UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-8707
Name of Fund: MuniHoldings Insured Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
MuniHoldings Insured Fund, Inc., 800 Scudders Mill Road, Plainsboro,
NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543-
9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 04/30/03
Date of reporting period: 05/01/02 - 04/30/03
Item 1 - Attach shareholder report
(BULL LOGO)
Merrill Lynch Investment Managers
Annual Report
April 30, 2003
MuniHoldings
Insured Fund, Inc.
www.mlim.ml.com
MuniHoldings Insured Fund, Inc. 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 the interest on which, in the opinion of bond counsel to
the issuer, is exempt from Federal income taxes. Under normal
circumstances, the Fund invests at least 80% of its total assets in
municipal bonds that are covered by insurance.
This report, including the financial information herein, is
transmitted to shareholders of MuniHoldings Insured Fund, Inc. for
their information. It is not a prospectus. Past performance results
shown in this report should not be considered a representation of
future performance. The Fund has leveraged its Common Stock and
intends to remain leveraged 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, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MUNIHOLDINGS INSURED FUND, INC.
The Benefits and
Risks of
Leveraging
MuniHoldings Insured Fund, Inc. has the ability to leverage to seek
to enhance the yield and net asset value of its Common Stock.
However, these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues Preferred Stock, which
pays dividends at prevailing short-term interest rates, and invests
the proceeds in long-term municipal bonds. The interest earned on
these investments is paid to Common Stock shareholders in the form
of dividends, and the value of these portfolio holdings is reflected
in the per share net asset value of the Fund's Common Stock.
However, in order to benefit Common Stock shareholders, the yield
curve must be positively sloped; that is, short-term interest rates
must be lower than long-term interest rates. At the same time, a
period of generally declining interest rates will benefit Common
Stock shareholders. If either of these conditions change, then the
risks of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issue of Preferred Stock for
an additional $50 million, creating a total value of $150 million
available for investment in long-term municipal bonds. If prevailing
short-term interest rates are approximately 3% and long-term
interest rates are approximately 6%, the yield curve has a strongly
positive slope. The fund pays dividends on the $50 million of
Preferred Stock based on the lower short-term interest rates. At the
same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates.Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pickup on the
Common Stock will be reduced or eliminated completely. At the same
time, the market value on the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange), may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain
securities whose potential income return is inversely related to
changes in a floating interest rate ("inverse floaters"). In
general, income on inverse floaters will decrease when short-term
interest rates increase and increase when short-term interest rates
decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of
reduced or eliminated interest payments and losses of invested
principal. In addition, inverse floaters have the effect of
providing investment leverage and, as a result, the market value of
such securities will generally be more volatile than that of fixed-
rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the
net asset value of the Fund's shares may also be more volatile than
if the Fund did not invest in these securities.
Swap
Agreements
The Fund may also invest in swap agreements, which are over-the-
counter contracts in which one party agrees to make periodic
payments based on the change in market value of a specified bond,
basket of bonds, or index in return for periodic payments based on a
fixed or variable interest rate or the change in market value of a
different bond, basket of bonds or index. Swap agreements may be
used to obtain exposure to a bond or market without owning or taking
physical custody of securities.
MuniHoldings Insured Fund, Inc., April 30, 2003
DEAR SHAREHOLDER
For the year ended April 30, 2003, the Common Stock of MuniHoldings
Insured Fund, Inc. had a net annualized yield of 5.86%, based on a
year-end per share net asset value of $14.48 and $.848 per share
income dividends. Over the same period, the total investment return
on the Fund's Common Stock was +12.04%, based on a change in per
share net asset value from $13.78 to $14.48, and assuming
reinvestment of $.845 per share income dividends.
For the six-month period ended April 30, 2003, the total investment
return on the Fund's Common Stock was +7.24%, based on a change in
per share net asset value from $13.95 to $14.48, and assuming
reinvestment of $.428 per share ordinary income dividends.
For the six-month period ended April 30, 2003, the Fund's Auction
Market Preferred Stock had an average yield of 1.13% for Series A
and 1.10% for Series B.
For a description of the Fund's total investment return based on a
change in the per share market value (as measured by the trading
price of the Fund's shares on the New York Stock Exchange), and
assuming reinvestment of dividends, please refer to the Financial
Highlights section of the Financial Statements included in this
report. As a closed-end fund, the Fund's shares may trade in the
secondary market at a premium or discount to the Fund's net asset
value. As a result, total investment returns based on changes in the
Fund's market value can vary significantly from total investment
return based on changes in the Fund's net asset value.
The Municipal Market Environment
During the six-month period ended April 30, 2003, amid considerable
weekly and monthly volatility, long-term fixed income interest rates
generally declined. Geopolitical tensions and volatile equity
valuations continued to overshadow economic fundamentals as they
have for most of the last 12 months. Reacting to the strong U.S.
equity rally that began last October, fixed income bond yields
remained under pressure in November 2002, as U.S. equity markets
continued to strengthen. During November, the Standard & Poor's 500
(S&P 500) Index rose an additional 5.50%. Equity prices were
supported by further signs of U.S. economic recovery, especially
improving labor market activity. In late November, third-quarter
2002 U.S. gross domestic product growth was 4%, well above the
second-quarter 2002 rate of 1.30%. Financial conditions were also
strengthened by a larger-than-expected reduction in short-term
interest rates by the Federal Reserve Board in early November. The
Federal Funds target rate was lowered 50 basis points (0.50%) to
1.25%, its lowest level since the 1960s. This action by the Federal
Reserve Board was largely viewed as being taken to bolster the
sputtering U.S. economic recovery. Rebounding U.S. equity markets
and the prospects for a more substantial U.S. economic recovery
pushed long-term U.S. Treasury yield levels to 5.10% by late
November.
However, into early 2003, softer equity prices and renewed investor
concerns about U.S. military action against Iraq and North Korea
again pushed bond prices higher. Reacting to disappointing holiday
sales and corporate managements' attempts to scale back analysts'
expectation of future earnings, the S&P 500 Index declined more than
10% from December 2002 to February 2003. Fearing an eventual U.S./
Iraq military confrontation in 2003, investors again sought the
safety of U.S. Treasury obligations and the prices of fixed income
issues rose. By the end of February 2003, U.S. Treasury bond yields
had declined approximately 40 basis points to 4.67%.
Bond yields continued to fall into early March. Once direct U.S.
military action against Iraq began, bond yields quickly rose. Prior
uncertainty surrounding the Iraqi situation was obviously removed
and early U.S. military successes fostered the hope that the
conflict would be quickly and positively concluded. Concurrently,
the S&P 400 Index rose over 6% as investors, in part, sold fixed
income issues to purchase equities in anticipation of a strong U.S.
economic recovery once the Iraqi conflict was resolved. By mid-
March, U.S. Treasury bond yields again rose to above 5%. However, as
there was growing sentiment that hostilities may not be resolved in
a matter of weeks, U.S. Treasury bond yields again declined to end
the month at 4.81%.
For the six months ended April 30, 2003, long-term U.S. Treasury
bond yields ratcheted back to near 5% by mid-April, as U.S. equity
markets continued to improve and the safe-haven premium U.S.
