MUNIHOLDINGS
CALIFORNIA
INSURED FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
February 28, 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., February 28, 1999
DEAR SHAREHOLDER
For the six months ended February 28, 1999, the Common Stock of MuniHoldings
California Insured Fund, Inc. earned $0.429 per share income dividends, which
included earned and unpaid dividends of $0.066. This represents a net annualized
yield of 5.50%, based on a month-end per share net asset value of $15.75. Over
the same period, the total investment return on the Fund's Common Stock was
+2.44%, based on a change in per share net asset value from $15.88 to $15.75,
and assuming reinvestment of $0.494 per share ordinary income dividends and
$0.018 per share capital gains distributions.
For the six months ended February 28, 1999, the Fund's Preferred Stock had an
average yield of 3.25% for Series A and 3.13% for Series B.
The Municipal Market Environment
During most of the six months ended February 28, 1999, fixed-income investors
concentrated on the positive elements within the current economic framework. On
an annual basis, US economic growth remained modest, although it strengthened
somewhat in recent months. More important, continued weak foreign economic
growth has been seen as preventing US growth from overheating and generating
increased inflationary pressures. World commodity prices continued to decline to
their lowest level in over a decade, reinforcing the extremely positive
inflationary environment in the United States. Additionally, the Federal Reserve
Board lowered short-term interest rates in September, October and November.
These actions were taken both to ensure that US domestic economic growth would
not be negatively impacted by weak foreign demand and that US financial markets
would have adequate liquidity to offset deteriorating financial conditions in
Asia, Russia and Brazil. Despite considerable volatility, such positive factors
allowed long-term fixed-income interest rates to modestly decline into late
January 1999. During the six-month period ended February 28, 1999, US Treasury
bond yields declined almost 20 basis points (0.20%) to 5.09%, and long-term
tax-exempt revenue bond yields fell approximately 10 basis points to 5.17%, as
measured by the Bond Buyer Bond Revenue Index.
However, during February investors have developed a more negative bias toward
both the prospects for US economic growth and long-term bond yields. Economic
indicators released during February did not suggest that the US economy was
materially stronger in February than it had been in January or even in late
1998. Inflationary measures, such as the consumer price index and the gross
domestic product price deflator, have continued to suggest that domestic price
pressures are nearly non-existent. The consensus among economists was that
Federal Reserve Board Chairman Alan Greenspan's Humphrey-Hawkins testimony
emphasized that the balance between moderate economic growth and low inflation
seen in recent quarters remains in place and that it was unlikely that the
Federal Reserve Board would lower or raise short-term interest rates during
1999. However, investors largely chose to ignore these interpretations and began
to anticipate that the Federal Reserve Board was likely to raise short-term
interest rates sometime during 1999. Subsequently, fixed-income bond yields rose
for the remainder of the month. In February, US Treasury bond yields rose almost
50 basis points to 5.57%, and long-term uninsured municipal revenue bond yields
rose less than 15 basis points to end the month at 5.29%. During the February
quarter, US Treasury bond yields rose 30 basis points, while long-term municipal
bond yields rose less than 5 basis points, as measured by the Bond Buyer Revenue
Index.
Throughout most of 1998, the municipal bond market's performance was impeded by
a significant increase in annual new-issue supply. However, in recent months,
the technical position of the tax-exempt market improved. This has led to the
outperformance by long-term municipal bonds seen thus far in 1999. Over the last
12 months, more than $275 billion in new long-term tax-exempt bonds was
underwritten, an increase of almost 16% compared to the same period a year ago.
As municipal bond yields declined in recent years, it has taken increasingly
lower bond yields to generate the cost savings necessary to refinance remaining
higher-couponed debt. Consequently, the rate of increases in municipal bond
issuance slowed dramatically in recent quarters. During the last six months,
over $120 billion in new tax-exempt bonds was issued, a decrease of
approximately 7% compared to the same period a year ago. During the quarter
ended February 28, 1999, less than $60 billion in new long-term municipal bonds
was underwritten, representing a decline of nearly 10% compared to the quarter
ended February 28, 1998.
