MUNIHOLDINGS
CALIFORNIA
INSURED
FUND V, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
May 31, 2000
<PAGE>
MuniHoldings California Insured Fund V, Inc.
The Benefits and
Risks of
Leveraging
MuniHoldings California Insured Fund V, Inc. utilizes leveraging 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 of 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 V, Inc., May 31, 2000
DEAR SHAREHOLDER
Since inception (July 23, 1999) through May 31, 2000, MuniHoldings California
Insured Fund V, Inc. earned $0.721 per share income dividends, which included
earned and unpaid dividends of $0.070. This represents a net annualized yield of
6.19%, based on a month-end net asset value of $13.55 per share. Over the same
period, the Fund's total investment return was -5.01%, based on a change in per
share net asset value from $15.00 to $13.55, and assuming reinvestment of $0.651
per share income dividends.
For the six-month period ended May 31, 2000, the total investment return on the
Fund's Common Stock was +1.32%, based on a change in per share net asset value
from $13.83 to $13.55, and assuming reinvestment of $0.437 per share income
dividends.
For the six-month period ended May 31, 2000, the Fund's Auction Market Preferred
Stock had an average yield of 3.81%.
The Municipal Market Environment
From November 1999 to mid-January 2000, fixed-income bond yields rose steadily
higher. US economic growth, in part intensified by Year 2000 preparations, grew
at a 7.3% rate in the fourth quarter of 1999 and at a 4.2% annual rate for all
of 1999. Initial estimates for the first quarter of 2000 were reported at 5.4%.
However, despite these significant growth rates and the lowest unemployment
rates since January 1970, no price measure indicator has shown any considerable
signs of future price pressures at the consumer level. Given no signs of an
economic slowdown, the Federal Reserve Board continued to raise short-term
interest rates in February, March and May 2000. The Federal Reserve Board cited
both the continued growth of US employment and the impressive strength of the US
equity markets as reasons for attempting to moderate US economic growth before
inflationary price increases are realized. By mid-January 2000, US Treasury bond
yields rose 45 basis points (0.45%) to 6.75%. Similarly, as measured by the Bond
Buyer Revenue Bond Index, long-term tax-exempt bond yields rose approximately 20
basis points to 6.35%.
Since mid-January, fixed-income markets have largely ignored strong economic
fundamentals and concentrated upon very positive technical supply factors.
Declining bond issuance, both current, and more importantly, expected future
issuance, helped push bond yields lower from mid-January to mid-April 2000. In
late January and early February 2000, the US Treasury announced its intention to
reduce the number of issues to be auctioned in the quarterly Treasury note and
bond auctions. Furthermore, budgetary surpluses would allow the US Treasury to
repurchase outstanding, higher-couponed Treasury issues, primarily in the
15-year and longer-term maturity sectors. Both these actions would result in a
significant reduction in the outstanding supply of long-term US Treasury debt.
Domestic and international investors quickly began to accumulate what was
expected to become a scarce commodity and Government bond prices quickly rose.
By mid-April 2000, US Treasury bond yields had declined over 100 basis points to
5.67%. However, bond yields rose somewhat during the remainder of the period as
economic statistics were released, indicating that the economic strength seen in
late 1999 was continuing into early 2000. The decline in long-term US Treasury
yields resulted in an inverted taxable yield curve as short-term and
intermediate-term interest rates have not fallen proportionately since the
Federal Reserve Board is expected to continue to raise short-term interest
rates. The current inversion has had much more to do with debt reduction and
Treasury buybacks than with investor expectations of slower economic growth.
Over the last six months, long-term US Treasury bond yields have fallen almost
30 basis points to close the six-month period ended May 31, 2000 at 6.00%.
Tax-exempt bond yields have also declined in recent months. The decline has
largely been in response to the rally in US Treasury securities, as well as a
continued positive technical supply environment. States such as California and
Maryland have announced that their large current and anticipated future budget
surpluses will permit the cancellation or postponement of expected bond
issuance. Additionally, some issuers have also initiated tenders to repurchase
existing debt, reducing the supply of tax-exempt bonds in the secondary market
as well. Since their recent peak in January 2000, long-term municipal bond
yields declined over 15 basis points to finish the six-month period ended May
31, 2000 at 6.20%.
The relative underperformance of the municipal bond market in recent months has
been especially disappointing given the strong technical position the tax-exempt
bond market enjoyed.
