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: 06/30/04
Date of reporting period: 07/01/03 - 06/30/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
MuniHoldings California
Insured Fund, Inc.
Annual Report
June 30, 2004
[LOGO] Merrill Lynch Investment Managers
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, net of dividends to Preferred Stock, 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. As of June 30, 2004, the percentage of the Fund's
total net assets in inverse floaters was 8.58%, before the deduction of
Preferred Stock.
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. Swap agreements involve the risk that the party
with whom the Fund has entered into the swap will default on its obligation to
pay the Fund and the risk that the Fund will not be able to meet its obligations
to pay the other party to the agreement.
2 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004
A Letter From the President
Dear Shareholder
As we ended the current period, all eyes were on the Federal Reserve Board
(Fed). In a much-anticipated move, the Fed raised the Federal Funds rate on June
30 for the first time in four years, bringing the target rate to 1.25%, up from
a 45-year low of 1%. The 25 basis point (.25%) increase was the first, but is
not expected to be the last, this year as the Fed moves to "normalize" interest
rates in the face of increasing inflation. The Fed has reiterated its intention
to take a "measured" approach to interest rate increases in an effort to avoid
upsetting the economy or the financial markets. Still, in its very deliberate
wording, the Fed has stated that it may move more aggressively if inflation and
economic growth indicate the need.
In any case, interest rates are likely to remain low by historical standards for
some time, particularly if the Fed does maintain its commitment to a gradual
tightening. To provide some perspective, the Federal Funds rate was at 6.5%
before the current easing cycle began in 2001 and had reached double-digits in
the late 1970s and early 1980s.
The transition to higher interest rates can cause concern among equity and fixed
income investors alike. For bond investors, rising interest rates means the
value of older bonds declines because they carry the former lower interest
rates. However, because municipal bonds offer the advantage of tax-exempt
income, they continue to be an attractive alternative for many fixed income
investors. For the 12-month period ended June 30, 2004, municipal bonds
outperformed their taxable counterparts with a return of +.76% for the Lehman
Brothers Municipal Bond Index compared to +.32% for the Lehman Brothers
Aggregate Bond Index.
June month-end also brought the transfer of power in Iraq. Like the Fed
tightening, this was a pivotal event. However, the outcome and the market
repercussions are less easy to predict. We do know that markets will always
fluctuate and that there are many uncertainties -- including the possibility of
geopolitical events -- that can translate into negative market movements. Still,
the U.S. economy is much stronger today than it was just one year ago. With this
in mind, we encourage you to revisit your portfolio and your asset allocation
strategy to ensure you are well positioned to take advantage of the
opportunities that lie ahead. Importantly, you should consult with your
financial advisor, who can help you assess the market and economic environment
and then develop a strategy most suitable for your circumstances and financial
goals.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
The Fund outperformed its Lipper category average for the period,
benefiting from a defensive structure, above-average couponing and an emphasis
on high-quality credits.
Describe the recent market environment relative to municipal bonds.
Amid significant volatility, long-term bond yields ended the 12-month period
considerably higher than where they began. The increase in yields and
corresponding fall in prices resulted from concerns that a resurgent economy
would lead to inflation, which in turn would encourage the Federal Reserve Board
(Fed) to raise short-term interest rates. In fact, the Fed did increase interest
rates 25 basis points (.25%) on June 30, 2004, but suggested that its approach
to future rate hikes would be gradual.
As the period began, bond yields were on the rise as an increasing amount of
data indicated a fast-improving economy. By mid-August 2003, yields on U.S.
Treasury bonds had risen to 5.45%, but fell to 4.65% in mid-March 2004 as
investors seemed certain that poor job growth meant the Fed would maintain rates
at current low levels for some time. In early April, yields began to rise again,
prompted by unexpected gains in job growth, improvements in consumer confidence
and rising consumer spending. Investors reversed their prior expectations and
concluded that the Fed would indeed be forced to raise interest rates to ward
off potential inflation. By mid-May, long-term U.S. Treasury bond yields had
risen above 5.45%. Later, as fears of inflation diminished somewhat, yields on
the U.S. Treasury benchmark bond fell once more, but -- at 5.29% -- still ended
the period 70 basis points above year-ago levels. The yield on the 10-year U.S.
Treasury note stood at 4.58% on June 30, 2004, an increase of more than 100
basis points over the 12-month period.
Tax-exempt issues also saw considerable variability in yields, though the
volatility was more subdued than in the U.S. Treasury market. Yields on
long-term revenue bonds, as measured by the Bond Buyer Revenue Bond Index, rose
approximately 40 basis points during the year. Thirty-year bonds rated AAA saw
their yields rise more than 55 basis points to 5.02%, as reported by Municipal
Market Data, while yields on AAA-rated bonds with 10-year maturities rose more
than 70 basis points to 3.95%.
The more marked increase in 10-year bond yields may be attributed to the fact
that several large issues have been heavily concentrated in the 10-year -
20-year range. The resulting supply imbalance prompted higher intermediate bond
yields (and lower prices). Overall, more than $370 billion in new long-term
tax-exempt bonds were issued nationwide during the period, a 5% decline compared
to the prior 12 months.
Describe conditions in the State of California during the period.
In June 2004, California completed the issuance of $11 billion in economic
recovery bonds, alleviating concerns about the state's once precarious cash-flow
situation. Subsequently, rating agency Moody's Investors Service upgraded the
state's long-term credit rating to A3 from Baa1, citing California's recovering
economy, increased tax collections, improved budget outlook and better
liquidity. Although the state budget failed to pass prior to the June 30, 2004
deadline, budget negotiations continue and will likely result in modest
structural changes.
Responding to the state's improved fiscal health, credit spreads on California
bonds tightened considerably, reflecting investors' increased comfort with the
risk involved in owning the state's debt. Long-term California bonds had traded
as much as 60 - 70 basis points cheaper than comparable maturity AAA-rated
bonds. By period-end, the gap had narrowed to 25 - 30 basis points.
How did the Fund perform during the period in light of the existing market
conditions?
For the 12-month period ended June 30, 2004, the Common Stock of MuniHoldings
California Insured Fund, Inc., had net annualized yields of 6.35% and 7.01%,
based on a year-end per share net asset value of $14.73 and a per share market
price of $13.36, respectively, and $.936 per share income dividends. Over the
same period, the total investment return on the Fund's Common Stock was +1.28%,
based on a change in per share net asset value from $15.53 to $14.73, and
assuming reinvestment of $.934 per share ordinary income dividends.
For the six months ended June 30, 2004, the Fund's Auction Market Preferred
Stock (AMPS) had average yields as follows: Series A, .85%; Series B, .87%;
Series C, .91%; Series D, .88%; and Series E, .93%.
The Fund's total return, based on net asset value, exceeded that of its
comparable Lipper category of California Insured
4 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004
Municipal Debt Funds, which had an average return of -.27% for the 12 months
ended June 30, 2004. (Funds in this Lipper category invest primarily in
securities exempt from taxation in California and insured as to timely payment.)
The Fund's outperformance is attributed to an above-average current return,
which was generated through a relatively high level of couponing. The Fund's
average coupon structure is 5.60%, compared to a 5% average for bonds in the
California insured marketplace. This structure not only allows the Fund to
outperform when rates remain unchanged, but it also benefits relative
performance as rates rise. This is because the higher coupon structure tends to
have more defensive properties (including lower duration), allowing the Fund's
bonds to hold their value better than longer-duration securities, whose price is
negatively impacted by rising rates.
For the six-month period ended June 30, 2004, the total investment return on the
Fund's Common Stock was -1.82%, based on a change in per share net asset value
from $15.51 to $14.73, and assuming reinvestment of $.472 per share income
dividends.
For a description of the Fund's total investment return based on a change in the
per share market value of the Fund's Common Stock (as measured by the trading
price of the Fund's shares on the New York Stock Exchange), and assuming
reinvestment of dividends, please refer to the Financial Highlights section
included in this report. As a closed-end fund, the Fund's shares may trade in
the secondary market at a premium or discount to the Fund's net asset value. As
a result, total investment returns based on changes in the market value of the
Fund's Common Stock can vary significantly from total investment returns based
on changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
We continued to limit the portfolio's duration -- its sensitivity to changes in
interest rates -- in anticipation of market volatility and eventually rising
interest rates. Although the Fed did raise short-term interest rates on the last
day of the reporting period, interest rates remain at historic lows. However,
further interest rate hikes are expected.