The pace of tax-exempt issuance slowed further in 1999. Year-to-date issuance
was less than $33 billion, representing a decline of almost 25% compared to
January 1998's volume. Additionally, investors received over $40 billion in
coupon payments, maturities and proceeds from early redemptions in January and
February. Consequently, investor demand has been strong in recent months, easily
matching, if not at times exceeding, available supply. We will monitor this
situation closely in the coming months to determine if the supply pressures
exerted in 1998 are abating and fostering a more balanced supply/demand
environment for 1999.
Such an environment should allow the tax-exempt market's performance to more
closely mirror that of its taxable counterpart.
Foreign investors have rarely been active investors in the tax-exempt bond
market since they are unable to benefit from the inherent tax advantage of
municipal securities. Consequently, the municipal bond market has not been able
to benefit from the strong "flight to quality" demand enjoyed by US Treasury
securities since late 1997. This inability has in large part resulted in
significantly smaller declines in municipal bond yields compared to US Treasury
securities. However, this has resulted in the opportunity to purchase tax-exempt
securities with yields very close to or, in some instances, exceeding those of
comparable US Treasury bonds. By February 28, 1999, long-term tax-exempt bond
yields were at 95% of US Treasury bond yields. Municipal bond yield ratios have
averaged approximately 92% for the last 12 months. During 1997, tax-exempt bond
yield ratios averaged 84%. It is likely that the combination of the annual
increase in new-issue volume and the "safe-haven" status of US Treasury
securities drove municipal bond yield ratios to their present attractive levels.
Should new volume decline and/or foreign financial markets regain stability in
1999, tax-exempt bond yield ratios could quickly return to their more historic
levels (85%-88%).
Looking ahead, the expected combination of moderate economic growth in the
United States and continued negligible inflation suggests a relatively stable
interest rate environment into early 1999. However, it is likely that foreign
financial markets will again be a critical factor in determining US bond yields.
While some Pacific Rim economies are expected to improve somewhat in 1999, the
economies of Japan and much of Europe are unlikely to show much growth in the
coming months. Also, economic problems in Russia and Brazil remain unresolved
suggesting that additional shocks to the world's financial system are possible.
On the other hand, the continued robustness of the US economy has led to some
back up in interest rates. However, at present these factors suggest that there
is little immediate risk of sustained significant increases in long-term bond
yields.
Portfolio Strategy
During the six-month period ended February 28, 1999, we maintained our
constructive portfolio strategy for MuniHoldings California Insured Fund, Inc.
We believed that a continuation of current equity market turmoil would have a
negative impact on economic growth, thereby constricting global inflation and
forcing interest rates lower over the next several months. As this scenario came
to
2 & 3
<PAGE>
MuniHoldings California Insured Fund, Inc., February 28, 1999
pass, economic turmoil increased in various parts of the world, including Russia
and Brazil. While the US economy performed much better than anticipated,
inflation remained quite benign. Beginning in late January 1999, we shifted the
Fund toward a more neutral position on interest rates. Consequently, we started
to reduce our exposure to the long end of the municipal yield curve and placed
an emphasis on municipal bonds in the 20-year sector as the yield differential
started to narrow considerably. Looking ahead, we believe this strategy will
enable the Fund to be less sensitive to any negative market movement should
interest rates start to rise.
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 and Director
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Walter C. O'Connor
Walter C. O'Connor
Vice President and Portfolio Manager
April 5, 1999
================================================================================
After more than 20 years of service, Arthur Zeikel recently retired as Chairman
of Merrill Lynch Asset Management, L.P. (MLAM). Mr. Zeikel served as President
of MLAM from 1977 to 1997 and as Chairman since December 1997. Mr. Zeikel is one
of the country's most respected leaders in asset management and presided over
the growth of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500 billion. Mr.
Zeikel will remain on MuniHoldings California Insured Fund, Inc.'s Board of
Directors. We are pleased to announce that Terry K. Glenn has been elected
President and Director of the Fund. Mr. Glenn has held the position of Executive
Vice President of MLAM since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors in wishing
him well in his retirement from Merrill Lynch and are pleased that he will
continue as a member of the Fund's Board of Directors.
================================================================================
PROXY RESULTS
During the six-month period ended February 28, 1999, MuniHoldings California
Insured Fund, Inc. Common Stock shareholders voted on the following proposals.