Treasury issues had commanded prior to the beginning of the Iraqi
conflict continued to be withdrawn. However, with the quick positive
resolution of the Iraqi war, investors quickly resumed their focus
on the fragile U.S. economic recovery. Business activity in the
United States has remained sluggish, especially job creation.
Investors have also been concerned that the recent SARS outbreak
would have a material, negative impact on world economic conditions,
especially in China and Japan. First quarter 2003 U.S. gross
domestic product was released in late April initially estimating
U.S. economic activity to be growing at 1.60%, well below many
analysts' assessments. These factors, as well as the possibility
that the Federal Reserve Board could again lower short-term interest
rates to encourage more robust U.S. economic growth, pushed bond
prices higher during the last two weeks of the period. By April 30,
2003, long-term U.S. Treasury bond yields had declined to almost
4.75%. Over the past six months, long-term U.S. bond yields fell
more than 20 basis points.
For the six months ended April 30, 2003, long-term tax-exempt bond
yields also fell modestly. Yield volatility was reduced relative to
that seen in U.S. Treasury issues, as municipal bond prices were
much less sensitive to worldwide geopolitical pressures on a daily
and weekly basis. Tax-exempt bond yields generally followed their
taxable counterparts higher, responding to a more positive U.S.
fixed income environment and continued slow economic growth. After
rising approximately 10 basis points in November 2002 to 5.30%,
municipal bond yields generally declined through February 2003. At
February 28, 2003, long-term tax-exempt revenue bond yields, as
measured by the Bond Buyer Revenue Bond Index, fell to approximately
5.05%. However, similar to U.S. Treasury bond yields, once military
action began in Iraq, municipal bond yields rose sharply to nearly
5.20% before declining to approximately 5.10% by the end of April.
Over the past six months, long-term tax-exempt bond yields fell
approximately 11 basis points, slightly less than U.S. Treasury
obligations.
A number of factors have combined to generate consistently strong
demand for municipal bonds throughout the six-month period ended
April 30, 2003. Generally weak U.S. equity markets have supported
continued positive demand for tax-exempt products as investors have
sought the relative security of fixed income issues. Also, with tax-
exempt money market rates near 1%, the demand for longer maturity
municipal issues has increased as investors have opted to buy longer
maturity issues rather than remain in cash reserves. Additionally,
investors received approximately $30 billion in January 2003 from
bond maturities, coupon income and proceeds from early redemptions.
However, these positive demand factors were not totally able to
offset the increase in tax-exempt new-issue supply, preventing more
significant declines in tax-exempt bond yields. This modest
underperformance has served to make municipal bonds a particularly
attractive purchase relative to their taxable counterparts.
Throughout most of the yield curve, municipal bonds have been able
to be purchased at yields near or exceeding those of comparable
Treasury issues. Compared to their recent historical averages of
82% - 88% of U.S. Treasury yields, municipal bond yield ratios in
their current 95% - 105% range are likely to prove attractive to
long-term investors.
Declining U.S. equity markets and escalating geopolitical pressures
have resulted in reduced economic activity and consumer confidence.
It is important to note that, despite all the recent negative
factors impeding the growth of U.S. businesses, the U.S. economy
still grew at an approximate 2.50% rate for all of 2002, twice that
of 2001. Similar expansion is expected for early 2003. Lower oil
prices, reduced geopolitical uncertainties, increased Federal
spending for defense, and a likely Federal tax cut are all factors
which should promote stronger economic growth later this year.
However, it is questionable to expect that business and investor
confidence can be so quickly restored as to trigger dramatic,
explosive U.S. economic growth and engender associated, large-scale
interest rate increases. The resumption of solid economic growth is
likely to be a gradual process accompanied by equally graduated
increases in bond yields. Moderate economic growth, especially
within a context of negligible inflationary pressures, should not
greatly endanger the positive fixed income environments tax-exempt
products currently enjoy.
MuniHoldings Insured Fund, Inc., April 30, 2003
Portfolio Strategy
During the past six months, our principal portfolio strategy has
been to maintain the slightly defensive market stance adopted early
in 2002 while maintaining a competitive tax-exempt yield. We focused
on positioning the Fund into sectors demonstrating value and
reducing exposure in sectors that seemed expensive by historical
standards. Because of heavy issuance, California insured bonds were
trading at a deep discount compared to the rest of the municipal
market. We took advantage of this by overweighting the California
sector during the fourth quarter of 2002. Our strategy proved
successful as supply declined during the first quarter of 2003,
enabling the Fund to perform well relative to its peers. We also
continued to pursue extending out the yield curve. The municipal
yield curve has become extremely steep during the past year, with
the ten-year area of the curve being the most volatile. We sold
bonds maturing inside of ten years and used the proceeds to purchase
bonds with maturities greater than 20 years. This enabled the Fund
to increase its average accrual yield, while reducing its
volatility. Looking forward, we will maintain the Fund's defensive
structure to limit portfolio asset volatility and retain its
competitive yield. We will wait until the domestic economy begins a
recovery before positioning the Fund in a more defensive stance.
During the period, the Fund's borrowing costs remained in the
1% - 1.50% range, with interest rates presently near 1%. These very
attractive funding levels, in combination with the steep tax-exempt
yield curve, have continued to generate significant income benefits
to the Fund's Common Stock shareholders. We do not expect any
material reduction in the Fund's borrowing costs in 2003 as no
additional easings by the Federal Reserve Board are anticipated. We
expect the Fund's short-term borrowing costs to remain at current
attractive levels for the coming months. However, should the spread
between short-term and long-term interest rates narrow, the benefits
of leverage will decline, and as a result, reduce the yield on the
Fund's Common Stock. (For a more complete explanation of the
benefits and risks of leveraging, see page 1 of this report to
shareholders.)