The Fund's credit quality remained high, with more than 90% of the portfolio
invested in insured municipal securities. Although we are authorized to invest
up to 20% of the Fund's assets in uninsured paper, the yield potential offered
by these securities was not enough to compensate for the additional credit risk
involved. Toward the end of the period, however, bond yields rose significantly
(and bond prices correspondingly fell). We took the opportunity at this point to
purchase some more aggressively structured bonds. Nevertheless, although the
state's credit situation has improved, we are not prepared to make a structural
change in this direction and will likely sell these positions if yields fall
(and bond prices rise) in order to take profits.
The Fund was essentially fully invested throughout the period, with cash
reserves at less than 1% of assets. Because short-term borrowing rates continued
to be extraordinary low, the performance penalty for holding assets in cash
reserves was far too severe.
The Fund's borrowing costs generally remained between .90% and 1.25% during the
period. These attractive funding levels, in combination with a steep yield
curve, continued to generate significant income to the Fund's Common Stock
shareholders. Although the Federal Reserve Board has begun raising short-term
interest rates, subsequent increases are expected to be gradual and should not
have a material impact on the positive advantage leverage has had on the Fund's
Common Stock yield. However, should the spread between short-term and long-term
interest rates narrow, the benefits of leveraging will decline and, as a result,
reduce the yield on the Fund's Common Stock. At the end of the period, the
Fund's leverage amount, due to AMPS, was 31.48% of total net assets. (For a more
complete explanation of the benefits and risks of leveraging, see page 2 of this
report to shareholders.)
How would you characterize the Fund's position at the close of the period?
The portfolio remained defensively positioned at period-end. However, as the Fed
proceeds with its monetary tightening cycle, we will look to increase the Fund's
duration slightly to capture incremental yield as interest rates move higher. As
a complement to this duration extension, we expect to initiate a modest hedge
position (about 5% of net assets). The goal is to cushion the Fund from the
volatility expected in the municipal market as interest rates head higher.
Finally, we will continue to emphasize credit quality in the portfolio in order
to maintain a prudent balance of risk and reward for our shareholders.
Walter C. O'Connor
Vice President and Portfolio Manager
July 12, 2004
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004 5
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (in Thousands)
S&P Moody's Face
Ratings@ Ratings@ Amount Municipal Bonds Value
===================================================================================================================================
California--161.6%
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $ 1,000 ABAG Finance Authority for Nonprofit Corporations,
California, COP (Children's Hospital Medical Center), 6%
due 12/01/2029 (a) $ 1,082
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,345 ABC California Unified School District, GO, Series A,
5.625% due 8/01/2020 (f)(j) 3,675
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Acalanes, California, Unified High School District, GO,
5.80% due 8/01/2007 (f)(i) 4,424
-------------------------------------------------------------------------------------------------------------
NR* Aaa 9,065 Alameda County, California, COP, RIB, Series 410, 10.627%
due 9/01/2021 (b)(g) 10,803
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,535 Bakersfield, California, COP, Refunding (Convention
Center Expansion Project), 5.875% due 4/01/2022 (b) 4,854
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,885 Berkeley, California, GO, Series C, 5.375% due 9/01/2029 (c) 3,952
-------------------------------------------------------------------------------------------------------------
Berkeley, California, Unified School District, GO, Series
I (f):
AAA Aaa 1,000 5.75% due 8/01/2019 1,094
AAA Aaa 1,000 5.75% due 8/01/2020 1,080
AAA Aaa 4,520 5.875% due 8/01/2024 4,903
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,925 Cajon Valley, California, Union School District, GO,
Series B, 5.50% due 8/01/2027 (b) 3,049
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,180 California Community College Financing Authority, Lease
Revenue Bonds (Grossmont-Palomar-Shasta), Series A,
5.625% due 4/01/2026 (b) 2,294
-------------------------------------------------------------------------------------------------------------
California Educational Facilities Authority, Revenue
Refunding Bonds (Occidental College) (b):
AAA Aaa 5,815 5.625% due 10/01/2017 6,327
AAA Aaa 5,000 5.70% due 10/01/2027 5,278
-------------------------------------------------------------------------------------------------------------
California HFA, Home Mortgage Revenue Bonds:
AA- Aa2 2,340 Series D, 5.85% due 8/01/2017 2,463
A1+ VMIG1+ 9,170 VRDN, AMT, Series B, 1.13% due 8/01/2033 (f)(h) 9,170
A1 VMIG1+ 3,000 VRDN, Series F, 1.09% due 2/01/2033 (a)(f)(h) 3,000
-------------------------------------------------------------------------------------------------------------
California HFA, S/F Mortgage Revenue Bonds, AMT, Class II (b):
AAA Aaa 945 Series A-1, 6% due 8/01/2020 980
AAA Aaa 1,590 Series C-2, 5.625% due 8/01/2020 (d) 1,642
-------------------------------------------------------------------------------------------------------------
AAA Aaa 9,250 California Health Facilities Financing Authority Revenue
Bonds (Kaiser Permanente), Series A, 5.50% due 6/01/2022
(f)(j) 9,759
-------------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority, Revenue
Refunding Bonds:
AAA VMIG1+ 4,300 (Adventist Hospital), VRDN, Series A, 1.07%
due 9/01/2028 (b)(h) 4,300
A1+ VMIG1+ 4,000 (Adventist Hospital), VRDN, Series B, 1.07%
due 9/01/2028 (b)(h) 4,000
AAA Aaa 2,500 (Catholic Healthcare West), Series A, 6%
due 7/01/2025 (b) 2,681
AAA Aaa 4,500 (Children's Hospital), 5.375% due 7/01/2020 (b) 4,639
AAA Aaa 4,500 (Cottage Health System), Series B, 5% due 11/01/2033
(b) 4,378
AAA Aaa 3,950 (De Las Companas), Series A, 5.75% due 7/01/2015 (a) 4,148
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,900 California Infrastructure and Economic Development Bank
Revenue Bonds (Los Angeles County Department of Public
Social Services), 5.75% due 9/01/2023 (a) 2,067
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 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 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
Ratings@ Ratings@ Amount Municipal Bonds Value
===================================================================================================================================
California (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
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 $ 27,978
-------------------------------------------------------------------------------------------------------------
AA- Aa2 5,000 California State Department of Veteran Affairs, Home Purpose
Revenue Refunding Bonds, Series C, 6.15% due 12/01/2027 5,188
-------------------------------------------------------------------------------------------------------------
California State Department of Water Resources, Power
Supply Revenue Bonds:
BBB+ A3 6,000 Series A, 5.75% due 5/01/2017 6,553
A1+ VMIG1+ 2,250 VRDN, Series C-2, 1.07% due 5/01/2022 (a)(h) 2,250
-------------------------------------------------------------------------------------------------------------
AA Aa3 6,400 California State Department of Water Resources Revenue
Bonds (Central Valley Project), 5.25% due 7/01/2022 6,431
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 California State, GO, 5.50% due 6/01/2025 (c) 2,068
-------------------------------------------------------------------------------------------------------------
California State, GO, Refunding:
BBB A3 3,175 5.75% due 12/01/2029 3,314
AAA Aaa 12,160 5% due 2/01/2031 (b) 11,880
NR* Aaa 7,000 RIB, AMT, Series 777X, 9.34% due 12/01/2021 (b)(g) 7,116
AAA Aaa 4,130 Veterans, AMT, Series B, 5.45% due 12/01/2017 (b) 4,184
-------------------------------------------------------------------------------------------------------------
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) 20,321
-------------------------------------------------------------------------------------------------------------
California State Public Works Board, Lease Revenue
Refunding Bonds:
AAA Aaa 5,025 (California State University), Series A, 5.50%
due 10/01/2014 (b) 5,447
AAA Aaa 8,750 (Department of Corrections), Series B, 5.625%
due 11/01/2019 (b) 9,495
AAA Aaa 2,625 (Various Community College Project), Series B,
5.625% due 3/01/2019 (a) 2,804
-------------------------------------------------------------------------------------------------------------
AAA Aaa 7,750 California State University, Systemwide Revenue Refunding
Bonds, Series A, 5% due 11/01/2034 (f) 7,631
-------------------------------------------------------------------------------------------------------------
BBB A3 7,050 California State, Various Purpose, GO, 5.50% due 11/01/2033 7,220
-------------------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority, COP:
AAA NR* 9,500 Refunding (Huntington Memorial Hospital), 5.80%
due 7/01/2026 (e) 9,976
AAA Aaa 5,000 (Sutter Health Obligation Group), 6% due 8/15/2025 (b) 5,276
-------------------------------------------------------------------------------------------------------------
A A3 4,915 California Statewide Communities Development Authority,
Health Facility Revenue Bonds (Memorial Health Services),
Series A, 6% due 10/01/2023 5,157
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,090 California Statewide Communities Development Authority
Revenue Bonds (Los Angeles Orthopaedic Hospital Foundation),
5.50% due 6/01/2019 (a) 1,163
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,640 Campbell, California, Unified High School District, GO,
5.70% due 8/01/2025 (f) 1,743
-------------------------------------------------------------------------------------------------------------
