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 811-8573
Name of Fund: MuniHoldings California 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
California 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: 06/30/03
Date of reporting period: 07/01/02 - 06/30/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers
Annual Report
June 30, 2003
MuniHoldings
California
Insured
Fund, Inc.
www.mlim.ml.com
MuniHoldings California Insured Fund, Inc.
The Benefits and
Risks of
Leveraging
MuniHoldings California Insured Fund, Inc. utilizes 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 issuance of Preferred Stock for an additional $50 million,
creating a total value of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are approximately 3%
and long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million of Preferred
Stock based on the lower short-term interest rates. At the same time, the fund's
total portfolio of $150 million earns the income based on long-term interest
rates. Of course, increases in short-term interest rates would reduce (and even
eliminate) the dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term investments,
and therefore the Common Stock shareholders are the beneficiaries of the
incremental yield. However, if short-term interest rates rise, narrowing the
differential between short-term and long-term interest rates, the incremental
yield pickup on the Common Stock will be reduced or eliminated completely. At
the same time, the market value of the fund's Common Stock (that is, its price
as listed on the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common Stock's net asset
value will reflect the full decline in the price of the portfolio's investments,
since the value of the fund's Preferred Stock does not fluctuate. In addition to
the decline in net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in these securities.
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 California Insured Fund, Inc., June 30, 2003
DEAR SHAREHOLDER
For the year ended June 30, 2003, the Common Stock of MuniHoldings California
Insured Fund, Inc. had a net annualized yield of 5.87%, based on a year-end per
share net asset value of $15.53 and $.912 per share income dividends. Over the
same period, the total investment return on the Fund's Common Stock was +11.60%,
based on a change in per share net asset value from $14.82 to $15.53, and
assuming reinvestment of $.910 per share ordinary income dividends.
For the six-month period ended June 30, 2003, the Fund's Common Stock had a
total investment return of +4.09%, based on a change in per share net asset
value from $15.40 to $15.53, and assuming reinvestment of $.460 per share income
dividends.
For the year ended June 30, 2002, the Fund's Preferred Stock had an average
yield as follows: Series A, .82%; Series B, .85%; Series C, .86%; Series D,
..81%; and Series E, .86%.
For a description of the Fund's total investment return based on a change in the
per share market value (as measured by the trading price of the Fund's share on
the New York Stock Exchange), and assuming reinvestment of dividends, please
refer to the Financial Highlights section of the Financial Statements included
in this report. As a closed-end fund, the Fund's shares may trade in the
secondary market at a premium or discount to the Fund's net asset value. As a
result, total investment returns based on changes in the Fund's market value can
vary significantly from total investment return based on changes in the Fund's
net asset value.
The Municipal Market Environment
During the six-month period ended June 30, 2003, amid considerable volatility,
long-term fixed income interest rates generally decreased, with the bulk of the
decline occurring in May and early June. Bond yields initially rose in the
beginning of 2003 as international political tensions moderated somewhat and
U.S. equity markets rallied strongly in reaction to President Bush's proposed
economic stimulus/tax-reduction legislation. By mid-January, U.S. Treasury bond
yields rose to above 5% on expectations of stronger U.S. economic growth later
in the year, while the Standard & Poor's (S&P) 500 Index increased almost 6%.
Reacting to disappointing 2002 holiday sales and corporate managements' attempts
to scale back analysts' expectations of future earnings, equity markets were
unable to maintain their earlier gains. By the end of February 2003, the S&P 500
Index declined by approximately 4.5% from year-end 2002 levels. Fearing an
eventual U.S./Iraq military confrontation, investors again sought the safety of
U.S. Treasury obligations and the prices of fixed income issues rose. By the end
of February 2003, U.S. Treasury bond yields had declined to 4.67%.
Bond yields continued to fall into early March. Once direct U.S. military action
against Iraq began, however, bond yields quickly rose. Prior uncertainty
surrounding the Iraqi situation was obviously removed and early U.S. military
successes fostered the hope that hostilities would be quickly and positively
concluded. Concurrently, the S&P 400 Index rose over 6% as investors, in part,
sold fixed income issues to purchase equities in anticipation of a strong U.S.
economic recovery once the Iraqi conflict was resolved. By mid-March, U.S.
Treasury bond yields again rose to above 5%. However, there was growing
sentiment that hostilities may not be resolved in a matter of weeks, and U.S.
Treasury bond yields again declined to end the month at 4.81%.
Long-term U.S. Treasury bond yields ratcheted back to near 5% by mid-April as
U.S. equity markets continued to improve and the safe-haven premium U.S.
Treasury issues had commanded prior to the beginning of the Iraqi conflict
continued to be withdrawn. However, with the swift positive resolution of the
Iraqi war, investors quickly resumed their focus on the fragile U.S. economic
recovery. Business activity in the United States has remained sluggish,
especially job creation. Investors have also been concerned that the SARS
outbreak would have a material, negative impact on world economic conditions,
especially in China and Japan. First quarter 2003 U.S. gross domestic product
was released in late April initially estimating U.S. economic activity to be
growing at 1.6%, well below many analysts' assessments. These factors, as well
as the possibility that the Federal Reserve Board could again lower short-term
interest rates to encourage more robust U.S. economic growth, pushed bond prices
higher. By April 30, 2003, long-term U.S. Treasury bond yields had declined to
almost 4.75%.
At its early May meeting, the Federal Reserve Board left the short-term interest
rate target unchanged at 1.25%, its lowest level in more than 40 years. In its
accompanying statement, the Federal Reserve Board noted that while the pace of
U.S. economic growth was likely to expand going forward, the "probability of an
unwelcome substantial fall in inflation" was a matter of greater concern. Many
fixed income investors quickly concluded that since the Federal Reserve Board's
focus was now centered on preventing future deflation, additional reduction in
short-term interest rates could be expected. Given already low nominal interest
rates, these investors also believed that the Federal Reserve Board was likely
to purchase longer-term U.S. Treasury issues to push bond yields lower to
further stimulate U.S. economic activity, especially the already-vibrant housing
industry. These factors combined to trigger a major bond rally for the remainder
of the month. At the end of May 2003, long-term U.S. Treasury bond yields fell
to approximately 4.375%, a decline of approximately 40 basis points (.40%)
during the month.
Long-term U.S. Treasury bond yields further declined to approximately 4.2% by
mid-June as U.S. economic growth, particularly employment trends and durable
goods orders, remained sluggish. This led many investors to anticipate that the
Federal Reserve Board would lower short-term interest rates an additional 50
basis points at its late June meeting to accelerate economic activity. However,
the Federal Reserve Board lowered its target for the Federal Funds rate by only
25 basis points to 1%, the lowest level since 1958. In its accompanying
statement, the Federal Reserve Board noted that an additional easing of monetary
policy would "further support...an economy which it expects to improve over
time." The prospect for stronger economic activity, as well as the absence of
any potential purchases of U.S. Treasury issues, pushed bond prices sharply
lower for the remainder of the period. By June 30, 2003, long-term U.S. Treasury
bond yields rose to 4.55%, an increase of almost 20 basis points during the
month. Over the last months, however, long-term U.S. Treasury bond yields have
declined 20 basis points.
During the six-month period ended June 30, 2003, long-term tax-exempt bond
yields also fell. Yield volatility was reduced relative to that seen in U.S.
Treasury issues, as municipal bond prices were much less sensitive to worldwide
geopolitical pressures on a daily and weekly basis. Tax-exempt bond prices
generally followed their taxable counterparts higher, responding to a more
positive U.S. fixed income environment and continued slow economic growth.
Municipal bond yields generally declined through February 2003. At February 28,
2003, long-term tax-exempt revenue bond yields, as measured by the Bond Buyer
Revenue Bond Index, fell to approximately 5.05%. However, similar to U.S.
Treasury bond yields, once military action began in Iraq, municipal bond yields
rose sharply to nearly 5.2% before declining in response to the deflationary
scare to approximately 4.8% by May 31, 2003. Municipal bond prices also fell
during the latter half of June in response to higher economic growth
expectations and disappointment about the recent Federal Reserve Board's
actions. By the end of the month, long-term municipal revenue bond yields, as
measured by the Bond Buyer Revenue Bond Index, rose more than 15 basis points to
almost 5%. Over the past six months, long-term municipal bond yields declined by
approximately 20 basis points.
Throughout the period, the municipal market continued to improve despite a
dramatic increase in new bond issuance. Increased issuance, however, has not
hindered the tax-exempt market's recent solid performance. There was a number of
ongoing factors fostering the strong investor demand that supported the
municipal bond market's improvement. Tax-exempt money market interest rates
remained below 1% for much of 2003, forcing investors to invest in longer
maturities to generate desired levels of coupon income. Investors will also
receive approximately $60 billion in coupon income, bond maturities and the
proceeds from early redemptions in July and August. Much of these proceeds are
likely to be reinvested in the municipal market. Most importantly, as an asset
class, municipal bonds have remained an extremely attractive investment
alternative, especially relative to U.S. Treasury issues. At June 30, 2003,
tax-exempt bond yields were 88% - 98% of comparable U.S. Treasury issues, well
in excess of their historic average of 82% - 88%. Current yield ratios have made
municipal securities attractive to retail and institutional investors, as well
as to nontraditional, arbitrage related accounts. As the tax-exempt market's
favorable technical position is expected to remain stable in the near term, the
expected increase in bond issuance during the remainder of 2003 is unlikely to
significantly impact the municipal bond market's performance.