The issuance of long-term tax-exempt securities has dramatically declined. Over
the last year, $205 billion in new long-term municipal securities was issued, a
decline of almost 20% compared to the same period a year earlier. For the six
months ended May 31, 2000, approximately $90 billion in new tax-exempt bonds was
underwritten, a decline of more than 25% compared to the same period in 1999.
Although investors received over $30 billion in coupon payments, bond maturities
and proceeds from early bond redemption in January and February, and are
expected to receive a similar amount in June and July, and despite the highest
municipal bond yields in three years, overall investor demand has diminished.
Long-term municipal bond mutual funds have seen consistent outflows in recent
months as the yields of individual securities have risen faster than those of
larger, more diverse mutual funds. Over the last five months, tax-exempt mutual
funds have had net redemptions of more than $11 billion. Also, the demand from
property and casualty insurance companies has weakened as a result of the losses
incurred from the series of damaging storms across much of the eastern United
States. Additionally, many institutional investors who have in recent years been
attracted to the municipal bond market by historically attractive tax-exempt
bond yield ratios of over 90% found other asset classes even more attractive.
Even with a favorable supply position, tax-exempt municipal bond yields have
underperformed their taxable counterparts.
Any significantly lower municipal bond yields are still likely to require weaker
US employment growth and consumer spending. The actions taken in recent months
by the Federal Reserve Board, as well as those expected in June and perhaps
August 2000, should eventually slow US economic growth. The recent declines in
US home sales are perhaps the first sign that consumer spending is being slowed
by higher interest rates. Until further signs develop, it is likely that the
municipal bond market's current favorable technical position will dampen
significant tax-exempt interest rate volatility and provide a stable environment
for eventual improvement in municipal bond prices.
Portfolio Strategy
Since inception, the Fund has been structured to seek to deliver a high current
return of tax-exempt income to California residents by maintaining a fully
invested and leveraged position. The effects of leverage benefited the Fund's
Common Stock yield because of the positive slope to the municipal yield curve.
However, the Fund's leveraged position also served to accentuate the effect of
market movements on the Fund's Common Stock and, as such, served to increase the
level of the Fund's losses on a total return basis during the first half of the
fiscal year. Should the spread between long-term and short-term tax-exempt
interest rates narrow, the benefits of the leverage will decline and the yield
on the Common Stock will decline. (For a complete explanation of the benefits
and risks of leveraging, see page 1 of this report to shareholders.) Our main
investment strategy has been to increase the average level of couponing in the
Fund. During periods of rising interest rates, primary issuance provides us with
opportunities to restructure the Fund by purchasing issues with higher coupons.
These holdings can provide a higher current yield with less exposure to the
longer maturity range of the municipal marketplace. However, credit quality has
been one of our concerns. We are purposely underutilizing the portion of assets
that can be committed to uninsured securities. This helped the Fund's
performance during the recent period of widening credit quality spreads. We
expect to continue the process of raising the Fund's average coupon structure
and reducing duration in order to temper the Fund's volatility and exposure to
long-term interest rate swings.
In Conclusion
We appreciate your investment in MuniHoldings California Insured Fund V, 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/ Walter C. O'Connor
Walter C. O'Connor
Vice President and Portfolio Manager
June 23, 2000
2 & 3
<PAGE>
MuniHoldings California Insured Fund V, Inc., May 31, 2000
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
California--98.4% AAA Aaa $ 1,000 ABAG Finance Authority for Nonprofit Corporations, California,
COP (Children's Hospital Medical Center), 6% due 12/01/2029 (a) $1,000
-------------------------------------------------------------------------------------------------------
AAA Aaa 5,250 Alameda Corridor Transportation Authority, California, Revenue
Bonds, Senior Lien, Series A, 5% due 10/01/2029 (d) 4,497
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,885 Alameda County, California, COP, Refunding (Santa Rita Jail
Project), 5.70% due 12/01/2014 (d) 2,913
-------------------------------------------------------------------------------------------------------
AAA Aaa 3,885 Berkeley, California, GO, Series C, 5.375% due 9/01/2029 (b) 3,562
-------------------------------------------------------------------------------------------------------
California Educational Facilities Authority, Revenue Refunding
Bonds (Occidental College) (d):
AAA Aaa 2,915 5.625% due 10/01/2017 2,897
AAA Aaa 3,000 5.70% due 10/01/2027 2,905
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 California Health Facilities Finance Authority Revenue Bonds
(Kaiser Permanente), Series A, 5% due 6/01/2024 (c) 1,720
-------------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Revenue
Refunding Bonds:
AAA Aaa 1,450 (De Las Companas), Series A, 5.75% due 7/01/2015 1,459
AAA Aaa 2,500 (Sutter Health), Series C, 5.125% due 8/15/2022 (c) 2,211
-------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 300 California Pollution Control Financing Authority, PCR,
Refunding (Pacific Gas and Electric), VRDN, Series E, 2.75% due
11/01/2026 (f) 300
-------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority, PCR,
Refunding (Southern California Edison Company):
AAA Aaa 3,500 AMT, Series C, 5.55% due 9/01/2031 (d) 3,240
A1 VMIG1+ 300 VRDN, Series A, 3.35% due 2/28/2008 (f) 300
A1 P1 1,000 VRDN, Series C, 5.15% due 2/28/2008 (f) 1,000
