MUNIHOLDINGS
INSURED FUND, INC.
STRATEGIC
Performance
[GRAPHIC OMITTED]
Annual Report
April 30, 2000
<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 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 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., April 30, 2000
DEAR SHAREHOLDER
For the year ended April 30, 2000, the Common Stock of MuniHoldings Insured
Fund, Inc. earned $0.822 per share income dividends, which included earned and
unpaid dividends of $0.066. This represents a net annualized yield of 6.69%,
based on a month-end per share net asset value of $12.29. Over the same period,
the total investment return on the Fund's Common Stock was -13.13%, based on a
change in per share net asset value from $15.25 to $12.29, and assuming
reinvestment of $0.897 per share ordinary income dividends and $0.018 per share
capital gains distributions.
For the six-month period ended April 30, 2000, the total investment return on
the Fund's Common Stock was +5.00%, based on a change in per share net asset
value from $12.22 to $12.29, and assuming reinvestment of $0.479 per share
ordinary income dividends and $0.018 per share capital gains distributions.
For the six-month period ended April 30, 2000, the Fund's Auction Market
Preferred Stock had an average yield of 4.09% for Series A and 4.05% for Series
B.
The Municipal Market Environment
From October 1999 through mid-January 2000, fixed-income bond yields rose
steadily higher. US economic growth, in part intensified by Year 2000
preparations, grew at a 7.3% rate in the fourth quarter of 1999 and at a 4.2%
annual rate for all of 1999. Initial estimates for the first quarter of 2000
were reported at 5.4%. However, despite these significant growth rates, no price
measure indicator has shown any considerable signs of future price pressures at
the consumer level, despite the lowest unemployment rates since January 1970.
Given no signs of an economic slowdown, the Federal Reserve Board continued to
raise short-term interest rates in November 1999 and again in February and March
2000. In each instance, the Federal Reserve Board cited both the continued
growth of US employment and the impressive strength of the US equity markets as
reasons for attempting to moderate US economic growth before inflationary price
increases are realized. By mid-January 2000, US Treasury bond yields rose 60
basis points (0.60%) to 6.75%. Similarly, as measured by the Bond Buyer Revenue
Bond Index, long-term tax-exempt bond yields rose approximately 20 basis points
to 6.35%.
Since mid-January, fixed-income markets have largely ignored strong economic
fundamentals and concentrated on positive technical supply factors. Declining
bond issuance, both current, and more importantly, expected future issuance,
helped push bond yields lower from mid-January to mid-April 2000. In late
January and early February 2000, the US Treasury announced its intention to
reduce the number of issues to be auctioned in the quarterly Treasury note and
bond auctions. Furthermore, budgetary surpluses would allow the US Treasury to
repurchase outstanding, higher-couponed Treasury issues, primarily in the
15-year and longer-term maturity sectors. Both these actions would result in a
significant reduction in the outstanding supply of long-term US Treasury debt.
Domestic and international investors quickly began to accumulate what was
expected to become a scarce commodity and bond prices quickly rose.
By mid-April 2000, US Treasury bond yields had declined over 100 basis points to
5.67%. However, bond yields rose somewhat during the last two weeks of the
period as economic statistics were released, indicating that the economic
strength seen in late 1999 was continuing into early 2000. The decline in
long-term US Treasury bond yields resulted in an inverted taxable yield curve as
short-term and intermediate-term interest rates have not fallen proportionately
since the Federal Reserve Board is expected to continue to raise short-term
interest rates. The current inversion has had much more to do with debt
reduction and Treasury buybacks than with investor expectations of slower
economic growth. Over the last six months, long-term US Treasury bond yields
have fallen almost 20 basis points to close the six-month period ended April 30,
2000 at 5.96%.
