MUNIHOLDINGS
PENNSYLVANIA
INSURED FUND
FUND LOGO
Semi-Annual Report
March 31, 1999
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, March 31, 1999
DEAR SHAREHOLDER
We are pleased to provide you with this first semi-annual report for
MuniHoldings Pennsylvania Insured Fund. In this and future
shareholder reports, 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
Pennsylvania income tax by investing primarily in a portfolio of
long-term, investment-grade Pennsylvania municipal obligations.
Since inception (February 26, 1999) through March 31, 1999, the
Common Shares of MuniHoldings Pennsylvania Insured Fund had earned
and unpaid dividends of $0.700 per share. This represents a net
annualized yield of 5.11%, based on a month-end per share net asset
value of $14.80. Over the same period, the total investment return
on the Fund's Common Shares was -1.33%, based on a change in per
share net asset value from $15.00 to $14.80.
For the period February 26, 1999 through March 31, 1999, the Fund's
Preferred Shares had an average yield of 3.27%.
The Municipal Market Environment
Since the Fund's inception (February 26, 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 of 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 Pennsylvania 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 our initial investments were focused 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 so that Common
Shareholders can begin to benefit from the higher yield that
leverage can provide. (For an explanation of the benefits and risks
of leveraging, see page 1 of this report to shareholders.)
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 Pennsylvania municipal bonds.
In Conclusion
We appreciate your investment in MuniHoldings Pennsylvania Insured
Fund, and we look forward to assisting you with your financial needs
in the months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Trustee
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Robert A. DiMella)
Robert A. DiMella
Vice President and Portfolio Manager
(William R. Bock)
William R. Bock
Vice President and Portfolio Manager
May 10, 1999
MuniHoldings Pennsylvania Insured Fund, March 31, 1999
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
VRDN Variable Rate Demand Notes
<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++ $ 1,400 Allegheny County, Pennsylvania, Hospital Development
103.8% Authority Revenue Bonds (Presbyterian University Hospital),
ACES, Series B-3, 3.15% due 3/01/2018 (f) $ 1,400
AAA Aaa 2,000 Beaver County, Pennsylvania, IDA, Exempt Facilities
Revenue Bonds (Shippingport Project), AMT, Series A, 5.375%
due 6/01/2028 (a) 2,012
AAA Aaa 1,000 Bucks County, Pennsylvania, IDA, Revenue Refunding Bonds
(Grand View Hospital), Series A, 5.25% due 7/01/2021 (a) 995
AAA NR* 1,295 Deer Lakes School District, Pennsylvania, GO, Series A,
5.25% due 1/15/2017 (c) 1,320
AAA NR* 1,100 Delaware County, Pennsylvania, Interboro School District,
5.375% due 8/15/2025 (d) 1,123
NR* Aaa 4,000 Delaware County, Pennsylvania, University Authority Revenue
Bonds (Villanova University), Series A, 5% due 12/01/2028 (d) 3,903
AAA Aaa 2,000 Delaware River Port Authority, Pennsylvania and New Jersey,
Revenue Refunding Bonds, Series B, 5.25% due 1/01/2005 (a)(g) 2,126
AAA NR* 1,200 Erie, Pennsylvania, Parking Authority, Parking Facilities
Revenue Refunding Bonds, Series B, 5.125% due 9/01/2020 (d) 1,195
A1+ VMIG1++ 2,400 Geisinger Authority, Pennsylvania, Health System Revenue
Refunding Bonds (Penn State--Geisinger Health), VRDN,
Series B, 2.85% due 8/15/2028 (f) 2,400
AAA Aaa 3,000 Lancaster County, Pennsylvania, Solid Waste Management
Authority, Resource Recovery Revenue Refunding Bonds,
Series B, 5.375% due 12/15/2015 (a) 3,101
AAA Aaa 1,000 Lehigh County, Pennsylvania, General Purpose Authority,
Revenue Refunding Bonds (Saint Francis de Sales College),
Series A, 5% due 12/15/2020 (a) 984
AAA Aaa 2,000 Lower Providence Township, Pennsylvania, Sewer Authority,
Sewer Revenue Refunding Bonds, 5.25% due 5/01/2022 (d) 2,014
AA+ Aa2 4,000 Pennsylvania HFA, Revenue Bonds, RIB, AMT, 8.577% due
4/01/2025 (e) 4,375
AAA Aaa 2,000 Pennsylvania Intergovernmental Co-Op Authority,
Special Tax Revenue Refunding Bonds (Philadelphia Funding
Program), 5.25% due 6/15/2015 (b) 2,054