-------------------------------------------------------------------------------------------------------
California State Public Works Board, Lease Revenue Refunding
Bonds (Department of Corrections), Series B (d):
AAA Aaa 1,250 5.625% due 11/01/2019 1,228
AAA Aaa 4,280 5% due 9/01/2021 3,783
-------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 California Statewide Communities Development Auxiliary
Authority, COP, Refunding (Foundation of California State
University), 5.20% due 6/01/2024 (d) 2,700
-------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Calleguas--Las Virgines, California, Public Financing
Authority, Installment Purchase Revenue Refunding Bonds
(Las Virgines Municipal Water District), 5% due 11/01/2023 (c) 3,491
-------------------------------------------------------------------------------------------------------
AAA Aaa 1,640 Campbell, California, Unified High School District, GO, 5.70%
due 8/01/2025 (c) 1,593
-------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Capistrano, California, Unified School District, Community
Facility District, Special Tax Refunding Bonds (Las Flores),
Number 92-1, 5% due 9/01/2023 (d) 873
-------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Central Coast Water Authority, California, Regional Facilities
Revenue Refunding Bonds (State Water Project), Series A, 5% due
10/01/2022 (a) 2,657
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,370 Corona, California, Public Financing Authority, Revenue
Refunding Bonds, Superior Lien, Series A, 5% due 9/01/2020 (c) 2,106
-------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Escondido, California, COP, Refunding (Wastewater Project),
5.70% due 9/01/2026 (a) 4,834
-------------------------------------------------------------------------------------------------------
AAA Aaa 5,150 Los Angeles, California, Convention and Exhibition Center
Authority, Lease Revenue Refunding Bonds, Series A, 5.375% due
8/15/2018 (d) 4,900
-------------------------------------------------------------------------------------------------------
AAA Aaa 3,430 Los Angeles County, California, Public Works Financing
Authority, Lease Revenue Bonds (Multiple Capital Facilities
Project V), Series B, 5.125% due 12/01/2029 (a) 3,000
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Metropolitan Water District, Southern California, Waterworks
Revenue Bonds, Series C, 5% due 7/01/2027 (d) 1,726
-------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Northern California Power Agency, Public Power Revenue
Refunding Bonds (Hydroelectric Project Number One), Series A,
5.125% due 7/01/2023 (d) 2,671
-------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Oakland, California, Alameda County Unified School District,
GO, Series F, 5.50% due 8/01/2024 (d) 5,670
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Oakland, California, GO (Measure 1), 5.85% due 12/15/2022 (b) 2,491
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,700 Pleasanton, California, Unified School District, GO, Series D,
5.375% due 8/01/2023 (d) 2,509
-------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Roseville, California, Electric System Revenue Bonds, COP,
5.50% due 2/01/2024 (c) 946
-------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 San Diego, California, Certificates of Undivided Interest,
Water Utility Fund, Net System Revenue Bonds, 5% due
8/01/2021 (b) 2,653
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 San Diego, California, Public Facilities Financing Authority,
Sewer Revenue Bonds, 5% due 5/15/2020 (b) 1,773
-------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 San Francisco, California, City and County Airport Commission,
International Airport Revenue Bonds, Second Series, Issue 15B,
5% due 5/01/2024 (d) 2,608
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,410 San Francisco, California, City and County Redevelopment Agency,
Hotel Tax Revenue Refunding Bonds, 5% due 7/01/2025 (c) 2,091
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 San Jose, California, Redevelopment Agency, Tax Allocation Bonds
(Merged Area Redevelopment Project), 5.25% due 8/01/2029 (d) 1,792
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 San Rafael, California, Redevelopment Agency, Tax Allocation
Bonds (Central San Rafael Redevelopment Project), 5% due
12/01/2022 (a) 1,753
-------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Santa Clara, California, Redevelopment Agency, Tax Allocation
Bonds, RIB, Series 164, 7.45% due 6/01/2023 (a)(e) 4,512
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Santa Clara Valley, California, Water District, COP, Refunding
and Improvement Bonds, Series A, 6% due 2/01/2024 (b) 2,000
-------------------------------------------------------------------------------------------------------
AAA Aaa 5,110 Santa Monica, California, Redevelopment Agency, Tax Allocation
Bonds (Earthquake Recovery Redevelopment Project), 6% due
7/01/2029 (a) 5,110
-------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 400 Southern California Public Power Authority, Power Project
Revenue Refunding Bonds (Palo Verde Project), VRDN, Series
C, 2.80% due 7/01/2017 (a)(f) 400
-------------------------------------------------------------------------------------------------------
</TABLE>
Portfolio
Abbreviations
To simplify the listings of MuniHoldings California Insured Fund V, 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
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
MuniHoldings California Insured Fund V, Inc., May 31, 2000
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
California AAA Aaa $13,010 University of California Revenue Bonds (Multiple Purpose
(concluded) Projects), Series H, 5.50% due 9/01/2028 (b) $ 12,233
-------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 University of California, Revenue Refunding Bonds (Multiple
Purpose Projects), Series E, 5.125% due 9/01/2020 (d) 3,627
====================================================================================================================================
Total Investments (Cost--$118,906)--98.4% 115,734
Other Assets Less Liabilities--1.6% 1,916
---------
