MUNIHOLDINGS
CALIFORNIA
INSURED FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
August 31, 1999
<PAGE>
MuniHoldings California Insured Fund, Inc.
The Benefits and Risks of Leveraging
MuniHoldings California Insured Fund, Inc. has the ability to leverage to seek
to enhance the yield and net asset value of its Common Stock. However, these
objectives cannot be achieved in all interest rate environments. To leverage,
the Fund issues Preferred Stock, which pays dividends at prevailing short-term
interest rates, and invests the proceeds in long-term municipal bonds. The
interest earned on these investments is paid to Common Stock shareholders in the
form of dividends, and the value of these portfolio holdings is reflected in the
per share net asset value of the Fund's Common Stock. However, in order to
benefit Common Stock shareholders, the yield curve must be positively sloped;
that is, short-term interest rates must be lower than long-term interest rates.
At the same time, a period of generally declining interest rates will benefit
Common Stock shareholders. If either of these conditions change, then the risks
of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock capitalization of
$100 million and the issuance of Preferred Stock for an additional $50 million,
creating a total value of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are approximately 3%
and long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million of Preferred
Stock based on the lower short-term interest rates. At the same time, the fund's
total portfolio of $150 million earns the income based on long-term interest
rates. Of course, increases in short-term interest rates would reduce (and even
eliminate) the dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term investments,
and therefore the Common Stock shareholders are the beneficiaries of the
incremental yield. However, if short-term interest rates rise, narrowing the
differential between short-term and long-term interest rates, the incremental
yield pickup on the Common Stock will be reduced or eliminated completely. At
the same time, the market value on the fund's Common Stock (that is, its price
as listed on the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common Stock's net asset
value will reflect the full decline in the price of the portfolio's investments,
since the value of the fund's Preferred Stock does not fluctuate. In addition to
the decline in net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed-rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in these securities.
<PAGE>
MuniHoldings California Insured Fund, Inc., August 31, 1999
DEAR SHAREHOLDER
For the year ended August 31, 1999, the Common Stock of MuniHoldings California
Insured Fund, Inc. earned $0.849 per share income dividends, which included
earned and unpaid dividends of $0.074. This represents a net annualized yield of
6.01%, based on a month-end per share net asset value of $14.13. During the same
period, the total investment return on the Fund's Common Stock was - 5.40%,
based on a change in per share net asset value from $15.88 to $14.13, and
assuming reinvestment of $0.905 per share ordinary income dividends and $0.018
per share capital gains distributions.
For the six months ended August 31, 1999, total investment return on the Fund's
Common Stock was -7.66%, based on a change in per share net asset value from
$15.75 to $14.13, and assuming reinvestment of $0.411 per share income
dividends.
For the six months ended August 31, 1999, the Fund's Preferred Stock had an
average yield of 2.99% for Series A and 2.80% for Series B.
The Municipal Market Environment
During the six months ended August 31, 1999, long-term bond yields rose
significantly. Steady US economic growth combined with improvement in foreign
economies and inflation concerns put upward pressure on bond yields throughout
the period. Continued strong US employment growth, particularly the decline in
the US unemployment rate to 4.2% in early June, was among the reasons the
Federal Reserve Board cited for raising short-term interest rates in late June
and again in late August. US Treasury bond yields reacted by climbing above
6.25% by mid-August before improving somewhat to 6.06% by August 31, 1999.
During the last six months, yields on long-term US Treasury securities increased
approximately 50 basis points (0.50%).
Long-term tax-exempt bond yields also rose during the last six months. Until
early May, the municipal bond market had been able to withstand much of the
upward pressure on bond yields. However, investor concerns regarding ongoing US
economic strength and the fear of additional moves by the Federal Reserve Board
eventually pushed municipal bond yields higher for the remainder of the period.
During the period, yields on long-term tax-exempt revenue bonds rose almost 55
basis points to 5.83%, as measured by the Bond Buyer Revenue Bond Index.
