MUNIHOLDINGS
INSURED FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
October 31, 1998
<PAGE>
MUNIHOLDINGS INSURED FUND, INC.
The Benefits and
Risks of
Leveraging
MuniHoldings 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 issue 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, interest rates 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 such securities.
<PAGE>
MuniHoldings Insured Fund, Inc., October 31, 1998
DEAR SHAREHOLDER
We are pleased to provide you with this first semi-annual report for
MuniHoldings Insured Fund, Inc. In this and future reports to shareholders, we
will highlight the Fund's performance, describe the recent investment
environment and outline investment activities. The Fund seeks to provide
shareholders with current income exempt from Federal income tax. The Fund seeks
to achieve its investment objective by investing primarily in a portfolio of
long-term, investment-grade municipal obligation bonds.
Since inception (May 1, 1998) through October 31, 1998, the Common Stock of
MuniHoldings Insured Fund, Inc. earned $0.441 per share income dividends, which
included earned and unpaid dividends of $0.072. This represents a net annualized
yield of 5.53%, based on a month-end net asset value of $15.82 per share. Over
the same period, the total investment return on the Fund's Common Stock was
+8.06%, based on a change in per share net asset value from $15.00 to $15.82,
and assuming reinvestment of $0.369 per share income dividends.
Since inception (May 1, 1998) through October 31, 1998, the Fund's Auction
Market Preferred Stock had an average yield of 3.03% for Series A and 3.25% for
Series B.
The Municipal Market Environment
During the six months ended October 31, 1998, long-term bond yields declined
significantly. The near absence of any inflationary pressures in the United
States continued to support historic low interest rates. Additionally, foreign
economic factors have continued to outweigh US domestic fundamentals, as they
have for much of 1998. The economic crisis that began in Asia over a year ago
has spread both to Russia and South America. However, economic factors in these
countries have begun to negatively impact US growth. For example, employment in
the US manufacturing sector declined in recent months as a result of reduced
demand for export goods. Concern that the modest decline in US economic growth
seen thus far would spread and intensify led the Federal Reserve Board to lower
short-term interest rates in late September, in mid-October and in mid-November.
These actions were taken to offset the drag of foreign economies on future US
growth.
US Treasury bond yields continued to benefit from a strong "flight to quality"
as foreign investors were drawn to the relative safe haven of US Government
securities. Additionally, the sharp equity market correction, which began at the
end of August, triggered a further flight into US Treasury securities. Long-term
US Treasury bond yields fell over 90 basis points (0.90%) to approximately 5% by
the end of September. This is the lowest level since the US Treasury
reintroduced 30-year maturity bond auctions in 1977.
By early October, worldwide investor confidence began to rise, reducing the
demand for the safety and liquidity of US Treasury securities. Investor
confidence was restored by the belief that major world governments, as well as
the International Monetary Fund, would take the necessary action to support weak
domestic economies in Asia and Latin America. Additionally, rapid recovery in US
and world equity markets caused some investors to reallocate funds from US debt
instruments back to various world equity markets. US Treasury security yields
rose for the remainder of the month to end October at 5.15%. During the
six-month period ended October 31, 1998, long-term Treasury security yields
declined approximately 80 basis points.
During the past 12 months, the tax-exempt bond market has contended with
significant new-issue supply pressures. Over the past year, more than $277
billion in new long-term tax-exempt bonds were underwritten, an increase of
almost 30% compared to the same period a year ago. During the most recent
six-month period, approximately $140 billion in new long-term municipal bonds
were underwritten, representing an increase of more than 15% over the same
six-month period last year. This increased supply, coupled with the high returns
the US equity market generated for much of 1998, was one of the major reasons
municipal bond yields declined less than their taxable counterparts during the
period.
The continued increase in new bond issuance has required ever-lower tax-exempt
bond yields to generate the economic savings necessary for additional municipal
bond financings. Consequently, the pace of new bond issuance has slowed in
recent months. In fact, the trend may be reversing. During the three months
ended October 31, 1998, just over $60 billion in new long-term municipal bonds
were underwritten, a decline of 4% compared to the same quarter a year ago.
During the month of October, there were less than $20 billion in new municipal
bond securities issued, a decline of over 10% compared to October 1997. We will
monitor this trend closely in the coming months to determine if the supply
pressures exerted thus far in 1998 are abating and fostering a more balanced
supply/demand environment.