AAA Aaa 2,500 Pennsylvania State Higher Educational Facilities Authority
Revenue Bonds (UPMC Health System), Series A, 5%
due 8/01/2029 (c) 2,405
A1+ NR* 1,400 Pennsylvania State Higher Educational Facilities Authority,
Revenue Refunding Bonds (Carnegie Mellon University), VRDN,
Series B, 2.85% due 11/01/2027 (f) 1,400
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) 1,278
AAA Aaa 2,500 Pennsylvania State Turnpike Commission, Oil Franchise Tax
Revenue Bonds, Senior Series A, 4.75% due 12/01/2027 (a) 2,358
AAA Aaa 3,000 Philadelphia, Pennsylvania, Authority for Industrial
Development, Airport Revenue Bonds (Philadelphia Airport
System Project), AMT, Series A, 5.125% due 7/01/2028 (b) 2,931
AAA Aaa 2,500 Philadelphia, Pennsylvania, GO, 5% due 3/15/2028 (c) 2,440
AAA Aaa 2,000 Philadelphia, Pennsylvania, Gas Works Revenue Bonds,
First Series B, 5% due 7/01/2028 (c) 1,952
AAA Aaa 2,000 Philadelphia, Pennsylvania, School District, GO,
Series B, 5.375% due 4/01/2027 (a) 2,040
AAA Aaa 2,000 Pittsburgh, Pennsylvania, GO, 5.125% due 9/01/2015 (a) 2,031
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) 1,988
A1+ NR* 1,400 Schuylkill County, Pennsylvania, IDA, Resource Recovery
Revenue Refunding Bonds (Northeastern Power Company), VRDN,
AMT, Series B, 3.10% due 12/01/2022 (f) 1,400
AAA Aaa 2,000 Southeastern Pennsylvania Transportation Authority,
Pennsylvania, Special Revenue
Bonds, Series A, 5.25% due 3/01/2017 (b) 2,050
Total Investments (Cost--$53,375)--103.8% 53,275
Variation Margin on Financial Futures Contracts--0.1%** 32
Liabilities in Excess of Other Assets--(3.9%) (1,989)
--------
Net Assets--100.0% $ 51,318
========
<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 March 31, 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 March 31, 1999.
(g)All or a portion of security held as collateral in connection
with open financial futures contracts.
*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)
60 US Treasury Bonds June 1999 $ 7,234
-----------
Total Financial Futures Contracts Sold
(Total Contract Price--$7,218) $ 7,234
===========
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
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 82.4%
AA/Aa 8.5
Other++ 12.9
[FN]
++Temporary investments in short-term municipal securities.
MuniHoldings Pennsylvania Insured Fund, March 31, 1999
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of March 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$53,374,890)(Note 1a) $ 53,274,926
Cash 585,828
Receivables:
Interest $ 723,996
Investment adviser (Note 2) 32,221
Variation margin (Note 1b) 31,875 788,092
------------
Other assets 1,090
------------
Total assets 54,649,936
------------
Liabilities: Payables:
Securities purchased 3,041,485
Offering costs (Note 1e) 260,035
Dividends to shareholders (Note 1f) 12,972 3,314,492
------------
Accrued expenses 17,000
------------
Total liabilities 3,331,492
------------
Net Assets: Net assets $ 51,318,444
============
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 (2,081,667 shares
issued and outstanding) $ 208,167
Paid-in capital in excess of par 30,597,662
Undistributed investment income--net 128,517
Unrealized depreciation on investments--net (115,902)
------------
Total--Equivalent to $14.80 net asset value per Common Share
(market price--$16.125) 30,818,444
------------
Total capital $ 51,318,444
============
<FN>
*Auction Market Preferred Shares.
See Notes to Financial Statements.
<CAPTION>
STATEMENT OF OPERATIONS
For the Period February 26, 1999++ to March 31, 1999
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 160,653
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 17,557
Commission fees (Note 4) 3,434
Professional fees 3,003
Trustees' fees and expenses 2,547
Accounting services (Note 2) 1,706
Transfer agent fees 1,672
Printing and shareholder reports 919
Listing fees 536
Pricing fees 297
Custodian fees 294
Other 501
------------
Total expenses before reimbursement 32,466
Reimbursement of expenses (Note 2) (31,528)
------------
Total expenses after reimbursement 938
------------
Investment income--net 159,715
------------
Unrealized Loss on Unrealized depreciation on investments--net (115,902)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 43,813
============
<FN>
++Commencement of operations.