The proposals were approved at a shareholders' meeting on December 15, 1998. The
description of each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect the Fund's Directors: Ronald W. Forbes 8,237,955 58,279
Cynthia A. Montgomery 8,235,788 60,446
Kevin A. Ryan 8,237,955 58,279
Arthur Zeikel 8,237,955 58,279
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the
Fund's independent auditors for the current fiscal year. 8,220,104 32,465 43,665
- --------------------------------------------------------------------------------------------------------
</TABLE>
During the six-month period ended February 28, 1999, MuniHoldings California
Insured Fund, Inc. Preferred Stock (Series A and B) shareholders voted on the
following proposals. The proposals were approved at a shareholders' meeting on
December 15, 1998. The description of each proposal and number of shares voted
are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect the Fund's Board of Directors: Ronald W. Forbes,
Cynthia A. Montgomery, Charles C. Reilly, Kevin A. Ryan,
Richard R. West and Arthur Zeikel as follows:
Series A 1,555 0
Series B 1,600 0
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the
Fund's independent auditors for the current fiscal year
as follows:
Series A 1,522 32 0
Series B 1,600 00 0
- --------------------------------------------------------------------------------------------------------
</TABLE>
4 & 5
<PAGE>
MuniHoldings California Insured Fund, Inc., February 28, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
=================================================================================================================================
<S> <C> <C> <C> <C>
California--94.5% NR* Aaa $6,000 Antioch, California, Public Financing Authority, Reassessment Revenue
Bonds, Series A, 5% due 9/02/2013 (a) $ 6,114
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,345 California ABC Unified School District, GO, Series A, 5.625% due
8/01/2020 (c) 3,572
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,220 California Community College Financing Authority, Lease Revenue Bonds
(West Valley--Mission Community College), 5.50% due 5/01/2017 (d) 1,288
-------------------------------------------------------------------------------------------------------------
California HFA, Revenue Bonds, Home Mortgage, AMT:
AAA Aaa 4,125 Series E, 6.10% due 8/01/2029 (a) 4,394
AAA Aaa 1,000 Series I, 5.75% due 2/01/2029 (d) 1,044
AAA Aaa 4,600 Series M, 5.60% due 8/01/2029 (d) 4,740
-------------------------------------------------------------------------------------------------------------
AAA Aaa 6,355 California HFA, Revenue Bonds, S/F Mortgage, AMT, Series C-2, Class II,
5.625% due 8/01/2020 (d)(g) 6,581
-------------------------------------------------------------------------------------------------------------
NR* Aaa 10,000 California Health Facilities Finance Authority Revenue Bonds, RITR,
Series 14, 7.47% due 8/15/2030 (d)(e) 10,542
-------------------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Revenue Refunding Bonds:
AAA Aaa 2,500 (Childrens Hospital), 5.375% due 7/01/2016 (d) 2,600
AAA Aaa 4,500 (Childrens Hospital), 5.375% due 7/01/2020 (d) 4,614
AAA Aaa 5,000 (Little Co. of Mary Health Service), 4.50% due 10/01/2028 (a) 4,594
-------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority, PCR, VRDN, Refunding (f):
A1+ NR* 2,000 (Pacific Gas and Electric), Series F, 3.10% due 11/01/2026 2,000
A1 P1 600 (Southern California Edison), Series D, 3.55% due 2/28/2008 600
-------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,000 California State Economic Development Financing Authority Revenue Bonds
(California Independent Systems Project), VRDN, Series D, 3.10% due
4/01/2008 (f) 1,000
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 California State Public Works Board, Department of Corrections, Lease
Revenue Bonds, Series A, 5.50% due 1/01/2017 (a) 2,100
-------------------------------------------------------------------------------------------------------------
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 2,784
AAA Aaa 3,000 (Various University of California Projects), Series A, 5.40% due
12/01/2016 3,159
-------------------------------------------------------------------------------------------------------------
AAA Aaa 9,620 California State Veterans Bonds, GO, Refunding, AMT, Series BH, 5.50%
due 12/01/2024 (c) 9,854
-------------------------------------------------------------------------------------------------------------
AAA NR* 2,035 California Statewide Communities Development Authority, COP, Refunding
(San Diego State University Foundation), 5.30% due 3/01/2017 (a) 2,107
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,480 Central Coast Water Authority, California, Revenue Refunding Bonds
(State Water Project Regional Facilities), Series A, 5% due
10/01/2022 (a) 2,463
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,690 Contra Costa County, California, COP, Refunding (Merrithew Memorial
Hospital Project), 5.50% due 11/01/2022 (d) 3,879
-------------------------------------------------------------------------------------------------------------