While the tax-exempt market has slightly underperformed its taxable counterpart
in recent months, technical conditions are helping to support municipal bond
prices. During the last six months, more than $115 billion in long-term
municipal bonds was underwritten, a decrease of more than 20% compared to the
same period a year ago. During the past three months, almost $60 billion in
municipal bonds was underwritten. This quarterly issuance represents a decline
of approximately 20% compared to the same three-month period in 1998.
Recently, the supply of new municipal bonds slowed even further. Total issuance
in August 1999 of $14 billion was nearly 40% lower than August 1998 levels.
Additionally, in June and July, investors received more than $40 billion in
coupon income and proceeds from bond maturities and early bond redemptions.
These proceeds have generated significant retail investor interest, easily
absorbing the recent diminished supply.
The recent relative underperformance of the municipal bond market has generated
very attractive tax-exempt bond yield ratios, similar to those that were
available at the end of 1998. In December 1998, long-term, uninsured municipal
bond yields were higher than those of their taxable counterparts. Historically,
long-term tax-exempt bond yields have been approximately 82% - 85% of long-term
US Treasury bond yields. Municipal bond yields rose at a faster rate in recent
months than US Treasury bond yields, causing the yield ratio to increase. At May
31, 1999, long-term municipal bond yields were approximately 92% of their
taxable counterparts. At August 31, 1999, long-term uninsured tax-exempt bond
yields were approximately 96% of US Treasury bonds. Current ratios, while lower
than those available at the end of 1998, still represent historically attractive
levels.
Looking ahead, it appears to us that long-term municipal bond yields will trade
in a relatively tight range near current levels. Strong US economic performance
is being balanced by nearly negligible inflation readings, as well as
improvements in productivity in both manufacturing and service industries. We
believe that future moves by the Federal Reserve Board have largely been
discounted by bond investors and are to a great extent reflected in present bond
yields.
Any improvement in bond prices is likely to be contingent upon weakening in both
US employment growth and consumer spending. The 100 basis point rise in US
Treasury bond yields seen thus far this year is likely to negatively affect US
economic growth. The US housing market will be among the first sectors likely to
be affected, as some declines have already been evidenced because of higher
mortgage rates. We believe it is also unrealistic to expect double-digit returns
in US equity markets to continue indefinitely. Much of the US consumer's wealth
is tied to recent stock market appreciation. Any slowing in these incredible
growth rates is likely to reduce consumer spending. We believe that these
factors suggest that the worst of the recent increase in bond yields has passed
and stable, if not slightly improving, bond prices may be expected.
Portfolio Strategy
At the beginning of the six months ended August 31, 1999, we held a neutral
outlook for interest rates. However, we reduced our exposure to the long end of
the municipal yield curve in favor of municipal bonds in the 20-year sector,
since the yield differential started to narrow considerably. This strategy
worked well as interest rates increased into early May. We then became more
constructive on the tax-exempt market and sought to take advantage of the higher
yields available. This move, which proved to be premature since the tax-exempt
bond market came under additional pressure through the end of August, negatively
impacted the Fund's total return.
Looking ahead, we plan to maintain our constructive investment strategy.
Tax-exempt yields are approximately 96% of Treasury securities, well above their
historic average of 82% - 85%, providing an attractive buying opportunity.
In Conclusion
We appreciate your ongoing interest in MuniHoldings California Insured Fund,
Inc., and we look forward to assisting you with your financial needs in the
months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Robert A. DiMella
Robert A. DiMella
Vice President and
Co-Portfolio Manager
/s/ Walter C. O'Connor
Walter C. O'Connor
Vice President and
Co-Portfolio Manager
October 5, 1999
We are pleased to announce that Robert A. DiMella has been named Vice President
and Co-Portfolio Manager of MuniHoldings California Insured Fund, Inc. Mr.
DiMella has been employed by Merrill Lynch Asset Management, L.P. (MLAM) since
1997 as Vice President. Prior thereto, Mr. DiMella was Assistant Vice President
of MLAM from 1995 to 1997 and Assistant Portfolio Manager of MLAM from 1993 to
1997.
