As filed with the Securities and Exchange Commission on December 1, 1999
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. 1)
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement
|_| Confidential, For Use of the Com-
mission Only (as permitted by
Rule 14a-6(e)(2))
|_| Definitive proxy statement
|X| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MUNIHOLDINGS CALIFORNIA INSURED FUND II, INC.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC.
MUNIHOLDINGS CALIFORNIA INSURED FUND III, INC.
MUNIHOLDINGS CALIFORNIA INSURED FUND IV, INC.
P.O. Box 9011
Princeton, New Jersey 08543-9011
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Same as above
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registrations statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
MUNIHOLDINGS CALIFORNIA INSURED FUND II, INC.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC.
MUNIHOLDINGS CALIFORNIA INSURED FUND III, INC.
MUNIHOLDINGS CALIFORNIA INSURED FUND IV, INC.
November 22, 1999
Dear Stockholder:
Recently, you received a joint proxy statement and prospectus
describing a proposed reorganization of the listed funds in which MuniHoldings
California Insured Fund II, Inc. (the "surviving fund") would acquire the assets
and assume the liabilities of MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund III, Inc., and MuniHoldings California
Insured Fund IV, Inc. in exchange for shares of the common stock and auction
market preferred stock of the surviving fund. At the time the proxy statement
and prospectus was mailed, the audited financial statements of the funds with a
fiscal year ending September 30, 1999 were not available.
For that reason and in order to ensure that you have all the
information you might need about the proposed reorganization, we have enclosed
the Annual Report to Stockholders of MuniHoldings California Insured Fund IV,
Inc. which contains that fund's audited financial statements for the year ended
September 30, 1999.
If you have not yet completed and returned your proxy card we urge you
to do so now. Your vote is important. If you have any questions regarding the
meeting agenda or the execution of your proxy, please call Shareholder
Communications Corporation at 1-800-645-4519.
<PAGE>
MUNIHOLDINGS
CALIFORNIA
INSURED
FUND IV, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
September 30, 1999
<PAGE>
MuniHoldings California Insured Fund IV, Inc.
The Benefits and
Risks of
Leveraging
MuniHoldings California Insured Fund IV, 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 of the fund's Common Stock (that is, its price
as listed on the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common Stock's net asset
value will reflect the full decline in the price of the portfolio's investments,
since the value of the fund's Preferred Stock does not fluctuate. In addition to
the decline in net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed-rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and 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 IV, Inc., September 30, 1999
DEAR SHAREHOLDER
Since inception (January 29, 1999) through September 30, 1999, the Common Stock
of MuniHoldings California Insured Fund IV, Inc. earned $0.540 per share income
dividends, which included earned and unpaid dividends of $0.068. This represents
a net annualized yield of 6.28%, based on a month-end net asset value of $12.81
per share. During the same period, the total investment return on the Fund's
Common Stock was -11.61%, based on a change in per share net asset value from
$15.00 to $12.81, and assuming reinvestment of $0.472 per share income
dividends.
For the six-month period ended September 30, 1999, the Fund's Auction Market
Preferred Stock had an average yield of 2.86% for Series A and 3.01% for Series
B.
The Municipal Market Environment
The combination of steady strong domestic economic growth, improvement in
foreign economies (most notably in Japan) and increasing investor concerns
regarding potential increases in US inflation put upward pressure on bond yields
throughout the six-month period ended September 30, 1999. 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 6.05% by September 30, 1999. During the period, yields on 30-year US
Treasury bonds increased over 40 basis points (0.40%).
Long-term tax-exempt bond yields also rose during the six months ended September
30, 1999. Until early May, the municipal bond market was able to withstand much
of the upward pressure on bond yields. However, investor concerns of additional
moves by the Federal Reserve Board to moderate US economic growth and, more
importantly, the loss of the strong technical support that the tax-exempt market
enjoyed in early 1999 helped push municipal bond yields significantly higher for
the remainder of the period. The yields on long-term tax-exempt revenue bonds
rose over 65 basis points to 5.96% by September 30, 1999, as measured by the
Bond Buyer Revenue Bond Index.