In Conclusion
We appreciate your investment in MuniHoldings Insured Fund, Inc.,
and we look forward to serving your investments needs in the months
and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Kenneth A. Jacob)
Kenneth A. Jacob
Senior Vice President
(John M. Loffredo)
John M. Loffredo
Senior Vice President
(Robert A. DiMella)
Robert A. DiMella
Vice President and
Portfolio Manager
May 16, 2003
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings+++ Ratings+++ Amount Issue Value
Arizona--1.2% NR* Aaa $ 2,000 Arizona Tourism and Sports Authority, Tax Revenue Bonds (Multi-Purpose
Stadium Facility), Series A, 5.375% due 7/01/2021 (d) $ 2,183
Arkansas--0.8% NR* Aaa 1,385 University of Arkansas, University Revenue Bonds (Fayetteville
Campus), 5.50% due 12/01/2018 (b) 1,555
California-- AAA Aaa 3,250 Brea and Olinda, California, Unified School District, COP, Refunding,
19.9% Series A, 5.125% due 8/01/2026 (c) 3,382
AAA Aaa 3,500 California Pollution Control Financing Authority, PCR, Refunding
(Pacific Gas & Electric), AMT, Series A, 5.35% due 12/01/2016 (d) 3,813
California State, Department of Water Resources, Power Supply
Revenue Bonds, Series A:
AAA Aaa 4,000 5.375% due 5/01/2017 (f) 4,421
AAA Aaa 3,000 5.375% due 5/01/2018 (a) 3,314
AAA NR* 5,750 California State, GO, Refunding, 5.25% due 10/01/2020 (f) 6,151
AAA Aaa 2,480 Port Oakland, California, Revenue Refunding Bonds, Series M, 5.25%
due 11/01/2020 (b) 2,688
AA Aa3 5,000 Sacramento County, California, Sanitation District Financing Authority,
Revenue Refunding Bonds, RIB, Series 366, 10.11% due 12/01/2027 (e) 6,128
AAA Aaa 5,000 San Francisco, California, City and County Airport Commission,
International Airport, Special Facilities Lease Revenue Bonds
(SFO Fuel Company LLC), AMT, Series A, 5.25% due 1/01/2027 (a) 5,087
San Pablo, California, Joint Powers Financing Authority, Tax
Allocation Revenue Refunding Bonds (d):
AAA Aaa 2,635 5.66%** due 12/01/2024 824
AAA Aaa 2,355 5.66%** due 12/01/2025 691
AAA Aaa 2,355 5.66%** due 12/01/2026 651
Colorado--6.5% Aurora, Colorado, COP (a):
AAA Aaa 2,440 5.75% due 12/01/2015 2,817
AAA Aaa 2,560 5.75% due 12/01/2016 2,950
AAA Aaa 2,730 5.75% due 12/01/2017 3,136
AAA Aaa 2,890 5.75% due 12/01/2018 3,305
Connecticut-- AAA Aaa 8,000 Connecticut State, HFA, Revenue Bonds (Housing Mortgage Program),
7.8% AMT, Series D, 5.15% due 11/15/2022 (d) 8,226
AA Baa3 5,710 Connecticut State Health and Educational Facilities Authority,
Revenue Refunding Bonds (University of Hartford), Series E, 5.50%
due 7/01/2022 6,245
Portfolio
Abbreviations
To simplify the listings of MuniHoldings Insured Fund, 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
EDA Economic Development
Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
MuniHoldings Insured Fund, Inc., April 30, 2003
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings+++ Ratings+++ Amount Issue Value
Florida--1.5% NR* Aaa $ 2,500 Escambia County, Florida, Health Facilities Authority, Health
Facility Revenue Bonds (Florida Health Care Facility Loan), 5.95%
due 7/01/2020 (a) $ 2,736
Hawaii--6.4% AAA Aaa 10,000 Hawaii State, GO, Series CT, 5.875% due 9/01/2009 (c)(h) 11,868
Illinois--18.8% Chicago, Illinois, GO (b):
AAA Aaa 5,000 5.50% due 1/01/2021 5,464
AAA Aaa 2,790 Series A, 6% due 1/01/2018 3,239
AAA Aaa 2,000 Series A, 6% due 1/01/2019 2,310
AAA Aaa 3,175 Series A, 6% due 1/01/2020 3,652
AAA Aaa 3,500 Chicago, Illinois, Motor Fuel Tax Revenue Refunding Bonds, Series A,
5.25% due 1/01/2028 (a) 3,674
AAA Aaa 3,500 Chicago, Illinois, Parking District, GO, Series A, 5.75% due
1/01/2017 (b) 3,923
BBB A3 5,280 Hodgkins, Illinois, Environmental Improvement Revenue Bonds
(MBM Project), AMT, 6% due 11/01/2015 5,620
BBB NR* 1,760 Illinois, Development Finance Authority Revenue Bonds (Community
Rehabilitation Providers Facilities), Series A, 6.625% due 7/01/2032 1,824
AAA Aaa 4,500 Illinois State, GO, First Series, 6% due 1/01/2018 (b) 5,201
AAA Aaa 45 Lake, Cook, Kane, and McHenry Counties, Illinois, Community United
School District, GO, 5.75% due 12/01/2019 (b) 51
Kentucky--2.6% AAA Aa3 4,380 Fayette County, Kentucky, School District Finance Corporation, School
Building Revenue Bonds, 5.50% due 9/01/2019 4,845
Louisiana--0.7% NR* Aaa 1,250 Louisiana Local Government, Environmental Facilities, Community
Development Authority, Mortgage Revenue Refunding Bonds (Sharlo
Apartments), Series A, 6.50% due 6/20/2037 1,379
Maine--1.4% AA+ Aa1 2,500 Maine State Housing Authority, Mortgage Revenue Bonds, AMT,
Series F-2, 5.25% due 11/15/2032 2,559
Massachusetts-- AAA Aaa 1,770 Massachusetts State, GO, Refunding, Consolidated Loan, Series D,
1.0% 5.375% due 8/01/2022 (d) 1,914
Michigan--4.1% AAA Aaa 2,035 Boyne City, Michigan, Public School District, GO, 5.75% due
5/01/2017 (b) 2,329
Michigan State Strategic Fund, Limited Obligation Revenue Refunding
Bonds, AMT (f):
AAA Aaa 3,500 (Detroit Edison Company Project), Series C, 5.65% due 9/01/2029 3,677
AAA Aaa 1,500 (Detroit Edison Pollution), Series B, 5.65% due 9/01/2029 1,615
Minnesota--2.4% NR* Aaa 4,015 Sauk Rapids, Minnesota, Independent School District Number 47, GO,
Series A, 5.65% due 2/01/2019 (d) 4,448
Mississippi-- BBB- Ba1 4,000 Mississippi Business Finance Corporation, Mississippi, PCR,
2.1% Refunding (System Energy Resources Inc. Project), 5.875% due
4/01/2022 3,937
Missouri--7.8% AAA Aaa 2,000 Cape Girardeau, Missouri, School District Number 063, GO (Missouri
Direct Deposit Program), 5.50% due 3/01/2018 (b) 2,224
Mehlville, Missouri, School District Number R-9, COP (c):
AAA Aaa 1,570 (Missouri Capital Improvement Projects), 5.50% due 9/01/2015 1,781
AAA Aaa 2,610 (Missouri Capital Improvement Projects), 5.50% due 9/01/2018 2,904
AAA Aaa 1,925 Series A, 5.50% due 3/01/2014 2,158
AAA Aaa 2,175 Series A, 5.50% due 3/01/2015 2,430
AAA Aaa 1,170 Series A, 5.50% due 3/01/2016 1,299
AAA Aaa 1,500 Series A, 5.50% due 3/01/2017 1,656
Nebraska--2.9% Omaha Convention Hotel Corporation, Nebraska, Convention Center
Revenue Bonds, First Tier, Series A (a):