Throughout the six-month period ended October 31, 1998, municipal bond yields
followed a pattern that was similar to US Treasury securities, although the
yield declines were more muted. As measured by the unmanaged Bond Buyer Revenue
Bond Index, long-term, uninsured tax-exempt revenue bond yields declined over 40
basis points to 5.09% by the end of September, their lowest level since the
early 1970s. Municipal bond yields rose during October to end the period at
5.24%. Over the past six months, long- term tax-exempt bond yields declined
almost 30 basis points.
Although municipal bond yields declined during the six-month period, recent
supply pressures and the absence of the safe haven status enjoyed by US
securities caused municipal bond yields to rise relative to US Treasury bond
yields. At October 31, 1998, long-term tax-exempt bond yield spreads were
attractive relative to US Treasury securities of comparable maturities (over
100%), well in excess of their historic range of 85%-88%. Tax-exempt bond yield
ratios have rarely exceeded 90% in the 1980s and 1990s. Historically, yield
spreads have been wider than these levels when there have been potential changes
in Federal tax codes that would have adversely affected the tax-favored status
of municipal bonds.
Currently, municipal bond investors find themselves in a unique investment
environment. Previous opportunities to purchase tax-exempt bonds with yields
exceeding that of comparable US Treasury issues have been limited to relatively
brief episodes and then further limited to a few municipal credits undergoing
specific financial pressures. At present, almost the entire municipal bond
universe, across nearly all maturity and credit sectors, can be purchased at
yields greater than their taxable counterparts. However, the current opportunity
may quickly disappear should tax-exempt bond supply pressures diminish or the
safe-haven status of US Treasury securities become less desirable. Under these
conditions, municipal bond ratios should quickly revert to more normal historic
percentages, certainly well below their presently attractive levels.
Portfolio Strategy
Our strategy since the Fund's inception (May 1, 1998) has been to seek to
enhance tax-exempt income to our Common Stock shareholders. We accomplished this
by quickly investing the proceeds from both the initial Common Stock offering
and the Auction Market Preferred Stock offering. During the six-month period
ended October 31, 1998, we maintained a constructive view of the municipal bond
market. Equity markets throughout the world entered a very volatile stage,
triggered by the currency crisis in Asia and followed by turmoil in Russia and
Latin America. We believed a continuation of equity market declines would have a
negative impact on economic growth, further constraining global inflation and
allowing for further declines in long-term interest rates. This proved to be
true as the increase in financial market volatility caused a flight to quality
into US Treasury bonds, pushing interest rates to historic lows. Our strategy
enabled the Fund to fully participate in the bond market rally and realize an
attractive total return for the period.
We believe that interest rates are likely to continue to trend lower in the
months ahead. Global economic growth seems to be slowing substantially. Central
banks throughout the world, including the US Federal Reserve Board, are trying
to stimulate economic growth by easing monetary policy. However, these actions
are likely to have a delayed impact. Consequently, our investment outlook will
remain constructive until there are signs that the economy has started
responding to the monetary stimulus.
During the six-month period ended October 31, 1998, the yield on the Fund's
Auction Market Preferred Stock traded between 3.25% and 4.05%. Leverage is
benefiting the Fund's Common Stock shareholders by significantly augmenting
their yield. However, should the spread between short-term and long-term
tax-exempt rates narrow, the benefits of leverage will decline and reduce the
yield to the Fund's Common Stock. (For a complete explanation of the benefits
and risks of leveraging, see page 1 of this report to shareholders.)