In recent months, the significant decline in new tax-exempt bond issuance has
remained a positive factor within the municipal bond market, as it had been for
much of the past year. During the last six months, more than $113 billion in
long-term municipal bonds was issued, a decline of over 20% compared to the same
period a year ago. During the past three months, $55 billion in municipal bonds
was underwritten, representing a decline of nearly 15% compared to the
corresponding period in 1998. 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 considerable retail
investor interest, which has helped absorb the recent diminished supply.
Although tax-exempt bond yields are at their highest level in over two years and
have attracted significant retail investor interest, institutional demand has
declined sharply. Long-term municipal mutual funds have seen consistent outflows
in recent months as the yields of individual securities have risen faster than
those of larger, more diverse mutual funds. In addition, the demand from
property/casualty insurance companies has weakened as a result of the losses,
and anticipated losses, incurred as a result of the series of damaging storms
across much of the eastern United States. Additionally, many institutional
investors who were attracted to the municipal bond market in recent years by
historically attractive tax-exempt bond yield ratios of over 90% have found
other asset classes even more attractive. Even with a reduced supply position,
tax-exempt issuers have been forced to repeatedly raise municipal bond yields in
the attempt to attract adequate demand.
The recent relative underperformance of the municipal bond market has resulted
in an opportunity for long-term investors to purchase tax-exempt issues whose
yields are nearly identical to taxable US Treasury securities. At September 30,
1999, long-term uninsured municipal revenue bond yields were almost 99% of
comparable US Treasury securities. In recent months, many taxable asset classes,
such as corporate bonds, mortgage-backed securities and US agency debt, have all
accelerated debt issuance. This acceleration was initiated largely to avoid
issuing securities at year-end and to minimize any associated Year 2000 (Y2K)
problems that may develop. However, this increased issuance has also resulted in
higher yield levels in the various asset classes as lower bond prices became
necessary to attract sufficient investor demand. Going forward, it is believed
that the pace of non-US Government debt issuance is likely to slow
significantly. As the supply of this debt declines, we would expect many
institutional investors to return to the municipal bond market and the
attractive yield ratios available.
Looking ahead, it appears to us that long-term municipal bond yields will remain
under pressure, trading in a broad range centered near current levels. Investors
are likely to remain concerned about future action by the Federal Reserve Board.
Y2K considerations may prohibit a series of Federal Reserve Board moves at the
end of the year and the beginning of 2000. Any improvement in bond prices will
probably 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 may 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 in response to higher mortgage rates. We believe that 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.
In Conclusion
On September 9, 1999, MuniHoldings California Insured Fund IV, Inc.'s Board of
Directors approved a plan of reorganization, subject to shareholder approval and
certain other conditions, whereby MuniHoldings California Insured Fund II, Inc.
would acquire substantially all of the assets and liabilities of the Fund,
MuniHoldings California Insured Fund Inc. and MuniHoldings California Insured
Fund III, Inc. in exchange for newly issued shares of MuniHoldings California
Insured Fund II, Inc. These Funds are registered, non-diversified, closed-end
management investment companies. All four entities have similar investment
objectives and are managed by Fund Asset Management, L.P.
We appreciate your investment in MuniHoldings California Insured Fund IV, Inc.