AAA Aaa 1,585 5.50% due 4/01/2020 1,737
AAA Aaa 2,000 5.50% due 4/01/2021 2,184
A+ A1 1,500 Washington County, Nebraska, Wastewater Facilities Revenue Bonds
(Cargill Inc. Project), AMT, 5.90% due 11/01/2027 1,543
Nevada--2.4% AAA Aaa 4,000 Las Vegas New Convention and Visitors Authority Revenue Bonds,
5.75% due 7/01/2018 (a) 4,564
New Hampshire-- AAA Aaa 2,250 New Hampshire Health and Education Facilities Authority Revenue
1.3% Bonds (University System of New Hampshire), 5.375% due 7/01/2020 (a) 2,463
New Jersey-- AAA Aaa 5,000 New Jersey EDA, Water Facilities Revenue Refunding Bonds
11.3% (American Water), AMT, Series B, 5.125% due 4/01/2022 (a) 5,227
AA- Aaa 2,750 New Jersey State Highway Authority, Garden State Parkway, General
Revenue Refunding Bonds, 6% due 1/01/2019 (g) 3,354
AAA Aaa 6,910 New Jersey State Transportation Trust Fund Authority, Transportation
System Revenue Refunding Bonds, Series B, 6% due 12/15/2011 (d)(h) 8,294
A- A3 4,590 Tobacco Settlement Financing Corporation of New Jersey Revenue Bonds,
7% due 6/01/2041 4,222
New York--22.6% AAA Aaa 10,000 Nassau Health Care Corporation, New York, Health System Revenue Bonds,
5.75% due 8/01/2022 (c) 11,171
New York City, New York, GO, Refunding:
AAA Aaa 6,250 Series C, 5.875% due 2/01/2016 (d) 6,989
AAA Aaa 7,500 Series G, 5.75% due 2/01/2017 (c) 8,247
AAA Aaa 7,085 New York City, New York, GO, Series G, 5.75% due 10/15/2012 (c) 8,072
AAA Aaa 1,665 New York State Dormitory Authority Revenue Bonds (School Districts
Financing Program), Series D, 5.25% due 10/01/2023 (d) 1,773
AAA Aaa 5,000 New York State Dormitory Authority, Revenue Refunding Bonds (City
University System), Consolidated, Series 1, 5.625% due 1/01/2008 (c)(h) 5,810
Oregon--0.9% NR* Aaa 1,400 Portland, Oregon, Urban Renewal and Redevelopment Tax Allocation
Bonds (Oregon Convention Center), Series A, 5.75% due 6/15/2015 (a) 1,615
Pennsylvania-- AAA Aaa 6,045 Philadelphia, Pennsylvania, Airport Revenue Bonds (Philadelphia
8.7% Airport System), AMT, Series B, 5.50% due 6/15/2017 (b) 6,507
A- NR* 2,430 Sayre, Pennsylvania, Health Care Facilities Authority Revenue Bonds
(Guthrie Health Issue), Series B, 5.85% due 12/01/2020 2,547
AAA Aaa 4,250 Washington County, Pennsylvania, Capital Funding Authority Revenue
Bonds (Capital Projects and Equipment Program), 6.15% due
12/01/2029 (a) 5,114
NR* Aaa 1,885 York County, Pennsylvania, School of Technology Authority, Lease
Revenue Refunding Bonds, 5.50% due 2/15/2022 (b) 2,061
MuniHoldings Insured Fund, Inc., April 30, 2003
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face
STATE Ratings+++ Ratings+++ Amount Issue Value
Rhode Island-- NR* Aaa $ 5,000 Providence, Rhode Island, Redevelopment Agency Revenue Refunding
3.0% Bonds (Public Safety and Municipal Buildings), Series A, 5.75% due
4/01/2019 (a) $ 5,674
South Carolina-- A- A3 1,590 Tobacco Settlement Revenue Management Authority, South Carolina,
0.7% Tobacco Settlement Revenue Bonds, Series B, 6.375% due 5/15/2028 1,364
Tennessee--3.7% Tennessee HDA, Revenue Refunding Bonds (Homeownership Program), AMT,
Series A (c):
AAA Aaa 3,445 5.25% due 7/01/2022 3,574
AAA Aaa 3,160 5.35% due 1/01/2026 3,274
Texas--3.9% A+ Aa3 3,500 Austin, Texas, Convention Center Revenue Bonds (Convention
Enterprises Inc.), Trust Certificates, Second Tier, Series B, 6%
due 1/01/2023 3,792
AAA NR* 3,094 Houston, Texas, Community College System, Participation Interests,
COP (Alief Center Project), 5.75% due 8/15/2022 (d) 3,464
Virginia--5.6% Virginia State, HDA, Commonwealth Mortgage Revenue Bonds (d):
AAA Aaa 1,000 AMT, Series C, Sub-Series C-2, 5.45% due 7/01/2023 1,041
AAA Aaa 8,980 Series J, Sub-Series J-1, 5.20% due 7/01/2019 9,406
Washington--8.0% AAA Aaa 1,655 Chelan County, Washington, Public Utility District Number 001,
Consolidated Revenue Bonds (Chelan Hydro System), AMT, Series A,
5.45% due 7/01/2037 (a) 1,708
AAA Aaa 2,710 King County, Washington, Sewer Revenue Refunding Bonds, Series B,
5.50% due 1/01/2027 (c) 2,903
AAA Aaa 1,810 Snohomish County, Washington, Public Utility District Number 001,
Electric Revenue Bonds, 5.50% due 12/01/2022 (c) 1,967
AAA Aaa 7,335 Tacoma, Washington, Electric System Revenue Refunding Bonds,
Series A, 5.75% due 1/01/2016 (c) 8,286
West Virginia-- AAA Aaa 5,000 West Virginia State Housing Development Fund, Housing Finance
2.8% Revenue Refunding Bonds, Series D, 5.20% due 11/01/2021 (d) 5,186
Wyoming--0.9% AA NR* 1,500 Wyoming Student Loan Corporation, Student Loan Revenue Refunding
Bonds, Series A, 6.20% due 6/01/2024 1,607
Puerto Rico-- A- Baa2 3,000 Puerto Rico Commonwealth, Highway and Transportation Authority,
1.7% Transportation Revenue Bonds, 5.75% due 7/01/2022 3,255
Total Municipal Bonds (Cost--$284,946)--165.4% 308,279
Shares
Held Short-Term Securities
7,521 Merrill Lynch Institutional Tax-Exempt Fund++ 7,521
Total Short-Term Securities (Cost--$7,521)--4.0% 7,521
Total Investments (Cost--$292,467)--169.4% 315,800
Unrealized Depreciation on Forward Interest Rate Swaps++++--(0.5%) (1,055)
Other Assets Less Liabilities--3.0% 5,642
Preferred Stock, at Redemption Value--(71.9%) (134,015)
---------
Net Assets Applicable to Common Stock--100.0% $ 186,372
=========
(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 April 30, 2003.
(f)XL Capital Insured.
(g)Escrowed to maturity.
(h)Prerefunded.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
++Investments in companies considered to be an affiliate of the Fund
(such companies are defined as "Affiliated Companies" in Section
2(a)(3) of the Investment Company Act of 1940) are as follows:
(in Thousands)
Net Dividend
Affiliate Activity Income
Merrill Lynch Institutional
Tax-Exempt Fund 7,521 $53
++++Forward interest rate swaps entered into as of April 30, 2003
were as follows:
(in Thousands)
Unrealized
Notional Appreciation
Amount (Depreciation)
Receive a variable rate equal to 7-Day
Bond Market Association rate at
quarterly reset date and pay a fixed
rate equal to 4.236%
Broker, Morgan Stanley Capital
Services Inc.
