UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
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: 04/30/04
Date of reporting period: 05/01/03 - 10/31/03
Item 1 - Attach shareholder report
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
MuniHoldings
Insured Fund, Inc.
Semi-Annual Report
October 31, 2003
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
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. As of
October 31, 2003, the percentage of the Fund's total net assets
invested in inverse floaters was .65%.
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., OCTOBER 31, 2003
A Letter From the President
Dear Shareholder
As 2003 draws to a close, it seems appropriate to reflect on what
has been a meaningful year in many respects. We saw the beginning
and the end of all-out war in Iraq, equity market uncertainty turned
to strength and sub par gross domestic product growth of 1.4% in the
first quarter of 2003 grew to an extraordinary 8.2% in the third
quarter. Amid the good news, fixed income investments, which had
become the asset class of choice during the preceding three-year
equity market decline, faced new challenges.
During 2003, municipal bond yields rose and fell in reaction to
geopolitical events, equity market performance, economic activity
and employment figures. By the end of October, long-term municipal
revenue bond yields were slightly higher than they were one year
earlier, at 5.24% as measured by the Bond Buyer Revenue Bond Index.
With many state deficits at record levels, municipalities issued
nearly $400 billion in new long-term tax-exempt bonds during the
12-month period ended October 31, 2003. The availability of bonds,
together with attractive yield ratios relative to U.S. Treasury
issues, made municipal bonds a popular fixed income investment
alternative.
Throughout the year, our portfolio managers continued to work
diligently to deliver on our commitment to provide superior
performance within reasonable expectations for risk and return. This
included striving to outperform our peers and the market indexes.
With that said, remember that the advice and guidance of a skilled
financial advisor often can mean the difference between successful
and unsuccessful investing. A financial professional can help you
choose those investments that will best serve you as you plan for
your financial future.
Finally, I am proud to premiere a new look to our shareholder
communications. Our portfolio manager commentaries have been trimmed
and organized in such a way that you can get the information you
need at a glance, in plain language. Today's markets are confusing
enough. We want to help you put it all in perspective. The report's
new size also allows us certain mailing efficiencies. Any cost
savings in production or postage are passed on to the Fund and,
ultimately, to Fund shareholders.
We thank you for trusting Merrill Lynch Investment Managers with
your investment assets, and we look forward to serving you in the
months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 2003
A Discussion With Your Fund's Portfolio Manager
The Fund outperformed its comparable Lipper category for the period
and was effectively able to enhance yield while preserving net asset
value in a volatile interest rate environment.
Describe the market environment relative to municipal bonds during
the period.
At the end of October, long-term tax-exempt bond yields were
90% - 95% of comparable U.S. Treasury securities, substantially
exceeding their historical average of 85% - 88%. Considering their
tax-free status, this made long-term municipal bonds an attractive
investment alternative during the past six months.
Long-term U.S. Treasury bond yields moved higher during the period,
supported by generally stronger economic activity. Gross domestic
product growth in the third quarter of 2003 was revised to 8.2%, the
fastest rate seen in more than 20 years and well above the 1.4%
registered in the first quarter of the year. Also responding to the
overall more positive financial environment, the Standard & Poor's
500 Index rose almost 15% during the period, putting considerable
pressure on interest rates. Long-term U.S. Treasury bond yields
stood at 5.13% at the end of October 2003, an increase of 37 basis
points (.37%) over the past six months.
Tax-exempt bond yields generally followed their taxable counterparts
higher during the period. As reported by Municipal Market Data,
Aaa-rated issues maturing in 30 years rose approximately 20 basis
points over the six months to 4.82%. Long-term tax-exempt revenue
bond yields, as measured by the Bond Buyer Revenue Bond Index,
increased 15 basis points to 5.24% over the same period. With tax-
exempt money market rates below 1% and generally low municipal bond
yields, many investors opted to move further out on the municipal
yield curve to generate the desired level of tax-exempt income. This
maturity extension has supported the strong demand and performance
shown by tax-exempt products in recent months.
The municipal market's outperformance of the U.S. Treasury market
during the period has been especially impressive given the dramatic
increase in new bond issuance. Historically low interest rates over
the past year have been used by state and local governments as an
opportunity to finance existing infrastructure needs and refinance
outstanding, higher-couponed issues. During the past 12 months,
municipalities issued nearly $400 billion in new securities, an
increase of more than 12% compared to last year's issuance. More
recently, new municipal bond issuance has slowed largely in response
to the recent rise in tax-exempt bond yields. Over the past three
months, less than $90 billion in long-term tax-exempt bonds was
underwritten, a decline of nearly 10% versus the same three months
of 2002. This recent decline in supply has helped support the tax-
exempt market's positive technical position and recent performance.
How did the Fund perform during the period in light of the existing
market conditions?
For the six-month period ended October 31, 2003, the Common Stock of
MuniHoldings Insured Fund, Inc. had a net annualized yield of 6.07%,
based on a period-end per share net asset value of $14.32 and $.438
per share income dividends. Over the same period, the total
investment return on the Fund's Common Stock was +2.16%, based on a
change in per share net asset value from $14.48 to $14.32, and
assuming reinvestment of $.438 per share ordinary income dividends.
For the six-month period ended October 31, 2003, the Fund's Auction
Market Preferred Stock had an average yield of .84% for Series A and
..88% for Series B.
For a description of the Fund's total investment return based on a
change in the per share market value of the Fund's Common Stock (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 market value of the Fund's Common Stock can
vary significantly from total investment return based on changes in
the Fund's net asset value.