See Notes to Financial Statements.
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the Period
Feb. 26, 1999++ to
Increase (Decrease) in Net Assets: March 31, 1999
<S> <S> <C>
Operations: Investment income--net $ 159,715
Unrealized depreciation on investments--net (115,902)
------------
Net increase in net assets resulting from operations 43,813
------------
Dividends to Investment income--net to Preferred Shareholders (31,198)
Shareholders ------------
(Note 1f): Net decrease in net assets resulting from dividends to shareholders (31,198)
------------
Beneficial Proceeds from issuance of Common Shares 31,125,000
Interest Proceeds from issuance of Preferred Shares 20,500,000
Transactions Offering costs resulting from the issuance of Common Shares (128,227)
(Notes 1e & 4): Offering and underwriting costs resulting from the issuance of Preferred Shares (290,949)
------------
Net increase in net assets derived from beneficial interest transactions 51,205,824
------------
Net Assets: Total increase in net assets 51,218,439
Beginning of period 100,005
------------
End of period* $ 51,318,444
============
<FN>
*Undistributed investment income--net $ 128,517
============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
MuniHoldings Pennsylvania Insured Fund, March 31, 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
Feb. 26, 1999++ to
Increase (Decrease) in Net Asset Value: March 31, 1999
<S> <S> <C>
Per Share Net asset value, beginning of period $ 15.00
Operating ------------
Performance: Investment income--net .07
Unrealized loss on investments--net (.05)
------------
Total from investment operations .02
------------
Capital charge resulting from issuance of Common Shares (.07)
------------
Effect of Preferred Share activity++++:
Dividends to Preferred Shareholders:
Investment income--net (.01)
Capital charge resulting from issuance of Preferred Shares (.14)
------------
Total effect of Preferred Share activity (.15)
------------
Net asset value, end of period $ 14.80
============
Market price per share, end of period $ 16.125
============
Total Investment Based on market price per share 7.50%+++
Return:** ============
Based on net asset value per share (1.33%)+++
============
Ratios to Average Expenses, net of reimbursement .03%*
Net Assets:*** ============
Expenses 1.02%*
============
Investment income--net 5.00%*
============
Supplemental Net assets, net of Preferred Shares, end of period (in thousands) $ 30,818
Data: ============
Preferred Shares outstanding, end of period (in thousands) $ 20,500
============
Portfolio turnover 0.00%
============
Leverage: Asset coverage per $1,000 $ 2,503
============
Dividends Investment income--net $ 38
Per Share on ============
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 loads.
***Do not reflect the effect of dividends to Preferred Shareholders.
++Commencement of operations.
++++The Fund's Preferred Shares were issued on March 17, 1999.
+++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. 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 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.
(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.
MuniHoldings Pennsylvania Insured Fund, March 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
(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 0.55% of
the Fund's average weekly net assets, including proceeds from the
issuance of Preferred Shares. For the period February 26, 1999 to
March 31, 1999, FAM earned fees of $17,557, all of which was
voluntarily waived. In addition, FAM also reimbursed the Fund
$13,971 in additional expenses.
During the period February 26, 1999 to March 31, 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 of investments, excluding short-term securities, for the
period February 26, 1999 to March 31, 1999 was $46,776,551.
Net unrealized losses as of March 31, 1999 were as follows:
Unrealized
Losses
Long-term investments $ (99,964)
Financial futures contracts (15,938)
-----------
Total $ (115,902)
===========
As of March 31, 1999, net unrealized depreciation for Federal income
tax purposes aggregated $99,964, of which $16,911 related to
appreciated securities and $116,875 related to depreciated
securities. The aggregate cost of investments at March 31, 1999 for
Federal income tax purposes was $53,374,890.
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 the holders of Common Shares.
Common Shares
Shares issued and outstanding during the period February 26, 1999 to
March 31, 1999 increased by 2,075,000 as a result of the initial
offering.
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 cash dividends at an annual rate that may vary for the
successive dividend periods. The yield in effect at March 31, 1999
was 3.30%.
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
March 31, 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 0.25% to 0.375%,
calculated on the proceeds of each auction. For the period February
26, 1999 to March 31, 1999, MLPF&S, an affiliate of FAM, earned
$1,000 as commissions.
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.
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:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
AMEX Symbol
MPI