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Robert A. DiMella
Robert A. DiMella
Vice President and Portfolio Manager
December 7, 1998
2 & 3
<PAGE>
MuniHoldings Insured Fund, Inc., October 31, 1998
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> <C>
Alabama--0.9% AAA Aaa $ 3,000 East Alabama Health Care Authority, Facility Revenue Bonds, TAN,
Series A, 5.25% due 9/01/2028 (e) $ 3,031
====================================================================================================================================
California--11.4% AAA Aaa 2,000 California Health Facilities Financing Authority Revenue Bonds
(Kaiser Permanente), Series A, 5.50% due 6/01/2022 (d) 2,103
AAA Aaa 5,000 Rancho Cucamonga, California, Redevelopment Agency, Tax Allocation
Bonds (Rancho Redevelopment Project), 5.25% due 9/01/2026 (e) 5,123
AAA Aaa 5,650 San Francisco, California, City and County Airport Commission,
International Airport Revenue Bonds, Second Series, Issue 15B,
5% due 5/01/2024 (e) 5,650
AAA Aaa 10,000 San Joaquin Hills, California, Transportation Corridor Agency,
Toll Road Revenue Refunding Bonds, Series A, 5.25% due 1/15/2030 (e) 10,238
AAA Aaa 15,000 Stockton, California, Revenue Refunding Bonds, COP (Wastewater
Systems Project), Series A, 5.20% due 9/01/2029 (e) 15,345
====================================================================================================================================
Colorado--6.2% AA Aa2 8,580 Colorado Springs, Colorado, Utilities Revenue Refunding Bonds
(System Improvement), Series A, 5.375% due 11/15/2026 8,862
AAA Aaa 11,545 Denver, Colorado, City and County Airport Revenue Bonds, RITR,
Series 13, 6.77% due 11/15/2023 (c)(e) 12,010
====================================================================================================================================
Florida--0.2% A1+ VMIG1+ 800 Pinellas County, Florida, Health Facilities Authority, Revenue
Refunding Bonds (Pooled Hospital Loan Program), DATES, 3.70%
due 11/02/2015 (a) 800
====================================================================================================================================
Georgia--2.9% BBB- Baa2 7,500 Effingham County, Georgia, Development Authority, Solid Waste Disposal
Revenue Bonds (Fort James Project), AMT, 5.625% due 7/01/2018 7,531
AAA Aa2 2,145 Georgia State Housing and Finance Authority Revenue Bonds, S/F
Mortgage, AMT, Sub-Series A-2, 5.55% due 12/01/2026 2,180
====================================================================================================================================
Illinois--5.4% AAA Aaa 7,765 Chicago, Illinois, Board of Education (Chicago School Reform), UT,
Series A, 5.25% due 12/01/2027 (b) 7,869
AAA Aaa 10,000 Chicago, Illinois, Project and Refunding Bonds, UT, 5.25%
due 1/01/2020 (f) 10,139
====================================================================================================================================
Indiana--6.0% AAA Aaa 8,750 Indiana Health Facilities Financing Authority, Hospital Revenue
Refunding Bonds (Sisters of Saint Francis Health), Series A,
5.375% due 11/01/2027 (e) 8,884
AAA Aaa 5,975 Indiana Municipal Power Agency, Power Supply System, Revenue
Refunding Bonds (Special Obligations First Crossover),
Series B, 5.30% due 1/01/2020 (e) 6,025
NR* Aaa 5,000 Indiana State Housing Finance Authority, S/F Mortgage Revenue Bonds, AMT,
Series B-3, 5.55% due 1/01/2025 5,094
====================================================================================================================================
Iowa--2.0% AAA Aaa 6,700 Des Moines, Iowa, Aviation System Revenue Bonds, AMT, Series B,
5.125% due 7/01/2028 (d) 6,594
====================================================================================================================================
Kentucky--3.0% AAA Aaa 10,000 Louisville and Jefferson County, Kentucky, Metropolitan Sewer District,
Sewer and Drain System, Revenue Refunding Bonds, Series A,
5.25% due 5/15/2027 (e) 10,178
====================================================================================================================================
Louisiana--1.2% NR* Aaa 4,080 Orleans Parish, Louisiana, Parishwide School District, UT, Series A,
5.125% due 9/01/2022 (f) 4,077
====================================================================================================================================
Massachusetts--5.0% Massachusetts State, HFA Revenue Bonds:
AAA Aaa 10,500 (Rental Mortgage), Series C, 5.625% due 7/01/2040 (b) 10,757
