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 811-09191
Name of Fund: MuniHoldings Insured Fund II, 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 Insured Fund II, 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: 09/30/05
Date of reporting period: 10/01/04 - 09/30/05
Item 1 - Report to Stockholders
MuniHoldings
Insured Fund II, Inc.
Annual Report
September 30, 2005
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
MuniHoldings Insured Fund II, Inc. seeks to provide shareholders with 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 bond counsel to the issuer, is exempt from federal income taxes.
This report, including the financial information herein, is transmitted to
shareholders of MuniHoldings Fund II, Inc. for their information. It is not a
prospectus. Past performance results shown in this report should not be
considered a representation of future performance. The Fund has leveraged its
Common Stock and intends to remain leveraged by issuing Preferred Stock to
provide the Common Stock shareholders with a potentially higher rate of
return. Leverage creates risks for Common Stock shareholders, including the
likelihood of greater volatility of net asset value and market price of shares
of the Common Stock, and the risk that fluctuations in the short-term dividend
rates of the Preferred Stock may affect the yield to Common Stock shareholders.
Statements and other information herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses 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
Fund voted proxies relating to securities held in the Fund's portfolio
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 Insured Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
(GO PAPERLESS LOGO)
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MuniHoldings Insured Fund II, Inc.
The Benefits and Risks of Leveraging
MuniHoldings Insured Fund II, Inc. utilizes leveraging to seek to enhance the
yield and net asset value of its Common Stock. However, these objectives
cannot be achieved in all interest rate environments. To leverage, the Fund
issues Preferred Stock, which pays dividends at prevailing short-term interest
rates, and invests the proceeds in long-term municipal bonds. The interest
earned on these investments, 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 the Fund's
Common Stock. However, in order to benefit Common Stock shareholders, the
yield curve must be positively sloped; that is, short-term interest rates must
be lower than long-term interest rates. At the same time, a period of
generally declining interest rates will benefit Common Stock shareholders. If
either of these conditions change, then the risks of leveraging will begin to
outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock capitalization of
$100 million and the issuance of Preferred Stock for an additional $50 million,
creating a total value of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are approximately 3%
and long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million of
Preferred Stock based on the lower short-term interest rates. At the same time,
the fund's total portfolio of $150 million earns the income based on long-term
interest rates. Of course, increases in short-term interest rates would reduce
(and even eliminate) the dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term investments,
and therefore the Common Stock shareholders are the beneficiaries of the
incremental yield. However, if short-term interest rates rise, narrowing the
differential between short-term and long-term interest rates, the incremental
yield pickup on the Common Stock will be reduced or eliminated completely. At
the same time, the market value of the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common Stock's net asset
value will reflect the full decline in the price of the portfolio's
investments, since the value of the fund's Preferred Stock does not fluctuate.
In addition to the decline in net asset value, the market value of the fund's
Common Stock may also decline.
As a part of its investment strategy, the Fund may invest in certain
securities whose potential income return is inversely related to changes in a
floating interest rate ("inverse floaters"). In general, income on inverse
floaters will decrease when short-term interest rates increase and increase
when short-term interest rates decrease. Investments in inverse floaters may
be characterized as derivative securities and may subject the Fund to the
risks of reduced or eliminated interest payments and losses of invested
principal. In addition, inverse floaters have the effect of providing
investment leverage and, as a result, the market value of such securities will
generally be more volatile than that of fixed rate, tax-exempt securities. To
the extent the Fund invests in inverse floaters, the market value of the
Fund's portfolio and net asset value of the Fund's shares may also be more
volatile than if the Fund did not invest in these securities. As of September
30, 2005, the percentage of the Fund's total net assets invested in inverse
floaters was 7.45%, before the deduction of Preferred Stock.
Swap Agreements
The Fund 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 the 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.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
A Letter From the President
Dear Shareholder
Amid what we've coined a "muddle through" year for the financial markets, the
major benchmark indexes managed to post positive results for the current
reporting period:
Total Returns as of September 30, 2005 6-month 12-month
U.S. equities (Standard & Poor's (S&P) 500 Index) +5.02% +12.25%
Small-cap U.S. equities (Russell 2000 Index) +9.21% +17.95%
International equities (MSCI Europe Australasia Far East Index) +9.26% +25.79%
Fixed income (Lehman Brothers Aggregate Bond Index) +2.31% + 2.80%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +2.80% + 4.05%
High yield bonds (Credit Suisse First Boston High Yield Index) +2.82% + 6.31%
Since June 2004, the Federal Reserve Board (the Fed) has tirelessly advanced
its interest rate hiking program, raising the federal funds rate 11 times to
3.75% by period-end. The Fed admittedly remains more concerned about inflation
than slowing economic growth, causing some to worry that the central bank may
overreact to inflation and increase interest rates more than is necessary to
maintain a healthy economic balance. Recent disruptions to production and
spending from Hurricanes Katrina and Rita are likely to distort the economic
data in the short term, muddying the underlying trends. However, any hurricane-
induced slowdown is likely to be short lived, and the fiscal stimulus
associated with reconstruction efforts in the Gulf could add to gross domestic
product growth in 2006.
U.S. equities exhibited resilience over the past several months as investors
generally tended to proceed with caution. After a strong finish to 2004, the
S&P 500 Index remained largely range-bound in 2005, with the last three months
representing the best quarter of the year. Up to this point, strong corporate
earnings reports and low long-term bond yields have worked in favor of
equities. Looking ahead, high energy prices, continued interest rate hikes, a
potential consumer slowdown and/or disappointing earnings pose the greatest
risks to U.S. stocks. Internationally, many markets have benefited from strong
economic statistics, trade surpluses and solid finances.
In the bond market, the yield curve continued to flatten as short-term
interest rates moved in concert with the Fed rate hikes and longer-term
interest rates remained more constant or declined. The difference between two-
year and 10-year Treasury yields collapsed from 151 basis points (1.51%) on
September 30, 2004 to 70 basis points on March 31, 2005, to just 16 basis
points at period-end.
Financial markets are likely to face continued crosscurrents in the months
ahead. 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
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
A Discussion With Your Fund's Portfolio Manager
The Fund provided a competitive return and above-average yield as we continued
to shift our emphasis further out on the yield curve, favoring bonds with
maturities longer than 20 years.
Describe the recent market environment relative to municipal bonds.
Over the past year, long-term bond yields generally declined as their prices,
which move in the opposite direction, increased. The rise in bond prices came
in response to several favorable factors, including moderating U.S. economic
growth, slowing foreign economies, modest inflation, and strong demand from
Asian governments for U.S. Treasury securities. Late in the period, the
devastation of Hurricane Katrina throughout the U.S. Gulf Coast prompted a
particularly strong rally in the bond market. The resultant higher energy
prices and expected declines in consumer confidence and spending pushed
longer-term interest rates downward.
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 to 3.75% by period-end. As short-term interest rates moved higher in
concert with Fed interest rate hikes and longer-term bond yields held steadier
or declined, the yield curve continued to flatten. During the past 12 months,
30-year U.S. Treasury bond yields declined 68 basis points (.68%) to 4.57%
while 10-year Treasury note yields rose 20 basis points to 4.34%. Tax-exempt
bond yields exhibited a similar pattern during the year. According to
Municipal Market Data, the yield on AAA-rated issues maturing in 30 years
declined by 48 basis points to 4.22% while the yield on AAA-rated bonds
maturing in 10 years rose by 26 basis points to 3.73%.