Expires, May 21, 2023 31,500 $(1,070)
Receive a variable rate equal to 7-Day
Bond Market Association rate at
quarterly reset date and pay a fixed
rate equal to 3.991%
Broker, JP Morgan Chase
Expires, July 7, 2023 11,000 15
--------
$(1,055)
========
+++Ratings have not been audited by Ernst & Young, LLP.
See Notes to Financial Statements.
Quality Profile
(unaudited)
The quality ratings of securities in the Fund as of April 30, 2003
were as follows:
Percent of
S&P Rating/Moody's Rating Total Investments
AAA/Aaa 83.5%
AA/Aa 6.4
A/A 5.9
BBB/Baa 1.8
NR (Not Rated) 2.4
MuniHoldings Insured Fund, Inc., April 30, 2003
STATEMENT OF NET ASSETS
As of April 30, 2003
Assets: Investments, at value (identified cost-- $292,466,861) $315,800,005
Cash 93,623
Receivables:
Interest $ 4,689,572
Securities sold 3,172,525
Dividends 241 7,862,338
------------
Prepaid expenses and other assets 1,877
------------
Total assets 323,757,843
------------
Liabilities: Unrealized depreciation on forward interest rate swaps 1,054,568
Payables:
Securities purchased 2,026,130
Investment adviser 132,658
Dividends to Common Stock shareholders 126,701
Other affiliates 2,464 2,287,953
------------
Accrued expenses 28,711
------------
Total liabilities 3,371,232
------------
Preferred Stock: Preferred Stock, at redemption value, par value $.10 per share
(2,680 Series A shares and 2,680 Series B shares of AMPS* issued
and outstanding at $25,000 per share liquidation preference) 134,014,767
------------
Net Assets Net assets applicable to Common Stock $186,371,844
Applicable to ============
Common Stock:
Analysis of Common Stock, par value $.10 per share (12,867,541 shares issued
Net Assets and outstanding) $ 1,286,754
Applicable to Paid-in capital in excess of par 190,198,389
Common Stock: Undistributed investment income--net $ 2,722,111
Accumulated realized capital losses on investments--net (30,113,986)
Unrealized appreciation on investments--net 22,278,576
------------
Total accumulated losses--net (5,113,299)
------------
Total--Equivalent to $14.48 net asset value per share of Common Stock
(market price--$13.50) $186,371,844
============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
For the Year Ended April 30, 2003
Investment Interest $ 15,945,341
Income: Dividends 53,298
------------
Total income 15,998,639
------------
Expenses: Investment advisory fees $ 1,732,685
Commission fees 340,012
Accounting services 121,340
Professional fees 87,110
Transfer agent fees 50,332
Directors' fees and expenses 37,401
Printing and shareholder reports 34,798
Listing fees 28,965
Custodian fees 19,333
Pricing fees 17,030
Other 35,700
------------
Total expenses before waiver and reimbursement 2,504,706
Waiver and reimbursement of expenses (181,176)
------------
Total expenses after waiver and reimbursement 2,323,530
------------
Investment income--net 13,675,109
------------
Realized & Realized loss on investments--net (2,336,371)
Unrealized Change in unrealized appreciation on investments--net 10,263,841
Gain (Loss) on ------------
Investments--Net: Total realized and unrealized gain on investments--net 7,927,470
------------
Dividends to Investment income--net (1,650,076)
Preferred Stock ------------
Shareholders: Net Increase in Net Assets Resulting from Operations $ 19,952,503
============
See Notes to Financial Statements.
MuniHoldings Insured Fund, Inc., April 30, 2003
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended
April 30,
Increase (Decrease) in Net Assets: 2003 2002
Operations: Investment income--net $ 13,675,109 $ 13,736,962
Realized gain (loss) on investments--net (2,336,371) 2,936,769
Change in unrealized appreciation on investments--net 10,263,841 2,674,959
Dividends to Preferred Stock shareholders (1,650,076) (2,661,776)
------------ ------------
Net increase in net assets resulting from operations 19,952,503 16,686,914
------------ ------------
Dividends to Investment income--net (10,866,639) (10,407,962)
Common Stock ------------ ------------
Shareholders: Net decrease in net assets resulting from dividends to Common Stock
shareholders (10,866,639) (10,407,962)
------------ ------------
Net Assets Total increase in net assets applicable to Common Stock 9,085,864 6,278,952
Applicable to Beginning of year 177,285,980 171,007,028
Common Stock: ------------ ------------
End of year* $186,371,844 $177,285,980
============ ============
*Undistributed investment income--net $ 2,722,111 $ 1,582,663
============ ============
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
For the
The following per share data and ratios Period
have been derived from information May 1,
provided in the financial statements. For the Year Ended 1998* to
April 30, April 30,
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
Per Share Net asset value, beginning of period $ 13.78 $ 13.29 $ 12.29 $ 15.25 $ 15.00
Operating ---------- ---------- ---------- ---------- ----------
Performance:**** Investment income--net 1.06+++++ 1.07 1.14 1.17 1.20
Realized and unrealized gain (loss)
on investments--net .62 .44 1.01 (2.82) .61
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.13) (.21) (.41) (.36) (.27)
Realized gain on investments--net -- -- -- -- (.10)
In excess of realized gain on
investments--net -- -- -- (.03) --
Capital charge resulting from issuance
of Preferred Stock -- -- -- -- (.10)
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.55 1.30 1.74 (2.04) 1.34
---------- ---------- ---------- ---------- ----------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net (.85) (.81) (.74) (.83) (.83)
Realized gain on investments--net -- -- -- -- (.23)
In excess of realized gain on
investments--net -- -- -- (.09) --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions to
Common Stock shareholders (.85) (.81) (.74) (.92) (1.06)
---------- ---------- ---------- ---------- ----------
Capital charge resulting from issuance
of Common Stock -- -- -- -- (.03)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 14.48 $ 13.78 $ 13.29 $ 12.29 $ 15.25
========== ========== ========== ========== ==========
Market price per share, end of period $ 13.50 $ 12.65 $ 12.89 $ 11.00 $ 14.4375
========== ========== ========== ========== ==========
Total Investment Based on market price per share 13.79% 4.38% 24.67% (17.87%) 3.19%+++
Return:** ========== ========== ========== ========== ==========
Based on net asset value per share 12.04% 10.28% 15.05% (13.13%) 8.99%+++
========== ========== ========== ========== ==========
Ratios Based on Total expenses, net of waiver and
Average Net reimbursement*** 1.28% 1.30% 1.15% 1.28% .78%
Assets Of ========== ========== ========== ========== ==========
Common Stock: Total expenses*** 1.38% 1.39% 1.44% 1.39% 1.18%
========== ========== ========== ========== ==========
Total investment income--net*** 7.55% 7.75% 8.71% 8.87% 7.73%
========== ========== ========== ========== ==========
Amount of dividends to Preferred
Stock shareholders .91% 1.50% 3.14% 2.74% 1.73%
========== ========== ========== ========== ==========
Investment income--net, to Common
Stock shareholders 6.64% 6.25% 5.57% 6.13% 6.00%
========== ========== ========== ========== ==========
Ratios Based on Total expenses, net of waiver and
Average Net reimbursement .74% .74% .64% .71% .48%
Assets Of ========== ========== ========== ========== ==========
Common & Total expenses .80% .79% .80% .77% .72%
Preferred ========== ========== ========== ========== ==========
Stock:*** Total investment income--net 4.34% 4.41% 4.84% 4.93% 4.71%
========== ========== ========== ========== ==========
Ratios Based on Dividends to Preferred Stock shareholders 1.23% 1.99% 3.94% 3.42% 2.70%
Average Net ========== ========== ========== ========== ==========
Assets Of
Preferred Stock:
Supplemental Net assets applicable to Common Stock,
Data: end of period (in thousands) $ 186,372 $ 177,286 $ 171,007 $ 158,094 $ 195,702
========== ========== ========== ========== ==========
Preferred Stock outstanding, end of
period (in thousands) $ 134,000 $ 134,000 $ 134,000 $ 134,000 $ 134,000
========== ========== ========== ========== ==========
Portfolio turnover 49.59% 49.69% 94.80% 189.96% 180.85%
========== ========== ========== ========== ==========
Leverage: Asset coverage per $1,000 $ 2,391 $ 2,323 $ 2,276 $ 2,180 $ 2,460
========== ========== ========== ========== ==========
Dividends Per Series A--Investment income--net $ 313 $ 502 $ 964 $ 854 $ 631
Share on ========== ========== ========== ========== ==========
Preferred Stock Series B--Investment income--net $ 302 $ 491 $ 1,005 $ 852 $ 658
Outstanding:++ ========== ========== ========== ========== ==========
*Commencement of operations.
