MUNIHOLDINGS
CALIFORNIA
INSURED
FUND IV, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
March 31, 1999
<PAGE>
MuniHoldings California Insured Fund IV, Inc.
The Benefits and Risks of Leveraging
MuniHoldings California Insured Fund IV, 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 issuance of Preferred Stock for an additional $50 million,
creating a total value of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are approximately 3%
and long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million of Preferred
Stock based on the lower short-term interest rates. At the same time, the fund's
total portfolio of $150 million earns the income based on long-term interest
rates. Of course, increases in short-term interest rates would reduce (and even
eliminate) the dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term investments,
and therefore the Common Stock shareholders are the beneficiaries of the
incremental yield. However, if short-term interest rates rise, narrowing the
differential between short-term and long-term interest rates, the incremental
yield pickup on the Common Stock will be reduced or eliminated completely. At
the same time, the market value on the fund's Common Stock (that is, its price
as listed on the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common Stock's net asset
value will reflect the full decline in the price of the portfolio's investments,
since the value of the fund's Preferred Stock does not fluctuate. In addition to
the decline in net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed-rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in these securities.
<PAGE>
MuniHoldings California Insured Fund IV, Inc., March 31, 1999
DEAR SHAREHOLDER
We are pleased to provide you with this first semi-annual report for
MuniHoldings California Insured Fund IV, Inc. In this and future reports to
shareholders, we will highlight the Fund's performance and describe recent
investment activities. The Fund seeks to provide shareholders with current
income exempt from Federal and California income taxes by investing primarily in
a portfolio of long-term, investment-grade municipal obligations.
Since inception (January 29, 1999) through March 31, 1999, the Common Stock of
MuniHoldings California Insured Fund IV, Inc. had earned and unpaid dividends of
$0.132 per share. This represents a net annualized yield of 5.20%, based on a
month-end per share net asset value of $14.94. Over the same period, the total
investment return on the Fund's Common Stock was -0.40%, based on a change in
per share net asset value from $15.00 to $14.94.
For the period January 29, 1999 through March 31, 1999, the Fund's Preferred
Stock had an average yield of 2.66% for Series A and 2.65% for Series B.
The Municipal Market Environment
Since the Fund's inception (January 29, 1999) through March 31, 1999, long-term
tax-exempt revenue bond yields were little changed. However, long-term US
Treasury bond yields were under significant pressure throughout the March
period. Investors became increasingly concerned that the strong growth the US
economy displayed during the fourth quarter in 1998 would continue into the
first half of 1999. Continued strong US equity market performance also reduced
investor interest in long-term fixed-income products. Furthermore, foreign
economic growth, while clearly not expanding, appears to have stabilized. This
reduced much of the strong "flight to quality" benefit the US Treasury market
had enjoyed in recent quarters. These factors helped push US Treasury bond
yields higher throughout the period. US Treasury bond yields rose 50 basis
points (0.50%) to end the March period at 5.625%. Long-term municipal revenue
bond yields rose less than 5 basis points to end the March period at 5.29% as
measured by the Bond Buyer Revenue Bond Index.
The relative stability of the municipal bond market in recent months was largely
the result of a return to a strong technical position within the tax-exempt
market. For much of 1998, new long-term municipal bond issuance was
significantly above recent historic trends. Additionally, the strong demand
exerted by world equity markets also sapped much of the demand for
tax-advantaged products. However, in recent months, a much stronger
supply/demand relationship has developed.
Over the last 12 months, nearly $275 billion in new long-term municipal bonds
was issued, an increase of approximately 10% compared to the same period a year
ago. As interest rates declined in recent quarters, it has become increasingly
difficult for municipalities to generate the economic savings necessary for
additional tax-free financings. Consequently, the pace of new bond issuance
slowed in recent quarters. During the six months ended March 31, 1999, more than
$125 billion in new long-term municipal securities was underwritten, a decrease
of 6% compared to the same six-month period a year ago. During the quarter ended
March 31, 1999, approximately $60 billion in new long-term tax-exempt bonds was
issued, a decline of almost 20% compared to the quarter ended March 31, 1998.
