MUNIHOLDINGS
INSURED FUND, INC.
FUND LOGO
Semi-Annual Report
October 31, 2000
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
Printed on post-consumer recycled paper
MUNIHOLDINGS INSURED FUND, INC.
The Benefits and
Risks of
Leveraging
MuniHoldings Insured Fund, Inc. has the ability to leverage to seek
to enhance the yield and net asset value of its Common Stock.
However, these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues Preferred Stock, which
pays dividends at prevailing short-term interest rates, and invests
the proceeds in long-term municipal bonds. The interest earned on
these investments is paid to Common Stock shareholders in the form
of dividends, and the value of these portfolio holdings is reflected
in the per share net asset value of the Fund's Common Stock.
However, in order to benefit Common Stock shareholders, the yield
curve must be positively sloped; that is, short-term interest rates
must be lower than long-term interest rates. At the same time, a
period of generally declining interest rates will benefit Common
Stock shareholders. If either of these conditions change, then the
risks of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issue of Preferred Stock for
an additional $50 million, creating a total value of $150 million
available for investment in long-term municipal bonds. If prevailing
short-term interest rates are approximately 3% and long-term
interest rates are approximately 6%, the yield curve has a strongly
positive slope. The fund pays dividends on the $50 million of
Preferred Stock based on the lower short-term interest rates. At the
same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pickup on the
Common Stock will be reduced or eliminated completely. At the same
time, the market value on the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange), may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain
securities whose potential income return is inversely related to
changes in a floating interest rate ("inverse floaters"). In
general, income on inverse floaters will decrease when short-term
interest rates increase and increase when short-term interest rates
decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of
reduced or eliminated interest payments and losses of invested
principal. In addition, inverse floaters have the effect of
providing investment leverage and, as a result, the market value of
such securities will generally be more volatile than that of fixed-
rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the
net asset value of the Fund's shares may also be more volatile than
if the Fund did not invest in these securities.
MuniHoldings Insured Fund, Inc., October 31, 2000
DEAR SHAREHOLDER
For the six-months ended October 31, 2000, the Common Stock of
MuniHoldings Insured Fund, Inc. earned $0.369 per share income
dividends, which included earned and unpaid dividends of $0.061.
This represents a net annualized yield of 5.66%, based on a month-
end per share net asset value of $12.95 per share. Over the same
period, the total investment return on the Fund's Common Stock was
+8.84%, based on a change in per share net asset value from $12.29
to $12.95, and assuming reinvestment of $0.374 per share income
dividends.
For the six-month period ended October 31, 2000, the Fund's Auction
Market Preferred Stock had an average yield of 4.03% for Series A
and 4.16% for Series B.
The Municipal Market Environment
During the six months ended October 31, 2000, long-term US Treasury
bond yields generally drifted lower. A number of economic
indicators, particularly employment, new home sales and consumer
spending, have suggested that US economic growth, while still
strong, has moderated from 1999's robust levels. Preliminary
estimates for third-quarter 2000 US gross domestic product growth
were recently released at 2.7%, well below the first-quarter 2000
rate of 4.8% and the second-quarter 2000 rate of 5.6%. This decline
in economic growth suggests to some analysts that the Federal
Reserve Board has finished raising interest rates for its current
interest rate cycle. The Federal Reserve Board increased short-term
interest rates at its May meeting and has since kept monetary policy
steady at its subsequent meetings. Given the potential for stable
short-term interest rates in the coming months, investor emphasis
focused on the continuing US Treasury debt reduction program and
forecasts of sizeable Federal budgetary surpluses going forward.
Many investors have concluded that there will be a significant
future shortage of longer-dated maturity US Treasury securities. By
late August, US Treasury bond yields declined 30 basis points
(0.30%) to 5.66%, their lowest level in more than a year.
However, for the remainder of the period, bond yields were unable to
maintain their earlier gains. Rising oil prices were the major focus
behind the decline in bond prices, as many investors feared that
higher oil prices would result in increased inflationary pressures.