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 18,118
AAA Aaa 10,640 5.70% due 9/01/2020 11,391
-------------------------------------------------------------------------------------------------------------
AAA Aaa 8,705 Castaic Lake, California, Water Agency Revenue Bonds, COP
(Water System Improvement Project), 5.50% due 8/01/2023 (a) 9,115
-------------------------------------------------------------------------------------------------------------
AAA Aaa 6,810 Chaffey, California, Unified High School District, GO,
Series B, 5.375% due 8/01/2022 (c) 7,101
-------------------------------------------------------------------------------------------------------------
Chino, California, Unified School District, COP, Refunding (f):
AAA Aaa 1,695 6.125% due 9/01/2005 (i) 1,816
AAA Aaa 5,300 6.125% due 9/01/2026 5,617
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Colton, California, Joint Unified School District, GO,
Series A, 5.375% due 8/01/2026 (c) 2,585
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004 7
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
Ratings@ Ratings@ Amount Municipal Bonds Value
===================================================================================================================================
California (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
AA NR* $ 5,175 Commerce, California, Joint Powers Financing Authority
Revenue Bonds (Redevelopment Projects), Series A, 5%
due 8/01/2028 (k) $ 4,969
-------------------------------------------------------------------------------------------------------------
Contra Costa, California, Water District, Water Revenue
Bonds, Series G (b):
AAA Aaa 4,600 5.75% due 10/01/2004 (i)(l) 4,742
AAA Aaa 5,000 5% due 10/01/2024 5,005
-------------------------------------------------------------------------------------------------------------
Contra Costa County, California, COP, Refunding:
AAA Aaa 4,570 (Capital Projects Program), 5.25% due 2/01/2021 (a) 4,713
AAA Aaa 6,000 DRIVERS, Series 154, 9.382% due 11/01/2017 (b)(g) 6,795
AAA Aaa 2,000 (Merrithew Memorial Hospital Project), 5.50%
due 11/01/2022 (b) 2,092
-------------------------------------------------------------------------------------------------------------
AAA Aaa 8,500 Corona, California, COP, Refunding (Clearwater Cogeneration
Project), 5% due 9/01/2028 (b) 8,324
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,395 Covina-Valley, California, Unified School District, GO,
Refunding, Series A, 5.50% due 8/01/2026 (f) 2,508
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,750 Culver City, California, Redevelopment Finance Authority,
Revenue Refunding Bonds, Tax Allocation, Series A, 5.60%
due 11/01/2025 (f) 3,925
-------------------------------------------------------------------------------------------------------------
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 (b) 1,962
-------------------------------------------------------------------------------------------------------------
AAA Aaa 7,500 Desert Sands, California, Unified School District, GO
(Election of 2001), 5% due 6/01/2029 (f) 7,426
-------------------------------------------------------------------------------------------------------------
East Side Union High School District, California, Santa
Clara County, GO, Series E (c)(j):
AAA Aaa 6,205 5% due 9/01/2022 6,286
AAA Aaa 5,655 5% due 9/01/2023 5,697
-------------------------------------------------------------------------------------------------------------
AAA Aaa 7,000 El Dorado County, California, Public Agency Financing
Authority, Revenue Refunding Bonds, 5.50% due 2/15/2021 (c) 7,344
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,335 El Rancho, California, Unified School District, GO
(Election of 2003), Series A, 5% due 8/01/2028 (c) 5,298
-------------------------------------------------------------------------------------------------------------
Escondido, California, COP, Refunding:
AAA Aaa 1,000 Series A, 5.75% due 9/01/2024 (c) 1,067
AAA Aaa 5,000 (Wastewater Project), 5.70% due 9/01/2026 (a) 5,261
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Fontana, California, Redevelopment Agency, Tax Allocation
Refunding Bonds (Southwest Industrial Park Project), 5%
due 9/01/2022 (b) 5,052
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Foothill-De Anza, California, Community College District,
GO, Refunding, 5% due 8/01/2030 (c) 4,942
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,455 Fresno, California, Airport Revenue Bonds, AMT, Series B,
5.50% due 7/01/2020 (f) 4,623
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,040 Garden Grove, California, COP (Financing Project),
Series A, 5.50% due 3/01/2026 (a) 4,218
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,200 Glendale, California, Unified School District, GO,
Series B, 5.125% due 9/01/2023 (f) 5,269
-------------------------------------------------------------------------------------------------------------
Hacienda La Puente, California, Unified School District,
GO, Series A (b):
AAA Aaa 1,700 5.50% due 8/01/2020 1,805
AAA Aaa 1,500 5.25% due 8/01/2025 1,530
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,565 Hemet, California, Unified School District, GO, Series A,
5.375% due 8/01/2026 (b) 4,696
-------------------------------------------------------------------------------------------------------------
AAA Aaa 9,205 Industry, California, Urban Development Agency, Tax
Allocation Refunding Bonds (Civic Recreation Industrial),
Series 1, 5.50% due 5/01/2020 (b) 9,756
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,700 Inglewood, California, Unified School District, GO, Series
A, 5.60% due 10/01/2024 (c) 1,797
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,300 Irvine, California, Unified School District, Special Tax
(Community Facilities District Number 86-1), 5.375%
due 11/01/2020 (a) 2,419
-------------------------------------------------------------------------------------------------------------
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) 5,057
8 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
Ratings@ Ratings@ Amount Municipal Bonds Value
===================================================================================================================================
California (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
La Quinta, California, Financing Authority, Local Agency
Revenue Bonds, Series A (a):
AAA Aaa $ 2,500 5.25% due 9/01/2024 $ 2,563
AAA Aaa 2,500 5% due 9/01/2029 2,454
AAA Aaa 2,500 5.125% due 9/01/2034 2,487
-------------------------------------------------------------------------------------------------------------
AAA Aaa 7,500 La Quinta, California, Redevelopment Agency, Housing Tax
Allocation Bonds (Redevelopment Project Areas Number 1 & 2),
6% due 9/01/2025 (b) 7,928
-------------------------------------------------------------------------------------------------------------
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) 4,078
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,740 Long Beach, California, Harbor Revenue Bonds, AMT, 5.375%
due 5/15/2020 (b) 3,855
-------------------------------------------------------------------------------------------------------------
AAA Aaa 10,650 Los Altos, California, School District GO, Series A, 5%
due 8/01/2023 (f) 10,695
-------------------------------------------------------------------------------------------------------------
AAA Aaa 12,265 Los Angeles, California, Community College District, GO,
Series A, 5.50% due 8/01/2020 (b) 13,134
-------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Los Angeles, California, Community Redevelopment Agency,
Community Redevelopment Financing Authority Revenue Bonds
(Bunker Hill Project), Series A, 5% due 12/01/2027 (f) 9,864
-------------------------------------------------------------------------------------------------------------
Los Angeles, California, Department of Water and Power,
Electric Plant Revenue Refunding Bonds:
AA- Aa3 490 5.875% due 2/15/2005 (i) 508
NR* Aa3 1,030 RIB, Series 370, 10.64% due 2/15/2024 (g) 1,109
-------------------------------------------------------------------------------------------------------------
AA Aa2 2,000 Los Angeles, California, Harbor Department Revenue Bonds,
AMT, Series B, 5.375% due 11/01/2023 2,019
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,370 Los Angeles, California, M/F Housing Revenue Refunding
Bonds, Senior Series G, 5.65% due 1/01/2014 (f) 2,408
-------------------------------------------------------------------------------------------------------------
AAA Aaa 7,450 Los Angeles, California, Wastewater System Revenue
Refunding Bonds, Series A, 5% due 6/01/2032 (f) 7,346
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,750 Los Angeles County, California, Metropolitan Transportation
Authority, Sales Tax Revenue Refunding Bonds, Proposition
C, Second Tier Senior Series A, 5.25% due 7/01/2030 (c) 3,796
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,890 Los Rios, California, Community College District, GO
(Election of 2002), Series B, 5% due 8/01/2027 (b) 1,880
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Menlo Park, California, Community Development Agency, Tax
Allocation (Las Pulgas Community Development Project),
5.50% due 6/01/2025 (a) 5,231
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Mojave, California, Water Agency, GO, Refunding
(Improvement District--Morongo Basin), 5.80% due 9/01/2022 (c) 3,762
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Montebello, California, Community Redevelopment Agency,
Housing Tax Allocation Bonds, Series A, 5.45% due 9/01/2019 (f) 2,139
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,150 Moorpark, California, Redevelopment Agency, Tax Allocation
Bonds (Moorpark Redevelopment Project), 5.125%
due 10/01/2031 (a) 4,135
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,315 Morgan Hill, California, Unified School District, GO,
5.75% due 8/01/2019 (c) 2,560
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,730 Mount San Antonio, California, Community College District,
GO, Series A, 5.375% due 5/01/2022 (c) 3,921
-------------------------------------------------------------------------------------------------------------