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
October 26, 1999
2 & 3
<PAGE>
MuniHoldings California Insured Fund IV, Inc., September 30, 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--99.6% AAA Aaa $ 5,000 Alameda Corridor Transportation Authority, California,
Revenue Bonds, Senior Lien, Series A, 5% due 10/01/2029 (e) $ 4,447
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,205 Alameda County, California, Water District Revenue
Refunding Bonds, 4.75% due 6/01/2020 (e) 1,056
----------------------------------------------------------------------------------------------------------
AAA NR* 1,000 Anaheim, California, Public Financing Authority Revenue
Bonds (Electric System District Facilities), 5% due
10/01/2023 (e) 902
----------------------------------------------------------------------------------------------------------
NR* Aa2 2,500 California Educational Facilities Authority, Revenue
Refunding Bonds, RIB, Series 147, 7.19% due 10/01/2027 (f) 2,344
----------------------------------------------------------------------------------------------------------
AA- Aa3 3,890 California HFA, M/F Housing III, Revenue Refunding Bonds,
AMT, Series A, 5.375% due 8/01/2028 3,583
----------------------------------------------------------------------------------------------------------
AAA Aaa 4,755 California HFA, Revenue Bonds, Home Mortgage, AMT,
Series R, 5.25% due 8/01/2026 (a) 4,341
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 California Health Facilities Finance Authority Revenue
Bonds (Kaiser Permanente), Series A, 5.50% due 6/01/2022 (c) 1,949
----------------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Revenue
Refunding Bonds (e):
A1+ VMIG1+ 3,300 (Adventist Hospital), VRDN, Series B, 3.80% due 9/01/2028 (g) 3,300
AAA NR* 8,500 RIB, Series 90, 6.865% due 8/15/2028 (f) 7,565
AAA Aaa 45 (Sutter Health), Series A, 5.35% due 8/15/2028 42
----------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority, PCR,
Refunding, VRDN (g):
NR* NR* 1,550 (Pacific Gas and Electric), Series E, 3.75% due 11/02/2026 1,550
A1+ NR* 2,400 (Pacific Gas and Electric), Series F, 3.80% due 11/01/2026 2,400
A1 P1 1,300 (Southern California Edison), Series C, 3.80% due 2/28/2008 1,300
----------------------------------------------------------------------------------------------------------
California State Economic Development Financing Authority
Revenue Bonds (California Independent Systems Project),
VRDN (g):
A1+ VMIG1+ 300 Series C, 3.75% due 4/01/2008 300
A1+ VMIG1+ 2,900 Series D, 3.75% due 4/01/2008 2,900
----------------------------------------------------------------------------------------------------------
California State, GO, Refunding:
AAA Aaa 13,135 5% due 2/01/2023 (b) 11,861
AAA Aaa 2,500 4.25% due 10/01/2026 (e) 1,963
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 California State Public Works, Board Lease Revenue
Refunding Bonds, Department of Corrections, Series B,
5% due 9/01/2021 (e) 1,817
----------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Calleguas-Las Virgines, California, Public Financing
Authority, Installment Purchase Revenue Refunding Bonds
(Las Virgines Municipal Water District), 5% due 11/01/2023 (c) 2,705
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,395 Capistrano, California, Unified School District, Community
Facility District, Special Tax Refunding Bonds (Las Flores),
Number 92-1, 5% due 9/01/2023 (e) 1,258
----------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Castaic Lake Water Agency, California, Revenue Bonds, COP
(Water System Improvement Project), 5.50% due 8/01/2023 (a) 3,911
----------------------------------------------------------------------------------------------------------
AAA Aaa 8,000 Central Coast Water Authority, California, Revenue
Refunding Bonds (State Water Project Regional Facilities),
Series A, 5% due 10/01/2022 (a) 7,259
----------------------------------------------------------------------------------------------------------
AAA Aaa 6,140 Contra Costa, California, Water District, Water Revenue
Bonds, Series G, 5% due 10/01/2024 (e) 5,503
----------------------------------------------------------------------------------------------------------
East Side Union High School District, California, Santa
Clara County, GO, Series E (b):
AAA Aaa 3,205 5% due 9/01/2022 2,901
AAA Aaa 5,655 5% due 9/01/2023 5,100
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Fontana, California, Redevelopment Agency, Tax Allocation
Refunding Bonds (Southwest Industrial Park Project), 5%
due 9/01/2022 (e) 2,263
----------------------------------------------------------------------------------------------------------
AAA Aaa 3,390 Fresno, California, Sewer Revenue Bonds, Series A, 5%
due 9/01/2023 (e) 3,066
----------------------------------------------------------------------------------------------------------
AAA Aaa 5,200 Glendale, California, Unified School District, GO,
Series B, 5.125% due 9/01/2023 (c) 4,774
----------------------------------------------------------------------------------------------------------
AAA Aaa 4,600 La Quinta, California, Redevelopment Agency, Tax
Allocation Refunding Bonds (Redevelopment Project Area
Number 1), 5.20% due 9/01/2028 (a) 4,238
----------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Long Beach, California, Bond Finance Authority, Lease
Revenue Bonds (Rainbow Harbor Refining Project),
Series A, 5.25% due 5/01/2024 (a) 3,743
----------------------------------------------------------------------------------------------------------
AAA Aaa 3,590 Long Beach, California, Water Revenue Refunding Bonds,
Series A, 5% due 5/01/2024 (e) 3,229
----------------------------------------------------------------------------------------------------------
AAA Aaa 10,650 Los Altos, California, School District, GO, Series A,
5% due 8/01/2023 (c) 9,607
----------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Los Angeles, California, Convention and Exhibition Center