Additionally, US corporations issued large amounts of taxable debt
in order to take advantage of the current low interest rate
environment. During the last three months, US corporations issued
more than $100 billion in investment-grade securities, offering
yields in the 7.25%--9% range. Many investors found these taxable
issues an attractive and more plentiful alternative to US Treasury
bonds. As the demand for US Treasury issues weakened, US bond yields
rose. Although US Treasury bond yields rose to 5.78% by the end of
October 2000, overall they declined almost 20 basis points during
the last six months.
The six-month period ended October 31, 2000 was one of the few
periods in recent years in which the tax-exempt bond market
outperformed its taxable counterpart, the US Treasury bond market.
While municipal bond yields followed the similar seesaw pattern of
Treasury bond yields, tax-exempt bond price volatility was
significantly reduced. Municipal bond yields traded in a relatively
narrow range during much of October 2000. Overall investor demand
for municipal bonds remained strong, allowing tax-exempt bond
yields, as measured by the Bond Buyer Revenue Bond Index, to decline
30 basis points to end the period at 5.75%.
In the past three months, new long-term municipal bond issuance has
continued to decline, albeit at a slower rate than earlier this
year. Over this period, more than $53 billion in new long-term
municipal bonds was issued, a decline of 3% compared to the same
three-month period in 1999. During the last six months, more than
$105 billion in tax-exempt bonds was underwritten, a decline of 8%
compared to the same six-month period in 1999. Just under $200
billion in new municipal securities was marketed during the past
year, a decline of more than 16% compared to the same 12-month
period in 1999.
The demand for municipal bonds came from a number of non-traditional
and conventional sources. Derivative/arbitrage programs and
insurance companies remained the dominant institutional buyers,
while individual retail purchases also remained strong. Traditional,
open-end tax-exempt mutual funds have continued to see significant
disintermediation. It was recently reported that thus far during the
2000 calendar year, long-term municipal bond mutual funds
experienced net cash outflows of more than $15 billion. Fortunately,
the combination of reduced new bond issuance and ongoing demand from
non-traditional sources has been able to more than offset the
decline in demand from tax-exempt mutual funds. This favorable
balance has fostered a significant decline in municipal bond yields
in recent months.
Currently, there is no reason to expect that the positive technical
position of the municipal bond market will significantly
deteriorate. The steeply positive yield curve and the relatively
high credit quality that the tax-exempt bond market offers should
continue to attract different classes of institutional buyers.
Strong state and local governmental financial conditions also
suggest that issuance should remain manageable into next year.
However, the results of the presidential election may affect the tax-
exempt bond market. Various tax and spending programs proposed by
both candidates have obvious implications for state and local
governments as well as corporate and individual taxpayers. Political
history has shown that the enactment of campaign promises, both
Republican and Democratic, has very often been a long, laborious
process. This suggests that over the next few months US economic
factors will most likely have a greater effect on bond yields than
political considerations.
Portfolio Strategy
During the six-month period ended October 31, 2000, we focused on
seeking to enhance tax-exempt income to the Fund's Common Stock
shareholders through the use of leverage. In our opinion, the Fund's
structure was conducive to accomplishing this goal. The fixed-income
market was subject to price volatility resulting from continued
strong economic growth and uncertainty surrounding the magnitude of
future monetary tightening by the Federal Reserve Board. Although
there is evidence of an economic slowdown, there still seems to be
concern about higher inflation in the future. Our fully invested
position, accentuated by our leveraged strategy, subjected the
Fund's net asset value to the volatility that accompanies such a
drastic rise and fall in interest rates.
The yield on the Fund's Auction Market Preferred Stock averaged
4.16% throughout the six-month period ended October 31, 2000.
Although the Federal Reserve Board's tightening bias caused this
rate to be higher than the historical average, leverage continued to
benefit Common Stock shareholders by significantly augmenting their
yield. However, should the spread between short-term and long-term
interest rates narrow, the benefits of leverage will decline and, as
a result, reduce the yield on the Fund's Common Stock. (For a
complete explanation of the benefits and risks of leveraging, see
page 1 of this report to shareholders.)