AAA Aaa 16,000 Norco, California, Redevelopment Agency, Tax Allocation
Bonds, Refunding (Norco Redevelopment Project--Area
Number 1), 5.75% due 3/01/2026 (b) 16,909
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,140 North City West, California, School Facilities Financing
Authority, Special Tax Refunding Bonds, Series B, 6%
due 9/01/2019 (f) 2,333
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,275 Northern California Power Agency, Public Power Revenue
Refunding Bonds (Hydroelectric Project Number One),
Series A, 5.125% due 7/01/2023 (b) 3,315
-------------------------------------------------------------------------------------------------------------
AAA Aaa 9,995 Oakland, California, Alameda County Unified School District,
GO, Refunding, Series C, 5.50% due 8/01/2019 (c) 10,412
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
Ratings@ Ratings@ Amount Municipal Bonds Value
===================================================================================================================================
California (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
Oakland, California, Alameda County Unified School
District, GO, Series F (b):
AAA Aaa $ 3,705 5.625% due 8/01/2020 $ 3,993
AAA Aaa 5,245 5.625% due 8/01/2021 5,637
AAA Aaa 6,000 5.50% due 8/01/2024 6,284
-------------------------------------------------------------------------------------------------------------
Oakland, California, GO:
AAA Aaa 2,500 Measure 1, 5.85% due 12/15/2022 (c) 2,707
AAA Aaa 1,300 Measure K, Series C, 5.80% due 12/15/2018 (b) 1,418
-------------------------------------------------------------------------------------------------------------
AAA Aaa 7,105 Oakland, California, Joint Powers Financing Authority,
Lease Revenue Bonds (Oakland Administration
Buildings), 5.75% due 8/01/2006 (a)(i) 7,765
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,750 Palm Desert, California, Financing Authority, Tax
Allocation Revenue Refunding Bonds (Project Area Number 1),
5.45% due 4/01/2018 (b) 6,147
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Palm Springs, California, COP, Refunding (Multiple Capital
Facilities Project), 5.75% due 4/01/2017 (a) 1,083
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,600 Palm Springs, California, Financing Authority, Lease
Revenue Refunding Bonds (Convention Center Project), Series
A, 5.50% due 11/01/2035 (b) 1,676
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Pittsburg, California, Public Financing Authority, Water
Revenue Bonds, 5.50% due 6/01/2027 (b) 4,127
-------------------------------------------------------------------------------------------------------------
Pleasanton, California, Unified School District, GO:
AAA Aaa 2,700 Series D, 5.375% due 8/01/2007 (b)(i) 2,952
AAA Aaa 9,100 Series E, 5.50% due 8/01/2025 (c) 9,482
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Port Oakland, California, Port Revenue Refunding Bonds,
Series I, 5.40% due 11/01/2017 (b) 5,376
-------------------------------------------------------------------------------------------------------------
Port Oakland, California, Revenue Bonds, AMT, Series K (c):
AAA Aaa 3,500 5.75% due 11/01/2014 3,777
AAA Aaa 17,120 5.75% due 11/01/2029 17,676
-------------------------------------------------------------------------------------------------------------
AAA Aaa 25,355 Port Oakland, California, Revenue Refunding Bonds, AMT,
Series L, 5.375% due 11/01/2027 (c) 25,672
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,205 Richmond, California, Joint Powers Financing Authority,
Tax Allocation Revenue Bonds, Series A, 5.50% due 9/01/2018 (b) 2,367
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Riverside, California, COP, 5% due 9/01/2028 (a) 2,938
-------------------------------------------------------------------------------------------------------------
Sacramento, California, Municipal Utility District,
Electric Revenue Refunding Bonds:
AAA Aaa 10,825 Series L, 5.125% due 7/01/2022 (b) 10,994
AAA Aaa 2,400 Series T, 5% due 5/15/2030 (c) 2,372
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Sacramento, California, Power Authority Revenue Bonds
(Cogeneration Project), 5.875% due 7/01/2015 (b) 3,786
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,700 Sacramento County, California, Airport System Revenue
Bonds, Series A, 5.25% due 7/01/2017 (f) 1,809
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,715 Sacramento County, California, Sanitation District
Financing Authority, Revenue Refunding Bonds, 5%
due 12/01/2027 (a) 3,695
-------------------------------------------------------------------------------------------------------------
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 (b) 5,735
-------------------------------------------------------------------------------------------------------------
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) 5,263
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,480 San Bernardino County, California, COP, Refunding (Medical
Center Financing Project), 5.50% due 8/01/2019 (b) 1,513
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,055 San Diego, California, Public Facilities Financing Authority,
Sewer Revenue Bonds, Series A, 5.25% due 5/15/2027 (c) 5,111
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,865 San Diego, California, Unified School District, GO
(Election 1998), Series E, 5% due 7/01/2028 (f) 4,831
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,075 San Francisco, California, Bay Area Rapid Transit District,
Revenue Refunding Bonds (BART SFO Extension), Series A,
4.875% due 6/15/2009 (a) 2,080
-------------------------------------------------------------------------------------------------------------
AAA Aaa 6,795 San Francisco, California, Bay Area Rapid Transit District,
Sales Tax Revenue Bonds, 5.50% due 7/01/2026 (c) 7,033
10 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004
Schedule of Investments (continued) (in Thousands)
S&P Moody's Face
Ratings@ Ratings@ Amount Municipal Bonds Value
===================================================================================================================================
California (concluded)
- -----------------------------------------------------------------------------------------------------------------------------------
San Francisco, California, City and County Airport
Commission, International Airport Revenue Bonds, AMT,
Second Series:
AAA Aaa $ 5,830 Issue 10A, 5.50% due 5/01/2013 (b) $ 6,207
AAA Aaa 5,750 Issue 12-A, 5.80% due 5/01/2021 (c) 6,067
AAA Aaa 6,430 Issue 24-A, 5.50% due 5/01/2024 (f) 6,607
-------------------------------------------------------------------------------------------------------------
AAA Aaa 8,900 San Francisco, California, State Building Authority,
Lease Revenue Bonds (San Francisco Civic Center Complex),
Series A, 5.25% due 12/01/2021 (a) 9,230
-------------------------------------------------------------------------------------------------------------
AAA Aaa 18,100 San Jose, California, Redevelopment Agency, Tax Allocation
Refunding Bonds, DRIVERS, Series 158, 9.54%
due 8/01/2014 (b)(g) 18,939
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 San Jose-Santa Clara, California, Water Financing Authority,
Sewer Revenue Bonds, Series A, 5.375% due 11/15/2020 (c) 2,080
-------------------------------------------------------------------------------------------------------------
San Juan, California, Unified School District, GO:
AAA Aaa 3,955 5.625% due 8/01/2018 (c) 4,337
AAA Aaa 3,830 5.625% due 8/01/2019 (c) 4,184
AAA Aaa 4,250 (Election of 2002), 5% due 8/01/2028 (b) 4,220
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,300 San Mateo County, California, Community College District,
COP, 5% due 10/01/2029 (b) 2,258
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 San Mateo-Foster City, California, School District, GO,
5.30% due 8/01/2029 (c) 5,084
-------------------------------------------------------------------------------------------------------------
AAA Aaa 14,000 Santa Clara, California, Redevelopment Agency, Tax
Allocation Bonds (Bayshore North Project), Series A,
5.50% due 6/01/2023 (a) 14,726
-------------------------------------------------------------------------------------------------------------
AAA Aaa 6,050 Santa Clara, California, Subordinated Electric Revenue
Bonds, Series A, 5% due 7/01/2028 (b) 6,008
-------------------------------------------------------------------------------------------------------------
AAA Aaa 9,750 Santa Clara County, California, Financing Authority,
Lease Revenue Refunding Bonds, Series A, 5%
due 11/15/2022 (a) 9,845
-------------------------------------------------------------------------------------------------------------
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 (b) 9,077
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,110 Santa Monica, California, Redevelopment Agency, Tax
Allocation Bonds (Earthquake Recovery Redevelopment
Project), 6% due 7/01/2029 (a) 5,528
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,855 Santa Rosa, California, High School District, GO (Election
of 2002), 5% due 8/01/2028 (b) 2,835
-------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 4,600 Southern California Public Power Authority, Transmission
Project Revenue Refunding Bonds (Southern Transmission),
VRDN, Series A, 1.03% due 7/01/2021 (f)(h) 4,600
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,895 Stockton, California, Public Financing Authority, Lease
Revenue Bonds (Parking & Capital Projects), 5.25%
due 9/01/2034 (c) 1,914
-------------------------------------------------------------------------------------------------------------
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 (b) 14,411
-------------------------------------------------------------------------------------------------------------
AAA Aaa 6,655 Turlock, California, Public Finance Authority, Sewer
Revenue Bonds, Series A, 5% due 9/15/2033 (c) 6,554
-------------------------------------------------------------------------------------------------------------
AAA Aaa 7,475 University of California, COP, Series A, 5.25%
due 11/01/2024 (a) 7,579
-------------------------------------------------------------------------------------------------------------