Additionally, in January and February, tax-exempt bond holders received over $40
billion from coupon payments, bond maturities and proceeds from early bond
redemptions. Consequently, retail investor demand has been strong in recent
months, easily matching, if not at times exceeding, available supply. We will
monitor this trend closely in the coming months to determine if the supply
pressures exerted in 1998 are abating and fostering a more balanced supply/
demand environment for 1999.
The recent relative outperformance of the municipal bond market has resulted in
a decline in their recent historic high yield ratios. As recently as the end of
1998, long-term, A-rated municipal revenue bond yields were in excess of 100% of
comparable US Treasury bond yields. At March 31, 1999, municipal bond yield
ratios were approximately 95% of their taxable counterparts, still well above
their recent historic average. During 1997, tax-exempt bond yield ratios
averaged 84%. Should the current positive technical environment in municipal
securities continue to improve, it is likely that tax-exempt bond yield ratios
will return to more historic levels.
Looking ahead, the direction and intensity of the next move in interest rates is
difficult to predict. In recent years, US bond yields tended to reach their
annual peak sometime in April and move downward for the remainder of the year.
However, such trends have been predicated on subsequent declines in US economic
activity. Currently, there appears to be little indication of significant
economic weakness going forward. On the other hand, by nearly every measure,
inflation is well contained. Future indicators of inflation, such as the prices
of gold and other commodities, are giving little evidence for any significant
inflationary increase. Additionally, inflation-adjusted real rates of return are
historically attractive to long-term investors. These factors suggest that
fixed-income bond yields may trade in a relatively narrow range, centered around
current levels, for a protracted period of time. Should the US economy weaken
later this year, it is likely that bond yields will decline as they have in
recent years.
Portfolio Strategy
Since its inception, we have focused on committing the Fund's initial proceeds
in the long-term and intermediate-term maturity range of the California insured
municipal market. Interest rates in the taxable arena, and to a much lesser
degree in the municipal market, have risen since the Fund commenced operations.
Therefore, we had to proceed carefully in making our initial investments in
order to seek to protect the portfolio's net asset valuation. More of the
proceeds were concentrated in shorter maturity municipal bonds than would
otherwise be the case if the fixed-income market had been more stable. Our goal
is to have the Fund invested while tempering the impact of rising interest rates
in order that the Fund can begin profiting from the leverage effect of
delivering a higher average current return to its Common Stock shareholders.
(For an explanation of the benefits and risks of leveraging, see page 1 of this
report to shareholders.)
As a result of inordinately tight credit quality spreads, we deliberately
underweighted the Fund's exposure to uninsured bonds. Our portfolio currently
reflects a balance of long-term and short-term holdings, with a high degree of
credit quality. Once interest rates have stabilized, we plan to recommit a
larger portion of Fund assets to longer-term, higher-yielding California bonds.
In Conclusion
We appreciate your investment in MuniHoldings California Insured Fund IV, Inc.,
and we look forward to assisting you with your financial needs in the months and
years ahead.