Going forward, we believe the Fund is well structured with the
ability to provide a high current income and for low volatility. We
expect to maintain this strategy until the economy has slowed and
the Federal Reserve Board believes it has contained inflation.
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,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Robert A. DiMella)
Robert A. DiMella
Vice President and Portfolio Manager
November 30, 2000
MuniHoldings Insured Fund, Inc., October 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <S> <S> <C> <S> <C>
Arizona--0.9% NR* Aaa $ 2,675 Maricopa County, Arizona, Deer Valley Unified School
District Number 097, GO (Project of 1996), Series H,
5.30% due 7/01/2011 (c) $ 2,759
California--3.9% Foothill--De Anza, California, Community College
District, GO (d):
AAA Aaa 6,425 6.14%** due 8/01/2020 2,134
AAA Aaa 3,000 6.16%** due 8/01/2021 938
AAA Aaa 3,850 6.19%** due 8/01/2022 1,136
AAA Aaa 3,590 6.21%** due 8/01/2023 1,000
AAA Aaa 4,530 6.23%** due 8/01/2024 1,189
AA Aa3 5,000 Sacramento County, California, Sanitation District,
Financing Authority, Revenue Refunding Bonds, RIB,
Series 366, 7.64% due 12/01/2027 (e) 5,296
Colorado--3.8% Aurora, Colorado, COP (a):
AAA Aaa 2,440 5.75% due 12/01/2015 2,550
AAA Aaa 2,560 5.75% due 12/01/2016 2,661
AAA Aaa 2,730 5.75% due 12/01/2017 2,823
AAA Aaa 2,890 5.75% due 12/01/2018 2,972
A1+c VMIG1++ 300 Moffat County, Colorado, PCR, Refunding (Pacificorp
Projects), VRDN, 4.60% due 5/01/2013 (a)(f) 300
Connecticut A1+ VMIG1++ 500 Connecticut State, GO, VRDN, Series B, 4.15% due 5/15/2014 (f) 500
--0.9% NR* Baa3 2,500 Mashantucket Western Pequot Tribe, Connecticut, Special Revenue
Refunding Bonds, Sub-Series B, 5.75% due 9/01/2027 2,296
District of AAA Aaa 5,970 Washington, D.C., Convention Center Authority,
Columbia-- Dedicated Tax Revenue Bonds, Senior Lien, 5,490
1.8% 5% due 10/01/2021 (a)
Florida--5.4% NR* Aaa 6,300 Escambia County, Florida, Health Facilities Authority,
Health Facility Revenue Bonds (Florida Health 6,549
Care Facility Loan), 5.95% due 7/01/2020 (a)
AAA Aaa 9,230 Orange County, Florida, Tourist Development Tax Revenue
Bonds, 5.50% due 10/01/2011 (a) 9,653
Georgia--2.8% A1 VMIG1++ 600 Burke County, Georgia, Development Authority, PCR
(Georgia Power Company Plant--Vogtle Project),
VRDN, Third Series, 4.60% due 7/01/2024 (f) 600
AAA Aaa 7,570 Georgia Municipal Electric Authority, Power Revenue
Refunding Bonds, Series Z, 5.50% due 1/01/2020 (d) 7,707
Hawaii--3.4% AAA Aaa 10,000 Hawaii State, GO, Series CT, 5.875% due 9/01/2018 (c) 10,377
Illinois--6.0% Chicago, Illinois, GO (b):
AAA Aaa 5,000 5.50% due 1/01/2021 4,934
AAA Aaa 2,790 Series A, 6% due 1/01/2018 2,922
AAA Aaa 2,000 Series A, 6% due 1/01/2019 2,089
AAA Aaa 3,175 Series A, 6% due 1/01/2020 3,317
AAA Aaa 4,500 Illinois State, GO, First Series, 6% due 1/01/2018 (b) 4,713
Indiana--0.8% 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 (d) 2,383