The Fund's performance, based on net asset value, exceeded its
comparable Lipper category of Insured Municipal Debt Funds
(Leveraged), which had an average return of +1.13% for the six-month
period ended October 31, 2003. The portfolio's slightly defensive
posturing in a very volatile interest rate environment served to
benefit performance during the period. Our strategy was to avoid
those areas of the yield curve that were demonstrating the most
volatility, particularly the ten-year and shorter areas of the
curve, and to move further out on the curve to the 20-year range and
longer. This not only shielded the Fund from much of the volatility
but also helped to augment yield.
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 2003
Also benefiting performance during the past six months was our
strategic approach to the California municipal bond market. A
combination of heavy supply, negative budgetary news and the
gubernatorial recall caused California bonds to become very
inexpensive on a relative basis. We viewed this as an opportunity
and increased the Fund's exposure to the California market. With the
heavy issuance out of the way and the uncertainty of the governor
recall eliminated, spreads on California bonds narrowed and the Fund
benefited.
We also made full use of our uninsured basket during the period in
an effort to enhance performance. The Fund is permitted to invest up
to 20% of net assets in uninsured bonds. These types of credits
typically outperform when interest rates start to rise and the
economy begins to strengthen. This outperformance comes from a
general rise in credit strength and a reduction in the risk premium
commanded on such securities, causing the spread required on these
issues to narrow. Therefore, in anticipation of an improving
economy, we increased our uninsured basket close to its full
allotment about a year ago. As economic conditions improved over the
past six months, this unenhanced portion of the portfolio performed
very well on a relative basis, contributing to the Fund's overall
outperformance for the period.
What changes were made to the portfolio during the period?
As mentioned earlier, we strategically shifted in and out of the
California market during the past six months as opportunities
presented themselves. At the close of the period, we remained
modestly overweight in California bonds. Because the California
market is still somewhat inexpensive on a relative basis, we believe
this area of the portfolio should perform well over time. Although
there could be some intermittent weakness due to the ongoing
budgetary shortfall, we would probably again increase our position
in California upon such weakness. We believe this would create
another opportunity for the Fund to gain exposure to a sector with
good relative value that should perform well over time.
Another change involved some shifting of the portfolio's uninsured
basket. One year ago, we increased some of the health care-related
issues in the portfolio as we observed wide credit spreads,
primarily due to an abundance of supply. We have since started to
reduce these positions as the credit spreads began to tighten
considerably. The goal again was to lock in gains on the
outperformance.
We were cognizant to maintain a fully invested portfolio throughout
the period to enhance the Fund's distribution yield. We also aimed
to mute the volatility of the portfolio by participating in the swap
market. This helped to reduce the portfolio's duration temporarily
in case of interest rate spikes.
During the period, the Fund's borrowing costs generally remained in
the .75% - 1.25% range. These attractive funding levels, in
combination with a steep tax-exempt yield curve, generated a
significant income benefit to the Fund's Common Stock shareholders.
Further declines in the Fund's borrowing costs would require
significant easing of monetary policy by the Federal Reserve Board.
While such action is not expected, neither is an imminent increase
in short-term interest rates. We expect short-term borrowing costs
to remain near 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 2 of this report to shareholders.)
How would you characterize the portfolio's position at the close of
the period?
We remained fully invested at the close of the period and
defensively structured. In our opinion, the economy is on track for
continued growth, which we expect should push interest rates higher
over time. We have been positioning the portfolio slightly more
defensively as the market has rallied, particularly in September, in
an effort to maintain our competitive yield and to protect the
portfolio from any increase in interest rates.
Robert A. DiMella
Vice President and Portfolio Manager
December 1, 2003
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 2003
Proxy Results
During the six-month period ended October 31, 2003, MuniHoldings
Insured Fund, Inc.'s Common Stock shareholders voted on the
following proposal. The proposal was approved at a shareholders'