2 & 3
<PAGE>
MuniHoldings California Insured Fund, Inc., August 31, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<C> <C> <C> <C> <S> <C>
California -- AAA Aaa $ 3,345 ABC California Unified School District, GO, Series A, 5.625% due 8/01/2020(c) $ 3,349
98.7% -------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,500 Cabrillo, California, Unified School District, GO, Series A, 5.92%** due
8/01/2021 (a) 1,567
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,220 California Community College Financing Authority, Lease Revenue Bonds
(West Valley -- Mission Community College), 5.50% due 5/01/2017 (d) 1,223
-------------------------------------------------------------------------------------------------------------------
California HFA, Revenue Bonds, Home Mortgage, AMT:
AAA Aaa 4,125 Series E, 6.10% due 8/01/2029 (a) 4,192
AAA Aaa 1,000 Series I, 5.75% due 2/01/2029 (d) 987
AAA Aaa 4,600 Series M, 5.60% due 8/01/2029 (d) 4,376
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 6,005 California HFA, Revenue Bonds, S/F Mortgage, AMT, Series C-2, Class II,
5.625% due 8/01/2020 (d)(g) 5,829
-------------------------------------------------------------------------------------------------------------------
NR* Aaa 10,000 California Health Facilities Finance Authority Revenue Bonds, RITR,
Series 17, 6.90% due 8/15/2030 (d)(e) 9,143
-------------------------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Revenue Refunding Bonds:
A1+ VMIG1+ 600 (Adventist Hospital), VRDN, Series B, 2.90% due 9/01/2028 (d)(f) 600
AAA Aaa 2,500 (Children's Hospital), 5.375% due 7/01/2016 (d) 2,458
AAA Aaa 4,500 (Children's Hospital), 5.375% due 7/01/2020 (d) 4,349
AAA Aaa 3,000 (Little Co. of Mary Health Service), 4.50% due 10/01/2028 (a) 2,459
-------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 500 California State Economic Development Financing Authority Revenue Bonds
(California Independent Systems Project), VRDN, Series A, 2.85% due
4/01/2008 (f) 500
-------------------------------------------------------------------------------------------------------------------
California State, GO, Refunding:
AAA Aaa 2,500 5% due 8/01/2024 (d) 2,269
AAA Aaa 9,620 Veterans Bonds, AMT, Series BH, 5.50% due 12/01/2024 (c) 9,318
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 California State Public Works Board, Lease Revenue Bonds, Department of
Corrections, Series A, 5.50% due 1/01/2017 (a) 2,000
-------------------------------------------------------------------------------------------------------------------
California State Public Works Board, Lease Revenue Refunding Bonds (a):
AAA Aaa 2,625 (Various Community College Projects), Series B, 5.625% due 3/01/2019 2,636
AAA Aaa 3,000 (Various University of California Projects), Series A, 5.40% due 12/01/2016 2,985
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,750 Campbell, California, Unified School District, GO, Refunding, 5.57%** due
8/01/2018 (b) 601
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,690 Contra Costa County, California, COP, Refunding (Merrithew Memorial Hospital
Project), 5.50% due 11/01/2022 (d) 3,628
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 7,000 El Dorado County, California, Public Agency Financing Authority, Revenue
Refunding Bonds, 5.50% due 2/15/2021 (b) 6,930
-------------------------------------------------------------------------------------------------------------------
NR* Aaa 6,200 Los Angeles, California, Department of Water and Power, Electric Plant
Revenue Refunding Bonds, RITR, Series 18, 7.37% due 11/15/2031 (b)(e) 5,724
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,230 Los Angeles, California, M/F Housing Revenue Refunding Bonds, Senior
Series G, 5.65% due 1/01/2014 (c) 4,272
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 630 Los Angeles County, California, Metropolitan Transportation Authority, Sales
Tax Revenue Refunding Bonds, Proposition A, First Tier, Senior Series A,
5.25% due 7/01/2027 (d) 592
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Montebello, California, Community Redevelopment Agency, Housing Tax
Allocation Bonds, Series A, 5.45% due 9/01/2019 (c) 1,952
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 16,000 Norco, California, Redevelopment Agency, Tax Allocation Bonds, Refunding