Net Assets--100.0% $ 117,650
=========
====================================================================================================================================
</TABLE>
(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 May 31, 2000.
(f) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at May 31,
2000.
+ 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.
Quality Profile
The quality ratings of securities in the Fund as of May 31, 2000 were as
follows:
--------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
--------------------------------------------------------------------------------
AAA/Aaa ................................................. 96.7%
Other+ .................................................. 1.7
--------------------------------------------------------------------------------
+ Temporary investment in short-term securities.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of May 31, 2000
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $118,905,550) .............................. $115,734,082
Cash ................................................................................. 104,349
Interest receivable .................................................................. 2,019,925
------------
Total assets ......................................................................... 117,858,356
------------
====================================================================================================================================
Liabilities: Payables:
Dividends to shareholders ......................................................... $ 123,863
Investment adviser ................................................................ 23,529 147,392
-----------
Accrued expenses and other liabilities ............................................... 60,994
------------
Total liabilities .................................................................... 208,386
------------
====================================================================================================================================
Net Assets: Net assets ........................................................................... $117,649,970
============
====================================================================================================================================
Capital: Capital Stock (200,000,000 shares authorized):
Preferred Stock, par value $.10 per share (1,960 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) ............... $ 49,000,000
Common Stock, par value $.10 per share (5,065,505 shares issued and outstanding) .. $ 506,551
Paid-in capital in excess of par ..................................................... 74,702,630
Undistributed investment income -- net ............................................... 393,107
Accumulated realized capital loss on investments -- net .............................. (3,780,850)
Unrealized depreciation on investments -- net ........................................ (3,171,468)
-----------
Total -- Equivalent to $13.55 net asset value per share of Common Stock (market
price--$13.25) ....................................................................... 68,649,970
------------
Total capital ........................................................................ $117,649,970
============
====================================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
6 & 7
<PAGE>
MuniHoldings California Insured Fund V, Inc., May 31, 2000
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period July 23, 1999+ to May 31, 2000
============================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned ... $ 5,593,966
Income:
============================================================================================================
Expenses: Investment advisory fees ................................... $ 543,241
Commission fees ............................................ 98,043
Accounting services ........................................ 47,108
Professional fees .......................................... 35,318
Listing fees ............................................... 22,889
Transfer agent fees ........................................ 20,211
Directors' fees and expenses ............................... 18,263
Printing and shareholder reports ........................... 9,534
Pricing fees ............................................... 5,534
Custodian fees ............................................. 5,493
Other ...................................................... 4,087
---------
Total expenses before reimbursement ........................ 809,721
Reimbursement of expenses .................................. (329,774)
---------
Total expenses after reimbursement ......................... 479,947
------------
Investment income--net ..................................... 5,114,019
------------
============================================================================================================
Realized & Realized loss on investments--net .......................... (3,780,850)
Unrealized Loss on Unrealized depreciation on investments--net ................ (3,171,468)
Investments--Net: ------------
Net Decrease in Net Assets Resulting from Operations ....... $ (1,838,299)
============
============================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
July 23, 1999+ to
Increase (Decrease) in Net Assets: May 31, 2000
===================================================================================================================================
<S> <C> <C>
Operations: Investment income--net ............................................................................. $ 5,114,019
Realized loss on investments--net .................................................................. (3,780,850)
Unrealized depreciation on investments--net ........................................................ (3,171,468)
------------
Net decrease in net assets resulting from operations ............................................... (1,838,299)
------------
===================================================================================================================================
