MUNIHOLDINGS
INSURED
FUND IV, INC.
FUND LOGO
Semi-Annual Report
February 29, 2000
Officers and Directors
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
Fred K. Stuebe, Vice President
Donald C. Burke, Vice President and Treasurer
William E. Zitelli, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
MOU
This report, including the financial information herein, is
transmitted to the shareholders of MuniHoldings Insured Fund IV,
Inc. for their information. It is not a prospectus, circular or
representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a
representation of future performance. The Fund has the ability to
leverage its Common Stock by issuing Preferred Stock to provide the
Common Stock shareholders with a potentially higher rate of return.
Leverage creates risks for Common Stock shareholders, including the
likelihood of greater volatility of net asset value and market price
of shares of the Common Stock, and the risk that fluctuations in the
short-term dividend rates of the Preferred Stock may affect the
yield to Common Stock shareholders. Statements and other information
herein are as dated and are subject to change.
MuniHoldings
Insured Fund IV, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MUNIHOLDINGS INSURED FUND IV, INC.
The Benefits and
Risks of
Leveraging
MuniHoldings Insured Fund IV, 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 net
asset value of the Fund's shares may also be more volatile than if
the Fund did not invest in these securities.
MuniHoldings Insured Fund IV, Inc., February 29, 2000
DEAR SHAREHOLDER
We are pleased to provide you with this first semi-annual report for
MuniHoldings Insured Fund IV, Inc. 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 income taxes by investing
primarily in a portfolio of long-term, investment-grade municipal
obligations.
Since inception (September 24, 1999), the Common Stock of
MuniHoldings Insured Fund IV, Inc. earned $0.384 per share income
dividends, which included earned and unpaid dividends of $0.075.
This represents a net annualized yield of 6.05%, based on a month-
end per share net asset value of $14.56. Over the same period, the
total investment return on the Fund's Common Stock was -0.55%, based
on a change in per share net asset value from $15.00 to $14.56, and
assuming reinvestment of $0.308 per share income dividends.
For the period September 24, 1999 through February 29, 2000, the
Fund's Auction Market Preferred Stock had an average yield of 2.92%.
The Municipal Market Environment
Throughout most of the period ended February 29, 2000, US fixed-
income interest rates were under pressure as domestic economic
growth remained robust and rising commodity prices, especially oil,
rekindled investor concerns regarding a reemergence of inflationary
pressures. US economic growth, in part intensified by Year 2000
(Y2K) preparations, grew at a 6.9% rate in the fourth quarter of
1999 and at a 4.4% annual rate for all of 1999.
However, despite these significant growth rates, no price measure
indicator has shown any considerable signs of pressures at either
the consumer level or from labor, despite the lowest unemployment
rates since January 1970. Given no signs of an economic slowdown,
the Federal Reserve Board continued to raise short-term interest
rates in August and November 1999 and again in early February 2000.
In each instance, 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. In this
environment, long-term US Treasury bond yields rose almost 60 basis
points (0.60%) by mid-January 2000 to 6.75%, their highest yield
level since June 1997.
However, in late January and early February 2000, the US Treasury
announced that it intended to use present and future surpluses to
purchase existing high-coupon debt, as well as to limit future
issuance of longer maturity debt. While complete details have not
been released, we expect the reduced supply of long-term US Treasury
bonds to be significant and easily exceed demand on the part of the
world's financial institutions and governments. US Treasury bond
prices began rising as investors began hoarding what is expected to
become a scarce commodity. While US Treasury yields have remained
high through the past ten years, the yield on 30-year US Treasury
bonds fell dramatically, by declining more than 50 basis points to
end the period at 6.14%.
The municipal bond market has also been under pressure throughout
the entire period. By mid-January 2000, yields on long-term,
uninsured revenue bonds rose more than 50 basis points to 6.35%, as
measured by the Bond Buyer Revenue Bond Index. While some states
such as California and Maryland have announced that their present
and expected budget surpluses will allow for the cancellation and/or
postponement of expected bond issuance, the municipal bond market
has been unable to match the sort of price improvement that US
Treasury bonds have shown in recent weeks. Municipal bonds yields
declined approximately 10 basis points to 6.24% by February 29,
2000. During the last few months, long-term tax-exempt bond yields
rose more than 40 basis points to their highest level since August
1995.
