UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/A
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-09191
Name of Fund: BlackRock 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, BlackRock 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: 09/30/06
Date of reporting period: 10/01/05 - 09/30/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES FIXED INCOME LIQUIDITY
REAL ESTATE
BlackRock MuniHoldings
Insured Fund II, Inc.
ANNUAL REPORT SEPTEMBER 30, 2006
(As Restated)
(BLACKROCK logo)
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock 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 BlackRock MuniHoldings Insured 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 1-800-441-7762; (2) at
www.blackrock.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.blackrock.com; and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
BlackRock MuniHoldings Insured Fund II, Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
(GO PAPERLESS...logo)
It's Fast, Convenient, & Timely!
BlackRock MuniHoldings Insured Fund II, Inc.
The financial statements and financial highlights in this report have been
restated as described in Note 6 to the financial statements. Other information
in this report affected by the restatement has been revised.
Portfolio Information as of September 30, 2006 (As Restated. See Note 6)
Percent of
Quality Ratings by Total
S&P/Moody's Rating Investments
AAA/Aaa 91.4%
AA/Aa 3.9
A/A 1.1
BBB/Baa 2.7
Other* 0.9
* Includes portfolio holdings in short-term investments and variable
rate demand notes.
Proxy Results
During the six-month period ended September 30, 2006, BlackRock MuniHoldings
Insured Fund II, Inc.'s Common Stock shareholders voted on the following
proposals. The proposal was approved at a shareholders' meeting on April 27,
2006. 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. 21,080,862 327,514
Kenneth A. Froot 21,078,526 329,850
Joe Grills 21,079,505 328,871
Herbert I. London 21,079,177 329,199
Roberta Cooper Ramo 21,071,719 336,657
During the six-month period ended September 30, 2006, BlackRock 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 27, 2006. 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. 7,945 1
James H. Bodurtha 7,945 1
Kenneth A. Froot 7,945 1
Joe Grills 7,945 1
Herbert I. London 7,945 1
Roberta Cooper Ramo 7,944 2
Robert S. Salomon, Jr. 7,945 1
During the six-month period ended September 30, 2006, BlackRock MuniHoldings
Insured Fund II, Inc.'s Common Stock and Preferred Stock shareholders voted on
the following proposals. The proposals were approved at a shareholders'
meeting on August 15, 2006. A description of the proposals and number of
shares voted were as follows:
Shares Voted Shares Voted Shares Voted
For Against Abstain
To approve a new investment advisory agreement with BlackRock Advisors, Inc. 11,401,289 332,235 654,094
To approve a contingent subadvisory agreement with BlackRock Advisors, Inc. 11,384,474 341,882 661,262
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
A Letter to Shareholders
Dear Shareholder
It is my pleasure to welcome you to BlackRock.
On September 29, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch
Investment Managers, L.P. ("MLIM") united to form one of the largest asset
management firms in the world. Now with more than $1 trillion in assets under
management, over 4,000 employees in 18 countries and representation in key
markets worldwide, BlackRock's global presence means greater depth and scale
to serve you.
The new BlackRock unites some of the finest money managers in the industry.
Our ranks include more than 500 investment professionals globally - portfolio
managers, research analysts, risk management professionals and traders. With
offices strategically located around the world, our investment professionals
have in-depth local knowledge and the ability to leverage our global presence
and robust infrastructure to deliver focused investment solutions. BlackRock's
professional investors are supported by disciplined investment processes and
best-in-class technology, ensuring that our portfolio managers are well
equipped to research, uncover and capitalize on the opportunities the world's
markets have to offer.
The BlackRock culture emphasizes excellence, teamwork and integrity in the
management of a variety of equity, fixed income, cash management, alternative
investment and real estate products. Our firm's core philosophy is grounded in
the belief that experienced investment and risk professionals using
disciplined investment processes and sophisticated analytical tools can
consistently add value to client portfolios.
As you probably are aware, most former MLIM investment products now carry the
"BlackRock" name. This is reflected in newspapers and online fund reporting
resources. Your account statements, as of the October month-end reporting
period, also reflect the BlackRock name. Unless otherwise communicated to you,
your funds maintain the same investment objectives that they did prior to the
combination of MLIM and BlackRock. Importantly, this union does not affect
your brokerage account or your relationship with your financial advisor.
Clients of Merrill Lynch remain clients of Merrill Lynch.
We view this combination of asset management leaders as a complementary union
that reinforces our commitment to shareholders. Individually, each firm made
investment performance its single most important mission. Together, we are
even better prepared to capitalize on market opportunities on behalf of our
shareholders. Our focus on investment excellence is accompanied by an
unwavering commitment to service, enabling us to assist clients, in
cooperation with their financial professionals, in working toward their
investment goals. We thank you for allowing us the opportunity, and we look
forward to serving your investment needs in the months and years ahead as the
new BlackRock.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
Vice Chairman
BlackRock, Inc.
Data, including assets under management, are as of June 30, 2006.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
A Discussion With Your Fund's Portfolio Manager
The Fund provided a competitive total return and above-average yield relative
to its Lipper peers, as we continued our efforts to enhance the level of
income provided to shareholders while protecting the Fund's underlying value.
Describe the recent market environment relative to municipal bonds.
Long-term bond yields rose throughout most of the past year before moving
lower in August and September as bond prices, which move opposite of yields,
increased. The recent improvement in bond prices came in response to the
Federal Reserve Board's (the Fed) decision to refrain from raising the federal
funds rate at its August 8 meeting. This left the short-term interest rate
target at 5.25%. After 17 consecutive interest rate hikes since June 2004,
moderating U.S. economic growth and declining inflationary expectations were
cited as reasons for the Fed pause. Earlier in the reporting period, bond
yields rose steadily (and prices declined) as investors focused on solid
economic growth and rising commodity prices, which reignited fears of
inflation. More recently, declines in oil prices, and particularly in gasoline
prices, served to ease these earlier concerns and help boost bond prices.
Overall, 30-year U.S. Treasury bond yields rose 20 basis points (.20%) during
the 12-month period to 4.77%, while 10-year U.S. Treasury note yields
increased 30 basis points to 4.64%. On balance, the yield curve continued to
flatten during the year, leading to significant underperformance in the
intermediate maturity range. Meanwhile, the tax-exempt market's strong
technical position provided significant price support, allowing municipal
yields to decline during the past year. As measured by Municipal Market Data,
yields on AAA-rated issues maturing in 30 years fell to 4.17%, while yields on
AAA-rated issues maturing in 10 years declined five basis points to 3.68%.
Despite the modest decline in yields, investor demand for municipal product
remained strong, evidenced by significant inflows to tax-exempt mutual funds.
As reported by the Investment Company Institute, for the first eight months of
2006, municipal bond funds experienced new cash flows of over $8.25 billion,
nearly a 45% increase from 2005 levels. The tax-exempt market's positive
technical position has been bolstered by a decline in new bond issuance. Over
the past six months, approximately $192 billion in new long-term municipal
bonds was underwritten, a decline of 9.8% versus the same period a year ago.
The third quarter 2006 new-issue volume of $82.3 billion represented a 20%
decline from the third quarter 2005. Monthly issuance of $24 billion this
September represented the slowest September volume in the past five years - and
a 24% decline from September 2005. Reduced refunding activity has continued to
drive the declining supply trend. For the first nine months of 2006, refundings
fell more than 54% relative to the same period in 2005. Despite historically
low yields, few analysts project a dramatic rebound in refunding activity for
the remainder of 2006.
How did the Fund perform during the fiscal year?
For the 12-month period ended September 30, 2006, the Common Stock of
BlackRock MuniHoldings Insured Fund II, Inc. had net annualized yields of
5.13% and 5.60%, based on a year-end per share net asset value of $14.15 and a
per share market price of $12.96, respectively, and $.726 per share income
dividends. Over the same period, the total investment return on the Fund's
Common Stock was +5.19%, based on a change in per share net asset value from
$14.23 to $14.15, and assuming reinvestment of all distributions.
The Fund's total return, based on net asset value, essentially paced the
+5.12% 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.) The Fund's high accrual rate contributed to its competitive
return, and also allowed us to provide shareholders with an above-average
yield. Essentially, we maintained our holdings in five-year - 10-year
prerefunded bonds, which offered higher yields than those currently available
in the municipal market. Meanwhile, the effect of our yield curve strategy was
somewhat muted. For most of the period, the Fund was overweight in bonds with
maturities greater than 20 years. This benefited performance as the yield
curve flattened and longer-term bonds outperformed short-term issues.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
However, we avoided the longest maturities (30 years and greater) given the
interest rate risk associated with longer-duration products. This hindered
performance somewhat as the 30-year sector outperformed the rest of the
municipal market by a wide margin for the 12-month period.
For the six-month period ended September 30, 2006, the total investment return
on the Fund's Common Stock was +4.23%, based on a change in per share net
asset value from $13.94 to $14.15, 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?
Throughout the year, we continued to focus on securities that we felt
represented the best relative value in the insured municipal marketplace. The
lack of new-issue supply and increased demand for municipal bonds caused
spreads to narrow in all sectors of the municipal market. In light of the
tight spreads, we increased our exposure to tax-exempt bonds in high demand
states, such as New York and New Jersey. We believe this strategy should prove
beneficial with any shift in the demand/supply imbalance.
We also started shifting the Fund's focus from the 20-year sector of the yield
curve to the 10-year - 15-year area. The flattening of the curve has enabled
this restructuring to be accomplished with very little yield sacrifice and, we
believe, positions the Fund for favorable performance should the municipal
yield curve resteepen in the future.
For the six months ended September 30, 2006, the Fund's Auction Market
Preferred Stock had average yields of 3.45% for Series A, 3.44% for Series B
and 3.48% for Series C. The Fed raised short-term interest rates six times
during the 12-month period, but opted to keep the target rate on hold at 5.25%
in August, September and October 2006. As such, the Fund's borrowing costs
started to stabilize and even move slightly lower late in the period. Despite
the Fed's interest rate increases during the period, the municipal yield curve
remained positively sloped and continued to generate an income benefit to the
Common Stock shareholder from the leveraging of Preferred Stock. However,
should the spread between short-term and long-term interest rates narrow, the
benefits of leveraging will decline and, as a result, reduce the yield on the
Fund's Common Stock. (For a more complete explanation of the benefits and
risks of leveraging, see page 6 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 market neutral with
respect to interest rate risk. After concentrating on the long end of the
yield curve for some time, we are shifting our focus back down the curve
somewhat given the possibility that the yield curve flattening trend is
nearing its conclusion. Overall, we continue to emphasize competitive yield
and preservation of net asset value in our management of the portfolio.
Robert A. DiMella, CFA
Vice President and Portfolio Manager
October 2, 2006
Effective October 2, 2006, Robert Sneeden assumed responsibility for the
day-to-day management of the Fund's portfolio. Mr. Sneeden has been a
Director of BlackRock, Inc. since 2006. Prior to joining BlackRock,
Mr. Sneeden was a Director (Municipal Tax-Exempt Fund Management) of MLIM
from 2005 to 2006, Vice President of MLIM from 1998 to 2005 and Assistant
Vice President of MLIM from 1994 to 1998.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
The Benefits and Risks of Leveraging
BlackRock 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 of September 30, 2006, the Fund's leverage amount, due to Auction Market
Preferred Stock, was 39.27% of total net assets, before the deduction of
Preferred Stock.
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.