Historically low tax-exempt bond yields have continued to encourage
municipalities to issue new debt and refund outstanding, higher-couponed
issues. During the past year, more than $402 billion in new long-term tax-
exempt bonds was issued, an 11.2% increase over the previous year's total of
$361 billion. During the first nine months of 2005, the volume of refunding
issues increased by more than 55% on a year-over-year basis. The refunding
issues have been heavily weighted in the 10-year--20-year maturity range,
putting pressure on intermediate tax-exempt bond yields while supporting
longer-term bond prices.
Investor demand for municipal bonds remained generally positive. The most
current statistics from the Investment Company Institute indicate that,
year-to-date through August 31, 2005, net new cash flows into long-term
municipal bond funds exceeded $5.7 billion - a significant improvement from
the $12.4 billion net outflow seen during the same period in 2004. Weekly
figures for September, as reported by AMG Data Service, pointed to continued
positive cash flows.
Notably, throughout much of the past year, high yield tax-exempt bond funds
have been the principal target for the new cash inflows. During September,
these lower-rated/non-rated bond funds received an average of $150 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.
Solid investor demand for tax-exempt issues generally helped municipal bond
performance approach that of taxable bonds in recent months and reverse their
prior underperformance. The ratio of tax-exempt bond yields to taxable bond
yields remains above recent historic averages. We believe the attractive
relative yields should continue to attract both traditional and nontraditional
investors to the municipal marketplace, especially if municipal bond issuance
remains manageable.
The communities shattered by Hurricane Katrina and Hurricane Rita will require
extensive reconstruction. It is too early to estimate the amount of tax-exempt
debt that may be required to finance these efforts or to assess the overall
impact on the municipal market. However, much of the rebuilding is likely to
be funded through federal loans and grants, and the reconstruction will likely
be spread over a number of years. Consequently, any new municipal bond
issuance prompted by Katrina is not likely to disrupt the tax-exempt market in
the near future.
How did the Fund perform during the fiscal year?
For the 12-month period ended September 30, 2005, the Common Stock of
MuniHoldings Insured Fund II, Inc. had net annualized yields of 6.16% and
6.30%, based on a year-end per share net asset value of $14.23 and a per share
market price of $13.90, respectively, and $.876 per share income dividends.
Over the same period, the total investment return on the Fund's Common Stock
was +5.35%, based on a change in per share net asset value from $14.41 to
$14.23, and assuming reinvestment of all distributions.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
The Fund's total return, based on net asset value, outpaced the +5.24% average
return of the Lipper Insured Municipal Debt Funds (Leveraged) category for the
12-month period. (Funds in this Lipper category invest primarily in municipal
debt issues insured as to timely payment. These funds can be leveraged via use
of debt, preferred equity and/or reverse repurchase agreements.) Fund
performance was primarily influenced by our yield curve strategy. For most of
the period, we were overweight bonds with maturities greater than 20 years.
This benefited performance as the yield curve flattened and longer-term bonds
outperformed shorter-term issues. However, we limited our exposure to bonds
with maturities of 30 years and longer because of their heightened interest
rate risk. This detracted somewhat from relative performance as bonds maturing
past 30 years were the municipal market's best performers.
In an effort to preserve the Fund's competitive yield, we maintained our
holdings in five-year - 10-year prerefunded bonds, which offered higher
accrual rates than currently available in the low-yield environment. This
benefited the Fund's yield, but hampered its total return somewhat as rates on
bonds with maturities of 15 years and shorter rose (and their prices
correspondingly fell).
For the six-month period ended September 30, 2005, the total investment return
on the Fund's Common Stock was +3.38%, based on a change in per share net
asset value from $14.21 to $14.23, 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?
We continued to focus on securities that we felt represented the best relative
value in the insured municipal marketplace. With the yield curve flattening,
we continued to shift our emphasis further out on the curve, favoring bonds
with maturity dates of 20 years and longer while reducing our exposure to 15-
year and 20-year bonds. New purchases were concentrated on issuers that we
believed were more likely to defease their existing debt to help close budget
gaps. When bonds are defeased, it typically means that the securities are
retired at their first call date, enabling the bonds to appreciate
significantly. Massachusetts, California and New Jersey are three such state
issuers that have been aggressive in this strategy.
For the six months ended September 30, 2005, the Fund's Auction Market
Preferred Stock (AMPS) had average yields of 2.32% for Series A, 2.28% for
Series B and 2.34% for Series C. Continued short-term interest rate increases
by the Fed have continued to boost the Fund's borrowing costs. The Fed raised
the short-term interest rate target 200 basis points during the 12-month
period. Although we believe the majority of the Fed's actions have already
occurred, additional rate hikes are expected until at least year-end.
Nevertheless, the Fund's borrowing costs have remained historically very low,
and the leveraging of Preferred Stock 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 leverage 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 39.02% of
total net assets, before the deduction of Preferred Stock. (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?
At period-end, the portfolio was fully invested and neutrally positioned with
regard to interest rate risk. We continue to emphasize a competitive yield and
preservation of the portfolio's net asset value. Although we have begun to
restructure the portfolio by purchasing bonds with slightly longer maturity
dates, the securities added in recent months have tended to be premium-coupon
bonds with defensive characteristics, allowing us to extend our average
duration while still maintaining a fairly conservative approach.
Robert A. DiMella, CFA
Vice President and Portfolio Manager
October 10, 2005
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Proxy Results
During the six-month period ended September 30, 2005, MuniHoldings Insured
Fund II, Inc.'s Common Stock shareholders voted on the following proposal. The
proposal was approved at a shareholders' meeting on April 28, 2005. A
description of the proposal and number of shares voted are as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Directors: Robert C. Doll, Jr. 14,066,426 687,597
Joe Grills 14,064,422 689,601
Herbert I. London 14,062,440 691,583
Roberta Cooper Ramo 14,061,516 692,507
Stephen B. Swensrud 14,063,466 690,557
During the six-month period ended September 30, 2005, MuniHoldings Insured
Fund II, Inc.'s Preferred Stock shareholders (Series A - C) voted on the
following proposal. The proposal was approved at a shareholders' meeting on
April 28, 2005. A description of the proposal and number of shares voted are
