MUNIHOLDINGS
INSURED FUND, INC.
STRATEGIC
Performance
[GRAPHIC OMITTED]
Semi-Annual Report
October 31, 1999
<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, 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 Insured Fund, Inc., October 31, 1999
DEAR SHAREHOLDER
For the six months ended October 31, 1999, the Common Stock of MuniHoldings
Insured Fund, Inc. earned $0.419 per share income dividends, which included
earned and unpaid dividends of $0.070. This represents a net annualized yield of
6.80%, based on a month-end net asset value of $12.22 per share. Over the same
period, the total investment return on the Fund's Common Stock was -17.26%,
based on a change in per share net asset value from $15.25 to $12.22, and
assuming reinvestment of $0.417 per share income dividends.
For the six months ended October 31, 1999, the Fund's Auction Market Preferred
Stock had an average yield of 3.29% for Series A and 3.33% 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 October 31, 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 6.375% by late October. However, at
October month-end, economic indicators were released suggesting that, despite
strong economic and employment growth in the third quarter, inflationary
pressures have remained extremely well contained. This resulted in a significant
rally in the US Treasury bond market, pushing US Treasury bond yields downward
to end the six-month period at approximately 6.15%. During the period, yields on
30-year US Treasury bonds increased over 50 basis points (0.50%).
Long-term tax-exempt bond yields also rose during the six months ended October
31, 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 nearly 90 basis points to 6.18% by October 31, 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 $110 billion in
long-term municipal bonds was issued, a decline of nearly 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 10% 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 with taxable US Treasury securities. At October 31,
1999, long-term uninsured municipal revenue bond yields were 100% 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 tax-exempt 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 in November. Y2K considerations may prohibit any further Federal
Reserve Board moves through 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 impact 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.
Portfolio Strategy
At the start of the six-month period ended October 31, 1999, we were neutral on
interest rates. We adopted this stance based on expectations of slower US
economic growth, continuing weakness in global economies and little perceived
threat of an upturn in inflationary expectations. We believed tax-exempt
interest rates would trade in a narrow range around then-current levels.
However, interest rates increased substantially over the period as it appeared
the US economy was not going to slow and most economies around the world,
including Japan and Europe, showed a quick recovery soon after the turmoil of
last fall.
In addition to the general increase in interest rates during the past six
months, volatility in the municipal market increased substantially relative to
the Treasury market. Historically, long-term tax-exempt bond yield ratios
relative to US Treasury securities of comparable maturity have been
approximately in the range of 84%-86%. However, tax-exempt yield ratios began
1999 at 100% of US Treasury yields. Since then, the ratio of municipal bond
yields to Treasury bond yields has fluctuated between 90%-100%. This has been in
response to greatly diminished institutional demand and the absence of crossover
buyers who have historically purchased municipal bonds whenever yield ratios
exceed 88%-90%. Rising yields in corporate bond and mortgage-backed securities
markets allowed these crossover accounts to remain in taxable issues. The
tax-exempt bond market has not exhibited such underperformance since late 1994.
At October 31, 1999, MuniHoldings Insured Fund, Inc. was positioned positively.
We believe that we are approaching the highs in yields. Recent interest rate
increases as well as an anticipated tightening in mid-November have largely
restored investor confidence that the Federal Reserve Board will not allow
inflation to rise significantly. Some decline in economic growth, particularly
in the housing and retail sales sectors, can already be seen in response to
interest rate increases in recent months. Additionally, history suggests that
whenever tax-exempt bond yields rise close to or above US Treasury bond yields
for an extended period of time, municipal bond portfolios generate significant
total returns in the following six months-twelve months.
Short-term tax-exempt bond yields averaged approximately 3.375% throughout most
of the six-month
2 & 3
<PAGE>
MuniHoldings Insured Fund, Inc., October 31, 1999
period ended October 31, 1999. Short-term municipal bond yields have been much
more stable than those associated with 25-year-30-year maturity issues. This has
resulted in a significant incremental yield being paid to Common Stock
shareholders. Since the Federal Reserve Board is believed to be near the end of
its current interest rate tightening cycle, short-term tax-exempt bond interest
rates are expected to remain near their current levels. However, should the
spread between short-term and long-term interest rates narrow, the benefits of
the leverage will decline and, as a result, reduce the yield on the Fund's
Common Stock. (For a complete explanation of the benefits and risks of leverage,
see page 1 of this report to shareholders.)