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.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Schedule of Investments as of September 30, 2006 (In Thousands)
(As Restated. See Note 6)
Face
Amount Municipal Bonds Value
Alabama--2.9%
$ 3,580 Jefferson County, Alabama, Limited Obligation
School Warrants, Series A, 5.50% due 1/01/2022 $ 3,889
5,000 Mobile, Alabama, GO, Refunding, 5.25%
due 8/15/2020 (a) 5,387
Alaska--1.3%
2,000 Anchorage, Alaska, Water Revenue Refunding Bonds,
6% due 9/01/2024 (a) 2,143
1,700 Matanuska-Susitna Boro, Alaska, GO, Series A, 6%
due 3/01/2010 (i)(j) 1,833
California--28.7%
California State, GO:
230 5.50% due 4/01/2014 (j) 259
1,870 5.50% due 4/01/2028 2,060
2,500 California State, GO, Refunding, RIB, AMT,
Series 777X, 6.70% due 12/01/2021 (i)(m) 2,586
2,935 California State, Various Purpose, GO, 5.25%
due 12/01/2022 (f) 3,181
Cerritos, California, Community College District, GO
(Election of 2004), Series A (i):
110 5% due 8/01/2025 117
85 5% due 8/01/2026 90
2,405 Dixon, California, Unified School District, GO
(Election of 2002), 5.20% due 8/01/2044 (f) 2,521
East Side Union High School District, California,
Santa Clara County, GO (Election of 2002),
Series D (n):
2,185 5% due 8/01/2020 2,351
8,460 5% due 8/01/2029 8,917
Los Angeles, California, Unified School District, GO:
3,400 (Election of 1997), Series F, 5%
due 1/01/2028 (c) 3,585
12,155 Series A, 5% due 1/01/2028 (i) 12,816
4,240 Modesto, California, Schools Infrastructure
Financing Agency, Special Tax Bonds, 5.50%
due 9/01/2036 (a) 4,626
5,000 Port of Oakland, California, Revenue Refunding
Bonds, AMT, Series L, 5.375% due 11/01/2027 (c) 5,368
2,985 Roseville, California, Joint Union High School
District, GO (Election of 2004), Series A, 5%
due 8/01/2029 (c) 3,145
2,130 Sacramento, California, City Financing Authority,
Capital Improvement Revenue Bonds (911 Call
Center and Other Municipal Projects), 5%
due 12/01/2027 (a) 2,234
Face
Amount Municipal Bonds Value
California (concluded)
$ 1,480 San Diego, California, Community College District,
GO (Election of 2002), 5% due 5/01/2030 (f) $ 1,563
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 (f) 1,310
5,075 San Francisco, California, City and County, GO
(California Academy of Sciences Improvements),
Series E, 5% due 6/15/2022 (i) 5,409
3,800 San Jose, California, GO (Libraries, Parks and Public
Safety Projects), 5% due 9/01/2030 (i) 3,985
5,190 Sequoia, California, Unified High School District, GO,
Refunding, Series B, 5.50% due 7/01/2035 (f) 5,782
Stockton, California, Public Financing Revenue
Bonds (Redevelopment Projects), Series A (k):
4,485 5.25% due 9/01/2031 4,781
2,930 5.25% due 9/01/2034 3,117
Tustin, California, Unified School District, Senior
Lien Special Tax Bonds (Community Facilities District
Number 97-1), Series A (f):
2,915 5% due 9/01/2032 3,024
4,620 5% due 9/01/2038 4,778
3,000 University of California Revenue Bonds (Multiple
Purpose Projects), Series Q, 5% due 9/01/2022 (f) 3,170
Colorado--3.6%
6,285 Aurora, Colorado, COP, 5.75% due 12/01/2010 (a)(j) 6,804
280 Colorado HFA, Revenue Refunding Bonds
(S/F Program), AMT, Senior Series A-2, 7.50%
due 4/01/2031 288
4,000 Colorado Health Facilities Authority, Hospital
Revenue Refunding Bonds (Poudre Valley Health
Care), Series A, 5.75% due 12/01/2009 (f)(j) 4,289
Connecticut--0.5%
1,520 Connecticut State, GO, Refunding, Series D, 5%
due 12/01/2024 (i) 1,622
Florida--2.4%
3,670 Miami-Dade County, Florida, Subordinate Special
Obligation Revenue Bonds, Series A, 5.24%
due 10/01/2037 (i)(o) 765
6,300 Pasco County, Florida, Half-Cent Sales Tax Revenue
Bonds, 5.125% due 12/01/2028 (a) 6,657
Georgia--2.1%
6,290 Augusta, Georgia, Water and Sewer Revenue Bonds,
5.25% due 10/01/2034 (f) 6,766
Portfolio Abbreviations
To simplify the listings of BlackRock 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
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
VRDN Variable Rate Demand Notes
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Schedule of Investments (continued) (In Thousands)
Face
Amount Municipal Bonds Value
Idaho--0.2%
$ 685 Idaho Housing and Finance Association, S/F Mortgage
Revenue Bonds, AMT, Series E, 6% due 1/01/2032 $ 698
Illinois--7.1%
Chicago, Illinois, GO, Series A (c)(j):
18,130 6% due 7/01/2010 19,830
2,185 (Neighborhoods Alive 21 Program), 6%
due 7/01/2010 2,390
125 Lake, Cook, Kane and McHenry Counties, Illinois,
Community Unit School District Number 220, GO,
6% due 12/01/2020 (c) 136
Indiana--4.1%
3,000 Indiana Transportation Finance Authority, Highway
Revenue Bonds, Series A, 5.25% due 6/01/2029 (c) 3,219
9,280 Shelbyville, Indiana, Elementary School Building
Corporation Revenue Bonds, First Mortgage, 5.75%
due 1/15/2009 (f)(j) 9,815
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 3,805
2,805 Sedgwick and Shawnee Counties, Kansas,
S/F Mortgage Revenue Bonds, AMT, Series A-2,
6.20% due 12/01/2033 (e)(g) 2,811
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) 2,326
Massachusetts--9.0%
5,535 Massachusetts Bay Transportation Authority, Sales
Tax Revenue Refunding Bonds, Senior Series A, 5%
due 7/01/2035 5,730
3,495 Massachusetts Bay Transportation Authority, Special
Assessment Revenue Refunding Bonds, Series A,
5% due 7/01/2015 (j) 3,816
5,000 Massachusetts State School Building Authority,
Dedicated Sales Tax Revenue Bonds, Series A, 5%
due 8/15/2030 (f) 5,290
12,345 Massachusetts State Special Obligation Dedicated
Tax Revenue Bonds, 5.25% due 1/01/2014 (c)(j) 13,519
Michigan--0.3%
1,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Mercy-Mount Clemens), Series A,
6% due 5/15/2014 (i) 1,062
Minnesota--4.4%
Prior Lake, Minnesota, Independent School District
Number 719, GO (f):
2,555 5.50% due 2/01/2016 2,702
1,830 5.50% due 2/01/2017 1,932
3,570 5.50% due 2/01/2018 3,770
2,840 5.50% due 2/01/2019 2,999
2,185 Sauk Rapids, Minnesota, Independent School
District Number 47, GO, Series A, 5.625%
due 2/01/2018 (i) 2,357
Face
Amount Municipal Bonds Value
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 $ 1,530
3,985 5.50% due 4/01/2022 4,306
Nevada--3.3%
145 Nevada Housing Division, S/F Mortgage Revenue
Bonds, AMT, Series A-2, 6.30% due 4/01/2022 (i) 147
9,445 Truckee Meadows, Nevada, Water Authority,
Water Revenue Bonds, Series A, 5.50%
due 7/01/2011 (f)(j) 10,240
New Jersey--18.6%
New Jersey EDA, Cigarette Tax Revenue Bonds:
2,980 5.625% due 6/15/2018 3,103
8,590 5.75% due 6/15/2029 9,231
6,200 5.75% due 6/15/2034 (b) 6,827
11,000 New Jersey EDA, Motor Vehicle Surcharge Revenue
Bonds, Series A, 5.25% due 7/01/2033 (i) 11,802
New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Bonds, Series D:
5,780 5% due 6/15/2015 (a)(j) 6,277
4,220 5% due 6/15/2018 (a) 4,552
12,950 5% due 6/15/2020 (f) 13,894
3,000 New Jersey State Turnpike Authority, Turnpike
Revenue Bonds, Series C, 5% due 1/01/2030 (f) 3,170
New Mexico--3.5%
5,000 Farmington, New Mexico, PCR, Refunding (Public
Service Company of New Mexico--San Juan
Project), Series C, 5.70% due 12/01/2016 (a) 5,116
5,480 New Mexico Finance Authority, Senior Lien State
Transportation Revenue Bonds, Series A, 5.125%
due 6/15/2018 (i) 5,938
New York--16.7%
8,010 Metropolitan Transportation Authority, New York,
Revenue Bonds, Series A, 5% due 11/15/2019 (a) 8,662
14,000 Nassau Health Care Corporation, New York, Health
System Revenue Bonds, 5.75% due 8/01/2009 (f)(j) 15,105
145 New York City, New York, GO, Refunding, Series G,
5.75% due 2/01/2017 (f) 147
5,000 New York City, New York, Sales Tax Asset Receivable
Corporation Revenue Bonds, Series A, 5%
due 10/15/2020 (i) 5,377
5,755 New York State Dormitory Authority Revenue Bonds
(School Districts Financing Program), Series D,
5.25% due 10/01/2023 (i) 6,206
Tobacco Settlement Financing Corporation of New
York Revenue Bonds:
2,000 Series A-1, 5.25% due 6/01/2021 (a) 2,150
7,850 Series C-1, 5.50% due 6/01/2017 8,419
5,630 Series C-1, 5.50% due 6/01/2020 (c) 6,148
500 Triborough Bridge and Tunnel Authority, New York,
General Purpose Revenue Refunding Bonds, VRDN,
Series C, 3.70% due 1/01/2032 (a)(l) 500
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Schedule of Investments (continued) (In Thousands)
Face
Amount Municipal Bonds Value
North Carolina--0.4%
$ 1,340 North Carolina HFA, Home Ownership Revenue
Bonds, AMT, Series 14-A, 5.35% due 1/01/2022 (a) $ 1,385
Ohio--1.0%
1,745 Aurora, Ohio, City School District, COP, 6.10%
due 12/01/2009 (i)(j) 1,893
1,000 Kent State University, Ohio, University Revenue
Bonds, 6% due 5/01/2024 (a) 1,084
Oklahoma--0.8%
2,385 Claremore, Oklahoma, Public Works Authority,
Capital Improvement Revenue Refunding Bonds,
Series A, 5.25% due 6/01/2027 (f) 2,588
Pennsylvania--9.6%
5,600 Lycoming County, Pennsylvania, College Authority
Revenue Bonds (Pennsylvania College of
Technology), 5.25% due 7/01/2007 (i)(j) 5,728
6,435 Pennsylvania State Higher Educational Facilities
Authority, State System of Higher Education
Revenue Bonds, Series O, 5.125%
due 6/15/2024 (a) 6,491
Pittsburgh, Pennsylvania, GO, Series C (f):
4,290 5.25% due 9/01/2017 4,765
6,415 5.25% due 9/01/2018 7,112
Seneca Valley, Pennsylvania, School District, GO (c):
1,390 5% due 1/01/2020 1,496
2,260 5% due 1/01/2021 2,425
2,090 Washington County, Pennsylvania, Capital Funding
Authority Revenue Bonds (Capital Projects and
Equipment Program), 6.15% due 12/01/2029 (a) 2,240
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)(j) 6,005
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 (n) 5,119
South Carolina--0.7%
2,225 South Carolina Housing Finance and Development
Authority, Mortgage Revenue Refunding Bonds,
AMT, Series A-2, 6.35% due 7/01/2019 (f) 2,332
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)(j) 3,762
1,080 Tennessee HDA, Revenue Bonds (Homeownership
Program), AMT, Series 2C, 6% due 7/01/2011 1,109
1,515 Tennessee HDA, Revenue Refunding Bonds
(Homeownership Program), AMT, Series 1, 6.05%
due 7/01/2014 (i) 1,522
Face
Amount Municipal Bonds Value
Texas--5.1%
$ 1,750 Austin, Texas, Convention Center Revenue Bonds
(Convention Enterprises Inc.), Trust Certificates,
Second Tier, Series B, 6% due 1/01/2023 $ 1,855
Dallas-Fort Worth, Texas, International Airport
Revenue Refunding and Improvement Bonds,
AMT, Series A (c):
1,835 5.875% due 11/01/2017 1,993
2,150 5.875% due 11/01/2018 2,335
2,390 5.875% due 11/01/2019 2,596
El Paso, Texas, Water and Sewer Revenue Refunding
and Improvement Bonds, Series A (f):
115 6% due 3/01/2015 128
170 6% due 3/01/2016 189
180 6% due 3/01/2017 200
4,616 Houston, Texas, Community College System,
Participation Interests, COP (Alief Center Project),
5.75% due 8/15/2022 (i) 4,826
1,850 Midland, Texas, Certificates of Obligation, GO,
6.10% due 3/01/2010 (c)(j) 1,999
Utah--0.2%
610 Weber County, Utah, Municipal Building Authority,
Lease Revenue Refunding Bonds, 5.75%
due 12/15/2007 (i)(j) 632
Washington--6.9%
6,885 Bellevue, Washington, GO, Refunding, 5.50%
due 12/01/2039 (i) 7,629