Kansas--1.0% AA Aa1 2,950 Johnson County, Kansas, Unified School District
Number 229, GO, Series A, 5.50% due 10/01/2015 3,003
Kentucky--1.4% AA- Aa3 4,380 Fayette County, Kentucky, School District Finance
Corporation, School Building Revenue Bonds,
5.50% due 9/01/2019 4,383
Massachusetts AAA Aaa 5,000 Massachusetts Bay Transportation Authority,
--5.8% Massachusetts, Revenue Bonds (General Transportation System),
Series B, 5.25% due 3/01/2020 (c) 4,835
AAA Aaa 12,600 Massachusetts Route 3 North Transit Improvement
Association, Lease Revenue Bonds, 12,706
5.625% due 6/15/2021 (d)
Michigan--1.6% AAA Aaa 2,035 Boyne City, Michigan, Public School District, GO,
5.75% due 5/01/2017 (b) 2,093
AAA Aaa 2,665 Detroit, Michigan, Sewer Disposal Revenue Refunding
Bonds, Series A, 5.70% due 7/01/2013 (b) 2,732
Minnesota--4.8% Minneapolis & Saint Paul, Minnesota, Metropolitan
Airports Commission, Airport Revenue Bonds,
AMT, Series B (b):
AAA Aaa 4,205 6.125% due 1/01/2015 4,451
AAA Aaa 5,570 6.125% due 1/01/2016 5,869
NR* Aaa 4,015 Sauk Rapids, Minnesota, Independent School
District Number 47, GO, Series A, 5.65% due 2/01/2019 (d) 4,068
Mississippi BBB- Ba1 4,450 Mississippi Business Finance Corporation, Mississippi,
--1.3% PCR, Refunding (System Energy Resources Inc. Project),
5.875% due 4/01/2022 4,082
Missouri--0.7% AAA Aaa 2,000 Cape Girardeau, Missouri, School District Number 063,
GO (Missouri Direct Deposit Program), 5.50% due 3/01/2018 (b) 2,016
Nevada--1.4% AAA Aaa 4,000 Las Vegas New Convention and Visitors Authority Revenue
Bonds, 5.75% due 7/01/2018 (a) 4,086
New Jersey--2.9% AAA Aaa 2,750 New Jersey State Highway Authority, Garden State Parkway
General Revenue Refunding Bonds, 6% due 1/01/2019 (g) 2,943
AAA Aaa 5,000 New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Refunding Bonds, Series B,
6.50% due 6/15/2010 (d) 5,669
</TABLE>
MuniHoldings Insured Fund, Inc., October 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <S> <S> <C> <S> <C>
New York--19.2% A1+c VMIG1++ $ 3,300 Long Island Power Authority, New York, Electric
System Revenue Bonds, VRDN, Sub-Series 5,
4.55% due 5/01/2033 (f) $ 3,300
AAA Aaa 5,000 Metropolitan Transportation Authority, New York,
Commuter Facilities Revenue Bonds, Series A,
5% due 7/01/2023 (c) 4,611
AAA Aaa 10,000 Nassau Health Care Corporation, New York, Health
System Revenue Bonds, 5.75% due 8/01/2022 (c) 10,135
AAA Aaa 8,000 New York City, New York, City Municipal Water
Finance Authority, Water and Sewer System 7,885
Revenue Refunding Bonds, Series A, 5.50% due 6/15/2024 (b)
New York City, New York, GO, Refunding:
AAA Aaa 6,250 Series C, 5.875% due 2/01/2016 (d) 6,495
AAA Aaa 5,355 Series D, 5.25% due 8/01/2021 (b) 5,164
AAA NR* 7,500 Series G, 5.75% due 2/01/2017 (c) 7,687
AAA Aaa 7,085 New York City, New York, GO, Series G, 5.75% due 10/15/2012 (c) 7,474
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) 5,035