Tax-exempt bond yields have also declined in recent months. The decline has
largely been in response to the rally in US Treasury securities, as well as a
continued positive technical supply environment. States such as California and
Maryland have announced that their large current and anticipated future budget
surpluses will permit the cancellation or postponement of expected bond
issuance. Additionally, some issuers have also initiated tenders to repurchase
existing debt, reducing the supply of tax-exempt bonds in the secondary market
as well. Since their recent peak in January 2000, long-term municipal bond
yields declined over 25 basis points to finish the six-month period ended April
30, 2000 at 6.07%. During the last six months, municipal bond yields declined
just 10 basis points overall.
The relative underperformance of the municipal bond market in recent months has
been especially disappointing given the strong technical position the tax-exempt
bond market enjoyed. The issuance of long-term tax-exempt securities has
dramatically declined. Over the last year, $203 billion in new long-term
municipal securities was issued, a decline of almost 25% compared to the same
period a year earlier. For the six months ended April 30, 2000, approximately
$90 billion in new tax-exempt bonds was underwritten, a decline of more than 25%
compared to the same period in 1999. Although investors received over $30
billion in coupon payments, bond maturities and the proceeds from early bond
redemptions, coupled with the highest municipal bond yields in three years,
overall investor demand has diminished. Long-term municipal bond 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.
Over the last four months, tax-exempt mutual funds have had net redemptions of
more than $8 billion. Also, the demand from property and casualty insurance
companies has weakened as a result of the losses and anticipated losses incurred
from a series of damaging storms across much of the eastern United States.
Additionally, many institutional investors who have in recent years been
attracted to the municipal bond market by historically attractive tax-exempt
bond yield ratios of over 90% found other asset classes even more attractive.
Even with a favorable supply position, tax-exempt municipal bond yields have
underperformed their taxable counterparts.
Any significantly lower municipal bond yields are still likely to require weaker
US employment growth and consumer spending. The actions taken in recent months
by the Federal Reserve Board should eventually slow US economic growth. The
recent declines in US home sales are perhaps the first sign that consumer
spending is being slowed by higher interest rates. Until further signs develop,
it is likely that the municipal bond market's current favorable technical
position will dampen significant tax-exempt interest rate volatility and provide
a stable environment for eventual improvement in municipal bond prices.
Portfolio Strategy
During the six months ended April 30, 2000, we maintained a fully invested
position and sought to enhance the level of tax-exempt income to our Common
Stock shareholders through the use of leveraging. (For a complete explanation of
the benefits and risks of leveraging, see page 1 of this report to
shareholders.) The fixed-income market was subject to above-average price
volatility resulting from continuously strong economic growth and uncertainty
surrounding the magnitude of future monetary tightenings by the Federal Reserve
Board. Our fully invested position, accentuated by our leveraged strategy,
subjected the Fund to a decrease in net asset valuation that accompanies such a
drastic rise and fall in interest rates, although we were able to achieve a very
competitive yield.
We began the six-month period ended April 30, 2000 heavily weighted in
high-quality holdings. We purchased lower-quality, investment-grade issues as
yield spreads widened to increase the distribution yield. This strategy proved
correct as yield spreads have since narrowed, allowing the Fund to participate
in the relative outperformance of this sector.
