MUNIHOLDINGS
PENNSYLVANIA
INSURED FUND
FUND LOGO
Annual Report
September 30, 1999
Officers and Trustees
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
William R. Bock, Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
Donald C. Burke, Vice President and
Treasurer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Shares:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Shares:
The Bank of New York
100 Church Street
New York, NY 10286
AMEX Symbol
MPI
This report, including the financial information herein, is
transmitted to the shareholders of MuniHoldings Pennsylvania Insured
Fund 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 Shares by issuing Preferred Shares to provide
the Common Shareholders with a potentially higher rate of return.
Leverage creates risks for Common Shareholders, including the
likelihood of greater volatility of net asset value and market price
of shares of the Common Shares, and the risk that fluctuations in
the short-term dividend rates of the Preferred Shares may affect the
yield to Common Shareholders. Statements and other information
herein are as dated and are subject to change.
MuniHoldings Pennsylvania
Insured Fund
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MUNIHOLDINGS PENNSYLVANIA INSURED FUND
The Benefits and
Risks of
Leveraging
MuniHoldings Pennsylvania Insured Fund has the ability to leverage
to seek to enhance the yield and net asset value of its Common
Shares. However, these objectives cannot be achieved in all interest
rate environments. To leverage, the Fund issues Preferred Shares,
which pay 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 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
Shares. However, in order to benefit Common 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
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 Shares
capitalization of $100 million and the issuance of Preferred Shares
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 Shares 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 Shares.
In this case, the dividends paid to Preferred Shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common 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 Shares will be reduced or eliminated completely. At the same
time, the market value of the fund's Common Shares (that is, their
price as listed on the American Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Shares' net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Shares does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Shares 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 net
asset value of the Fund's shares may also be more volatile than if
the Fund did not invest in these securities.
MuniHoldings Pennsylvania Insured Fund, September 30, 1999
DEAR SHAREHOLDER
Since inception (February 26, 1999) through September 30, 1999, the
Common Shares of MuniHoldings Pennsylvania Insured Fund earned
$0.460 per share income dividends, which included earned and unpaid
dividends of $0.065. This represents a net annualized yield of
5.96%, based on a month-end net asset value of $12.98 per share.
During the same period, the total investment return on the Fund's
Common Shares was -10.91%, based on a change in per share net asset
value from $15.00 to $12.98, and assuming reinvestment of $0.395 per
share income dividends.
For the six-month period ended September 30, 1999, the Fund's
Auction Market Preferred Shares had an average yield of 3.30%.
The Municipal Market Environment
The combination of steady strong domestic economic growth,
improvement in foreign economies (most notably in Japan) and
increasing investor concerns regarding potential increases in US
inflation put upward pressure on bond yields throughout the six-
month period ended September 30, 1999. Continued strong US
employment growth, particularly the decline in the US unemployment
rate to 4.2% in early June, was among the reasons the Federal
Reserve Board cited for raising short-term interest rates in late
June and again in late August. US Treasury bond yields reacted by
climbing above 6.25% by mid-August before improving somewhat to
6.05% by September 30, 1999. During the period, yields on 30-year US
Treasury bonds increased over 40 basis points (0.40%).
Long-term tax-exempt bond yields also rose during the six months
ended September 30, 1999. Until early May, the municipal bond market
was able to withstand much of the upward pressure on bond yields.
However, investor concerns of additional moves by the Federal
Reserve Board to moderate US economic growth and, more importantly,
the loss of the strong technical support that the tax-exempt market
enjoyed in early 1999 helped push municipal bond yields
significantly higher for the remainder of the period. The yields on
long-term tax-exempt revenue bonds rose over 65 basis points to
5.96% by September 30, 1999, as measured by the Bond Buyer Revenue
Bond Index.
In recent months, the significant decline in new tax-exempt bond
issuance has remained a positive factor within the municipal bond
market, as it had been for much of the past year. During the last
six months, more than $113 billion in long-term municipal bonds was
issued, a decline of over 20% compared to the same period a year
ago. During the past three months, $55 billion in municipal bonds
was underwritten, representing a decline of nearly 15% compared to
the corresponding period in 1998. Additionally, in June and July,
investors received more than $40 billion in coupon income and
proceeds from bond maturities and early bond redemptions. These
proceeds have generated considerable retail investor interest, which
has helped absorb the recent diminished supply.
