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: 04/30/04
Date of reporting period: 05/01/03 - 04/30/04
Item 1 - Report to Stockholders
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
MuniHoldings
Insured Fund, Inc.
Annual Report
April 30, 2004
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.
A description of the policies and procedures that the Fund uses to
determine how to vote proxies relating to portfolio securities is
available (1) without charge, upon request, by calling toll-free
1-800-MER-FUND (1-800-637-3863); (2) on www.mutualfunds.ml.com;
and (3) on the Securities and Exchange Commission's website at
http://www.sec.gov.
MuniHoldings Insured Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
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MuniHoldings Insured Fund, Inc.
The Benefits and Risks of Leveraging
MuniHoldings Insured Fund, Inc. utilizes leveraging to seek
to enhance the yield and net asset value of its Common Stock.
However, these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues Preferred Stock, which
pays dividends at prevailing short-term interest rates, and invests
the proceeds in long-term municipal bonds. The interest earned on
these investments is paid to Common Stock shareholders in the form
of dividends, and the value of these portfolio holdings is reflected
in the per share net asset value of the Fund's Common Stock.
However, in order to benefit Common Stock shareholders, the yield
curve must be positively sloped; that is, short-term interest rates
must be lower than long-term interest rates. At the same time, a
period of generally declining interest rates will benefit Common
Stock shareholders. If either of these conditions change, then the
risks of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the 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 April 30,
2004, the percentage of the Fund's total net assets invested in
inverse floaters was .62%.
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, 2004
A Letter From the President
Dear Shareholder
For the six-month and 12-month periods ended April 30, 2004, the
Lehman Brothers Municipal Bond Index posted returns of +1.19% and
+2.68%, respectively. Its taxable counterpart, the Lehman Brothers
Aggregate Bond Index, had returns of +1.25% and +1.82% for the same
periods. Amid considerable month-to-month volatility, tax-exempt
bond yields rose over the past year, although not to the same extent
as 10-year U.S. Treasury yields. In all, tax-exempt securities
continued to be an attractive fixed income investment alternative.
As of April month-end, the Federal Reserve Board maintained its
accommodative policy stance, although a better-than-expected
employment report for the month of March prompted speculation that
an interest rate increase could come sooner than many had expected.
On April 2, 2004, the good news on the employment front - previously
the one dim spot in an otherwise bright economic picture - helped
prompt the yield on the 10-year Treasury bond to spike nearly 25
basis points (.25%), from 3.91% to 4.15%. Market watchers continue
to monitor the economic data and Federal Reserve Board language for
indications of interest rate direction. If economic growth maintains
its recent pace and employment figures continue to improve, many
believe it is just a matter of time before interest rates move
upward.
Equity markets, in the meantime, gleaned support from the improving
economic environment and provided attractive returns. For the
six-month and 12-month periods ended April 30, 2004, the Standard &
Poor's 500 Index returned +6.27% and +22.88%, respectively.
Significant fiscal and monetary stimulus in 2003, including low
interest rates and tax cuts, has opened the door to consumer
spending, capital spending, increases in exports and long-awaited
job growth. As expected, these developments have led the way to
improvements in corporate earnings - a positive for stock markets.
The events and efforts of the past year leave us with a much
stronger economy today. Of course, markets will always fluctuate,
and there are many uncertainties - not the least of which are
geopolitical in nature - which can translate into negative market
movements. Keeping this in mind, we encourage you to revisit your
portfolio and your asset allocation strategy to ensure you are well
positioned to take advantage of the opportunities that lie ahead.
Importantly, your financial advisor can help you develop a strategy
most suitable for your circumstances through all types of market and
economic cycles.
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., APRIL 30, 2004
A Discussion With Your Fund's Portfolio Manager
The Fund significantly outperformed its peer group for the fiscal
year and was effectively able to enhance yield while preserving net
asset value in a volatile interest rate environment.
Describe the recent market environment relative to municipal bonds.
Amid considerable volatility, yields on long-term fixed income
securities moved higher over the past 12 months as bond prices,
which typically move opposite of yields, declined. Movements in bond
yields were largely driven by the market's perception of and
response to economic activity, Federal Reserve Board language and
employment data.
Early in the period, bond yields declined (and prices rose) as the
Federal Reserve Board lowered short-term interest rates in order to
bolster the then-sputtering U.S. economic activity. By mid-June
2003, long-term U.S. Treasury bond yields had fallen to their recent
historic low of 4.17%. As economic growth gained steam, yields rose
(and prices declined) dramatically until again turning downward on
continued reports of lackluster job growth. The trend reversed once
more in early April 2004 when a surprisingly strong monthly
employment report triggered fears that the long-accommodative
Federal Reserve Board might raise interest rates sooner than many
had expected. As a result, bond yields rose (prices fell) for the
remainder of the period.
At the end of April, long-term Treasury bond yields had risen to
nearly 5.30%, an increase of more than 50 basis points (.50%) over
the 12-month period. Ten-year U.S. Treasury note yields ended April
at 4.30%, an increase of more than 65 basis points during the past
year. Tax-exempt bond yields generally mimicked the movement of
their taxable counterparts, although volatility in the municipal
market was more subdued. Long-term revenue bond yields, as measured
by the Bond Buyer Revenue Bond Index, rose less than 20 basis points
over the past 12 months. For the same period, yields on AAA-rated
issues maturing in 30 years rose approximately 30 basis points to
4.93% while yields on 10-year, AAA-rated issues increased more than
40 basis points to nearly 4%, according to Municipal Market Data.