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 to come.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Robert A. DiMella
Robert A. DiMella
Vice President and Portfolio Manager
May 31, 2000
2 & 3
<PAGE>
MuniHoldings Insured Fund, Inc., April 30, 2000
PROXY RESULTS
During the six-month period ended April 30, 2000, MuniHoldings Insured Fund,
Inc.'s Common Stock shareholders voted on the following proposals. The proposals
were approved at a shareholders' meeting on December 15, 1999. The description
of each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn 12,217,885 489,380
Ronald W. Forbes 12,215,684 491,581
Cynthia A. Montgomery 12,215,855 491,410
Kevin A. Ryan 12,214,564 492,701
Arthur Zeikel 12,210,737 496,528
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP as the Fund's
independent auditors for the current fiscal year. 12,513,413 74,607 119,245
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
During the six-month period ended April 30, 2000, MuniHoldings Insured Fund,
Inc.'s Preferred Stock shareholders voted on the following proposals. The
proposals were approved at a shareholders' meeting on December 15, 1999. The
description of each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn, Ronald W. Forbes,
Cynthia A. Montgomery, Charles C. Reilly, Kevin A. Ryan, Richard R. West and
Arthur Zeikel as follows:
Series A 2,090 0
Series B 2,286 1
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP as the Fund's independent
auditors for the current fiscal year as follows:
Series A 2,090 0 0
Series B 2,286 0 1
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Arizona--1.1% NR* Aaa $ 2,925 Maricopa County, Arizona, Deer Valley Unified School District
Number 097, GO (Project of 1996), Series H, 5.30% due 7/01/2011 (d) $ 2,929
A1+ P1 200 Maricopa County, Arizona, Pollution Control Corporation, PCR,
Refunding (Arizona Public Service Company), VRDN, Series C, 5.40%
due 5/01/2029 (g) 200
====================================================================================================================================
Colorado--1.9% AAA Aaa 5,825 Denver, Colorado, City and County Airport Revenue Refunding Bonds,
Series E, 5.50% due 11/15/2025 (e) 5,475
====================================================================================================================================
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 2,230
====================================================================================================================================
District of Columbia-- AAA Aaa 5,970 Washington, D.C., Convention Center Authority, Dedicated Tax Revenue
1.8% Bonds, Senior Lien, 5% due 10/01/2021 (a) 5,210
====================================================================================================================================
Florida--0.0% A1+ NR* 100 Capital Projects Finance Authority, Florida, Revenue Bonds (Florida
Hospital Association--Capital Projects Loan), VRDN, Series A, 5.05%
due 6/01/2028 (d)(g) 100
====================================================================================================================================
Georgia--4.1% BBB- Baa2 5,000 Effingham County, Georgia, Development Authority, Solid Waste Disposal
Revenue (Fort James Project), AMT, 5.625% due 7/01/2018 4,483
AAA Aaa 7,570 Georgia Municipal Electric Authority, Power Revenue Refunding Bonds,
Series Z, 5.50% due 1/01/2020 (e) 7,418
====================================================================================================================================
Hawaii--3.4% AAA Aaa 10,000 Hawaii State, GO, Series CT, 5.875% due 9/01/2018 (d) 10,086
====================================================================================================================================
Illinois--12.0% AAA Aaa 6,765 Chicago, Illinois, Board of Education, GO (Chicago School Reform
Project), Series A, 5.25% due 12/01/2027 (a) 6,002
Chicago, Illinois, GO (b):
AAA Aaa 5,000 5.50% due 1/01/2021 4,740
AAA Aaa 2,790 Series A, 6% due 1/01/2018 2,840
AAA Aaa 2,000 Series A, 6% due 1/01/2019 2,029
AAA Aaa 3,175 Series A, 6% due 1/01/2020 3,206
Illinois State, GO, First Series (b):