In Conclusion
We appreciate your ongoing interest in MuniHoldings Insured Fund, Inc., and we
look forward to serving your investment needs in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Robert A. DiMella
Robert A. DiMella
Vice President and Portfolio Manager
December 2, 1999
SCHEDULE OF INVESTMENTS (in thousands)
<TABLE>
<CAPTION>
STATE S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Alabama--6.0% AAA NR* $ 8,570 Jefferson County, Alabama, Sewer Revenue Bonds, RIB, Series 124, 7.02%
due 2/01/2036 (b)(f) $ 6,660
AAA Aaa 12,000 Jefferson County, Alabama, Sewer Revenue Refunding Warrants, Series A,
5.375% due 2/01/2027 (b) 10,879
====================================================================================================================================
California--14.0% AA- Aa3 7,000 Beverly Hills, California, Public Financing Authority, Lease Revenue Bonds
(Capital Improvements Project), Series A, 5.25% due 6/01/2028 6,208
AA- Aa3 6,780 California State, GO, 5% due 10/01/2019 5,998
AAA Aaa 8,000 California State Public Works Board, Lease Revenue Refunding Bonds
(Department of Corrections--State Prisons), Series A, 5% due 12/01/2019 (a) 7,193
AAA Aaa 6,000 Clovis, California, Sewer Revenue Refunding Bonds, 5.20% due 8/01/2028 (e) 5,347
AAA Aaa 7,195 Fontana, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Southwest Industrial Park Project), 5.20% due 9/01/2030 (e) 6,374
AAA Aaa 11,000 Kern, California, Community College District, COP, Refunding, 5% due
1/01/2025 (e) 9,516
====================================================================================================================================
Connecticut--0.8% NR* Baa3 2,500 Mashantucket Western Pequot Tribe, Connecticut, Special Revenue Refunding
Bonds, Sub-Series B, 5.75% due 9/01/2027 2,266
====================================================================================================================================
Florida--2.1% NR* VMIG1+ 4,100 Hillsborough County, Florida, IDA, PCR (Tampa Electric Company Project),
VRDN, 3.50% due 9/01/2025 (g) 4,100
NR* NR* 2,500 Orange County, Florida, School Board, COP, RIB, Series 130, 6.75% due
8/01/2023 e)(f) 2,028
====================================================================================================================================
Georgia--1.5% BBB- Baa2 5,000 Effingham County, Georgia, Development Authority, Solid Waste Disposal
Revenue (Fort James Project), AMT, 5.625% due 7/01/2018 4,444
====================================================================================================================================
Hawaii--3.4% AAA Aaa 10,000 Hawaii State, GO, Series CT, 5.875% due 9/01/2018 (d) 9,937
====================================================================================================================================
Illinois--12.3% Chicago, Illinois, Board of Education, GO (Chicago School Reform Project),
Series A (a):
AAA Aaa 5,400 5.25% due 12/01/2022 4,823
AAA Aaa 6,765 5.25% due 12/01/2027 5,939
AAA Aaa 20,880 Chicago, Illinois, GO, Project and Refunding, 5.25% due 1/01/2020 (b) 18,790
AAA Aaa 7,000 Illinois Development Finance Authority, PCR, Refunding (Illinois Power
Company Project), Series A, 5.40% due 3/01/2028 (e) 6,309
====================================================================================================================================
Indiana--2.3% AAA Aaa 2,475 Indiana Municipal Power Agency, Power Supply System, Special Obligation
Refunding Bonds, First Crossover, Series B, 5.30% due 1/01/2020 (e) 2,247
NR* Aaa 4,830 Indiana State HFA, S/F Mortgage Revenue Refunding Bonds, AMT, Series B-3,
5.55% due 1/01/2025 (c) 4,421
====================================================================================================================================
Massachusetts--4.4% AAA Aaa 5,500 Massachusetts State, HFA, Housing Revenue Bonds (Rental Mortgage), AMT,
Series C, 5.625% due 7/01/2040 (a) 4,965
Massachusetts State, HFA, S/F Housing Revenue Bonds:
AAA Aaa 2,655 AMT, Series 59, 5.50% due 12/01/2030 (a) 2,400
AAA Aaa 1,710 Series 58, 5.375% due 6/01/2017 (e) 1,616
AAA Aaa 4,500 Massachusetts State Turnpike Authority, Metropolitan Highway System Revenue
Refunding Bonds, Senior-Series A, 5% due 1/01/2027 (e) 3,847
====================================================================================================================================
Mississippi--0.7% A1+ P1 2,000 Harrison County, Mississippi, PCR, Refunding (E.I. du Pont de Nemours),
VRDN, 3.50% due 9/01/2010 (g) 2,000
====================================================================================================================================
Missouri--3.6% AA Aa2 4,500 Cape Girardeau County, Missouri, IDA, Solid Waste Disposal Revenue Bonds