The more marked increase in 10-year bond yields may be attributed
to the fact that recent issuance has been heavily concentrated in
the 10-year - 20-year range. The resulting supply imbalance prompted
higher intermediate bond yields (and lower prices). Longer-maturity
and lower-rated issues continued to benefit from more favorable
supply/demand factors and, therefore, have seen less price
depreciation. Overall, in the past 12 months, nearly $380 billion in
long-term tax-exempt bonds was issued, a decline of approximately 2%
versus the year prior. In more recent months, however, the pace of
underwriting has quickened. More than $92 billion in long-term
municipal obligations was marketed in the past three months, an
increase of nearly 5% compared to the same period a year ago.
While investor enthusiasm for stocks has taken some attention
away from fixed income markets, overall demand for tax-exempt
municipal bonds has remained positive. Data from the Investment
Company Institute indicates that, in just the first three months of
2004, tax-exempt bond funds have seen net new cash flows of almost
$640 million.
How did the Fund perform during the fiscal year in light of the
existing market conditions?
For the 12-month period ended April 30, 2004, the Common Stock of
MuniHoldings Insured Fund, Inc. had net annualized yields of 6.29%
and 7.03%, based on a year-end per share net asset value of $14.12
and a per share market price of $12.64, respectively, and $.888 per
share income dividends. Over the same period, the total investment
return on the Fund's Common Stock was +4.07%, based on a change in
per share net asset value from $14.48 to $14.12, and assuming
reinvestment of $.885 per share ordinary income dividends.
For the six-month period ended April 30, 2004, the total investment
return on the Fund's Common Stock was +1.87%, based on a change in
per share net asset value from $14.32 to $14.12, and assuming
reinvestment of $.447 per share income dividends.
For the six-month period ended April 30, 2004, the Fund's Auction
Market Preferred Stock (AMPS) had an average yield of .95% for
Series A and .93% for Series B.
The Fund's return, based on net asset value, for the year exceeded
that of its comparable Lipper category of Insured Municipal Debt
Funds (Leveraged), which had a return of +2.25% for the 12-month
period. (Funds in this Lipper category invest primarily in municipal
debt issues insured as to timely payment. These funds can be
leveraged via use of debt, preferred equity and/or reverse
repurchase agreements.) The portfolio's slightly defensive
positioning in a very volatile, rising interest rate environment
benefited performance during the period. Our strategy was to avoid
those areas of the yield curve that were demonstrating the most
volatility, particularly the 10-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., APRIL 30, 2004
Also benefiting performance was our strategic approach to the
California municipal bond market. A combination of heavy supply,
negative budgetary news and the gubernatorial recall election caused
California bonds to become very inexpensive on a relative basis. We
took advantage of this by increasing the Fund's exposure to the
California market. With the heavy issuance completed and the
uncertainty of the governorship eliminated, spreads on California
bonds narrowed.
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. So, 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 12 months,
this unenhanced portion of the portfolio performed very well on a
relative basis, contributing to the Fund's overall outperformance
for the period.
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 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.
What changes were made to the portfolio during the period?
We strategically shifted in and out of the California market 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
state's ongoing budgetary shortfall, we would probably again
increase our position in California bonds on such weakness to once
more gain exposure to a sector that we believe offers good relative
value.
Another change involved some shifting of the portfolio's uninsured
basket. A year ago, we increased some of the health care related
issues in the portfolio as we observed wide credit spreads,
primarily because of 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 sought to remain fully invested 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 the steep municipal yield curve, continued to
generate significant income to the Fund's Common Stock shareholders.
The Federal Reserve Board appears poised to begin raising short-term
interest rates, most likely later in 2004. The increase, however, is
expected to be gradual and should not have a material impact on the
positive advantage leverage has had on the Fund's Common Stock
yield. However, should the spread between short-term and long-term
interest rates narrow, the benefits of leveraging will decline and,
as a result, reduce the yield on the Fund's Common Stock. At the end
of the period, the Fund's leverage amount, due to AMPS, was 42.44%
of total assets. (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 Fund'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.