Declining U.S. equity markets and escalating geopolitical pressures have
resulted in reduced economic activity and consumer confidence. It is
2 & 3
MuniHoldings California Insured Fund, Inc., June 30, 2003
important to note that, despite all the recent negative factors impeding the
growth of U.S. businesses, the U.S. economy still grew at an approximate 2.5%
rate for all of 2002, twice that of 2001. Similar expansion is expected for
early 2003 and more than 3% for 2004. Lower oil prices, reduced geopolitical
uncertainties, increased Federal spending for defense, and a sizeable Federal
tax cut are factors which should promote stronger economic growth later this
year. However, it is questionable to expect that business and investor
confidence can be so quickly restored as to trigger dramatic, explosive U.S.
economic growth and engender associated, large-scale interest rate increases.
The resumption of solid economic growth is likely to be a gradual process
accompanied by equally graduated increases in bond yields. Moderate economic
growth, especially within a context of negligible inflationary pressures, should
not greatly endanger the positive fixed income environments tax-exempt products
currently enjoy.
Specific to California, one of the greater concerns of many economists relating
to the strength and stability of future economic growth is the poor condition of
many of the states' finances, of which California has the largest deficit, with
the figure near $38 billion. California currently has the lowest credit rating
of all the U.S. states, and the major rating services recently placed the state
on negative watch for a possible future downgrade. Any devaluation to A- or BBB+
level would result in increased borrowing costs to the state and exacerbate its
bloated deficit gap. The crux of the problem lies in a stalemate among the
state's lawmakers with Republicans opposing tax increases and Democrats opposing
spending cuts. The divide has led to a much-publicized referendum that has been
placed on the fall's election ballot to recall the Governor. California's budget
deadline was the end of June 2003 and was not met. This is not unusual, but is
receiving greater attention from the rating agencies because of the size of the
deficit. In fact, this is the ninth time in 10 years the state missed its
deadline, illustrating the political nature of the situation. The municipal
marketplace has already penalized California in terms of the spreads required to
sell California general obligation bonds. Currently, the single-A general
obligation bonds trade at an 80 basis point - 85 basis point spread to AAA-rated
paper in the municipal marketplace, certainly the widest of any U.S. state. The
extreme public nature of the budget debate is probably the biggest positive
toward ultimately reaching some solution. However, California will probably need
to act before September to avoid any further downgrade action being taken by the
rating agencies.
Portfolio Strategy
The Fund employs leverage to seek to provide a generous current return of
tax-exempt income to shareholders. For the fiscal year ended June 30, 2003, cash
equivalent reserves were maintained below 5% of total assets to enhance the
benefit provided by the extremely low borrowing interest rates available in the
current marketplace. The aggressive series of easings of monetary policy
orchestrated by the Federal Reserve Board resulted in historically low borrowing
rates for the Fund's Preferred Stock. This provided an ideal situation for the
Fund's Common Stock shareholders. Historic low short-term interest rates have
had an extremely positive additional benefit in the form of higher current
returns. To put this in perspective, yields on short-term floating interest rate
securities were below 1.5% for the first half of our fiscal year, and more
recently have averaged below 1%. The positive leverage effect from the steep
municipal yield curve was a major factor leading to better Fund performance.
However, should the spread between short-term and long-term interest rates
narrow, the benefits of leverage will decline, and, as a result, reduce the
yield on the Fund's Common Stock. (For a more complete explanation of the
benefits and risks of leveraging, see page 1 of this report to shareholders.)
Through the end of 2002, a fully invested position, combined with the Fund's
inherent leverage, generated excellent total returns. As interest rates
declined, we geared our strategy toward cushioning the Fund's price volatility.
We attempted to develop a more defensive structure for the portfolio that is
aggressively positioned by nature of its 40% leverage. We raised the overall
level of average couponing in the Fund, shortened the average life of the
maturities (lowered duration), and employed hedging techniques to "slow down the
Fund." The Fund surpassed its initial offering net asset value, and our strategy
was to seek to protect net asset valuation. Historically, we have witnessed a
reluctance on the part of traditional municipal investors to support bond prices
once yields have reached such low absolute levels. We were consistent in
underutilizing the portion of assets that are devoted to uninsured securities.
With interest rates so low, an error commonly made is one of reaching for yield.
The Fund is already generating an above-average yield, while adding to its
undistributed income through low borrowing costs secured by its Preferred Stock.
As such, we have no need to reach for additional yield with lower rated
securities. As the fiscal year concluded, 85.5% of the Fund's assets were
AAA-rated by at least one of the major rating agencies with bond insurance.
In Conclusion
We appreciate your investment in MuniHoldings California Insured Fund, Inc., and
we look forward to assisting you with your financial needs in the months and
years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Kenneth A. Jacob
Kenneth A. Jacob
Senior Vice President
/s/ John M. Loffredo
John M. Loffredo
Senior Vice President
/s/ Walter C. O'Connor
Walter C. O'Connor
Vice President and Portfolio Manager
July 28, 2003
PROXY RESULTS
During the six-month period ended June 30, 2003, MuniHoldings California Insured
Fund, Inc.'s Common Stock shareholders voted on the following proposal. The
proposal was approved at a shareholders' meeting on January 28, 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 39,274,232 964,594
James H. Bodurtha 39,390,724 848,102
Joe Grills 39,388,023 850,803
Roberta Cooper Ramo 39,388,923 849,903
Robert S. Salomon, Jr. 39,374,998 863,828
Stephen B. Swensrud 39,380,397 858,429
- ------------------------------------------------------------------------------------------------
During the six-month period ended June 30, 2003, MuniHoldings California Insured
Fund, Inc.'s Preferred Stock shareholders (Series A, B, C, D & E) voted on the
following proposal. The proposal was approved at a shareholders' meeting on
January 28, 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, James H. Bodurtha,
Joe Grills, Herbert I. London, Andre F. Perold, Roberta Cooper Ramo,
Robert S. Salomon, Jr. and Stephen B. Swensrud 14,346 962
- ---------------------------------------------------------------------------------------------------------------
4 & 5
MuniHoldings California Insured Fund, Inc., June 30, 2003
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings@ Ratings@ Amount Municipal Bonds Value
==============================================================================================================================
California--155.3% AAA Aaa $ 1,000 ABAG Finance Authority for Nonprofit Corporations, California,
COP (Children's Hospital Medical Center), 6% due 12/01/2029 (a) $ 1,175
---------------------------------------------------------------------------------------------------------
BBB+ NR* 2,840 ABAG Finance Authority for Nonprofit Corporations, California,
COP, Refunding (Episcopal Homes Foundation), 5.125% due 7/01/2013 2,928
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,345 ABC California Unified School District, GO, Series A, 5.625% due
8/01/2020 (f)(j) 3,877
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Acalanes, California, Unified High School District, GO, 5.80% due
8/01/2007 (f)(i) 4,683
---------------------------------------------------------------------------------------------------------
NR* Aaa 9,300 Alameda County, California, COP, RIB, Series 410, 10.69% due
9/01/2021 (b)(g) 12,322
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,535 Bakersfield, California, COP, Refunding (Convention Center
Expansion Project), 5.875% due 4/01/2022 (g) 5,107
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,885 Berkeley, California, GO, Series C, 5.375% due 9/01/2029 (c) 4,203
---------------------------------------------------------------------------------------------------------
Berkeley, California, Unified School District, GO, Series I (f):
AAA Aaa 1,000 5.75% due 8/01/2019 1,142
AAA Aaa 1,000 5.75% due 8/01/2020 1,136
AAA Aaa 4,520 5.875% due 8/01/2024 5,156
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,925 Cajon Valley, California, Union School District, GO, Series B,
5.50% due 8/01/2027 (g) 3,210
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,180 California Community College Financing Authority, Lease
Revenue Bonds (Grossmont-Palomar-Shasta), Series A,
5.625% due 4/01/2026 (g) 2,424
---------------------------------------------------------------------------------------------------------
California Educational Facilities Authority, Revenue Refunding
Bonds (Occidental College) (g):
AAA Aaa 5,815 5.625% due 10/01/2017 6,633
AAA Aaa 5,000 5.70% due 10/01/2027 5,625
---------------------------------------------------------------------------------------------------------
California HFA, Home Mortgage Revenue Bonds:
AA- Aa2 5,000 Series D, 5.85% due 8/01/2017 5,375
A1+ VMIG1+ 11,200 VRDN, AMT, Series B, 1% due 8/01/2033 (f)(h) 11,200
A1+ VMIG1+ 4,200 VRDN, AMT, Series R, 1% due 8/01/2023 (a)(h) 4,200
A1 VMIG1+ 2,700 VRDN, Series F, 0.95% due 2/01/2033 (a)(f)(h) 2,700
---------------------------------------------------------------------------------------------------------
NR* Aaa 1,150 California HFA, Revenue Bonds, RIB, AMT, Series 412, 10.916% due
8/01/2029 (a)(b) 1,255
---------------------------------------------------------------------------------------------------------
California HFA, S/F Mortgage Revenue Bonds, AMT, Class II (g):
AAA Aaa 1,860 Series A-1, 6% due 8/01/2020 1,965
AAA Aaa 3,020 Series C-2, 5.625% due 8/01/2020 (d) 3,170
---------------------------------------------------------------------------------------------------------
AAA Aaa 9,250 California Health Facilities Finance Authority Revenue Bonds
(Kaiser Permanente), Series A, 5.50% due 6/01/2022 (f) 9,909
---------------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Revenue Refunding
Bonds:
A1+ VMIG1+ 6,000 (Adventist Hospital), VRDN, Series A, 1% due 9/01/2028 (h) 6,000
AAA Aaa 2,500 (Catholic Healthcare West), Series A, 6% due 7/01/2025 (g) 2,804
AAA Aaa 4,500 (Children's Hospital), 5.375% due 7/01/2020 (g) 4,708
AAA Aaa 3,950 (De Las Companas), Series A, 5.75% due 7/01/2015 (a) 4,310
A1+ VMIG1+ 3,200 (Sutter/Catholic Healthcare System), VRDN, Series B,
0.95% due 7/01/2012 (a)(h) 3,200
---------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority Revenue Bonds:
A NR* 2,015 (Adventist Health System), Series A, 5% due 3/01/2028 1,987
AAA Aaa 3,195 (Lucile Salter Packard Hospital), Series C, 5% due 8/15/2024 (a) 3,337
AAA Aaa 3,000 (Lucile Salter Packard Hospital), Series C, 5% due 8/15/2026 (a) 3,128
A- A3 2,850 (Stanford Hospital and Clinics), Series A, 5% due 11/15/2023 2,854
---------------------------------------------------------------------------------------------------------
BBB+ Baa2 28,355 California Pollution Control Financing Authority, Solid Waste
Disposal Revenue Refunding Bonds (Republic Services Inc.