AAA Aaa 7,000 El Dorado County, California, Public Agency Financing Authority, Revenue
Refunding Bonds, 5.50% due 2/15/2021 (b) 7,354
-------------------------------------------------------------------------------------------------------------
NR* Aaa 6,200 Los Angeles, California, Department of Water and Power, Electric Plant
Revenue Bonds, RITR, Series 18, 7.52% due 11/15/2031 (b)(e) 6,535
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,240 Los Angeles, California, M/F Housing Revenue Refunding Bonds, Senior
Series G, 5.65% due 1/01/2014 (c) 4,398
-------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 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) 10,169
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,750 Metropolitan Water District, Southern California, Waterworks Revenue
Bonds, Series A, 5.50% due 7/01/2025 (d) 1,831
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Montebello, California, Community Redevelopment Agency, Housing Tax
Allocation Bonds, Series A, 5.45% due 9/01/2019 (c) 2,067
-------------------------------------------------------------------------------------------------------------
AAA Aaa 16,000 Norco, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Norco Redevelopment Project--Area Number 1), 5.75% due 3/01/2026 (d) 17,175
-------------------------------------------------------------------------------------------------------------
NR* Aaa 3,600 Northern California Transmission Revenue Bonds, RITR, Series 16, 7.22%
due 5/01/2020 (d)(e) 3,690
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,300 Oakland, California, GO, Measure K, Series C, 5.80% due 12/15/2018 (d) 1,411
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,750 Palm Desert, California, Financing Authority, Tax Allocation Revenue
Refunding Bonds (Project Area Number 1), 5.45% due 4/01/2018 (d) 6,012
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Pittsburg, California, Public Financing Authority, Water Revenue Bonds,
5.50% due 6/01/2027 (d) 5,268
-------------------------------------------------------------------------------------------------------------
AAA Aaa 7,500 Pittsburg, California, Redevelopment Agency, Tax Allocation Bonds (Los
Medanos Project Area), Series B, 5.70% due 8/01/2032 (c) 8,180
-------------------------------------------------------------------------------------------------------------
Port Oakland, California, Port Revenue Bonds (d):
AAA Aaa 2,000 AMT, Series G, 5.375% due 11/01/2025 2,046
AAA Aaa 7,000 Series J, 5.50% due 11/01/2026 7,387
-------------------------------------------------------------------------------------------------------------
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) 2,126
AAA Aaa 6,000 Issue 12-A, 5.80% due 5/01/2021 (b) 6,385
-------------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 San Francisco, California, City and County Redevelopment Financing
Authority, Tax Allocation Refunding Bonds (Redevelopment Project),
Series D, 5.18%** due 8/01/2022 (d) 1,804
-------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 San Francisco, California, State Building Authority, Lease Revenue Bonds
(San Francisco Civic Center Complex), Series A, 5.25% due 12/01/2021 (a) 10,175
-------------------------------------------------------------------------------------------------------------
AAA Aaa 7,750 Southern California Public Power Authority, Revenue Refunding Bonds
(Southern Transmission Project), 5.75% due 7/01/2021 (d) 8,204
-------------------------------------------------------------------------------------------------------------
University of California Revenue Bonds:
AAA Aaa 3,000 (Multiple Purpose Projects), Series E, 5.125% due 9/01/2016 (d) 3,077
AAA Aaa 4,000 (University of California--Davis Medical Center), 5.75% due
7/01/2024 (a) 4,277
=================================================================================================================================
</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 below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
6 & 7
<PAGE>
MuniHoldings California Insured Fund, Inc., February 28, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
=================================================================================================================================
<S> <C> <C> <C> <C>
Puerto Rico--5.9% A Baa1 $4,000 Puerto Rico Commonwealth, GO, 5.375% due 7/01/2025 $ 4,079
-------------------------------------------------------------------------------------------------------------
A Baa1 8,000 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway
Revenue Bonds, Series Y, 5.50% due 7/01/2026 8,289
=================================================================================================================================
Total Investments (Cost--$205,275)--100.4% 211,968
Liabilities in Excess of Other Assets--(0.4%) (791)
--------
Net Assets--100.0% $211,177
========
=================================================================================================================================
</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 February 28, 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 February 28, 1999.