Robert A. DiMella
Vice President and Portfolio Manager
May 21, 2004
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
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) $ 2,133
Arkansas--1.2% NR* Aaa 1,930 University of Arkansas, University Revenue Bonds (Fayetteville
Campus), 5.50% due 12/01/2018 (c) 2,096
California-- AAA Aaa 3,250 Brea and Olinda, California, Unified School District, COP,
39.0% Refunding, Series A, 5.125% due 8/01/2026 (f) 3,283
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) 3,156
AAA Aaa 3,500 California Pollution Control Financing Authority, PCR, Refunding
(Pacific Gas & Electric), AMT, Series A, 5.35% due 12/01/2016 (b) 3,692
California State Department of Water Resources, Power Supply
Revenue Bonds, Series A:
AAA Aaa 4,000 5.375% due 5/01/2017 (d) 4,300
BBB+ A3 3,400 5.25% due 5/01/2020 3,475
California State, GO, Refunding:
AAA Baa1 5,750 5.25% due 10/01/2020 (d) 6,041
BBB Baa1 7,000 5.375% due 10/01/2027 7,034
BBB Aaa 2,900 California State, Various Purpose, GO, 5.50% due 4/01/2030 2,967
Golden State Tobacco Securitization Corporation of California,
Tobacco Settlement Revenue Bonds:
BBB Baa3 1,145 Series A-3, 7.875% due 6/01/2042 1,215
BBB- Baa2 2,000 Series B, 5.50% due 6/01/2018 2,054
BBB- Baa2 5,000 Series B, 5.75% due 6/01/2022 5,150
AAA Aaa 1,600 Series B, 5.375% due 6/01/2028 (c) 1,643
AAA Aaa 5,305 Industry, California, Urban Development Agency, Tax Allocation
Bonds (Civic Recreational Industrial Redevelopment Project No. 1),
Series B, 5% due 5/01/2019 (b) 5,460
AAA Aaa 2,000 Los Angeles, California, Unified School District, GO (Election
of 1997), Series F, 5% due 7/01/2021 (c) 2,055
AAA Aaa 2,480 Port Oakland, California, Revenue Refunding Bonds, Series M,
5.25% due 11/01/2020 (c) 2,594
AA Aa3 1,750 Sacramento County, California, Sanitation District, Financing
Authority, Revenue Refunding Bonds, RIB, Series 366, 10.362% due
12/01/2027 (h) 1,965
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) 5,026
San Pablo, California, Joint Powers Financing Authority, Tax
Allocation Revenue Refunding Bonds (b):
AAA Aaa 2,635 5.66%** due 12/01/2024 848
AAA Aaa 2,355 5.66%** due 12/01/2025 710
AAA Aaa 2,355 5.66%** due 12/01/2026 669
AAA Aaa 2,000 University of California Revenue Bonds (Multiple Purpose Projects),
Series Q, 5% due 9/01/2022 (f) 2,040
AAA Aaa 2,000 Walnut, California, Energy Center Authority Revenue Bonds,
Series A, 5% due 1/01/2034 (a) 1,981
AAA Aaa 3,480 West Contra Costa, California, Unified School District, GO,
Series C, 5% due 8/01/2021 (c) 3,567
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
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, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings++ Ratings++ Amount Municipal Bonds Value
Colorado--7.7% Aurora, Colorado, COP (a):
AAA Aaa $ 2,440 5.75% due 12/01/2015 $ 2,720
AAA Aaa 2,560 5.75% due 12/01/2016 2,852
AAA Aaa 2,730 5.75% due 12/01/2017 3,033
AAA Aaa 2,890 5.75% due 12/01/2018 3,211
Larimer County, Colorado, Poudre School District Number R-1,
GO (b):
NR* Aaa 1,000 5.75% due 12/15/2021 1,107
NR* Aaa 1,000 5.50% due 12/15/2022 1,074
Connecticut-- AAA Aaa 8,000 Connecticut State, HFA, Revenue Bonds (Housing Mortgage Program),
7.8% AMT, Series D, 5.15% due 11/15/2022 (b) 8,135
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) 5,965
Florida--3.5% AAA Aaa 3,500 Dade County, Florida, Water and Sewer System Revenue Bonds,
5.25% due 10/01/2021 (c) 3,680
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) 2,608
Illinois--16.4% Chicago, Illinois, GO (c):
AAA Aaa 5,000 5.50% due 1/01/2021 5,350
AAA Aaa 2,790 Series A, 6% due 1/01/2018 3,153
AAA Aaa 2,000 Series A, 6% due 1/01/2019 2,257
AAA Aaa 3,175 Series A, 6% due 1/01/2020 3,557
Chicago, Illinois, O'Hare International Airport Revenue Bonds,
3rd Lien, AMT, Series B-2:
AAA Aaa 1,800 5.75% due 1/01/2023 (f) 1,921
AAA Aaa 4,300 6% due 1/01/2029 (d) 4,636
AAA Aaa 3,500 Chicago, Illinois, Parking District, GO, Series A, 5.75% due
1/01/2017 (c) 3,862
AAA Aaa 4,500 Illinois State, GO, First Series, 6% due 1/01/2018 (c) 5,052
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 Aaa 4,380 Fayette County, Kentucky, School District Finance Corporation,
School Building Revenue Bonds, 5.50% due 9/01/2019 (b) 4,740
Maine--0.3% AA+ Aa1 495 Maine State Housing Authority, Mortgage Revenue Bonds, AMT,
Series F-2, 5.25% due 11/15/2032 497
Massachusetts-- AAA Aaa 65 Massachusetts State, GO, Refunding, Series D, 5.375% due
1.4% 8/01/2012 (b)(g) 72
AAA Aaa 2,440 Massachusetts State, HFA, Rental Housing Mortgage Revenue Bonds,
AMT, Series C, 5.50% due 7/01/2032 (f) 2,485
Michigan--4.8% AAA Aaa 2,035 Boyne City, Michigan, Public School District, GO, 5.75% due
5/01/2017 (c) 2,242