Project), AMT, Series C, 5.25% due 6/01/2023 29,521
---------------------------------------------------------------------------------------------------------
AA- Aa2 5,000 California State Department of Veteran Affairs, Home Purpose
Revenue Refunding Bonds, Series C, 6.15% due 12/01/2027 5,190
---------------------------------------------------------------------------------------------------------
BBB+ A3 6,000 California State Department of Water Resources, Power Supply
Revenue Bonds, Series A, 5.75% due 5/01/2017 6,591
---------------------------------------------------------------------------------------------------------
AA Aa3 6,400 California State Department of Water Resources Revenue Bonds
(Central Valley Project), 5.25% due 7/01/2022 6,416
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,890 California State Department of Water Resources, Water System
Revenue Refunding Bonds (Central Valley Project), Series Q,
5.375% due 12/01/2027 (g) 5,281
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 California State, GO, 5.50% due 6/01/2025 (c) 2,157
---------------------------------------------------------------------------------------------------------
California State, GO, Refunding:
A A2 10,000 5% due 2/01/2023 10,015
A A2 2,400 5.25% due 2/01/2028 2,455
A A2 3,175 5.75% due 12/01/2029 3,386
A A2 5,000 5.25% due 2/01/2033 5,094
NR* NR* 7,000 RIB, AMT, Series 777X, 9.44% due 12/01/2021 (b)(g) 7,551
AAA Aaa 4,130 Veterans, AMT, Series B, 5.45% due 12/01/2017 (g) 4,424
---------------------------------------------------------------------------------------------------------
AAA Aaa 20,000 California State Public Works Board, Lease Revenue Bonds
(Various University of California Projects), Series C,
5.125% due 9/01/2022 (a) 21,013
---------------------------------------------------------------------------------------------------------
California State Public Works Board, Lease Revenue Refunding
Bonds:
AAA Aaa 5,025 (California State University), Series A, 5.50%
due 10/01/2014 (g) 5,613
AAA Aaa 8,750 (Department of Corrections), Series B, 5.625%
due 11/01/2019 (g) 9,825
AAA Aaa 2,625 (Various Community College Project), Series B, 5.625%
due 3/01/2019 (a) 2,895
---------------------------------------------------------------------------------------------------------
AAA NR* 9,500 California Statewide Communities Development Authority, COP,
Refunding (Huntington Memorial Hospital), 5.80% due 7/01/2026 (e) 10,622
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 California Statewide Communities Development Authority, COP
(Sutter Health Obligation Group), 6% due 8/15/2025 (g) 5,513
---------------------------------------------------------------------------------------------------------
Portfolio
Abbreviations
To simplify the listings of MuniHoldings California 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 below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DRIVERS Derivative Inverse Tax-Exempt Receipts
GO General Obligation Bonds
HFA Housing Finance Agency
M/F Multi-Family
RIB Residual Interest Bonds
S/F Single-Family
VRDN Variable Rate Demand Notes
6 & 7
MuniHoldings California Insured Fund, Inc., June 30, 2003
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings@ Ratings@ Amount Municipal Bonds Value
==============================================================================================================================
California A- A3 $ 4,915 California Statewide Communities Development Authority, Health
(continued) Facility Revenue Bonds (Memorial Health Services), Series A,
6% due 10/01/2023 $ 5,318
---------------------------------------------------------------------------------------------------------
AAA NR* 1,090 California Statewide Communities Development Authority Revenue
Bonds (Los Angeles Orthopaedic Hospital Foundation), 5.50%
due 6/01/2019 (a) 1,191
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,640 Campbell, California, Unified High School District, GO, 5.70%
due 8/01/2025 (f) 1,836
---------------------------------------------------------------------------------------------------------
Capistrano, California, Unified Public Financing Authority,
Special Tax Revenue Refunding Bonds, First Lien, Series A (a):
AAA Aaa 16,770 5.70% due 9/01/2016 18,837
AAA Aaa 10,640 5.70% due 9/01/2020 11,944
---------------------------------------------------------------------------------------------------------
AAA Aaa 8,705 Castaic Lake, California, Water Agency Revenue Bonds, COP
(Water System Improvement Project), 5.50% due 8/01/2023 (a) 9,473
---------------------------------------------------------------------------------------------------------
AAA Aaa 6,810 Chaffey, California, Unified High School District, GO,
Series B, 5.375% due 8/01/2022 (c) 7,340
---------------------------------------------------------------------------------------------------------
Chino, California, Unified School District, COP, Refunding (f):
AAA Aaa 1,695 6.125% due 9/01/2005 (i) 1,908
AAA Aaa 5,300 6.125% due 9/01/2026 5,874
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Colton, California, Joint Unified School District, GO,
Series A, 5.375% due 8/01/2026 (c) 2,744
---------------------------------------------------------------------------------------------------------
Contra Costa, California, Water District, Water Revenue Bonds,
Series G (g):
AAA Aaa 4,600 5.75% due 10/01/2004 (i) 4,965
AAA Aaa 5,000 5% due 10/01/2024 5,152
---------------------------------------------------------------------------------------------------------
Contra Costa County, California, COP, Refunding:
AAA Aaa 4,570 (Capital Projects Program), 5.25% due 2/01/2021 (a) 4,891
AAA Aaa 6,000 DRIVERS, Series 154, 9.49% due 11/01/2017 (b)(g) 7,287
AAA Aaa 2,000 (Merrithew Memorial Hospital Project), 5.50%
due 11/01/2022 (g) 2,172
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,395 Covina-Valley, California, Unified School District, GO,
Refunding, Series A, 5.50% due 8/01/2026 (f) 2,639
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,750 Culver City, California, Redevelopment Finance Authority,
Revenue Refunding Bonds, Tax Allocation, Series A, 5.60%
due 11/01/2025 (f) 4,142
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,870 Davis, California, Joint Unified School District, Community
Facilities District, Special Tax Refunding Bonds, Number 1,
5.50% due 8/15/2021 (g) 2,058
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,655 East Side Union High School District, California, Santa Clara
County, GO, Series E, 5% due 9/01/2023 (c) 5,844
---------------------------------------------------------------------------------------------------------
AAA Aaa 7,000 El Dorado County, California, Public Agency Financing Authority,
Revenue Refunding Bonds, 5.50% due 2/15/2021 (c) 7,663
---------------------------------------------------------------------------------------------------------
Escondido, California, COP, Refunding:
AAA Aaa 1,000 Series A, 5.75% due 9/01/2024 (c) 1,122
AAA Aaa 5,000 (Wastewater Project), 5.70% due 9/01/2026 (a) 5,598
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Fontana, California, Redevelopment Agency, Tax Allocation
Refunding Bonds (Southwest Industrial Park Project), 5%
due 9/01/2022 (g) 5,181
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,455 Fresno, California, Airport Revenue Bonds, AMT, Series B, 5.50%
due 7/01/2020 (f) 4,764
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,040 Garden Grove, California, COP (Financing Project), Series A,
5.50% due 3/01/2026 (a) 4,428
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,200 Glendale, California, Unified School District, GO, Series B,
5.125% due 9/01/2023 (f) 5,424
---------------------------------------------------------------------------------------------------------
A- Baa2 5,000 Golden State Tobacco Securitization Corporation, California,
Tobacco Settlement Revenue Bonds, Series 2003-A-1, 6.75%
due 6/01/2039 4,515
---------------------------------------------------------------------------------------------------------
Hacienda La Puente, California, Unified School District, GO,
Series A (g):
AAA Aaa 1,700 5.50% due 8/01/2020 1,880
AAA Aaa 1,500 5.25% due 8/01/2025 1,589
---------------------------------------------------------------------------------------------------------
AAA NR* 4,565 Hemet, California, Unified School District, GO, Series A, 5.375%
due 8/01/2026 (g) 4,922
---------------------------------------------------------------------------------------------------------
AAA Aaa 9,205 Industry, California, Urban Development Agency, Tax Allocation
Refunding Bonds (Civic Recreation Industrial), Series 1, 5.50%
due 5/01/2020 (g) 10,145
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,700 Inglewood, California, Unified School District, GO, Series A,
5.60% due 10/01/2024 (c) 1,878
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,300 Irvine, California, Unified School District, Special Tax
(Community Facilities District Number 86-1), 5.375%
due 11/01/2020 (a) 2,511
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,665 Irvine, California, Unified School District, Special Tax
Refunding Bonds (Community Facilities District Number 86-1),
5.80% due 11/01/2020 (a) 5,335
---------------------------------------------------------------------------------------------------------
AAA Aaa 7,500 La Quinta, California, Redevelopment Agency, Housing Tax
Allocation Bonds (Redevelopment Project Areas Number 1 & 2),
6% due 9/01/2025 (g) 8,289
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Long Beach, California, Bond Finance Authority, Lease Revenue
Bonds (Rainbow Harbor Refinancing Project), Series A, 5.25%
due 5/01/2024 (a) 4,239
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,740 Long Beach, California, Harbor Revenue Bonds, AMT, 5.375% due
5/15/2020 (g) 3,911
---------------------------------------------------------------------------------------------------------
AAA Aaa 10,650 Los Altos, California, School District GO, Series A, 5% due
8/01/2023 (f) 11,006
---------------------------------------------------------------------------------------------------------
AAA Aaa 12,265 Los Angeles, California, Community College District, GO, Series
A, 5.50% due 8/01/2020 (g) 13,561
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Los Angeles, California, Community Facilities, District Special
Tax (4 Playa Vista, Phase 1), 4.625% due 9/01/2026 (a) 4,036
---------------------------------------------------------------------------------------------------------