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) 4,113
Lewis County, Washington, GO, Refunding (a):
1,805 5.75% due 12/01/2009 (j) 1,924
1,640 5.75% due 12/01/2024 1,737
2,500 Seattle, Washington, Municipal Light and Power
Revenue Bonds, 6% due 10/01/2009 (i)(j) 2,696
3,500 Seattle, Washington, Water System Revenue Bonds,
Series B, 6% due 7/01/2009 (c)(j) 3,755
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 (i) 6,437
Wisconsin--0.4%
1,250 Wisconsin State Health and Educational Facilities
Authority Revenue Bonds (Blood Center of
Southeastern Wisconsin Project), 5.75%
due 6/01/2034 1,354
Puerto Rico--2.4%
Puerto Rico Commonwealth, Public
Improvement, GO:
6,225 5.125% due 7/01/2030 (f) 6,539
1,010 Refunding, Series B, 5.25%
due 7/01/2032 1,079
Total Municipal Bonds
(Cost--$449,237)--148.4% 469,344
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Schedule of Investments (concluded) (In Thousands)
Face
Amount Municipal Bonds Held in Trust (q) Value
Arkansas--4.1%
$12,210 Arkansas State Development Finance Authority,
M/F Mortgage Revenue Refunding Bonds, Series C,
5.35% due 12/01/2035 (d)(i) $ 12,797
California--6.0%
10,710 California Pollution Control Financing Authority, PCR,
Refunding (Pacific Gas and Electric), AMT, Series A,
5.35% due 12/01/2016 (i) 11,508
4,350 California State, Veterans, GO, Refunding, AMT,
Series BZ, 5.35% due 12/01/2021 (i) 4,425
3,000 Port of Oakland, California, Revenue Bonds, AMT,
Series K, 5.75% due 11/01/2021 (c) 3,178
Illinois--2.6%
7,300 Chicago, Illinois, O'Hare International Airport
Revenue Bonds, Third Lien, AMT, Series B-2, 6%
due 1/01/2029 (n) 8,181
Michigan--3.4%
5,000 Michigan State Strategic Fund, Limited Obligation
Revenue Refunding Bonds (Detroit Edison Company
Pollution Control Project), AMT, Series C, 5.65%
due 9/01/2029 (n) 5,319
2,000 Michigan State Strategic Fund, Limited Obligation
Revenue Refunding Bonds (Detroit Edison Company
Pollution Control Project), AMT, Series A, 5.50%
due 6/01/2030 (n) 2,150
3,000 Saint Clair County, Michigan, Economic Revenue
Refunding Bonds (Detroit Edison Co. Project),
Series AA, 6.40% due 8/01/2024 (a) 3,197
Face
Amount Municipal Bonds Held in Trust (q) Value
New York--2.3%
$ 6,750 New York City, New York, Sales Tax Asset Receivable
Corporation Revenue Bonds, Series A, 5.25%
due 10/15/2027 (a) $ 7,330
Texas--5.4%
16,000 Dallas-Fort Worth, Texas, International Airport
Revenue Bonds, AMT, Series A, 5.50%
due 11/01/2033 (i) 17,172
Total Municipal Bonds Held in Trust
(Cost--$72,796)--23.8% 75,257
Shares
Held Short-Term Securities
4,616 Merrill Lynch Institutional Tax-Exempt Fund,
3.54% (h)(p) 4,616
Total Short-Term Securities
(Cost--$4,616)--1.5% 4,616
Total Investments (Cost--$526,649*)--173.7% 549,217
Other Assets Less Liabilities--2.3% 7,202
Liability for Trust Certificates, Including Interest
Expense Payable--(11.3%) (35,619)
Preferred Stock, at Redemption Value--(64.7%) (204,584)
----------
Net Assets Applicable to Common Stock--100.0% $ 316,216
==========
* The cost and unrealized appreciation (depreciation) of investments
as of September 30, 2006, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 492,510
===============
Gross unrealized appreciation $ 21,787
Gross unrealized depreciation (240)
---------------
Net unrealized appreciation $ 21,547
===============
(a) AMBAC Insured.
(b) Assured Guaranty Insured.
(c) FGIC Insured.
(d) FHA Insured.
(e) FNMA Collateralized.
(f) FSA Insured.
(g) GNMA Collateralized.
(h) Investments in companies considered to be an affiliate of the Fund,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
Net Dividend
Affiliate Activity Income
Merrill Lynch Institutional Tax-Exempt Fund 1,027 $140
(i) MBIA Insured.
(j) Prerefunded.
(k) Radian Insured.
(l) 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.
(m) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(n) XL Capital Insured.
(o) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
(p) Represents current yield as of September 30, 2006.
(q) As restated. See Note 6. Securities represent underlying bonds
transferred to a separate securitization trust established in a
tender option bond transaction in which the Fund may have acquired
the residual interest certificates. These securities serve as
collateral in a financing transaction. See Note 1(c) to Financial
Statements for details of Municipal Bonds Held in Trust.
o Forward Interest Rate Swaps outstanding as of September 30, 2006
were as follows:
Notional Unrealized
Amount Depreciation
Pay a fixed rate of 3.856% and receive
a floating rate based on a 1-week Bond
Market Association rate
Broker, JPMorgan Chase
Expires December 2016 $25,000 $ (260)
See Notes to Financial Statements.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Statement of Net Assets (As Restated. See Note 6)
As of September 30, 2006
Assets
Investments in unaffiliated securities, at value (identified cost--$522,033,287) $ 544,601,060
Investments in affiliated securities, at value (identified cost--$4,615,571) 4,615,571
Cash 44,253
Receivables:
Interest $ 7,813,438
Securities sold 55,000 7,868,438
---------------
Prepaid expenses 11,258
---------------
Total assets 557,140,580
---------------
Liabilities
Trust certificates 35,160,000
Unrealized depreciation on forward interest rate swaps 260,075
Payables:
Interest expense 459,439
Investment adviser 195,859
Dividends to Common Stock shareholders 106,550
Other affiliates 1,678 763,526
---------------
Accrued expenses and other liabilities 157,024
---------------
Total liabilities 36,340,625
---------------
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) 204,584,286
---------------
Net Assets Applicable to Common Stock
Net assets applicable to Common Stock $ 316,215,669
===============
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 $ 1,251,751
Accumulated realized capital losses--net (23,314,981)
Unrealized appreciation--net 22,307,698
---------------
Total accumulated earnings--net 244,468
---------------
Total--Equivalent to $14.15 net asset value per share of Common Stock
(market price--$12.96) $ 316,215,669
===============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Statement of Operations (As Restated. See Note 6)
For the Year Ended September 30, 2006
Investment Income
Interest $ 25,599,381
Dividends from affiliates 139,734
---------------
Total income 25,739,115
---------------
Expenses
Investment advisory fees $ 2,831,938
Interest expense and fees 1,275,756
Commission fees 518,876
Accounting services 170,226
Transfer agent fees 67,905
Professional fees 66,140
Printing and shareholder reports 34,722
Custodian fees 28,068
Directors' fees and expenses 24,950
Pricing fees 20,242
Listing fees 16,572
Other 49,212
---------------
Total expenses before waiver and reimbursement 5,104,607
Waiver and reimbursement of expenses (209,634)
---------------
Total expenses after waiver and reimbursement 4,894,973
---------------
Investment income--net 20,844,142
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain on:
Investments--net 783,224
Financial futures contracts and forward interest rate swaps--net 554,225 1,337,449
---------------
Change in unrealized appreciation/depreciation on:
Investments--net (379,536)
Financial futures contracts and forward interest rate swaps--net (421,487) (801,023)
--------------- ---------------
Total realized and unrealized gain--net 536,426
---------------
Dividends to Preferred Stock Shareholders
Investment income--net (6,534,409)
---------------
Net Increase in Net Assets Resulting from Operations $ 14,846,159
===============
See Notes to Financial Statements.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Statements of Changes in Net Assets (As Restated. See Note 6)
For the Year Ended
September 30,
Increase (Decrease) in Net Assets: 2006 2005
Operations
Investment income--net $ 20,844,142 $ 21,749,116
Realized gain--net 1,337,449 6,611,282
Change in unrealized appreciation/depreciation--net (801,023) (8,705,878)
Dividends to Preferred Stock shareholders (6,534,409) (4,101,460)
--------------- ---------------
Net increase in net assets resulting from operations 14,846,159 15,553,060
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (16,674,910) (19,580,725)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common Stock shareholders (16,674,910) (19,580,725)
--------------- ---------------
Net Assets Applicable to Common Stock
Total decrease in net assets applicable to Common Stock (1,828,751) (4,027,665)
Beginning of year 318,044,420 322,072,085
--------------- ---------------
End of year* $ 316,215,669 $ 318,044,420
=============== ===============
* Undistributed investment income--net $ 1,251,751 $ 3,616,928
=============== ===============
See Notes to Financial Statements.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Financial Highlights (As Restated. See Note 6)
The following per share data and ratios have been derived For the Year Ended September 30,
from information provided in the financial statements. 2006 2005 2004 2003 2002
Per Share Operating Performance
Net asset value, beginning of year $ 14.23 $ 14.41 $ 14.37 $ 14.48 $ 13.94
---------- ---------- ---------- ---------- ----------
Investment income--net .93++ .97++ 1.00++ 1.02++ 1.03
Realized and unrealized gain (loss)--net .03 (.09) --++++ (.17) .47
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net (.29) (.18) (.09) (.10) (.13)
Realized gain--net -- -- -- -- --++++++
---------- ---------- ---------- ---------- ----------
Total from investment operations .67 .70 .91 .75 1.37
---------- ---------- ---------- ---------- ----------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net (.75) (.88) (.87) (.86) (.83)
Realized gain--net -- -- -- -- --++++++
---------- ---------- ---------- ---------- ----------
Total dividends and distributions to Common Stock
shareholders (.75) (.88) (.87) (.86) (.83)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 14.15 $ 14.23 $ 14.41 $ 14.37 $ 14.48
========== ========== ========== ========== ==========
Market price per share, end of year $ 12.96 $ 13.90 $ 13.25 $ 13.13 $ 13.55
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 5.19% 5.35% 7.12% 5.95% 10.67%
========== ========== ========== ========== ==========
Based on market price per share (1.37%) 11.92% 7.80% 3.45% 10.71%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets Applicable to Common Stock
Total expenses, net of waiver and reimbursement and
excluding interest expense and fees** 1.16% 1.15% 1.12% 1.14% 1.18%
========== ========== ========== ========== ==========
Total expenses, net of waiver and reimbursement** 1.57% 1.32% 1.17% 1.21% 1.28%
========== ========== ========== ========== ==========
Total expenses** 1.64% 1.38% 1.27% 1.30% 1.37%
========== ========== ========== ========== ==========
Total investment income--net** 6.70% 6.72% 6.93% 7.19% 7.44%
========== ========== ========== ========== ==========
Amount of dividends to Preferred Stock shareholders 2.10% 1.27% .63% .69% .97%