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 has enjoyed. The issuance of
long-term tax-exempt securities has dramatically declined. Over the
last year, $212 billion in new long-term municipal securities was
issued, a decline of more than 20% compared to the same period a
year earlier. For the three months ended February 29, 2000, less
than $40 billion in new tax-exempt bonds was underwritten, a decline
of more than 30% compared to the February 28, 1999 quarter. Thus far
in 2000, total bond issuance volume is less than $20 billion, a
decline of more than 40% compared to the first two months of 1999.
Despite receiving more than $30 billion in coupon payments, bond
maturities and the proceeds from early bond redemptions coupled with
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 six months, tax-exempt mutual
funds have had net redemptions of approximately $9 billion. Also,
the demand from property and casualty insurance companies has
weakened as a result of the losses and anticipated losses incurred
from a 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 reduced
supply position, tax-exempt issuers have been forced repeatedly to
raise municipal bond yields in an attempt to attract adequate
demand.
However, the recent relative underperformance of the municipal bond
market has resulted in the opportunity for long-term investors to
purchase tax-exempt issues whose yields are in excess of taxable US
Treasury securities. At February 29, 2000, long-term uninsured
municipal revenue bond yields were 101.5% of comparable US Treasury
securities. In recent months, many taxable asset classes, such as
corporate bonds, mortgage-backed securities, and US Government
agency issues have all accelerated debt issuance. This acceleration
occurred largely to avoid issuing securities at year-end and thereby
avoid any associated potential Y2K problems. However, this increased
issuance also resulted in higher yield levels in the various asset
classes as lower bond prices became necessary to attract sufficient
investor demand. Going forward, we believe that the pace of non-US
Government debt is likely to slow significantly. As the supply of
this debt declines, many institutional investors are likely to
return to the municipal bond market and the attractive yield ratios
available. Furthermore, with the potential scarcity of longer
maturity debt, the attractiveness of the US municipal bond market
should be further enhanced.
Any significantly lower municipal bond yields are still likely to
require weaker US employment growth and consumer spending. The
tightening actions taken in recent months by the Federal Reserve
Board, as well as those expected in March and perhaps May 2000,
should eventually slow US economic growth. The recent decline 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 an eventual
improvement in municipal bond prices.
Portfolio Strategy
Since the Fund's inception, our primary investment focus has been to
seek to enhance shareholder income. Consequently, we purchased the
highest-yielding insured national municipal bonds available in an
effort to quickly generate an attractive tax-exempt dividend stream.
Similarly, the proceeds from the issuance of Preferred Stock were
also quickly invested in similar issues. We favored current coupon
issues or bonds issued at a slight premium over deep discount issues
because larger coupon issues generate a higher dividend payment than
lower coupon, more interest rate-sensitive securities. We sacrificed
the potential for long-term capital gains that discount bonds
provide, believing that the Fund's leveraged structure provided an
opportunity for capital appreciation.
Throughout the period, the Fund's borrowing costs centered around
3.50%. The US Treasury yield curve recently inverted with the ten-
year US Treasury bond yield higher than that of the 30-year Treasury
bond. The tax-exempt bond market has remained positively sloped,
generating significant income for the Fund's Common Stock
shareholders from the leveraging of the Preferred Stock. However,
should the spread between short-term and long-term tax-exempt
interest rates narrow, the benefits of the leverage will decline
and, as a result, reduce the yield on the Fund's Common Stock. (For
a complete explanation of the benefits and risks of leveraging, see
page 1 of this report to shareholders.)
Looking ahead, we expect to remain fully invested in order to seek
to enhance shareholder income. Since tax-exempt bond yields are
likely to stay in a relatively narrow range, we do not anticipate
making any significant changes to the current portfolio composition
and structure. However, should either the US economy or equity
markets exhibit any significant weakness, we are prepared to adopt a
more aggressive position in an effort to maintain our focus of
generating an attractive level of current income.