Los Angeles, California, Convention and Exhibition Center
Authority, Lease Revenue Refunding Bonds:
AAA Aaa 11,000 DRIVERS, Series 162, 9.51% due 8/15/2018 (b)(g) 11,561
AAA Aaa 7,500 Series A, 2% due 8/15/2006 (a) 7,621
---------------------------------------------------------------------------------------------------------
Los Angeles, California, Department of Water and Power, Electric
Plant Revenue Bonds (f)(i):
AAA Aaa 10,730 5.50% due 6/15/2004 11,305
AAA Aaa 1,000 5.50% due 6/15/2004 1,054
---------------------------------------------------------------------------------------------------------
Los Angeles, California, Department of Water and Power, Electric
Plant Revenue Refunding Bonds:
AA- Aa3 490 5.875% due 2/15/2020 524
NR* Aa3 1,030 RIB, Series 370, 10.74% due 2/15/2024 (b) 1,204
---------------------------------------------------------------------------------------------------------
AA Aa3 2,000 Los Angeles, California, Harbor Department Revenue Bonds, AMT,
Series B, 5.375% due 11/01/2023 2,066
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,930 Los Angeles, California, M/F Housing Revenue Refunding Bonds,
Senior Series G, 5.65% due 1/01/2014 (f) 4,038
---------------------------------------------------------------------------------------------------------
AAA Aaa 7,370 Los Angeles County, California, Metropolitan Transportation
Authority, Sales Tax Revenue Bonds, Proposition C, Second
Senior Series B, 5.25% due 7/01/2023 (a) 7,536
---------------------------------------------------------------------------------------------------------
8 & 9
MuniHoldings California Insured Fund, Inc., June 30, 2003
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings@ Ratings@ Amount Municipal Bonds Value
==============================================================================================================================
California AAA Aaa $ 3,750 Los Angeles County, California, Metropolitan Transportation
(continued) Authority, Sales Tax Revenue Refunding Bonds, Proposition C,
Second Senior Series A, 5.25% due 7/01/2030 (c) $ 3,986
---------------------------------------------------------------------------------------------------------
AAA Aaa 8,385 Los Angeles County, California, Public Works Financing
Authority, Revenue Refunding Bonds (Flood Control District),
Series A, 3% due 3/01/2007 (g) 8,731
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Menlo Park, California, Community Development Agency, Tax
Allocation (Las Pulgas Community Development Project),
5.50% due 6/01/2025 (a) 5,450
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Mojave, California, Water Agency, GO, Refunding (Improvement
District--Morongo Basin), 5.80% due 9/01/2022 (c) 3,944
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Montebello, California, Community Redevelopment Agency, Housing
Tax Allocation Bonds, Series A, 5.45% due 9/01/2019 (f) 2,209
---------------------------------------------------------------------------------------------------------
AAA NR* 2,315 Morgan Hill, California, Unified School District, GO, 5.75% due
8/01/2019 (c) 2,644
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,730 Mount San Antonio, California, Community College District, GO,
Series A, 5.375% due 5/01/2022 (c) 4,088
---------------------------------------------------------------------------------------------------------
AAA Aaa 16,000 Norco, California, Redevelopment Agency, Tax Allocation Bonds,
Refunding (Norco Redevelopment Project--Area Number 1), 5.75%
due 3/01/2026 (g) 17,708
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,140 North City West, California, School Facilities Financing
Authority, Special Tax Refunding Bonds, Series B, 6%
due 9/01/2019 (f) 2,427
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Northern California Power Agency, Public Power Revenue Refunding
Bonds (Hydroelectric Project Number One), Series A, 5.125%
due 7/01/2023 (g) 3,132
---------------------------------------------------------------------------------------------------------
AAA Aaa 9,995 Oakland, California, Alameda County Unified School District, GO,
Refunding, Series C, 5.50% due 8/01/2019 (c) 10,746
---------------------------------------------------------------------------------------------------------
Oakland, California, Alameda County Unified School District, GO,
Series F (g):
AAA Aaa 5,245 5.625% due 8/01/2021 5,852
AAA Aaa 6,000 5.50% due 8/01/2024 6,548
---------------------------------------------------------------------------------------------------------
Oakland, California, GO:
AAA Aaa 2,500 Measure 1, 5.85% due 12/15/2022 (c) 2,847
AAA Aaa 1,300 Measure K, Series C, 5.80% due 12/15/2018 (g) 1,477
---------------------------------------------------------------------------------------------------------
AAA Aaa 7,105 Oakland, California, Joint Powers Financing Authority, Lease
Revenue Bonds (Oakland Administration Buildings), 5.75%
due 8/01/2021 (a) 7,973
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Oakland, California, State Building Authority, Lease Revenue
Bonds (Elihu M. Harris), Series A, 5% due 4/01/2023 (a) 2,591
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,705 Oakland, California, Unified School District, GO (Alameda
County), Series F, 5.625% due 8/01/2020 (g) 4,151
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,750 Palm Desert, California, Financing Authority, Tax Allocation
Revenue Refunding Bonds (Project Area Number 1), 5.45%
due 4/01/2018 (g) 6,380
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Palm Springs, California, COP, Refunding (Multiple Capital
Facilities Project), 5.75% due 4/01/2017 (a) 1,131
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Pittsburg, California, Public Financing Authority, Water Revenue
Bonds, 5.50% due 6/01/2027 (g) 4,388
---------------------------------------------------------------------------------------------------------
Pleasanton, California, Unified School District, GO:
AAA Aaa 2,700 Series D, 5.375% due 8/01/2023 (g) 2,906
AAA Aaa 9,100 Series E, 5.50% due 8/01/2025 (c) 9,948
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Port Oakland, California, Port Revenue Bonds, AMT, Series G,
5.375% due 11/01/2025 (g) 2,081
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Port Oakland, California, Port Revenue Refunding Bonds, Series I,
5.40% due 11/01/2017 (g) 5,584
---------------------------------------------------------------------------------------------------------
Port Oakland, California, Revenue Bonds, AMT, Series K (c):
AAA Aaa 3,500 5.75% due 11/01/2014 3,950
AAA Aaa 17,120 5.75% due 11/01/2029 18,487
---------------------------------------------------------------------------------------------------------
AAA Aaa 25,355 Port Oakland, California, Revenue Refunding Bonds, AMT, Series L,
5.375% due 11/01/2027 (c) 26,615
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,310 Poway, California, Unified School District, School Facilities
Improvement, GO (Election of 2002), Series 1-A, 2%
due 8/01/2005 (g) 4,376
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,205 Richmond, California, Joint Powers Financing Authority, Tax
Allocation Revenue Bonds, Series A, 5.50% due 9/01/2018 (g) 2,463
---------------------------------------------------------------------------------------------------------
Sacramento, California, Municipal Utility District, Electric
Revenue Refunding Bonds:
AAA Aaa 2,450 5.30% due 11/15/2005 (f) 2,539
AAA Aaa 10,825 Series L, 5.125% due 7/01/2022 (g) 11,343
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Sacramento, California, Power Authority Revenue Bonds
(Cogeneration Project), 5.875% due 7/01/2015 (g) 3,940
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,440 San Bernardino, California, Joint Powers Financing Authority,
Lease Revenue Bonds (Department of Transportation Lease),
Series A, 5.50% due 12/01/2020 (g) 5,956
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 San Bernardino, California, Joint Powers Financing Authority,
Tax Allocation Revenue Refunding Bonds, Series A, 5.75%
due 10/01/2025 (f) 5,503
---------------------------------------------------------------------------------------------------------
AAA NR* 1,480 San Bernardino County, California, COP, Refunding (Medical Center
Financing Project), 5.50% due 8/01/2019 (g) 1,560
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,055 San Diego, California, Public Facilities Financing Authority,
Sewer Revenue Bonds, Series A, 5.25% due 5/15/2027 (c) 5,367
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 San Diego County, California, COP (North County Regional Center
Expansion), 5.25% due 11/15/2019 (a) 2,165
---------------------------------------------------------------------------------------------------------
AAA Aaa 6,795 San Francisco, California, Bay Area Rapid Transit District, Sales
Tax Revenue Bonds, 5.50% due 7/01/2026 (c) 7,443
---------------------------------------------------------------------------------------------------------
San Francisco, California, City and County Airport Commission,
International Airport Revenue Bonds, AMT, Second Series:
AAA Aaa 5,830 Issue 10-A, 5.50% due 5/01/2013 (g) 6,392
AAA Aaa 5,750 Issue 12-A, 5.80% due 5/01/2021 (c) 6,260
AAA Aaa 6,430 Issue 24-A, 5.50% due 5/01/2024 (f) 6,794
---------------------------------------------------------------------------------------------------------
San Francisco, California, City and County Public Utilities
Commission, Clean Water Revenue Refunding Bonds, Series A (g):
AAA Aaa 13,520 3% due 10/01/2006 14,170
AAA Aaa 7,990 3% due 10/01/2007 8,347
---------------------------------------------------------------------------------------------------------
10 & 11
MuniHoldings California Insured Fund, Inc., June 30, 2003
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face
STATE Ratings@ Ratings@ Amount Municipal Bonds Value
==============================================================================================================================
California AAA Aaa $ 8,900 San Francisco, California, State Building Authority, Lease
(concluded) Revenue Bonds (San Francisco Civic Center Complex), Series A,
5.25% due 12/01/2021 (a) $ 9,544
---------------------------------------------------------------------------------------------------------
AAA Aaa 18,100 San Jose, California, Redevelopment Agency, Tax Allocation
Refunding Bonds, DRIVERS, Series 158, 9.663%
due 8/01/2014 (b)(g) 19,532
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 San Jose-Santa Clara, California, Water Financing Authority,