Although tax-exempt bond yields are at their highest level in over
two years and have attracted significant retail investor interest,
institutional demand has declined sharply. Long-term municipal
mutual funds have seen consistent outflows in recent months as the
yields of individual securities have risen faster than those of
larger, more diverse mutual funds. In addition, the demand from
property/casualty insurance companies has weakened as a result of
the losses, and anticipated losses, incurred as a result of the
series of damaging storms across much of the eastern United States.
Additionally, many institutional investors who were attracted to the
municipal bond market in recent years by historically attractive tax-
exempt bond yield ratios of over 90% have found other asset classes
even more attractive. Even with a reduced supply position, tax-
exempt issuers have been forced to repeatedly raise municipal bond
yields in the attempt to attract adequate demand.
The recent relative underperformance of the municipal bond market
has resulted in an opportunity for long-term investors to purchase
tax-exempt issues whose yields are nearly identical to taxable US
Treasury securities. At September 30, 1999, long-term uninsured
municipal revenue bond yields were almost 99% of comparable US
Treasury securities. In recent months, many taxable asset classes,
such as corporate bonds, mortgage-backed securities and US agency
debt, have all accelerated debt issuance. This acceleration was
initiated largely to avoid issuing securities at year-end and to
minimize any associated Year 2000 (Y2K) problems that may develop.
However, this increased issuance has also resulted in higher yield
levels in the various asset classes as lower bond prices became
necessary to attract sufficient investor demand. Going forward, it
is believed that the pace of non-US Government debt issuance is
likely to slow significantly. As the supply of this debt declines,
we would expect many institutional investors to return to the
municipal bond market and the attractive yield ratios available.
Looking ahead, it appears to us that long-term municipal bond yields
will remain under pressure, trading in a broad range centered near
current levels. Investors are likely to remain concerned about
future action by the Federal Reserve Board. Y2K considerations may
prohibit a series of Federal Reserve Board moves at the end of the
year and the beginning of 2000. Any improvement in bond prices will
probably be contingent upon weakening in both US employment growth
and consumer spending. The 100 basis point rise in US Treasury bond
yields seen thus far this year may negatively affect US economic
growth. The US housing market will be among the first sectors likely
to be affected, as some declines have already been evidenced in
response to higher mortgage rates. We believe that it is also
unrealistic to expect double-digit returns in US equity markets to
continue indefinitely. Much of the US consumer's wealth is tied to
recent stock market appreciation. Any slowing in these incredible
growth rates is likely to reduce consumer spending. We believe that
these factors suggest that the worst of the recent increase in bond
yields has passed and stable, if not slightly improving, bond prices
may be expected.
In Conclusion
On September 23, 1999, MuniHoldings Pennsylvania Insured Fund's
Board of Trustees approved a plan of reorganization, subject to
shareholder approval and certain other conditions, whereby MuniYield
Pennsylvania Fund would acquire substantially all of the assets and
liabilities of the Fund and MuniVest Pennsylvania Insured Fund in
exchange for newly issued shares of MuniYield Pennsylvania Fund.
These Funds are registered, non-diversified, closed-end management
investment companies. All three entities have similar investment
objectives and are managed by Fund Asset Management, L.P.
We appreciate your investment in MuniHoldings Pennsylvania Insured
Fund.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(William R. Bock)
William R. Bock
Vice President and Portfolio Manager
October 26, 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 the Fund's Common Shares, 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.