**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. If applicable, the Fund's Investment
Adviser 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.
****Certain prior year amounts have been reclassified to conform to
current year presentation.
++The Fund's Preferred Stock was issued on May 19, 1998.
+++Aggregate total investment return.
+++++Based on average shares outstanding.
See Notes to Financial Statements.
MuniHoldings Insured Fund, Inc., April 30, 2003
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings Insured Fund, 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 conformity with accounting principles generally accepted
in the United States of America, which may require the use of
management accruals and estimates. The Fund's Common Stock is listed
on the New York Stock Exchange under the symbol MUS. 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 both to increase the return of
the Fund and to hedge, or protect, its exposure to interest rate
movement and movements in the securities 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.
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 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.
* Forward interest rate swaps--The Fund is authorized to enter
into forward interest rate swaps. In a forward interest rate swap,
the Fund and the counterparty agree to pay or receive interest on
a specified notional contract amount, commencing on a specified
future effective date, unless terminated earlier. The value of the
agreement is determind by quoted fair values received daily by the
Fund from the counterparty. When the agreement is closed, the Fund
records a realized gain or loss in an amount equal to the value of
the agreement.
(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). Realized gains and losses on security
transactions are determined on the identified cost basis. Dividend
income is recorded on the ex-dividend dates. Interest income is
recognized on the accrual basis. The Fund amortizes all premiums and
discounts on debt securities.
(e) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
(f) Reclassification--Accounting principles generally accepted in
the United States of America require that certain components of
net assets be adjusted to reflect permanent differences between
financial and tax reporting. Accordingly, the current year's
permanent book/tax difference of $18,946 has been reclassified
between undistributed net investment income and accumulated net
realized capital losses. This reclassification has no effect on net
assets or net asset value per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("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 year ended April 30, 2003, FAM
earned fees of $1,732,685, of which $171,866 was waived. For the
year ended April 30, 2003, FAM reimbursed the Fund in the amount of
$9,310.
For the year ended April 30, 2003, the Fund reimbursed FAM $12,262
for certain accounting services.
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 year ended April 30, 2003 were $152,557,137 and
$167,509,805, respectively.
Net realized gains (losses) for the year ended April 30, 2003 and
net unrealized gains (losses) as of April 30, 2003 were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 5,408,319 $ 23,333,144
Financial futures contracts (6,809,520) --
Forward interest rate swaps (935,170) (1,054,568)
------------ ------------
Total $(2,336,371) $ 22,278,576
============ ============
As of April 30, 2003 net unrealized appreciation for Federal income
tax purposes aggregated $23,335,191, of which $23,576,138 related
to appreciated securities and $240,947 related to depreciated
securities. The aggregate cost of investments at April 30, 2003 for
Federal income tax purposes was $292,464,814.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of 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 stock
without approval of holders of Common Stock.
Common Stock
Shares issued and outstanding during the years ended April 30, 2003
and April 30, 2002 remained constant.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are redeemable shares of
Preferred Stock of the Fund, with a par value of $.10 per share and
a liquidation preference of $25,000 per share plus accrued and
unpaid dividends, that entitle their holders to receive cash
dividends at an annual rate that may vary for the successive
dividend periods. The yields in effect at April 30, 2003 were as
follows: Series A, 1.15% and Series B, 1.25%.
Shares issued and outstanding for the years ended April 30, 2003 and
April 30, 2002 remained constant.
MuniHoldings Insured Fund, Inc., April 30, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
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 year ended
April 30, 2003, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
an affiliate of FAM, earned $247,754 as commissions.
5. Distributions to Shareholders:
The Fund paid a tax-exempt income dividend to holders of Common
Stock in the amount of $.073000 per share on May 29, 2003 to
shareholders of record on May 16, 2003.
The tax character of distributions paid during the fiscal years
ended April 30, 2003 and April 30, 2002 was as follows:
4/30/2003 4/30/2002
Distributions paid from:
Tax-exempt income $ 12,516,715 $ 13,069,738
------------ ------------
Total distributions $ 12,516,715 $ 13,069,738
============ ============
As of April 30, 2003, the components of accumulated losses on a tax
basis were as follows:
Undistributed tax-exempt income--net $ 2,720,064
Undistributed long-term capital gains--net --
-------------
Total undistributed earnings--net 2,720,064
Capital loss carryforward (24,817,934)*
Unrealized gains--net 16,984,571**
-------------
Total accumulated losses--net $ (5,113,299)
=============
*On April 30, 2003, the Fund had a net capital loss carryforward of
$24,817,934, of which $15,234,021 expires in 2008 and $9,583,913
expires in 2009. This amount will be available to offset like
amounts of any future taxable gains.
**The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
straddles, and the difference between book and tax amortization
methods for premiums and discounts on fixed income securities.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
MuniHoldings Insured Fund, Inc.:
We have audited the accompanying statement of net assets of
MuniHoldings Insured Fund, Inc., including the schedule of
investments, as of April 30, 2003, and the related statement of
operations for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended, and
financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements and 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 and financial highlights. Our procedures
included confirmation of securities owned as of April 30, 2003, by
correspondence with the custodian and others. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of MuniHoldings Insured Fund, Inc. at April 30,
2003, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the indicated
periods in conformity with accounting principles generally accepted
in the United States.
(Ernst & Young LLP)
MetroPark, New Jersey
June 6, 2003
MuniHoldings Insured Fund, Inc., April 30, 2003
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniHoldings
Insured Fund, Inc. during the taxable year ended April 30, 2003
qualify as tax-exempt interest dividends for Federal income tax
purposes.