AAA Aaa 4,500 6% due 1/01/2018 4,592
AAA Aaa 11,100 6% due 1/01/2019 11,294
====================================================================================================================================
</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)
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
S/F Single-Family
VRDN Variable Rate Demand Notes
YCNS Yield Curve Notes
4 & 5
<PAGE>
MuniHoldings Insured Fund, Inc., April 30, 2000
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
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) $ 2,284
NR* Aaa 4,735 Indiana State, HFA, S/F Mortgage Revenue Refunding Bonds, AMT,
Series B-3, 5.55% due 1/01/2025 (c) 4,339
====================================================================================================================================
Kansas--3.0% Johnson County, Kansas, Unified School District Number 229, GO,
Series A:
AA Aa1 2,790 5.50% due 10/01/2014 2,787
AA Aa1 2,950 5.50% due 10/01/2015 2,929
AA Aa1 3,120 5.50% due 10/01/2016 3,080
====================================================================================================================================
Massachusetts--7.7% AAA Aaa 5,000 Massachusetts Bay Transportation Authority, Massachusetts, Revenue
Bonds (General Transportation System), Series B, 5.25%
due 3/01/2020 (d) 4,628
AAA Aaa 5,500 Massachusetts State, HFA, Housing Revenue Bonds (Rental Mortgage),
AMT, Series C, 5.625% due 7/01/2040 (a) 4,966
AAA Aaa 2,655 Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT, Series 59,
5.50% due 12/01/2030 (a) 2,403
AAA Aaa 12,000 Massachusetts State Turnpike Authority, Metropolitan Highway System
Revenue Refunding Bonds, Senior-Series A, 5% due 1/01/2027 (e) 10,384
====================================================================================================================================
Michigan--0.9% AAA Aaa 2,665 Detroit, Michigan, Sewer Disposal Revenue Refunding Bonds, Series A,
5.70% due 7/01/2013 (b) 2,690
====================================================================================================================================
Missouri--4.9% AA Aa2 4,000 Cape Girardeau County, Missouri, IDA, Solid Waste Disposal Revenue
Bonds (Procter & Gamble Paper Products), AMT, 5.30% due 5/15/2028 3,501
Cape Girardeau, Missouri, School District Number 063, GO (Missouri
Direct Deposit Program) (b):
AAA Aaa 2,195 5.50% due 3/01/2018 2,151
AAA Aaa 2,140 5.50% due 3/01/2019 2,088
Saint Louis, Missouri, GO, Public Safety (b):
AAA Aaa 1,615 5% due 2/15/2015 1,520
AAA Aaa 3,920 5.125% due 2/15/2016 3,711
AAA Aaa 1,500 5.125% due 2/15/2018 1,395
====================================================================================================================================
Nevada--1.3% AAA Aaa 4,000 Las Vegas New Convention and Visitors Authority Revenue Bonds, 5.75%
due 7/01/2018 (a) 3,977
====================================================================================================================================
New Jersey--2.7% AA- Aaa 2,750 New Jersey State Highway Authority, Garden State Parkway General
Revenue Refunding Bonds, 6% due 1/01/2019 (h) 2,870
AAA Aaa 5,000 Salem County, New Jersey, Industrial Pollution Control Financing
Authority, Revenue Refunding Bonds (Public Service Electric and
Gas Company Project), 6.20% due 8/01/2030 (e) 5,091
====================================================================================================================================
New York--24.1% AAA Aaa 5,000 Long Island Power Authority, New York, Electric System Revenue
Refunding Bonds, Series A, 5.125% due 12/01/2022 (d) 4,429
AAA Aaa 10,000 Nassau Health Care Corporation, New York, Health System Revenue Bonds,
5.75% due 8/01/2022 (d) 9,814
New York City, New York, City Municipal Water Finance Authority, Water
and Sewer System Revenue Refunding Bonds, Series A:
AAA Aaa 7,800 5.50% due 6/15/2023 (e) 7,408
AAA Aaa 9,000 5.50% due 6/15/2024 (b) 8,517
New York City, New York, GO, Refunding:
AAA Aaa 6,250 Series C, 5.875% due 2/01/2016 (e) 6,341
AAA Aaa 5,355 Series D, 5.25% due 8/01/2021 (b) 4,900
AAA NR* 10,500 Series G, 5.75% due 2/01/2017 (d) 10,532