(Norco Redevelopment Project -- Area Number 1), 5.75% due 3/01/2026 (d) 16,075
-------------------------------------------------------------------------------------------------------------------
NR* Aaa 3,600 Northern California Transmission Revenue Refunding Bonds, RITR, Series 16,
7.07% due 5/01/2020 (d)(e) 3,268
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,300 Oakland, California, GO, Measure K, Series C, 5.80% due 12/15/2018 (d) 1,326
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Olivenhain Municipal Water District, California, COP, Refunding (Capital
Projects), 5.125% due 6/01/2028 (b) 4,599
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,750 Palm Desert, California, Financing Authority, Tax Allocation Refunding Bonds
(Project Area Number 1), 5.45% due 4/01/2018 (d) 5,719
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Pittsburg, California, Public Financing Authority, Water Revenue Bonds,
5.50% due 6/01/2027 (d) 4,909
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 7,500 Pittsburg, California, Redevelopment Agency, Tax Allocation Bonds (Los
Medanos Project Area), Series B, 5.70% due 8/01/2032 (c) 7,499
-------------------------------------------------------------------------------------------------------------------
Port Oakland, California, Port Revenue Bonds (d):
AAA Aaa 2,000 AMT, Series G, 5.375% due 11/01/2025 1,912
AAA Aaa 7,000 Series J, 5.50% due 11/01/2026 6,873
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Sacramento, California, Municipal Utility District, Electric Revenue Bonds,
Series K, 5.25% due 7/01/2024 (a) 9,546
-------------------------------------------------------------------------------------------------------------------
San Francisco, California, City and County Airport Commission, International
Airport Revenue Bonds, AMT, Second Series:
AAA Aaa 2,000 Issue 10-A, 5.70% due 5/01/2026 (d) 1,973
AAA Aaa 6,000 Issue 12-A, 5.80% due 5/01/2021 (b) 5,999
-------------------------------------------------------------------------------------------------------------------
San Francisco, California, City and County Redevelopment Financing Authority,
Tax Allocation Refunding Bonds (Redevelopment Project), Series D (d):
AAA Aaa 4,000 5.18%** due 8/01/2022 1,074
AAA Aaa 3,250 5.98%** due 8/01/2024 776
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Portfolio Abbreviations
To simplify the listings of MuniHoldings California Insured Fund, Inc.'s
portfolio holdings in the Schedule of Investments, we have abbreviated the names
of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
M/F Multi-Family
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
MuniHoldings California Insured Fund, Inc., August 31, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<C> <C> <C> <C> <S> <C>
California AAA Aaa $ 9,370 San Joaquin Hills, California, Transportation Corridor Agency, Toll Road
Revenue Refunding Bonds, Series A, 5.25% due 1/15/2030 (d) $ 8,777
(concluded) -------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Santa Ana, California, Financing Authority, Revenue Refunding Bonds (South
Harbor Boulevard), Series A, 5% due 9/01/2019 (d) 4,647
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 6,750 Santa Clara County, California, Financing Authority, Lease Revenue Refunding
Bonds, Series A, 5% due 11/15/2022 (a) 6,178
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 9,000 Santa Fe Springs, California, Community Development Commission, Tax
Allocation Refunding Bonds (Consolidated Redevelopment Project),
Series A, 5% due 9/01/2022 (d) 8,220
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 7,750 Southern California Public Power Authority, Revenue Refunding Bonds
(Southern Transmission Project), 5.75% due 7/01/2021 (d) 7,769
-------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 University of California Revenue Bonds (University of California Medical
Center), 5.75% due 7/01/2024 (a) 4,016
===================================================================================================================================
Total Investments (Cost -- $200,602) -- 98.7% 195,093
Other Assets Less Liabilities -- 1.3% 2,554
--------
Net Assets -- 100.0% $197,647
========
===================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at August 31, 1999.