Sewer Revenue Bonds, Series A, 5.375% due 11/15/2020 (c) 2,160
---------------------------------------------------------------------------------------------------------
San Juan, California, Unified School District, GO (c):
AAA Aaa 3,955 5.625% due 8/01/2018 4,485
AAA Aaa 3,830 5.625% due 8/01/2019 4,315
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 San Mateo-Foster City, California, School District, GO, 5.30% due
8/01/2029 (c) 5,354
---------------------------------------------------------------------------------------------------------
AAA Aaa 14,000 Santa Clara, California, Redevelopment Agency, Tax Allocation
Bonds (Bayshore North Project), Series A, 5.50% due 6/01/2023 (a) 15,266
---------------------------------------------------------------------------------------------------------
AAA Aaa 6,205 Santa Clara County, California, East Side Union High School
District, GO, Series E, 5% due 9/01/2022 (c) 6,430
---------------------------------------------------------------------------------------------------------
AAA Aaa 9,750 Santa Clara County, California, Financing Authority, Lease
Revenue Refunding Bonds, Series A, 5% due 11/15/2022 (a) 10,106
---------------------------------------------------------------------------------------------------------
AAA Aaa 9,000 Santa Fe Springs, California, Community Development, Commission
Tax Allocation Refunding Bonds (Consolidated Redevelopment
Project), Series A, 5% due 9/01/2022 (g) 9,327
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,110 Santa Monica, California, Redevelopment Agency, Tax Allocation
Bonds (Earthquake Recovery Redevelopment Project), 6%
due 7/01/2029 (a) 5,955
---------------------------------------------------------------------------------------------------------
AAA Aaa 6,500 South Placer, California, Wastewater Authority, Wastewater
Revenue Bonds, Series A, 5.25% due 11/01/2027 (c) 6,903
---------------------------------------------------------------------------------------------------------
AAA Aaa 13,250 Tracy, California, Area Public Facilities Financing Agency,
Special Tax Refunding Bonds (Community Facilities District
Number 87-1), Series H, 5.875% due 10/01/2019 (g) 15,012
---------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 University of California, COP, Series A, 5.25% due 11/01/2024 (a) 6,359
---------------------------------------------------------------------------------------------------------
AAA Aaa 9,875 University of California, Hospital Revenue Bonds (University of
California Medical Center), 5.75% due 7/01/2006 (a)(i) 11,244
---------------------------------------------------------------------------------------------------------
AAA NR* 1,410 University of California Revenue Bonds, Series K, 5.25% due
9/01/2024 (c) 1,494
---------------------------------------------------------------------------------------------------------
AAA Aaa 16,000 University of California Revenue Refunding Bonds (Multiple
Purpose Projects), Series E, 5.125% due 9/01/2020 (g) 17,028
---------------------------------------------------------------------------------------------------------
Vernon, California, Electric System Revenue Bonds (Malburg
Generating Station Project):
BBB+ A2 1,225 5.375% due 4/01/2018 1,256
BBB+ A2 6,000 5.50% due 4/01/2033 6,082
---------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Vista, California, Unified School District, GO, Series A, 5.25%
due 8/01/2025 (f) 10,716
==============================================================================================================================
Puerto Rico--4.4% AAA Aaa 5,825 Puerto Rico Commonwealth, GO, Public Improvement, 5.75% due
7/01/2010 (g)(i) 6,974
---------------------------------------------------------------------------------------------------------
A Baa1 7,670 Puerto Rico Commonwealth Highway and Transportation Authority,
Transportation Revenue Bonds, Series B, 6% due 7/01/2026 8,275
---------------------------------------------------------------------------------------------------------
AAA Aaa 11,015 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series
HH, 5.30% due 7/01/2020 (f) 12,123
---------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$932,761)--159.7% 1,008,338
==============================================================================================================================
Shares
Held Short-Term Securities
==============================================================================================================================
18 CMA California Municipal Money Fund*** 18
==============================================================================================================================
Total Short-Term Securities (Cost--$18)--0.0% 18
==============================================================================================================================
Total Investments (Cost--$932,779)--159.7% 1,008,356
Unrealized Depreciation on Forward Interest Rate Swaps**--(0.2)% (1,557)
Other Assets Less Liabilities--2.3% 14,792
Preferred Stock, at Redemption Value--(61.8%) (390,020)
----------
Net Assets Applicable to Common Stock--100.0% $ 631,571
==========
==============================================================================================================================
(a) AMBAC Insured.
(b) 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 June 30, 2003.
(c) FGIC Insured.
(d) FHA Insured.
(e) Connie Lee Insured.
(f) FSA Insured.
(g) MBIA Insured.
(h) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at June 30,
2003.
(i) Prerefunded.
(j) Escrowed to maturity.
+ Highest short-term rating by Moody's Investors Service, Inc.
@ Ratings of issues shown are unaudited.
* Not Rated.
** Forward interest rate swaps entered into as of June 30, 2003 were as
follows:
(in Thousands)
--------------------------------------------------------------------------
Notional Unrealized
Amount Depreciation
--------------------------------------------------------------------------
Receive a variable rate equal to 7-Day Bond
Market Association Municipal Swap Index
rate and pay a fixed rate equal to 4.033%
Broker, JP Morgan Chase
Expires, August 2023 50,000 $(1,557)
--------------------------------------------------------------------------
*** 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
--------------------------------------------------------------------------
CMA California Municipal Money Fund 18 $24
--------------------------------------------------------------------------
See Notes to Financial Statements.
Quality Profile
(unaudited)
The quality ratings of securities in the Fund as of June 30, 2003 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Total Investments
- --------------------------------------------------------------------------------
AAA/Aaa ................................................. 85.5%
AA/Aa ................................................... 2.1
A/A ..................................................... 5.7
BBB/Baa ................................................. 3.2
NR (Not rated) .......................................... 0.8
Other+ .................................................. 2.7
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
12 & 13
MuniHoldings California Insured Fund, Inc., June 30, 2003
STATEMENT OF NET ASSETS
As of June 30, 2003
==============================================================================================================================
Assets: Investments, at value (identified cost--$932,779,248) ............ $ 1,008,355,548
Cash ............................................................. 125,874
Receivables:
Securities sold ................................................ $ 21,427,478
Interest ....................................................... 15,702,634 37,130,112
---------------
Prepaid expenses ................................................. 20,591
---------------
Total assets ..................................................... 1,045,632,125
---------------
==============================================================================================================================
Liabilities: Unrealized depreciation on forward interest rate swaps ........... 1,556,750
Payables:
Securities purchased ........................................... 21,672,869
Investment adviser ............................................. 420,240
Dividends to Common Stock shareholders ......................... 311,332
Other affiliates ............................................... 5,817 22,410,258
---------------
Accrued expenses and other liabilities ........................... 74,206
---------------
Total liabilities ................................................ 24,041,214
---------------
==============================================================================================================================
Preferred Stock: Preferred Stock, at redemption value, par value $.10 per share
(1,920 Class A shares, 3,880 Class B shares, 3,200 Class C shares,
2,960 Class D shares and 3,640 Class E shares of AMPS* issued and
outstanding at $25,000 per share liquidation preference) ......... 390,020,237
---------------
==============================================================================================================================
Net Assets Net assets applicable to Common Stock ............................ $ 631,570,674
Applicable to ===============
Common Stock:
==============================================================================================================================
Analysis of Common Stock, par value $.10 per share (40,657,301 shares issued
Net Assets and outstanding) ................................................. $ 4,065,730
Applicable to Paid-in capital in excess of par ................................. 599,718,612
Common Stock: Undistributed investment income--net ............................. $ 8,381,865
Accumulated realized capital losses on investments--net .......... (54,615,083)
Unrealized appreciation on investments--net ...................... 74,019,550
---------------
Total accumulated earnings--net .................................. 27,786,332
---------------
Total--Equivalent to $15.53 net asset value per share of Common
Stock (market price--$14.85) ..................................... $ 631,570,674
===============
==============================================================================================================================
* Auction Market Preferred Stock.
