MUNIHOLDINGS
INSURED FUND, INC.
STRATEGIC
Performance
[GRAPHIC OMITTED]
Annual Report
April 30, 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 issu e 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 share holders are
significantly lower than the income earned on the fund's long-term investments,
and therefore the Common Stock share holders 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 char acterized
as derivative securities and may subject the Fund to the risks of reduced or
eliminated interest pay ments 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., April 30, 1999
DEAR SHAREHOLDER
Since inception (May 1, 1998) through April 30, 1999, the Common Stock of
MuniHoldings Insured Fund, Inc. earned $0.900 per share income dividends, which
included earned and unpaid dividends of $0.069. This represents a net annualized
yield of 5.90%, based on a month-end per share net asset value of $15.25. Over
the same period, the total investment return on the Fund's Common Stock was
+8.99%, based on a change in per share net asset value from $15.00 to $15.25,
and assuming reinvestment of $1.056 per share ordinary income dividends and
$0.008 per share capital gains distributions.
For the six-month period ended April 30, 1999, the total investment return on
the Fund's Common Stock was +0.86%, based on a change in per share net asset
value from $15.82 to $15.25, and assuming reinvestment of $0.687 per share
ordinary income dividends and $0.008 per share capital gains distributions.
For the six-month period ended April 30, 1999, the Fund's Auction Market Pre
ferred Stock had an average yield of 3.93% for Series A and 3.98% for Series B.
The Municipal Market Environment
During the six months ended April 30, 1999, long-term bond yields generally
moved higher. From November 1998 through mid-January 1999, long-term bond yields
traded in a relatively narrow range. However, during February, a number of
economic indicators were released that suggested that economic growth in the
United States would likely remain strong throughout most of 1999. Consequently,
long-term US Treasury bond yields rose more than 60 basis points (0.60%) to
5.70% by early March. During the remainder of the six-month period, US Treasury
bond yields traded between 5.50% and 5.70% as the lack of inflationary pressures
offset much of the concerns generated by continued strong economic growth.
During most of the period, long-term, uninsured tax-exempt bond yields exhibited
far less volatility and were largely stable. Long-term municipal bond yields
rose just 5 basis points to 5.29% at the end of April 1999, as measured by the
Bond Buyer Revenue Bond Index.
In recent months, the tax-exempt market was better able to withstand much of the
upward pressure on bond yields because of its stronger technical position. While
the continued positive inflationary environment limited some of the recent
increases in taxable bond yields, a deteriorating supply/demand position helped
push taxable bond yields significantly higher than municipal bond yields. Much
of the US Treasury bond market's underperformance in recent months can be
attributed to the large amounts of taxable corporate issuance. Large taxable
corporate underwritings reduced the demand for US Government securities in
recent months, pushing US Treasury bond yields higher.
On the other hand, the tax-exempt bond market enjoyed only limited new-issue
supply. During the six months ended April 30, 1999, more than $123 billion in
new long-term tax-exempt securities was underwritten, a decline of 10% compared
to the same period a year ago. Municipalities issued less than $60 billion in
long-term tax-exempt securities during the three months ended April 30, 1999, a
decline of 25% compared to the April 30, 1998 quarter. More recently, the rate
of new tax-exempt issuance has declined even further. During April 1999, just
over $15 billion in long-term tax-exempt securities was marketed, a decline of
over 33% compared to April 1998 levels. As municipal bond yields fell and
stabilized in recent quarters, the ability of municipalities to refinance
existing higher-couponed debt declined. This led to a significant decrease in
refunding issuance and an overall drop in new municipal bond supply. When
coupled with ongoing, moderate retail and institutional demand, the tax-exempt
bond market was able to avoid much of the yield volatility exhibited by US
Treasury securities.
Looking ahead, the expected combination of moderate economic growth in the
United States and continued negligible inflation suggests a relatively stable
interest rate environment. However, in recent years, bond yields reached their
annual peaks in early May and declined for the remainder of the year. A
meaningful decline in fixed-income bond yields would require either evidence of
a significant slowdown in the US economy or the resumption of concerns regarding
renewed shocks to the world's economic system. Currently, neither condition
exists or seems likely in the immediate future. In our opinion, this suggests a
continuation of the narrow trading ranges seen in recent months.