Authority, Lease Revenue Refunding Bonds, Series A,
5.125% due 8/15/2021 (e) 2,768
----------------------------------------------------------------------------------------------------------
Los Angeles, California, Unified School District, GO (b):
AAA Aaa 4,200 Series A, 5% due 7/01/2021 3,816
AAA Aaa 11,415 Series B, 5% due 7/01/2023 10,299
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Los Angeles, California, Wastewater System Revenue Bonds,
Series A, 5% due 6/01/2023 (b) 1,805
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Los Angeles County, California, Metropolitan Transportation
Authority, Sales Tax Revenue Refunding Bonds, First Tier,
Senior Series B, 4.75% due 7/01/2024 (c) 1,721
----------------------------------------------------------------------------------------------------------
AAA Aaa 3,065 Monterey County, California, COP, Refunding (Natividad
Medical Center Improvement), Series E, 4.75% due
8/01/2027 (e) 2,612
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,250 Northern California Power Agency, Multiple Capital
Facilities Revenue Refunding Bonds, Series A, 5% due
8/01/2025 (a) 2,016
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,250 Northern California Power Agency, Public Power Revenue
Refunding Bonds (Hydroelectric Project Number 1),
Series A, 5.20% due 7/01/2032 (e) 1,135
----------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Oakland, California, State Building Authority, Lease
Revenue Bonds (Elihu M. Harris), Series A, 5% due
4/01/2023 (a) 4,514
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Pomona, California, Public Financing Authority, Revenue
Refunding Bonds (SW Pomona Redevelopment Project),
Series W, 5% due 2/01/2024 (e) 1,800
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Roseville, California, Electric System Revenue Bonds,
COP, 5.50% due 2/01/2024 (c) 1,953
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 San Diego, California, Certificates of Unified Dividend
Interest, Water Utility Fund, Net System Revenue Bonds,
5% due 8/01/2021 (b) 1,817
----------------------------------------------------------------------------------------------------------
</TABLE>
Portfolio
Abbreviations
To simplify the listings of MuniHoldings California Insured Fund IV, 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
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
MuniHoldings California Insured Fund IV, Inc., September 30, 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 San Diego, California, Public Facilities Financing Authority, Sewer Revenue
(concluded) Bonds (b):
AAA Aaa $ 5,000 5% due 5/15/2025 $ 4,469
AAA Aaa 4,265 Series A, 5% due 5/15/2029 3,796
----------------------------------------------------------------------------------------------------------
AAA NR* 5,825 San Diego County, California, COP, Refunding (Central
Jail), 5% due 10/01/2025 (a) 5,218
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,650 San Dieguito, California, Public Facilities Authority
Revenue Bonds, Series A, 5% due 8/01/2023 (a) 2,390
----------------------------------------------------------------------------------------------------------
AAA Aaa 8,900 San Francisco, California, City and County Airport
Commission, International Airport Revenue Bonds,
Second Series, Issue 15B, 5% due 5/01/2024 (e) 8,005
----------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 San Francisco, California, City and County Redevelopment
Agency, Hotel Tax Revenue Refunding Bonds, 5% due
7/01/2025 (c) 3,136
----------------------------------------------------------------------------------------------------------
AAA NR* 3,530 San Francisco, California, City and County Redevelopment
Agency, M/F Housing Revenue Bonds (1045 Mission Apartments),
AMT, Series C, 5.25% due 12/20/2027 (d) 3,189
----------------------------------------------------------------------------------------------------------
AAA Aaa 4,845 San Jose, California, Redevelopment Agency Tax Allocation
(Merged Area Redevelopment Project), 5% due 8/01/2026 (a) 4,332
----------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 San Mateo County, California, Joint Powers Authority, Lease
Revenue Refunding Bonds (Capital Projects), Series A,
4.75% due 7/15/2023 (c) 4,321
----------------------------------------------------------------------------------------------------------
NR* Aaa 2,000 Santa Clara, California, Redevelopment Agency, Tax
Allocation Bonds, RIB, Series 164, 7.184% due
6/01/2023 (a)(f) 1,912
----------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Santa Clara County, California, Financing Authority,
Lease Revenue Refunding Bonds, Series A, 5% due
11/15/2022 (a) 9,047
----------------------------------------------------------------------------------------------------------
Stockton, California, Revenue Refunding Bonds, COP
(Wastewater System Project), Series A (e):
AAA Aaa 3,000 5% due 9/01/2023 2,706
AAA Aaa 5,000 5.20% due 9/01/2029 4,601
----------------------------------------------------------------------------------------------------------
AAA Aaa 5,500 Turlock, California, Irrigation District Revenue Refunding
Bonds, Series A, 5% due 1/01/2026 (e) 4,924
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 University of California, COP, Series A, 5.125% due
11/01/2020 (a) 1,853
----------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 University of California Revenue Bonds (Research
Facilities), Series D, 5% due 9/01/2024 (c) 2,696
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 University of California, Revenue Refunding Bonds
(Multiple Purpose Projects), Series E, 5.125% due
9/01/2020 (e) 929
===================================================================================================================================
Total Investments (Cost--$234,192)--99.6% 216,957
Other Assets Less Liabilities--0.4% 894
--------
Net Assets--100.0% $217,851
========
===================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) GNMA Collateralized.