North AAA Aaa 3,185 Charlotte, North Carolina, Airport Revenue Bonds, AMT,
Carolina--2.3% Series B, 6% due 7/01/2017 (d) 3,296
A1+ NR* 3,600 Raleigh Durham, North Carolina, Airport Authority, Special
Facility Revenue Refunding Bonds (American Airlines Inc.),
VRDN, Series A, 4.60% due 11/01/2015 (f) 3,600
Ohio--1.1% AA A1 3,160 Ohio State Turnpike Commission, Turnpike Revenue Bonds,
Series A, 5.50% due 2/15/2012 3,235
Oklahoma--0.1% A1+ VMIG1++ 300 Oklahoma State Industries Authority, Revenue
Refunding Bonds (Integris Baptist), VRDN,
Series B, 4.60% due 8/15/2029 (d)(f) 300
Oregon--1.0% Portland, Oregon, Urban Renewal and Redevelopment
Tax Allocation Bonds (Oregon Convention
Center), Series A (a):
NR* Aaa 1,400 5.75% due 6/15/2015 1,469
NR* Aaa 1,150 5.75% due 6/15/2018 1,187
Pennsylvania AAA Aaa 4,000 Philadelphia, Pennsylvania, Gas Works Revenue
--1.3% Refunding Bonds, 15th Series, 5.25% due
8/01/2021 (c) 3,829
Rhode Island NR* Aaa 5,000 Providence, Rhode Island, Redevelopment Agency,
--3.0% Revenue Refunding Bonds (Public Safety and
Municipal Buildings), Series A, 5.75% due 4/01/2019 (a) 5,106
AAA Aaa 4,000 Rhode Island State, Consolidated Capital Development
Loan, GO, Series A, 5.50% due 7/15/2018 (b) 4,010
Tennessee--0.9% AA Aa2 2,700 Knox County, Tennessee, Public Improvement, GO,
5.375% due 5/01/2018 2,674
Texas--5.5% AAA Aaa 4,550 Austin, Texas, Utility System Revenue Refunding
Bonds, 5.125% due 11/15/2020 (c) 4,315
Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Refunding
Bonds (Methodist Hospital), VRDN (f):
A1+ NR* 11,500 4.60% due 12/01/2025 11,500
A1+ NR* 300 4.60% due 12/01/2026 300
A1+c VMIG1++ 600 Sabine River Authority, Texas, PCR, Refunding
(Texas Utilities Electric Company Project), VRDN,
Series A, 4.60% due 3/01/2026 (a)(f) 600
Utah--0.4% A1c VMIG1++ 1,200 Emery County, Utah, PCR, Refunding (Pacificorp Projects),
VRDN, 4.60% due 11/01/2024 (a)(f) 1,200
Virginia--3.8% AAA Aaa 11,215 Virginia State, HDA, Commonwealth Mortgage Revenue
Bonds, AMT, Series A, Sub-Series A-4, 6.35% due 7/01/2018 (d) 11,459
Washington AAA NR* 6,095 King County, Washington, GO, Refunding, 5.25% due 12/01/2005 (d) 6,272
--3.8% AAA Aaa 5,000 Seattle, Washington, GO, Series A, 5.75% due 1/15/2017 (d) 5,092
Wyoming--0.5% AA NR* 1,500 Wyoming Student Loan Corporation, Student Loan Revenue
Refunding Bonds, Series A, 6.20% due 6/01/2024 1,564
Puerto Rico NR* Aaa 5,000 Puerto Rico Commonwealth, GO, RIB, Series 365, 7.89%
--5.2% due 7/01/2029 (d)(e) 5,338
AAA Aaa 10,000 Puerto Rico Commonwealth, GO, Refunding, 5.831% due
7/01/2020 (c) 10,171
Total Investments (Cost--$287,819)--98.7% 296,527
Other Assets Less Liabilities--1.3% 4,049
--------
Net Assets--100.0% $300,576
========
(a)AMBAC Insured.
(b)FGIC Insured.
(c)FSA Insured.
(d)MBIA Insured.
(e)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at October 31, 2000.
(f)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at October 31, 2000.