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 1,236
AAA Aaa 3,500 (Detroit Edison Company Project), Series C, 5.65% due 9/01/2029 3,620
AAA Aaa 1,500 (Detroit Edison Pollution), Series B, 5.65% due 9/01/2029 1,551
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings++ Ratings++ Amount Municipal Bonds Value
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) $ 4,412
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 2,009
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) 2,168
Mehlville, Missouri, School District Number R-9, COP (f):
AAA Aaa 1,570 (Missouri Capital Improvement Projects), 5.50% due 9/01/2015 1,712
AAA Aaa 2,610 (Missouri Capital Improvement Projects), 5.50% due 9/01/2018 2,826
AAA Aaa 1,925 Series A, 5.50% due 3/01/2014 2,107
AAA Aaa 2,175 Series A, 5.50% due 3/01/2015 2,362
AAA Aaa 1,170 Series A, 5.50% due 3/01/2016 1,267
AAA Aaa 1,500 Series A, 5.50% due 3/01/2017 1,622
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 1,700
AAA Aaa 2,000 5.50% due 4/01/2021 2,134
Nevada--2.4% AAA Aaa 4,000 Las Vegas, Nevada, New Convention and Visitors Authority Revenue
Bonds, 5.75% due 7/01/2018 (a) 4,444
New Hampshire-- AAA Aaa 2,250 New Hampshire Health and Education Facilities Authority
1.3% Revenue Bonds (University System of New Hampshire), 5.375%
due 7/01/2020 (a) 2,403
New Jersey-- NR* Aaa 2,750 New Jersey State Highway Authority, Garden State Parkway General
4.9% Revenue Refunding Bonds, 6% due 1/01/2019 (e) 3,195
AAA Aaa 3,000 New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Refunding Bonds, Series B, 6% due
12/15/2011 (b)(g) 3,488
BBB Baa3 2,320 Tobacco Settlement Financing Corporation of New Jersey Revenue
Bonds, 7% due 6/01/2041 2,275
New York--25.7% AAA Aaa 10,000 Nassau Health Care Corporation, New York, Health System Revenue
Bonds, 5.75% due 8/01/2022 (f) 10,852
New York City, New York, GO, Refunding:
AAA Aaa 6,250 Series C, 5.875% due 2/01/2016 (b) 6,798
AAA Aaa 7,500 Series G, 5.75% due 2/01/2017 (f) 8,017
AAA Aaa 7,085 New York City, New York, GO, Series G, 5.75% due 10/15/2012 (f) 7,819
AAA Aaa 1,665 New York State Dormitory Authority Revenue Bonds (School
Districts Financing Program), Series D, 5.25% due 10/01/2023 (b) 1,739
AAA Aaa 1,030 New York State Dormitory Authority, Revenue Refunding Bonds
(School Districts Bond Financing Program), Series A, 5% due
4/01/2014 (b) 1,104
Tobacco Settlement Financing Corporation of New York Revenue Bonds:
AAA Aaa 3,000 Series A-1, 5.25% due 6/01/2022 (a) 3,103
AA- A3 4,900 Series C-1, 5.50% due 6/01/2017 5,210
AA- A3 2,000 Series C-1, 5.50% due 6/01/2021 2,110
Ohio--1.7% AAA Aaa 3,000 Butler County, Ohio, Transportation Improvement District,
Series A, 5.125% due 4/01/2017 (f) 3,146
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings++ Ratings++ Amount Municipal Bonds Value
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) $ 1,558
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) 6,339
AAA Aaa 4,930 Philadelphia, Pennsylvania, School District, GO, Series A,
5.25% due 4/01/2015 (b) 5,246
A- NR* 2,430 Sayre, Pennsylvania, Health Care Facilities Authority Revenue
Bonds (Guthrie Health Issue), Series B, 5.85% due 12/01/2020 2,551
AAA Aaa 4,250 Washington County, Pennsylvania, Capital Funding Authority
Revenue Bonds (Capital Projects and Equipment Program), 6.15%
due 12/01/2029 (a) 4,856
NR* Aaa 1,885 York County, Pennsylvania, School of Technology Authority,
Lease Revenue Refunding Bonds, 5.50% due 2/15/2022 (c) 2,015
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) 5,536
South Carolina-- BBB Baa3 1,690 Tobacco Settlement Revenue Management Authority of South Carolina,
0.8% Tobacco Settlement Revenue Bonds, Series B, 6.375% due 5/15/2028 1,539
Tennessee--3.4% Tennessee HDA, Revenue Refunding Bonds (Homeownership Program),
AMT, Series A (f):
AAA Aaa 3,195 5.25% due 7/01/2022 3,273
AAA Aaa 2,935 5.35% due 1/01/2026 2,989
Texas--5.7% A- Aa3 3,000 Austin, Texas, Convention Center Revenue Bonds (Convention
Enterprises Inc.), Trust Certificates, Second Tier, Series B,
6% due 1/01/2023 3,113
AAA Aaa 1,900 Dallas-Fort Worth, Texas, International Airport Revenue Bonds,
AMT, Series A, 5.50% due 11/01/2033 (b) 1,951
AAA Aaa 3,005 Houston, Texas, Community College System, Participation Interests,
COP (Alief Center Project), 5.75% due 8/15/2022 (b) 3,275
AAA Aaa 1,910 Lubbock, Texas, GO, Certificates of Obligation (Municipal
Drainage Utility), Series D, 5% due 2/15/2021 (b) 1,944
Virginia--3.4% AAA Aaa 6,100 Virginia State HDA, Commonwealth Mortgage Revenue Bonds,
Series J, Sub-Series J-1, 5.20% due 7/01/2019 (b) 6,188
Washington-- AAA Aaa 1,655 Chelan County, Washington, Public Utility District Number 001,