Portfolio Strategy
During the last several months, we adopted a more neutral investment strategy,
since indicators pointed to a continuation of healthy domestic economic growth
and benign inflation. In addition, we believed that long-term tax-exempt bond
yields would continue to trade in a relatively narrow range, centered around
present levels. Consequently, we focused on income-producing securities rather
than those issues with the potential for capital gains. Should the tax-exempt
bond market perform as expected, coupon income will be the more important
component of the Fund's performance. MuniHoldings Insured Fund, Inc. remained
fully invested for most of the past several months. We expect to maintain this
position going forward in order to seek to enhance shareholder income.
Short-term tax-exempt yields exhibited considerable volatility in recent months.
Interest rates paid to the Fund's Preferred Stock shareholders traded below 3%
in December 1998, reflecting heightened investor demand at year-end. Current
short-term interest rate levels reflect tax season-related pressures, which we
expect to abate soon. During the six-month period ended April 30, 1999,
leveraging generated a significant incremental yield to the Fund's Common Stock
shareholders. Because we believe that the Federal Reserve Board's monetary
policy is likely to remain stable for the remainder of the year, we expect
short-term tax-exempt interest rates to remain at, or slightly below, 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 to the Fund's Common Stock. (For a complete expla nation of the
benefits and risks of leveraging, 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
June 2, 1999
================================================================================
After more than 20 years of service, Arthur Zeikel recently retired as Chairman
of Merrill Lynch Asset Management, L.P. (MLAM). Mr. Zeikel served as President
of MLAM from 1977 to 1997 and as Chairman since December 1997. Mr. Zeikel is one
of the country's most respected leaders in asset management and presided over
the growth of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500 billion. Mr.
Zeikel will remain on MuniHoldings Insured Fund, Inc.'s Board of Directors. We
are pleased to announce that Terry K. Glenn has been elected President and
Director of the Fund. Mr. Glenn has held the position of Executive Vice
President of MLAM since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors in wishing
him well in his retirement from Merrill Lynch and are pleased that he will
continue as a member of the Fund's Board of Directors.
================================================================================
2 & 3
<PAGE>
MuniHoldings Insured Fund, Inc., April 30, 1999
SCHEDULE OF INVESTMENTS (in thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Alabama--0.9% AAA NR* $ 3,000 East Alabama Health Care Authority, Health Care Facilities Revenue Bonds,
TAN, Series A, 5.25% due 9/01/2028 (e) $ 2,995
====================================================================================================================================
California--9.5% AAA Aaa 7,425 California State, GO, Refunding (Veterans Bonds), AMT, Series BH, 5.20%
due 12/01/2011 (d) 7,536
AAA Aaa 15,000 Stockton, California, Revenue Bonds, COP (Wastewater System Project), Series A,
5.20% due 9/01/2029 (e) 15,127
AAA Aaa 8,415 University of California, Revenue Refunding Bonds (Multiple Purpose Projects),
Series E, 5.125% due 9/01/2016 (e) 8,587
====================================================================================================================================
Colorado--3.1% NR* Aaa 10,000 Denver, Colorado, City and County Airport Revenue Bonds, RITR, Series 13,
6.07% due 11/15/2023 (f) 10,242
====================================================================================================================================
Florida--1.8% AA+ Aa2 6,000 Florida State, GO, Refunding, Senior Lien (Jacksonville Transit), 5% due
7/01/2019 5,925
====================================================================================================================================
Georgia--2.3% BBB- Baa2 7,500 Effingham County, Georgia, Development Authority, Solid Waste Disposal
Revenue (Fort James Project), AMT, 5.625% due 7/01/2018 7,521
====================================================================================================================================
Illinois--8.4% AAA Aaa 10,400 Chicago, Illinois, Board of Education, GO (Chicago School Reform), Series A,
5.25% due 12/01/2022 (a) 10,386
AAA Aaa 10,000 Chicago, Illinois, GO, Project and Refunding, 5.25% due 1/01/2020 (b) 9,987
AAA Aaa 7,000 Illinois Development Finance Authority, PCR, Refunding (Illinois Power
Company Project), Series A, 5.40% due 3/01/2028 (e) 7,062
A1+ VMIG1+ 200 Illinois Health Facilities Authority, Revenue Refunding Bonds (University of
Chicago Hospitals), VRDN, 4.25% due 8/01/2026 (e)(g) 200
====================================================================================================================================
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) 8,816
AAA Aaa 5,975 Indiana Municipal Power Agency, Power Supply System, Special Obligation
Refunding Bonds, First Crossover, Series B, 5.30% due 1/01/2020 (e) 5,984
NR* Aaa 5,000 Indiana State Housing Authority, S/F Mortgage Revenue Bonds, AMT, Series B-3,
5.55% due 1/01/2025 (c) 5,066
====================================================================================================================================
Kentucky--3.0% AAA Aaa 10,000 Louisville and Jefferson County, Kentucky, Metropolitan Sewer District,