meeting on August 25, 2003. A description of the proposal and number
of shares voted are as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Directors: Terry K. Glenn 12,407,955 334,055
Ronald W. Forbes 12,406,555 335,455
Cynthia A. Montgomery 12,402,265 339,745
Kevin A. Ryan 12,397,084 344,926
Roscoe S. Suddarth 12,399,199 342,811
Edward D. Zinbarg 12,397,934 344,076
During the six-month period ended October 31, 2003, MuniHoldings
Insured Fund, Inc.'s Preferred Stock (Series A & B) shareholders
voted on the following proposal. The proposal was approved at a
shareholders' meeting on August 25, 2003. A description of the
proposal and number of shares voted are as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Board of Directors: Terry K. Glenn, Ronald W. Forbes,
Cynthia A. Montgomery, Charles C. Reilly, Kevin A. Ryan, Roscoe S. Suddarth,
Richard R. West and Edward D. Zinbarg 3,791 13
Quality Profile
The quality ratings of securities in the Fund as of October 31, 2003
were as follows:
Percent of
Total
S&P Rating/Moody's Rating Investments
AAA/Aaa 83.2%
AA/Aa 5.6
A/A 2.9
BBB/Baa 4.6
NR (Not Rated) 3.7
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 2003
Schedule of Investments (In Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds 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 (b) $ 2,144
Arkansas--1.1% NR* Aaa 1,930 University of Arkansas, University Revenue Bonds
(Fayetteville Campus), 5.50% due 12/01/2018 (c) 2,118
California-- AAA Aaa 3,250 Brea and Olinda, California, Unified School District, COP,
25.2% Refunding, Series A, 5.125% due 8/01/2026 (f) 3,315
AAA Aaa 3,000 California Infrastructure and Economic Development Bank
Revenue Bonds (Bay Area Toll Bridges), 1st Lien, Series A,
5.25% due 7/01/2021 (f) 3,187
AAA Aaa 3,500 California Pollution Control Financing Authority, PCR,
Refunding (Pacific Gas & Electric), AMT, Series A, 5.35%
due 12/01/2016 (b) 3,738
AAA Aaa 4,000 California State, Department of Water Resources, Power Supply
Revenue Bonds, Series A, 5.375% due 5/01/2017 (d) 4,334
California State, GO, Refunding:
AAA NR* 5,750 5.25% due 10/01/2020 (d) 6,098
BBB A3 6,800 5.25% due 2/01/2033 6,690
Golden State Tobacco Securitization Corporation of California,
Tobacco Settlement Revenue Bonds:
BBB Baa2 1,145 Series A-3, 7.875% due 6/01/2042 1,176
BBB- Baa1 4,020 Series B, 5.50% due 6/01/2043 3,816
AAA Aaa 2,000 Los Angeles, California, Unified School District, GO (Election
of 1997), Series F, 5% due 7/01/2021 (c) 2,070
AAA Aaa 2,480 Port Oakland, California, Revenue Refunding Bonds, Series M,
5.25% due 11/01/2020 (c) 2,639
AA Aa3 1,750 Sacramento County, California, Sanitation District, Financing
Authority Revenue Refunding Bonds, RIB, Series 366, 10.422% due
12/01/2027 (j) 2,053
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) 5,060
San Pablo, California, Joint Powers Financing Authority, Tax
Allocation Revenue Refunding Bonds (b):
AAA Aaa 2,635 5.66%** due 12/01/2024 823
AAA Aaa 2,355 5.66%** due 12/01/2025 694
AAA Aaa 2,355 5.66%** due 12/01/2026 655
Colorado--6.5% Aurora, Colorado, COP (a):
AAA Aaa 2,440 5.75% due 12/01/2015 2,759
AAA Aaa 2,560 5.75% due 12/01/2016 2,894
AAA Aaa 2,730 5.75% due 12/01/2017 3,086
AAA Aaa 2,890 5.75% due 12/01/2018 3,255
Connecticut-- AAA Aaa 8,000 Connecticut State HFA Revenue Bonds (Housing Mortgage Program),
7.7% AMT, Series D, 5.15% due 11/15/2022 (b) 8,126
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 (i) 6,074
Florida--1.4% 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) 2,643
Illinois--22.7% Chicago, Illinois, GO (c):
AAA Aaa 5,000 5.50% due 1/01/2021 5,357
AAA Aaa 2,790 Series A, 6% due 1/01/2018 3,184
AAA Aaa 2,000 Series A, 6% due 1/01/2019 2,275
AAA Aaa 3,175 Series A, 6% due 1/01/2020 3,592
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., OCTOBER 31, 2003
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
Illinois AAA Aaa $ 6,780 Chicago, Illinois, Motor Fuel Tax Revenue Refunding Bonds,
(concluded) Series A, 5.25% due 1/01/2028 (a) $ 7,003
Chicago, Illinois, O'Hare International Airport, Airport
Revenue Bonds, 3rd Lien, AMT, Series B-2:
AAA Aaa 4,600 5.75% due 1/01/2023 (f) 4,902
AAA Aaa 4,300 6% due 1/01/2029 (d) 4,668
AAA Aaa 3,500 Chicago, Illinois, Parking District, GO, Series A, 5.75%
due 1/01/2017 (c) 3,935
BBB NR* 1,760 Illinois, Development Finance Authority Revenue Bonds
(Community Rehabilitation Providers Facilities), Series A,
6.625% due 7/01/2032 1,804
AAA Aaa 4,500 Illinois State, GO, First Series, 6% due 1/01/2018 (c) 5,116
AAA Aaa 45 Lake, Cook, Kane and McHenry Counties, Illinois, Community
United School District, GO, 5.75% due 12/01/2019 (c) 50
Kentucky--2.6% AAA Aa3 4,380 Fayette County, Kentucky, School District Finance Corporation,
School Building Revenue Bonds, 5.50% due 9/01/2019 (b) 4,794
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 (g)(h) 1,368
Maine--0.5% AA+ Aa1 850 Maine State Housing Authority, Mortgage Revenue Bonds, AMT,
Series F-2, 5.25% due 11/15/2032 855
Massachusetts-- AAA Aaa 1,770 Massachusetts State, GO, Refunding, Consolidated Loan, Series D,