3.6% Consolidated Revenue Bonds (Chelan Hydro System), AMT, Series A,
5.45% due 7/01/2037 (a) 1,688
AAA Aaa 2,710 King County, Washington, Sewer Revenue Refunding Bonds, Series B,
5.50% due 1/01/2027 (f) 2,839
AAA Aaa 1,810 Snohomish County, Washington, Public Utility District Number 001,
Electric Revenue Bonds, 5.50% due 12/01/2022 (f) 1,921
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) 5,123
Wyoming--0.9% AA NR* 1,500 Wyoming Student Loan Corporation, Student Loan Revenue Refunding
Bonds, Series A, 6.20% due 6/01/2024 1,593
Total Municipal Bonds (Cost--$299,280)--171.3% 311,379
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Schedule of Investments (concluded) (In Thousands)
Shares
Held Short-Term Securities Value
321 Merrill Lynch Institutional Tax-Exempt Fund (j) $ 321
Total Short-Term Securities (Cost--$321)--0.2% 321
Total Investments (Cost--$299,601)--171.5% 311,700
Other Assets Less Liabilities--2.2% 4,038
Preferred Stock, at Redemption Value--(73.7%) (134,012)
---------
Net Assets Applicable to Common Stock--100.0% $ 181,726
=========
(a)AMBAC Insured.
(b)MBIA Insured.
(c)FGIC Insured.
(d)XL Capital Insured.
(e)Escrowed to maturity.
(f)FSA Insured.
(g)Prerefunded.
(h)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, 2004.
(i)Radian Insured.
(j)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 (7,200) $49
*Not Rated.
**Represents a zero coupon bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
++Ratings of issues shown are unaudited.
Forward interest rate swaps entered into as of April 30, 2004 were
as follows:
(in Thousands)
Notional Unrealized
Amount Appreciation
Receive a variable rate equal to
7-Day Bond Market Association
Municipal Swap Index Rate and
pay a fixed rate equal to 4.392%
Broker, J.P. Morgan Chase Bank
Expires July 2024 $36,000 $61
See Notes to Financial Statements.
Quality Profile (unaudited)
The quality ratings of securities in the Fund as of April 30, 2004
were as follows:
Percent of
Total
S&P Rating/Moody's Rating Investments
AAA/Aaa 84.6%
AA/Aa 6.6
A/A 1.9
BBB/Baa 6.8
NR (Not Rated) 0.1
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Statement of Net Assets
As of April 30, 2004
Assets
Investments in unaffiliated securities, at value
(identified cost--$299,279,639) $ 311,379,268
Investments in affiliated securities, at value (identified cost--$320,732) 320,732
Unrealized appreciation on forward interest rate swaps 60,696
Cash 34,858
Receivables:
Interest $ 5,062,711
Securities sold 2,315,597
Dividends from affiliates 8 7,378,316
---------------
Prepaid expenses 1,878
---------------
Total assets 319,175,748
---------------
Liabilities
Payables:
Securities purchased 2,973,164
Investment adviser 151,085
Dividends to Common Stock shareholders 127,884
Other affiliates 2,208 3,254,341
---------------
Accrued expenses and other liabilities 183,418
---------------
Total liabilities 3,437,759
---------------
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) 134,012,461
---------------
Net Assets Applicable to Common Stock
Net assets applicable to Common Stock $ 181,725,528
===============
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 $ 3,493,447
Accumulated realized capital losses on investments--net (25,413,387)
Unrealized appreciation on investments--net 12,160,325
---------------
Total accumulated losses--net (9,759,615)
---------------
Total--Equivalent to $14.12 net asset value per share of Common Stock
(market price--$12.64) $ 181,725,528
===============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Statement of Operations
For the Year Ended April 30, 2004
Investment Income
Interest $ 15,652,867
Dividends from affiliates 48,987
---------------
Total income 15,701,854
---------------
Expenses
Investment advisory fees $ 1,772,416
Commission fees 340,038
Accounting services 116,712
Professional fees 69,437
Transfer agent fees 49,416
Printing and shareholder reports 41,313
Directors' fees and expenses 35,302
Listing fees 21,250
Custodian fees 19,395
Pricing fees 11,391
Other 38,429
---------------
Total expenses before waiver and reimbursement 2,515,099
Waiver and reimbursement of expenses (185,188)
---------------
Total expenses after waiver and reimbursement 2,329,911
---------------
Investment income--net 13,371,943
---------------
Realized & Unrealized Gain (Loss) on Investments--Net
Realized gain on investments--net 4,700,599
Change in unrealized appreciation on investments--net (10,118,251)
---------------
Total realized and unrealized loss on investments--net (5,417,652)
---------------
Dividends to Preferred Stock Shareholders
Investment income--net (1,212,833)
---------------
Net Increase in Net Assets Resulting from Operations $ 6,741,458
===============
See Notes to Financial Statements.