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
/s/ Walter C. O'Connor
Walter C. O'Connor
Vice President and Portfolio Manager
May 10, 1999
2 & 3
<PAGE>
MuniHoldings California Insured Fund IV, Inc., March 31, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
California--94.4% AAA Aaa $ 1,110 Alameda Corridor Transportation Authority, California, Revenue Bonds, Senior
Lien, Series A, 5% due 10/01/2010 (d) $ 1,172
-----------------------------------------------------------------------------------------------------------------
AAA NR* 1,000 Anaheim, California, Public Financing Authority Revenue Bonds (Electric
System District Facilities), 5% due 10/01/2023 (d) 990
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 5,390 Beverly Hills, California, Public Financing Authority, Lease Revenue
Refunding Bonds, Series A, 5.125% due 6/01/2016 (d) 5,540
-----------------------------------------------------------------------------------------------------------------
California HFA, Revenue Bonds, Home Mortgage, AMT:
AAA Aaa 3,000 Series J-2, 5.30% due 8/01/2016 (d) 3,025
AAA Aaa 5,000 Series R, 5.25% due 8/01/2026 (a) 5,000
-----------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,200 California Health Facilities Authority, Revenue Refunding Bonds
(Sutter/CHS), VRDN, Series C, 2.90% due 7/01/2022 (c)(e) 1,200
-----------------------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority Revenue Bonds:
AAA Aaa 2,000 (Kaiser Permanente), Series A, 5.50% due 6/01/2022 (c) 2,088
A1+ VMIG1+ 2,500 (Saint Joseph Health System), VRDN, Series B, 3% due 7/01/2009 (e) 2,500
-----------------------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Revenue Refunding Bonds:
A1+ VMIG1+ 3,300 (Adventist Hospital), VRDN, Series B, 2.80% due 9/01/2028 (e) 3,300
A1+ VMIG1+ 500 (Adventist Hospital), VRDN, Series C, 2.80% due 9/01/2015 (e) 500
AAA NR* 8,500 RIB, Series 90, 7.485% due 8/15/2028 (d)(f) 8,979
AAA Aaa 45 (Sutter Health), Series A, 5.35% due 8/15/2028 (d) 46
-----------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,500 California Pollution Control Financing Authority, PCR, Refunding (Pacific
Gas & Electric Corp.), VRDN, Series E, 3% due 11/02/2026 (e) 1,500
-----------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority, PCR, Refunding
(Southern California Edison), VRDN (e):
A1 VMIG1+ 3,600 Series A, 3.05% due 2/28/2008 3,600
A1 VMIG1+ 3,200 Series B, 3.05% due 2/28/2008 3,200
A1 P1 2,000 Series C, 3.05% due 2/28/2008 2,000
-----------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 2,200 California Pollution Control Financing Authority, Solid Waste Disposal
Revenue Bonds (Shell Martinez Refining), VRDN, AMT, Series A, 2.90% due
10/01/2031 (e) 2,200
-----------------------------------------------------------------------------------------------------------------
California State Economic Development Financing Authority Revenue Bonds
(California Independent Systems Project), VRDN (e):
A1+ VMIG1+ 2,300 Series A, 2.75% due 4/01/2008 2,300
A1+ VMIG1+ 4,800 Series C, 3% due 4/01/2008 4,800
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 15,135 California State, GO, Refunding, 5% due 2/01/2023 (b) 14,988
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 California State Public Works Board, Lease Revenue Refunding Bonds,
Department of Corrections, Series B, 5% due 9/01/2021 (d) 1,984
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 8,000 Central Coast Water Authority, California, Revenue Refunding Bonds (State
Water Project Regional Facilities), Series A, 5% due 10/01/2022 (a) 7,913
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 6,140 Contra Costa, California, Water District, Water Revenue Bonds, Series G, 5%
due 10/01/2024 (d) 6,053
-----------------------------------------------------------------------------------------------------------------
East Side Union High School District, California, Santa Clara County, GO,
Series E (b):
AAA Aaa 3,205 5% due 9/01/2022 3,179
AAA Aaa 5,655 5% due 9/01/2023 5,603
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 3,390 Fresno, California, Sewer Revenue Bonds, Series A, 5% due 9/01/2023 (d) 3,352
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Irvine, California, Public Facilities and Infrastructure Authority,
Assessment Revenue Refunding Bonds, Series A, 5.05% due 9/02/2022 (a) 5,991
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 4,600 La Quinta, California, Redevelopment Agency, Tax Allocation Refunding Bonds
(Redevelopment Project Area Number 1), 5.20% due 9/01/2028 (a) 4,681
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 10,650 Los Altos, California, School District, GO, Series A, 5% due 8/01/2023 (c) 10,531
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Los Angeles, California, Convention and Exhibition Center Authority, Lease
Revenue Refunding Bonds, Series A, 5.125% due 8/15/2021 (d) 3,010