========== ========== ========== ========== ==========
Investment income--net, to Common Stock
shareholders 4.60% 5.45% 6.30% 6.50% 6.47%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets Applicable to Preferred Stock
Dividends to Preferred Stock shareholders 3.20% 1.99% .99% 1.08% 1.46%
========== ========== ========== ========== ==========
Supplemental Data
Net assets applicable to Common Stock, end of year
(in thousands) $ 316,216 $ 318,044 $ 322,072 $ 321,270 $ 323,678
========== ========== ========== ========== ==========
Preferred Stock outstanding at liquidation preference,
end of year (in thousands) $ 204,500 $ 204,500 $ 204,500 $ 204,500 $ 204,500
========== ========== ========== ========== ==========
Portfolio turnover 35% 46% 45% 50% 51%
========== ========== ========== ========== ==========
Leverage
Asset coverage per $1,000 $ 2,546 $ 2,555 $ 2,575 $ 2,571 $ 2,583
========== ========== ========== ========== ==========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 797 $ 505 $ 253 $ 268 $ 362
========== ========== ========== ========== ==========
Series B--Investment income--net $ 792 $ 494 $ 241 $ 267 $ 338
========== ========== ========== ========== ==========
Series C--Investment income--net $ 804 $ 504 $ 251 $ 271 $ 381
========== ========== ========== ========== ==========
* 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.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Notes to Financial Statements
1. Significant Accounting Policies:
On September 29, 2006, MuniHoldings Insured Fund II, Inc. was renamed
BlackRock MuniHoldings Insured Fund II, Inc. (the "Fund"). 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 financial futures contracts. Financial 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.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Notes to Financial Statements (continued)
* Swaps--The Fund may enter into swap agreements, which are OTC contracts in
which the Fund and a counterparty agree to make periodic net payments on a
specified notional amount. The net payments can be made for a set period of
time or may be triggered by a predetermined credit event. The net periodic
payments may be based on a fixed or variable interest rate; the change in
market value of a specified security, basket of securities, or index; or the
return generated by a security. These periodic payments received or made by
the Fund are recorded in the accompanying Statement of Operations as realized
gains or losses, respectively. Gains or losses are also realized upon
termination of the swap agreements. Swaps are marked-to-market daily and
changes in value are recorded as unrealized appreciation (depreciation). Risks
include changes in the returns of the underlying instruments, failure of the
counterparties to perform under the contracts' terms and the possible lack of
liquidity with respect to the swap agreements.
(c) Municipal bonds held in trust--The Fund invests in leveraged residual
certificates ("TOB Residuals") issued by tender option bond trusts ("TOBs"). A
TOB is established by a third party sponsor forming a special purpose entity,
into which the Fund, or an agent on behalf of the Fund, transfers municipal
securities. A TOB typically issues two classes of beneficial interests: short-
term floating rate certificates, which are sold to third party investors, and
residual certificates, which are generally issued to the Fund which made the
transfer or to affiliates of the Fund. The transfer of the municipal
securities to a TOB does not qualify for sale treatment under Statement of
Financial Accounting Standards No. 140 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," therefore the
municipal securities deposited into a TOB are presented in the Fund's schedule
of investments and the proceeds from the transaction are reported as a
liability for trust certificates of the Fund. Similarly, proceeds from
residual certificates issued to affiliates, if any, from the transaction are
included in the liability for trust certificates. Interest income from the
underlying security is recorded by the Fund on an accrual basis. Interest
expense incurred on the secured borrowing and other expenses related to
remarketing, administration and trustee services to a TOB are reported as
expenses of the Fund. The floating rate certificates have interest rates that
generally reset weekly and their holders have the option to tender
certificates to the TOB for redemption at par at each reset date. The residual
interests held by the Fund include the right of the Fund (1) to cause the
holders of a proportional share of the floating rate certificates to tender
their certificates at par, and (2) to transfer a corresponding share of the
municipal securities from the TOB to the Fund. At September 30, 2006, the
aggregate value of the underlying municipal securities transferred to TOBs was
$75,257,416, the related liability for trust certificates was $35,160,000 and
the range of interest rates on the liability for trust certificates was 3.76%
to 3.81%.
Financial transactions executed through TOBs generally will underperform the
market for fixed rate municipal bonds in a rising interest rate environment,
but tend to outperform the market for fixed rate bonds when interest rates
decline or remain relatively stable. Should short-term interest rates rise,
the Fund's investments in TOB Residuals likely will adversely affect the
Fund's investment income - net and distributions to shareholders. Fluctuations
in the market value of municipal securities deposited into the TOB may
adversely affect the Fund's net asset value per share.
While the Fund's investment policies and restrictions expressly permit
investments in inverse floating rate securities such as TOB Residuals, they
generally do not allow the Fund to borrow money for purposes of making
investments. The Fund's management believes that the Fund's restrictions on
borrowings do not apply to the secured borrowings deemed to have occurred for
accounting purposes.
(d) 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.
(e) Recent accounting pronouncement--In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48") entitled
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income
tax positions taken or expected to be taken by an entity including mutual
funds before being measured and recognized in the financial statements.
Adoption of FIN 48 is required for fiscal years beginning after December 15,
2006. The impact on the Fund's financial statements, if any, is currently
being assessed.
(f) Security transactions and investment income--Security transactions are
recorded on the dates the trans-actions 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.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Notes to Financial Statements (continued)
(g) 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, 2006, FAM
earned fees of $2,831,938, of which $200,754 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, 2006, FAM reimbursed the
Fund in the amount of $8,880.
For the year ended September 30, 2006, the Fund reimbursed FAM $10,908 for
certain accounting services.
In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), an
affiliate of FAM, received $640 in commissions on the execution of portfolio
security transactions for the Fund for the year ended September 30, 2006.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction closed on
September 29, 2006 as discussed in Note 7.
On August 15, 2006, shareholders of the Fund approved a new Investment
Advisory Agreement with BlackRock Advisors, Inc. (the "Manager"), a wholly
owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was reorganized
into BlackRock Advisors, LLC. The new advisory agreement was effective on
September 29, 2006 and the investment advisory fee is unchanged. In addition,
the Manager has entered into a sub-advisory agreement with BlackRock
Investment Management, LLC, an affiliate of the Manager, under which the
Manager pays the Sub-Adviser for services it provides a fee equal to 59% of
the management fee paid to the Manager.
Prior to the closing, certain officers and/or directors of the Fund were
officers and/or directors of FAM, PSI, and/or ML & Co.
Commencing September 29, 2006, certain officers and/or directors of the Fund
are officers and/or directors of BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended September 30, 2006, were $193,416,734 and $197,865,906,
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, 2006 were as follows:
Series A, 3.55%; Series B, 3.60%; and Series C, 3.54%.
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, 2006, MLPF&S earned $249,909 as
commissions.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Notes to Financial Statements (continued)
5. Distributions to Shareholders:
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of $.053000 per share on October 30, 2006 to shareholders of record on
October 16, 2006.
The tax character of distributions paid during the fiscal years ended
September 30, 2006 and September 30, 2005 was as follows:
9/30/2006 9/30/2005
Distributions paid from:
Tax-exempt income $ 23,209,319 $ 23,682,185
--------------- ---------------
Total distributions $ 23,209,319 $ 23,682,185
=============== ===============
As of September 30, 2006, the components of accumulated earnings on a
tax basis were as follows:
Undistributed tax-exempt income--net $ 1,251,751
Undistributed long-term capital gains--net --
---------------
Total undistributed earnings--net 1,251,751
Capital loss carryforward (18,981,760)*
Unrealized gains--net 17,974,477**
---------------
Total accumulated earnings--net $ 244,468
===============
* On September 30, 2006, the Fund had a net capital loss carry-
forward of $18,981,760, of which $7,155,971 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 difference
between the book and tax treatment of residual interests in tender
option bond trusts.
6. Restatement Information:
Subsequent to issuance of its September 30, 2006 financial statements, the
Fund determined that the criteria for sale accounting in Statement of
Financial Accounting Standards No. 140 had not been met for certain transfers
of municipal bonds and that these transfers should have been accounted for as
secured borrowings rather than as sales. Accordingly, the Fund has restated
the Statement of Net Assets, including the Schedule of Investments, as of
September 30, 2006, the 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 certain financial highlights for each of the five years in the
period then ended. The effects of the restatement were to record the transfers
of the municipal bonds as secured borrowings, to give effect to offsetting
changes in realized gain - net and in the change in unrealized
appreciation/depreciation - net on the transferred municipal securities and to
give effect to interest on the bonds as interest income and interest on the
secured borrowings as interest expense.