AAA Aaa 9,940 New York State Dormitory Authority Revenue Bonds (City University
System Consolidation), Third Generation, Series 1, 5.375%
due 7/01/2025 (a) 9,149
AAA Aaa 4,650 Port Authority of New York and New Jersey, Consolidated Revenue
Refunding Bonds, AMT, 119th Series, 5.50% due 9/15/2016 (b) 4,542
AAA Aaa 5,220 Suffolk County, New York, Judicial Facilities Agency, Service
Agreement Revenue Bonds (John P. Cohalan Complex), 5% due 4/15/2016 (a) 4,789
====================================================================================================================================
North Carolina--1.1% AAA Aaa 3,185 Charlotte, North Carolina, Airport Revenue Bonds, AMT, Series B,
6% due 7/01/2017 (e) 3,229
====================================================================================================================================
Ohio--1.9% AAA Aaa 2,500 Ohio State Education Loan Revenue Bonds, AMT, Series A-1,
5.85% due 12/01/2019 (a) 2,454
AA A1 3,160 Ohio State Turnpike Commission, Turnpike Revenue Bonds, Series A,
5.50% due 2/15/2012 3,180
====================================================================================================================================
Pennsylvania--1.4% AAA Aaa 4,400 Philadelphia, Pennsylvania, Gas Works Revenue Refunding Bonds,
15th Series, 5.25% due 8/01/2021 (d) 4,001
====================================================================================================================================
Rhode Island--1.7% NR* Aaa 5,000 Providence, Rhode Island, Redevelopment Agency Revenue Refunding Bonds
(Public Safety and Municipal Buildings), Series A, 5.75%
due 4/01/2019 (a) 4,949
====================================================================================================================================
Texas--11.7% AAA Aaa 4,550 Austin, Texas, Utility System Revenue Refunding Bonds, 5.125%
due 11/15/2020 (d) 4,094
AAA Aaa 15,260 Colorado River, Texas, Municipal Water District, Water Revenue
Refunding Bonds, 5.15% due 1/01/2021 (a) 13,558
AAA Aaa 5,000 Dallas, Texas, Special Tax Revenue Bonds, Series A,
5% due 8/15/2020 (a) 4,417
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 4,749
A1+ NR* 300 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN,
5.40% due 12/01/2025 (g) 300
AAA Aaa 7,000 Houston, Texas, Water and Sewer System Revenue Refunding Bonds,
Junior Lien, Series D, 6.125% due 12/01/2025 (e) 7,012
====================================================================================================================================
Virginia--1.3% BBB- Baa3 4,750 Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds,
Senior-Series A, 5.50% due 8/15/2028 3,892
====================================================================================================================================
West Virginia--0.8% AAA Aaa 2,500 West Virginia School Building Authority, Revenue Refunding Bonds,
Capital Improvement, Series B, 5.25% due 7/01/2021 (d) 2,293
====================================================================================================================================
Wyoming--0.8% AA NR* 2,500 Wyoming Student Loan Corporation, Student Loan Revenue Refunding Bonds,
Series A, 6.20% due 6/01/2024 2,508
====================================================================================================================================
Puerto Rico--6.9% AAA Aaa 10,000 Puerto Rico Commonwealth, GO, Public Improvement, 6% due 7/01/2029 (e) 10,159
AAA Aaa 10,000 Puerto Rico Commonwealth, GO, Refunding, YCNS, 5.831% due
7/01/2020 (d)(f) 9,987
====================================================================================================================================
Total Investments (Cost--$293,280)--99.6% 290,831
Other Assets Less Liabilities--0.4% 1,263
--------
Net Assets--100.0% $292,094
========
====================================================================================================================================
</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, 2000.
(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,
2000.
(h) Escrowed to maturity.
* Not Rated.