(f) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at August 31,
1999.
(g) FHA Insured.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
Quality Profile
The quality ratings of securities in the Fund as of August 31, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ....................................................... 98.1%
Other+ ........................................................ 0.6
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of August 31, 1999
====================================================================================================================================
<C> <S> <C> <C>
Assets: Investments, at value (identified cost -- $200,602,170) (Note 1a) .................. $195,093,122
Cash ............................................................................... 95,079
Interest receivable ................................................................ 2,786,801
Prepaid expenses and other assets .................................................. 8,599
------------
Total assets ....................................................................... 197,983,601
------------
====================================================================================================================================
Liabilities: Payables:
Investment adviser (Note 2) ...................................................... $ 82,812
Dividends to shareholders (Note 1f) .............................................. 65,981
Offering costs (Note 1e) ......................................................... 54,000 202,793
------------
Accrued expenses and other liabilities ............................................. 133,514
------------
Total liabilities .................................................................. 336,307
------------
====================================================================================================================================
Net Assets: Net assets ......................................................................... $197,647,294
============
====================================================================================================================================
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (3,200 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) .............. $ 80,000,000
Common Stock, par value $.10 per share (8,327,187 shares issued and outstanding) . $ 832,719
Paid-in capital in excess of par ................................................... 123,014,810
Undistributed investment income -- net ............................................. 1,033,213
Accumulated realized capital losses on investments -- net .......................... (884,480)
Accumulated distributions in excess of realized capital gains on
investments -- net (Note 1f) ....................................................... (839,920)
Unrealized depreciation on investments -- net ...................................... (5,509,048)
------------
Total -- Equivalent to $14.13 net asset value per share of
Common Stock (market price -- $14.00) .............................................. 117,647,294
------------
Total capital ...................................................................... $197,647,294
============
====================================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings California Insured Fund, Inc., August 31, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended August 31, 1999
====================================================================================================================================
<C> <S> <C> <C>
Investment Interest and amortization of premium and discount earned .................... $ 11,221,718
Income (Note 1d):
====================================================================================================================================
Expenses: Investment advisory fees (Note 2) ........................................... $ 1,153,960
Commission fees (Note 4) .................................................... 204,928
Accounting services (Note 2) ................................................ 73,147
Professional fees ........................................................... 66,484
Transfer agent fees ......................................................... 36,548
Printing and shareholder reports ............................................ 21,031
Directors' fees and expenses ................................................ 18,496
Custodian fees .............................................................. 16,262
Listing fees ................................................................ 10,780
Pricing fees ................................................................ 6,026
Other ....................................................................... 11,147
-----------
Total expenses before reimbursement ......................................... 1,618,809
Reimbursement of expenses (Note 2) .......................................... (86,036)
-----------
Total expenses after reimbursement .......................................... 1,532,773
------------
Investment income -- net .................................................... 9,688,945
------------
====================================================================================================================================
Realized & Realized loss on investments -- net ......................................... (963,974)
Unrealized Loss on Change in unrealized appreciation/depreciation on investments -- net ........ (13,237,822)
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Decrease in Net Assets Resulting from Operations ........................ $ (4,512,851)
============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the For the Period
Year Ended Sept. 19, 1997+
Increase (Decrease) in Net Assets: Aug. 31, 1999 to Aug. 31, 1998
====================================================================================================================================
<C> <S> <C> <C>
Operations: Investment income -- net ...................................................... $ 9,688,945 $ 9,221,382
Realized gain (loss) on investments -- net .................................... (963,974) 79,494
Change in unrealized appreciation/depreciation on investments -- net .......... (13,237,822) 7,728,774
------------ ------------
Net increase (decrease) in net assets resulting from operations ............... (4,512,851) 17,029,650
------------ ------------
====================================================================================================================================
Dividends & Investment income -- net:
Distributions to Common Stock ................................................................ (7,061,526) (6,240,612)
Shareholders Preferred Stock ............................................................. (2,215,296) (2,359,680)