Dividends to Investment income--net:
Shareholders: Common Stock ..................................................................................... (3,299,523)
Preferred Stock .................................................................................. (1,421,389)
------------
Net decrease in net assets resulting from dividends to shareholders ................................ (4,720,912)
------------
===================================================================================================================================
Capital Stock Proceeds from issuance of Common Stock ............................................................. 75,882,570
Transactions: Proceeds from issuance of Preferred Stock .......................................................... 49,000,000
Offering costs resulting from the issuance of Common Stock ......................................... (261,272)
Offering and underwriting costs resulting from the issuance of Preferred Stock ..................... (512,122)
------------
Net increase in net assets derived from capital stock transactions ................................. 124,109,176
------------
===================================================================================================================================
Net Assets: Total increase in net assets ....................................................................... 117,549,965
Beginning of period ................................................................................ 100,005
------------
End of period* ..................................................................................... $117,649,970
============
===================================================================================================================================
*Undistributed investment income--net ............................................................... $ 393,107
============
===================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings California Insured Fund V, Inc., May 31, 2000
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
July 23, 1999+ to
Increase (Decrease) in Net Asset Value: May 31, 2000
=======================================================================================================
<S> <C> <C>
Per Share Net asset value, beginning of period .................................. $ 15.00
Operating --------
Performance: Investment income--net ................................................ 1.01
Realized and unrealized loss on investments--net ...................... (1.38)
--------
Total from investment operations ...................................... (.37)
--------
Less dividends to Common Stock shareholders from
investment income--net ................................................ (.65)
--------
Capital charge resulting from issuance of Common Stock ................ (.05)
--------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income--net ............................................ (.28)
Capital charge resulting from issuance of Preferred Stock ........... (.10)
--------
Total effect of Preferred Stock activity .............................. (.38)
--------
Net asset value, end of period ........................................ $ 13.55
========
Market price per share, end of period ................................. $ 13.25
========
=======================================================================================================
Total Investment Based on market price per share ....................................... (7.12%)++++
Return:** ========
Based on net asset value per share .................................... (5.01%)++++
========
=======================================================================================================
Ratios Based on Total expenses, net of reimbursement*** ............................... .80%*
Average Net Assets ========
Of Common Stock: Total expenses*** ..................................................... 1.35%*
========
Total investment income--net*** ....................................... 8.55%*
========
Amount of dividends to Preferred Stock shareholders ................... 2.38%*
========
Investment income--net, to Common Stock shareholders .................. 6.17%*
========
=======================================================================================================
Ratios Based on Total expenses, net of reimbursement .................................. .49%*
Total Average ========
Net Assets:***+++ Total expenses ........................................................ .82%*
========
Total investment income--net .......................................... 5.18%*
========
=======================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders ............................. 3.65%*
Average Net Assets ========
Of Preferred Stock:
=======================================================================================================
Supplemental Data: Net assets, net of Preferred Stock, end of period (in thousands) ...... $ 68,650
========
Preferred Stock outstanding, end of period (in thousands) ............. $ 49,000
========
Portfolio turnover .................................................... 78.42%
========
=======================================================================================================
Leverage: Asset coverage per $1,000 ............................................. $ 2,401
========
=======================================================================================================
Dividends Per Investment income--net ................................................ $ 725
Share on Preferred ========
Stock Outstanding:
=======================================================================================================
</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 charges. The Fund's Investment Adviser
voluntarily waived a portion of its management fee. Without such
waiver, the Fund's performance would have been lower.
*** Do not reflect the effect of dividends to Preferred Stock
shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on August 16, 1999.
+++ Includes Common and Preferred Stock average net assets.