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Statements of Changes in Net Assets
For the Year Ended April 30,
Increase (Decrease) in Net Assets: 2004 2003
Operations
Investment income--net $ 13,371,943 $ 13,675,109
Realized gain (loss) on investments--net 4,700,599 (2,336,371)
Change in unrealized appreciation on investments--net (10,118,251) 10,263,841
Dividends to Preferred Stock shareholders (1,212,833) (1,650,076)
--------------- ---------------
Net increase in net assets resulting from operations 6,741,458 19,952,503
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (11,387,774) (10,866,639)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common Stock
shareholders (11,387,774) (10,866,639)
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase (decrease) in net assets applicable to Common Stock (4,646,316) 9,085,864
Beginning of year 186,371,844 177,285,980
--------------- ---------------
End of year* $ 181,725,528 $ 186,371,844
=============== ===============
*Undistributed investment income--net $ 3,493,447 $ 2,722,111
=============== ===============
See Notes to Financial Statements.
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001*** 2000***
Per Share Operating Performance
Net asset value, beginning of year $ 14.48 $ 13.78 $ 13.29 $ 12.29 $ 15.25
---------- ---------- ---------- ---------- ----------
Investment income--net 1.04+++ 1.06+++ 1.07 1.14 1.17
Realized and unrealized gain (loss) on
investments--net (.42) .62 .44 1.01 (2.82)
Dividends to Preferred Stock shareholders from:
Investment income--net (.09) (.13) (.21) (.41) (.36)
In excess of realized gain on
investments--net -- -- -- -- (.03)
---------- ---------- ---------- ---------- ----------
Total from investment operations .53 1.55 1.30 1.74 (2.04)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.89) (.85) (.81) (.74) (.83)
In excess of realized gain on
investments--net -- -- -- -- (.09)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions to Common
Stock shareholders (.89) (.85) (.81) (.74) (.92)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 14.12 $ 14.48 $ 13.78 $ 13.29 $ 12.29
========== ========== ========== ========== ==========
Market price per share, end of year $ 12.64 $ 13.50 $ 12.65 $ 12.89 $ 11.00
========== ========== ========== ========== ==========
Total Investment Return*
Based on market price per share (.07%) 13.79% 4.38% 24.67% (17.87%)
========== ========== ========== ========== ==========
Based on net asset value per share 4.07% 12.04% 10.28% 15.05% (13.13%)
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of waiver and
reimbursement** 1.24% 1.28% 1.30% 1.15% 1.28%
========== ========== ========== ========== ==========
Total expenses** 1.34% 1.38% 1.39% 1.44% 1.39%
========== ========== ========== ========== ==========
Total investment income--net** 7.12% 7.55% 7.75% 8.71% 8.87%
========== ========== ========== ========== ==========
Amount of dividends to Preferred Stock
shareholders .65% .91% 1.50% 3.14% 2.74%
========== ========== ========== ========== ==========
Investment income--net, to Common Stock
shareholders 6.47% 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 4.14% 4.34% 4.41% 4.84% 4.93%
========== ========== ========== ========== ==========
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Financial Highlights (concluded)
The following per share data and ratios have been derived For the Year Ended April 30,
from information provided in the financial statements. 2004 2003 2002 2001*** 2000***
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders .90% 1.23% 1.99% 3.94% 3.42%
========== ========== ========== ========== ==========
Supplemental Data
Net assets applicable to Common Stock,
end of year (in thousands) $ 181,726 $ 186,372 $ 177,286 $ 171,007 $ 158,094
========== ========== ========== ========== ==========
Preferred Stock outstanding, end of year
(in thousands) $ 134,000 $ 134,000 $ 134,000 $ 134,000 $ 134,000
========== ========== ========== ========== ==========
Portfolio turnover 39.94% 49.59% 49.69% 94.80% 189.96%
========== ========== ========== ========== ==========
Leverage
Asset coverage per $1,000 $ 2,356 $ 2,391 $ 2,323 $ 2,276 $ 2,180
========== ========== ========== ========== ==========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 225 $ 313 $ 502 $ 964 $ 854
========== ========== ========== ========== ==========
Series B--Investment income--net $ 228 $ 302 $ 491 $ 1,005 $ 852
========== ========== ========== ========== ==========
*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.
+++Based on average shares outstanding.
See Notes to Financial Statements.
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
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 U.S. generally accepted
accounting principles, which may require the use of management
accruals and estimates. Actual results may differ from these
estimates. 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 may 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.
* 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.
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Notes to Financial Statements (continued)
(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 year ended April 30, 2004, FAM
earned fees of $1,772,416 of which $172,724 was waived. For the year
ended April 30, 2004, FAM reimbursed the Fund in the amount of
$12,464.
For the year ended April 30, 2004, the Fund reimbursed FAM $6,410
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, 2004 were $134,726,441 and
$124,332,172, respectively.