1.0% 5.375% due 8/01/2022 (b) 1,880
Michigan--4.7% AAA Aaa 2,035 Boyne City, Michigan, Public School District, GO, 5.75% due
5/01/2017 (c) 2,298
Michigan State Strategic Fund, Limited Obligation Revenue
Refunding Bonds, AMT (d):
AAA Aaa 1,200 (Detroit Edison Company Project), Series A, 5.50% due 6/01/2030 1,239
AAA Aaa 3,500 (Detroit Edison Company Project), Series C, 5.65% due 9/01/2029 3,643
AAA Aaa 1,500 (Detroit Edison Pollution), Series B, 5.65% due 9/01/2029 1,561
Minnesota--2.4% NR* Aaa 4,015 Sauk Rapids, Minnesota, Independent School District Number 47,
GO, Series A, 5.65% due 2/01/2019 (b) 4,463
Mississippi-- BBB- Ba1 2,000 Mississippi Business Finance Corporation, Mississippi, PCR,
1.1% Refunding (System Energy Resources Inc. Project), 5.875% due
4/01/2022 1,988
Missouri--7.7% AAA Aaa 2,000 Cape Girardeau, Missouri, School District Number 063, GO
Missouri Direct Deposit Program), 5.50% due 3/01/2018 (c) 2,200
Mehlville, Missouri, School District Number R-9, COP (f):
AAA Aaa 1,570 (Missouri Capital Improvement Projects), 5.50% due 9/01/2015 1,741
AAA Aaa 2,610 (Missouri Capital Improvement Projects), 5.50% due 9/01/2018 2,848
AAA Aaa 1,925 Series A, 5.50% due 3/01/2014 2,130
AAA Aaa 2,175 Series A, 5.50% due 3/01/2015 2,407
AAA Aaa 1,170 Series A, 5.50% due 3/01/2016 1,294
AAA Aaa 1,500 Series A, 5.50% due 3/01/2017 1,651
Nebraska--2.1% Omaha Convention Hotel Corporation, Nebraska, Convention Center
Revenue Bonds, First Tier, Series A (a):
AAA Aaa 1,585 5.50% due 4/01/2020 1,717
AAA Aaa 2,000 5.50% due 4/01/2021 2,158
Nevada--2.5% AAA Aaa 4,000 Las Vegas New Convention and Visitors Authority Revenue Bonds,
5.75% due 7/01/2018 (a) 4,514
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) 2,423
New Jersey--10.2% AAA Aaa 5,000 New Jersey EDA, Water Facilities Revenue Refunding Bonds
(American Water), AMT, Series B, 5.125% due 4/01/2022 (a) 5,087
AA- Aaa 2,750 New Jersey State Highway Authority, Garden State Parkway
General Revenue Refunding Bonds, 6% due 1/01/2019 (e) 3,248
AA- Aa3 3,300 New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Bonds, Series C, 5.50% due
6/15/2015 3,684
AAA Aaa 3,000 New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Refunding Bonds, Series B, 6%
due 12/15/2011 (b)(k) 3,571
BBB Baa2 3,460 Tobacco Settlement Financing Corporation of New Jersey
Revenue Bonds, 7% due 6/01/2041 3,243
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 2003
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
New York--21.2% AAA Aaa $10,000 Nassau Health Care Corporation, New York, Health System
Revenue Bonds, 5.75% due 8/01/2022 (f) $ 11,034
New York City, New York, GO, Refunding:
AAA Aaa 6,250 Series C, 5.875% due 2/01/2016 (b) 6,912
AAA Aaa 7,500 Series G, 5.75% due 2/01/2017 (f) 8,150
AAA Aaa 7,085 New York City, New York, GO, Series G, 5.75% due 10/15/2012 (f) 7,997
AAA Aaa 1,665 New York State Dormitory Authority Revenue Bonds (School
Districts Financing Program), Series D, 5.25% due 10/01/2023 (b) 1,741
AAA NR* 3,000 Tobacco Settlement Financing Corporation of New York, Revenue
Bonds, Series A-1, 5.25% due 6/01/2022 (a) 3,131
Ohio--0.9% AAA Aaa 1,650 Cincinnati, Ohio, City School District, Classroom Facilities
Construction & Improvement, GO, 5% due 12/01/2025 (f) 1,673
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) 1,587
Pennsylvania-- AAA Aaa 6,045 Philadelphia, Pennsylvania, Airport Revenue Bonds (Philadelphia
11.6% Airport System), AMT, Series B, 5.50% due 6/15/2017 (c) 6,445
AAA Aaa 4,930 Philadelphia, Pennsylvania, School District, GO, Series A,
5.25% due 4/01/2015 (b) 5,349
A- NR* 2,430 Sayre, Pennsylvania, Health Care Facilities Authority Revenue
Bonds (Guthrie Health Issue), Series B, 5.85% due 12/01/2020 2,534
AAA Aaa 4,250 Washington County, Pennsylvania, Capital Funding Authority
Revenue Bonds (Capital Projects and Equipment Program), 6.15%
due 12/01/2029 (a) 4,929
NR* Aaa 1,885 York County, Pennsylvania, School of Technology Authority,
Lease Revenue Refunding Bonds, 5.50% due 2/15/2022 (c) 2,028
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) 5,612
South Carolina-- Tobacco Settlement Revenue Management Authority of South
1.3% Carolina, Tobacco Settlement Revenue Bonds, Series B:
BBB Baa2 1,690 6.375% due 5/15/2028 1,487
BBB Baa2 1,000 6.375% due 5/15/2030 871
Tennessee-- Tennessee HDA, Revenue Refunding Bonds (Homeownership Program),
3.4% AMT, Series A (f):
AAA Aaa 3,195 5.25% due 7/01/2022 3,270
AAA Aaa 2,935 5.35% due 1/01/2026 2,997
Texas--6.4% A+ Aa3 3,000 Austin, Texas, Convention Center Revenue Bonds (Convention
Enterprises Inc.), Trust Certificates, Second Tier, Series B,
6% due 1/01/2023 3,248
AAA Aaa 5,000 Dallas-Fort Worth, Texas, International Airport Revenue Bonds,
AMT, Series A, 5.50% due 11/01/2033 (b) 5,175
AAA NR* 3,050 Houston, Texas, Community College System, Participation
Interests, COP (Alief Center Project), 5.75% due 8/15/2022 (b) 3,328
Virginia--5.4% Virginia State HDA, Commonwealth Mortgage Revenue Bonds (b):
AAA Aaa 1,000 AMT, Series C, Sub-Series C-2, 5.45% due 7/01/2023 1,025