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Los Angeles, California, GO, Refunding, Series A, 5.25% due 9/01/2011 (b) 1,074
-----------------------------------------------------------------------------------------------------------------
Los Angeles, California, Unified School District, GO, Series B (b):
AAA Aaa 10,345 5.375% due 7/01/2010 11,231
AAA Aaa 9,415 5% due 7/01/2023 9,323
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Los Angeles County, California, Metropolitan Transportation Authority,
Sales Tax Revenue Refunding Bonds, Proposition C, Second Senior-Series A,
5.50% due 7/01/2010 (a) 2,190
-----------------------------------------------------------------------------------------------------------------
A+ A2 4,500 Modesto, California, Irrigation District, COP, Refunding and Capital
Improvements, Series B, 5.30% due 7/01/2022 4,501
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Modesto, California, Irrigation District Financing Authority, Revenue
Refunding Bonds (Domestic Water Project), Series D, 5.125% due
9/01/2014 (a) 4,152
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,250 Northern California Power Agency, Multiple Capital Facilities Revenue
Refunding Bonds, Series A, 5% due 8/01/2025 (a) 2,221
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Pomona, California, Public Financing Authority, Revenue Refunding Bonds (SW
Pomona Redevelopment Project), Series W, 5% due 2/01/2024 (d) 1,980
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Sacramento, California, Municipal Utility District, Electric Revenue
Refunding Bonds, Series L, 5.10% due 7/01/2014 (a) 3,098
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 San Diego, California, Certificates of Unified Dividend Interest, Water
Utility Fund, Net System Revenue Bonds, 5% due 8/01/2021 (b) 1,984
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 San Diego, California, Public Facilities Financing Authority, Sewer Revenue
Bonds, 5% due 5/15/2025 (b) 9,856
-----------------------------------------------------------------------------------------------------------------
AAA NR* 5,825 San Diego County, California, COP, Refunding (Central Jail), 5% due
10/01/2025 (a) 5,749
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,650 San Dieguito, California, Public Facilities Authority Revenue Bonds, Series
A, 5% due 8/01/2023 (a) 2,624
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 5,400 San Francisco, California, City and County Airport Commission, International
Airport Revenue Bonds, Second Series, Issue 15B, 5% due 5/01/2024 (d) 5,346
-----------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
Portfolio Abbreviations
To simplify the listings of MuniHoldings California Insured Fund IV, Inc.'s
portfolio holdings in the Schedule of Investments, we have abbreviated the names
of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
MuniHoldings California Insured Fund IV, Inc., March 31, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
California AAA Aaa $ 3,460 San Francisco, California, City and County Airport Commission, International
(concluded) Airport Revenue Refunding Bonds, AMT, Second Series, Issue 16A, 5.50% due
5/01/2011 (c) $ 3,712
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 San Francisco, California, City and County, GO, Refunding, Series 1, 5.125%
due 6/15/2014 (b) 5,199
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 San Francisco, California, City and County Redevelopment Agency, Hotel Tax
Revenue Refunding Bonds, 5% due 7/01/2025 (c) 3,454
-----------------------------------------------------------------------------------------------------------------
AAA NR* 3,530 San Francisco, California, City and County Redevelopment Agency, M/F Housing
Revenue Bonds (1045 Mission Apartments), AMT, Series C, 5.25% due 12/20/2027
(g) 3,519
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 14,845 San Jose, California, Redevelopment Agency Tax Allocation (Merged Area
Redevelopment Project), 5% due 8/01/2026 (a) 14,648
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 8,000 Turlock, California, Irrigation District Revenue Refunding Bonds, Series A,
5% due 1/01/2026 (d) 7,895
====================================================================================================================================
Puerto Rico--3.1% AAA Aaa 6,825 Puerto Rico Public Finance Corporation Revenue Bonds, Commonwealth
Appropriation, Series A, 5.375% due 6/01/2010 (a) 7,407
====================================================================================================================================
Total Investments (Cost--$233,320)--97.5% 232,388
Variation Margin on Financial Futures Contracts**--0.0% 53
Other Assets Less Liabilities--2.5% 5,951
--------
Net Assets--100.0% $238,392
========
====================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at March 31, 1999.