Statement of Net Assets
As of September 30, 2006
Previously
Reported Restated
Investments in unaffiliated
securities, at value $ 509,441,060 $ 544,601,060
Investments in unaffiliated
securities, identified cost $ 488,690,366 $ 522,033,287
Interest receivable $ 7,353,999 $ 7,813,438
Total assets $ 521,521,141 $ 557,140,580
Trust certificates -- $ 35,160,000
Interest expense payable -- $ 459,439
Total liabilities $ 721,186 $ 36,340,625
Accumulated realized capital
losses--net $ (21,497,902) $ (23,314,981)
Unrealized appreciation--net $ 20,490,619 $ 22,307,698
Statement of Operations
for the Year Ended September 30, 2006
Previously
Reported Restated
Interest income $ 24,323,625 $ 25,599,381
Total income $ 24,463,359 $ 25,739,115
Interest expense and fees -- $ 1,275,756
Total expenses before waiver
and reimbursement $ 3,828,851 $ 5,104,607
Total expenses after waiver
and reimbursement $ 3,619,217 $ 4,894,973
Realized gain on
investments--net $ 796,554 $ 783,224
Change in unrealized
appreciation/depreciation
on investments--net $ (392,866) $ (379,536)
Statement of Changes in Net Assets
For the Year Ended September 30, 2006
Previously
Reported Restated
Realized gain--net $ 1,350,779 $ 1,337,449
Change in unrealized appreciation/
depreciation--net $ (814,353) $ (801,023)
Statement of Changes in Net Assets
For the Year Ended September 30, 2005
Previously
Reported Restated
Realized gain--net $ 8,290,447 $ 6,611,282
Change in unrealized appreciation/
depreciation--net $ (10,385,043) $ (8,705,878)
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Notes to Financial Statements (concluded)
Financial Highlights
For the Years Ended September 30, 2006, 2005, 2004, 2003 and 2002
2006 2005 2004 2003 2002
Previously Previously Previously Previously Previously
Reported Restated Reported Restated Reported Restated Reported Restated Reported Restated
Total expenses, net
of waiver and
reimbursement** 1.16% 1.57% 1.15% 1.32% 1.12% 1.17% 1.14% 1.21% 1.18% 1.28%
Total expenses** 1.23% 1.64% 1.21% 1.38% 1.21% 1.27% 1.23% 1.30% 1.27% 1.37%
Portfolio turnover 38.80% 35% 58.19% 46% 45.89% 45% 52.00% 50% 50.73% 51%
** Do not reflect the effect of dividends to Preferred Stock shareholders.
While the Statements of Net Assets as of September 30, 2005, 2004, 2003 and
2002, not presented herein, have not been reissued to give effect to the
restatement, the principal effects of the restatement would be to increase
investments and liability for trust certificates by corresponding amounts at
each year, with no effect on previously reported net assets. The Statements of
Operations for the years ended September 30, 2005, 2004, 2003 and 2002, not
presented herein, have not been reissued to give effect to the restatement.
However, the principal effects of the restatement would be to increase
interest income and interest expense and fees by corresponding amounts each
year, and where applicable, to revise realized gain on investments - net, and
the change in unrealized appreciation/depreciation on investments - net, by
corresponding and offsetting amounts. The Statements of Changes in Net Assets
for the years ended September 30, 2004, 2003 and 2002, not presented herein,
have not been reissued to give effect to the restatement, but the principal
effects of a restatement, where applicable, would be to revise previously
reported realized gain - net, and change in unrealized appreciation/
depreciation - net, by corresponding and offsetting amounts.
7. Subsequent Event:
On September 29, 2006, BlackRock, Inc. and ML & Co. combined ML & Co.'s
investment management business, Merrill Lynch Investment Managers, L.P., and
its affiliates, including FAM, with BlackRock, Inc. to create a new independent
company. MuniHoldings Insured Fund II, Inc. was renamed BlackRock MuniHoldings
Insured Fund II, Inc.
On August 15, 2006, shareholders of the Fund approved a new Investment
Advisory Agreement with BlackRock Advisors, Inc. (the "Manager"), and
indirect, wholly owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc.
was recently reorganized into a limited liability com-pany and renamed
BlackRock Advisors, LLC. The new Investment Advisory Agreement between
MuniHoldings Insured Fund II, Inc. and the Manager became effective on
September 29, 2006.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
BlackRock MuniHoldings Insured Fund II, Inc.:
We have audited the accompanying statement of net assets, including the
schedule of investments, of BlackRock MuniHoldings Insured Fund II, Inc.
(formerly MuniHoldings Insured Fund II, Inc.) (the "Fund") as of September 30,
2006, and the related statement of operations, the statements of changes in
net assets, and the financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on the
financial statements and financial highlights based on our audit. The
statements of changes in net assets for the year ended September 30, 2005
(before the restatement described in Note 6) and the financial highlights for
each of the four years in the period then ended (before the restatement
described in Note 6) were audited by other auditors whose report, dated
November 9, 2005, expressed a qualified opinion on that financial statement
and financial highlights because of the errors described in Note 6.
We conducted our audit 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. The Fund is not required to have, nor were we engaged to perform,
an audit of their internal control over financial reporting. Our audit 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, 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, 2006, by
correspondence with the custodian. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights of BlackRock
MuniHoldings Insured Fund II, Inc. referred to above, present fairly, in all
material respects, its financial position as of September 30, 2006, and the
results of its operations, changes in its net assets and its financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 6, the statement of net assets, including the schedule of
investments as of September 30, 2006, and the related statement of operations,
the statement of changes in net assets and the financial highlights for the
year then ended have been restated.
We also have audited the adjustments, applied by management, to restate the
statement of changes in net assets for the year ended September 30, 2005 and
certain financial highlights for each of the four years in the period then
ended, to correct the errors described in Note 6. These adjustments are the
responsibility of the Fund's management. The audit procedures that we
performed with respect to the adjustments included such tests as we considered
necessary in the circumstances and were designed to obtain reasonable
assurance about whether the adjustments are appropriate and have been properly
applied, in all material respects, to the restated statement of changes in net
assets for the year ended September 30, 2005, and to the restated information
in its financial highlights for each of the four years in the period ended
September 30, 2005. We did not perform any audit procedures designed to assess
whether any additional adjustments or disclosures to the Fund's financial
statements or financial highlights as of September 30, 2005, and for each of
the four years in the period then ended, might be necessary in order for such
financial statements or financial highlights to be presented in conformity
with generally accepted accounting principles. In our opinion, the adjustments
to the statement of changes in net assets of the Fund for the year ended
September 30, 2005 and to its financial highlights for each of the four years
in the period then ended, for the restatement described in Note 6 are
appropriate and have been properly applied, in all material respects. However,
we were not engaged to audit, review, or apply any procedures to the Fund's
financial statements or financial highlights as of September 30, 2005, and for
each of the four years in the period then ended, other than with respect to
the adjustments to the Fund's statements of changes in net assets and its
financial highlights for the restatement described in Note 6 and, accordingly,
we do not express an opinion or any other form of assurance on the Fund's
financial statements as of September 30, 2005, or on its financial highlights
for each of the years in the four year period then ended.
Deloitte & Touche LLP
Princeton, New Jersey
November 21, 2006
(May 18, 2007 as to the effects of the restatement
discussed in Note 6)
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
MuniHoldings Insured Fund II, Inc.:
We have audited, before the effects of the adjustments for the correction of
the error described in Note 6, the accompanying statement of changes in net
assets of MuniHoldings Insured Fund II, Inc., for the year ended September 30,
2005, and financial highlights for each of the four years in the period then
ended (the 2005 financial statement and financial highlights referred to above
before the effects of the adjustments discussed in Note 6 are not presented
herein). This financial statement and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this financial statement 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. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, except for the error described in Note 6, the 2005 financial
statement and financial highlights referred to above present fairly, in all
material respects, the changes in net assets of MuniHoldings Insured Fund II,
Inc. for the year ended September 30, 2005, and the financial highlights, for
each of the four years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
We were not engaged to audit, review, or apply any procedures to the
adjustments for the correction of the error described in Note 6 and,
accordingly, we do not express an opinion or any other form of assurance about
whether such adjustments are appropriate and have been properly applied. Those
adjustments were audited by Deloitte & Touche LLP.
(Ernst & Young LLP)
Philadelphia, Pennsylvania
November 9, 2005
Fund Certification (unaudited)
In May 2006, 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 Fund's Chief Executive Officer and Chief Financial Officer Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the
Fund's 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 BlackRock MuniHoldings
Insured Fund II, Inc. during the taxable year ended September 30, 2006 qualify
as tax-exempt interest dividends for federal income tax purposes.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Automatic Dividend Reinvestment Plan
How the Plan Works--The Fund offers a Dividend Reinvestment Plan (the "Plan")
under which income and capital gains dividends paid by the Fund are
automatically reinvested in additional shares of Common Stock of the Fund. The
Plan is administered on behalf of the shareholders by Computershare Trust
Company, N.A. (the "Plan Agent"). Under the Plan, whenever the Fund declares a
dividend, participants in the Plan will receive the equivalent in shares of
Common Stock of the Fund. The Plan Agent will acquire the shares for the
participant's account either (i) through receipt of additional unissued but
authorized shares of the Fund ("newly issued shares") or (ii) by purchase of
outstanding shares of Common Stock on the open market on the New York Stock
Exchange or elsewhere. If, on the dividend payment date, the Fund's net asset
value per share is equal to or less than the market price per share plus
estimated brokerage commissions (a condition often referred to as a "market
premium"), the Plan Agent will invest the dividend amount in newly issued
shares. If the Fund's net asset value per share is greater than the market
price per share (a condition often referred to as a "market discount"), the
Plan Agent will invest the dividend amount by purchasing on the open market
additional shares. If the Plan Agent is unable to invest the full dividend
amount in open market purchases, or if the market discount shifts to a market
premium during the purchase period, the Plan Agent will invest any uninvested
portion in newly issued shares. The shares acquired are credited to each
shareholder's account. The amount credited is determined by dividing the
dollar amount of the dividend by either (i) when the shares are newly issued,
the net asset value per share on the date the shares are issued or (ii) when
shares are purchased in the open market, the average purchase price per share.
Participation in the Plan--Participation in the Plan is automatic, that is, a
shareholder is automatically enrolled in the Plan when he or she purchases
shares of Common Stock of the Fund unless the shareholder specifically elects
not to participate in the Plan. Shareholders who elect not to participate will
receive all dividend distributions in cash. Shareholders who do not wish to
participate in the Plan must advise the Plan Agent in writing (at the address
set forth below) that they elect not to participate in the Plan. Participation
in the Plan is completely voluntary and may be terminated or resumed at any
time without penalty by writing to the Plan Agent.
Benefits of the Plan--The Plan provides an easy, convenient way for
shareholders to make additional, regular investments in the Fund. The Plan
promotes a long-term strategy of investing at a lower cost. All shares
acquired pursuant to the Plan receive voting rights. In addition, 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 for less than
they could otherwise purchase them and with a cash value greater than the
value of any cash distribution they would have received. However, there may
not be enough 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.
Plan Fees--There are no enrollment fees or brokerage fees for participating in
the Plan. The Plan Agent's service fees for handling the reinvestment of
distributions are paid for by the Fund. However, brokerage commissions may be
incurred when the Fund purchases shares on the open market and shareholders
will pay a pro rata share of any such commissions.
Tax Implications--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. Therefore,
income and capital gains may still be realized even though shareholders do not
receive cash. 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 market premium, 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 the discount from the market value (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.
Contact Information--All correspondence concerning the Plan, including any
questions about the Plan, should be directed to the Plan Agent at Computershare
Trust Company, N.A. P.O. Box 43010, Providence, RI 02940-3010, Telephone:
800-426-5523.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreement--Matters Considered by the Board
In connection with the combination of Merrill Lynch's investment advisory
business, including Fund Asset Management, L.P. (the "Previous Investment
Adviser"), with that of BlackRock, Inc. ("BlackRock") to create a new
independent company ("New BlackRock") (the "Transaction"), the Fund's Board of
Directors considered and approved a new investment advisory agreement (the
"BlackRock Investment Advisory Agreement") between the Fund and BlackRock
Advisors, LLC ("BlackRock Advisors"). The Fund's shareholders subsequently
approved the BlackRock Investment Advisory Agreement and it became effective
on September 29, 2006, replacing the investment advisory agreement with the
Previous Investment Adviser (the "Previous Investment Advisory Agreement").
The Board discussed the BlackRock Investment Advisory Agreement at telephonic
and in-person meetings held during April and May 2006. The Board, including
the independent directors, approved the BlackRock Investment Advisory
Agreement at a meeting held on May 9, 2006.