AAA Aaa 8,615 Series J, Sub-Series J-1, 5.20% due 7/01/2019 8,901
Washington-- AAA Aaa 1,655 Chelan County, Washington, Public Utility District Number 001,
3.5% Consolidated Revenue Bonds (Chelan Hydro System), AMT, Series A,
5.45% due 7/01/2037 (a) 1,691
AAA Aaa 2,710 King County, Washington, Sewer Revenue Refunding Bonds, Series B,
5.50% due 1/01/2027 (f) 2,861
AAA Aaa 1,810 Snohomish County, Washington, Public Utility District Number 001,
Electric Revenue Bonds, 5.50% due 12/01/2022 (f) 1,948
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 (b) 5,127
Wyoming--0.9% AA NR* 1,500 Wyoming Student Loan Corporation, Student Loan Revenue Refunding
Bonds, Series A, 6.20% due 6/01/2024 1,592
Total Municipal Bonds (Cost--$286,632)--163.9% 301,981
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 2003
Schedule of Investments (concluded) (In Thousands)
Shares
Held Short-Term Securities Value
11,421 Merrill Lynch Institutional Tax-Exempt Fund (l) $ 11,421
Total Short-Term Securities (Cost--$11,421)--6.2% 11,421
Total Investments (Cost--$298,053)--170.1% 313,402
Unrealized Depreciation on Forward Interest Rate Swaps***--(0.4%) (654)
Other Assets Less Liabilities--3.0% 5,488
Preferred Stock, at Redemption Value--(72.7%) (134,011)
---------
Net Assets Applicable to Common Stock--100.0% $ 184,225
=========
(a)AMBAC Insured.
(b)MBIA Insured.
(c)FGIC Insured.
(d)XL Capital Insured.
(e)Escrowed to maturity.
(f)FSA Insured.
(g)GNMA Collateralized.
(h)FHA Insured.
(i)Radian Insured.
(j)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 October 31, 2003.
(k)Prerefunded.
(l)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 $3,900 $30
*Not Rated.
**Represents a zero coupon bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
***Forward interest rate swaps entered into as of October 31, 2003
were as follows:
(in Thousands)
Unrealized
Notional Appreciation
Amount (Depreciation)
Receive a variable rate equal to
7-Day Bond Market Association
Municipal Swap Index Rate and
pay a fixed rate equal to 4.511%
Broker, J.P. Morgan Chase Bank
Expires December 2023 $30,000 $ (1,017)
Receive a variable rate equal to
3-Month LIBOR and pay a fixed
rate equal to 4.48%
Broker, Morgan Stanley
Capital Services, Inc.
Expires December 2013 $16,000 363
----------
Total $ (654)
==========
See Notes to Financial Statements.
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 2003
Statement of Net Assets
As of October 31, 2003
Assets
Investments, at value (identified cost--$298,052,643) $ 313,402,291
Cash 79,376
Receivables:
Interest $ 4,783,218
Securities sold 912,700
Dividends from affiliates 275 5,696,193
---------------
Prepaid expenses 1,878
---------------
Total assets 319,179,738
---------------
Liabilities
Unrealized depreciation on forward interest rate swaps 653,748
Payables:
Investment adviser 148,553
Dividends to Common Stock shareholders 126,857
Other affiliates 5,650 281,060
---------------
Accrued expenses 9,133
---------------
Total liabilities 943,941
---------------
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) 134,010,613
---------------
Net Assets Applicable to Common Stock
Net assets applicable to Common Stock $ 184,225,184
===============
Analysis of Net Assets Applicable to Common Stock
Common Stock, par value $.10 per share (12,867,541 shares issued
and outstanding) $ 1,286,754
Paid-in capital in excess of par 190,198,389
Undistributed investment income--net $ 3,310,348
Accumulated realized capital losses on investments--net (25,266,207)
Unrealized appreciation on investments--net 14,695,900
---------------
Total accumulated losses--net (7,259,959)
---------------
Total--Equivalent to $14.32 net asset value per share of Common Stock
(market price--$13.22) $ 184,225,184
===============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 2003
Statement of Operations
For the Six Months Ended October 31, 2003
Investment Income
Interest $ 7,953,931
Dividends from affiliates 29,597
---------------
Total income 7,983,528
---------------
Expenses
Investment advisory fees $ 890,524
Commission fees 173,391
Accounting services 58,941
Professional fees 34,779
Transfer agent fees 24,560
Printing and shareholder reports 21,942
Directors' fees and expenses 18,014
Listing fees 14,770
Custodian fees 9,514
Pricing fees 6,189
Other 16,967
---------------
Total expenses before waiver and reimbursement 1,269,591
Waiver and reimbursement of expenses (95,086)
---------------
Total expenses after waiver and reimbursement 1,174,505
---------------
Investment income--net 6,809,023
---------------
Realized & Unrealized Gain (Loss) on Investments--Net
Realized gain on investments--net 4,847,779
Change in unrealized appreciation on investments--net (7,582,676)
---------------
Total realized and unrealized loss on investments--net (2,734,897)
---------------
Dividends to Preferred Stock Shareholders
Investment income--net (584,803)
---------------
Net Increase in Net Assets Resulting from Operations $ 3,489,323
===============
See Notes to Financial Statements.