S&P (Procter & Gamble Ratings Paper Products), AMT, 5.30% due 5/15/2028 3,955
Saint Louis, Missouri, GO, Public Safety (b):
AAA Aaa 1,615 5% due 2/15/2015 1,486
AAA Aaa 3,920 5.125% due 2/15/2016 3,636
AAA Aaa 1,500 5.125% due 2/15/2018 1,373
====================================================================================================================================
</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
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
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
MuniHoldings Insured Fund, Inc., October 31, 1999
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>
New York--32.1% Long Island Power Authority, New York, Electric System Revenue Refunding
Bonds, Series A:
AAA Aaa $ 5,650 5.25% due 12/01/2014 (d) $ 5,329
AAA Aaa 25,000 5.125% due 12/01/2022 (d) 22,088
AAA Aaa 3,000 5.50% due 12/01/2029 (e) 2,776
Metropolitan Transportation Authority, New York, Dedicated Tax Fund Revenue
Bonds, Series A (b):
AAA Aaa 5,500 5% due 4/01/2023 4,757
AAA Aaa 1,260 4.75% due 4/01/2028 1,026
AAA Aaa 6,840 Metropolitan Transportation Authority, New York, Transportation Facilities
Revenue Refunding Bonds, Series B, 4.75% due 7/01/2026 (b) 5,600
AAA Aaa 10,000 Nassau Health Care Corporation, New York, Health System Revenue Bonds,
5.75% due 8/01/2022 (d) 9,643
AAA Aaa 7,800 New York City, New York, City Municipal Water Finance Authority, Water and
Sewer System Revenue Refunding Bonds, Series A, 5.50% due 6/15/2023 (e) 7,301
AAA NR* 7,000 New York State Dormitory Authority Revenue Bonds (State University
Educational Facilities), Series B, 5% due 5/15/2018 (d) 6,166
New York State Local Government Assistance Corporation, Revenue Refunding
Bonds, Series B (e):
AAA Aaa 7,860 5% due 4/01/2018 6,887
AAA Aaa 11,750 5% due 4/01/2021 10,228
AAA NR* 5,000 New York State Urban Development Corporation Revenue Bonds (Correctional
Capital Facilities--Service Contract), Series A, 5% due 1/01/2028 (d) 4,264
AAA Aaa 4,995 Port Authority of New York and New Jersey, Consolidated Revenue Refunding
Bonds, AMT, 119th Series, 5.50% due 9/15/2016 (b) 4,809
AAA Aaa 2,720 Suffolk County, New York, Judicial Facilities Agency, Service Agreement
Revenue Bonds (John P. Cohalan Complex), 5% due 4/15/2016 (a) 2,440
====================================================================================================================================
Pennsylvania--2.9% NR* Aaa 4,860 Erie, Pennsylvania, Sewer Authority, Sewer Revenue Bonds, Series B, 5.125%
due 6/01/2020 (a) 4,335
AAA Aaa 4,400 Philadelphia, Pennsylvania, Gas Works Revenue Refunding Bonds, 15th Series,
5.25% due 8/01/2021 (d) 3,952
====================================================================================================================================
Rhode Island--0.7% AAA Aaa 2,320 Providence, Rhode Island, Public Building Authority Revenue Bonds (School
and (Capital Improv Public Facilities Projects), Series A, 5.25% due
12/15/2016 (a) 2,156
====================================================================================================================================
Tennessee--0.6% AA Aa3 2,000 Metropolitan Government of Nashville and Davidson Counties, Tennessee,
Health and Education Facilities Board Revenue Refunding Bonds (The
Vanderbilt University), Series B, 5% due 10/01/2028 1,688
====================================================================================================================================
Texas--7.9% AAA NR* 15,260 Colorado River Texas Municipal Water District, Revenue Refunding Bonds,
RIB, Series 119, 6.565% due 1/01/2021 (a)(f) 11,893
BBB- Baa1 5,000 Dallas-Fort Worth, Texas, International Airport Facilities, Improvement
Corporation Revenue Bonds (American Airlines Inc.), AMT, 6.375% due
5/01/2035 4,787
AAA Aaa 7,150 North Texas Thruway Authority, Dallas, North Thruway System Revenue
Refunding Bonds, Series A, 5% due 1/01/2020 (b) 6,229
====================================================================================================================================
Virginia--1.4% BBB- Baa3 4,750 Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds,
Senior-Series A, 5.50% due 8/15/2028 4,064
====================================================================================================================================
Wyoming--1.7% AA NR* 5,000 Wyoming Student Loan Corporation, Student Loan Revenue Refunding Bonds,
Series A, 6.20% due 6/01/2024 4,956
====================================================================================================================================
Total Investments (Cost--$302,260)--98.4% 286,131
Other Assets Less Liabilities--1.6% 4,626
--------
Net Assets--100.0% $290,757
========
====================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FNMA/GNMA Collateralized.