as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Board of Directors: Robert C. Doll, Jr. 5,135 4
James H. Bodurtha 5,135 4
Joe Grills 5,135 4
Herbert I. London 5,135 4
Roberta Cooper Ramo 5,130 9
Robert S. Salomon, Jr. 5,135 4
Stephen B. Swensrud 5,130 9
Portfolio Information as of September 30, 2005
Quality Ratings by Percent of
S&P/Moody's Total Investments
AAA/Aaa 89.6%
AA/Aa 3.3
A/A 4.4
BBB/Baa 1.9
Other* 0.8
* Includes portfolio holdings in variable rate demand notes and
short-term investments.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Schedule of Investments (In Thousands)
Face
Amount Municipal Bonds Value
Alabama--1.2%
$ 3,580 Jefferson County, Alabama, Limited Obligation
School Warrants, Series A, 5.50% due 1/01/2022 $ 3,863
Alaska--1.3%
2,000 Anchorage, Alaska, Water Revenue Refunding
Bonds, 6% due 9/01/2024 (a) 2,200
1,700 Matanuska-Susitna Boro, Alaska, GO, Series A,
6% due 3/01/2010 (d)(e) 1,889
Arkansas--2.1%
6,105 Arkansas State Development Finance Authority,
M/F Mortgage Revenue Refunding Bonds, DRIVERS,
Series 964Z, 7.638% due 6/01/2010 (d)(f)(i) 6,700
California--36.2%
5,355 California Pollution Control Financing Authority, PCR,
Refunding, DRIVERS, AMT, Series 878Z, 7.617%
due 12/01/2009 (d)(i) 6,183
California State Department of Water Resources,
Power Supply Revenue Bonds, Series A:
6,865 5.375% due 5/01/2017 (j) 7,493
5,400 5.25% due 5/01/2020 5,816
5,790 5.375% due 5/01/2022 6,302
4,675 California State, GO, Refunding, RIB, AMT,
Series 777X, 7.70% due 12/01/2021 (d)(i) 4,849
3,000 California State Public Works Board, Lease Revenue
Bonds (Department of General Services--Capitol
East End Complex), Series A, 5% due 12/01/2027 (a) 3,108
2,100 California State, Various Purpose, GO, 5.50%
due 4/01/2028 2,316
Cerritos, California, Community College District, GO
(Election of 2004), Series A (d):
110 5% due 8/01/2025 115
85 5% due 8/01/2026 89
2,800 Compton, California, Unified School District, GO
(Election of 2002), Series B, 5.50%
due 6/01/2025 (d) 3,092
2,405 Dixon, California, Unified School District, GO (Election
of 2002), 5.20% due 8/01/2044 (c) 2,519
East Side Union High School District, California, Santa
Clara County, GO (Election of 2002), Series D (j):
2,185 5% due 8/01/2020 2,335
8,460 5% due 8/01/2029 8,847
Los Angeles, California, Unified School District, GO:
3,400 (Election of 1997), Series F, 5% due 1/01/2028 (b) 3,564
10,110 Series A, 5% due 1/01/2028 (d) 10,597
3,050 Series E, 5% due 7/01/2025 (a) 3,226
4,240 Modesto, California, Schools Infrastructure
Financing Agency, Special Tax Bonds, 5.50%
due 9/01/2036 (a) 4,653
Face
Amount Municipal Bonds Value
California (concluded)
$ 5,000 Port of Oakland, California, Revenue Refunding
Bonds, AMT, Series L, 5.375%
due 11/01/2027 (b) $ 5,346
1,500 Port of Oakland, California, Trust Receipts,
Revenue Bonds, AMT, Class R, Series K,
8.37% due 11/01/2021 (b)(i) 1,726
2,985 Roseville, California, Joint Union High School
District, GO (Election of 2004), Series A, 5%
due 8/01/2029 (b) 3,124
2,130 Sacramento, California, City Financing Authority,
Capital Improvement Revenue Bonds (911 Call
Center and Other Municipal Projects), 5%
due 12/01/2027 (a) 2,220
5,075 San Francisco, California, City and County, GO
(California Academy of Sciences Improvements),
Series E, 5% due 6/15/2022 (d) 5,372
1,250 San Francisco, California, City and County Airport
Commission, International Airport, Special
Facilities Lease Revenue Bonds (SFO Fuel
Company LLC), AMT, Series A, 6.10%
due 1/01/2020 (c) 1,341
3,800 San Jose, California, GO (Libraries, Parks and
Public Safety Projects), 5% due 9/01/2030 (d) 3,961
4,620 Tustin, California, Unified School District, Senior Lien
Special Tax Bonds (Community Facilities District
No. 97-1), Series A, 5% due 9/01/2038 (c) 4,759
University of California Revenue Bonds (Multiple
Purpose Projects), Series Q (c):
3,000 5% due 9/01/2022 3,150
6,710 5% due 9/01/2031 6,984
5,060 William S. Hart Union High School District,
California, Capital Appreciation, GO (Election of
2001), Series B, 4.70%** due 9/01/2023 (c) 2,167
Colorado--3.7%
Aurora, Colorado, COP (a):
3,055 5.75% due 12/01/2019 3,369
3,230 5.75% due 12/01/2020 3,548
365 Colorado HFA, Revenue Refunding Bonds
(S/F Program), AMT, Senior Series A-2, 7.50%
due 4/01/2031 389
4,000 Colorado Health Facilities Authority, Hospital
Revenue Refunding Bonds (Poudre Valley Health
Care), Series A, 5.75% due 12/01/2009 (c)(e) 4,417
Connecticut--0.9%
2,770 Connecticut State, GO, Series D, 5%
due 12/01/2024 (d) 2,941
Portfolio Abbreviations
To simplify the listings of MuniHoldings Insured Fund II, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the names of
many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DRIVERS Derivative Inverse Tax-Exempt Receipts
EDA Economic Development Authority
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
VRDN Variable Rate Demand Notes
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Schedule of Investments (continued) (In Thousands)
Face
Amount Municipal Bonds Value
Florida--0.2%
$ 3,670 Miami-Dade County, Florida, Subordinate Special
Obligation Revenue Bonds, Series A, 5.24%**
due 10/01/2037 (d) $ 707
Georgia--1.0%
3,000 Augusta, Georgia, Water and Sewer Revenue Bonds,
5.25% due 10/01/2034 (c) 3,229
Idaho--0.3%
905 Idaho Housing and Finance Association,
S/F Mortgage Revenue Bonds, AMT, Series E, 6%
due 1/01/2032 909
Illinois--10.0%
Chicago, Illinois, GO, Series A (b)(e):
18,130 6% due 7/01/2010 20,413
2,185 (Neighborhoods Alive 21 Program), 6%
due 7/01/2010 2,460
3,650 Chicago, Illinois, O'Hare International Airport
Revenue Bonds, DRIVERS, AMT, Series 845-Z,
8.906% due 1/01/2012 (d)(i)(j) 4,527
4,020 Counties of Madison, Jersey, Macoupin, Calhoun,
Morgan, Scottand Greene and State of Illinois,
Community College District Number 536
(Lewis & Clark), GO (Alternate Revenue Source),
Series 2005B, 5.25% due 11/01/2030 (c) 4,319
125 Lake, Cook, Kane and McHenry Counties, Illinois,
Community Unit School District No. 220, GO, 6%
due 12/01/2020 (b) 139
Indiana--4.2%
3,000 Indiana Transportation Finance Authority, Highway
Revenue Bonds, Series A, 5.25% due 6/01/2029 (b) 3,218
9,280 Shelbyville, Indiana, Elementary School Building
Corporation Revenue Bonds, First Mortgage,
5.75% due 1/15/2009 (c)(e) 10,105
Kansas--2.1%
3,510 Kansas State Development Finance Authority, Health
Facilities Revenue Bonds (Sisters of Charity
Leavenworth), Series J, 6.125% due 12/01/2020 3,856
2,805 Sedgwick and Shawnee Counties, Kansas,
S/F Mortgage Revenue Bonds, AMT, Series A-2,
6.20% due 12/01/2033 (g)(k) 2,861
Louisiana--0.7%
2,000 Louisiana Local Government, Environmental Facilities,
Community Development Authority Revenue Bonds
(Capital Projects and Equipment Acquisition),
Series A, 6.30% due 7/01/2030 (a) 2,176
Massachusetts--12.3%
5,865 Massachusetts Bay Transportation Authority, Sales
Tax Revenue Refunding Bonds, Senior Series A, 5%
due 7/01/2035 6,040
5,440 Massachusetts State, HFA, Rental Housing Mortgage
Revenue Bonds, AMT, Series A, 5.15%
due 7/01/2026 (c) 5,489
10,565 Massachusetts State School Building Authority,
Dedicated Sales Tax Revenue Bonds, Series A, 5%
due 8/15/2030 (c) 11,094
15,000 Massachusetts State Special Obligation Dedicated
Tax Revenue Bonds, 5.25% due 1/01/2014 (b)(e) 16,527
Face
Amount Municipal Bonds Value
Michigan--2.2%
$ 1,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Mercy-Mount Clemens), Series A,
6% due 5/15/2014 (d) $ 1,092
Michigan State Strategic Fund, Limited Obligation
Revenue Refunding Bonds, DRIVERS, AMT (i)(j):
2,500 Series 857Z, 8.206% due 3/01/2010 2,819
1,000 Series 858Z, 7.908% due 12/01/2011 1,138