(e) MBIA Insured.
(f) 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 September 30, 1999.
(g) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at September
30, 1999.
* Not Rated.
+ Highest short-term ratings by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of September 30, 1999
===============================================================================================================
<C> <S> <C> <C>
Assets: Investments, at value (identified cost--$234,191,948)
(Note 1a) .................................................... $ 216,956,761
Cash ........................................................... 82,747
Receivables:
Securities sold .............................................. $ 3,652,080
Interest ..................................................... 3,269,148 6,921,228
-------------
Prepaid expenses and other assets .............................. 27,873
-------------
Total assets ................................................... 223,988,609
-------------
===============================================================================================================
Liabilities: Payables:
Securities purchased ......................................... 5,932,590
Offering costs (Note 1e) ..................................... 51,220
Investment adviser (Note 2) .................................. 5,080 5,988,890
-------------
Accrued expenses and other liabilities ......................... 148,498
-------------
Total liabilities .............................................. 6,137,388
-------------
===============================================================================================================
Net Assets: Net assets ..................................................... $ 217,851,221
=============
===============================================================================================================
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share
(3,640 shares of AMPS* issued and outstanding
at $25,000 per share liquidation preference) ................. $ 91,000,000
Common Stock, par value $.10 per share (9,899,271
shares issued and outstanding) ............................... $ 989,927
Paid-in capital in excess of par ............................... 146,321,276
Undistributed investment income--net ........................... 736,713
Accumulated realized capital losses on investments--net (Note 5) (3,961,508)
Unrealized depreciation on investments--net .................... (17,235,187)
-------------
Total--Equivalent to $12.81 net asset value per share of Common
Stock (market price--$12.75) ................................... 126,851,221
-------------
Total capital .................................................. $ 217,851,221
=============
===============================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings California Insured Fund IV, Inc., September 30, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period January 29, 1999+ to September 30, 1999
=============================================================================================================
<C> <S> <C> <C>
Investment Interest and amortization of premium and discount
Income (Note 1d): earned ............................................... $ 7,518,205
=============================================================================================================
Expenses: Investment advisory fees (Note 2) ...................... $ 797,053
Commission fees (Note 4) ............................... 137,662
Accounting services (Note 2) ........................... 31,076
Professional fees ...................................... 30,008
Transfer agent fees .................................... 25,375
Directors' fees and expenses ........................... 18,319
Printing and shareholder reports ....................... 12,865
Listing fees ........................................... 10,363
Custodian fees ......................................... 9,639
Pricing fees ........................................... 5,263
Other .................................................. 7,790
------------
Total expenses before reimbursement .................... 1,085,413
Reimbursement of expenses (Note 2) ..................... (555,841)
------------
Total expenses ......................................... 529,572
------------
Investment income--net ................................. 6,988,633
------------
=============================================================================================================
Realized & Realized loss on investments--net ...................... (3,961,508)
Unrealized Loss Unrealized depreciation on investments--net ............ (17,235,187)
On Investments--Net ------------
(Notes 1b, 1d & 3): Net Decrease in Net Assets Resulting from Operations ... $(14,208,062)
============
=============================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
January 29, 1999+ to
Increase (Decrease) in Net Assets: September 30, 1999
==============================================================================================
<C> <S> <C>
Operations: Investment income--net .................................... $ 6,988,633
Realized loss on investments--net ......................... (3,961,508)
Unrealized depreciation on investments--net ............... (17,235,187)
-------------
Net decrease in net assets resulting from operations ...... (14,208,062)
-------------
==============================================================================================
Dividends to Investment income--net:
Shareholders Common Stock ............................................ (4,660,038)
(Note 1f): Preferred Stock ......................................... (1,591,882)
-------------
Net decrease in net assets resulting from dividends to
shareholders .............................................. (6,251,920)
-------------
==============================================================================================
Capital Stock Proceeds from issuance of Common Stock .................... 147,900,000