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings Insured Fund, Inc., April 30, 2000
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of April 30, 2000
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$293,279,982) ................................. $290,830,964
Cash .................................................................................. 3,535
Receivables:
Interest ............................................................................ $ 4,891,073
Securities sold ..................................................................... 1,008,417 5,899,490
------------
Prepaid expenses ...................................................................... 1,446
------------
Total assets .......................................................................... 296,735,435
------------
====================================================================================================================================
Liabilities: Payables:
Securities purchased ................................................................ 4,266,504
Dividends to shareholders ........................................................... 239,434
Investment adviser .................................................................. 111,503 4,617,441
------------
Accrued expenses ...................................................................... 23,686
------------
Total liabilities ..................................................................... 4,641,127
------------
====================================================================================================================================
Net Assets: Net assets ............................................................................ $292,094,308
============
====================================================================================================================================
Capital: Capital Stock (200,000,000 shares authorized):
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 (12,867,541 shares issued and outstanding) ... $ 1,286,754
Paid-in capital in excess of par ...................................................... 190,198,388
Undistributed investment income--net .................................................. 976,307
Accumulated realized capital losses on investments--net ............................... (30,418,946)
Accumulated distribution in excess of realized capital gains on investments--net ...... (1,499,177)
Unrealized depreciation on investments--net ........................................... (2,449,018)
------------
Total capital--Equivalent to $12.29 net asset value per share of Common Stock
(market price--$11.00) ................................................................ 158,094,308
------------
Total capital ......................................................................... $292,094,308
============
====================================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended April 30, 2000
==============================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned ............. $ 16,961,724
Income:
==============================================================================================================================
Expenses: Investment advisory fees ............................................. $ 1,653,599
Commission fees ...................................................... 340,019
Professional fees .................................................... 79,230
Printing and shareholder reports ..................................... 55,592
Listing fees ......................................................... 40,701
Transfer agent fees .................................................. 38,664
Accounting services .................................................. 30,794
Custodian fees ....................................................... 23,127
Directors' fees and expenses ......................................... 19,482
Organization expenses ................................................ 15,181
Pricing fees ......................................................... 7,429
Other ................................................................ 20,829
------------
Total expenses before reimbursement .................................. 2,324,647
Reimbursement of expenses ............................................ (180,060)
------------
Total expenses after reimbursement ................................... 2,144,587
------------
Investment income--net ............................................... 14,817,137
------------
==============================================================================================================================
Realized & Realized loss on investments--net .................................... (31,712,691)
Unrealized Loss Change in unrealized appreciation/depreciation on investments--net ... (4,443,093)
On Investments--Net: ------------
Net Decrease in Net Assets Resulting from Operations ................. $(21,338,647)
============
==============================================================================================================================
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings Insured Fund, Inc., April 30, 2000
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the For the Period
Year Ended May 1, 1998+ to
Increase (Decrease) in Net Assets: April 30, 2000 April 30, 1999
================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ................................................... $ 14,817,137 $ 15,405,873
Realized gain (loss) on investments--net ................................. (31,712,691) 5,581,576
Change in unrealized appreciation/depreciation on investments--net ....... (4,443,093) 1,994,075
------------ ------------
Net increase (decrease) in net assets resulting from operations .......... (21,338,647) 22,981,524
------------ ------------
================================================================================================================================
Dividends & Investment income--net:
Distributions to Common Stock ........................................................... (10,599,091) (10,626,035)
Shareholders: Preferred Stock ........................................................ (4,572,123) (3,453,395)
Realized gain on investments--net:
Common Stock ........................................................... -- (2,968,923)
Preferred Stock ........................................................ -- (1,318,935)
In excess of realized gain on investments--net:
Common Stock ........................................................... (1,141,477) --
Preferred Stock ........................................................ (357,700) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders .......................................................... (16,670,391) (18,367,288)
------------ ------------
================================================================================================================================
Capital Stock Proceeds from issuance of Common Stock ................................... -- 191,250,000
Transactions: Proceeds from issuance of Preferred Stock ................................ -- 134,000,000
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 .............................................. 401,621 1,182,185
------------ ------------