1,500 Saint Clair County, Michigan, Economic Revenue
Refunding Bonds (Detroit Edison Company), RIB,
Series 282, 9.74% due 8/01/2024 (a)(i) 1,798
Minnesota--4.4%
Prior Lake, Minnesota, Independent School District
Number 719, GO (c):
2,555 5.50% due 2/01/2016 2,759
1,830 5.50% due 2/01/2017 1,973
3,570 5.50% due 2/01/2018 3,849
2,840 5.50% due 2/01/2019 3,062
2,185 Sauk Rapids, Minnesota, Independent School
District Number 47, GO, Series A, 5.625%
due 2/01/2018 (d) 2,398
Nebraska--1.9%
Omaha Convention Hotel Corporation, Nebraska,
Convention Center Revenue Bonds, First Tier,
Series A (a):
1,410 5.50% due 4/01/2020 1,546
3,985 5.50% due 4/01/2022 4,370
Nevada--3.9%
1,750 Clark County, Nevada, IDR (Power Company Project),
AMT, Series A, 6.70% due 6/01/2022 (b) 1,761
185 Nevada Housing Division, S/F Mortgage Revenue
Bonds, AMT, Series A-2, 6.30% due 4/01/2022 (d) 187
Truckee Meadows, Nevada, Water Authority, Water
Revenue Bonds, Series A (c):
5,000 5.50% due 7/01/2018 5,473
4,445 5.50% due 7/01/2019 4,865
New Jersey--9.8%
New Jersey EDA, Cigarette Tax Revenue Bonds:
8,590 5.75% due 6/15/2029 9,133
6,200 5.75% due 6/15/2034 6,852
11,000 New Jersey EDA, Motor Vehicle Surcharge Revenue
Bonds, Series A, 5.25% due 7/01/2033 (d) 11,863
3,000 New Jersey State Turnpike Authority, Turnpike
Revenue Bonds, Series C, 5% due 1/01/2030 (c) 3,166
New Mexico--1.6%
5,000 Farmington, New Mexico, PCR, Refunding (Public
Service Company of San Juan), Series C, 5.70%
due 12/01/2016 (a) 5,246
New York--18.1%
Metropolitan Transportation Authority, New York,
Revenue Bonds:
8,010 Series A, 5% due 11/15/2019 (a) 8,623
1,940 Series B, 5% due 11/15/2030 2,046
14,000 Nassau Health Care Corporation, New York, Health
System Revenue Bonds, 5.75% due 8/01/2009 (c)(e) 15,571
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Schedule of Investments (continued) (In Thousands)
Face
Amount Municipal Bonds Value
New York (concluded)
$ 5,000 New York City, New York, GO, Refunding, Series G,
5.75% due 2/01/2017 (c) $ 5,119
6,750 New York City, New York, Sales Tax Asset Receivable
Corporation Revenue Bonds, Series A, 5.25%
due 10/15/2027 (a) 7,305
4,345 New York State Dormitory Authority Revenue Bonds
(School Districts Financing Program), Series D,
5.25% due 10/01/2023 (d) 4,710
200 New York State Local Government Assistance
Corporation, Revenue Refunding Bonds, Sub-Lien,
VRDN, Series A-5V, 2.68% due 4/01/2020 (c)(h) 200
Tobacco Settlement Financing Corporation of New
York Revenue Bonds:
2,000 Series A-1, 5.25% due 6/01/2021 (a) 2,169
7,850 Series C-1, 5.50% due 6/01/2017 8,566
3,000 Series C-1, 5.50% due 6/01/2021 3,272
North Carolina--0.5%
1,445 North Carolina HFA, Home Ownership Revenue
Bonds, AMT, Series 14-A, 5.35%
due 1/01/2022 (a) 1,497
Ohio--1.0%
1,745 Aurora, Ohio, City School District, COP, 6.10%
due 12/01/2009 (d)(e) 1,954
1,000 Kent State University, Ohio, University Revenue
Bonds, 6% due 5/01/2024 (a) 1,110
Oklahoma--1.2%
3,385 Claremore, Oklahoma, Public Works Authority,
Capital Improvement Revenue Refunding Bonds,
Series A, 5.25% due 6/01/2027 (c) 3,670
Pennsylvania--12.7%
4,480 Lehigh County, Pennsylvania, IDA, PCR, Refunding
(Pennsylvania Power and Light Utilities Corporation
Project), 4.75% due 2/15/2027 (b) 4,548
5,600 Lycoming County, Pennsylvania, College Authority
Revenue Bonds (Pennsylvania College of
Technology), 5.25% due 7/01/2007 (d)(e) 5,864
3,000 Pennsylvania State Higher Educational Facilities
Authority, Revenue Bonds (Slippery Rock University
Foundation, Inc.), Series A, 5% due 7/01/2037 (j) 3,103
6,435 Pennsylvania State Higher Educational Facilities
Authority, State System of Higher Education
Revenue Bonds, Series O, 5.125%
due 6/15/2024 (a) 6,610
10,565 Philadelphia, Pennsylvania, Water and Wastewater
Revenue Bonds, Series A, 5% due 7/01/2027 (c) 11,105
2,800 Sayre, Pennsylvania, Health Care Facilities Authority,
Revenue Refunding Bonds (Guthrie Healthcare
System), Series A, 5.875% due 12/01/2031 3,002
Seneca Valley, Pennsylvania, School District, GO (b):
1,390 5% due 1/01/2020 1,487
2,260 5% due 1/01/2021 2,413
2,090 Washington County, Pennsylvania, Capital Funding
Authority Revenue Bonds (Capital Projects and
Equipment Program), 6.15% due 12/01/2029 (a) 2,228
Face
Amount Municipal Bonds Value
Rhode Island--3.5%
$ 5,555 Providence, Rhode Island, Redevelopment Agency
Revenue Refunding Bonds (Public Safety and
Municipal Buildings), Series A, 5.75%
due 4/01/2010 (a)(e) $ 6,171
4,685 Rhode Island State Health and Educational Building
Corporation Revenue Bonds (Rhode Island School
of Design), Series D, 5.50% due 8/15/2031 (j) 5,128
South Carolina--2.0%
3,600 Newberry County, South Carolina, School District,
Installment Purchase Revenue Bonds, 5%
due 12/01/2027 3,725
2,490 South Carolina Housing Finance and Development
Authority, Mortgage Revenue Refunding Bonds,
AMT, Series A-2, 6.35% due 7/01/2019 (c) 2,658
Tennessee--2.0%
3,500 Metropolitan Government of Nashville and
Davidson County, Tennessee, Health and Education
Facilities Board Revenue Refunding Bonds
(Ascension Health Credit), Series A, 5.875%
due 11/15/2009 (a)(e) 3,879
1,080 Tennessee HDA, Revenue Bonds (Homeownership
Program), AMT, Series 2C, 6% due 7/01/2011 1,102
1,515 Tennessee HDA, Revenue Refunding Bonds
(Homeownership Program), AMT, Series 1,
6.05% due 7/01/2014 (d) 1,535
Texas--10.8%
1,750 Austin, Texas, Convention Center Revenue Bonds
(Convention Enterprises Inc.), Trust Certificates,
Second Tier, Series B, 6% due 1/01/2023 1,869
500 Bell County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Scott & White
Memorial Hospital), VRDN, Series B-1, 2.72%
due 8/15/2029 (d)(h) 500
8,000 Dallas-Fort Worth, Texas, International Airport Revenue
Bonds, DRIVERS, AMT, Series 778-Z, 7.906%
due 11/01/2011 (d)(i) 9,018
Dallas-Fort Worth, Texas, International Airport Revenue
Refunding and Improvement Bonds, AMT, Series A (b):
1,835 5.875% due 11/01/2017 2,017
2,150 5.875% due 11/01/2018 2,363
2,390 5.875% due 11/01/2019 2,627
El Paso, Texas, Water and Sewer Revenue Refunding
and Improvement Bonds, Series A (c):
115 6% due 3/01/2015 131
170 6% due 3/01/2016 193
180 6% due 3/01/2017 204
5,150 Harris County, Texas, Toll Road Senior Lien Revenue
and Refunding Bonds, Series 2005A, 5.25%
due 8/15/2035 (c) 5,398
4,734 Houston, Texas, Community College System,
Participation Interests, COP (Alief Center Project),
5.75% due 8/15/2022 (d) 5,063
1,850 Midland, Texas, Certificates of Obligation, GO, 6.10%
due 3/01/2027 (b) 2,039
2,650 Waskom, Texas, Independent School District, GO
(School Building), 5.25% due 2/15/2035 (c) 2,868
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Schedule of Investments (concluded) (In Thousands)
Face
Amount Municipal Bonds Value
Utah--0.2%
$ 610 Weber County, Utah, Municipal Building Authority,
Lease Revenue Refunding Bonds, 5.75%
due 12/15/2007 (d)(e) $ 651
Washington--6.9%
6,885 Bellevue, Washington, GO, Refunding, 5.50%
due 12/01/2039 (d) 7,531
3,840 Chelan County, Washington, Public Utility District
Number 001, Consolidated Revenue Bonds
(Chelan Hydro System), AMT, Series A, 5.45%
due 7/01/2037 (a) 4,068
Lewis County, Washington, GO, Refunding (a):
1,805 5.75% due 12/01/2009 (e) 1,981
1,640 5.75% due 12/01/2024 1,782
2,500 Seattle, Washington, Municipal Light and Power
Revenue Bonds, 6% due 10/01/2009 (d)(e) 2,780
3,500 Seattle, Washington, Water System Revenue Bonds,
Series B, 6% due 7/01/2029 (b) 3,832
West Virginia--2.0%
6,210 West Virginia State Housing Development Fund,
Housing Finance Revenue Refunding Bonds,
Series D, 5.20% due 11/01/2021 (d) 6,419
Face
Amount Municipal Bonds Value
Wisconsin--0.2%
$ 750 Wisconsin State Health and Educational Facilities