(Note 1f): In excess of realized gain on investments -- net:
Common Stock ................................................................ (622,192) --
Preferred Stock ............................................................. (217,728) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ............................................................... (10,116,742) (8,600,292)
------------ ------------
====================================================================================================================================
Capital Stock Proceeds from issuance of Common Stock ........................................ -- 124,200,000
Transactions Proceeds from issuance of Preferred Stock ..................................... -- 80,000,000
(Notes 1e & 4): Value of shares issued to Common Stock shareholders in reinvestment of
dividends and distributions ................................................... 295,324 337,005
Offering costs resulting from the issuance of Common Stock .................... -- (304,402)
Offering and underwriting costs resulting from the issuance of Preferred Stock -- (780,403)
------------ ------------
Net increase in net assets derived from capital stock transactions ............ 295,324 203,452,200
------------ ------------
====================================================================================================================================
Net Assets: Total increase (decrease) in net assets ....................................... (14,334,269) 211,881,558
Beginning of period ........................................................... 211,981,563 100,005
------------ ------------
End of period* ................................................................ $197,647,294 $211,981,563
============ ============
====================================================================================================================================
* Undistributed investment income -- net ........................................ $ 1,033,213 $ 621,090
============ ============
====================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings California Insured Fund, Inc., August 31, 1999
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the For the Period
Year Ended Sept. 19, 1997+
Increase (Decrease) in Net Asset Value: Aug. 31, 1999 to Aug. 31, 1998
====================================================================================================================================
<C> <S> <C> <C>
Per Share Net asset value, beginning of period ................................. $ 15.88 $ 15.00
Operating ---------- ----------
Performance: Investment income -- net ............................................. 1.17 1.10
Realized and unrealized gain (loss) on investments -- net ............ (1.70) .96
---------- ----------
Total from investment operations ..................................... (.53) 2.06
---------- ----------
Less dividends and distributions to Common Stock shareholders:
Investment income -- net ........................................... (.85) (.75)
In excess of realized gain on investments -- net ................... (.07) --
---------- ----------
Total dividends and distributions to Common Stock shareholders ....... (.92) (.75)
---------- ----------
Capital charge resulting from issuance of Common Stock ............... -- (.05)
---------- ----------
Effect of Preferred Stock activity:++
Dividends and distributions to Preferred Stock shareholders:
Investment income -- net ......................................... (.27) (.28)
In excess of realized gain on investments -- net ................. (.03) --
Capital charge resulting from issuance of Preferred Stock .......... -- (.10)
---------- ----------
Total effect of Preferred Stock activity ............................. (.30) (.38)
---------- ----------
Net asset value, end of period ....................................... $ 14.13 $ 15.88
========== ==========
Market price per share, end of period ................................ $ 14.00 $ 15.4375
========== ==========
====================================================================================================================================
Total Investment Based on market price per share ...................................... (3.59%) 8.06%@
Return:** ========== ==========
Based on net asset value per share ................................... (5.40%) 11.16%@
========== ==========
====================================================================================================================================
Ratios Based on Expenses, net of reimbursement*** .................................... 1.18% .76%*
Average Net Assets ========== ==========
Of Common Stock: Total expenses*** .................................................... 1.25% 1.20%*
========== ==========
Total investment income -- net*** .................................... 7.46% 7.68%*
========== ==========
Amount of dividends to Preferred Stock shareholders .................. 1.71% 1.97%*
========== ==========
Investment income -- net, to Common Stock shareholders ............... 5.75% 5.71%*
========== ==========
====================================================================================================================================
Ratios Based on Total expenses, net of reimbursement ................................. .73% .47%*
Average Net ========== ==========
Assets:+++*** Total expenses ....................................................... .77% .75%*
========== ==========
Total investment income -- net ....................................... 4.62% 4.77%*
========== ==========
====================================================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders ............................ 2.77% 3.28%*
Average Net Assets ========== ==========
Of Preferred Stock:
====================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) ..... $ 117,647 $ 131,982
Data: ========== ==========
Preferred Stock outstanding, end of period (in thousands) ............ $ 80,000 $ 80,000
========== ==========
Portfolio turnover ................................................... 54.93% 71.37%
========== ==========
====================================================================================================================================
Leverage: Asset coverage per $1,000 $ 2,471 $ 2,650
========== ==========
====================================================================================================================================
Dividends Per Series A -- Investment income -- net ................................. $ 711 $ 735
Share on Preferred ========== ==========
Stock Outstanding: Series B -- Investment income -- net ................................. $ 673 $ 739
========== ==========
====================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on October 7, 1997.