AAA Aaa 9,875 University of California, Hospital Revenue Bonds
(University of California Medical Center), 5.75%
due 7/01/2006 (a)(i) 10,673
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,410 University of California Revenue Bonds, Series K, 5.25%
due 9/01/2024 (c) 1,435
-------------------------------------------------------------------------------------------------------------
AAA Aaa 16,000 University of California, Revenue Refunding Bonds
(Multiple Purpose Projects), Series E, 5.125%
due 9/01/2020 (b) 16,452
-------------------------------------------------------------------------------------------------------------
Vista, California, Unified School District, GO:
AAA Aaa 10,000 Series A, 5.25% due 8/01/2025 (f) 10,224
AAA Aaa 2,550 Series B, 5% due 8/01/2028 (c) 2,532
-------------------------------------------------------------------------------------------------------------
Walnut, California, Energy Center Authority Revenue Bonds,
Series A (a):
AAA Aaa 5,000 5% due 1/01/2029 4,931
AAA Aaa 10,000 5% due 1/01/2034 9,818
-------------------------------------------------------------------------------------------------------------
AAA Aaa 7,000 West Basin, California, Municipal Water District Revenue
Refunding Bonds, COP, Series A, 5% due 8/01/2030 (b) 6,860
-------------------------------------------------------------------------------------------------------------
AAA Aaa 6,690 West Contra Costa, California, Unified School District,
GO, Series B, 5% due 8/01/2032 (f) 6,594
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004 11
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded) (in Thousands)
S&P Moody's Face
Ratings@ Ratings@ Amount Municipal Bonds Value
===================================================================================================================================
Puerto Rico--4.3%
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $ 5,825 Puerto Rico Commonwealth, GO, Public Improvement, 5.75%
due 7/01/2026 (b) $ 6,549
-------------------------------------------------------------------------------------------------------------
A Baa1 7,670 Puerto Rico Commonwealth Highway and Transportation
Authority, Transportation Revenue Bonds, Series B, 6%
due 7/01/2005 (i) 8,081
-------------------------------------------------------------------------------------------------------------
AAA Aaa 11,015 Puerto Rico Electric Power Authority, Power Revenue Bonds,
Series HH, 5.30% due 7/01/2020 (f) 11,560
-------------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$952,753)--165.9% 993,697
=============================================================================================================
Shares
Held Short-Term Securities
===================================================================================================================================
36 CMA California Municipal Money Fund** 36
-------------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$36)--0.0% 36
===================================================================================================================================
Total Investments (Cost--$952,789)--165.9% 993,733
Liabilities in Excess of Other Assets--(0.8%) (4,793)
Preferred Stock, at Redemption Value--(65.1%) (390,032)
---------
Net Assets Applicable to Common Stock--100.0% $ 598,908
=========
(a) AMBAC Insured.
(b) MBIA Insured.
(c) FGIC Insured.
(d) FHA Insured.
(e) Connie Lee Insured.
(f) FSA Insured.
(g) 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, 2004.
(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,
2004.
(i) Prerefunded.
(j) Escrowed to maturity.
(k) Radian Insured.
(l) All or a portion of security held as collateral in connection with open
financial futures contracts.
+ Highest short-term rating by Moody's Investors Service, Inc.
@ Ratings of issues shown are unaudited.
* Not Rated.
** 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 $14
--------------------------------------------------------------------------
Financial futures contracts sold as of June 30, 2004 were as follows:
(in Thousands)
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
--------------------------------------------------------------------------
635 Ten-Year U.S. September
Treasury Note Futures 2004 $69,301 $(122)
--------------------------------------------------------------------------
See Notes to Financial Statements.
12 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004
Statement of Net Assets
As of June 30, 2004
======================================================================================================================
Assets
- ----------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$952,752,907) ........................... $ 993,696,539
Investments in affiliated securities, at value
(identified cost--$36,119) ................................ 36,119
Cash ....................................................... 3,535
Receivables:
Interest ................................................ $ 15,627,814
Securities sold ......................................... 3,935,783
Dividends from affiliates ............................... 1,377 19,564,974
-------------
Prepaid expenses ........................................... 20,679
-------------
Total assets ............................................... 1,013,321,846
-------------
======================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------
Payables:
Securities purchased .................................... 23,599,572
Variation margin ........................................ 348,125
Dividends to Common Stock shareholders .................. 305,561
Investment adviser ...................................... 41,113
Other affiliates ........................................ 5,222 24,299,593
-------------
Accrued expenses ........................................... 82,573
-------------
Total liabilities .......................................... 24,382,166
-------------
======================================================================================================================
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) ............................. 390,031,810
-------------
======================================================================================================================
Net Assets Applicable to Common Stock
- ----------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock ...................... $ 598,907,870
=============
======================================================================================================================
Analysis of Net Assets Applicable to Common Stock
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.10 per share (40,657,301 shares
issued and outstanding) ................................... $ 4,065,730
Paid-in capital in excess of par ........................... 599,718,612
Undistributed investment income--net ....................... $ 9,728,444
Accumulated realized capital losses on investments--net .... (55,426,204)
Unrealized appreciation on investments--net ................ 40,821,288
-------------
Total accumulated losses--net .............................. (4,876,472)
-------------
Total--Equivalent to $14.73 net asset value per share of
Common Stock (market price--$13.36) ....................... $ 598,907,870
=============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004 13
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
For the Year Ended June 30, 2004
======================================================================================================================
Investment Income
- ----------------------------------------------------------------------------------------------------------------------
Interest ................................................... $ 49,443,554
Dividends from affiliates .................................. 14,186
-------------
Total income ............................................... 49,457,740
-------------
======================================================================================================================
Expenses
- ----------------------------------------------------------------------------------------------------------------------
Investment advisory fees ................................... $ 5,548,529
Commission fees ............................................ 988,969
Accounting services ........................................ 279,417
Transfer agent fees ........................................ 99,571
Professional fees .......................................... 65,699
Custodian fees ............................................. 51,263
Printing and shareholder reports ........................... 47,724
Directors' fees and expenses ............................... 32,943
Listing fees ............................................... 31,456
Pricing fees ............................................... 27,492
Other ...................................................... 59,935
-------------
Total expenses before waiver and reimbursement ............. 7,232,998
Waiver and reimbursement of expenses ....................... (403,755)
-------------
Total expenses after waiver and reimbursement .............. 6,829,243
-------------
Investment income--net ..................................... 42,628,497
-------------
======================================================================================================================
Realized & Unrealized Loss on Investments--Net
- ----------------------------------------------------------------------------------------------------------------------
Realized loss on investments--net .......................... (811,121)
Change in unrealized appreciation/depreciation on
investments--net .......................................... (33,198,262)
-------------
Total realized and unrealized loss on investments--net ..... (34,009,383)
-------------
======================================================================================================================
Dividends to Preferred Stock Shareholders
- ----------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................... (3,307,999)
-------------
Net Increase in Net Assets Resulting from Operations ....... $ 5,311,115
=============
See Notes to Financial Statements.