(g) FHA Insured.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
+ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements
Quality Profile
The quality ratings of securities in the Fund as of February 28, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa .......................................................... 92.8%
A/A .............................................................. 5.9
Other+ ........................................................... 1.7
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of February 28, 1999
==================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $205,275,061) (Note 1a) ................... $211,967,924
Cash ................................................................................ 26,735
Interest receivable ................................................................. 2,589,428
Prepaid expenses and other assets ................................................... 4,912
------------
Total assets ........................................................................ 214,588,999
------------
==================================================================================================================================
Liabilities: Payables:
Securities purchased .............................................................. $ 3,076,994
Dividends to shareholders (Note 1f) ............................................... 92,629
Investment adviser (Note 2) ....................................................... 83,164
Offering costs (Note 1e) .......................................................... 61,020 3,313,807
------------
Accrued expenses and other liabilities .............................................. 97,824
------------
Total liabilities ................................................................... 3,411,631
------------
==================================================================================================================================
Net Assets: Net assets .......................................................................... $211,177,368
============
==================================================================================================================================
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 .................................................... 123,014,811
Undistributed investment income--net ................................................ 721,957
Accumulated realized capital losses on investments--net ............................. (84,982)
Unrealized appreciation on investments--net ......................................... 6,692,863
------------
Total--Equivalent to $15.75 net asset value per share of Common Stock
(market price--$15.50) .............................................................. 131,177,368
------------
Total capital ....................................................................... $211,177,368
============
==================================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended February 28, 1999
==================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned ... $ 5,559,176
Income (Note 1d):
==================================================================================================================
Expenses: Investment advisory fees (Note 2) .......................... $ 579,693
Commission fees (Note 4) ................................... 96,301
Accounting services (Note 2) ............................... 38,312
Professional fees .......................................... 32,032
Printing and shareholder reports ........................... 28,045
Transfer agent fees ........................................ 15,989
Directors' fees and expenses ............................... 9,253
Custodian fees ............................................. 7,080
Listing fees ............................................... 5,114
Pricing fees ............................................... 3,205
-----------
Total expenses before reimbursement ........................ 815,024
Reimbursement of expenses (Note 2) ......................... (43,247)
-----------
Total expenses after reimbursement ......................... 771,777
-----------
Investment income--net ..................................... 4,787,399
-----------
==================================================================================================================
Realized & Unreal- Realized gain on investments--net .......................... 675,444
ized Gain (Loss) on Change in unrealized appreciation on investments--net ...... (1,035,911)
Investments--Net -----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ....... $ 4,426,932
===========
==================================================================================================================
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the Period
Months Ended Sept. 19, 1997+
Increase (Decrease) in Net Assets: Feb. 28, 1999 to Aug. 31, 1998
===================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net .......................................................... $ 4,787,399 $ 9,221,382
Realized gain on investments--net ............................................... 675,444 79,494
Change in unrealized appreciation on investments--net ........................... (1,035,911) 7,728,774
------------ ------------
Net increase in net assets resulting from operations ............................ 4,426,932 17,029,650
------------ ------------
===================================================================================================================================
Dividends & Investment income--net:
Distributions to Common Stock .................................................................. (3,637,620) (6,240,612)
Shareholders Preferred Stock ............................................................... (1,048,912) (2,359,680)
(Note 1f): 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 ................................................................. (5,526,452) (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 .................................................. 295,325 337,005
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 .............. 295,325 203,452,200
------------ ------------
===================================================================================================================================
Net Assets: Total increase (decrease) in net assets ......................................... (804,195) 211,881,558
Beginning of period ............................................................. 211,981,563 100,005
------------ ------------
End of period* .................................................................. $211,177,368 $211,981,563
============ ============
===================================================================================================================================