To assist the Board in its consideration of the BlackRock Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors, through their independent legal
counsel, also requested and received additional information from Merrill Lynch
and BlackRock in connection with their consideration of the BlackRock
Investment Advisory Agreement. The additional information was provided in
advance of the May 9, 2006 meeting. In addition, the independent directors
consulted with their counsel and Fund counsel on numerous occasions,
discussing, among other things, the legal standards and certain other
considerations relevant to the directors' deliberations.
At the Board meetings, the directors discussed with Merrill Lynch management
and certain BlackRock representatives the Transaction, its strategic rationale
and BlackRock's general plans and intentions regarding the Fund. At these
Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from the Board. The directors also
inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of the Previous Investment Adviser and certain
affiliates being transferred to BlackRock in connection with the Transaction.
The independent directors of the Board also conferred separately and with
their counsel about the Transaction and other matters related to the
Transaction on a number of occasions, including in connection with the April
and May 2006 meetings. After the presentations and after reviewing the written
materials provided, the independent directors met in executive sessions with
their counsel to consider the BlackRock Investment Advisory Agreement.
In connection with the Board's review of the BlackRock Investment Advisory
Agreement, Merrill Lynch and/or BlackRock advised the directors about a
variety of matters. The advice included the following, among other matters:
* that there was not expected to be any diminution in the nature, quality and
extent of services provided to the Fund and its shareholders by BlackRock
Advisors, including compliance services;
* that operation of New BlackRock as an independent investment management
firm would enhance its ability to attract and retain talented
professionals;
* that the Fund was expected to benefit from having access to BlackRock's
state of the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions (R) brand name;
* that BlackRock had no present intention to alter any applicable expense
waivers or reimbursements currently in effect and, while it reserved the
right to do so in the future, it would seek the approval of the Board
before making any changes;
* that in connection with the Transaction, Merrill Lynch and BlackRock had
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in compliance
with the conditions of Section 15(f) of the Investment Company Act of 1940
(the "1940 Act") in relation to any public funds advised by BlackRock or
the Previous Investment Adviser (or affiliates), respectively; and
* that Merrill Lynch and BlackRock would derive benefits from the Transaction
and that, as a result, they had a financial interest in the matters being
considered that was different from that of Fund shareholders.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Disclosure of New Investment Advisory Agreement (continued)
The directors considered the information provided by Merrill Lynch and
BlackRock above, and, among other factors, the following:
* the potential benefits to Fund shareholders from being part of a combined
fund family with BlackRock-sponsored funds, including possible economies of
scale and access to investment opportunities;
* the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength and
resources of New BlackRock;
* the compliance policies and procedures of BlackRock Advisors;
* the terms and conditions of the BlackRock Investment Advisory Agreement,
including the fact that the Fund's advisory fee schedule would not increase
under the BlackRock Investment Advisory Agreement, but would remain the
same;
* that in February 2006, the Board had performed a full annual review of the
Previous Investment Advisory Agreement, as required by the 1940 Act, and
had determined that the Previous Investment Adviser had the capabilities,
resources and personnel necessary to provide the advisory and
administrative services that were then being provided to the Fund; and that
the advisory and/or management fees paid by the Fund, taking into account
any applicable agreed-upon fee waivers and breakpoints, had represented
reasonable compensation to the Previous Investment Adviser in light of the
services provided, the costs to the Previous Investment Adviser of
providing those services, economies of scale, the fees and other expenses
paid by similar funds (including information provided by Lipper Inc.
["Lipper"]), and such other matters as the directors had considered
relevant in the exercise of their reasonable judgment; and
* that Merrill Lynch had agreed to pay all expenses of the Fund in connection
with the Board's consideration of the BlackRock Investment Advisory
Agreement and related agreements and all costs of shareholder approval of
the BlackRock Investment Advisory Agreement and as a result the Fund would
bear no costs in obtaining shareholder approval of the BlackRock Investment
Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the BlackRock Investment Advisory Agreement, the Board
assessed the nature, scope and quality of the services to be provided to the
Fund by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting
and assistance in meeting legal and regulatory requirements. In its review of
the BlackRock Investment Advisory Agreement, the Board also considered a range
of information in connection with its oversight of the services to be provided
by BlackRock Advisors and its affiliates. Among the matters considered were:
(a) fees (in addition to management fees) to be paid to BlackRock Advisors and
its affiliates by the Fund; (b) Fund operating expenses paid to third parties;
(c) the resources devoted to and compliance reports relating to the Fund's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and BlackRock Advisors' compliance policies and procedures; and
(d) the nature, cost and character of non-investment management services to be
provided by BlackRock Advisors and its affiliates.
In the period prior to the Board meetings to consider renewal of the Previous
Investment Advisory Agreement, the Board had requested and received materials
specifically relating to the Previous Investment Advisory Agreement. These
materials included (a) information compiled by Lipper on the fees and expenses
and the investment performance of the Fund as compared to a comparable group
of funds as classified by Lipper; (b) information comparing the Fund's market
price with its net asset value per share; (c) a discussion by the Fund's
portfolio management team on investment strategies used by the Fund during its
most recent fiscal year; (d) information on the profitability to the Previous
Investment Adviser of the Previous Investment Advisory Agreement and other
payments received by the Previous Investment Adviser and its affiliates from
the Fund; and (e) information provided by the Previous Investment Adviser
concerning services related to the valuation and pricing of Fund portfolio
holdings, the Fund's portfolio turnover statistics, and direct and indirect
benefits to the Previous Investment Adviser and its affiliates from their
relationship with the Fund.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
In their deliberations, the directors considered information received in
connection with their most recent approval of the continuance of the Previous
Investment Advisory Agreement, in addition to information provided by
BlackRock and BlackRock Advisors in connection with their evaluation of the
terms and conditions of the BlackRock Investment Advisory Agreement. The
directors did not identify any particular information that was all-important
or controlling. The directors, including a majority of the independent
directors, concluded that the terms of the BlackRock Investment Advisory
Agreement are appropriate, that the fees to be paid are reasonable in light of
the services to be provided to the Fund, and that the BlackRock Investment
Advisory Agreement should be approved and recommended to Fund shareholders.
Nature, Quality and Extent of Services Provided--The Board reviewed the
nature, extent and quality of services provided by the Previous Investment
Adviser, including the investment advisory services and the resulting
performance of the Fund, as well as the nature, quality and extent of services
expected to be provided by BlackRock Advisors. The Board focused primarily on
the Previous Investment Adviser's advisory services and the Fund's investment
performance, but also considered certain areas in which both the Previous
Investment Adviser and the Fund received services as part of the Merrill Lynch
complex. The Board compared the Fund's performance - both including and
excluding the effects of fees and expenses - to the performance of a
comparable group of funds and the performance of a relevant index or
combination of indexes. While the Board reviews performance data at least
quarterly, consistent with the Previous Investment Adviser's investment goals,
the Board attaches more importance to performance over relatively long periods
of time, typically three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the BlackRock Investment Advisory Agreement, the
directors considered, among other things, the expected impact of the
Transaction on the operations, facilities, organization and personnel of New
BlackRock and how it would affect the Fund; the ability of BlackRock Advisors
to perform its duties after the Transaction; and any anticipated changes to
the current investment and other practices of the Fund.
The directors were given information with respect to the potential benefits to
the Fund and its shareholders from having access to BlackRock's state of the
art technology and risk management analytic tools, including the investment
tools provided under the BlackRock Solutions brand name.
The directors were advised that, as a result of Merrill Lynch's equity
interest in BlackRock after the Transaction, the Fund would continue to be
subject to restrictions concerning certain transactions involving Merrill
Lynch affiliates (for example, transactions with a Merrill Lynch broker-dealer
acting as principal) absent revised or new regulatory relief. The directors
were advised that a revision of existing regulatory relief with respect to
these restrictions was being sought from the Securities and Exchange
Commission and were advised of the possibility of receipt of such revised
regulatory relief.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the directors
determined that the nature and quality of services to be provided to the Fund
under the BlackRock Investment Advisory Agreement were expected to be as good
or better than that provided under the Previous Investment Advisory Agreement.
It was noted, however, that other changes in personnel were expected to follow
the Transaction and the combination of the operations of the Investment
Adviser and its affiliates with those of BlackRock. The directors noted that
if portfolio managers or other personnel were to cease to be available, the
Board would consider all available options, including seeking the investment
advisory or other services of BlackRock affiliates. Accordingly, the directors
concluded that, overall, they were satisfied with assurances from BlackRock
and BlackRock Advisors as to the expected nature, extent and quality of the
services to be provided to the Fund under the BlackRock Investment Advisory
Agreement.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Disclosure of New Investment Advisory Agreement (concluded)
Costs of Services Provided and Profitability--It was noted that, in
conjunction with the recent review of the Previous Investment Advisory
Agreement, the directors had received, among other things, a report from
Lipper comparing the Fund's fees and expenses to those of a peer group
selected by Lipper, and information as to the fees charged by the Previous
Investment Adviser or its affiliates to other registered investment company
clients for investment management services. The Board reviewed the Fund's
contractual management fee rate and actual management fee rate as a percentage
of total assets at common asset levels - the actual rate includes advisory
fees and the effects of any fee waivers - compared to the other funds in its
Lipper category. They also compared the Fund's total expenses to those of
other comparable funds. The information showed that the Fund had fees and
expenses within the range of fees and expenses of comparable funds. The Board
considered the services to be provided by and the fees to be charged by
BlackRock Advisors to other funds with similar investment mandates and noted
that the fees charged by BlackRock Advisors in those cases, including fee
waivers and expense reimbursements, were generally comparable to those being
charged to the Fund. The Board concluded that the Fund's management fee and
fee rate and overall expense ratio are reasonable compared to those of other
comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the BlackRock Investment Advisory Agreement, the directors considered,
among other things, whether advisory fees or other expenses would change as a
result of the Transaction. Based on their review of the materials provided and
the fact that the BlackRock Investment Advisory Agreement is substantially
similar to the Previous Investment Advisory Agreement in all material
respects, including the rate of compensation, the directors determined that
the Transaction should not increase the total fees payable, including any fee
waivers, or after any expense caps or expense reimbursements, for advisory and
administrative services. The directors noted that it was not possible to
predict how the Transaction would affect BlackRock Advisors' profitability
from its relationship with the Fund.
The directors discussed with BlackRock Advisors its general methodology to be
used in determining its profitability with respect to its relationship with
the Fund and noted that they expect to receive profitability information from
BlackRock Advisors on at least an annual basis.
Fees and Economies of Scale--The Board considered the extent to which
economies of scale might be realized as the assets of the Fund increase and
whether there should be changes in the management fee rate or structure in
order to enable the Fund to participate in these economies of scale. The Board
considered economies of scale to the extent applicable to the Fund's closed-
end structure and determined that the Fund currently appropriately benefits
from any economies of scale and no changes were currently necessary.
In reviewing the Transaction, the directors considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that the BlackRock Investment Advisory
Agreement is substantially similar to the Previous Investment Advisory
Agreement in all material respects, including the rate of compensation, the
directors determined that as a result of the Transaction, the Fund's total
advisory fees would be no higher than the fees under the Previous Investment
Advisory Agreement. The directors concluded that, because the rates for
advisory fees for the Fund would be no higher than the fee rates in effect at
the time, the proposed management fee structure, including any fee waivers,
was reasonable and that no additional changes were currently necessary.