Net realized gains for the year ended April 30, 2004 and net
unrealized appreciation as of April 30, 2004 were as follows:
Realized Unrealized
Gains Appreciation
Long-term investments $ 4,394,741 $ 12,099,629
Forward interest rate swaps 305,858 60,696
--------------- ---------------
Total $ 4,700,599 $ 12,160,325
=============== ===============
As of April 30, 2004, net unrealized appreciation for Federal income
tax purposes aggregated $12,112,834, of which $13,157,618 related to
appreciated securities and $1,044,784 related to depreciated
securities. The aggregate cost of investments at April 30, 2004 for
Federal income tax purposes was $299,587,166.
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 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, 2004 were as follows: Series A,
1.02% and Series B, .97%.
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, 2004, Merrill Lynch, Pierce, Fenner & Smith Incorporated, an
affiliate of FAM, earned $224,216 as commissions.
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Notes to Financial Statements (concluded)
5. Distributions to Shareholders:
The Fund paid a tax-exempt income dividend to holders of Common
Stock in the amount of $.076000 per share on May 27, 2004, to
shareholders of record on May 14, 2004.
The tax character of distributions paid during the fiscal years
ended April 30, 2004 and April 30, 2003 was as follows:
4/30/2004 4/30/2003
Distributions paid from:
Tax-exempt income $ 12,600,607 $ 12,516,715
--------------- ---------------
Total distributions $ 12,600,607 $ 12,516,715
=============== ===============
As of April 30, 2004, the components of accumulated losses on a tax
basis were as follows:
Undistributed tax-exempt income--net $ 3,480,242
Undistributed long-term capital gains--net --
---------------
Total undistributed earnings--net 3,480,242
Capital loss carryforward (20,483,740)*
Unrealized gains--net 7,243,883**
---------------
Total accumulated losses--net $ (9,759,615)
===============
*On April 30, 2004, the Fund had a net capital loss carryforward of
$20,483,740 of which $10,899,827 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, the difference between book and tax amortization methods
for premiums and discounts on fixed income securities and the
deferral of post-October capital losses for tax purposes.
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
of 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, 2004, 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 the standards of the
Public Company Accounting Oversight Board (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, 2004, 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, 2004, 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 U.S. generally accepted
accounting principles.
(Ernst & Young LLP)
MetroPark, New Jersey
June 9, 2004
Important Tax Information (unaudited)
All of the net investment income distributions paid by MuniHoldings
Insured Fund, Inc. during its taxable year ended April 30, 2004
qualify as tax-exempt interest dividends for Federal income tax
purposes.
Please retain this information for your records.
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., APRIL 30, 2004
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.
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Automatic Dividend Reinvestment Plan (unaudited)(concluded)
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.
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Officers and Directors (unaudited)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Terry K. Glenn* President 1999 to President of Merrill Lynch Investment 122 Funds None
P.O. Box 9011 and present Managers, L.P. ("MLIM")/Fund Asset 161 Portfolios
Princeton, Director and Management, L.P. ("FAM")--Advised Funds
NJ 08543-9011 1983 to since 1999; Chairman (Americas Region)
Age: 63 present 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.
since 1985.
* Mr. Glenn is a director, trustee or member of an advisory board of
certain other investment companies for which MLIM or FAM 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 MLIM, FAM, 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.
Independent Directors*
Ronald W. Forbes Director 1998 to Professor Emeritus of Finance, School of 49 Funds None
P.O. Box 9095 present Business, State University of New York at 49 Portfolios
Princeton, Albany since 2000 and Professor thereof
NJ 08543-9095 from 1989 to 2000; International Consultant
Age: 63 at the Urban Institute, Washington, D.C.
from 1995 to 1999.
Cynthia A. Montgomery Director 1998 to Professor of Harvard Business School since 49 Funds Newell
P.O. Box 9095 present 1989; Associate Professor of J.L. Kellogg 49 Portfolios Rubbermaid, Inc.
Princeton, Graduate School of Management, Northwestern
NJ 08543-9095 University from 1985 to 1989; Associate
Age: 51 Professor of the Graduate School of Business
Administration, University of Michigan from
1979 to 1985.
Kevin A. Ryan Director 1998 to Founder and Director of the Boston 49 Funds None
P.O. Box 9095 present University Center for the Advancement 49 Portfolios
Princeton, of Ethics and Character from 1989 to
NJ 08543-9095 1999 and Director Emeritus thereof since
Age: 71 1999; Professor of Education of Boston
University from 1982 to 1999 and Professor
Emeritus thereof since 1999; formerly on
the faculties of The University of Chicago,
Stanford University and Ohio State University.
Roscoe S. Suddarth Director 2000 to President of Middle East Institute from 49 Funds None
P.O. Box 9095 present 1995 to 2001; Foreign Service Officer of 49 Portfolios
Princeton, United States Foreign Service from 1961 to
NJ 08543-9095 1995 and Career Minister thereof from 1989
Age: 68 to 1995; Deputy Inspector General of U.S.
Department of State from 1991 to 1994;
U.S. Ambassador to the Hashemite Kingdom
of Jordan from 1987 to 1990.