14 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004
Statements of Changes in Net Assets
For the Year Ended
June 30,
-------------------------------
Increase (Decrease) in Net Assets: 2004 2003
======================================================================================================================
Operations
- ----------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................... $ 42,628,497 $ 44,115,056
Realized loss on investments--net .......................... (811,121) (4,042,549)
Change in unrealized appreciation/depreciation on
investments--net .......................................... (33,198,262) 29,954,952
Dividends to Preferred Stock shareholders .................. (3,307,999) (4,030,047)
-------------------------------
Net increase in net assets resulting from operations ....... 5,311,115 65,997,412
-------------------------------
======================================================================================================================
Dividends to Common Stock Shareholders
- ----------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................... (37,973,919) (36,998,144)
-------------------------------
Net decrease in net assets resulting from dividends to
Common Stock shareholders ................................. (37,973,919) (36,998,144)
-------------------------------
======================================================================================================================
Net Assets Applicable to Common Stock
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets applicable to
Common Stock .............................................. (32,662,804) 28,999,268
Beginning of year .......................................... 631,570,674 602,571,406
-------------------------------
End of year* ............................................... $ 598,907,870 $ 631,570,674
===============================
* Undistributed investment income--net .................. $ 9,728,444 $ 8,381,865
===============================
See Notes to Financial Statements.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004 15
[LOGO] Merrill Lynch Investment Managers
Financial Highlights
The following per share data and ratios have been derived For the Year Ended
from information provided in the financial statements. June 30,
------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001+ 2000+
================================================================================================================================
Per Share Operating Performance
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ....... $ 15.53 $ 14.82 $ 14.46 $ 13.31 $ 14.38
------------------------------------------------------------
Investment income--net ................... 1.05@ 1.09@ 1.10@ 1.10@ 1.11
Realized and unrealized gain (loss)
on investments--net ..................... (.84) .63 .30 1.17 (1.03)
Dividends and distributions to
Preferred Stock shareholders:
Investment income--net ................ (.08) (.10) (.15) (.33) (.34)
Realized gain on investments--net ..... -- -- --@@ -- --
------------------------------------------------------------
Total from investment operations ......... .13 1.62 1.25 1.94 (.26)
------------------------------------------------------------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net ................ (.93) (.91) (.89) (.79) (.81)
Realized gain on investments--net ..... -- -- --@@ -- --
------------------------------------------------------------
Total dividends and distributions to
Common Stock shareholders ............... (.93) (.91) (.89) (.79) (.81)
------------------------------------------------------------
Net asset value, end of year ............. $ 14.73 $ 15.53 $ 14.82 $ 14.46 $ 13.31
============================================================
Market price per share, end of year ...... $ 13.36 $ 14.85 $ 14.19 $ 13.18 $12.3125
============================================================
================================================================================================================================
Total Investment Return**
- --------------------------------------------------------------------------------------------------------------------------------
Based on market price per share .......... (3.93%) 11.45% 14.61% 13.67% 1.06%
============================================================
Based on net asset value per share ....... 1.28% 11.60% 9.10% 15.36% (1.23%)
============================================================
================================================================================================================================
Ratios Based on Average Net Assets of Common Stock
- --------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver and
reimbursement and excluding
reorganization expenses* ................ 1.10% 1.11% 1.14% 1.13% 1.20%
============================================================
Total expenses, excluding
reorganization expenses* ................ 1.17% 1.17% 1.20% 1.22% 1.31%
============================================================
Total expenses* .......................... 1.17% 1.17% 1.22% 1.29% 1.50%
============================================================
Total investment income--net* ............ 6.87% 7.09% 7.41% 7.71% 8.50%
============================================================
Amount of dividends to Preferred
Stock shareholders ...................... .53% .65% 1.02% 2.22% 2.66%
============================================================
Investment income--net, to Common
Stock shareholders ...................... 6.34% 6.44% 6.39% 5.49% 5.84%
============================================================
================================================================================================================================
Ratios Based on Average Net Assets of Common and Preferred Stock*
- --------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver and
reimbursement and excluding
reorganization expenses ................. .68% .68% .69% .67% .69%
============================================================
Total expenses, excluding
reorganization expenses ................. .72% .72% .73% .73% .75%
============================================================
Total expenses ........................... .72% .72% .74% .77% .86%
============================================================
Total investment income--net ............. 4.21% 4.36% 4.50% 4.60% 4.85%
============================================================
16 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004
Financial Highlights (concluded)
For the Year Ended June 30,
The following per share data and ratios have been derived --------------------------------------------------------
from information provided in the financial statements. 2004 2003 2002 2001+ 2000+
====================================================================================================================
Ratios Based on Average Net Assets of Preferred Stock
- --------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock
shareholders .................... .85% 1.03% 1.57% 3.28% 3.54%
========================================================
====================================================================================================================
Supplemental Data
- --------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common
Stock, end of year (in thousands) $598,908 $631,571 $602,571 $587,924 $468,360
========================================================
Preferred Stock outstanding, end
of year (in thousands) .......... $390,000 $390,000 $390,000 $390,000 $341,000
========================================================
Portfolio turnover ............... 35.59% 26.99% 41.35% 63.37% 105.22%
========================================================
====================================================================================================================
Leverage
- --------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 ........ $ 2,536 $ 2,619 $ 2,545 $ 2,507 $ 2,373
========================================================
====================================================================================================================
Dividends Per Share on Preferred Stock Outstanding++
- --------------------------------------------------------------------------------------------------------------------
Series A--Investment income--net . $ 195 $ 253 $ 362 $ 793 $ 915
========================================================
Series B--Investment income--net . $ 216 $ 269 $ 400 $ 533 $ 830
========================================================
Series C--Investment income--net . $ 218 $ 248 $ 375 $ 812 $ 284
========================================================
Series D--Investment income--net . $ 210 $ 255 $ 400 $ 853 $ 288
========================================================
Series E--Investment income--net . $ 213 $ 262 $ 408 $ 813 $ 314
========================================================
* Do not reflect the effect of dividends to Preferred Stock shareholders.
** 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 effect 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.
+ 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.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004 17
[LOGO] Merrill Lynch Investment Managers
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 U.S. generally accepted accounting principles, which may require
the use of management accruals and estimates. Actual results may differ from
these estimates. The Fund determines and makes available for publication the net
asset value of its Common Stock on a daily 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 last available bid price in the
over-the-counter market or on the basis of yield equivalents as obtained by the
Fund's pricing service from one or more dealers that make markets in the
securities. Financial futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of such exchanges.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. In the case of options traded in the over-the-counter
market, valuation is the last asked price (options written) or the last bid
price (options purchased). Swap agreements are valued by quoted fair values
received daily by the Fund from the counterparty. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general supervision of the
Board of Directors.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
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 may 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 may enter into forward interest
rate swaps. In a forward interest rate swap, the Fund and the counterparty
agree to make net periodic payments on a specified notional contract
amount, commencing on a specified future effective date, unless terminated
earlier. When the agreement is closed, the Fund records a realized gain or
loss in an amount equal to the value of the agreement.
18 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004
Notes to Financial Statements (continued)
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(e) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of .55% of the Fund's average daily net assets, including
proceeds from the issuance of Preferred Stock. For the year ended June 30, 2004,
FAM earned fees of $5,548,529, of which $391,269 was waived. For the year ended
June 30, 2004, FAM reimbursed the Fund in the amount of $12,486.
In addition, Merrill Lynch, Pierce, Fenner, & Smith Incorporated ("MLPF&S")
received $1,515 in commissions on the execution of portfolio security
transactions for the Fund for the year ended June 30, 2004.
For the year ended June 30, 2004, the Fund reimbursed FAM $20,387 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, 2004 were $366,548,563 and $343,560,302, respectively.