MuniHoldings Pennsylvania Insured Fund, September 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Pennsylvania-- NR* VMIG1++ $ 1,355 Allegheny County, Pennsylvania, Hospital Development Authority
96.6% Revenue Bonds (Presbyterian University Hospital), ACES,
Series B-3, 3.85% due 3/01/2018 (f) $ 1,355
AAA Aaa 1,000 Bucks County, Pennsylvania, IDA, Revenue Refunding Bonds
(Grand View Hospital), Series A, 5.25% due 7/01/2021 (a) 915
NR* Aaa 1,000 Bucks County, Pennsylvania, Water and Sewer Authority, Revenue
Refunding Bonds(Neshaminy Interceptor Sewer System), 5.60%
due 6/01/2024 (a) 973
AAA NR* 1,295 Deer Lakes School District, Pennsylvania, GO, Series A,
5.25% due 1/15/2017 (c) 1,227
AAA NR* 1,200 Erie, Pennsylvania, Parking Authority, Parking Facilities
Revenue Refunding Bonds, Series B, 5.125% due 9/01/2020 (d) 1,096
A1+ VMIG1++ 1,300 Geisinger Authority, Pennsylvania, Health System Revenue
Refunding Bonds (Penn State--Geisinger Health), VRDN, Series B,
3.90% due 8/15/2028 (f) 1,300
AAA Aaa 1,000 Lehigh County, Pennsylvania, General Purpose Authority,
Revenue Refunding Bonds (St. Francis de Sales College),
Series A, 5% due 12/15/2020 (a) 896
AAA Aaa 2,000 Lower Providence Township, Pennsylvania, Sewer Authority,
Sewer Revenue Refunding Bonds, 5.25% due 5/01/2022 (d) 1,860
NR* Aaa 1,195 North Allegheny, Pennsylvania, School District, GO, Series D,
5.45% due 5/01/2018 (b) 1,157
AA+ Aa2 4,000 Pennsylvania HFA, Revenue Bonds, RIB, AMT, 8.668%
due 4/01/2025 (e) 4,115
AA+ Aa2 1,000 Pennsylvania HFA, S/F Mortgage Revenue Refunding Bonds,
AMT, Series 67A, 5.90% due 10/01/2030 975
Pennsylvania Intergovernmental Co-Op Authority, Special Tax
Revenue Refunding Bonds (Philadelphia Funding Program) (b):
AAA Aaa 2,000 5.25% due 6/15/2015 1,919
AAA Aaa 1,400 5% due 6/15/2021 1,252
AAA Aaa 2,500 Pennsylvania State Higher Educational Facilities Authority
Revenue Bonds (UPMC Health System), Series A, 5% due
8/01/2029 (c) 2,155
AAA Aaa 1,000 Pennsylvania State Higher Educational Facilities Authority,
Revenue Refunding Bonds (Temple University), First Series,
5.25% due 4/01/2017 (d) 943
AAA NR* 1,300 Pennsylvania State Public School Building Authority,
School Revenue Refunding Bonds (Pittston Area School District),
Series P, 5% due 7/15/2021 (c) 1,162
AAA Aaa 4,000 Pennsylvania State Turnpike Commission, Oil Franchise Tax
Revenue Refunding Bonds, Senior Series A, 5% due 12/01/2023 (a) 3,544
AAA Aaa 5,300 Philadelphia, Pennsylvania, Authority for Industrial
Development, Airport Revenue Bonds (Philadelphia Airport
System Project), AMT, Series A, 5.125% due 7/01/2028 (b) 4,635
AAA Aaa 2,500 Philadelphia, Pennsylvania, GO, 5% due 3/15/2028 (c) 2,185
AAA Aaa 2,000 Philadelphia, Pennsylvania, Gas Works Revenue Bonds,
First Series B, 5% due 7/01/2028 (c) 1,740
AAA Aaa 2,000 Philadelphia, Pennsylvania, Parking Authority, Airport
Parking Revenue Bonds, 5.25% due 9/01/2022 (c) 1,859
AAA Aaa 5,500 Philadelphia, Pennsylvania, School District, GO, Series B,
5.375% due 4/01/2027 (a) 5,166
AAA Aaa 2,000 Pittsburgh, Pennsylvania, Water and Sewer Authority,
Water and Sewer System Revenue Refunding Bonds, First Lien,
Series A, 5% due 9/01/2018 (b) 1,815
Schuylkill County, Pennsylvania, IDA, Resource Recovery
Revenue Refunding Bonds (Northeastern Power Company), VRDN (f):
A1+ NR* 800 AMT, Series B, 4.05% due 12/01/2022 800
A1+ NR* 100 Series A, 3.95% due 12/01/2022 100
AAA Aaa 2,000 Southeastern Pennsylvania Transportation Authority,
Pennsylvania, Special Revenue Bonds, Series A, 5.25% due
3/01/2017 (b) 1,895
Puerto Rico-- A1+ VMIG1++ 1,000 Puerto Rico Commonwealth Highway and Transportation
2.1% Authority, Transportation Revenue Refunding Bonds,
VRDN, Series A, 3.45% due 7/01/2028 (a)(f) 1,000
Total Investments (Cost--$51,053)--98.7% 48,039
Other Assets Less Liabilities--1.3% 643
--------
Net Assets--100.0% $ 48,682
========
<FN>
(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 September 30, 1999.