Sewer and Drain System Revenue Bonds, Series A, 5.25% due 5/15/2027 (e) 10,085
====================================================================================================================================
Massachusetts--5.5% NR* Aaa 1,350 Massachusetts State Development Finance Agency Revenue Bonds (Brooks
School Issue), Series B, 5% due 7/01/2024 (e) 1,312
AAA Aaa 10,500 Massachusetts State, HFA, Housing Revenue Bonds (Rental Mortgage), AMT,
Series C, 5.625% due 7/01/2040 (a) 10,748
AAA Aaa 5,935 Massachusetts State, HFA, S/F Housing Revenue Bonds, Series 58, 5.375% due
6/01/2017 (e) 6,057
====================================================================================================================================
Missouri--2.9% AA Aa2 4,500 Cape Girardeau County, Missouri, IDA, Solid Waste Disposal Revenue Bonds
(Procter & Gamble Paper Products), AMT, 5.30% due 5/15/2028 4,487
AAA Aaa 5,000 Saint Louis, Missouri, Airport Revenue Bonds (Lambert--St. Louis
International Airport), AMT, Series B, 5.25% due 7/01/2027 (b) 4,949
====================================================================================================================================
New York--34.7% Long Island Power Authority, New York, Electric System Revenue Bonds (e):
AAA Aaa 8,000 5.25% due 4/01/2010 8,466
AAA Aaa 15,810 Series A, 5.25% due 12/01/2026 16,035
AAA Aaa 3,000 Series A, 5.50% due 12/01/2029 3,094
AAA Aaa 14,330 Metropolitan Transportation Authority, New York, Commuter Facilities
Revenue Bonds, Series A, 5.25% due 7/01/2028 (b) 14,535
AAA Aaa 3,965 Metropolitan Transportation Authority, New York, Transit Facilities
Revenue Refunding Bonds, Series B-2, 5% due 7/01/2017 (e) 3,960
A- A3 10,000 New York City, New York, GO, Refunding, Series D, 5.25% due 8/01/2021 10,007
AAA Aaa 4,740 New York City, New York, GO, Series I, 5.25% due 4/15/2013 (e) 4,941
New York City, New York, Municipal Water Finance Authority, Water and
Sewer System Revenue Refunding Bonds, Series A:
AAA Aaa 2,000 5.125% due 6/15/2017 (b) 2,021
AAA Aaa 7,800 5.50% due 6/15/2023 (e) 8,040
AA Aa3 3,400 New York City, New York, Transitional Finance Authority Revenue Bonds
(Future Tax Secured), Series A, 5% due 8/15/2027 3,295
AAA Aaa 39,970 New York State Dormitory Authority Revenue Bonds (Mental Health
Services Facilities Improvement), Series B, 5.125% due 8/15/2021 (e) 39,888
====================================================================================================================================
North Dakota--3.4% NR* Aaa 11,000 Oliver County, North Dakota, PCR, Refunding, RIB, Series 12, 6.205%
due 1/01/2027 (a)(f) 11,208
====================================================================================================================================
Pennsylvania--6.7% NR* Aaa 6,015 Beaver County, Pennsylvania, GO, Refunding, 5.15% due 10/01/2017 (e) 6,077
AAA Aaa 4,500 Philadelphia, Pennsylvania, Gas Works Revenue Refunding Bonds, 15th Series,
5.25% due 8/01/2021 (d) 4,524
AAA Aaa 11,200 Philadelphia, Pennsylvania, School District, GO, Series B, 5.375% due
4/01/2027 (a) 11,405
====================================================================================================================================
Texas--8.8% AAA Aaa 10,000 Brazos River Authority, Texas, PCR, Refunding (Texas Utilities Electric
Company Project), AMT, Series A, 5.55% due 5/01/2033 (a) 10,198
NR* Aaa 10,000 Harris County, Texas, Health Facilities Development Corporation, Hospital
Revenue Bonds, RITR, Series 23, 6.07% due 6/01/2027 (d)(f) 9,912
AAA Aaa 9,000 Texas State Turnpike Authority, Dallas North Thruway Revenue Bonds
(President George Bush Turnpike), 5.25% due 1/01/2023 (b) 9,055
====================================================================================================================================
</TABLE>
Portfolio Abbreviations
<TABLE>
<S> <C> <C> <C> <C>
====================================================================================================================================
To simplify the listings of MuniHoldings AMT Alternative Minimum Tax (subject to) RIB Residual Interest Bonds
Insured Fund, Inc.'s portfolio holdings in COP Certificate of Participation RITR Residual Interest Trust Receipts
the Schedule of Investments, we have GO General Obligation Bonds S/F Single-Family
abbreviated the names of many of the HFA Housing Finance Agency TAN Tax Anticipation Notes
securities according to the list at right. IDA Industrial Development Authority VRDN Variable Rate Demand Notes
PCR Pollution Control Revenue Bonds
</TABLE>
4 & 5
<PAGE>
MuniHoldings Insured Fund, Inc., April 30, 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>
Virginia--1.5% BBB- Baa3 $ 5,000 Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds, Senior
Series A, 5.50% due 8/15/2028 $ 4,928
====================================================================================================================================
Total Investments (Cost--$322,667)--98.5% 324,661
Other Assets Less Liabilities--1.5% 5,041
--------
Net Assets--100.0% $329,702
========
====================================================================================================================================
</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 April 30, 1999.
(g) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at April 30,
1999.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
================================================================================
Quality Profile
The quality ratings of securities in the Fund as of April 30, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
-------------------------------------------------------------