In Conclusion
We appreciate your interest in MuniHoldings Insured Fund IV, Inc.,
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 Director
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Fred K. Stuebe)
Fred K. Stuebe
Vice President and Portfolio Manager
March 23, 2000
MuniHoldings Insured Fund IV, Inc., February 29, 2000
Portfolio
Abbreviations
To simplify the listings of MuniHoldings Insured Fund IV, Inc.'s
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
S/F Single-Family
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <S> <S> <C> <S> <C>
Alabama--2.4% AAA Aaa $ 2,000 Jefferson County, Alabama, Sewer Revenue Bonds, Series D, 5.75%
due 2/01/2027 (b) $ 1,931
Alaska--1.2% AAA Aaa 1,000 Anchorage, Alaska, Water Revenue Refunding Bonds, 6% due
9/01/2024 (a) 991
Arizona--1.2% A1+ P1 1,000 Pinal County, Arizona, IDA, PCR (Newmont Mining), DATES, 3.80%
due 12/01/2009 (e) 1,000
Colorado--1.2% NR* Aa2 1,000 Colorado HFA, Revenue Refunding Bonds (S/F Program), AMT,
Senior Series A-2, 6.60% due 5/01/2028 1,014
District of AAA Aaa 2,500 District of Columbia, GO, Refunding, Series B, 5.25% due
Columbia--2.7% 6/01/2026 (c) 2,179
Florida--5.1% NR* VMIG1++ 100 Hillsborough County, Florida, IDA, PCR, Refunding (Tampa
Electric Company Project), VRDN, 3.80% due 9/01/2025 (e) 100
AAA Aaa 4,000 Tampa Bay, Florida, Water Utility System Revenue Bonds, 6%
due 10/01/2024 (b) 4,036
Illinois--10.5% AAA Aaa 2,500 Chicago, Illinois, GO, Series A, 6.75% due 1/01/2035 (b)(f) 2,678
AAA Aaa 1,200 Chicago, Illinois, Wastewater Transmission, Revenue Bonds,
Second Lien, 6% due 1/01/2030 (d) 1,183
AAA Aaa 1,725 Chicago, Illinois, Water Revenue Refunding Bonds, 5.50% due
11/01/2022 (b) 1,593
AAA Aaa 2,000 Metropolitan Pier and Exposition Authority, Illinois, Dedicated
State Tax Revenue Refunding Bonds (McCormick Plant Expansion
Project), 5.50% due 12/15/2024 (b) 1,850
NR* Aaa 1,250 Northern Illinois University Revenue Refunding Bonds (Auxiliary
Facilities System), 6% due 4/01/2024 (a) 1,245
Massachusetts Massachusetts State Water Resources Authority, Revenue
- --3.5% Refunding Bonds, Series A (b):
AAA Aaa 1,270 6% due 8/01/2016 1,305
AAA Aaa 1,500 6% due 8/01/2017 1,534
Michigan--8.4% AAA Aaa 2,000 Detroit, Michigan, Water Supply System Revenue Bonds, Senior
Lien, Series A, 5.875% due 7/01/2029 (b) 1,960
AA Aa2 2,000 Michigan State Hospital Finance Authority, Revenue Refunding
Bonds (Ascension Health Credit), Series A, 6.125% due 11/15/2026 1,950
AAA Aaa 3,635 Wayne Charter County, Michigan, Airport Revenue Bonds (Detroit
Metropolitan--Wayne County Airport), AMT, Series A, 5% due
12/01/2028 (d) 2,986
Mississippi AAA Aaa 1,000 Walnut Grove, Mississippi, Correctional Authority, COP, 6% due
- --1.2% 11/01/2019 (a) 1,000
Nevada--3.6% AAA Aaa 3,000 Washoe County, Nevada, School District, GO, 5.875% due
6/01/2020 (c) 2,963
New AAA Aaa 4,000 Nassau Health Care Corporation, New York, Health System
York--18.4% Revenue Bonds, 5.75% due 8/01/2022 (c) 3,882