Net increase in net assets derived from capital stock transactions ....... 401,621 324,987,484
------------ ------------
================================================================================================================================
Net Assets: Total increase (decrease) in net assets .................................. (37,607,417) 329,601,720
Beginning of period ...................................................... 329,701,725 100,005
------------ ------------
End of period* ........................................................... $292,094,308 $329,701,725
============ ============
================================================================================================================================
* Undistributed investment income--net ..................................... $ 976,307 $ 1,326,443
============ ============
================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the For the Period
Year Ended May 1, 1998+ to
Increase (Decrease) in Net Asset Value: April 30, 2000 April 30, 1999
============================================================================================================================
<S> <C> <C> <C>
Per Share Net asset value, beginning of period ............................... $ 15.25 $ 15.00
Operating ------------ ------------
Performance: Investment income--net ............................................. 1.17 1.20
Realized and unrealized gain (loss) on investments--net ............ (2.82) .61
------------ ------------
Total from investment operations ................................... (1.65) 1.81
------------ ------------
Less dividends and distributions to Common Stock shareholders:
Investment income--net ........................................... (.83) (.83)
Realized gain on investments--net ................................ -- (.23)
In excess of realized gain on investments--net ................... (.09) --
------------ ------------
Total dividends and distributions to Common Stock shareholders ..... (.92) (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 ......................................... (.36) (.27)
Realized gain on investments--net .............................. -- (.10)
In excess of realized gain on investments--net ................. (.03) --
Capital charge resulting from issuance of Preferred Stock ........ -- (.10)
------------ ------------
Total effect of Preferred Stock activity ........................... (.39) (.47)
------------ ------------
Net asset value, end of period ..................................... $ 12.29 $ 15.25
============ ============
Market price per share, end of period .............................. $ 11.00 $ 14.4375
============ ============
============================================================================================================================
Total Investment Based on market price per share .................................... (17.87%) 3.19%++++
Return:* ============ ============
Based on net asset value per share ................................. (13.13%) 8.99%++++
============ ============
============================================================================================================================
Ratios Based on Total expenses, net of reimbursement** ............................. 1.28% .78%
Average Net Assets ============ ============
Of Common Stock: Total expenses** ................................................... 1.39% 1.18%
============ ============
Total investment income--net** ..................................... 8.87% 7.73%
============ ============
Amount of dividends to Preferred Stock shareholders ................ 2.74% 1.73%
============ ============
Investment income--net, to Common Stock shareholders ............... 6.13% 6.00%
============ ============
============================================================================================================================
Ratios Based on Total expenses, net of reimbursement ............................... .71% .48%
Total Average ============ ============
Net Assets:**+++ Total expenses ..................................................... .77% .72%
============ ============
Total investment income--net ....................................... 4.93% 4.71%
============ ============
============================================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders .......................... 3.42% 2.70%
Average Net Assets ============ ============
Of Preferred Stock:
============================================================================================================================
Supplemental Data: Net assets, net of Preferred Stock, end of period (in thousands) ... $ 158,094 $ 195,702
============ ============
Preferred Stock outstanding, end of period (in thousands) .......... $ 134,000 $ 134,000
============ ============
Portfolio turnover ................................................. 189.96% 180.85%
============ ============
============================================================================================================================
Leverage: Asset coverage per $1,000 .......................................... $ 2,180 $ 2,460
============ ============
============================================================================================================================
Dividends Per Series A--Investment income--net ................................... $ 854 $ 631
Share on Preferred ============ ============
Stock Outstanding: Series B--Investment income--net ................................... $ 852 $ 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
charges. The Fund's Investment Adviser voluntarily waived a portion of its
management fee. Without such waiver, the Fund's performance would have
been lower.
** 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.
10 & 11
<PAGE>
MuniHoldings Insured Fund, Inc., April 30, 2000
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
accounting principles generally accepted in the United States of America, which
may require the use of management accruals and estimates. The Fund's Common
Stock is listed on the New York Stock Exchange under the symbol MUS. The
following is a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general super vision of the
Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. Losses may arise due to changes in the value of the contract or if
the counterparty does not perform under the contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase put
options. When the Fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked to market to reflect the current market
value of the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from (or added to)
the proceeds of the security sold. When an option expires (or the Fund enters
into a closing transaction), the Fund realizes a gain or loss on the option to
the extent of the premiums received or paid (or gain or loss to the extent the
cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates. Distributions in excess of realized capital gains are
primarily due to differing tax treatments for futures transactions and
post-October losses.
(f) Organization and offering expenses--In accordance with Statement of Position
98-5, unamortized organization expenses of $15,181 were expensed during the year
ended April 30, 2000. 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.