AAA Aaa 6,000 (S/F Mortgage), Series 58, 5.375% due 6/01/2017 (e) 6,153
====================================================================================================================================
Michigan--3.0% AAA Aaa 9,660 Wayne Charter County, Michigan, Airport Revenue Bonds (Detroit
Metropolitan), Series A, 5.375% due 12/01/2015 (e) 10,065
====================================================================================================================================
Missouri--3.7% AA Aa2 4,500 Cape Girardeau County, Missouri, IDA, Solid Waste Disposal Revenue
Bonds, AMT (Procter and Gamble Paper Products), 5.30% due 5/15/2028 4,546
AAA Aaa 5,000 Saint Louis, Missouri, Airport Revenue Bonds (Lambert--Saint Louis
International), Series B, 5.25% due 7/01/2027 (f) 5,016
NR* Aaa 3,000 Wentzville, Missouri, School District No. R04, UT, 5.05%
due 3/01/2017 (d) 3,034
====================================================================================================================================
New York--33.7% AAA Aaa 3,000 Long Island Power Authority, New York, Electric System Revenue
Bonds, Series A, 5.50% due 12/01/2029 (e) 3,142
AAA Aaa 5,000 Metropolitan Transportation Authority, New York, Dedicated Tax Fund,
Series A, 5.25% due 4/01/2026 (e) 5,109
AAA Aaa 5,515 Nassau County, New York, IDA, Civic Facility Revenue Refunding Bonds
(Hofstra University Project), 4.75% due 7/01/2028 (e) 5,278
New York City, New York, GO:
A- A3 10,000 Series D, 5.25% due 8/01/2021 10,073
AAA Aaa 3,500 Series H, 5.125% due 8/01/2025 (e) 3,507
AAA Aaa 7,800 New York City, New York, City Municipal Water Finance Authority, Water
and Sewer System Revenue Bonds, Series A, 5.50% due 6/15/2023 (e) 8,178
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 8,100 (City University System), Consolidated Third Series 1, 5%
due 7/01/2026 (f) 8,004
AAA Aaa 39,970 (Mental Health Services Facilities Improvement), Series B, 5.125%
due 8/15/2021 (e) 40,040
AAA Aaa 12,500 (Mental Health Services Facilities Improvement), Series D, 5%
due 8/15/2017 (e) 12,521
A A2 9,500 New York State, GO, Series B, 5% due 3/01/2017 9,532
A+ Aa3 7,500 Triborough Bridge and Tunnel Authority, New York, Revenue Refunding
Bonds (General Purpose), Series A, 5.25% due 1/01/2028 7,654
====================================================================================================================================
North Dakota--3.4% NR* Aaa 11,000 Oliver County, North Dakota, PCR (Residual Certificates), RIB, Series 12,
6.985% due 1/01/2027 (b)(c) 11,514
====================================================================================================================================
Texas--8.9% AAA Aaa 10,000 Brazos River Authority, Texas, PCR, Refunding (Texas Utilities
Electric Co. Project), AMT, Series A, 5.55% due 5/01/2033 (b) 10,467
AAA Aaa 10,000 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds, RITR, Series 23, 6.77% due 6/01/2027 (c) 10,155
AAA Aaa 9,000 Texas State Turnpike Authority, Dallas North Thruway Revenue Bonds,
(President George Bush Turnpike), 5.25% due 1/01/2023 (f) 9,143
====================================================================================================================================
</TABLE>
Portfolio
Abbreviations
To simplify the listings of MuniHoldings Insured Fund, Inc.'s portfolio holdings
in the Schedule of Investments, we have abbreviated the names of many of the
securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificate of Participation
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
TAN Tax Anticipation Notes
UT Unlimited Tax
4 & 5
<PAGE>
MuniHoldings Insured Fund, Inc., October 31, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Virginia--1.5% BBB- Baa3 $ 5,000 Pocahontas Parkway Association, Virginia (Route 895 Connector
Toll Road), Senior Series A, 5.50% due 8/15/2028 $ 5,004
====================================================================================================================================
Total Investments (Cost--$323,821)--98.4% 330,625
Other Assets Less Liabilities--1.6% 5,219
---------
Net Assets--100.0% $ 335,844
=========
====================================================================================================================================
</TABLE>
(a) The interest rate is subject to change periodically
based upon prevailing market rates. The interest rate
shown is the rate in effect at October 31, 1998.
(b) AMBAC Insured.
(c) 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 October 31,
1998.
(d) FSA Insured.
(e) MBIA Insured.
(f) FGIC Insured.
* Not Rated.