*Undistributed investment income--net ............................................ $ 721,957 $ 621,090
============ ============
===================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Six For the Period
Months Ended Sept. 19, 1997+
Increase (Decrease) in Net Asset Value: Feb. 28, 1999 to Aug. 31, 1998
================================================================================================================================
<S> <C> <C> <C>
Per Share Net asset value, beginning of period .............................. $ 15.88 $ 15.00
Operating ------------- -------------
Performance: Investment income--net ............................................ .59 1.10
Realized and unrealized gain (loss) on investments--net ........... (.05) .96
------------- -------------
Total from investment operations .................................. .54 2.06
------------- -------------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net .......................................... (.44) (.75)
Realized gain on investments--net ............................... (.07) --
------------- -------------
Total dividends and distributions to Common Stock shareholders .... (.51) (.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 ........................................ (.13) (.28)
Realized gain on investments--net ............................. (.03) --
Capital charge resulting from issuance of Preferred Stock ....... -- (.10)
------------- -------------
Total effect of Preferred Stock activity .......................... (.16) (.38)
------------- -------------
Net asset value, end of period .................................... $ 15.75 $ 15.88
============= =============
Market price per share, end of period ............................. $ 15.50 $ 15.4375
============= =============
================================================================================================================================
Total Investment Based on market price per share ................................... 3.71%+++ 8.06%+++
Return:** ============= =============
Based on net asset value per share ................................ 2.44%+++ 11.16%+++
============= =============
================================================================================================================================
Ratios to Average Expenses, net of reimbursement .................................... .73%* .47%*
Net Assets:*** ============= =============
Expenses .......................................................... .77%* .75%*
============= =============
Investment income--net ............................................ 4.54%* 4.77%*
============= =============
================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) .. $ 131,177 $ 131,982
Data: ============= =============
Preferred Stock outstanding, end of period (in thousands) ......... $ 80,000 $ 80,000
============= =============
Portfolio turnover ................................................ 18.30% 71.37%
============= =============
================================================================================================================================
Leverage: Asset coverage per $1,000 ......................................... $ 2,640 $ 2,650
============= =============
================================================================================================================================
Dividends Per Series A--Investment income--net .................................. $ 335 $ 735
Share on Preferred ============= =============
Stock Outstanding: Series B--Investment income--net .................................. $ 321 $ 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 loads.
*** 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.
+++ Aggregate total investment return.
See Notes to Financial Statements.
10 & 11
<PAGE>
MuniHoldings California Insured Fund, Inc., February 28, 1999
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. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. 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 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.
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 0.55% of the Fund's average weekly net assets, including any
proceeds from the sale of Preferred Stock. For the six months ended February 28,
1999, FAM earned fees of $579,693, of which $43,247 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 six
months ended February 28, 1999 were $38,508,887 and $39,331,225, respectively.
Net realized gains for the six months ended February 28, 1999 and net unrealized
gains as of February 28, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments ............................ $ 675,444 $6,692,863
---------- ----------
Total ............................................ $ 675,444 $6,692,863
========== ==========
- --------------------------------------------------------------------------------
As of February 28, 1999, net unrealized appreciation for Federal income tax
purposes aggregated $6,692,863, of which $6,774,137 related to appreciated
securities and $81,274 related to depreciated securities. The aggregate cost of
investments at February 28, 1999 for Federal income tax purposes was
$205,275,061.
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 six months ended February 28, 1999
increased by 18,592 as a result of dividend 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
12 & 13
<PAGE>
MuniHoldings California Insured Fund, Inc., February 28, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
may vary for the successive dividend periods. The yields in effect at February
28, 1999 were as follows: Series A, 3.00% and Series B, 2.00%.
Shares issued and outstanding during the six months ended February 28, 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 0.25% to 0.375%, calculated on the proceeds of
each auction. For the six months ended February 28, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an affiliate of FAM, earned $97,519 as commissions.
5. Subsequent Event:
On March 8, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.065519 per share,
payable on March 30, 1999 to shareholders of record as of March 24, 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.
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.
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
Patrick D. Sweeney, Secretary
- --------------------------------------------------------------------------------
Gerald M. Richard, Treasurer of MuniHoldings California Insured Fund, Inc. has
recently retired. His colleagues at Merrill Lynch Asset Management, L.P. join
the Fund's Board of Directors in wishing Mr. Richard well in his retirement.
- --------------------------------------------------------------------------------
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
14 & 15
<PAGE>
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--2/99
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