(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 March 31, 1999.
(g) GNMA Collateralized.
* Not Rated.
** Financial futures contracts sold as of March 31, 1999 were as
follows:
---------------------------------------------------------------
(in Thousands)
---------------------------------------------------------------
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
---------------------------------------------------------------
100 US Treasury Bonds June 1999 $12,056
---------------------------------------------------------------
Total Financial Futures Contracts Sold
(Total Contract Price--$12,141) $12,056
=======
---------------------------------------------------------------
+ Highest short-term ratings by Moody's Investors Service, Inc.
See Notes to Financial Statements.
================================================================================
Quality Profile
The quality ratings of securities in the Fund as of March 31, 1999
were as follows:
---------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
---------------------------------------------------------
AAA/Aaa ..................................... 84.2%
A/A ......................................... 1.9
Other+ ...................................... 11.4
---------------------------------------------------------
+ Temporary investments in short-term municipal securities.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of March 31, 1999
===================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $233,319,570) (Note 1a) ................... $232,388,321
Cash ................................................................................ 129,778
Receivables:
Securities sold ................................................................... $ 7,636,422
Interest .......................................................................... 2,561,123
Variation margin (Note 1b) ........................................................ 53,125
Investment adviser (Note 2) ....................................................... 19,600 10,270,270
------------
Other assets ........................................................................ 19,000
------------
Total assets ........................................................................ 242,807,369
------------
===================================================================================================================================
Liabilities: Payables:
Securities purchased .............................................................. 3,992,680
Distributor (Note 2) .............................................................. 168,622 4,161,302
------------
Accrued expenses and other liabilities .............................................. 254,076
------------
Total liabilities ................................................................... 4,415,378
------------
===================================================================================================================================
Net Assets: Net assets .......................................................................... $238,391,991
============
===================================================================================================================================
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (3,640 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) ............... $ 91,000,000
Common Stock, par value $.10 per share (9,866,667 shares issued and outstanding) .. $ 986,667
Paid-in capital in excess of par .................................................... 145,897,961
Undistributed investment income -- net .............................................. 1,314,086
Undistributed realized capital gains on investments -- net .......................... 40,151
Unrealized depreciation on investments -- net ....................................... (846,874)
------------
Total -- Equivalent to $14.94 net asset value per Share of Common Stock
(market price--$14.875) ............................................................. 147,391,991
------------
Total capital ....................................................................... $238,391,991
============
===================================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings California Insured Fund IV, Inc., March 31, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period January 29, 1999+ to March 31, 1999
==================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned ................. $ 1,603,405
Income (Note 1d):
==================================================================================================================================
Expenses: Investment advisory fees (Note 2) ........................................ $ 165,425
Commission fees (Note 4) ................................................. 27,190
Accounting services (Note 2) ............................................. 8,139
Professional fees ........................................................ 5,234
Transfer agent fees ...................................................... 5,041
Directors' fees and expenses ............................................. 3,585
Custodian fees ........................................................... 2,227
Listing fees ............................................................. 2,129
Printing and shareholder reports ......................................... 1,521
Pricing fees ............................................................. 1,052
Other .................................................................... 1,222
------------
Total expenses before reimbursement ...................................... 222,765
Reimbursement of expenses (Note 2) ....................................... (185,025)
------------
Total expenses ........................................................... 37,740
------------
Investment income--net ................................................... 1,565,665
------------
==================================================================================================================================
Realized & Unrealized Realized gain on investments--net ........................................ 40,151
Gain (Loss) on Unrealized depreciation on investments--net .............................. (846,874)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ..................... $ 758,942