++++ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings California Insured Fund V, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America,
which may require the use of management accruals and estimates. Prior to
commencement of operations on July 23, 1999, the Fund had no operations other
than those relating to organizational matters and the sale of 6,667 shares of
Common Stock on June 15, 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 CAF. 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
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. Losses may arise due to changes in the value of the contract or if
the counterparty does not perform under the contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures
10 & 11
<PAGE>
MuniHoldings California Insured Fund V, Inc., May 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
contracts are contracts for delayed delivery of securities at a specific future
date and at a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase put
options. When the Fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked to market to reflect the current market
value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Offering expenses--Direct expenses relating to the public offering of the
Fund's Common and Preferred Stock 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
issuance of Preferred Stock. For the period July 23, 1999 to May 31, 2000, FAM
earned fees of $543,241, of which $312,647 was voluntarily waived. FAM also
reimbursed the Fund additional expenses of $17,127.
During the period July 23, 1999 to May 31, 2000, Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S"), an affiliate of FAM, received underwriting fees
of $367,500 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 July 23, 1999 to May 31, 2000 were $199,241,371 and $78,593,376,
respectively.
Net realized losses for the period July 23, 1999 to May 31, 2000 and net
unrealized losses as of May 31, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
--------------------------------------------------------------------------------
Long-term investments ............................ $(3,776,685) $(3,171,468)
Financial futures contracts ...................... (4,165) --
----------- -----------
Total ............................................ $(3,780,850) $(3,171,468)
=========== ===========
--------------------------------------------------------------------------------
As of May 31, 2000, net unrealized depreciation for Federal income tax purposes
aggregated $3,258,718, of which $476,411 related to appreciated securities and
$3,735,129 related to depreciated securities. The aggregate cost of investments
at May 31, 2000 for Federal income tax purposes was $118,992,800.
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 July 23, 1999 to May 31, 2000
increased by 5,058,838 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 yield in effect at
May 31, 2000 was 4.00%.
In connection with the offering of AMPS, the Board of Directors has reclassified
1,960 shares of unissued capital stock as AMPS. Shares issued and outstanding
during the period July 23, 1999 to May 31, 2000 increased by 1,960 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 July 23, 1999 to May 31, 2000, MLPF&S, an affiliate of
FAM, earned $74,056 as commissions.
5. Capital Loss Carryforward:
At May 31, 2000, the Fund had a net capital loss carryforward of approximately
$620,000, all of which expires in 2008. This amount will be available to offset
like amounts of any future taxable gains.
6. Subsequent Event:
On June 7, 2000, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.070047 per share,
payable on June 29, 2000 to shareholders of record as of June 19, 2000.
12 & 13
<PAGE>
MuniHoldings California Insured Fund V, Inc., May 31, 2000
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders MuniHoldings California Insured Fund V,
Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniHoldings California Insured Fund
V, Inc. as of May 31, 2000, the related statements of operations and changes in
net assets, and the financial highlights for the period July 23, 1999
(commencement of operations) to May 31, 2000. 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 auditing standards generally accepted
in the United States of America. 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 May 31, 2000 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, the financial statements and financial highlights present
fairly, in all material respects, the financial position of MuniHoldings
California Insured Fund V, Inc. as of May 31, 2000, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated period in accordance with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
June 29, 2000
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniHoldings California
Insured Fund V, Inc. during its taxable year ended May 31, 2000 qualify as
tax-exempt interest dividends for Federal income tax purposes. Additionally,
there were no capital gains distributions paid by the Fund during the year.
Please retain this information for your records.
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute all or a portion of its net
investment income to its shareholders on a monthly basis. In order to provide
shareholders with a more consistent yield to the current trading price of shares
of Common Stock of the Fund, the Fund may at times pay out less than the entire
amount of net investment income earned in any particular month and may at times
in any particular month pay out such accumulated but undistributed income in
addition to net investment income earned in that month. As a result, the
dividends paid by the Fund for any particular month may be more or less than the
amount of net investment income earned by the Fund during such month. The Fund's
current accumulated but undistributed net investment income, if any, is
disclosed in the Statement of Assets, Liabilities and Capital, which comprises
part of the financial information included in this report.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Roscoe Suddarth, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Vincent R. Giordano, Senior Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
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:
The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
CAF
14 & 15
<PAGE>
MuniHoldings California Insured Fund V, Inc. 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
the interest on which, in the opinion of bond counsel to the issuer, is exempt
from Federal and California income taxes.
This report, including the financial information herein, is transmitted to
shareholders of MuniHoldings California Insured Fund V, Inc. for their
information. It is not a prospectus. 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. Past performance results shown in this
report should not be considered a representation of future performance.
Statements and other information herein are as dated and are subject to change.
MuniHoldings California
Insured Fund V, Inc.
Box 9011
Princeton, NJ
08543-9011 #MHCAI5--5/00
[RECYCLE LOGO] Printed on post-consumer recycled paper