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 2003
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
October 31, April 30,
Increase (Decrease) in Net Assets: 2003 2003
Operations
Investment income--net $ 6,809,023 $ 13,675,109
Realized gain (loss) on investments--net 4,847,779 (2,336,371)
Change in unrealized appreciation on investments--net (7,582,676) 10,263,841
Dividends to Preferred Stock shareholders (584,803) (1,650,076)
--------------- ---------------
Net increase in net assets resulting from operations 3,489,323 19,952,503
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (5,635,983) (10,866,639)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common Stock
shareholders (5,635,983) (10,866,639)
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase (decrease) in net assets applicable to Common Stock (2,146,660) 9,085,864
Beginning of period 186,371,844 177,285,980
--------------- ---------------
End of period* $ 184,225,184 $ 186,371,844
=============== ===============
*Undistributed investment income--net $ 3,310,348 $ 2,722,111
=============== ===============
See Notes to Financial Statements.
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 2003
Financial Highlights
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001++++ 2000++++
Per Share Operating Performance
Net asset value, beginning of period $ 14.48 $ 13.78 $ 13.29 $ 12.29 $ 15.25
---------- ---------- ---------- ---------- ----------
Investment income--net .53+++++ 1.06+++++ 1.07 1.14 1.17
Realized and unrealized gain (loss)
on investments--net (.20) .62 .44 1.01 (2.82)
Dividends to Preferred Stock shareholders
from:
Investment income--net (.05) (.13) (.21) (.41) (.36)
In excess of realized gain on
investments--net -- -- -- -- (.03)
---------- ---------- ---------- ---------- ----------
Total from investment operations .28 1.55 1.30 1.74 (2.04)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net (.44) (.85) (.81) (.74) (.83)
In excess of realized gain on
investments--net -- -- -- -- (.09)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions to
Common Stock shareholders (.44) (.85) (.81) (.74) (.92)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 14.32 $ 14.48 $ 13.78 $ 13.29 $ 12.29
========== ========== ========== ========== ==========
Market price per share, end of period $ 13.22 $ 13.50 $ 12.65 $ 12.89 $ 11.00
========== ========== ========== ========== ==========
Total Investment Return**
Based on market price per share 1.16%+++ 13.79% 4.38% 24.67% (17.87%)
========== ========== ========== ========== ==========
Based on net asset value per share 2.16%+++ 12.04% 10.28% 15.05% (13.13%)
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of waiver and
reimbursement++ 1.25%* 1.28% 1.30% 1.15% 1.28%
========== ========== ========== ========== ==========
Total expenses++ 1.35%* 1.38% 1.39% 1.44% 1.39%
========== ========== ========== ========== ==========
Total investment income--net++ 7.24%* 7.55% 7.75% 8.71% 8.87%
========== ========== ========== ========== ==========
Amount of dividends to Preferred Stock
shareholders .62%* .91% 1.50% 3.14% 2.74%
========== ========== ========== ========== ==========
Investment income--net, to Common Stock
shareholders 6.62%* 6.64% 6.25% 5.57% 6.13%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common & Preferred Stock++
Total expenses, net of waiver and
reimbursement .72%* .74% .74% .64% .71%
========== ========== ========== ========== ==========
Total expenses .78%* .80% .79% .80% .77%
========== ========== ========== ========== ==========
Total investment income--net 4.19%* 4.34% 4.41% 4.84% 4.93%
========== ========== ========== ========== ==========
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 2003
Financial Highlights (concluded)
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001++++ 2000++++
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders .86%* 1.23% 1.99% 3.94% 3.42%
========== ========== ========== ========== ==========
Supplemental Data
Net assets applicable to Common Stock,
end of period (in thousands) $ 184,225 $ 186,372 $ 177,286 $ 171,007 $ 158,094
========== ========== ========== ========== ==========
Preferred Stock outstanding, end of period
(in thousands) $ 134,000 $ 134,000 $ 134,000 $ 134,000 $ 134,000
========== ========== ========== ========== ==========
Portfolio turnover 23.49% 49.59% 49.69% 94.80% 189.96%
========== ========== ========== ========== ==========
Leverage
Asset coverage per $1,000 $ 2,375 $ 2,391 $ 2,323 $ 2,276 $ 2,180
========== ========== ========== ========== ==========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 107 $ 313 $ 502 $ 964 $ 854
========== ========== ========== ========== ==========
Series B--Investment income--net $ 112 $ 302 $ 491 $ 1,005 $ 852
========== ========== ========== ========== ==========
*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. 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.
+++Aggregate total investment return.
+++++Based on average shares outstanding.
See Notes to Financial Statements.
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 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 amended, 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. 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. 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 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 last available
bid price in the over-the-counter market or on the basis of yield
equivalents as obtained by the Fund's pricing service from one or
more 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). Swap
agreements are valued by quoted fair values received daily by the
Fund from the counterparty. Short-term investments with a remaining
maturity 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
movements 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 call and put options. When the Fund writes an option, an
amount equal to the premium received by the Fund is reflected as an
asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 2003
Notes to Financial Statements (continued)
* Forward interest rate swaps--The Fund may enter into forward
interest rate swaps. In a forward interest rate swap, the Fund and
the counterparty agree to make periodic net payments on a specified
notional contract amount, commencing on a specified future effective
date, unless terminated earlier. 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.
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 six months ended October 31,
2003, FAM earned fees of $890,524, of which $88,125 was waived. For
the six months ended October 31, 2003, FAM reimbursed the Fund in
the amount of $6,961.