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
For the Year Ended June 30, 2003
================================================================================================================================
Investment Income: Interest ......................................................... $ 50,995,040
Dividends ........................................................ 23,724
---------------
Total income ..................................................... 51,018,764
---------------
================================================================================================================================
Expenses: Investment advisory fees ......................................... $ 5,567,906
Commission fees .................................................. 995,198
Accounting services .............................................. 281,090
Transfer agent fees .............................................. 106,611
Professional fees ................................................ 79,016
Custodian fees ................................................... 57,568
Directors' fees and expenses ..................................... 53,820
Printing and shareholder reports ................................. 45,440
Pricing fees ..................................................... 30,425
Listing fees ..................................................... 29,281
Other ............................................................ 59,354
---------------
Total expenses before waiver and reimbursement ................... 7,305,709
Waiver and reimbursement of expenses ............................. (402,001)
---------------
Total expenses after waiver and reimbursement .................... 6,903,708
---------------
Investment income--net ........................................... 44,115,056
---------------
================================================================================================================================
Realized & Unreal- Realized loss on investments--net ................................ (4,042,549)
ized Gain (Loss) on Change in unrealized appreciation on investments--net ............ 29,954,952
Investments--Net: ---------------
Total realized and unrealized gain on investments--net ........... 25,912,403
---------------
================================================================================================================================
Dividends to Investment income--net ........................................... (4,030,047)
Preferred Stock ---------------
Shareholders: Net Increase in Net Assets Resulting from Operations ............. $ 65,997,412
===============
================================================================================================================================
See Notes to Financial Statements.
14 & 15
MuniHoldings California Insured Fund, Inc., June 30, 2003
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended June 30,
-----------------------------------
Increase (Decrease) in Net Assets: 2003 2002
============================================================================================================================
Operations: Investment income--net ......................................... $ 44,115,056 $ 44,545,117
Realized loss on investments--net .............................. (4,042,549) (841,711)
Change in unrealized appreciation on investments--net .......... 29,954,952 13,620,597
Dividends and distributions to Preferred Stock shareholders .... (4,030,047) (6,179,443)
--------------- ---------------
Net increase in net assets resulting from operations ........... 65,997,412 51,144,560
--------------- ---------------
============================================================================================================================
Dividends & Investment income--net ......................................... (36,998,144) (36,317,459)
Distributions to Realized gain on investments--net .............................. -- (179,258)
Common Stock --------------- ---------------
Shareholders: Net decrease in net assets resulting from dividends and
distributions to Common Stock shareholders ..................... (36,998,144) (36,496,717)
--------------- ---------------
============================================================================================================================
Net Assets Total increase in net assets applicable to Common Stock ........ 28,999,268 14,647,843
Applicable to Beginning of year .............................................. 602,571,406 587,923,563
Common Stock: --------------- ---------------
End of year* ................................................... $ 631,570,674 $ 602,571,406
=============== ===============
============================================================================================================================
* Undistributed investment income--net ........................... $ 8,381,865 $ 5,295,000
=============== ===============
============================================================================================================================
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been
derived from information provided in the financial
statements. For the Year Ended June 30,
-------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
==================================================================================================================================
Per Share Net asset value, beginning of year ................. $ 14.82 $ 14.46 $ 13.31 $ 14.38 $ 14.96
Operating --------- --------- -------- --------- ---------
Performance:+ Investment income--net ............................. 1.09@ 1.10@ 1.10@ 1.11 1.13
Realized and unrealized gain (loss) on
investments--net ................................... .63 .30 1.17 (1.03) (.57)
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net ........................... (.10) (.15) (.33) (.34) (.30)
Realized gain on investments--net ................ -- --@@ -- -- (.01)
--------- --------- -------- --------- ---------
Total from investment operations ................... 1.62 1.25 1.94 (.26) .25
--------- --------- -------- --------- ---------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net ........................... (.91) (.89) (.79) (.81) (.80)
Realized gain on investments--net ................ -- --@@ -- -- (.03)
--------- --------- -------- --------- ---------
Total dividends and distributions to Common Stock
shareholders ....................................... (.91) (.89) (.79) (.81) (.83)
--------- --------- -------- --------- ---------
Net asset value, end of year ....................... $ 15.53 $ 14.82 $ 14.46 $ 13.31 $ 14.38
========= ========= ======== ========= =========
Market price per share, end of year ................ $ 14.85 $ 14.19 $ 13.18 $ 12.3125 $ 13.00
========= ========= ======== ========= =========
==================================================================================================================================
Total Investment Based on market price per share .................... 11.45% 14.61% 13.67% 1.06% (8.34%)
Return:* ========= ========= ======== ========= =========
Based on net asset value per share ................. 11.60% 9.10% 15.36% (1.23%) 1.66%
========= ========= ======== ========= =========
==================================================================================================================================
Ratios Based on Total expenses, net of waiver and reimbursement
Average Net Assets and excluding reorganization expenses** ............ 1.11% 1.14% 1.13% 1.20% 1.09%
Of Common Stock: ========= ========= ======== ========= =========
Total expenses, excluding reorganization expenses** 1.17% 1.20% 1.22% 1.31% 1.23%
========= ========= ======== ========= =========
Total expenses** ................................... 1.17% 1.22% 1.29% 1.50% 1.23%
========= ========= ======== ========= =========
Total investment income--net** ..................... 7.09% 7.41% 7.71% 8.50% 7.42%
========= ========= ======== ========= =========
Amount of dividends to Preferred Stock shareholders .65% 1.02% 2.22% 2.66% 1.93%
========= ========= ======== ========= =========
Investment income--net, to Common Stock shareholders 6.44% 6.39% 5.49% 5.84% 5.49%
========= ========= ======== ========= =========
==================================================================================================================================
Ratios Based on Total expenses, net of waiver and reimbursement
Average Net Assets and excluding reorganization expenses .............. .68% .69% .67% .69% .67%
Of Common and ========= ========= ======== ========= =========
Preferred Stock:** Total expenses, excluding reorganization expenses .. .72% .73% .73% .75% .75%
========= ========= ======== ========= =========
Total expenses ..................................... .72% .74% .77% .86% .75%
========= ========= ======== ========= =========
Total investment income--net ....................... 4.36% 4.50% 4.60% 4.85% 4.53%
========= ========= ======== ========= =========
==================================================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders .......... 1.03% 1.57% 3.28% 3.54% 3.02%
Average Net Assets ========= ========= ======== ========= =========
Of Preferred Stock:
==================================================================================================================================
Supplemental Data: Net assets applicable to Common Stock,
end of year (in thousands) ......................... $ 631,571 $ 602,571 $587,924 $ 468,360 $ 141,073
========= ========= ======== ========= =========
Preferred Stock outstanding, end of year
(in thousands) ..................................... $ 390,000 $ 390,000 $390,000 $ 341,000 $ 96,000
========= ========= ======== ========= =========
Portfolio turnover ................................. 26.99% 41.35% 63.37% 105.22% 82.36%
========= ========= ======== ========= =========
==================================================================================================================================
Leverage: Asset coverage per $1,000 .......................... $ 2,619 $ 2,545 $ 2,507 $ 2,373 $ 2,470
========= ========= ======== ========= =========
==================================================================================================================================
Dividends Per Series A--Investment income--net ................... $ 253 $ 362 $ 793 $ 915 $ 775
Share on Preferred ========= ========= ======== ========= =========
Stock Outstanding:++ Series B--Investment income--net ................... $ 269 $ 400 $ 533 $ 830 $ 735
========= ========= ======== ========= =========
Series C--Investment income--net ................... $ 248 $ 375 $ 812 $ 284 --
========= ========= ======== ========= =========
Series D--Investment income--net ................... $ 255 $ 400 $ 853 $ 288 --
========= ========= ======== ========= =========
Series E--Investment income--net ................... $ 262 $ 408 $ 813 $ 314 --
========= ========= ======== ========= =========
==================================================================================================================================
* Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges. The Fund's Investment Adviser waived a portion of its management
fee. Without such waiver, the Fund's performance would have been lower.
** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Certain prior year amounts have been reclassified to conform to current
year presentation.
++ The Fund's Preferred Stock was issued on March 19, 1998 for Series A and
Series B; and on March 6, 2000 for Series C, Series D and Series E.
@ Based on average shares outstanding.
@@ Amount is less than $.01 per share.
See Notes to Financial Statements.