(d) FSA Insured.
(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 October 31, 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 October 31,
1999.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of October 31, 1999
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $302,260,104) (Note 1a) ................. $286,131,344
Cash .............................................................................. 94,341
Interest receivable ............................................................... 4,942,755
Prepaid expenses .................................................................. 17,349
-----------
Total assets ...................................................................... 291,185,789
------------
====================================================================================================================================
Liabilities: Payables:
Dividends to shareholders (Note 1e) ............................................. $ 263,516
Investment adviser (Note 2) ..................................................... 138,194 401,710
- ---------
Accrued expenses .................................................................. 27,210
-------
Total liabilities ................................................................. 428,920
-------
====================================================================================================================================
Net Assets: Net assets ........................................................................ $290,756,869
============
====================================================================================================================================
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 (12,832,937 shares issued and
outstanding) .................................................................... $ 1,283,294
Paid-in capital in excess of par .................................................. 189,804,195
Undistributed investment income -- net ............................................ 1,234,977
Accumulated realized capital losses on investments--net ........................... (19,436,837)
Unrealized depreciation on investments -- net ..................................... (16,128,760)
------------
Total capital--Equivalent to $12.22 net asset value per share of Common Stock
(market price--$11.6875) .......................................................... 156,756,869
------------
Total capital ..................................................................... $290,756,869
============
====================================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings Insured Fund, Inc., October 31, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended October 31, 1999
====================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned ............... $ 8,584,664
Income (Note 1d):
====================================================================================================================================
Expenses: Investment advisory fees (Note 2) ...................................... $ 857,054
Commission fees (Note 4) ............................................... 170,893
Professional fees ...................................................... 41,358
Accounting services (Note 2) ........................................... 36,308
Transfer agent fees .................................................... 20,108
Organization expenses (Note 1f) ........................................ 15,181
Custodian fees ......................................................... 12,663
Listing fees ........................................................... 12,192
Printing and shareholder reports ....................................... 11,573
Directors' fees and expenses ........................................... 9,763
Pricing fees ........................................................... 3,562
Other .................................................................. 9,473
----------
Total expenses before reimbursement .................................... 1,200,128
Reimbursement of expenses (Note 2) ..................................... (92,569)
----------
Total expenses after reimbursement ..................................... 1,107,559
-------------
Investment income--net ................................................. 7,477,105
-------------
====================================================================================================================================
Realized & Realized loss on investments--net ....................................... (20,730,555)
Unrealized Loss Change in unrealized appreciation/depreciation on investments--net ...... (18,122,835)
On Investments--Net -------------
(Notes 1b, 1d & 3): Net Decrease in Net Assets Resulting from Operations .................... $ (31,376,285)
=============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the Period
Months Ended May 1, 1998+ to
Increase (Decrease) in Net Assets: October 31, 1999 April 30, 1999
====================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net .................................................. $ 7,477,105 $ 15,405,873
Realized gain (loss) on investments--net ................................ (20,730,555) 5,581,576
Change in unrealized appreciation/depreciation on investments--net ...... (18,122,835) 1,994,075
------------ ------------
Net increase (decrease) in net assets resulting from operations ......... (31,376,285) 22,981,524
------------ ------------
====================================================================================================================================
Dividends & Investment income--net:
Distributions Common Stock .......................................................... (5,356,455) (10,626,035)
to Shareholders Preferred Stock ....................................................... (2,212,116) (3,453,395)
(Note 1e): Realized gain on investments--net:
Common Stock .......................................................... -- (2,968,923)
Preferred Stock ....................................................... -- (1,318,935)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ......................................................... (7,568,571) (18,367,288)
------------ ------------
====================================================================================================================================