(g)Escrowed to maturity.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
MuniHoldings Insured Fund, Inc., October 31, 2000
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of October 31, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$287,818,582) $296,527,436
Cash 77,248
Interest receivable 4,264,265
Prepaid expenses 1,446
------------
Total assets 300,870,395
------------
Liabilities: Payables:
Dividends to shareholders $ 152,977
Investment adviser 93,753 246,730
------------
Accrued expenses 47,408
------------
Total liabilities 294,138
------------
Net Assets: Net assets $300,576,257
============
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 851,762
Accumulated realized capital losses on investments--net (32,970,324)
Accumulated distributions in excess of realized
capital gains on investments--net (1,499,177)
Unrealized appreciation on investments--net 8,708,854
------------
Total--Equivalent to $12.95 net asset value per
share of Common Stock (market price--$11.375) 166,576,257
------------
Total capital $300,576,257
============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended October 31, 2000
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 8,356,888
Income:
Expenses: Investment advisory fees $ 819,566
Commission fees 166,496
Accounting services 72,990
Professional fees 40,494
Transfer agent fees 18,800
Directors' fees and expenses 12,945
Printing and shareholder reports 12,648
Listing fees 11,879
Custodian fees 11,071
Pricing fees 4,908
Other 10,500
------------
Total expenses before reimbursement 1,182,297
Reimbursement of expenses (281,687)
------------
Total expenses after reimbursement 900,610
------------
Investment income--net 7,456,278
------------
Realized loss on investments--net (2,551,378)
Change in unrealized appreciation/depreciation on investments--net 11,157,872
------------
Net Increase in Net Assets Resulting from Operations $ 16,062,772
============
See Notes to Financial Statements.
</TABLE>
MuniHoldings Insured Fund, Inc., October 31, 2000
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Oct. 31, 2000 April 30, 2000
<S> <S> <C> <C>
Operations: Investment income--net $ 7,456,278 $ 14,817,137
Realized loss on investments--net (2,551,378) (31,712,691)
Change in unrealized appreciation/depreciation
on investments--net 11,157,872 (4,443,093)
------------ ------------
Net increase (decrease) in net assets resulting
from operations 16,062,772 (21,338,647)
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (4,814,982) (10,599,091)
Shareholders: Preferred Stock (2,765,841) (4,572,123)
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 (7,580,823) (16,670,391)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions: reinvestment of dividends and distributions -- 401,621
------------ ------------
Net Assets: Total increase (decrease) in net assets 8,481,949 (37,607,417)
Beginning of period 292,094,308 329,701,725
------------ ------------
End of period* $300,576,257 $292,094,308
============ ============
* Undistributed investment income--net $ 851,762 $ 976,307
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived For the Six For the For the Period
from information provided in the financial statements. Months Ended Year Ended May 1, 1998++ to
Increase (Decrease) in Net Asset Value: Oct. 31, 2000 April 30, 2000 April 30, 1999
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.29 $ 15.25 $ 15.00
Operating ---------------- ---------------- ----------------
Performance: Investment income--net .57 1.17 1.20
Realized and unrealized gain (loss)
on investments--net .67 (2.82) .61
---------------- ---------------- ----------------
Total from investment operations 1.24 (1.65) 1.81
---------------- ---------------- ----------------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net (.37) (.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 (.37) (.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 (.21) (.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 (.21) (.39) (.47)
---------------- ---------------- ----------------
Net asset value, end of period $ 12.95 $ 12.29 $ 15.25
================ ================ ================
Market price per share,
end of period $ 11.375 $ 11.00 $ 14.4375
================ ================ ================
Total Investment Based on market price per share 6.82%+++ (17.87%) 3.19%+++
Return:** ================ ================ ================
Based on net asset value per share 8.84%+++ (13.13%) 8.99%+++
================ ================ ================
Ratios Based on Total expenses, net of reimbursement*** 1.11%* 1.28% .78%
Average Net Assets ================ ================ ================
Of Common Stock: Total expenses*** 1.45%* 1.39% 1.18%
================ ================ ================
Total investment income--net*** 9.15%* 8.87% 7.73%
================ ================ ================
Amount of dividends to
Preferred Stock shareholders 3.39%* 2.74% 1.73%
================ ================ ================
Investment income--net, to
Common Stock shareholders 5.76%* 6.13% 6.00%
================ ================ ================
Ratios Based Total expenses, net of reimbursement .60%* .71% .48%
on Total ================ ================ ================