(f)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at September 30, 1999.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
Portfolio Abbreviations
To simplify the listings of MuniHoldings Pennsylvania Insured Fund's
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list at right.
ACES SM Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
RIB Residual Interest Bonds
S/F Single-Family
VRDN Variable Rate Demand Notes
QUALITY PROFILE
The quality ratings of securities in the Fund as of September 30,
1999 were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 78.9%
AA/Aa 10.4
Other++ 9.4
[FN]
++Temporary investments in short-term municipal securities.
MuniHoldings Pennsylvania Insured Fund, September 30, 1999
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of September 30, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$51,053,132)(Note 1a) $ 48,039,483
Cash 66,576
Receivables:
Interest $ 766,745
Investment adviser (Note 2) 166 766,911
------------
Prepaid expenses 3,783
------------
Total assets 48,876,753
------------
Liabilities: Payables:
Offering costs (Note 1e) 93,426
Dividends to shareholders (Note 1f) 63,623 157,049
------------
Accrued expenses and other liabilities 37,801
------------
Total liabilities 194,850
------------
Net Assets: Net assets $ 48,681,903
============
Capital: Capital Shares (unlimited number of shares of beneficial
interest authorized)(Note 4):
Preferred Shares, par value $.10 per share (820 shares of
AMPS* issued and outstanding at $25,000 per share
liquidation preference) $ 20,500,000
Common Shares, par value $.10 per share (2,170,570
shares issued and outstanding) $ 217,057
Paid-in capital in excess of par 31,931,267
Undistributed investment income--net 133,624
Accumulated realized capital losses on investments--net (Note 5) (1,086,396)
Unrealized depreciation on investments--net (3,013,649)
------------
Total--Equivalent to $12.98 net asset value per
Common Share (market price--$12.00) 28,181,903
------------
Total capital $ 48,681,903
============
<FN>
*Auction Market Preferred Shares.
See Notes to Financial Statements.
<CAPTION>
STATEMENT OF OPERATIONS
For the Period February 26, 1999++ to September 30, 1999
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 1,494,453
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 157,619
Commission fees (Note 4) 26,986
Professional fees 21,777
Trustees' fees and expenses 20,855
Accounting services (Note 2) 18,101
Transfer agent fees 15,356
Printing and shareholder reports 7,101
Listing fees 4,247
Pricing fees 2,348
Custodian fees 2,348
Other 5,431
------------
Total expenses before reimbursement 282,169
Reimbursement of expenses (Note 2) (146,782)
------------
Total expenses after reimbursement 135,387
------------
Investment income--net 1,359,066
------------
Realized & Realized loss on investments--net (1,086,396)
Unrealized Loss on Unrealized depreciation on investments--net (3,013,649)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Decrease in Net Assets Resulting from Operations $ (2,740,979)
============
<FN>
++Commencement of operations.
See Notes to Financial Statements.