Fall-Out Benefits--The directors considered whether the Fund would generate
any fall-out benefits to BlackRock Advisors. Fall-out benefits are indirect
profits from other activities that accrue to the adviser or its affiliates
solely because of the existence of the Fund. In evaluating the fall-out
benefits to be received by BlackRock Advisors under the BlackRock Investment
Advisory Agreement, the directors considered whether BlackRock Advisors would
experience such benefits to the same extent that the Previous Investment
Adviser was experiencing such benefits under the Previous Investment Advisory
Agreement. Based on their review of the materials provided, including
materials received in connection with their most recent approval of the
continuance of the Previous Investment Advisory Agreement, and their
discussions with management of the Previous Investment Adviser and BlackRock,
the directors determined that those benefits could include increased ability
for BlackRock to distribute shares of its funds and other investment products.
The directors noted that any such benefits were difficult to quantify with
certainty at this time.
Investment Performance--The directors considered investment performance for
the Fund. The directors compared the Fund's performance--both including and
excluding the effects of fees and expenses - to the performance of a
comparable group of funds, and the performance of a relevant index or
combination of indexes. The comparative information received from Lipper
showed Fund performance at various levels within the range of performance of
comparable funds over different time periods. The directors believed the
Fund's performance was satisfactory.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Also, the directors took into account the investment performance of funds
advised by BlackRock Advisors. The Board considered comparative information
from Lipper which showed that the performance of the funds advised by
BlackRock Advisors was within the range of performance of comparable funds
over different time periods. The Board noted BlackRock's considerable
investment management experience and capabilities, but was unable to predict
what effect, if any, consummation of the Transaction would have on the future
performance of the Fund.
Conclusion--After the independent directors of the Fund deliberated in
executive session, the entire Board, including the independent directors,
approved the BlackRock Investment Advisory Agreement, concluding that the
advisory fee rate was reasonable in relation to the services provided and that
the BlackRock Investment Advisory Agreement was in the best interests of the
shareholders. In approving the BlackRock Investment Advisory Agreement, the
Board noted that it anticipated reviewing the continuance of the agreement in
advance of the expiration of the initial two-year period.
New BlackRock Sub-Advisory Agreement--Matters Considered by the Board
At an in-person meeting held on August 22-23, 2006, the Board of Directors,
including the independent directors, discussed and approved the sub-advisory
agreement (the "BlackRock Sub-Advisory Agreement") between BlackRock Advisors
and its affiliate, BlackRock Investment Management, LLC (the "Sub-Adviser").
The BlackRock Sub-Advisory Agreement became effective on September 29, 2006,
at the same time the BlackRock Investment Advisory Agreement became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors equal to 59% of the advisory fee received
by BlackRock Advisors from the Fund. BlackRock Advisors pays the Sub-Adviser
out of its own resources, and there is no increase in Fund expenses as a
result of the BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, the Board reviewed its considerations in connection with its approval
of the BlackRock Investment Advisory Agreement in May 2006. The Board relied
on the same information and considered the same factors as those discussed
above in connection with the approval of the BlackRock Investment Advisory
Agreement, and came to the same conclusions. In reviewing the sub-advisory fee
rate provided in the BlackRock Sub-Advisory Agreement, the Board noted the
fact that both BlackRock Advisors and the Sub-Adviser have significant
responsibilities under their respective advisory agreements. BlackRock
Advisors remains responsible for oversight of the Fund's operations and
administration, and the Sub-Adviser provides advisory services to the Fund and
is responsible for the day-to-day management of the Fund's portfolio under the
BlackRock Sub-Advisory Agreement. The Board also took into account the fact
that there is no increase in total advisory fees paid by the Fund as a result
of the Fund's BlackRock Sub-Advisory Agreement. Under all of the
circumstances, the Fund's Board concluded that it was a reasonable allocation
of fees for the Sub-Adviser to receive 59% of the advisory fee paid by the
Fund to BlackRock Advisors.
After the independent directors deliberated in executive session, the entire
Board, including the independent directors, approved the BlackRock Sub-
Advisory Agreement, concluding that the sub-advisory fee was reasonable in
relation to the services provided and that the BlackRock Sub-Advisory
Agreement was in the best interests of shareholders.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
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 Vice Chairman and Director of BlackRock, and 129 Funds None
P.O. Box 9011 and present Global Chief Investment Officer for Equities, 174 Portfolios
Princeton, Director Chairman of the BlackRock Private Client
NJ 08543-9011 Operating Committee, and member of the
Age: 52 BlackRock Executive Committee since 2006;
President of the Funds advised by Merrill Lynch
Investment Managers ("MLIM") and its affiliates
("MLIM/FAM-advised funds") from 2005 to 2006
and Chief Investment Officer thereof from 2001
to 2006; President of MLIM and Fund Asset
Management, L.P. ("FAM") from 2001 to 2006;
Co-Head (Americas Region) thereof from 2000 to
2001 and Senior Vice President from 1999 to
2001; President and Director of Princeton Services,
Inc. ("Princeton Services") since 2001; President
of Princeton Administrators, L.P. ("Princeton
Administrators") from 2001 to 2006; 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 BlackRock acts as investment adviser. Mr. Doll
is an "interested person," as described in the Investment Company Act, of the
Fund based on his current and former positions with BlackRock, Inc. and its
affiliates. 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.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
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*
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: 62 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: 49
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: 71 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 thereof 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.
Herbert I. London Director 2002 to Chairman of the Board of Directors of Vigilant 39 Funds None
P.O. Box 9095 present Research, Inc. since 2006; Member of the Board 59 Portfolios
Princeton, of Directors for Grantham University since 2006;
NJ 08543-9095 Director of AIMS since 2006; Director of Reflex
Age: 67 Security since 2006; Director of InnoCentive, Inc.
since 2006; Director of Cerego, LLC since 2005;
Professor Emeritus, New York University since 2005;
John M. Olin Professor of Humanities, New York
University from 1993 to 2005; and Professor thereof
from 1980 to 2005; President, Hudson Institute since
1997 and Trustee thereof since 1980; Dean, 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.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
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)
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 of
NJ 08543-9095 the Board of Governors thereof from 1994 to 1997;
Age: 64 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) from 1994 to 2005; Chairman and CEO 59 Portfolios
Princeton, of Salomon Brothers Asset Management Inc. from
NJ 08543-9095 1992 to 1995; Chairman of Salomon Brothers
Age: 69 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.
* 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 of Directors and the Audit Committee.
Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 1999 to Managing Director of BlackRock since 2006; Managing Director of MLIM and FAM
P.O. Box 9011 President present from 2006; First Vice President of MLIM and FAM from 1997 to 2005 and Treasurer
Princeton, and thereof from 1999 to 2006, Vice President of MLIM and FAM from 1990 to 1997.
NJ 08543-9011 Treasurer
Age: 46
Kenneth A. Jacob Senior 2002 to Managing Director of BlackRock since 2006; Managing Director (Municipal
P.O. Box 9011 Vice present Tax-Exempt Fund Management) of MLIM from 2000 to 2006; Director of MLIM
Princeton, President from 1997 to 2000.
NJ 08543-9011
Age: 55
John M. Loffredo Senior 2002 to Managing Director of BlackRock since 2006; Managing Director (Municipal
P.O. Box 9011 Vice present Tax-Exempt Fund Management) of MLIM from 2000 to 2006; Director of MLIM
Princeton, President from 1997 to 2000.
NJ 08543-9011
Age: 42
Robert A. DiMella Vice 1999 to Managing Director of BlackRock since 2006; Managing Director of MLIM from 2004
P.O. Box 9011 President present to 2006; Director (Municipal Tax-Exempt Fund Management) of MLIM from 2002
Princeton, to 2004; Vice President of MLIM from 1996 to 2002.
NJ 08543-9011
Age: 40
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
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* (concluded)
Jeffrey Hiller Fund Chief 2004 to Managing Director of BlackRock and Fund Chief Compliance Officer since 2006;
P.O. Box 9011 Compliance present Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
Princeton, Officer and Chief Compliance Officer of MLIM (Americas Region) from 2004 to 2006; Chief
NJ 08543-9011 Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
Age: 55 Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance
Officer at Prudential Financial from 1995 to 2000; Senior Counsel in the
Securities and Exchange Commission's Division of Enforcement in Washington,
D.C. from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director of BlackRock since 2006; Director (Legal Advisory) of MLIM from 2002
P.O. Box 9011 present to 2006; Vice President of MLIM from 1999 to 2002; Attorney associated with
Princeton, MLIM from 1997 to 2006; Secretary of MLIM, FAM, FAMD and Princeton Services
NJ 08543-9011 from 2004 to 2006.
Age: 46
* 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:
Computershare Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
Preferred Stock:
The Bank of New York
101 Barclay Street - 7 West
New York, NY 10286
NYSE Symbol
MUE
Effective April 13, 2007, Jeffrey Hiller resigned his position as Chief
Compliance Officer of the Fund. Also effective April 13, 2007, Karen Clark was
appointed Chief Compliance Officer of the Fund. Ms. Clark has been a Managing
Director of BlackRock, Inc. since 2007. She was a Director thereof from 2005 to
2007. Prior to that, Ms. Clark was a principal and senior compliance officer at
State Street Global Advisors from 2001 to 2005. Ms. Clark was a principal
consultant with PricewaterhouseCoopers, LLP from 1998 to 2001. From 1993 to
1998, Ms. Clark was Branch Chief, Division of Investment Management and Office
of Compliance Inspections and Examinations, with the U.S. Securities and
Exchange Commission.
Announcement of Annual Stockholders Meeting
The Fund has determined that its annual stockholders meeting originally
scheduled to be held in April 2007 will be postponed until and will be held in
June 2007. Proposals of stockholders intended to be presented at the meeting
must be received by the Fund by January 15, 2007 for inclusion in the Fund's
proxy statement and form of proxy for that meeting. The persons named as
proxies in the proxy materials for the Fund's 2007 annual meeting of
stockholders may exercise discretionary authority with respect to any
stockholder proposal presented at such meeting if written notice of such
proposal has not been received by the Fund by April 1, 2007. Written proposals
and notices should be sent to the Secretary of the Fund, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
Change in Fund's Independent Registered Public Accounting Firm
On August 28, 2006, Ernst & Young LLP ("E&Y") resigned as the Independent
Registered Public Accounting Firm of BlackRock MuniHoldings Insured Fund II,
Inc. (the "Fund").
E&Y's reports on the financial statements of the Fund for the past two fiscal
years did not contain an adverse opinion or a disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles.
In connection with its audits for the two most recent fiscal years and through
August 28, 2006 (1) there were no disagreements with E&Y on any matter of
accounting principle or practice, financial statement disclosure or auditing
scope or procedure, whereby such disagreements, if not resolved to the
satisfaction of E&Y, would have caused them to make reference to the subject
matter of the disagreements in connection with their report on the financial
statements for such years; and (2) there have been no reportable events (as
defined in item 304(a)(1)(v) of Regulation S-K).
The Audit Committee of the Fund's Board of Directors approved the engagement
of Deloitte & Touche LLP as the Fund's Independent Registered Public
Accounting Firm for the fiscal year ended September 30, 2006.
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.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
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.