For the six months ended October 31, 2003, the Fund reimbursed FAM
$3,454 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 six months ended October 31, 2003 were $72,498,666 and
$74,304,515, respectively.
Net realized gains for the six months ended October 31, 2003 and net
unrealized gains (losses) as of October 31, 2003 were as follows:
Realized Unrealized
Gains Gains (Losses)
Long-term investments $ 3,672,041 $ 15,349,648
Forward interest rate swaps 1,175,738 (653,748)
-------------- --------------
Total $ 4,847,779 $ 14,695,900
============== ==============
As of October 31, 2003, net unrealized appreciation for Federal
income tax purposes aggregated $15,357,705, of which $16,035,021
related to appreciated securities and $677,316 related to
depreciated securities. The aggregate cost of investments at
October 31, 2003 for Federal income tax purposes was $298,044,586.
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.
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 October 31, 2003 were as
follows: Series A, .67% and Series B, .825%.
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 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 six months ended
October 31, 2003, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, an affiliate of FAM, earned $113,930 as commissions.
5. Capital Loss Carryforward:
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.
6. Subsequent Event:
The Fund paid a tax-exempt income dividend to holders of Common
Stock in the amount of $.073000 per share on November 26, 2003 to
shareholders of record on November 14, 2003.
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 stable level of dividend
distributions, 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.
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 2003
Officers and Directors
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Roscoe S. Suddarth, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Kenneth A. Jacob, Senior Vice President
John M. Loffredo, Senior Vice President
Robert A. DiMella, Vice President
Donald C. Burke, Vice President and Treasurer
Brian D. Stewart, Secretary
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
Electronic Delivery
The Fund is now offering electronic delivery of communications to
its shareholders. In order to receive this service, you must
register your account and provide us with e-mail information.
To sign up for this service, simply access this website
http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification
number (PIN). You will need this PIN should you wish to update your
e-mail address, choose to discontinue this service and/or make any
other changes to the service. This service is not available for
certain retirement accounts at this time.
MUNIHOLDINGS INSURED FUND, INC., OCTOBER 31, 2003
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 (annual requirement
only)
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 (annual requirement only)
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. N/A
(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.
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill
Lynch Investment Managers, L.P. and/or Fund Asset Management, L.P.
(the "Investment Adviser") authority to vote all proxies relating to
the Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("Proxy Voting Procedures") with respect to
the voting of proxies related to the portfolio securities held in
the account of one or more of its clients, including a Fund.
Pursuant to these Proxy Voting Procedures, the Investment Adviser's
primary objective when voting proxies is to make proxy voting
decisions solely in the best interests of each Fund and its
shareholders, and to act in a manner that the Investment Adviser
believes is most likely to enhance the economic value of the
securities held by the Fund. The Proxy Voting Procedures are
designed to ensure that that the Investment Adviser considers the
interests of its clients, including the Funds, and not the interests
of the Investment Adviser, when voting proxies and that real (or
perceived) material conflicts that may arise between the Investment
Adviser's interest and those of the Investment Adviser's clients are
properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee").
The Committee is comprised of the Investment Adviser's Chief
Investment Officer (the "CIO"), one or more other senior investment
professionals appointed by the CIO, portfolio managers and
investment analysts appointed by the CIO and any other personnel the
CIO deems appropriate. The Committee will also include two non-
voting representatives from the Investment Adviser's Legal
department appointed by the Investment Adviser's General Counsel.
The Committee's membership shall be limited to full-time employees
of the Investment Adviser. No person with any investment banking,
trading, retail brokerage or research responsibilities for the
Investment Adviser's affiliates may serve as a member of the
Committee or participate in its decision making (except to the
extent such person is asked by the Committee to present information
to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser
might be asked to do so). The Committee determines how to vote the
proxies of all clients, including a Fund, that have delegated proxy
voting authority to the Investment Adviser and seeks to ensure that
all votes are consistent with the best interests of those clients
and are free from unwarranted and inappropriate influences. The
Committee establishes general proxy voting policies for the
Investment Adviser and is responsible for determining how those
policies are applied to specific proxy votes, in light of each
issuer's unique structure, management, strategic options and, in
certain circumstances, probable economic and other anticipated
consequences of alternate actions. In so doing, the Committee may
determine to vote a particular proxy in a manner contrary to its
generally stated policies. In addition, the Committee will be
responsible for ensuring that all reporting and recordkeeping
requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires
a case-by-case determination. In such cases, the Committee may
elect not to adopt a specific voting policy applicable to that
issue. The Investment Adviser believes that certain proxy voting
issues require investment analysis - such as approval of mergers and
other significant corporate transactions - akin to investment
decisions, and are, therefore, not suitable for general guidelines.
The Committee may elect to adopt a common position for the
Investment Adviser on certain proxy votes that are akin to
investment decisions, or determine to permit the portfolio manager
to make individual decisions on how best to maximize economic value
for a Fund (similar to normal buy/sell investment decisions made by
such portfolio managers). While it is expected that the Investment
Adviser will generally seek to vote proxies over which the
Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in
conjunction with a Fund's portfolio manager, may determine that the
Fund's specific circumstances require that its proxies be voted
differently.