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 ............................................. -- (1,147,911)
Value of shares issued to Common Stock shareholders in reinvestment
of dividends and distributions .......................................... -- 1,182,185
------------ ------------
Net increase in net assets derived from capital stock transactions ...... -- 324,987,484
------------ ------------
====================================================================================================================================
Net Assets: Total increase (decrease) in net assets ................................. (38,944,856) 329,601,720
Beginning of period ..................................................... 329,701,725 100,005
------------ ------------
End of period* .......................................................... $290,756,869 $329,701,725
============ ============
====================================================================================================================================
*Undistributed investment income--net .................................... $ 1,234,977 $ 1,326,443
============ ============
====================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings Insured Fund, Inc., October 31, 1999
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Six For the Period
Months Ended May 1, 1998+ to
Increase (Decrease) in Net Assets: October 31, 1999 April 30, 1999
====================================================================================================================================
<S> <C> <C> <C>
Per Share Net asset value, beginning of period .................................... $ 15.25 $ 15.00
Operating ---------- ----------
Performance: Investment income--net .................................................. .59 1.20
Realized and unrealized gain (loss) on investments--net ................. (3.03) .61
---------- ----------
Total from investment operations ........................................ (2.44) 1.81
---------- ----------
Less dividends and distributions to Common Stock shareholders:
Investment income--net ................................................ (.42) (.83)
Realized gain on investments--net ..................................... -- (.23)
---------- ----------
Total dividends and distributions to Common Stock shareholders .......... (.42) (1.06)
---------- ----------
Capital charge resulting from issuance of Common Stock .................. -- (.03)
---------- ----------
Effect of Preferred Stock activity:++
Dividends and distributions to Preferred Stock shareholders:
Investment income--net ............................................... (.17) (.27)
Realized gain on investments--net .................................... -- (.10)
Capital charge resulting from issuance of Preferred Stock ............... -- (.10)
---------- ----------
Total effect of Preferred Stock activity ................................ (.17) (.47)
---------- ----------
Net asset value, end of period .......................................... $ 12.22 $ 15.25
========== ==========
Market price per share, end of period ................................... $ 11.6875 $ 14.4375
========== ==========
====================================================================================================================================
Total Investment Based on market price per share ......................................... (16.42%)@ 3.19%@
Return:** ========== ==========
Based on net asset value per share ...................................... (17.26%)@ 8.99%@
========== ==========
====================================================================================================================================
Ratios Based on Total expenses, net of reimbursement*** ................................. 1.24%* .78%
Average Net Assets ========== ==========
of Common Stock: Total expenses*** ....................................................... 1.25%* 1.18%
========== ==========
Total investment income--net*** ......................................... 8.40%* 7.73%
========== ==========
Amount of dividends to Preferred Stock shareholders ..................... 2.49%* 1.73%
========== ==========
Investment income--net, to Common Stock shareholders .................... 5.91%* 6.00%
========== ==========
====================================================================================================================================
Ratios Based on Total expenses, net of reimbursement .................................... .71%* .48%
Total Average Net ========== ==========
Assets:+++*** Total expenses .......................................................... .72%* .72%
========== ==========
Total investment income--net ............................................ 4.80%* 4.71%
========== ==========
====================================================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders ............................... 3.31%* 2.70%
Average Net Assets ========== ==========
Of Preferred
Stock:
====================================================================================================================================
Supplemental Data: Net assets, net of Preferred Stock, end of period (in thousands) ........ $ 156,757 $ 195,702
========== ==========
Preferred Stock outstanding, end of period (in thousands) ............... $ 134,000 $ 134,000
========== ==========
Portfolio turnover ...................................................... 107.81% 180.85%
========== ==========
====================================================================================================================================
Leverage: Asset coverage per $1,000 ............................................... $ 2,170 $ 2,460
========== ==========
====================================================================================================================================
Dividends Per Series A--Investment income--net ........................................ $ 411 $ 631
Share on Preferred ========== ==========
Stock Outstanding: Series B--Investment income--net ........................................ $ 415 $ 658
========== ==========
====================================================================================================================================
</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. See Notes to Financial Statements.