Transactions Proceeds from issuance of Preferred Stock ................. 91,000,000
(Notes 1e & 4): Value of shares issued to Common Stock shareholders in
reinvestment of dividends and distributions ............... 426,575
Offering costs resulting from the issuance of Common Stock (262,877)
Offering and underwriting costs resulting from the issuance
of Preferred Stock ........................................ (852,500)
-------------
Net increase in net assets derived from capital stock
transactions .............................................. 238,211,198
-------------
==============================================================================================
Net Assets: Total increase in net assets .............................. 217,751,216
Beginning of period ....................................... 100,005
-------------
End of period* ............................................ $ 217,851,221
=============
==============================================================================================
* Undistributed investment income--net ...................... $ 736,713
=============
==============================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings California Insured Fund IV, Inc., September 30, 1999
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
January 29, 1999+ to
Increase (Decrease) in Net Asset Value: September 30, 1999
===========================================================================================================
<C> <S> <C>
Per Share Net asset value, beginning of period .................................. $ 15.00
Operating -----------
Performance: Investment income--net ................................................ .70
Realized and unrealized loss on investments--net ...................... (2.14)
-----------
Total from investment operations ...................................... (1.44)
-----------
Less dividends to Common Stock shareholders from investment
income--net ......................................................... (.47)
-----------
Total dividends to Common Stock shareholders .......................... (.47)
-----------
Capital charge resulting from issuance of Common Stock ................ (.03)
-----------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income--net ............................................ (.16)
Capital charge resulting from issuance of Preferred Stock ........... (.09)
-----------
Total effect of Preferred Stock activity .............................. (.25)
-----------
Net asset value, end of period ........................................ $ 12.81
===========
Market price per share, end of period ................................. $ 12.75
===========
===========================================================================================================
Total Investment Based on market price per share ....................................... (12.02%)@@
Return:** ===========
Based on net asset value per share .................................... (11.61%)@@
===========
===========================================================================================================
Ratios Based on Total expenses, net of reimbursement*** ............................... .59%*
Average Net Assets ===========
Of Common Stock: Total expenses*** ..................................................... 1.21%*
===========
Total investment income--net*** ....................................... 7.78%*
===========
Amount of dividends to Preferred Stock shareholders ................... 1.77%*
===========
Investment income--net, to Common Stock shareholders .................. 6.01%*
===========
===========================================================================================================
Ratios Based on Total expenses, net of reimbursement .................................. .37%*
Total Average Net ===========
Assets:+++*** Total expenses ........................................................ .75%*
===========
Total investment income--net .......................................... 4.82%*
===========
===========================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders ............................. 2.89%*
Average Net Assets ===========
Of Preferred Stock:
===========================================================================================================
Supplemental Data: Net assets, net of Preferred Stock, end of period (in thousands) ...... $ 126,851
===========
Preferred Stock outstanding, end of period (in thousands) ............. $ 91,000
===========
Portfolio turnover .................................................... 94.24%
===========
===========================================================================================================
Leverage: Asset coverage per $1,000 ............................................. $ 2,394
===========
===========================================================================================================
Dividends Per Series A--Investment income--net ...................................... $ 428
Share on Preferred ===========
Stock Outstanding: Series B--Investment income--net ...................................... $ 447
===========
===========================================================================================================
</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 February 22, 1999.
+++ 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 IV, 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. Prior to commencement of operations on
January 29, 1999, the Fund had no operations other than those relating to
organizational matters and the sale of 6,667 shares of Common Stock on January
13, 1999 to Fund Asset Management, L.P. ("FAM") for $100,005. The Fund's Common
Stock is listed on the New York Stock Exchange under the symbol CIL. 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 prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the 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.