+++ Includes Common and Preferred Stock average net assets.
@ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings California Insured Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles, which may require the use of
management accruals and estimates. The Fund will determine and make available
for publication the net asset value of its Common Stock on a weekly basis. The
Fund's Common Stock is listed on the New York Stock Exchange under the symbol
CLH. The following is a summary of significant accounting policies followed by
the Fund.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing price as of the close
of such exchanges. Options written or purchased are valued at the last sale
price in the case of exchange-traded options. In the case of options traded in
the over-the-counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). Securities with remaining maturities
of sixty days or less are valued at amortized cost, which approximates market
value. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Directors
10 & 11
<PAGE>
MuniHoldings California Insured Fund, Inc., August 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
of the Fund, including valuations furnished by a pricing service retained by the
Fund, which may utilize a matrix system for valuations. The procedures of the
pricing service and its valuations are reviewed by the officers of the Fund
under the general supervision of the Board of Directors.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts -- The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options -- The Fund is authorized to write covered call options and purchase
put options. When the Fund writes an option, an amount equal to the premium
received by the Fund is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked to market to reflect the current
market value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Offering expenses -- Direct expenses relating to the public offering of the
Fund's Common and Preferred Stock were charged to capital at the time of
issuance of the shares.
(f) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates. Distributions in excess of realized capital gains are due
primarily to differing tax treatments for futures transactions and post-October
losses.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, Inc. ("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 any
proceeds from the sale of Preferred Stock. For the year ended August 31, 1999,
FAM earned fees of $1,153,960, of which $86,036 was voluntarily waived.
During the period September 19, 1997 to August 31, 1998, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, received
underwriting fees of $600,000 in connection with the issuance of the Fund's
Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended August 31, 1999 were $112,965,512 and $113,633,423, respectively.
Net realized gains (losses) for the year ended August 31, 1999 and net
unrealized losses as of August 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
- --------------------------------------------------------------------------------
Long-term investments .................... $(1,648,697) $(5,509,048)
Financial futures contracts .............. 684,723 --
----------- -----------
Total .................................... $ (963,974) $(5,509,048)
=========== ===========
- --------------------------------------------------------------------------------
As of August 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $5,509,048, of which $640,697 related to appreciated
securities and $6,149,745 related to depreciated securities. The aggregate cost
of investments at August 31, 1999 for Federal income tax purposes was
$200,602,170.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of holders of
Common Stock.
Common Stock
Shares issued and outstanding during the year ended August 31, 1999 increased by
18,592 as a result of dividend and distribution reinvestment and during the
period September 19, 1997 to August 31, 1998, increased by 8,280,000 from shares
sold and by 21,928 as a result of dividend reinvestment.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.10 per share and a liquidation preference of $25,000
per share, that entitle their holders to receive cash dividends at an annual
rate that may vary for the successive dividend periods. The yields in effect at
August 31, 1999 were as follows: Series A, 3.30% and Series B, 3.00%.
Shares issued and outstanding during the year ended August 31, 1999 remained
constant and for the period September 19, 1997 to August 31, 1998 increased by
3,200 as a result of the AMPS offering.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of each
auction. For the year ended August 31, 1999, MLPF&S earned $156,383 as
commissions.