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the Period
February 26, 1999++ to
Increase (Decrease) in Net Assets: September 30, 1999
<S> <S> <C> <C>
Operations: Investment income--net $ 1,359,066
Realized loss on investments--net (1,086,396)
Unrealized depreciation on investments--net (3,013,649)
------------
Net decrease in net assets resulting from operations (2,740,979)
------------
Dividends to Investment income--net:
Shareholders Common Shares (855,511)
(Note 1f): Preferred Shares (369,931)
------------
Net decrease in net assets resulting from dividends to shareholders (1,225,442)
------------
Beneficial Proceeds from issuance of Common Shares 32,248,500
Interest Proceeds from issuance of Preferred Shares 20,500,000
Transactions Value of shares issued to Common Shareholders in reinvestment of dividends 195,897
(Notes 1e & 4): Offering costs resulting from the issuance of Common Shares (126,632)
Offering and underwriting costs resulting from the issuance of Preferred Shares (269,446)
------------
Net increase in net assets derived from beneficial interest transactions 52,548,319
------------
Net Assets: Total increase in net assets 48,581,898
Beginning of period 100,005
------------
End of period* $ 48,681,903
============
<FN>
*Undistributed investment income--net $ 133,624
============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
MuniHoldings Pennsylvania Insured Fund, September 30, 1999
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
February 26, 1999++ to
Increase (Decrease) in Net Asset Value: September 30, 1999
<S> <S> <C>
Per Share Net asset value, beginning of period $ 15.00
Operating ------------
Performance: Investment income--net .63
Realized and unrealized loss on investments--net (1.88)
------------
Total from investment operations (1.25)
------------
Less dividends to Common Shareholders from investment income--net (.40)
------------
Capital charge resulting from issuance of Common Shares (.07)
------------
Effect of Preferred Share activity:++++
Dividends to Preferred Shareholders:
Investment income--net (.17)
Capital charge resulting from issuance of Preferred Shares (.13)
------------
Total effect of Preferred Share activity (.30)
------------
Net asset value, end of period $ 12.98
============
Market price per share, end of period $ 12.00
============
Total Investment Based on market price per share (17.63%)+++
Return:** ============
Based on net asset value per share (10.91%)+++
============
Ratios Based on Total expenses, net of reimbursement*** .77%*
Average Net ============
Assets of Total expenses*** 1.61%*
Common Shares: ============
Total investment income--net*** 7.75%*
============
Amount of dividends to Preferred Shareholders 2.11%*
============
Investment income--net, to Common Shareholders 5.64%*
============
Ratios Based on Total expenses, net of reimbursement .47%*
Total Average Net ============
Assets:++++++*** Total expenses .98%*
============
Total investment income--net 4.74%*
============
Ratios Based on Dividends to Preferred Shareholders 3.33%*
Average Net ============
Assets of
Preferred Shares:
Supplemental Net assets, net of Preferred Shares, end of period (in thousands) $ 28,182
Data: ============
Preferred Shares outstanding, end of period (in thousands) $ 20,500
============
Portfolio turnover 55.37%
============
Leverage: Asset coverage per $1,000 $ 2,375
Dividends Per ============
Share on Investment income--net $ 451
Preferred Shares ============
Outstanding:
<FN>
*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.
***Do not reflect the effect of dividends to Preferred Shareholders.
++Commencement of operations.
++++The Fund's Preferred Shares were issued on March 17, 1999.
++++++Includes Common and Preferred Share average net assets.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings Pennsylvania Insured Fund (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified,
closed-end management investment company. The Fund's financial
statements are prepared in accordance with generally accepted
accounting principles, which may require the use of management
accruals and estimates. Prior to commencement of operations on
February 26, 1999, the Fund had no operations other than those
relating to organizational matters and the sale of 6,667 shares of
Common Shares on January 13, 1999 to Fund Asset Management, L.P.
("FAM") for $100,005. The Fund determines and makes available for
publication the net asset value of its Common Shares on a weekly
basis. The Fund's Common Shares are listed on the American Stock
Exchange under the symbol MPI. 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 Trustees 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 Trustees.
(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.
* 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 call and 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.
MuniHoldings Pennsylvania Insured Fund, September 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
(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) Offering expenses--Direct expenses relating to the public
offering of the Fund's Common and Preferred Shares were charged to
capital at the time of issuance of the shares.
(f) 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 .55% of
the Fund's average weekly net assets, including proceeds from the
issuance of Preferred Shares. For the period February 26, 1999 to
September 30, 1999, FAM earned fees of $157,619, of which $131,498
was voluntarily waived. In addition, FAM also reimbursed the Fund
$15,284 in additional expenses.