+ 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 October 31, 1998 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ............................................................ 84.6%
AA/Aa .............................................................. 6.3%
A/A ................................................................ 5.8%
BBB/Baa ............................................................ 1.5%
Other+ ............................................................. 0.2%
- --------------------------------------------------------------------------------
+ Temporary investments on short-term municipal securities.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of October 31, 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$323,821,143) (Note 1a) $330,624,590
Cash ........................................................... 77,919
Receivables:
Securities Sold .............................................. $ 9,442,918
Interest ..................................................... 5,915,853 15,358,771
------------
Deferred organization expenses (Note 1f) ....................... 19,000
Other assets ................................................... 11,152
------------
Total assets ................................................... 346,091,432
------------
- -----------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ......................................... 9,579,821
Dividends to shareholders (Note 1e) .......................... 300,931
Investment adviser (Note 1f) ................................. 130,373
Offering costs (Note 2) ...................................... 87,370 10,098,495
------------
Accrued expenses and other liabilities ......................... 149,263
------------
Total liabilities .............................................. 10,247,758
------------
- -----------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ..................................................... $335,843,674
============
- -----------------------------------------------------------------------------------------------------------------
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (5,360 shares of
AMPS* issued and outstanding at $25,000 per share liquidation
preference) .................................................. $134,000,000
Common Stock, par value $.10 per share (12,756,667 shares
issued and outstanding) ...................................... $ 1,275,667
Paid-in capital in excess of par ............................... 188,593,948
Undistributed investment income--net ........................... 1,015,260
Undistributed realized capital gains on investments--net ....... 4,155,352
Unrealized appreciation on investments--net .................... 6,803,447
------------
Total capital--Equivalent to $15.82 net asset value per share
of Common Stock (market price--$15.375) ........................ 201,843,674
------------
$335,843,674
============
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings Insured Fund, Inc., October 31, 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period May 1, 1998+ to October 31, 1998
=================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned ....... $ 8,291,194
Income (Note 1d):
=================================================================================================================
Expenses: Investment advisory fees (Note 2) .............................. $ 886,444
Commission fees (Note 4) ....................................... 152,807
Professional fees .............................................. 24,892
Accounting services (Note 2) ................................... 22,494
Transfer agent fees ............................................ 16,599
Custodian fees ................................................. 12,825
Directors' fees and expenses ................................... 10,116
Listing fees ................................................... 7,796
Pricing fees ................................................... 4,005
Printing and shareholder reports ............................... 2,478
Amortization of organization expenses (Note 1f) ................ 1,859
Other .......................................................... 8,622
----------
Total expenses ................................................. 1,150,937
Reimbursement of expenses (Note 2) ............................. (709,106)
----------
Total expenses after reimbursement ............................. 441,831
-----------
Investment income--net ......................................... 7,849,363
-----------
=================================================================================================================
Realized & Realized gain on investments--net .............................. 4,155,351
Unrealized Gain Unrealized appreciation on investments--net .................... 6,803,448
on Investments-- -----------
Net (Notes 1b, Net Increase in Net Assets Resulting from Operations ........... $18,808,162
1d & 3): ===========
=================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
May 1, 1998+ to
Increase (Decrease) in Net Assets: Oct. 31, 1998
===================================================================================================================
<S> <C> <C>
Operations: Investment income--net ......................................................... $ 7,849,363
Realized gain on investments--net .............................................. 4,155,351
Unrealized appreciation on investments--net .................................... 6,803,448
------------
Net increase in net assets resulting from operations ........................... 18,808,162
------------
===================================================================================================================
Dividends to Investment income--net:
Shareholders Common Stock ................................................................. (4,702,592)
(Note 1e): Preferred Stock .............................................................. (2,131,511)
------------
Net decrease in net assets resulting from dividends to shareholders ............ (6,834,103)
------------
===================================================================================================================
Capital Stock Proceeds from issuance of Common Stock ......................................... 191,250,000
Transactions Proceeds from issuance of Preferred Stock ...................................... 134,000,000
(Notes 1f & 4): Offering costs resulting from the issuance of Common Stock ..................... (296,790)
Offering and underwriting costs resulting from the issuance of Preferred Stock . (1,183,600)
------------
Net increase in net assets derived from capital stock transactions ............. 323,769,610
------------
===================================================================================================================
Net Assets: Total increase in net assets ................................................... 335,743,669
Beginning of period ............................................................ 100,005
------------
End of period* ................................................................. $335,843,674
------------
===================================================================================================================