16 & 17
MuniHoldings California Insured Fund, Inc., June 30, 2003
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings California 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. 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 MUC. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Forward interest rate swaps
are valued by quoted fair values received daily by the Fund from the
counterparty. Securities with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value. Securities and assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the Board of Directors
of the Fund, including valuations furnished by a pricing service retained by the
Fund, which may utilize a matrix system for valuations. The procedures of the
pricing service and its valuations are reviewed by the officers of the Fund
under the general supervision of the Board of Directors.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movement and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
o 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.
o Options -- The Fund is authorized to write covered call options and purchase
put options. When the Fund writes an option, an amount equal to the premium
received by the Fund is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked to market to reflect the current
market value of the option written. When a security is purchased or sold through
an exercise of an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from (or added to)
the proceeds of the security sold. When an option expires (or the Fund enters
into a closing transaction), the Fund realizes a gain or loss on the option to
the extent of the premiums received or paid (or gain or loss to the extent the
cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Forward interest rate swaps -- The Fund is authorized to enter into forward
interest rate swaps. In a forward interest rate swap, the Fund and the
counterparty agree to pay or receive interest on a specified notional contract
amount, commencing on a specified future effective date, unless terminated
earlier. 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 year ended June 30, 2003,
FAM earned fees of $5,567,906, of which $387,861 was waived. For the year ended
June 30, 2003, FAM reimbursed the Fund in the amount of $14,140.
For the year ended June 30, 2003, the Fund reimbursed FAM $21,463 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 June 30, 2003 were $270,849,933 and $259,532,811, respectively.
Net realized gains (losses) for the year ended June 30, 2003 and net unrealized
gains (losses) as of June 30, 2003 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments .................. $ 7,604,504 $ 75,576,300
Financial futures contracts ............ (11,647,053) --
Forward interest rate swaps ............ -- (1,556,750)
------------ ------------
Total .................................. $ (4,042,549) $ 74,019,550
============ ============
- --------------------------------------------------------------------------------
As of June 30, 2003, net unrealized appreciation for Federal income tax purposes
aggregated $75,906,419, of which $76,606,146 related to appreciated securities
and $699,727 related to depreciated securities. The aggregate cost of
investments at June 30, 2003 for Federal income tax purposes was $932,449,129.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of stock, including Preferred
Stock, par value $.10 per share,
18 & 19
MuniHoldings California Insured Fund, Inc., June 30, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
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 shares of Preferred Stock of the
Fund, with a par value of $.10 per share and a liquidation preference of $25,000
per share that entitle their holders to receive cash dividends at an annual rate
that may vary for the successive dividend periods. The yields in effect at June
30, 2003 were: Series A, .68%; Series B, .65%; Series C, .65%; Series D, .639%;
and Series E, .80%.
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 June 30, 2003, Merrill Lynch, Pierce, Fenner & Smith
Incorporated earned $367,094 as commissions.
5. Distributions to Shareholders:
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of $.077000 per share on July 30, 2003 to shareholders of record on July
17, 2003.
The tax character of distributions paid during the fiscal years ended June 30,
2003 and June 30, 2002 was as follows:
- --------------------------------------------------------------------------------
6/30/2003 6/30/2002
- --------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income ...................... $41,028,191 $42,435,455
Ordinary income ........................ -- 240,705
----------- -----------
Total taxable distributions .............. $41,028,191 $42,676,160
=========== ===========
- --------------------------------------------------------------------------------
As of June 30, 2003, the components of accumulated earnings on a tax basis were
as follows:
- -----------------------------------------------------------------------------
Undistributed tax-exempt income--net ..................... $ 8,042,687
Undistributed ordinary income--net ....................... --
Undistributed long-term capital gains--net ............... --
------------
Total undistributed earnings--net ........................ 8,042,687
Capital loss carryforward ................................ (43,041,548)*
Unrealized gains--net .................................... 62,785,193**
------------
Total accumulated earnings--net .......................... $ 27,786,332
============
- -----------------------------------------------------------------------------
* On June 30, 2003, the Fund had a net capital loss carryforward of
$43,041,548, of which $10,359,976 expires in 2007, $7,894,678 expires in
2008 and $24,786,894 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 wash sales, the
tax deferral of losses on straddles and the difference between book and
tax amortization methods for premiums and discounts on fixed income
securities.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
MuniHoldings California Insured Fund, Inc.:
We have audited the accompanying statement of net assets, including the schedule
of investments, of MuniHoldings California Insured Fund, Inc. as of June 30,
2003, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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. Our procedures included confirmation of
securities owned as of June 30, 2003 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. 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 California Insured Fund, Inc. as of June 30, 2003, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and its financial highlights for each
of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
August 8, 2003
20 & 21
MuniHoldings California Insured Fund, Inc., June 30, 2003
AUTOMATIC DIVIDEND REINVESTMENT PLAN
The following description of the Fund's Automatic Dividend Reinvestment Plan
(the "Plan") is sent to you annually as required by Federal securities laws.
Pursuant to the Fund's Plan, unless a holder of Common Stock otherwise elects,
all dividend and capital gains distributions will be automatically reinvested by
The Bank of New York (the "Plan Agent"), as agent for shareholders in
administering the Plan, in additional shares of Common Stock of the Fund.
Holders of Common Stock who elect not to participate in the Plan will receive
all distributions in cash paid by check mailed directly to the shareholder of
record (or, if the shares are held in street or other nominee name then to such
nominee) by The Bank of New York, as dividend paying agent. Such participants
may elect not to participate in the Plan and to receive all distributions of
dividends and capital gains in cash by sending written instructions to The Bank
of New York, as dividend paying agent, at the address set forth below.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date; otherwise such
termination will be effective with respect to any subsequently declared dividend
or distribution.
Whenever the Fund declares an income dividend or capital gains distribution
(collectively referred to as "dividends") payable either in shares or in cash,
non-participants in the Plan will receive cash and participants in the Plan will
receive the equivalent in shares of Common Stock. The shares will be acquired by
the Plan Agent for the participant's account, depending upon the circumstances
described below, either (i) through receipt of additional unissued but
authorized shares of Common Stock from the Fund ("newly issued shares") or (ii)
by purchase of outstanding shares of Common Stock on the open market
("open-market purchases") on the New York Stock Exchange or elsewhere. If on the
payment date for the dividend, the net asset value per share of the Common Stock
is equal to or less than the market price per share of the Common Stock plus
estimated brokerage commissions (such conditions being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
Common Stock to be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued, provided that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on an "ex-dividend" basis or in no event more than 30 days after the
dividend payment date (the "last purchase date") to invest the dividend amount
in shares acquired in open-market purchases. It is contemplated that the Fund
will pay monthly income dividends. Therefore, the period during which
open-market purchases can be made will exist only from the payment date on the
dividend through the date before the next "ex-dividend" date, which typically
will be approximately ten days. If, before the Plan Agent has completed its
open-market purchases, the market price of a share of Common Stock exceeds the
net asset value per share, the average per share purchase price paid by the Plan
Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisitions of fewer shares than if the dividend had been paid in newly issued
shares on the dividend payment date. Because of the foregoing difficulty with
respect to open-market purchases, the Plan provides that if the Plan Agent is
unable to invest the full dividend amount in open-market purchases during the
purchase period or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market purchases and will
invest the uninvested portion of the dividend amount in newly issued shares at
the close of business on the last purchase date determined by dividing the
uninvested portion of the dividend by the net asset value per share.
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent in non-certificated form in the name
of the participant, and each shareholder's proxy will include those shares
purchased or received pursuant to the Plan. The Plan Agent will forward all
proxy solicitation materials to participants and vote proxies for shares held
pursuant to the Plan in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which hold shares
of others who are the beneficial owners, the Plan Agent will administer the Plan
on the basis of the number of shares certified from time to time by the record
shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of dividends or capital gains distributions payable either in
shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus commissions
of the Fund's shares is above the net asset value, participants in the Plan will
receive shares of the Fund at less than they could otherwise purchase them and
will have shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market price plus
commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Fund does not redeem
shares, the price on resale may be more or less than the net asset value.
The value of shares acquired pursuant to the Plan will generally be excluded
from gross income to the extent that the cash amount reinvested would be
excluded from gross income. If, when the Fund's shares are trading at a premium
over net asset value, the Fund issues shares pursuant to the Plan that have a
greater fair market value than the amount of cash reinvested, it is possible
that all or a portion of such discount (which may not exceed 5% of the fair
market value of the Fund's shares) could be viewed as a taxable distribution. If
the discount is viewed as a taxable distribution, it is also possible that the
taxable character of this discount would be allocable to all the shareholders,
including shareholders who do not participate in the Plan. Thus, shareholders
who do not participate in the Plan might be required to report as ordinary
income a portion of their distributions equal to their allocable share of the
discount.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
All correspondence concerning the Plan should be directed to the Plan Agent at
The Bank of New York, Church Street Station, P.O. Box 11258, New York, NY
10286-1258, Telephone: 800-432-8224.
22 & 23
MuniHoldings California Insured Fund, Inc., June 30, 2003
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by MuniHoldings
California Insured Fund, Inc. during its taxable year ended June 30, 2003
qualify as tax-exempt interest dividends for Federal income tax purposes.
Please retain this information for your records.