Authority Revenue Bonds (Blood Center of
Southeastern Wisconsin Project), 5.75%
due 6/01/2034 $ 795
Puerto Rico--2.1%
6,225 Puerto Rico Commonwealth, Public Improvement,
GO, 5.125% due 7/01/2030 (c) 6,600
Total Municipal Bonds
(Cost--$497,944)--163.2% 519,088
Shares
Held Short-Term Securities
3,589 Merrill Lynch Institutional Tax-Exempt Fund (l) 3,589
Total Short-Term Securities
(Cost--$3,589)--1.1% 3,589
Total Investments (Cost--$501,533*)--164.3% 522,677
Liabilities in Excess of Other Assets--(0.0%) (133)
Preferred Stock, at Redemption Value--(64.3%) (204,500)
----------
Net Assets Applicable to Common Stock--100.0% $ 318,044
==========
* The cost and unrealized appreciation (depreciation) of investments as of
September 30, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 501,639
===============
Gross unrealized appreciation $ 22,252
Gross unrealized depreciation (1,214)
---------------
Net unrealized appreciation $ 21,038
===============
** Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) Prerefunded.
(f) FHA Insured.
(g) FNMA Collateralized.
(h) 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.
(i) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(j) XL Capital Insured.
(k) GNMA Collateralized.
(l) 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:
Net Dividend
Affiliate Activity Income
Merrill Lynch Institutional Tax-Exempt Fund (12,600) $81
Financial futures contracts sold as of September 30, 2005 were as follows:
Number of Expiration Face Unrealized
Contracts Issue Date Value Appreciation
250 10-Year U.S. December
Treasury Bond 2005 $27,642 $161
See Notes to Financial Statements.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Statement of Net Assets
As of September 30, 2005
Assets
Investments in unaffiliated securities, at value (identified cost--$497,943,652) $ 519,087,212
Investments in affiliated securities, at value (identified cost--$3,589,380) 3,589,380
Cash 28,930
Receivables:
Securities sold $ 10,359,683
Interest 7,698,893
Variation margin 82,031
Dividends from affiliates 254 18,140,861
---------------
Prepaid expenses 8,296
---------------
Total assets 540,854,679
---------------
Liabilities
Payables:
Securities purchased 17,868,382
Investment adviser 199,774
Dividends to Common Stock shareholders 151,801
Other affiliates 5,598 18,225,555
---------------
Accrued expenses 84,704
---------------
Total liabilities 18,310,259
---------------
Preferred Stock
Preferred Stock, at redemption value, par value $.10 per share (2,100 Series A
Shares, 2,100 Series B Shares and 3,980 Series C Shares of AMPS* authorized,
issued and outstanding at $25,000 per share liquidation preference) 204,500,000
---------------
Net Assets Applicable to Common Stock
Net assets applicable to Common Stock $ 318,044,420
===============
Analysis of Net Assets Applicable to Common Stock
Common Stock, par value $.10 per share (22,352,426 shares issued and outstanding) $ 2,235,243
Paid-in capital in excess of par 313,735,958
Undistributed investment income--net $ 3,616,928
Accumulated realized capital losses--net (22,848,681)
Unrealized appreciation--net 21,304,972
---------------
Total accumulated earnings--net 2,073,219
---------------
Total--Equivalent to $14.23 net asset value per share of Common Stock
(market price--$13.90) $ 318,044,420
===============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Statement of Operations
For the Year Ended September 30, 2005
Investment Income
Interest $ 25,394,274
Dividends from affiliates 81,447
---------------
Total income 25,475,721
---------------
Expenses
Investment advisory fees $ 2,910,655
Commission fees 521,417
Accounting services 176,538
Transfer agent fees 61,756
Professional fees 59,606
Printing and shareholder reports 44,989
Custodian fees 31,540
Directors' fees and expenses 24,350
Pricing fees 21,682
Listing fees 19,117
Other 54,657
---------------
Total expenses before waiver and reimbursement 3,926,307
Waiver and reimbursement of expenses (199,702)
---------------
Total expenses after waiver and reimbursement 3,726,605
---------------
Investment income--net 21,749,116
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net 11,512,359
Futures contracts and forward interest rate swaps--net (3,221,912) 8,290,447
---------------
Change in unrealized appreciation/depreciation on:
Investments--net (12,732,580)
Futures contracts and forward interest rate swaps--net 2,347,537 (10,385,043)
--------------- ---------------
Total realized and unrealized loss--net (2,094,596)
---------------
Dividends to Preferred Stock Shareholders
Investment income--net (4,101,460)
---------------
Net Increase in Net Assets Resulting from Operations $ 15,553,060
===============
See Notes to Financial Statements.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Statements of Changes in Net Assets
For the Year Ended
September 30,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 21,749,116 $ 22,252,027
Realized gain (loss)--net 8,290,447 (53,052)
Change in unrealized appreciation/depreciation--net (10,385,043) 84,198
Dividends to Preferred Stock shareholders (4,101,460) (2,034,890)
--------------- ---------------
Net increase in net assets resulting from operations 15,553,060 20,248,283
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (19,580,725) (19,446,611)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common Stock shareholders (19,580,725) (19,446,611)
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase (decrease) in net assets applicable to Common Stock (4,027,665) 801,672
Beginning of year 322,072,085 321,270,413
--------------- ---------------
End of year* $ 318,044,420 $ 322,072,085
=============== ===============
* Undistributed investment income--net $ 3,616,928 $ 5,549,997
=============== ===============
See Notes to Financial Statements.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Financial Highlights
The following per share data and ratios have been derived For the Year Ended September 30,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 14.41 $ 14.37 $ 14.48 $ 13.94 $ 12.72
---------- ---------- ---------- ---------- ----------
Investment income--net .97++ 1.00++ 1.02++ 1.03 1.06
Realized and unrealized gain (loss)--net (.09) --++++ (.17) .47 1.21
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net (.18) (.09) (.10) (.13) (.31)
Realized gain--net -- -- -- --+++ --
---------- ---------- ---------- ---------- ----------
Total from investment operations .70 .91 .75 1.37 1.96
---------- ---------- ---------- ---------- ----------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net (.88) (.87) (.86) (.83) (.74)
Realized gain--net -- -- -- --+++ --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions to Common Stock
shareholders (.88) (.87) (.86) (.83) (.74)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 14.23 $ 14.41 $ 14.37 $ 14.48 $ 13.94
========== ========== ========== ========== ==========
Market price per share, end of year $ 13.90 $ 13.25 $ 13.13 $ 13.55 $ 13.04
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 5.35% 7.12% 5.95% 10.67% 16.43%
========== ========== ========== ========== ==========
Based on market price per share 11.92% 7.80% 3.45% 10.71% 28.87%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of waiver and reimbursement** 1.15% 1.12% 1.14% 1.18% 1.09%
========== ========== ========== ========== ==========
Total expenses** 1.21% 1.21% 1.23% 1.27% 1.26%
========== ========== ========== ========== ==========
Total investment income--net** 6.72% 6.93% 7.19% 7.44% 7.83%
========== ========== ========== ========== ==========