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial advisor. Please note that not all investment
advisers, banks or brokerages may offer this service.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former
fund investors and individual clients (collectively, "Clients") and to
safeguarding their nonpublic personal information. The following information
is provided to help you understand what personal information BlackRock
collects, how we protect that information and why in certain cases we share
such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about
you from different sources, including the following: (i) information we
receive from you or, if applicable, your financial intermediary, on
applications, forms or other documents; (ii) information about your
transactions with us, our affiliates, or others; (iii) information we receive
from a consumer reporting agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any
nonpublic personal information about its Clients, except as permitted by law
or as is necessary to service Client accounts. These nonaffiliated third
parties are required to protect the confidentiality and security of this
information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that
may be of interest to you. In addition, BlackRock restricts access to
nonpublic personal information about its Clients to those BlackRock employees
with a legitimate business need for the information. BlackRock maintains
physical, electronic and procedural safeguards that are designed to protect
the nonpublic personal information of its Clients, including procedures
relating to the proper storage and disposal of such information.
BLACKROCK MUNIHOLDINGS INSURED FUND II, INC. SEPTEMBER 30, 2006
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 at www.blackrock.com.
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
(retired as of December 31, 2005).
Item 4 - Principal Accountant Fees and Services
Note: The Fund changed auditors effective August, 28, 2006. Prior to that
date, Ernst & Young LLP provided services as the Fund's independent
registered public accountant.
(a) Audit Fees - Fiscal Year Ending September 30, 2006 - $32,000
Fiscal Year Ending September 30, 2005 - $33,000
(b) Audit-Related Fees -
Fiscal Year Ending September 30, 2006 - $3,500
Fiscal Year Ending September 30, 2005 - $3,500
The nature of the services relate to agreed upon procedures
pertaining to AMPS
(c) Tax Fees - Fiscal Year Ending September 30, 2006 - $6,000
Fiscal Year Ending September 30, 2005 - $5,700
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees -
Fiscal Year Ending September 30, 2006 - $0
Fiscal Year Ending September 30, 2005 - $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, 2006 - $3,050,250
Fiscal Year Ending September 30, 2005 - $9,200
(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) - $1,739,500 , 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
Joe Grills
Herbert I. London
Roberta Cooper Ramo
Robert S. Salomon, Jr.
Stephen B. Swensrud (retired as of December 31, 2005)
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, 2006.
(a)(1) BlackRock MuniHoldings Insured Fund II, Inc. is managed by a
team of investment professionals comprised of Robert D.
Sneeden, Director at BlackRock, Theodore R. Jaeckel, Jr.,
CFA, Managing Director at BlackRock, and Walter O'Connor,
Managing Director at BlackRock. Each is a member of
BlackRock's municipal tax-exempt management group. Mr.
Jaeckel and Mr. O'Connor are responsible for setting the
Fund's overall investment strategy and overseeing the
management of the Fund. Mr. Sneeden is the Fund's lead
portfolio manager and is responsible for the day-to-day
management of the Fund's portfolio and the selection of its
investments. Messrs. Jaeckel and O'Connor have been members
of the Fund's management team since 2006 and Mr. Sneeden has
been the Fund's portfolio manager since 2006.
Mr. Jaeckel joined BlackRock in 2006. Prior to joining
BlackRock, he was a Managing Director (Municipal Tax-Exempt
Fund Management) of Merrill Lynch Investment Managers, L.P.
(""MLIM") from 2005 to 2006 and a Director of MLIM from 1997
to 2005. He has been a portfolio manager with BlackRock or
MLIM since 1991.
Mr. O'Connor joined BlackRock in 2006. Prior to joining
BlackRock, he was a Managing Director (Municipal Tax-Exempt
Fund Management) of MLIM from 2003 to 2006 and was a
Director of MLIM from 1997 to 2002. He has been a portfolio
manager with BlackRock or MLIM since 1991.
Mr. Sneeden joined BlackRock in 2006. Prior to joining
BlackRock, he was a Director (Municipal Tax-Exempt Fund
Management) of MLIM since 2006 and was a Vice President of
MLIM from 1998 to 2006. Mr. Sneeden has been a portfolio
manager with BlackRock or MLIM since 1994.
(a)(2) As of October 2, 2006:
(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
Sneeden 12 0 0 0 0 0
$ 1,951,139,389 $ 0 $ 0 $ 0 $ 0 $ 0
Theodore R.
Jaeckel, Jr 83 0 0 0 1 0
$ 23,551,736,104 $ 0 $ 0 $ 0 $ 24,249,082 $ 0
Walter
O'Connor 83 0 0 0 0 0
$ 23,551,736,104 $ 0 $ 0 $ 0 $ 0 $ 0
(iv) Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide
compliance culture and compliance procedures and systems designed to
protect against potential incentives that may favor one account over
another. BlackRock has adopted policies and procedures that address
the allocation of investment opportunities, execution of portfolio
transactions, personal trading by employees and other potential
conflicts of interest that are designed to ensure that all client
accounts are treated equitably over time. Nevertheless, BlackRock
furnishes investment management and advisory services to numerous
clients in addition to the Fund, and BlackRock may, consistent with
applicable law, make investment recommendations to other clients or
accounts (including accounts which are hedge funds or have
performance or higher fees paid to BlackRock, or in which portfolio
managers have a personal interest in the receipt of such fees),
which may be the same as or different from those made to the Fund.
In addition, BlackRock, its affiliates and any officer, director,
stockholder or employee may or may not have an interest in the
securities whose purchase and sale BlackRock recommends to the Fund.
BlackRock, or any of its affiliates, or any officer, director,
stockholder, employee or any member of their families may take
different actions than those recommended to the Fund by BlackRock
with respect to the same securities. Moreover, BlackRock may refrain
from rendering any advice or services concerning securities of
companies of which any of BlackRock's (or its affiliates') officers,
directors or employees are directors or officers, or companies as to
which BlackRock or any of its affiliates or the officers, directors
and employees of any of them has any substantial economic interest
or possesses material non-public information. Each portfolio manager
also may manage accounts whose investment strategies may at times be
opposed to the strategy utilized for the Fund. In this connection,
it should be noted that certain portfolio managers currently manage
certain accounts that are subject to performance fees. In addition,
certain portfolio managers assist in managing certain hedge funds
and may be entitled to receive a portion of any incentive fees
earned on such funds and a portion of such incentive fees may be
voluntarily or involuntarily deferred. Additional portfolio managers
may in the future manage other such accounts or funds and may be
entitled to receive incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and
must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated
in a manner consistent with its fiduciary duties. BlackRock attempts
to allocate investments in a fair and equitable manner among client
accounts, with no account receiving preferential treatment. To this
end, BlackRock has adopted a policy that is intended to ensure that
investment opportunities are allocated fairly and equitably among
client accounts over time. This policy also seeks to achieve
reasonable efficiency in client transactions and provide BlackRock
with sufficient flexibility to allocate investments in a manner that
is consistent with the particular investment discipline and client
base.
(a)(3) As of September 30, 2006:
Portfolio Manager Compensation
The Portfolio Manager Compensation Program of BlackRock and its
affiliates, including the Investment Adviser, is critical to BlackRock'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 certain BlackRock and its
affiliates portfolio managers are a fixed base salary, annual performance-based
cash and stock compensation (cash and stock bonus) and other benefits.
BlackRock 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 BlackRock 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
BlackRock 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, certain BlackRock and its affiliates portfolio manager incentive
compensation is based on a formulaic compensation program. BlackRock's
formulaic portfolio manager compensation program includes: investment
performance relative to a subset of national 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. All factors are considered collectively by BlackRock
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 BlackRock 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 BlackRock stock price performance. As such, the stock bonus
aligns each portfolio manager's financial interests with those of the BlackRock
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 BlackRock'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 certain BlackRock
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 BlackRock 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 BlackRock and its affiliates, including broad-
based retirement, 401(k), health, and other employee benefit plans.
(a)(4) Beneficial Ownership of Securities. As of October 2, 2006,
none of Messrs. Jaeckel, O'Connor or Sneeden beneficially owns
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 - The
registrant's Nominating Committee will consider nominees to the
Board recommended by shareholders when a vacancy becomes available.
Shareholders who wish to recommend a nominee should send nominations
which include biographical information and sets forth the
qualifications of the proposed nominee to the registrant's
Secretary. There have been no material changes to these procedures.
Item 11 - Controls and Procedures
11(a) - The Registrant's principal executive and principal financial
officers have evaluated the Registrant's disclosure controls and
procedures, including internal control over financial reporting,
within 90 days of this filing. Such principal officers have
concluded that as of May 18, 2007 the Registrant's disclosure
controls and procedures were effective in design and operation to
reasonably ensure that information required to be disclosed by the
Registrant in this Form N-CSR/A was recorded, processed, summarized,
and reported within the required time periods, and were sufficient
to form the basis of the certifications required by Rule 30a-2 of
the Investment Company Act of 1940, as amended. Prior to reaching
that conclusion, such principal officers had become aware of matters
relating to the Registrant's participation in certain inverse
floater structures that necessitated restatements of financial
information included in Item 1 of this filing. As a result,
management of the Registrant had reevaluated certain disclosure
controls and procedures determined not to be effective, as discussed
more fully below.
Management of the Registrant is responsible for establishing and
maintaining effective internal control over financial reporting. In
fulfilling this responsibility, estimates and judgments by
management are required to assess the expected benefits and related
costs of controls. The Registrant's internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles. Such internal
control includes policies and procedures that provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of a registrant's assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
A control deficiency exists when the design or operation of a
control does not allow management or employees, in the normal course
of performing their assigned functions, to prevent or detect
misstatements on a timely basis. A significant deficiency is a
control deficiency, or combination of control deficiencies, that
adversely affects the Registrant's ability to initiate, authorize,
record, process or report financial data reliably in accordance with
generally accepted accounting principles such that there is more
than a remote likelihood that a misstatement of the Registrant's
annual or interim financial statements that is more than
inconsequential will not be prevented or detected. A material
weakness is a significant deficiency, or combination of significant
deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements
will not be prevented or detected.
Subsequent to the initial filing of the Registrant's Form N-CSR, the
Registrant identified the following control deficiency that was
determined to be a material weakness, as defined above, in the
Registrant's internal control over financial reporting at September
30, 2006. The Registrant's controls related to the review and
analysis of relevant terms and conditions of transfers of certain
assets pertaining to inverse floater structures were not operating
effectively to appropriately determine whether the transfers of
assets qualified for sale accounting under the provisions of
Statement of Financial Accounting Standards No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS 140"). As a result, these controls did not
detect that certain transfers were not appropriately recorded as
borrowings. Accordingly, the Registrant's financial statements as
of and for the period ended September 30, 2006, including prior
periods where applicable, were restated to appropriately reflect
transfers of such securities as secured borrowings and to report the
related income and expense. The restatement had no impact on net
assets, net asset value per share or total return.
Subsequent to September 30, 2006 but prior to the evaluation of the
design and operation of the Registrant's disclosure controls and
procedures at May 18, 2007, the Registrant's disclosure controls and
procedures were modified to enhance the review and analysis of the
relevant terms and conditions of transfers of securities in
connection with inverse floater structures in light of SFAS 140.
11(b) - There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the
Investment Company Act of 1940, as amended) that occurred during the
second half of the Registrant's fiscal year that have materially
affected, or are reasonably likely to materially affect, the
Registrant's internal control over financial reporting. However, as
discussed above, subsequent to September 30, 2006, the Registrant
has enhanced controls related to the application of SFAS 140.
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.
BlackRock MuniHoldings Insured Fund II, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock MuniHoldings Insured Fund II, Inc.
Date: June 7, 2007
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
BlackRock MuniHoldings Insured Fund II, Inc.
Date: June 7, 2007
By: /s/ Donald C. Burke
-------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock MuniHoldings Insured Fund II, Inc.
Date: June 7, 2007