Net realized gains/losses for the year ended June 30, 2004 and net unrealized
appreciation/depreciation as of June 30, 2004 were as follows:
- --------------------------------------------------------------------------------
Unrealized
Realized Appreciation/
Gains/Losses Depreciation
- --------------------------------------------------------------------------------
Long-term investments ................ $ (1,828,989) $ 40,943,632
Financial futures contracts .......... 573,488 (122,344)
Forward interest rate swaps .......... 444,380 --
---------------------------------
Total ................................ $ (811,121) $ 40,821,288
=================================
For the year ended June 30, 2004, net unrealized appreciation for federal income
tax purposes aggregated $41,337,048, of which $42,834,864 related to appreciated
securities and $1,497,816 related to depreciated securities. The aggregate cost
of investments at June 30, 2004 for federal income tax purposes was
$952,395,610.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of stock, including Preferred
Stock, par value $.10 per share, all of which were initially classified as
Common Stock. The Board of Directors is authorized, however, to reclassify any
unissued shares of stock without approval of holders of Common Stock.
Preferred Stock
Auction Market Preferred Stock are 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, 2004
were: Series A, .70%; Series B, 1%; Series C, 1.15%; Series D, 1%; and Series E,
1.10%.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004 19
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded)
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of each
auction. For the year ended June 30, 2004, MLPF&S earned $385,405 as
commissions.
5. Distributions to Shareholders:
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of $.079000 per share on July 29, 2004 to shareholders of record on July
15, 2004.
The tax character of distributions paid during the years ended June 30, 2004 and
June 30, 2003 was as follows:
- --------------------------------------------------------------------------------
6/30/2004 6/30/2003
- --------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income ..................... $41,281,918 $41,028,191
------------------------------
Total taxable distributions .............. $41,281,918 $41,028,191
==============================
As of June 30, 2004, the components of accumulated losses on a tax basis were as
follows:
- -----------------------------------------------------------------------------
Undistributed tax-exempt income--net .................... $ 9,325,968
Undistributed ordinary income--net ...................... --
Undistributed long-term capital gains--net .............. --
------------
Total undistributed earnings--net ....................... 9,325,968
Capital loss carryforward ............................... (46,148,915)*
Unrealized gains--net ................................... 31,946,475**
------------
Total accumulated losses--net ........................... $ (4,876,472)
============
* On June 30, 2004, the Fund had a net capital loss carryforward of
$46,148,915, of which $10,359,976 expires in 2007, $7,894,678 expires in
2008, $24,786,894 expires in 2009 and $3,107,367 expires in 2012. 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, the realization for tax purposes of
unrealized gains on certain futures contracts, the difference between book
and tax amortization methods for premiums and discounts on fixed income
securities and the deferral of post-October capital losses for tax
purposes.
20 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004
Report of Independent Registered Public Accounting Firm
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,
2004, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended and 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2004 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, 2004, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and its financial highlights for each
of the five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 11, 2004
Important Tax Information (unaudited)
All of the net investment income distributions paid by MuniHoldings California
Insured Fund, Inc. during its taxable year ended June 30, 2004 qualify as
tax-exempt interest dividends for federal income tax purposes.
Please retain this information for your records.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004 21
[LOGO] Merrill Lynch Investment Managers
Automatic Dividend Reinvestment Plan (unaudited)
The following description of the Fund's Automatic Dividend Reinvestment Plan
(the "Plan") is sent to you annually as required by federal securities laws.
Pursuant to the Fund's Plan, unless a holder of Common Stock otherwise elects,
all dividend and capital gains distributions will be automatically reinvested by
The Bank of New York (the "Plan Agent"), as agent for shareholders in
administering the Plan, in additional shares of Common Stock of the Fund.
Holders of Common Stock who elect not to participate in the Plan will receive
all distributions in cash paid by check mailed directly to the shareholder of
record (or, if the shares are held in street or other nominee name then to such
nominee) by The Bank of New York, as dividend paying agent. Such participants
may elect not to participate in the Plan and to receive all distributions of
dividends and capital gains in cash by sending written instructions to The Bank
of New York, as dividend paying agent, at the address set forth below.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date; otherwise such
termination will be effective with respect to any subsequently declared dividend
or distribution.
Whenever the Fund declares an income dividend or capital gains distribution
(collectively referred to as "dividends") payable either in shares or in cash,
non-participants in the Plan will receive cash and participants in the Plan will
receive the equivalent in shares of Common Stock. The shares will be acquired by
the Plan Agent for the participant's account, depending upon the circumstances
described below, either (i) through receipt of additional unissued but
authorized shares of Common Stock from the Fund ("newly issued shares") or (ii)
by purchase of outstanding shares of Common Stock on the open market
("open-market purchases") on the New York Stock Exchange or elsewhere. If on the
payment date for the dividend, the net asset value per share of the Common Stock
is equal to or less than the market price per share of the Common Stock plus
estimated brokerage commissions (such conditions being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
Common Stock to be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued, provided that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on an "ex-dividend" basis or in no event more than 30 days after the
dividend payment date (the "last purchase date") to invest the dividend amount
in shares acquired in open-market purchases. It is contemplated that the Fund
will pay monthly income dividends. Therefore, the period during which
open-market purchases can be made will exist only from the payment date on the
dividend through the date before the next "ex-dividend" date, which typically
will be approximately ten days. If, before the Plan Agent has completed its
open-market purchases, the market price of a share of Common Stock exceeds the
net asset value per share, the average per share purchase price paid by the Plan
Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisitions of fewer shares than if the dividend had been paid in newly issued
shares on the dividend payment date. Because of the foregoing difficulty with
respect to open-market purchases, the Plan provides that if the Plan Agent is
unable to invest the full dividend amount in open-market purchases during the
purchase period or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market purchases and will
invest the uninvested portion of the dividend amount in newly issued shares at
the close of business on the last purchase date determined by dividing the
uninvested portion of the dividend by the net asset value per share.
22 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent in non-certificated form in the name
of the participant, and each shareholder's proxy will include those shares
purchased or received pursuant to the Plan. The Plan Agent will forward all
proxy solicitation materials to participants and vote proxies for shares held
pursuant to the Plan in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which hold shares
of others who are the beneficial owners, the Plan Agent will administer the Plan
on the basis of the number of shares certified from time to time by the record
shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of dividends or capital gains distributions payable either in
shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not relieve
participants of any federal, state or local income tax that may be payable (or
required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus commissions
of the Fund's shares is above the net asset value, participants in the Plan will
receive shares of the Fund at less than they could otherwise purchase them and
will have shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market price plus
commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Fund does not redeem
shares, the price on resale may be more or less than the net asset value.
The value of shares acquired pursuant to the Plan will generally be excluded
from gross income to the extent that the cash amount reinvested would be
excluded from gross income. If, when the Fund's shares are trading at a premium
over net asset value, the Fund issues shares pursuant to the Plan that have a
greater fair market value than the amount of cash reinvested, it is possible
that all or a portion of such discount (which may not exceed 5% of the fair
market value of the Fund's shares) could be viewed as a taxable distribution. If
the discount is viewed as a taxable distribution, it is also possible that the
taxable character of this discount would be allocable to all the shareholders,
including shareholders who do not participate in the Plan. Thus, shareholders
who do not participate in the Plan might be required to report as ordinary
income a portion of their distributions equal to their allocable share of the
discount.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
All correspondence concerning the Plan should be directed to the Plan Agent at
The Bank of New York, Church Street Station, P.O. Box 11258, New York, NY
10286-1258, Telephone: 800-432-8224.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004 23
[LOGO] Merrill Lynch Investment Managers
Proxy Results
During the six-month period ended June 30, 2004, MuniHoldings California Insured
Fund, Inc.'s Common Stock shareholders voted on the following proposal. The
proposal was approved at a shareholders' meeting on April 27, 2004. 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: James H. Bodurtha 39,397,119 765,133
Joe Grills 39,395,555 766,697
Roberta Cooper Ramo 39,401,596 760,656
Robert S. Salomon, Jr. 39,387,149 775,103
Stephen B. Swensrud 39,322,210 840,042
- ------------------------------------------------------------------------------------------------------------------
During the six-month period ended June 30, 2004, MuniHoldings California Insured
Fund, Inc.'s Preferred Stock shareholders (Series A-E) voted on the following
proposal. The proposal was approved at a shareholders' meeting on April 27,
2004. The 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:
James H. Bodurtha, Joe Grills, Herbert I. London, Andre F. Perold,
Roberta Cooper Ramo, Robert S. Salomon, Jr. and Stephen B. Swensrud 9,440 25
- ------------------------------------------------------------------------------------------------------------------
Quality Profile (unaudited)
The quality ratings of securities in the Fund as of June 30, 2004 were as
follows:
- --------------------------------------------------------------------------------
Percent of
Total
S&P Rating/Moody's Rating Investments
- --------------------------------------------------------------------------------
AAA/Aaa ............................................... 89.1%
AA/Aa ................................................. 2.3
A/A ................................................... 3.1
BBB/Baa ............................................... 2.8
Other* ................................................ 2.7
- --------------------------------------------------------------------------------
* Temporary investments in short-term variable rate municipal securities.
