recommendation of any proxy voting service or
other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies
relating to the Client may be voted unless the Secretary, or in the
Secretary's absence, the Assistant Secretary of the Committee
concurs that the subcommittee's determination is consistent with the
Investment Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain
recurring proxy issues that are not expected to involve unusual
circumstances. These policies are guidelines only, and the
Investment Adviser may elect to vote differently from the
recommendation set forth in a voting guideline if the Committee
determines that it is in a Fund's best interest to do so. In
addition, the guidelines may be reviewed at any time upon the
request of a Committee member and may be amended or deleted upon the
vote of a majority of Committee members present at a Committee
meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
* Proposals related to the composition of the Board of Directors of issuers
other than investment companies. As a general matter, the Committee
believes that a company's Board of Directors (rather than shareholders) is
most likely to have access to important, nonpublic information regarding a
company's business and prospects, and is therefore best-positioned to set
corporate policy and oversee management. The Committee, therefore,
believes that the foundation of good corporate governance is the election
of qualified, independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of the
corporation in a manner that will seek to maximize shareholder value over
time. In individual cases, the Committee may look at a nominee's history
of representing shareholder interests as a director of other companies or
other factors, to the extent the Committee deems relevant.
* Proposals related to the selection of an issuer's independent auditors. As
a general matter, the Committee believes that corporate auditors have a
responsibility to represent the interests of shareholders and provide an
independent view on the propriety of financial reporting decisions of
corporate management. While the Committee will generally defer to a
corporation's choice of auditor, in individual cases, the Committee may
look at an auditors' history of representing shareholder interests as
auditor of other companies, to the extent the Committee deems relevant.
* Proposals related to management compensation and employee benefits. As a
general matter, the Committee favors disclosure of an issuer's compensation
and benefit policies and opposes excessive compensation, but believes that
compensation matters are normally best determined by an issuer's board of
directors, rather than shareholders. Proposals to "micro-manage" an
issuer's compensation practices or to set arbitrary restrictions on
compensation or benefits will, therefore, generally not be supported.
* Proposals related to requests, principally from management, for approval of
amendments that would alter an issuer's capital structure. As a general
matter, the Committee will support requests that enhance the rights of
common shareholders and oppose requests that appear to be unreasonably
dilutive.
* Proposals related to requests for approval of amendments to an issuer's
charter or by-laws. As a general matter, the Committee opposes poison pill
provisions.
* Routine proposals related to requests regarding the formalities of
corporate meetings.
* Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the Committee
believes that a fund's Board of Directors (rather than its shareholders) is
best-positioned to set fund policy and oversee management. However, the
Committee opposes granting Boards of Directors authority over certain
matters, such as changes to a fund's investment objective, that the
Investment Company Act envisions will be approved directly by shareholders.
* Proposals related to limiting corporate conduct in some manner that relates
to the shareholder's environmental or social concerns. The Committee
generally believes that annual shareholder meetings are inappropriate
forums for discussion of larger social issues, and opposes shareholder
resolutions "micromanaging" corporate conduct or requesting release of
information that would not help a shareholder evaluate an investment in the
corporation as an economic matter. While the Committee is generally
supportive of proposals to require corporate disclosure of matters that
seem relevant and material to the economic interests of shareholders, the
Committee is generally not supportive of proposals to require disclosure of
corporate matters for other purposes.
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable at this time
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
MuniHoldings New Jersey Insured Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
MuniHoldings New Jersey Insured Fund, Inc.
Date: September 23, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
MuniHoldings New Jersey Insured Fund, Inc.
Date: September 23, 2005
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
MuniHoldings New Jersey Insured Fund, Inc.
Date: September 23, 2005