During the period February 26, 1999 to September 30, 1999, Merrill,
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate
of FAM, received underwriting fees of $153,750 in connection with
the issuance of the Fund's Preferred Shares.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees 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 February 26, 1999 to September 30, 1999 were
$70,185,586 and $22,597,069, respectively.
Net realized losses for the period February 26, 1999 to September
30, 1999 and net unrealized losses as of September 30, 1999 were
as follows:
Realized Unrealized
Losses Losses
Long-term investments $(1,062,377) $(3,013,649)
Financial futures contracts (24,019) --
----------- -----------
Total $(1,086,396) $(3,013,649)
=========== ===========
As of September 30, 1999, net unrealized depreciation for Federal
income tax purposes aggregated $3,067,276, all of which related to
depreciated securities. The aggregate cost of investments at
September 30, 1999 for Federal income tax purposes was $51,106,759.
4. Beneficial Interest Transactions:
The Fund is authorized to issue an unlimited number of shares of
beneficial interest, including Preferred Shares, par value $.10 per
share, all of which were initially classified as Common Shares. The
Board of Trustees is authorized, however, to reclassify any unissued
shares of capital without approval of holders of Common Shares.
Common Shares
Shares issued and outstanding during the period February 26, 1999 to
September 30, 1999 increased by 2,149,900 from shares sold and by
14,003 as a result of dividend reinvestment.
Preferred Shares
Auction Market Preferred Shares ("AMPS") are Preferred Shares 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 cashdividends at an annual rate that may vary for the
successive dividend periods. The yield in effect at September 30,
1999 was 4.10%.
In connection with the offering of AMPS, the Board of Trustees
reclassified 820 shares of unissued beneficial interest as AMPS.
Shares issued and outstanding during the period February 26, 1999 to
September 30, 1999 increased by 820 as a result of the AMPS
offering.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from .25% to .375%,
calculated on the proceeds of each auction. For the period February
26, 1999 to September 30, 1999, MLPF&S, an affiliate of FAM, earned
$22,281 as commissions.
5. Capital Loss Carryforward:
At September 30, 1999, the Fund had a net capital loss carryforward
of approximately $1,033,000, all of which expires in 2007. This
amount will be available to offset like amounts of any future
taxable gains.
6. Reorganization Plan:
On September 23, 1999, the Fund's Board of Trustees approved a plan
of reorganization, subject to shareholder approval and certain other
conditions, whereby MuniYield Pennsylvania Fund would acquire
substantially all of the assets and liabilities of the Fund and
MuniVest Pennsylvania Insured Fund in exchange for newly issued
shares of MuniYield Pennsylvania Fund. These Funds are registered,
non-diversified, closed-end management investment companies. All
three entities have similar investment objectives and are managed by
FAM.
7. Subsequent Event:
On October 6, 1999, the Fund's Board of Trustees declared an
ordinary income dividend to Common Shareholders in the amount of
$.064743 per share, payable on October 28, 1999 to shareholders of
record as of October 22, 1999.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
MuniHoldings Pennsylvania Insured Fund:
We have audited the accompanying statement of assets, liabilities
and capital, including the schedule of investments, of MuniHoldings
Pennsylvania Insured Fund as of September 30, 1999, the related
statements of operations and changes in net assets, and the
financial highlights for the period February 26, 1999 (commencement
of operations) to September 30, 1999. These financial statements and
the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at
September 30, 1999 by correspondence with the custodian. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
MuniHoldings Pennsylvania Insured Fund as of September 30, 1999, the
results of its operations, the changes in its net assets, and the
financial highlights for the period February 26, 1999 (commencement
of operations) to September 30, 1999 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
November 12, 1999
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (UNAUDITED)
All of the net investment income distributions paid by Muni-Holdings
Pennsylvania Insured Fund during its taxable year ended September
30, 1999 qualify as tax-exempt interest dividends for Federal income
tax purposes. Additionally, there were no capital gains distributed
by the Fund during the year.
Please retain this information for your records.