5. Reorganization Plan:
On September 9, 1999, the Fund's Board of Directors approved a plan of
reorganization whereby the MuniHoldings California Insured Fund II, Inc. would
acquire substantially all of the assets and liabilities of the Fund in exchange
for newly issued shares of the MuniHoldings California Insured Fund II, Inc. The
plan of reorganization is subject to shareholder approval. MuniHoldings
California Insured Fund II, Inc. is a registered, non-diversified, closed-end
management investment company. Both entities have a similar investment objective
and are managed by FAM.
6. Subsequent Event:
On September 8, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.074000 per share,
payable on September 29, 1999 to shareholders of record as of September 22,
1999.
12 & 13
<PAGE>
MuniHoldings California Insured Fund, Inc., August 31, 1999
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
MuniHoldings California Insured Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniHoldings California Insured Fund,
Inc. as of August 31, 1999, the related statements of operations for the year
then ended and changes in net assets and the financial highlights for the year
then ended and for the period September 19, 1997 (commencement of operations) to
August 31, 1998. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at August
31, 1999 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of MuniHoldings
California Insured Fund, Inc. as of August 31, 1999, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 7, 1999
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. However, in order to
provide shareholders with a more consistent yield to the current trading price
of shares of Common Stock of the Fund, the Fund may at times pay out less than
the entire amount of net investment income earned in any particular month and
may at times in any particular month pay out such accumulated but undistributed
income in addition to net investment income earned in that month. As a result,
the dividends paid by the Fund for any particular month may be more or less than
the amount of net investment income earned by the Fund during such month. The
Fund's current accumulated but undistributed net investment income, if any, is
disclosed in the Statement of Assets, Liabilities and Capital, which comprises
part of the financial information included in this report.
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniHoldings California
Insured Fund, Inc. during its taxable period ended August 31, 1999 qualify as
tax-exempt interest dividends for Federal income tax purposes.
Additionally, the following table summarizes the per share taxable distributions
paid by the Fund during the year:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payable Ordinary Long-Term
Date Income Capital Gains*
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Common Stock Shareholders 12/30/98 $.056864 $.017939
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Shareholders: Series A 11/10/98 $ 21.28 $ 6.21
11/17/98 $ 16.43 $ 5.05
11/24/98 $ 13.31 $ 4.44
12/01/98 $ .89 $ .68
------------------------------------------------------------------------------------------
Series B 11/13/98 $ 21.50 $ 6.26
11/20/98 $ 20.02 $ 6.16
11/27/98 $ 10.01 $ 3.84
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The entire distribution is subject to the 20% tax rate.
Please retain this information for your records.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund's management that they
also expect to resolve the Year 2000 Problem, and the Fund's management will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the securities in which
the Fund invests, and this could hurt the Fund's investment returns.
14 & 15
<PAGE>
Officers and Directors
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
Walter C. O'Connor, Vice President
Donald C. Burke, Vice President and
Treasurer
William E. Zitelli, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
CLH
This report, including the financial information herein, is transmitted to the
shareholders of MuniHoldings California Insured Fund, Inc. for their
information. It is not a prospectus, circular or representation intended for use
in the purchase of shares of the Fund or any securities mentioned in the report.
Past performance results shown in this report should not be considered a
representation of future performance. The Fund has the ability to leverage its
Common Stock by issuing Preferred Stock to provide the Common Stock shareholders
with a potentially higher rate of return. Leverage creates risks for Common
Stock shareholders, including the likelihood of greater volatility of net asset
value and market price of shares of the Common Stock, and the risk that
fluctuations in the short-term dividend rates of the Preferred Stock may affect
the yield to Common Stock shareholders. Statements and other information herein
are as dated and are subject to change.
MuniHoldings California
Insured Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #HOLDCA -- 8/99
[RECYCLE LOGO] Printed on post-consumer recycled paper