*** 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.
+++ 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 Insured Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end management investment
company. The Fund's financial statements are prepared in accordance with
generally accepted accounting principles, which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. The Fund'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-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
10 & 11
<PAGE>
MuniHoldings Insured Fund, Inc., October 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
contract. Such receipts or payments are known as variation margin and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed.
o Options--The Fund is authorized to write covered call options and purchase put
options. When the Fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked to market to reflect the current market
value of the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from (or added to)
the proceeds of the security sold. When an option expires (or the Fund enters
into a closing transaction), the Fund realizes a gain or loss on the option to
the extent of the premiums received or paid (or gain or loss to the extent the
cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) 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) Organization and offering expenses--In accordance with Statement of Position
98-5, any unamortized organization expenses of $15,181 were expensed during the
six months ended October 31, 1999. This is considered to be a change in
accounting principle and had no material impact on the operations of the Fund.
Direct expenses relating to the public offering of the Fund's Common Stock were
charged 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 .55% of the Fund's average weekly net assets, including
issuance of Preferred Stock. For the six months ended October 31, 1999, FAM
earned fees of $857,054, of which $92,569 was voluntarily waived.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended October 31, 1999 were $326,452,444 and $331,693,321, respectively.
Net realized gains (losses) for the six months ended October 31, 1999 and net
unrealized losses as of October 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
- --------------------------------------------------------------------------------
Long-term investments ........................ $(21,066,015) $(16,128,760)
Financial futures contracts .................. 335,460 --
------------ ------------
Total ........................................ $(20,730,555) $(16,128,760)
============ ============
- --------------------------------------------------------------------------------
As of October 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $16,128,760, of which $593,291 related to appreciated
securities and $16,722,051 related to depreciated securities. The aggregate cost
of investments at October 31, 1999 for Federal income tax purposes was
$302,260,104.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of holders of
Common Stock.
Common Stock
Shares issued and outstanding during the six months ended October 31, 1999
remained constant and during the period May 1, 1998 to April 30, 1999 increased
by 12,750,000 from shares sold and 76,270 as a result of a 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
October 31, 1999 were as follows: Series A, 3.35% and Series B, 3.25%.
Shares issued and outstanding during the six months ended October 31, 1999
remained constant and during the period May 1, 1998 to April 30, 1999 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 .25% to .375%, calculated on the proceeds of each
auction. For the six months ended October 31, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an affiliate of FAM, earned $235,584 as
commissions.
5. Subsequent Event:
On November 8, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.070000 per share,
payable on November 29, 1999 to shareholders of record as of November 22, 1999.
12 & 13
<PAGE>
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. However, in order to
provide shareholders with a more consistent yield to the current trading price
of shares of Common Stock of the Fund, the Fund may at times pay out less than
the entire amount of net investment income earned in any particular month and
may at times in any particular month pay out such accumulated but undistributed
income in addition to net investment income earned in that month. As a result,
the dividends paid by the Fund for any particular month may be more or less than
the amount of net investment income earned by the Fund during such month. The
Fund's current accumulated but undistributed net investment income, if any, is
disclosed in the Statement of Assets, Liabilities and Capital, which comprises
part of the financial information included in this report.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund's management that they
also expect to resolve the Year 2000 Problem, and the Fund's management will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the securities in which
the Fund invests and this could hurt the Fund's investment returns.
QUALITY PROFILE
The quality ratings of securities in the Fund as of October 31, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa .................................................. 82.4%
AA/Aa .................................................... 7.8
BBB/Baa .................................................. 5.4
NR (Not Rated) ........................................... 0.7
Other+ ................................................... 2.1
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
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
Donald C. Burke, Vice President and Treasurer
William E. Zitelli, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
The Bank of New York
100 Church Street
New York, NY 10286
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--10/99
[RECYCLE LOGO] Printed on post-consumer recycled paper