Amount of dividends to Preferred Stock shareholders 1.27% .63% .69% .97% 2.28%
========== ========== ========== ========== ==========
Investment income--net, to Common Stock
shareholders 5.45% 6.30% 6.50% 6.47% 5.55%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders 1.99% .99% 1.08% 1.46% 3.36%
========== ========== ========== ========== ==========
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Financial Highlights (concluded)
The following per share data and ratios have been derived For the Year Ended September 30,
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) $ 318,044 $ 322,072 $ 321,270 $ 323,678 $ 311,505
========== ========== ========== ========== ==========
Preferred Stock outstanding, end of year
(in thousands) $ 204,500 $ 204,500 $ 204,500 $ 204,500 $ 204,500
========== ========== ========== ========== ==========
Portfolio turnover 58.19% 45.89% 52.00% 50.73% 61.09%
========== ========== ========== ========== ==========
Leverage
Asset coverage per $1,000 $ 2,555 $ 2,575 $ 2,571 $ 2,583 $ 2,523
========== ========== ========== ========== ==========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 505 $ 253 $ 268 $ 362 $ 820
========== ========== ========== ========== ==========
Series B--Investment income--net $ 494 $ 241 $ 267 $ 338 $ 830
========== ========== ========== ========== ==========
Series C--Investment income--net $ 504 $ 251 $ 271 $ 381 $ 850
========== ========== ========== ========== ==========
* 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.
** Do not reflect the effect of dividends to Preferred Stock shareholders.
++ Based on average shares outstanding.
++++ Amount is less than $.01 per share.
+++ Amount is less than $(.01) per share.
See Notes to Financial Statements.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Notes to Financial Statements
1. Significant Accounting Policies:
MuniHoldings Insured Fund II, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, closed-end
management investment company. The Fund's 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 Fund determines and makes available for
publication the net asset value of its Common Stock on a daily basis. The
Fund's Common Stock shares are listed on the New York Stock Exchange under the
symbol MUE. The following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the over-
the-counter ("OTC") markets 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 Fund under the general
direction of the Board of Directors. Such valuations and procedures are
reviewed periodically by the Board of Directors of the Fund. 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 Fund's
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 Fund.
(b) Derivative financial instruments--The 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--The 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--The Fund may purchase and write 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 the 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--The 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.
(c) Income taxes--It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Notes to Financial Statements (concluded)
(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 Fund amortizes 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:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services,
Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML & Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, the Fund pays a
monthly fee at an annual rate of .55% of the Fund's average weekly net assets,
including proceeds from the issuance of Preferred Stock. FAM has agreed to
waive its management fee on the proceeds of Preferred Stock that exceeds 35%
of the Fund's total net assets. For the year ended September 30, 2005, FAM
earned fees of $2,910,655, of which $190,370 was waived. In addition, FAM has
agreed to reimburse its advisory fee by the amount of advisory fees the Fund
pays to FAM indirectly through its investment in Merrill Lynch Institutional
Tax-Exempt Fund. For the year ended September 30, 2005, FAM reimbursed the
Fund in the amount of $9,332.
For the year ended September 30, 2005, the Fund reimbursed FAM $12,478 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 September 30, 2005 were $314,029,045 and $298,838,158,
respectively.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of stock without approval of holders of Common
Stock.
Preferred Stock
Auction Market Preferred Stock are shares of Preferred Stock of the Fund, with
a par value of $.10 per share and a liquidation preference of $25,000 per
share, 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 September 30, 2005 were as follows:
Series A, 2.70%; Series B, 2.78%; and Series C, 2.76%.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of
each auction. For the year ended September, 30, 2005, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an affiliate of FAM, earned $271,023 as
commissions.
5. Distributions to Shareholders:
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of .073000 per share on October 28, 2005 to shareholders of record on
October 17, 2005.
The tax character of distributions paid during the fiscal years ended
September 30, 2005 and September 30, 2004 was as follows:
9/30/2005 9/30/2004
Distributions paid from:
Tax-exempt income $ 23,682,185 $ 21,481,501
--------------- ---------------
Total distributions $ 23,682,185 $ 21,481,501
=============== ===============
As of September 30, 2005, the components of accumulated earnings on a tax
basis were as follows:
Undistributed tax-exempt income--net $ 3,616,928
Undistributed long-term capital gains--net --
---------------
Total undistributed earnings--net 3,616,928
Capital loss carryforward (18,683,686)*
Unrealized gains--net 17,139,977**
---------------
Total accumulated earnings--net $ 2,073,219
===============
* On September 30, 2005, the Fund had a net capital loss carryforward
of $18,683,686, of which $6,857,897 expires in 2007, $11,519,686
expires in 2008 and $306,103 expires in 2012. This amount will be
available to offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on wash
sales, the tax deferral of losses on straddles and the realization for tax
purposes of unrealized gains (losses) on certain futures contracts.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
MuniHoldings Insured Fund II, Inc.:
We have audited the accompanying statement of net assets of MuniHoldings
Insured Fund II, Inc., including the schedule of investments, as of September
30, 2005, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended and financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's 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 Fund's 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 September 30, 2005, by
correspondence with the custodian and others. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
MuniHoldings Insured Fund II, Inc. at September 30, 2005, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the periods indicated therein in conformity with U.S. generally accepted
accounting principles.
(Ernst & Young LLP)
Philadelphia, Pennsylvania
November 9, 2005
Fund Certification (unaudited)
In May 2005, the Fund filed its 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 Insured
Fund II, Inc. during the taxable year ended September 30, 2005 qualify as tax-
exempt interest dividends for federal income tax purposes.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Automatic Dividend Reinvestment Plan
The following description of the Fund's Automatic Dividend Reinvestment Plan
(the "Plan") is sent to you annually as required by federal securities laws.