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Officers and Directors (unaudited)(concluded)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors* (concluded)
Richard R. West Director 1998 to Dean of New York University, Leonard N. 49 Funds Bowne & Co.,
P.O. Box 9095 present Stern School of Business Administration 49 Portfolios Inc.; Vornado
Princeton, from 1984 to 1993, Professor of Finance Operating
NJ 08543-9095 thereof since 1984 and currently Dean Company;
Age: 66 Emeritus. Vornado Realty
Trust and
Alexander's, Inc.
Edward D. Zinbarg Director 2000 to Self-employed financial consultant since 49 Funds None
P.O. Box 9095 present 1994; Executive Vice President of the 49 Portfolios
Princeton, Prudential Insurance Company of America
NJ 08543-9095 from 1988 to 1994; Former Director of
Age: 69 Prudential Reinsurance Company and former
Trustee of The Prudential Foundation.
* 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 of
Held with Time
Name, Address & Age 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
Princeton, and and since 1999; Vice President of FAMD since 1999; Director of MLIM Taxation
NJ 08543-9011 Treasurer 1999 to since 1990.
Age: 43 present
Kenneth A. Jacob Senior 2002 to Managing Director of MLIM since 2000; Director (Tax-Exempt Fund Management)
P.O. Box 9011 Vice present of MLIM from 1997 to 2000.
Princeton, President
NJ 08543-9011
Age: 53
John M. Loffredo Senior 2002 to Managing Director of MLIM since 2000; Director (Tax-Exempt Fund Management)
P.O. Box 9011 Vice present of MLIM from 1998 to 2000.
Princeton, President
NJ 08543-9011
Age: 40
Robert A. DiMella Vice 1999 to Director (Tax-Exempt Fund Management) of MLIM since 2002; Vice President of
P.O. Box 9011 President present MLIM from 1996 to 2001.
Princeton,
NJ 08543-9011
Age: 37
Phillip S. Gillespie Secretary 2000 to First Vice President of MLIM since 2001; Director (Legal Advisory) from 2000
P.O. Box 9011 present to 2001; Vice President from 1999 to 2000; Attorney associated with MLIM
Princeton, since 1998.
NJ 08543-9011
Age: 40
* Officers of the Fund serve at the pleasure of the Board of
Directors.
Further information about the Fund's Officers and Directors is
available in the Fund's Statement of Additional Information, which
can be obtained without charge by calling 1-800-MER-FUND.
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
101 Barclay Street-7 West
New York, NY 10286
NYSE Symbol
MUS
Charles C. Reilly, Director of MuniHoldings Insured Fund Inc., has
recently retired. The Fund's Board of Directors wishes Mr. Reilly
well in his retirement.
MUNIHOLDINGS INSURED FUND, INC., APRIL 30, 2004
Item 2 - Code of Ethics - The registrant has adopted 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 and principal accounting officer, or persons
performing similar functions. A copy of the code of ethics
is available without charge upon request by calling toll-free
1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board
of directors has determined that (i) the registrant has the
following audit committee financial experts serving on its audit
committee and (ii) each audit committee financial expert is
independent: (1) Ronald W. Forbes, (2) Richard R. West, and (3)
Edward D. Zinbarg.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending April 30, 2004 - $31,500
Fiscal Year Ending April 30, 2003 - $30,550
(b) Audit-Related Fees - Fiscal Year Ending April 30, 2004 - $3,000
Fiscal Year Ending April 30, 2003 - $3,000
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
(c) Tax Fees - Fiscal Year Ending April 30, 2004 - $5,200
Fiscal Year Ending April 30, 2003 - $5,000
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending April 30, 2004 - $0
Fiscal Year Ending April 30, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services provided
to the registrant on an annual basis require specific pre-approval
by the Committee. The Committee also must approve other non-audit
services provided to the registrant and those non-audit services
provided to the registrant's affiliated service providers that
relate directly to the operations and the financial reporting of the
registrant. Certain of these non-audit services that the Committee
believes are a) consistent with the SEC's auditor independence rules
and b) routine and recurring services that will not impair the
independence of the independent accountants may be approved by the
Committee without consideration on a specific case-by-case basis
("general pre-approval"). However, such services will only be
deemed pre-approved provided that any individual project does not
exceed $5,000 attributable to the registrant or $50,000 for the
project as a whole. Any proposed services exceeding the pre-
approved cost levels will require specific pre-approval by the
Committee, as will any other services not subject to general pre-
approval (e.g., unanticipated but permissible services). The
Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending April 30, 2004 - $8,200
Fiscal Year Ending April 30, 2003 - $108,000
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's 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.
Regulation S-X Rule 2-01(c)(7)(ii) - $541,640, 0%
Item 5 - Audit Committee of Listed Registrants - The following
individuals are members of the registrant's separately-designated
standing audit committee established in accordance with Section
3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)):
Ronald W. Forbes
Cynthia A. Montgomery
Charles C. Reilly (retired as of December 31, 2003)
Kevin A. Ryan
Roscoe S. Suddarth
Richard R. West
Edward D. Zinbarg
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies -
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 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 10 - Controls and Procedures
10(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.
10(b) - There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - 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 18, 2004
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 18, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
MuniHoldings Insured Fund, Inc.
Date: June 18, 2004