Please retain this information for your records.
MANAGED DIVIDEND POLICY (unaudited)
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 Net Assets, which comprises part of the financial
information included in this report.
OFFICERS AND DIRECTORS (unaudited)
Number of Other
Portfolios in Director-
Position(s) Length Fund Complex ships
Held of Time Overseen by Held by
Name, Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Terry K. Glenn* President 1999 to President and Chairman of Merrill Lynch 118 Funds None
P.O.Box 9011 and present Investment Managers, L.P. ("MLIM")/Fund 162 Portfolios
Princeton, Director and Asset Management, L.P. ("FAM")--Advised
NJ 08543-9011 1983 to Funds since 1999; Chairman (Americas
Age: 62 present Region) of MLIM from 2000 to 2002;
Executive Vice President of MLIM
and FAM (which terms as used herein
include their corporate predecessors)
from 1983 to 2002; President of FAM
Distributors. Inc. ("FAMD") from 1986
to 2002 and Director thereof from 1991
to 2002; Executive Vice President and
Director of Princeton Services, Inc.
("Princeton Services") from 1993 to 2002;
President of Princeton Administrators,
L.P. from 1989 to 2002; Director of
Financial Data Services, Inc. from 1985
to 2002.
*Mr. Glenn is a director, trustee or member of an advisory board of
certain other investment companies for which FAM or MLIM acts as
investment adviser. Mr. Glenn is an "interested person", as
described in the Investment Company Act, of the Fund based on his
former positions with FAM, MLIM, FAMD, Princeton Services and
Princeton Administrators, L.P. The Director's term is unlimited.
Directors serve until their resignation, removal, or death, or until
December 31 of the year in which they turn 72. As Fund President,
Mr. Glenn serves at the pleasure of the Board of Directors.
MuniHoldings Insured Fund, Inc., April 30, 2003
OFFICERS AND DIRECTORS (unaudited) (concluded)
Number of Other
Portfolios in Director-
Position(s) Length Fund Complex ships
Held of Time Overseen by Held by
Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Director Director
Independent Directors
Ronald W. Forbes Director 1998 to Professor Emeritus of Finance, School 44 Funds None
P.O. Box 9095 present of Business, State University of 50 Portfolios
Princeton, New York at Albany since 2000 and
NJ 08543-9095 Professor thereof from 1989 to 2000;
Age: 62 International Consultant, Urban Institute
from 1995 to 1999.
Cynthia A. Montgomery Director 1998 to Professor, Harvard Business School 44 Funds Unum
P.O. Box 9095 present since 1989; Director, Unum Provident 50 Portfolios Provident
Princeton, Corporation since 1990; Director, Newell Corpora-
NJ 08543-9095 Rubbermaid, Inc. since 1995. tion;
Age: 50 Newell
Rubber-
maid, Inc.
Charles C. Reilly Director 1998 to Self-employed financial consultant 44 Funds None
P.O. Box 9095 present since 1990. 50 Portfolios
Princeton,
NJ 08543-9095
Age: 71
Kevin A. Ryan Director 1998 to Founder and Director Emeritus of The 44 Funds None
P.O. Box 9095 present Boston University Center for the 50 Portfolios
Princeton, Advancement of Ethics and Character;
NJ 08543-9095 Professor of Education at Boston
Age: 70 University from 1982 to 1999 and
Professor Emeritus since 1999.
Roscoe S. Suddarth Director 2000 to President, Middle East Institute from 44 Funds None
P.O. Box 9095 present 1995 to 2001; Foreign Service Officer, 50 Portfolios
Princeton, United States Foreign Service from 1961
NJ 08543-9095 to 1995; Career Minister from 1989 to
Age: 67 1995; Deputy Inspector General, U.S.
Department of State from 1991 to 1994;
U.S. Ambassador to the Hashemite Kingdom
of Jordan from 1987 to 1990.
Richard R. West Director 1998 to Dean Emeritus of New York University, 44 Funds Bowne &
P.O. Box 9095 present Leonard N. Stern School of Business 50 Portfolios Co., Inc.;
Princeton, Administration since 1994. Vornado
NJ 08543-9095 Operating
Age: 65 Company;
Vornado
Realty Trust;
Alexander's,
Inc.
Edward D. Zinbarg Director 2000 to Self-employed financial consultant since 44 Funds None
P.O. Box 9095 present 1994. 50 Portfolios
Princeton,
NJ 08543-9095
Age: 68
*The Director's term is unlimited. Directors serve until their
resignation, removal or death, or until December 31 of the year in
which they turn 72.
Position(s) Length
Held of Time
Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
Fund Officers
Donald C. Burke Vice 1998 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof
P.O. Box 9011 President present since 1999; Senior Vice President and Treasurer of Princeton Services since
Princeton, and and 1999; Vice President of FAMD since 1999; Vice President of MLIM and FAM
NJ 08543-9011 Treasurer 1999 to from 1990 to 1997; Director of MLIM Taxation since 1990.
Age: 42 present
Kenneth A. Jacob Senior 2002 to Managing Director of MLIM since 2000 and Director (Municipal Tax-Exempt
P.O. Box 9011 Vice present Fund Management) of MLIM from 1997 to 2000.
Princeton, President
NJ 08543-9011
Age: 52
John M. Loffredo Senior 2002 to Managing Director of MLIM since 2000 and Director (Municipal Tax-Exempt
P.O. Box 9011 Vice present Fund Management) of MLIM from 1998 to 2000.
Princeton, President
NJ 08543-9011
Age: 39
Robert A. DiMella Vice 1999 to Director (Municipal Tax-Exempt Fund Management) of MLIM since 2002;
P.O. Box 9011 President present Vice President of MLIM from 1996 to 2001.
Princeton,
NJ 08543-9011
Age: 36
Brian D. Stewart Secretary 2002 to Vice President (Legal Advisory) of MLIM since 2002; Attorney with Reed
P.O. Box 9011 present Smith from 2001 to 2002; Attorney with Saul Ewing from 1999 to 2001.
Princeton,
NJ 08543-9011
Age: 33
*Officers of the Fund serve at the pleasure of the Board of
Directors.
Custodian
The Bank of New York
100 Church 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
MUS
MuniHoldings Insured Fund, Inc., April 30, 2003
AUTOMATIC DIVIDEND REINVESTMENT PLAN (unaudited)
The following description of the Fund's Automatic Dividend
Reinvestment Plan (the "Plan") is sent to you annually as required
by Federal securities laws.
Pursuant to the Fund's Plan, unless a holder of Common Stock
otherwise elects, all dividend and capital gains distributions
will be automatically reinvested by The Bank of New York (the "Plan
Agent"), as agent for shareholders in administering the Plan, in
additional shares of Common Stock of the Fund. Holders of Common
Stock who elect not to participate in the Plan will receive
all distributions in cash paid by check mailed directly to the
shareholder of record (or, if the shares are held in street or
other nominee name then to such nominee) by The Bank of New York,
as dividend paying agent. Such participants may elect not to
participate in the Plan and to receive all distributions of
dividends and capital gains in cash by sending written instructions
to The Bank of New York, as dividend paying agent, at the address
set forth below. Participation in the Plan is completely voluntary
and may be terminated or resumed at any time without penalty by
written notice if received by the Plan Agent not less than ten days
prior to any dividend record date; otherwise such termination will
be effective with respect to any subsequently declared dividend or
distribution.