AAA/Aaa.......................................... 87.4%
AA/Aa............................................ 4.2
A/A.............................................. 3.0
BBB/Baa.......................................... 3.8
Other+........................................... 0.1
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of April 30, 1999
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$322,667,044) (Note 1a) ..................... $324,661,119
Cash ................................................................................ 65,246
Interest receivable ................................................................. 5,453,418
Deferred organization expenses (Note 1f) ............................................ 15,181
Prepaid expenses .................................................................... 17,349
------------
Total assets ........................................................................ 330,212,313
------------
====================================================================================================================================
Liabilities: Payables:
Dividends to shareholders (Note 1e) ............................................... $ 309,236
Investment adviser (Note 2) ....................................................... 144,378 453,614
-----------
Accrued expenses .................................................................... 56,974
------------
Total liabilities ................................................................... 510,588
------------
====================================================================================================================================
Net Assets: Net assets .......................................................................... $329,701,725
============
====================================================================================================================================
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 ................................................ 1,326,443
Undistributed realized capital gains on investments--net ............................ 1,293,718
Unrealized appreciation on investments--net ......................................... 1,994,075
-----------
Total capital--Equivalent to $15.25 net asset value per share of Common Stock
(market price--$14.4375) ............................................................ 195,701,725
------------
Total capital ....................................................................... $329,701,725
============
====================================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings Insured Fund, Inc., April 30, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period May 1, 1998+ to April 30, 1999
=================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned ............... $ 16,961,550
Income (Note 1d):
=================================================================================================================================
Expenses: Investment advisory fees (Note 2) ...................................... $ 1,800,459
Commission fees (Note 4) ............................................... 317,071
Accounting services (Note 2) ........................................... 51,722
Professional fees ...................................................... 44,282
Transfer agent fees .................................................... 30,789
Listing fees ........................................................... 26,747
Custodian fees ......................................................... 24,884
Directors' fees and expenses ........................................... 20,925
Printing and shareholder reports ....................................... 10,418
Pricing fees ........................................................... 6,973
Amortization of organization expenses (Note 1f) ........................ 3,819
Other .................................................................. 13,520
------------
Total expenses ......................................................... 2,351,609
Reimbursement of expenses (Note 2) ..................................... (795,932)
Total expenses after reimbursement ..................................... 1,555,677
------------
Investment income--net ................................................. 15,405,873
============
=================================================================================================================================
Realized & Realized gain on investments--net ...................................... 5,581,576
Unrealized Gain Unrealized appreciation on investments--net ............................ 1,994,075
On Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ................... $ 22,981,524
============
=================================================================================================================================
</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: April 30, 1999
=============================================================================================================================
<S> <C> <C>
Operations: Investment income--net .................................................................... $ 15,405,873
Realized gain on investments--net ......................................................... 5,581,576
Unrealized appreciation on investments--net ............................................... 1,994,075
-------------
Net increase in net assets resulting from operations ...................................... 22,981,524
-------------
=============================================================================================================================
Dividends & Investment income--net:
Distributions to Common Stock ............................................................................ (10,626,035)
Shareholders Preferred Stock ......................................................................... (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 ..... (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 in net assets .............................................................. 329,601,720
Beginning of period ....................................................................... 100,005
-------------
End of period* ............................................................................ $ 329,701,725
=============
==============================================================================================================================
* Undistributed investment income--net ...................................................... $ 1,326,443
=============
==============================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings Insured Fund, Inc., April 30, 1999
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
May 1, 1998+ to
Increase (Decrease) in Net Asset Value: April 30, 1999
=========================================================================================================================
<S> <C> <C>
Per Share Net asset value, beginning of period ................................................ $ 15.00
Operating --------
Performance: Investment income--net .............................................................. 1.20
Realized and unrealized gain on investments--net .................................... .61
--------
Total from investment operations .................................................... 1.81
--------
Less dividends to Common Stock shareholders:
Investment income--net ............................................................ (.83)
Realized gain on investments--net ................................................. (.23)
--------
Total dividends and distributions to Common Stock shareholders ...................... (1.06)
--------
Capital charge resulting from issuance of Common Stock .............................. (.03)
--------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income--net .......................................................... (.27)
Realized gain on investments--net ............................................... (.10)
Capital charge resulting from issuance of Preferred Stock ......................... (.10)
--------
Total effect of Preferred Stock activity ............................................ (.47)
--------
Net asset value, end of period ...................................................... $ 15.25
========
Market price per share, end of period ............................................... $14.4375
========
=========================================================================================================================
Total Investment Based on market price per share ..................................................... 3.19%++
Return:* ========
Based on net asset value per share .................................................. 8.99%++
========
=========================================================================================================================
Ratios Based on Expenses, net of reimbursement** .................................................... .78%
Average Net Assets ========
Of Common Stock: Total expenses** .................................................................... 1.18%
========
Total investment income--net** ...................................................... 7.73%
========
Amount of dividends to Preferred Stock shareholders ................................. 1.73%
========
Investment income--net, to Common Stock shareholders ................................ 6.00%
========
=========================================================================================================================
Ratios Based on Expenses, net of reimbursement ...................................................... .48%
Total Average ========
Net Assets:+++** Total expenses ...................................................................... .72%
========
Total investment income--net ........................................................ 4.71%
========
=========================================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders ........................................... 2.70%
Average Net Assets ========
Of Preferred Stock:
=========================================================================================================================
Supplemental Data: Net assets, net of Preferred Stock, end of period (in thousands) .................... $195,702
========
Preferred Stock outstanding, end of period (in thousands) ........................... $134,000
========
Portfolio turnover .................................................................. 180.85%
========
=========================================================================================================================
Leverage: Asset coverage per $1,000 ........................................................... $ 2,460
========
=========================================================================================================================
Dividends Per Series A--Investment income--net .................................................... $ 631
Share on Preferred ========
Stock Outstanding: Series B--Investment income--net .................................................... $ 658
========
=========================================================================================================================
</TABLE>
* 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.