AAA Aaa 4,000 New York City, New York, GO, Refunding, Series H, 5.375%
due 8/01/2027 (c) 3,613
AAA Aaa 3,115 New York State Dormitory Authority Revenue Bonds (Mental
Health Services Facilities), Series B, 5.375% due 2/15/2026 (c) 2,808
New York State Urban Development Corporation Revenue Bonds (a):
AAA Aaa 2,480 (Correctional Capital Facilities), Series 6, 5.375% due
1/01/2025 2,248
AAA Aaa 2,500 (Correctional Facilities Service Contract), Series C, 6%
due 1/01/2029 2,496
Ohio--3.4% NR* Aaa 1,745 Aurora, Ohio, City School District, COP, 6.10% due 12/01/2019 (d) 1,764
AAA Aaa 1,000 Kent State University, Ohio, University Revenue Bonds, 6%
due 5/01/2024 (a) 1,002
Pennsylvania AAA Aaa 1,500 Allegheny County, Pennsylvania, Port Authority, Special
- --1.8% Transportation Revenue Bonds, 6% due 3/01/2024 (d) 1,500
South AAA Aaa 2,250 Spartanburg, South Carolina, Sanitation Sewer District, Sewer
Carolina--2.3% System Revenue Refunding Bonds, Series B, 5% due 3/01/2026 (d) 1,914
Tennessee--4.1% AAA Aaa 3,500 Metropolitan Government of Nashville and Davidson County,
Tennessee, Health and Education Facilities Board Revenue
Refunding Bonds (Ascension Health Credit), Series A, 5.875%
due 11/15/2028 (a) 3,385
Texas--11.6% A1+ NR* 2,200 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Refunding Bonds (Methodist
Hospital), VRDN, 3.85% due 12/01/2025 (e) 2,200
AAA Aaa 2,835 Houston, Texas, Water and Sewer System Revenue Bonds, Junior
Lien, Series C, 5.25% due 12/01/2022 (b) 2,543
AAA Aaa 2,700 Texas Technology University, Financing System Revenue Refunding
and Improvement Bonds, 6th Series, 5% due 2/15/2029 (a) 2,267
AAA Aaa 2,500 Travis County, Texas, Health Facilities Development Corporation,
Revenue Refunding Bonds (Ascension Health Credit), Series A,
5.875% due 11/15/2024 (a) 2,419
Washington AAA Aaa 1,505 King County, Washington, Sewer Revenue Bonds, Second Series, 6%
- --13.2% due 1/01/2020 (b) 1,506
NR* Aaa 3,445 Lewis County, Washington, GO, Refunding, 5.75% due 12/01/2024 (a) 3,321
AAA Aaa 2,500 Seattle, Washington, Municipal Light and Power Revenue Bonds,
6% due 10/01/2024 (d) 2,462
AAA Aaa 3,500 Seattle, Washington, Water System Revenue Bonds, Series B, 6%
due 7/01/2029 (b) 3,476
Total Investments (Cost--$79,055)--95.8% 78,304
Variation Margin on Financial Futures Contracts**--(0.1%) (56)
Other Assets Less Liabilities--4.3% 3,504
---------
Net Assets--100.0% $ 81,752
=========
(a)AMBAC Insured.
(b)FGIC Insured.
(c)FSA Insured.
(d)MBIA Insured.
(e)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at February 29, 2000.
(f)Represents collateral in connection with open financial futures
contracts.
++Highest short-term rating by Moody's Investors Service, Inc.
*Not Rated.
**Financial futures contracts sold as of February 29, 2000 were as
follows:
(in Thousands)
Number of Expiration
Contracts Issue Date Value
90 US Treasury Bonds June 2000 $ 8,522
Total Financial Futures Contracts Sold
(Total Contract Price--$8,497) $ 8,522
=========
See Notes to Financial Statements.