*Undistributed investment income--net ........................................... $ 1,015,260
============
===================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings Insured Fund, Inc., October 31, 1998
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
May 1, 1998+ to
Increase (Decrease) in Net Asset Value: Oct. 31, 1998
===============================================================================================================
<S> <C> <C>
Per Share Net asset value, beginning of period ......................................... $ 15.00
Operating ---------
Performance: Investment income--net ....................................................... .62
Realized and unrealized gain on investments--net ............................. .85
---------
Total from investment operations ............................................. 1.47
---------
Less dividends to Common Stock shareholders:
Investment income--net ..................................................... (.37)
---------
Capital charge resulting from issuance of Common Stock ....................... (.02)
---------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income--net ................................................... (.17)
Capital charge resulting from issuance of Preferred Stock ................ (.09)
---------
Total effect of Preferred Stock activity ..................................... (.26)
---------
Net asset value, end of period ............................................... $ 15.82
=========
Market price per share, end of period ........................................ $ 15.375
=========
===============================================================================================================
Total Investment Based on market price per share .............................................. 5.02%+++
Return:** =========
Based on net asset value per share ........................................... 8.06%+++
=========
===============================================================================================================
Ratios to Average Expenses, net of reimbursement ............................................... .27%*
Net Assets:*** =========
Expenses ..................................................................... .71%*
=========
Investment income--net ....................................................... 4.87%*
=========
===============================================================================================================
Supplemental Data: Net assets, net of Preferred Stock, end of period (in thousands) ............. $ 201,844
=========
Preferred Stock outstanding, end of period (in thousands) .................... $ 134,000
=========
Portfolio turnover ........................................................... 105.25%
=========
===============================================================================================================
Leverage: Asset coverage per $1,000 .................................................... $ 2,506
=========
===============================================================================================================
Dividends Per Series A--Investment income--net ............................................. $ 384
Share on Preferred =========
Stock Outstanding: Series B--Investment income--net ............................................. $ 411
=========
===============================================================================================================
</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 May 19, 1998.
+++ Aggregate total investment return.
See Notes to Financial Statements.
10 & 11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings Insured Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end management investment
company. 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. Prior to commencement of operations on May 1, 1998, the Fund had no
operations other than those relating to organizational matters and the sale of
6,667 shares of Common Stock on April 20, 1998, 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 MUS. 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.
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
10 & 11
<PAGE>
MuniHoldings Insured Fund, Inc., October 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(f) Deferred organization and offering expenses--Deferred organization expenses
are amortized on a straight-line basis over a period not exceeding five years.
In accordance with Statement of Position 98-5, any unamortized organization
expenses will be expensed on the first day of the next fiscal year beginning
after December 15, 1998. This change will not have any material impact on the
operations of the Fund. Direct expenses relating to the public offering of the
Fund's shares were changed to capital at the time of issuance of the shares.
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 0.55% of the Fund's average weekly net assets, including
issuance of Preferred Stock. For the period May 1, 1998 to October 31, 1998, FAM
earned fees of $886,444, of which $628,889 was voluntarily waived. FAM also
reimbursed the Fund additional expenses of $80,217.
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 May 1, 1998 to October 31, 1998 were $632,863,372 and $313,891,849,
respectively.
Net realized gains for the period May 1, 1998 to October 31, 1998 and net
unrealized gains as of October 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments ...................... $ 4,046,095 $ 6,803,447
Financial futures contracts ................ 109,256 --
------------ -----------
Total ...................................... $ 4,155,351 $ 6,803,447
============ ===========
- --------------------------------------------------------------------------------
As of October 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $6,803,447, of which $7,045,996 related to appreciated
securities and $242,549 related to depreciated securities. The aggregate cost of
investments at October 31, 1998 for Federal income tax purposes was
$323,821,143.
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 May 1, 1998 to October 31, 1998
increased by 12,750,000 from shares sold.
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
October 31, 1998 were as follows: Series A, 3.23% and Series B, 3.30%.
Shares issued and outstanding during the period May 1, 1998 to October 31, 1998
increased by 5,360 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 period May 1, 1998 to October 31, 1998, Merrill Lynch,
Pierce, Fenner & Smith Inc., an affiliate of FAM, earned $138,479 as
commissions.
5. Subsequent Event:
On November 5, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.072056 per share,
payable on November 27, 1998 to shareholders of record as of November 20, 1998.
12 & 13
<PAGE>
MuniHoldings Insured Fund, Inc., October 31, 1998
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.
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MUS
14 & 15
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of MuniHoldings 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 Insured Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #HOLDINS--10/98
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