10 & 11
<PAGE>
MuniHoldings California Insured Fund IV, Inc., September 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
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 transac
tion), 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 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
issuance of Preferred Stock. For the period January 29, 1999 to September 30,
1999, FAM earned fees of $797,053, of which $536,241 was voluntarily waived. FAM
also reimbursed the Fund for additional expenses of $19,600.
During the period January 29, 1999 to September 30, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, received
underwriting fees of $682,500 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
period January 29, 1999 to September 30, 1999 were $413,843,523 and
$186,749,602, respectively.
Net realized gains (losses) for the period January 29, 1999 to September 30,
1999 and net unrealized losses as of September 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
- --------------------------------------------------------------------------------
Long-term investments .................. $ (4,597,645) $(17,235,187)
Financial futures contracts ............ 636,137 --
------------ ------------
Total .................................. $ (3,961,508) $(17,235,187)
============ ============
- --------------------------------------------------------------------------------
As of September 30, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $17,245,357, of which $21,388 related to appreciated
securities and $17,266,745 related to depreciated securities. The aggregate cost
of investments at September 30, 1999 for Federal income tax purposes was
$234,202,118.
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 period January 29, 1999 to September
30, 1999 increased by 9,860,000 from shares sold and by 32,604 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
September 30, 1999 were as follows: Series A, 3.25% and Series B, 3.49%.
In connection with the offering of AMPS, the Board of Directors has reclassified
3,640 shares of unissued capital stock as AMPS. Shares issued and outstanding
during the period January 29, 1999 to September 30, 1999 increased by 3,640 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 period January 29, 1999 to September 30, 1999, MLPF&S, an
affiliate of FAM, earned $115,447 as commissions.
5. Capital Loss Carryforward:
At September 30, 1999, the Fund had a net capital loss carryforward of
approximately $3,951,000, all of which expires in 2007. This amount will be
available to offset like amounts of any future taxable gains.
6. Reorganization Plan:
On September 9, 1999, the Fund's Board of Directors approved a plan of
reorganization, subject to shareholder approval and certain other conditions,
whereby MuniHoldings California Insured Fund II, Inc. would acquire
substantially all of the assets and liabilities of the Fund, MuniHoldings
California Insured Fund, Inc. and MuniHoldings California Insured Fund III, Inc.
in exchange for newly issued shares of MuniHoldings California Insured Fund II,
Inc. These Funds are registered, non-diversified, closed-end management
investment companies. All four entities have similar investment objectives and
are managed by FAM.
7. Subsequent Event:
On October 6, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.068000 per share,
payable on October 28, 1999 to shareholders of record as of October 22, 1999.
12 & 13
<PAGE>
MuniHoldings California Insured Fund IV, Inc., September 30, 1999
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
MuniHoldings California Insured Fund IV, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniHoldings California Insured Fund
IV, Inc., as of September 30, 1999, the related statements of operations and
changes in net assets, and the financial highlights for the period January 29,
1999 (commencement of operations) to September 30, 1999. 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 audit.
We conducted our audit 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 September 30, 1999 by
correspondence with the custodian and brokers. 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 audit provides 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 IV, Inc. as of September 30, 1999, the results of its
operations, the changes in its net assets, and the financial highlights for the
period January 29, 1999 (commencement of operations) to September 30, 1999 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
November12, 1999
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniHoldings California
Insured Fund IV, Inc. during its taxable year ended September 30, 1999 qualify
as tax-exempt interest dividends for Federal income tax purposes.
Additionally, there were no capital gains distributions paid by the Fund during
the year.
Please retain this information for your records.
QUALITY PROFILE
The quality ratings of securities in the Fund as of September 30, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ............................................................... 91.5%
AA/Aa ................................................................. 2.7
Other+ ................................................................ 5.4
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
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 particu lar 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.
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
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Transfer Agents
Common Stock:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Preferred Stock:
The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
CIL
This report, including the financial information herein, is transmitted to the
shareholders of MuniHoldings California Insured Fund IV, 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 IV, Inc.
Box 9011
Princeton, NJ
08543-9011 CAINS4--9/99
[Recycle LOGO] Printed on post-consumer recycled paper