Pursuant to the Fund's Plan, unless a holder of Common Stock otherwise elects,
all dividend and capital gains distributions will be automatically reinvested
by EquiServe (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
EquiServe, 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 EquiServe, 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 Fund declares 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 the 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 the 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 the 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.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Automatic Dividend Reinvestment Plan (concluded)
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 Fund 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 Fund's shares is above the net asset value, participants in
the Plan will receive shares of the Fund 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 Fund does 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 the Fund's shares are trading at a
premium over net asset value, the 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 the 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 Fund reserves the right to amend or terminate the Plan. There
is no direct service charge to participants in the Plan; however, the Fund
reserves 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
EquiServe Trust Company N.A. (c/o Computershare Investor Services), P.O. Box
43010, Providence, RI 02940-3010, Telephone: 800-426-5523.
Dividend Policy
The Fund's dividend policy is to distribute all or a portion of its net
investment income to its shareholders on a monthly basis. In order to provide
shareholders with a more stable level of dividend distributions, the Fund may
at times pay out less than the entire amount of net investment income earned
in any particular month and may at times in any particular month pay out such
accumulated but undistributed income in addition to net investment income
earned in that month. As a result, the dividends paid by the Fund for any
particular month may be more or less than the amount of net investment income
earned by the Fund during such month. The Fund's current accumulated but
undistributed net investment income, if any, is disclosed in the Statement of
Net Assets, which comprises part of the financial information included in this
report.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
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 Fund 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; 175 Portfolios
Princeton, Director Co-Head (Americas Region) thereof from 2000 to
NJ 08543-9011 2001 and Senior Vice President from 1999 to
Age: 51 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 OppenheimerFunds, 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 described 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.
Independent Directors*
James H. Bodurtha** Director 2002 to Director, The China Business Group, Inc. since 39 Funds None
P.O. Box 9095 present 1996 and Executive Vice President thereof from 59 Portfolios
Princeton, 1996 to 2003; Chairman of the Board, Berkshire
NJ 08543-9095 Holding Corporation since 1980; Partner, Squire,
Age: 61 Sanders & Dempsey from 1980 to 1993.
Kenneth A. Froot Director 2005 to Professor, Harvard University since 1992; 39 Funds None
P.O. Box 9095 present Professor, Massachusetts Institute of 59 Portfolios
Princeton, Technology from 1986 to 1992.
NJ 08543-9095
Age: 48
Joe Grills** Director 1999 to Member of the Committee of Investment of 39 Funds Kimco
P.O. Box 9095 present Employee Benefit Assets of the Association of 59 Portfolios Realty
Princeton, Financial Professionals ("CIEBA") since 1986; Corporation
NJ 08543-9095 Member of CIEBA's Executive Committee since
Age: 70 1988 and its Chairman from 1991 to 1992;
Assistant Treasurer of International Business
Machines Corporation ("IBM") and Chief
Investment Officer of IBM Retirement Funds from
1986 to 1993; Member of the Investment Advisory
Committee of the State of New York Common
Retirement Fund since 1989; Member of the
Investment Advisory Committee of the Howard
Hughes Medical Institute from 1997 to 2000;
Director, Duke University Management Company
from 1992 to 2004, Vice Chairman thereof from
1998 to 2004, and Director Emeritus thereof since
2004; Director, LaSalle Street Fund from 1995 to
2001; Director, Kimco Realty Corporation since
1997; Member of the Investment Advisory
Committee of the Virginia Retirement System
since 1998, Vice Chairman thereof from 2002
to 2005, and Chairman since 2005; Director,
Montpelier Foundation since 1998 and its Vice
Chairman since 2000; Member of the Investment
Committee of the Woodberry Forest School since
2000; Member of the Investment Committee
of the National Trust for Historic Preservation
since 2000.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 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 Fund Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors* (concluded)
Herbert I. London Director 2002 to John M. Olin Professor of Humanities, New 39 Funds None
P.O. Box 9095 present York University since 1993 and Professor 59 Portfolios
Princeton, thereof since 1980; President, Hudson Institute
NJ 08543-9095 since 1997 and Trustee thereof since 1980; Dean,
Age: 66 Gallatin Division of New York University from
1976 to 1993; Distinguished Fellow, Herman
Kahn Chair, Hudson Institute from 1984 to 1985;
Director, Damon Corp. from 1991 to 1995;
Overseer, Center for Naval Analyses from 1983
to 1993.
Roberta Cooper Ramo Director 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 39 Funds None
P.O. Box 9095 present Sisk, P.A. since 1993; President, American Bar 59 Portfolios
Princeton, Association from 1995 to 1996 and Member
NJ 08543-9095 of the Board of Governors thereof from 1994 to
Age: 63 1997; Shareholder, Poole, Kelly and Ramo, Attorneys
at Law P.C. from 1977 to 1993; Director of ECMC
Group (service provider to students, schools and
lenders) since 2001; Director, United New Mexico
Bank (now Wells Fargo) from 1983 to 1988;
Director, First National Bank of New Mexico (now
Wells Fargo) from 1975 to 1976; Vice President,
American Law Institute since 2004.
Robert S. Salomon, Jr. Director 1999 to Principal of STI Management (investment 39 Funds None
P.O. Box 9095 present adviser) since 1994; Chairman and CEO of 59 Portfolios
Princeton, Salomon Brothers Asset Management Inc. from
NJ 08543-9095 1992 to 1995; Chairman of Salomon Brothers
Age: 68 Equity Mutual Funds from 1992 to 1995; regular
columnist with Forbes Magazine from 1992 to
2002; Director of Stock Research and U.S. Equity
Strategist at Salomon Brothers Inc. from 1975 to
1991; Trustee, Commonfund from 1980 to 2001.
Stephen B. Swensrud Director 1999 to Chairman of Fernwood Advisors, Inc. 40 Funds None
P.O. Box 9095 present (investment adviser) since 1996; Principal, 60 Portfolios
Princeton, Fernwood Associates (financial consultants)
NJ 08543-9095 since 1975; Chairman of R.P.P. Corporation
Age: 72 (manufacturing company) since 1978; Director
of International Mobile Communications,
Inc. (telecommunications) since 1998.
* Directors serve until their resignation, removal or death, or until December 31
of the year in which they turn 72.
** Co-Chairman of the Board and the Audit Committee.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2005
Officers and Directors (concluded)
Position(s) Length of
Held with Time
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 1999 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
P.O. Box 9011 President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
Princeton, and since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999; Vice
NJ 08543-9011 Treasurer President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from
Age: 45 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 (Municipal Tax-Exempt Fund
P.O. Box 9011 Vice present Management) of MLIMfrom 1997 to 2000.
Princeton, President
NJ 08543-9011
Age: 54
John M. Loffredo Senior 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
P.O. Box 9011 Vice present Management) of MLIM from 1997 to 2000.
Princeton, President
NJ 08543-9011
Age: 41
Robert A. DiMella Vice 1999 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 2002.
NJ 08543-9011
Age: 39
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
P.O. Box 9011 Compliance present Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief Compliance
Princeton, Officer Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
NJ 08543-9011 Investment Management from 2002 to 2004; Managing Director and Global Director
Age: 54 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 Fund serve at the pleasure of the Board of Directors.
Custodian
State Street Bank and
Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agents
Common Stock:
EquiServe Trust Company N.A.
(c/o Computershare Investor
Services)
P.O. Box 43010
Providence, RI 02940-3010
800-426-5523
Preferred Stock:
The Bank of New York
101 Barclay Street - 7 West
New York, NY 10286
NYSE Symbol
MUE
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule 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 Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's 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.
MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 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) Joe
Grills, (2) Robert S. Salomon, Jr., and (3) Stephen B. Swensrud.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending September 30, 2005 - $33,000
Fiscal Year Ending September 30, 2004 - $31,500
(b) Audit-Related Fees -
Fiscal Year Ending September 30, 2005 - $3,500
Fiscal Year Ending September 30, 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 September 30, 2005 - $5,700
Fiscal Year Ending September 30, 2004 - $5,200
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees -
Fiscal Year Ending September 30, 2005 - $0
Fiscal Year Ending September 30, 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 September 30, 2005 - $9,200
Fiscal Year Ending September 30, 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)):
James H. Bodurtha
Kenneth A. Froot (as of June 1, 2005)
Joe Grills
Herbert I. London
Roberta Cooper Ramo
Robert S. Salomon, Jr.
Stephen B. Swensrud
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 -
as of September 30, 2005.
(a)(1) Mr. Robert A. DiMella is primarily responsible for the day-
to-day management of the registrant's portfolio ("Portfolio
Manager"). Mr. DiMella has been a portfolio manager with
MLIM since 1997, was a Vice President of MLIM from 1997 to
2001, was a Director (Tax-Exempt Fund Management) of MLIM
from 2002 to 2004, has been a Managing Director of MLIM
since 2004 and has 15 years of experience investing in
Municipal Bonds as a portfolio manager on behalf of
registered investment companies. He has been the portfolio
manager and a Vice President of the Fund since 1999.
(a)(2) As of September 30, 2005:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
(i) Name of Registered Other Pooled Registered Other Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
Robert A.
DiMella 5 1 0 0 1 0
$ 2,831,092,580 $ 20,688,424 $ 0 $ 0 $ 20,688,424 $ 0
(iv) Potential Material Conflicts of Interest
Real, potential or apparent conflicts of interest may arise when a
portfolio manager has day-to-day portfolio management responsibilities with
respect to more than one fund or account, including the following:
Certain investments may be appropriate for the Fund and also for
other clients advised by the Investment. Adviser and its affiliates,
including other client accounts managed by the Fund's portfolio management
team. Investment decisions for the Fund and other clients are made with a
view to achieving their respective investment objectives and after
consideration of such factors as their current holdings, availability of
cash for investment and the size of their investments generally.
Frequently, a particular security may be bought or sold for only one client
or in different amounts and at different times for more than one but less
than all clients. Likewise, because clients of the Investment Adviser and
its affiliates may have differing investment strategies, a particular
security may be bought for one or more clients when one or more other
clients are selling the security. The investment results for the Fund may
differ from the results achieved by other clients of the Investment Adviser
and its affiliates and results among clients may differ. In addition,
purchases or sales of the same security may be made for two or more clients
on the same day. In such event, such transactions will be allocated among
the clients in a manner believed by the Investment Adviser and its
affiliates to be equitable to each. The Investment Adviser will not
determine allocations based on whether it receives a performance based fee
from the client. In some cases, the allocation procedure could have an
adverse effect on the price or amount of the securities purchased or sold
by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Investment Adviser and its affiliates in the
interest of achieving the most favorable net results to the Fund.
To the extent that the Fund's portfolio management team has
responsibilities for managing accounts in addition to the Fund, a portfolio
manager will need to divide his time and attention among relevant accounts.
In some cases, a real, potential or apparent conflict may also arise
where (i) the Investment Adviser may have an incentive, such as a
performance based fee, in managing one account and not with respect to
other accounts it manages or (ii) where a member of the Fund's portfolio
management team owns an interest in one fund or account he or she manages
and not another.
(a)(3) As of September 30, 2005:
Portfolio Manager Compensation
The Portfolio Manager Compensation Program of MLIM and its
affiliates, including the Investment Adviser, is critical to MLIM's ability
to attract and retain the most talented asset management professionals.
This program ensures that compensation is aligned with maximizing
investment returns and it provides a competitive pay opportunity for
competitive performance.
Compensation Program
The elements of total compensation for MLIM and its affiliates
portfolio managers are a fixed base salary, annual performance-based cash
and stock compensation (cash and stock bonus) and other benefits. MLIM has
balanced these components of pay to provide portfolio managers with a
powerful incentive to achieve consistently superior investment performance.
By design, portfolio manager compensation levels fluctuate--both up and
down--with the relative investment performance of the portfolios that they
manage.
Base Salary
Under the MLIM approach, like that of many asset management firms,
base salaries represent a relatively small portion of a portfolio manager's
total compensation. This approach serves to enhance the motivational value
of the performance-based (and therefore variable) compensation elements of
the compensation program.
Performance-Based Compensation
MLIM believes that the best interests of investors are served by
recruiting and retaining exceptional asset management talent and managing
their compensation within a consistent and disciplined framework that
emphasizes pay for performance in the context of an intensely competitive
market for talent. To that end, MLIM and its affiliates portfolio manager
incentive compensation is based on a formulaic compensation program. MLIM's
formulaic portfolio manager compensation program includes: investment
performance relative to a subset of general closed-end, leveraged, insured,
municipal debt funds over 1-, 3- and 5-year performance periods and a
measure of operational efficiency. Portfolio managers are compensated based
on the pre-tax performance of the products they manage. If a portfolio
manager's tenure is less than 5 years, performance periods will reflect
time in position. Portfolio managers are compensated based on products they
manage. A discretionary element of portfolio manager compensation may
include consideration of: financial results, expense control, profit
margins, strategic planning and implementation, quality of client service,
market share, corporate reputation, capital allocation, compliance and risk
control, leadership, workforce diversity, supervision, technology and
innovation. MLIM and its affiliates also consider the extent to which
individuals exemplify and foster ML & Co.'s principles of client focus,
respect for the individual, teamwork, responsible citizenship and
integrity. All factors are considered collectively by MLIM management.
Cash Bonus
Performance-based compensation is distributed to portfolio managers
in a combination of cash and stock. Typically, the cash bonus, when
combined with base salary, represents more than 60% of total compensation
for portfolio managers.
Stock Bonus
A portion of the dollar value of the total annual performance-based
bonus is paid in restricted shares of ML & Co. stock. Paying a portion of
annual bonuses in stock puts compensation earned by a portfolio manager for
a given year "at risk" based on the company's ability to sustain and
improve its performance over future periods. The ultimate value of stock
bonuses is dependent on future ML & Co. stock price performance. As such,
the stock bonus aligns each portfolio manager's financial interests with
those of the ML & Co. shareholders and encourages a balance between short-
term goals and long-term strategic objectives. Management strongly believes
that providing a significant portion of competitive performance-based
compensation in stock is in the best interests of investors and
shareholders. This approach ensures that portfolio managers participate as
shareholders in both the "downside risk" and "upside opportunity" of the
company's performance. Portfolio managers therefore have a direct incentive
to protect ML & Co.'s reputation for integrity.
Other Compensation Programs
Portfolio managers who meet relative investment performance and
financial management objectives during a performance year are eligible to
participate in a deferred cash program. Awards under this program are in
the form of deferred cash that may be benchmarked to a menu of MLIM mutual
funds (including their own fund) during a five-year vesting period. The
deferred cash program aligns the interests of participating portfolio
managers with the investment results of MLIM products and promotes
continuity of successful portfolio management teams.
Other Benefits
Portfolio managers are also eligible to participate in broad-based
plans offered generally to employees of ML & Co. and its affiliates,
including broad-based retirement, 401(k), health, and other employee
benefit plans.
(a)(4) Beneficial Ownership of Securities. As of September 30,
2005, Mr. DiMella does not beneficially own any stock issued
by the Fund.
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 Insured Fund II, Inc.
By: /s/ Robert C. Doll, Jr.
----------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
MuniHoldings Insured Fund II, Inc.
Date: November 17, 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 Insured Fund II, Inc.
Date: November 17, 2005
By: /s/ Donald C. Burke
----------------------------
Donald C. Burke,
Chief Financial Officer of
MuniHoldings Insured Fund II, Inc.
Date: November 17, 2005