============
==================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
Jan. 29, 1999+ to
Increase (Decrease) in Net Assets: March 31, 1999
===================================================================================================================================
<S> <C> <C>
Operations: Investment income--net .................................................................. $ 1,565,665
Realized gain on investments--net ....................................................... 40,151
Unrealized depreciation on investments--net ............................................. (846,874)
-------------
Net increase in net assets resulting from operations .................................... 758,942
-------------
===================================================================================================================================
Dividends to Investment income--net to Preferred Stock shareholders .................................. (251,579)
Shareholders -------------
(Note 1e): Net decrease in net assets resulting from dividends to shareholders ..................... (251,579)
-------------
===================================================================================================================================
Capital Stock Proceeds from issuance of Common Stock .................................................. 147,900,000
Transactions Proceeds from issuance of Preferred Stock ............................................... 91,000,000
(Note 4): Offering costs resulting from the issuance of Common Stock .............................. (262,877)
Offering and underwriting costs resulting from the issuance of Preferred Stock .......... (852,500)
-------------
Net increase in net assets derived from capital stock transactions ...................... 237,784,623
-------------
===================================================================================================================================
Net Assets: Total increase in net assets ............................................................ 238,291,986
Beginning of period ..................................................................... 100,005
-------------
End of period* .......................................................................... $ 238,391,991
=============
===================================================================================================================================
*Undistributed investment income--net .................................................... $ 1,314,086
=============
===================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings California Insured Fund IV, Inc., March 31, 1999
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
Jan. 29, 1999+ to
Increase (Decrease) in Net Asset Value: March 31, 1999
===============================================================================================================================
<S> <C> <C>
Per Share Net asset value, beginning of period ................................................ $ 15.00
Operating ------------
Performance: Investment income--net .............................................................. .16
Realized and unrealized loss on investments--net .................................... (.07)
------------
Total from investment operations .................................................... .09
------------
Capital charge resulting from issuance of Common Stock .............................. (.03)
------------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income--net .......................................................... (.03)
Capital charge resulting from issuance of Preferred Stock ......................... (.09)
------------
Total effect of Preferred Stock activity ............................................ (.12)
------------
Net asset value, end of period ...................................................... $ 14.94
============
Market price per share, end of period ............................................... $ 14.875
============
===============================================================================================================================
Total Investment Based on market price per share ..................................................... (.83%)+++
Return:** ============
Based on net asset value per share .................................................. (.40%)+++
============
===============================================================================================================================
Ratios to Average Expenses, net of reimbursement ...................................................... .13%*
Net Assets:*** ============
Expenses ............................................................................ .74%*
============
Investment income--net .............................................................. 5.21%*
============
===============================================================================================================================
Supplemental Data: Net assets, net of Preferred Stock, end of period (in thousands) .................... $ 147,392
============
Preferred Stock outstanding, end of period (in thousands) ........................... $ 91,000
============
Portfolio turnover .................................................................. 34.59%
============
===============================================================================================================================
Leverage: Asset coverage per $1,000 ........................................................... $ 2,620
===============================================================================================================================
Dividends Per Series A--Investment income--net .................................................... $ 69
Share on Preferred ============
Stock Outstanding: Series B--Investment income--net .................................................... $ 69
============
===============================================================================================================================
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
*** Do not reflect the effect of dividends to Preferred Stock
shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on February 22, 1999.