To assist the Investment Adviser in voting proxies, the Committee
has retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address
special circumstances that can arise in connection with proxy
voting. For instance, under the Proxy Voting Procedures, the
Investment Adviser generally will not seek to vote proxies related
to portfolio securities that are on loan, although it may do so
under certain circumstances. In addition, the Investment Adviser
will vote proxies related to securities of foreign issuers only on a
best efforts basis and may elect not to vote at all in certain
countries where the Committee determines that the costs associated
with voting generally outweigh the benefits. The Committee may at
any time override these general policies if it determines that such
action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote
proxies in respect of an issuer where an affiliate of the Investment
Adviser (each, an "Affiliate"), or a money management or other
client of the Investment Adviser (each, a "Client") is involved.
The Proxy Voting Procedures and the Investment Adviser's adherence
to those procedures are designed to address such conflicts of
interest. The Committee intends to strictly adhere to the Proxy
Voting Procedures in all proxy matters, including matters involving
Affiliates and Clients. If, however, an issue representing a non-
routine matter that is material to an Affiliate or a widely known
Client is involved such that the Committee does not reasonably
believe it is able to follow its guidelines (or if the particular
proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes
of ensuring that an independent determination is reached, retain an
independent fiduciary to advise the Committee on how to vote or to
cast votes on behalf of the Investment Adviser's clients.
In the event that the Committee determines not to retain an
independent fiduciary, or it does not follow the advice of such an
independent fiduciary, the powers of the Committee shall pass to a
subcommittee, appointed by the CIO (with advice from the Secretary
of the Committee), consisting solely of Committee members selected
by the CIO. The CIO shall appoint to the subcommittee, where
appropriate, only persons whose job responsibilities do not include
contact with the Client and whose job evaluations would not be
affected by the Investment Adviser's relationship with the Client
(or failure to retain such relationship). The subcommittee shall
determine whether and how to vote all proxies on behalf of the
Investment Adviser's clients or, if the proxy matter is, in their
judgment, akin to an investment decision, to defer to the applicable
portfolio managers, provided that, if the subcommittee determines to
alter the Investment Adviser's normal voting guidelines or, on
matters where the Investment Adviser's policy is case-by-case, does
not follow the voting recommendation of any proxy voting service or
other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies
relating to the Client may be voted unless the Secretary, or in the
Secretary's absence, the Assistant Secretary of the Committee
concurs that the subcommittee's determination is consistent with the
Investment Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain
recurring proxy issues that are not expected to involve unusual
circumstances. These policies are guidelines only, and the
Investment Adviser may elect to vote differently from the
recommendation set forth in a voting guideline if the Committee
determines that it is in a Fund's best interest to do so. In
addition, the guidelines may be reviewed at any time upon the
request of a Committee member and may be amended or deleted upon the
vote of a majority of Committee members present at a Committee
meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
* Proposals related to the composition of the Board of Directors of
issuers other than investment companies. As a general matter, the
Committee believes that a company's Board of Directors (rather than
shareholders) is most likely to have access to important, nonpublic
information regarding a company's business and prospects, and is
therefore best-positioned to set corporate policy and oversee
management. The Committee, therefore, believes that the foundation
of good corporate governance is the election of qualified,
independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of
the corporation in a manner that will seek to maximize shareholder
value over time. In individual cases, the Committee may look at a
nominee's history of representing shareholder interests as a
director of other companies or other factors, to the extent the
Committee deems relevant.
* Proposals related to the selection of an issuer's independent
auditors. As a general matter, the Committee believes that
corporate auditors have a responsibility to represent the interests
of shareholders and provide an independent view on the propriety of
financial reporting decisions of corporate management. While the
Committee will generally defer to a corporation's choice of auditor,
in individual cases, the Committee may look at an auditors' history
of representing shareholder interests as auditor of other companies,
to the extent the Committee deems relevant.
* Proposals related to management compensation and employee
benefits. As a general matter, the Committee favors disclosure of
an issuer's compensation and benefit policies and opposes excessive
compensation, but believes that compensation matters are normally
best determined by an issuer's board of directors, rather than
shareholders. Proposals to "micro-manage" an issuer's compensation
practices or to set arbitrary restrictions on compensation or
benefits will, therefore, generally not be supported.
* Proposals related to requests, principally from management, for
approval of amendments that would alter an issuer's capital
structure. As a general matter, the Committee will support requests
that enhance the rights of common shareholders and oppose requests
that appear to be unreasonably dilutive.
* Proposals related to requests for approval of amendments to an
issuer's charter or by-laws. As a general matter, the Committee
opposes poison pill provisions.
* Routine proposals related to requests regarding the formalities of
corporate meetings.
* Proposals related to proxy issues associated solely with holdings
of investment company shares. As with other types of companies, the
Committee believes that a fund's Board of Directors (rather than its
shareholders) is best-positioned to set fund policy and oversee
management. However, the Committee opposes granting Boards of
Directors authority over certain matters, such as changes to a
fund's investment objective, that the Investment Company Act
envisions will be approved directly by shareholders.
* Proposals related to limiting corporate conduct in some manner
that relates to the shareholder's environmental or social concerns.
The Committee generally believes that annual shareholder meetings
are inappropriate forums for discussion of larger social issues, and
opposes shareholder resolutions "micromanaging" corporate conduct or
requesting release of information that would not help a shareholder
evaluate an investment in the corporation as an economic matter.
While the Committee is generally supportive of proposals to require
corporate disclosure of matters that seem relevant and material to
the economic interests of shareholders, the Committee is generally
not supportive of proposals to require disclosure of corporate
matters for other purposes.
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: December 22, 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: December 22, 2003
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
MuniHoldings Insured Fund, Inc.
Date: December 22, 2003
Attached hereto as a furnished exhibit are the certifications
pursuant to Section 906 of the Sarbanes-Oxley Act.