+++ Includes Common andPreferred 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. 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-counter- market, valuation is the last asked price (options written)
or the last bid price (options purchased). Securities with remaining maturities
of sixty days or less are valued at amortized cost, which approximates market
value. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Fund, including valuations furnished
by a pricing service retained by the Fund, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Fund under the general supervision of the Board
of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between
10 & 11
<PAGE>
MuniHoldings Insured Fund, Inc., April 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
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 charge 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 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 0.55% of the Fund's average weekly net assets, including
issuance of Preferred Stock. For the period May 1, 1998 to April 30, 1999, FAM
earned fees of $1,800,459, of which $715,715 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 April 30, 1999 were $874,980,871 and $557,586,136,
respectively.
Net realized gains for the period May 1, 1998 to April 30, 1999 and net
unrealized gains as of April 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .................. $5,047,823 $1,994,075
Financial futures contracts ............ 533,753 --
---------- ----------
Total .................................. $5,581,576 $1,994,075
========== ==========
- --------------------------------------------------------------------------------
As of April 30, 1999, net unrealized appreciation for Federal income tax
purposes aggregated $1,994,075, of which $2,887,694 related to appreciated
securities and $893,619 related to depreciated securities. The aggregate cost of
investments at April 30, 1999 for Federal income tax purposes was $322,667,044.
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 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
April 30, 1999 were as follows: Series A, 3.40% and Series B, 3.55%.
Shares issued and outstanding 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 0.25% to 0.375%, calculated on the proceeds of
each auction. For the period May 1, 1998 to April 30, 1999, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, an affiliate of FAM, earned $126,488 as
commissions.
5. Subsequent Event:
On May 6, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.068704 per share,
payable on May 27, 1999 to shareholders of record as of May 21, 1999.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors, MuniHoldings Insured Fund, Inc.:
We have audited the accompanying statement of assets, lia bili ties and capital
of MuniHoldings Insured Fund, Inc., including the schedule of investments, as of
April 30, 1999, and the related statements of operations and changes in net
assets, and financial highlights for the period from May 1, 1998 (commencement
of operations) to April 30, 1999. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of April 30, 1999, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial high lights referred to
above present fairly, in all material respects, the financial position of
MuniHoldings Insured Fund, Inc. as of April 30, 1999 and the results of its
operations, the changes in its net assets, and the financial highlights for the
period from May 1, 1998 to April 30, 1999, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Princeton, New Jersey
May 28, 1999
12 & 13
<PAGE>
MuniHoldings Insured Fund, Inc., April 30, 1999
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniHoldings Insured
Fund, Inc. during its taxable year ended April 30, 1999 qualify as tax-exempt
interest dividends for Federal income tax purposes.
Additionally, the following table summarizes the taxable distributions paid by
the Fund during the year:
<TABLE>
<CAPTION>
Payable Ordinary Long-Term
Date Income Capital Gains*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock Shareholders 12/30/98 $.224862 $.007873
- ---------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Shareholders: Series A 11/13/98 $23.63 $0.77
11/20/98 $24.77 $0.82
11/27/98 $23.76 $0.78
12/04/98 $23.36 $0.78
12/11/98 $22.91 $0.77
12/18/98 $24.49 $0.85
12/28/98 $37.70 $1.32
1/04/99 $33.41 $1.23
1/08/99 $19.78 $0.80
1/15/99 $ 0.37 $0.08
- ---------------------------------------------------------------------------------------------------------------------------------
Series B 11/10/98 $24.85 $0.80
11/17/98 $25.22 $0.83
11/24/98 $24.77 $0.82
12/01/98 $23.68 $0.80
12/08/98 $24.35 $0.83
12/15/98 $24.49 $0.85
12/22/98 $23.33 $0.82
12/29/98 $24.47 $0.86
1/05/99 $34.35 $1.28
1/12/99 $11.80 $0.56
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The entire distribution is subject to the 20% tax rate.
Please retain this information for your records.
YEAR 2000 ISSUES (unaudited)
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 securi ties in which
the Fund invests and this could hurt the Fund's investment returns.
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
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
- --------------------------------------------------------------------------------
Gerald M. Richard, Treasurer of MuniHoldings Insured Fund, Inc. has recently
retired. His colleagues at Merrill Lynch Asset Management, L.P. join the Fund's
Board of Directors in wishing Mr. Richard well in his retirement.
- --------------------------------------------------------------------------------
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
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 share holders with a potentially
higher rate of return. Leverage creates risks for Common Stock shareholders,
including the likelihood of greater vola tility 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--4/99
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