(g) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $27 have been reclassified between undistributed net
investment income and accumulated net realized capital losses and $3,968 has
been reclassified between paid-in capital in excess of par and undistributed net
investment income. These reclassifications have no effect on net assets or net
asset value per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("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 year ended April 30, 2000, FAM earned fees
of $1,653,599, of which $180,060 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
year ended April 30, 2000 were $557,631,626 and $555,401,767, respectively. Net
realized gains (losses) for the year ended April 30, 2000 and net unrealized
losses as of April 30, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
--------------------------------------------------------------------------------
Long-term investments .................. $(32,044,251) $ (2,449,018)
Financial futures contracts ............ 331,560 --
------------ ------------
Total .................................. $(31,712,691) $ (2,449,018)
============ ============
--------------------------------------------------------------------------------
As of April 30, 2000, net unrealized depreciation for Federal income tax
purposes aggregated $2,449,018, of which $3,082,982 related to appreciated
securities and $5,532,000 related to depreciated securities. The aggregate cost
of investments at April 30, 2000 for Federal income tax purposes was
$293,279,982.
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 year ended April 30, 2000 increased by
34,604 as a result of dividend reinvestment 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
April 30, 2000 were as follows: Series A, 4.40% and Series B, 4.69%.
Shares issued and outstanding during the year ended April 30, 2000 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 year ended April 30, 2000, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, an affiliate of FAM, earned $211,981 as commissions.
5. Capital Loss Carryforward:
At April 30, 2000, the Fund had a net capital loss carryforward of approximately
$20,936,000, all of which expires in 2008. This amount will be available to
offset like amounts of any future taxable gains.
6. Subsequent Event:
On May 5, 2000, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.065700 per share,
payable on May 30, 2000 to shareholders of record as of May 16, 2000.
12 & 13
<PAGE>
MuniHoldings Insured Fund, Inc., April 30, 2000
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
MuniHoldings Insured Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital of
MuniHoldings Insured Fund, Inc., including the schedule of investments, as of
April 30, 2000, and the related statement of operations for the year then ended,
and the statements of changes in net assets and financial highlights for the
year then ended and 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
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2000, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide 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. at April 30, 2000, the results of its operations
for the year then ended, and the changes in its net assets and the financial
highlights for each of the indicated periods in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
MetroPark, New Jersey
May 26, 2000
QUALITY PROFILE (unaudited)
The quality ratings of securities in the Fund as of April 30, 2000 were as
follows:
------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
------------------------------------------------------------
AAA/Aaa.......................................... 87.9%
AA/Aa............................................ 6.2
BBB/Baa.......................................... 5.3
Other+........................................... 0.2
------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniHoldings Insured
Fund, Inc. during its taxable year ended April 30, 2000 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 12/30/99 $.071240 $.017709
--------------------------------------------------------------------------------------------------------------------
Preferred Stock Shareholders: Series A 11/19/99 $21.94 $5.06
11/26/99 $22.04 $5.34
12/03/99 $ 9.33 $2.85
---------------------------------------------------------------------------
Series B 11/23/99 $21.61 $5.00
11/30/99 $23.63 $5.71
12/07/99 $ 8.35 $2.61
--------------------------------------------------------------------------------------------------------------------
</TABLE>
* The entire distribution is subject to the 20% tax rate.
Please retain this information for your records.
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute all or a portion of its net
investment income to its shareholders on a monthly basis. 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.
14 & 15
<PAGE>
Officers and Directors
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
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
MuniHoldings Insured Fund, Inc. seeks to provide shareholders with current
income exempt from Federal income taxes by investing primarily in a portfolio of
long-term, investment-grade municipal obligations the interest on which, in the
opinion of bond counsel to the issuer, is exempt from Federal income taxes.
This report, including the financial information herein, is transmitted to
shareholders of MuniHoldings Insured Fund, Inc. for their information. It is not
a prospectus. 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--4/00
[RECYCLE LOGO] Printed on post-consumer recycled paper