+++ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings California Insured Fund IV, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. Prior to commencement of operations on January
29, 1999, the Fund had no operations other than those relating to organizational
matters and the sale of 6,667 shares of Common Stock on January 13, 1999 to Fund
Asset Management, L.P. ("FAM") for $100,005. The Fund's Common Stock is listed
on the New York Stock Exchange under the symbol CIL. The following is a summary
of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general supervision of the
Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a 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
10 & 11
<PAGE>
MuniHoldings California Insured Fund IV, Inc., March 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM. The general
partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.55% of the Fund's average weekly net assets, including
issuance of Preferred Stock. For the period January 29, 1999 to March 31, 1999,
FAM earned fees of $165,425, all of which was voluntarily waived. FAM also
reimbursed the Fund additional expenses of $19,600.
During the period January 29, 1999 to March 31, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, received
underwriting fees of $682,500 in connection with the issuance of the Fund's
Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period January 29, 1999 to March 31, 1999 were $267,048,297 and $60,455,722,
respectively.
Net realized gains (losses) for the period January 29, 1999 to March 31, 1999
and net unrealized gains (losses) as of March 31, 1999 were as follows:
- ------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- ------------------------------------------------------------------------------
Long-term investments ....................... $ (352,161) $ (931,249)
Foreign financial futures ................... 392,312 84,375
----------- -----------
Total ....................................... $ 40,151 $ (846,874)
=========== ===========
- ------------------------------------------------------------------------------
As of March 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $931,249, of which $87,900 related to appreciated securities
and $1,019,149 related to depreciated securities. The aggregate cost of
investments at March 31, 1999 for Federal income tax purposes was $233,319,570.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of holders of
Common Stock.
Common Stock
Shares issued and outstanding during the period January 29, 1999 to March 31,
1999 increased by 9,860,000 from shares sold.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.10 per share and a liquidation preference of $25,000
per share that entitle their holders to receive cash dividends at an annual rate
that may vary for the successive dividend periods. The yields in effect at March
31, 1999 were as follows: Series A, 3.20% and Series B, 2.75%.
In connection with the offering of AMPS, the Board of Directors has reclassified
3,640 shares of unissued capital stock as AMPS. Shares issued and outstanding
during the period January 29, 1999 to March 31, 1999 increased by 3,640 as a
result of the AMPS offering.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the period January 29, 1999 to March 31, 1999, MLPF&S, an
affiliate of FAM, earned $21,626 as commissions.
5. Subsequent Event:
On April 8, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.132085 per share,
payable on April 29, 1999 to shareholders of record as of April 22, 1999.
12 & 13
<PAGE>
MuniHoldings California Insured Fund IV, Inc., March 31, 1999
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. However, in order to
provide shareholders with a more consistent yield to the current trading price
of shares of Common Stock of the Fund, the Fund may at times pay out less than
the entire amount of net investment income earned in any particular month and
may at times in any particular month pay out such accumulated but undistributed
income in addition to net investment income earned in that month. As a result,
the dividends paid by the Fund for any particular month may be more or less than
the amount of net investment income earned by the Fund during such month. The
Fund's current accumulated but undistributed net investment income, if any, is
disclosed in the Statement of Assets, Liabilities and Capital, which comprises
part of the financial information included in this report.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
Walter C. O'Connor, Vice President
Donald C. Burke, Vice President and Treasurer
William E. Zitelli, Secretary
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Transfer Agents
Common Stock:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Preferred Stock:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
CIL
14 & 15
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of MuniHoldings California Insured Fund IV, Inc. for their
information. It is not a prospectus, circular or representation intended for use
in the purchase of shares of the Fund or any securities mentioned in the report.
Past performance results shown in this report should not be considered a
representation of future performance. The Fund has the ability to leverage its
Common Stock by issuing Preferred Stock to provide the Common Stock shareholders
with a potentially higher rate of return. Leverage creates risks for Common
Stock shareholders, including the likelihood of greater volatility of net asset
value and market price of shares of the Common Stock, and the risk that
fluctuations in the short-term dividend rates of the Preferred Stock may affect
the yield to Common Stock shareholders. Statements and other information herein
are as dated and are subject to change.
MuniHoldings California
Insured Fund IV, Inc.
Box 9011
Princeton, NJ
08543-9011 CAINS 4--3/99
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