</TABLE>
MuniHoldings Insured Fund IV, Inc., February 29, 2000
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of February 29, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$79,055,077) $78,304,197
Cash 73,342
Receivables:
Securities sold $ 5,469,799
Interest 1,164,960
Investment adviser 11,371 6,646,130
----------- -----------
Total assets 85,023,669
-----------
Liabilities: Payables:
Securities purchased 2,837,866
Offering costs 240,366
Dividends to shareholders 82,199
Variation margin 56,250 3,216,681
-----------
Accrued expenses 54,498
-----------
Total liabilities 3,271,179
-----------
Net Assets: Net assets $81,752,490
===========
Capital: Capital Stock (200,000,000 shares authorized):
Preferred Stock, par value $.10 per share (1,266 shares of
AMPS* issued and outstanding at $25,000
per share liquidation preference) $31,650,000
Common Stock, par value $.10 per share (3,441,482 shares issued
and outstanding) $ 344,148
Paid-in capital in excess of par 50,769,541
Undistributed investment income--net 311,346
Accumulated realized capital losses on investments--net (546,352)
Unrealized depreciation on investments--net (776,193)
-----------
Total--Equivalent to $14.56 net asset value per share of
Common Stock (market price--$12.875) 50,102,490
-----------
Total capital $81,752,490
===========
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period September 24, 1999++ to February 29, 2000
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 1,889,368
Income:
Expenses: Investment advisory fees $ 178,562
Commission fees 30,927
Accounting services 23,159
Professional fees 17,240
Transfer agent fees 12,338
Directors' fees and expenses 8,913
Custodian fees 3,881
Listing fees 3,663
Printing and shareholder reports 2,906
Pricing fees 2,371
Other 2,472
-----------
Total expenses before reimbursement 286,432
Reimbursement of expenses (173,007)
-----------
Total expenses after reimbursement 113,425
-----------
Investment income--net 1,775,943
-----------
Realized & Realized loss on investments--net (546,352)
Unrealized Unrealized depreciation on investments--net (776,193)
Loss on -----------
Investments--Net: Net Increase in Net Assets Resulting from Operations $ 453,398
===========
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
For the Period
September 24, 1999++ to
Increase (Decrease) in Net Assets: February 29, 2000
<S> <S> <C>
Operations: Investment income--net $ 1,775,943
Realized loss on investments--net (546,352)
Unrealized depreciation on investments--net (776,193)
-----------
Net increase in net assets resulting from operations 453,398
-----------
Dividends to Investment income--net:
Shareholders: Common Stock (1,061,356)
Preferred Stock (403,241)
-----------
Net decrease in net assets resulting from dividends to shareholders (1,464,597)
-----------
Capital Stock Proceeds from issuance of Common Stock 51,522,225
Transactions: Proceeds from issuance of Preferred Stock 31,650,000
Offering costs resulting from the issuance of Common Stock (131,366)
Offering and underwriting costs resulting from the issuance of Preferred Stock (377,175)
-----------
Net increase in net assets derived from capital stock transactions 82,663,684
-----------
Net Assets: Total increase in net assets 81,652,485
Beginning of period 100,005
-----------
End of period* $81,752,490
===========
*Undistributed investment income--net $ 311,346
===========
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
MuniHoldings Insured Fund IV, Inc., February 29, 2000
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
September 24, 1999++ to
Increase (Decrease) in Net Asset Value: February 29, 2000
<S> <S> <C>
Per Share Net asset value, beginning of period $ 15.00
Operating -----------
Performance: Investment income--net .52
Realized and unrealized loss on investments--net (.37)
-----------
Total from investment operations .15
-----------
Less dividends to Common Stock shareholders from investment income--net (.31)
-----------
Capital charge resulting from issuance of Common Stock (.04)
-----------
Effect of Preferred Stock activity:++++
Dividends to Preferred Stock shareholders:
Investment income--net (.12)
Capital charge resulting from issuance of Preferred Stock (.12)
-----------
Total effect of Preferred Stock activity (.24)
-----------
Net asset value, end of period $ 14.56
===========
Market price per share, end of period $ 12.875
===========
Total Investment Based on market price per share (12.06%)+++
Return:** ===========
Based on net asset value per share (.55%)+++
===========
Ratios Based on Total expenses, net of reimbursement*** .59%*
Average Net ===========
Assets of Total expenses*** 1.49%*
Common Stock: ===========
Total investment income--net*** 9.21%*
===========
Amount of dividends to Preferred Stock shareholders 2.09%*
===========
Investment income--net, to Common Stock shareholders 7.12%*
===========
Ratios Based on Total expenses, net of reimbursement .35%*
Total Average ===========
Net Total expenses .88%*
Assets:++++++*** ===========
Total investment income--net 5.46%*
===========
Ratios Based on Dividends to Preferred Stock Shareholders 3.04%*
Average Net ===========
Assets of
Preferred Stock:
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) $ 50,102
Data: ===========
Preferred Stock outstanding, end of period (in thousands) $ 31,650
===========
Portfolio turnover 43.63%
===========
Leverage: Asset coverage per $1,000 $ 2,583
===========
Dividends Investment income--net $ 319
Per Share ===========
On Preferred
Stock
Outstanding:
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales charges.
***Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Commencement of operations.
++++The Fund's Preferred Stock was issued on September 30, 1999.
++++++Includes Common and Preferred Stock average net assets.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings Insured Fund IV, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. The Fund's financial statements are
prepared in accordance with generally accepted accounting
principles, which may require the use of management accruals and
estimates. These unaudited financial statements reflect all
adjustments, which are, in the opinion of management, necessary to a
fair statement of the results for the interim period presented. All
such adjustments are of a normal recurring nature. Prior to
commencement of operations on September 24, 1999, the Fund had no
operations other than those relating to organizational matters and
the sale of 6,667 shares of Common Stock on September 14, 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 Stock on a weekly basis. The Fund's Common Stock is
listed on the New York Stock Exchange under the symbol MOU. The
following is a summary of significant accounting policies followed
by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of
such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of
options traded in the over-the-counter market, valuation is the last
asked price (options written) or the last bid price (options
purchased). Securities with remaining maturities of sixty days or
less are valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* 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).
MuniHoldings Insured Fund IV, Inc., February 29, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
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 proceeds from the
issuance of Preferred Stock. For the period September 24, 1999 to
February 29, 2000, FAM earned fees of $178,562, of which $143,413
was voluntarily waived. In addition, FAM also reimbursed the Fund
$29,594 in additional expenses.
During the period September 24, 1999 to February 29, 2000, Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate
of FAM, received underwriting fees of $237,375 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 September 24, 1999 to February 29, 2000 were
$104,317,936 and $28,031,258, respectively.
Net realized losses for the period September 24, 1999 to February
29, 2000 and net unrealized losses as of February 29, 2000 were as
follows:
Realized Unrealized
Losses Losses
Long-term investments $ (540,107) $ (750,880)
Financial futures contracts (6,245) (25,313)
----------- -----------
Total $ (546,352) $ (776,193)
=========== ===========
As of February 29, 2000, net unrealized depreciation for Federal
income tax purposes aggregated $750,880, of which $375,973 related
to appreciated securities and $1,126,853 related to depreciated
securities. The aggregate cost of investments at February 29, 2000
for Federal income tax purposes was $79,055,077.
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 September 24, 1999
to February 29, 2000 increased by 3,434,815 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 February
29, 2000 was 2.32%.
In connection with the offering of AMPS, the Board of Directors
reclassified 1,266 shares of unissued capital stock as AMPS. Shares
issued and outstanding during the period September 24, 1999 to
February 29, 2000 increased by 1,266 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 September
24, 1999 to February 29, 2000, MLPF&S, an affiliate of FAM, earned
$23,827 as commissions.
5. Subsequent Event:
On March 7, 2000, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.075200 per share, payable on March 30, 2000 to shareholders of
record as of March 17, 2000.
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.
QUALITY PROFILE
The quality ratings of securities in the Fund as of February 29,
2000 were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 88.2%
AA/Aa 3.6
Other++ 4.0
[FN]
++Temporary investments in short-term municipal securities.