ANNUAL MEETING OF STOCKHOLDERS
The date of the Fund's next Annual Meeting of Stockholders has been changed from
January 2004 to April 2004. Proposals of stockholders intended to be presented
at the Fund's next Annual Meeting of Stockholders must be received by the Fund
by January 15, 2004 for inclusion in the Fund's Proxy Statement and form of
Proxy for that meeting. The Fund's By-laws generally require advance notice be
given to the Fund in the event a stockholder desires to nominate a person for
election to the Board of Directors or to transact any other business from the
floor at an Annual Meeting of Stockholders. Notice of any such nomination or
other business must be in writing and received at the Fund's principal executive
office not later than the close of business on February 13, 2004. Written
proposals should be sent to the Secretary of the Fund, 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute all or a portion of its net
investment income to its shareholders on a monthly basis. However, in order to
provide shareholders with a more consistent yield to the current trading price
of shares of Common Stock of the Fund, the Fund may at times pay out less than
the entire amount of net investment income earned in any particular month and
may at times in any particular month pay out such accumulated but undistributed
income in addition to net investment income earned in that month. As a result,
the dividends paid by the Fund for any particular month may be more or less than
the amount of net investment income earned by the Fund during such month. The
Fund's current accumulated but undistributed net investment income, if any, is
disclosed in the Statement of Net Assets, which comprises part of the financial
information included in this report.
OFFICERS AND DIRECTORS
Number of Other
Portfolios in Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
====================================================================================================================================
Terry K. P.O. Box 9011 President 1999 to President and Chairman of Merrill Lynch Invest- 114 Funds None
Glenn* Princeton, NJ and present ment Managers, L.P. ("MLIM")/Fund Asset 159 Portfolios
08543-9011 Director and Management, L.P. ("FAM")--Advised Funds since
Age: 62 1997 to 1999; Chairman (Americas Region) of MLIM from
present 2000 to 2002; Executive Vice President of MLIM
and FAM (which terms as used herein include
their corporate predecessors) from 1983 to 2002;
President of FAM Distributors, Inc. ("FAMD") from
1986 to 2002 and Director thereof from 1991 to
2002; Executive Vice President and Director of
Princeton Services, Inc. ("Princeton Services")
from 1993 to 2002; President of Princeton
Administrators, L.P. from 1989 to 2002; Director of
Financial Data Services, Inc. from 1985 to 2002.
=======================================================================================================================
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM
or MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act,
of the Fund based on his former positions with 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.
====================================================================================================================================
Number of Other
Portfolios in Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors
====================================================================================================================================
James H. P.O. Box 9095 Director 1997 to Director and Executive Vice President, The China 40 Funds None
Bodurtha Princeton, NJ present Business Group, Inc. since 1995; Chairman, 59 Portfolios
08543-9095 Berkshire Holding Corporation since 1982.
Age: 59
====================================================================================================================================
24 & 25
MuniHoldings California Insured Fund, Inc., June 30, 2003
OFFICERS AND DIRECTORS (concluded)
Number of Other
Portfolios in Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors (concluded)
====================================================================================================================================
Joe Grills P.O. Box 9095 Director 2002 to Member of the Committee of Investment of 40 Funds Kimco
Princeton, NJ present Employee Benefit Assets of the Association of 59 Portfolios Realty
08543-9095 Financial Professionals ("CIEBA") since 1986 and Corporation
Age: 68 its Chairman from 1991 to 1992; Member of the
Investment Advisory Committees of the State of
New York Common Retirement Fund since 1989;
Member of the Investment Advisory Committee of
the Howard Hughes Medical Institute from 1997 to
2000; Director, Duke Management Company since
1992 and Vice Chairman thereof since 1998;
Director, LaSalle Street Fund from 1995 to 2001;
Director, Kimco Realty Corporation since 1997;
Member of the Investment Advisory Committee of
the Virginia Retirement System since 1998 and Vice
Chairman thereof since 2002; Director, Montpelier
Foundation since 1998 and Vice Chairman thereof
since 2000; Member of the Investment Committee
of the Woodberry Forest School since 2000; Member
of the Investment Committee of the National Trust
for Historic Preservation since 2000.
====================================================================================================================================
Herbert I. P.O. Box 9095 Director 1997 to John M. Olin Professor of Humanities, New York 40 Funds None
London Princeton, NJ present University since 1993 and Professor thereof since 59 Portfolios
08543-9095 1980; President of Hudson Institute since 1997 and
Age: 64 Trustee thereof since 1980.
====================================================================================================================================
Andre F. P.O. Box 9095 Director 1997 to George Gund Professor of Finance and Banking, 40 Funds None
Perold Princeton, NJ present Harvard Business School since 2000 and a member 59 Portfolios
08543-9095 of the faculty since 1979; Director and Chairman
Age: 51 of the Board, UNX, Inc. since 2003; Director,
Stockback.com from 2002 to 2002; Director, Sanlam
Limited and Sanlam Life since 2001; Director,
Genbel Securities and Gensec Bank since 1999;
Director, Bulldogresearch.com from 2000 to 2001;
Director Sanlam Investment Management from
1999 to 2001; Director, Quantec Limited from 1991
to 1999.
====================================================================================================================================
Roberta P.O. Box 9095 Director 1999 to Shareholder, Modrall, Sperling, Roehl, Harris & 40 Funds None
Cooper Ramo Princeton, NJ present Sisk, P.A. since 1993; Director of Cooper's, Inc. 59 Portfolios
08543-9095 since 1999 and Chairman of the Board since 2000;
Age: 60 Director of ECMC, Inc. since 2001.
====================================================================================================================================
Robert S. P.O. Box 9095 Director 2002 to Principal of STI Management since 1994; Trustee 40 Funds None
Salomon, Jr. Princeton, NJ present of Commonfund from 1980 to 2001; Director of Rye 59 Portfolios
08543-9095 Country Day School since 2001.
Age: 66
====================================================================================================================================
Stephen B. P.O. Box 9095 Director 2002 to Chairman, Fernwood Advisors (investment adviser) 40 Funds None
Swensrud Princeton, NJ present since 1996; Principal of Fernwood Associates 59 Portfolios
08543-9095 (financial consultant) since 1975; Chairman of RPP
Age: 70 Corporation since 1978; Director, International
Mobile Communications, Inc. since 1998.
=======================================================================================================================
* The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of
the year in which they turn 72.
====================================================================================================================================
Position(s) Length
Held of Time
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers
====================================================================================================================================
Donald C. P.O. Box 9011 Vice 1997 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof
Burke Princeton, NJ President present since 1999; Senior Vice President and Treasurer of Princeton Services since
08543-9011 and 1999; Vice President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 43 Treasurer
====================================================================================================================================
Kenneth A. P.O. Box 9011 Senior 2002 to Managing Director of MLIM since 2000 and Director (Municipal Tax-Exempt
Jacob Princeton, NJ Vice present Fund Management) of MLIM from 1997 to 2000.
08543-9011 President
Age: 52
====================================================================================================================================
John M. P.O. Box 9011 Senior 2002 to Managing Director of MLIM since 2000 and Director (Municipal Tax-Exempt
Loffredo Princeton, NJ Vice present Fund Management) of MLIM from 1998 to 2000.
08543-9011 President
Age: 39
====================================================================================================================================
Walter C. P.O. Box 9011 Vice 1997 to Managing Director of MLIM since 2003; Director (Municipal Tax-Exempt
O'Connor Princeton, NJ President present Fund Management) of MLIM from 2000 to 2003; Vice President of MLIM
08543-9011 from 1994 to 2000.
Age: 41
====================================================================================================================================
Brian D. P.O. Box 9011 Secretary 2003 to Vice President of MLIM since 2002; Attorney with Reed Smith from 2001
Stewart Princeton, NJ present to 2002; Attorney with Saul Ewing from 1999 to 2001.
08543-9011
Age: 34
=======================================================================================================================
* Officers of the Fund serve at the pleasure of the Board of Directors.
====================================================================================================================================
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
MUC
26 & 27
[LOGO] Merrill Lynch Investment Managers
MuniHoldings California Insured Fund, Inc. seeks to provide shareholders with
current income exempt from Federal and California income taxes. The Fund seeks
to achieve this objective by investing primarily in a portfolio of long-term
investment-grade municipal obligations the interest on which, in the opinion of
bond counsel to the issuer, is exempt from Federal and California income taxes.
This report, including the financial information herein, is transmitted to
shareholders of MuniHoldings California Insured Fund, 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 California Insured Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
[RECYCLED LOGO] Printed on post-consumer recycled paper #HOLDCA--6/03
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 and not required to
be answered until the registrant's fiscal year-end on or after July 15,
2003)
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
and not required to be answered until the registrant's fiscal year-end
on or after July 15, 2003)
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 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:
o 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.
o 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.
o 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.
o 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.
o 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.
o Routine proposals related to requests regarding the formalities of
corporate meetings.
o 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.
o 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 California Insured Fund, Inc.
By: /s/ Terry K. Glenn
-------------------------
Terry K. Glenn,
President of
MuniHoldings California Insured Fund, Inc.
Date: August 21, 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 California Insured Fund, Inc.
Date: August 21, 2003
By: /s/ Donald C. Burke
-------------------------
Donald C. Burke,
Chief Financial Officer of
MuniHoldings California Insured Fund, Inc.
Date: August 21, 2003
Attached hereto as a furnished exhibit are the certifications pursuant
to Section 906 of the Sarbanes-Oxley Act.