Average Net Total expenses .79%* .77% .72%
Assets:***++++++ ================ ================ ================
Total investment income--net 5.00%* 4.93% 4.71%
================ ================ ================
Ratios Based on Dividends to Preferred
Average Net Stock shareholders 4.09%* 3.42% 2.70%
Assets Of ================ ================ ================
Preferred Stock:
Supplemental Data: Net assets, net of Preferred Stock,
end of period (in thousands) $ 166,576 $ 158,094 $ 195,702
================ ================ ================
Preferred Stock outstanding,
end of period (in thousands) $ 134,000 $ 134,000 $ 134,000
================ ================ ================
Portfolio turnover 58.97% 189.96% 180.85%
================ ================ ================
Leverage: Asset coverage per $1,000 $ 2,243 $ 2,180 $ 2,460
================ ================ ================
Dividends Per Series A--Investment income--net $ 508 $ 854 $ 631
Share on ================ ================ ================
Preferred Series B--Investment income--net $ 524 $ 852 $ 658
Stock Outstanding: ================ ================ ================
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales charges. If applicable, 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 andPreferred Stock average net assets.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
MuniHoldings Insured Fund, Inc., October 31, 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 conformity with accounting principles generally accepted
in the United States of America, which may require the use of
management accruals and estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of
management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal,
recurring nature. The Fund's Common Stock is listed on the New York
Stock Exchange under the symbol MUS. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of
such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of
options traded in the over-counter-market, valuation is the last
asked price (options written) or the last bid price (options
purchased). Securities with remaining maturities of sixty days or
less are valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio 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.
* 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.
* 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.
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 six months ended October 31, 2000, FAM
earned fees of $819,566, of which $281,687 was waived.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended October 31, 2000 were $165,839,506 and
$190,497,712, respectively.
Net realized losses for the six months ended October 31, 2000 and
net unrealized gains as of October 31, 2000 were as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (2,551,378) $ 8,708,854
------------- ------------
Total $ (2,551,378) $ 8,708,854
============= ============
As of October 31, 2000, net unrealized appreciation for Federal
income tax purposes aggregated $8,708,854, of which $9,050,002
related to appreciated securities and $341,148 related to
depreciated securities. The aggregate cost of investments at October
31, 2000 for Federal income tax purposes was $287,818,582.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of holders of Common Stock.
Common Stock
Shares issued and outstanding during the six months ended October
31, 2000 remained constant and for the year ended April 30, 2000
increased by 34,604 as a result of dividend reinvestment.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund, with a par value of $.10 per share and a
liquidation preference of $25,000 per share, that entitle their
holders to receive cash dividends at an annual rate that may vary
for the successive dividend periods. The yields in effect at October
31, 2000 were as follows: Series A, 3.85% and Series B, 4.05%.
Shares issued and outstanding during the six months ended October
31, 2000 and for the year ended April 30, 2000 remained constant.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from .25% to .375%,
calculated on the proceeds of each auction. For the six months ended
October 31, 2000, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, an affiliate of FAM, earned $217,694 as commissions.
5. Capital Loss Carryfoward:
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 November 8, 2000, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.060932 per share, payable on November 29, 2000 to shareholders
of record as of November 20, 2000.
MuniHoldings Insured Fund, Inc., October 31, 2000
QUALITY PROFILE (unaudited)
The quality ratings of securities in the Fund as of October 31, 2000
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 82.5%
AA/Aa 6.7
BBB/Baa 2.1
Other++ 7.4
++Temporary investments in short-term municipal securities.
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.
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
Roscoe S. Suddarth, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Vincent R. Giordano, Senior Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
Donald C. Burke, Vice President and
Treasurer
Jodi M. Pinedo, 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