Whenever the Fund declares an income dividend or capital gains
distribution (collectively referred to as "dividends") payable
either in shares or in cash, non-participants in the Plan will
receive cash and participants in the Plan will receive the
equivalent in shares of Common Stock. The shares will be acquired
by the Plan Agent for the participant's account, depending upon the
circumstances described below, either (i) through receipt of
additional unissued but authorized shares of Common Stock from the
Fund ("newly issued shares") or (ii) by purchase of outstanding
shares of Common Stock on the open market ("open-market purchases")
on the New York Stock Exchange or elsewhere. If on the payment date
for the dividend, the net asset value per share of the Common Stock
is equal to or less than the market price per share of the Common
Stock plus estimated brokerage commissions (such conditions being
referred to herein as "market premium"), the Plan Agent will invest
the dividend amount in newly issued shares on behalf of the
participant. The number of newly issued shares of Common Stock to be
credited to the participant's account will be determined by dividing
the dollar amount of the dividend by the net asset value per share
on the date the shares are issued, provided that the maximum
discount from the then current market price per share on the date of
issuance may not exceed 5%. If on the dividend payment date the net
asset value per share is greater than the market value (such
condition being referred to herein as "market discount"), the Plan
Agent will invest the dividend amount in shares acquired on behalf
of the participant in open-market purchases.
In the event of a market discount on the dividend payment date, the
Plan Agent will have until the last business day before the next
date on which the shares trade on an "ex-dividend" basis or in no
event more than 30 days after the dividend payment date (the "last
purchase date") to invest the dividend amount in shares acquired in
open-market purchases. It is contemplated that the Fund will pay
monthly income dividends. Therefore, the period during which open-
market purchases can be made will exist only from the payment date
on the dividend through the date before the next "ex-dividend" date,
which typically will be approximately ten days. If, before the Plan
Agent has completed its open-market purchases, the market price of
a share of Common Stock exceeds the net asset value per share,
the average per share purchase price paid by the Plan Agent may
exceed the net asset value of the Fund's shares, resulting in the
acquisitions of fewer shares than if the dividend had been paid in
newly issued shares on the dividend payment date. Because of the
foregoing difficulty with respect to open-market purchases, the
Plan provides that if the Plan Agent is unable to invest the full
dividend amount in open-market purchases during the purchase period
or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market
purchases and will invest the uninvested portion of the dividend
amount in newly issued shares at the close of business on the last
purchase date determined by dividing the uninvested portion of the
dividend by the net asset value per share.
The Plan Agent maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the account,
including information needed by shareholders for tax records. Shares
in the account of each Plan participant will be held by the Plan
Agent in non-certificated form in the name of the participant, and
each shareholder's proxy will include those shares purchased or
received pursuant to the Plan. The Plan Agent will forward all proxy
solicitation materials to participants and vote proxies for shares
held pursuant to the Plan in accordance with the instructions of the
participants.
In the case of shareholders such as banks, brokers or nominees which
hold shares of others who are the beneficial owners, the Plan Agent
will administer the Plan on the basis of the number of shares
certified from time to time by the record shareholders as
representing the total amount registered in the record shareholder's
name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued
directly by the Fund as a result of dividends or capital gains
distributions payable either in shares or in cash. However, each
participant will pay a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open-market purchases in
connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not
relieve participants of any Federal, state or local income tax that
may be payable (or required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not
available to shareholders not participating in the Plan. If the
market price plus commissions of the Fund's shares is above the net
asset value, participants in the Plan will receive shares of the
Fund at less than they could otherwise purchase them and will have
shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market
price plus commissions is below the net asset value, participants
will receive distributions in shares with a net asset value greater
than the value of any cash distribution they would have received on
their shares. However, there may be insufficient shares available in
the market to make distributions in shares at prices below the net
asset value. Also, since the Fund does not redeem shares, the price
on resale may be more or less than the net asset value.
The value of shares acquired pursuant to the Plan will generally be
excluded from gross income to the extent that the cash amount
reinvested would be excluded from gross income. If, when the Fund's
shares are trading at a premium over net asset value, the Fund
issues shares pursuant to the Plan that have a greater fair market
value than the amount of cash reinvested, it is possible that all or
a portion of such discount (which may not exceed 5% of the fair
market value of the Fund's shares) could be viewed as a taxable
distribution. If the discount is viewed as a taxable distribution,
it is also possible that the taxable character of this discount
would be allocable to all the shareholders, including shareholders
who do not participate in the Plan. Thus, shareholders who do not
participate in the Plan might be required to report as ordinary
income a portion of their distributions equal to their allocable
share of the discount.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the
Plan. There is no direct service charge to participants in the Plan;
however, the Fund reserves the right to amend the Plan to include a
service charge payable by the participants.
All correspondence concerning the Plan should be directed to the
Plan Agent at The Bank of New York, Church Street Station, P.O. Box
11258, New York, NY 10286-1258, Telephone: 800-432-8224.
Item 2 - Did registrant adopt a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party? If not, why not? Briefly describe
any amendments or waivers that occurred during the period. State
here if code of ethics/amendments/waivers are on website and give
website address-. State here if fund will send code of ethics to
shareholders without charge upon request--N/A (not answered until
July 15, 2003 and only annually for funds)
Item 3 - Did the registrant's board of directors determine that the
registrant either: (i) has at least one audit committee financial
expert serving on its audit committee; or (ii) does not have an
audit committee financial expert serving on its audit committee? If
yes, disclose name of financial expert and whether he/she is
"independent," (fund may, but is not required, to disclose
name/independence of more than one financial expert) If no, explain
why not. -N/A (not answered until July 15, 2003 and only annually
for funds)
Item 4 - Disclose annually only (not answered until December 15,
2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements
for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of
the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising the fees disclosed
under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the
fees disclosed under this category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the
last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item. Registrants shall describe the nature
of the services comprising the fees disclosed under this category.
N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the
audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-
3 under the Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d)
under the Exchange Act regarding an exemption from the listing
standards for audit committees.
(Listed issuers must be in compliance with the new listing rules by
the earlier of their first annual shareholders meeting after January
2004, or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in
their portfolio, describe the policies and procedures that it uses
to determine how to vote proxies relating to those portfolio
securities. N/A (not answered until July 1, 2003)
Item 8--Reserved
Item 9(a) - The registrant's certifying officers have reasonably
designed such disclosure controls and procedures to ensure material
information relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b)--There were no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of
ethics or amendments/waivers is on website or offered to
shareholders upon request without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the
Sarbanes-Oxley Act. Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MuniHoldings Insured Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
MuniHoldings Insured Fund, Inc.
Date: June 23, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
MuniHoldings Insured Fund, Inc.
Date: June 23, 2003
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
MuniHoldings Insured Fund, Inc.
Date: June 23, 2003
Attached hereto as an exhibit are the certifications pursuant to
Section 906 of the Sarbanes-Oxley Act.