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 stable level of dividend distributions, the
Fund may at times pay out less than the entire amount of net investment income
earned in any particular month and may at times in any particular month pay out
such accumulated but undistributed income in addition to net investment income
earned in that month. As a result, the dividends paid by the Fund for any
particular month may be more or less than the amount of net investment income
earned by the Fund during such month. The Fund's current accumulated but
undistributed net investment income, if any, is disclosed in the Statement of
Net Assets, which comprises part of the financial information included in this
report.
24 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004
Officers and Directors (unaudited)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 1999 to President of the Merrill Lynch Investment Managers, 125 Funds None
Glenn* Princeton, NJ and present L.P. ("MLIM")/Fund Asset Management, L.P. 160 Portfolios
08543-9011 Director and ("FAM")--Advised Funds since 1999; Chairman
Age: 63 1997 to (Americas Region) of MLIM from 2000 to 2002;
present Executive Vice President of MLIM and FAM (which
terms as used herein include their corporate
predecessors) from 1983 to 2002; President of
FAM Distributors, Inc. ("FAMD") from 1986 to 2002
and Director thereof from 1991 to 2002; Executive
Vice President and Director of Princeton Services,
Inc. ("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P. from
1989 to 2002; Director of Financial Data Services,
Inc. since 1985.
------------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which MLIM
or FAM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of
the Fund based on his present and former positions with MLIM, FAM, FAMD, Princeton Services and Princeton
Administrators, L.P. The Director's term is unlimited. Directors serve until their resignation, removal or death, or
until December 31 of the year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board
of Directors.
====================================================================================================================================
Independent Directors*
- ------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Director 1997 to Director, The China Business Group, Inc. since 38 Funds None
Bodurtha Princeton, NJ present 1996 and Executive Vice President thereof from 55 Portfolios
08543-9095 1996 to 2003; Chairman of the Board, Berkshire
Age: 60 Holding Corporation since 1980; Partner, Squire,
Sanders & Dempsey from 1980 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Joe Grills P.O. Box 9095 Director 2002 to Member of the Committee of Investment of 38 Funds Kimco
Princeton, NJ present Employee Benefit Assets of the Association of 55 Portfolios Realty
08543-9095 Financial Professionals ("CIEBA") since 1986; Corporation
Member of CIEBA's Executive Committee since
1988 and its Chairman from 1991 to 1992;
Assistant Treasurer of International Business
Machines Corporation ("IBM") and Chief
Investment Officer of IBM Retirement Funds
from 1986 to 1993; Member of the Investment
Advisory Committee 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 its Vice Chairman 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.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004 25
[LOGO] Merrill Lynch Investment Managers
Officers and Directors (unaudited) (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Director 1997 to John M. Olin Professor of Humanities, New York 38 Funds None
London Princeton, NJ present University since 1993 and Professor thereof since 55 Portfolios
08543-9095 1980; President, Hudson Institute since 1997
Age: 65 and Trustee thereof since 1980; Dean, Gallatin
Division of New York University from 1976 to 1993;
Distinguished Fellow, Herman Kahn Chair, Hudson
Institute from 1984 to 1985; Director, Damon Corp.
from 1991 to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993; Limited Partner,
Hypertech LP since 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
Andre F. P.O. Box 9095 Director 1997 to Harvard Business School: George Gund Professor 38 Funds None
Perold Princeton, NJ present of Finance and Banking since 2000; Senior 55 Portfolios
08543-9095 Associate Dean, Director of Faculty Recruiting
Age: 52 since 2001; Finance Area Chair from 1996 to
2001; Sylvan C. Coleman Professor of Financial
Management from 1993 to 2000; Director,
Genbel Securities Limited and Gensee Bank from
1999 to 2003; Director, Stockback, Inc. from 2000
to 2002; Director, Sanlam Limited from 2001 to
2003; Trustee, Commonfund from 1989 to 2001;
Director, Sanlam Investment Management from
1999 to 2001; Director, Bulldogresearch.com from
2000 to 2001; Director, Quantec Limited from 1991
to 1999; Director and Chairman of the Board of
UNX Inc. since 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Director 1999 to Shareholder, Modrall, Sperling, Roehl, Harris & 38 Funds None
Cooper Princeton, NJ present Sisk, P.A. since 1993; President, American Bar 55 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of
Age: 61 the Board of Governors thereof from 1994 to 1997;
Shareholder, Poole, Kelly & Ramo, Attorneys at Law,
P.C. from 1977 to 1993; Director, Coopers, Inc.
since 1999; Director of ECMC Group (service
provider to students, schools and lenders) since
2001; Director, United New Mexico Bank (now
Wells Fargo) from 1983 to 1988; Director, First
National Bank of New Mexico (now Wells Fargo)
from 1975 to 1976.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Director 2002 to Principal of STI Management (investment adviser) 38 Funds None
Salomon, Princeton, NJ present since 1994; Chairman and CEO of Salomon 55 Portfolios
Jr. 08543-9095 Brothers Asset Management from 1992 until 1995;
Age: 67 Chairman of Salomon Brothers equity mutual funds
from 1992 until 1995; regular columnist with Forbes
magazine from 1992 to 2002; Director of Stock
Research and U.S. Equity Strategist at Salomon
Brothers from 1975 until 1991; Trustee, Commonfund
from 1980 to 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen B. P.O. Box 9095 Director 2002 to Chairman of Fernwood Associates (investment 39 Funds None
Swensrud Princeton, NJ present adviser) since 1996; Principal, Fernwood Associates 56 Portfolios
08543-9095 (financial consultants) since 1975; Chairman of
Age: 71 R.P.P. Corporation (manufacturing company) since
1978; Director of International Mobile
Communications, Incorporated (telecommunications
company) 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.
26 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004
Officers and Directors (unaudited) (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1997 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof
Burke Princeton, NJ President present since 1999; Senior Vice President and Treasurer of Princeton Services since
08543-9011 and and 1999; Vice President of FAMD since 1999; Director of MLIM Taxation
Age: 44 Treasurer 1999 to since 1990.
present
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9011 Senior 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
Jacob Princeton, NJ Vice present Management) of MLIM from 1997 to 2000.
08543-9011 President
Age: 53
- ------------------------------------------------------------------------------------------------------------------------------------
John M. P.O. Box 9011 Senior 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
Loffredo Princeton, NJ Vice present Management) of MLIM from 1998 to 2000.
08543-9011 President
Age: 40
- ------------------------------------------------------------------------------------------------------------------------------------
Walter C. P.O. Box 9011 Vice 1997 to Managing Director of MLIM since 2003; Director (Municipal Tax-Exempt Fund
O'Connor Princeton, NJ President present Management) of MLIM from 2000 to 2003; Vice President of MLIM from 1994 to 2000.
08543-9011
Age: 42
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip S. P.O. Box 9011 Secretary 2004 to First Vice President of MLIM since 2001; Director (Legal Advisory) of MLIM from
Gillespie Princeton, NJ present 2000 to 2001; Vice President of MLIM from 1999 to 2000 and Attorney associated with
08543-9011 MLIM since 1998.
Age: 40
------------------------------------------------------------------------------------------------------------------------
* 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 Agent
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
The Bank of New York
101 Barclay Street -- 7 West
New York, NY 10286
NYSE Symbol
MUC
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site http://www.icsdelivery.com/live and follow the instructions. When you visit
this site, you will obtain a personal identification number (PIN). You will need
this PIN should you wish to update your e-mail address, choose to discontinue
this service and/or make any other changes to the service. This service is not
available for certain retirement accounts at this time.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2004 27
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
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)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
MuniHoldings California Insured Fund, Inc.
Box 9011
Princeton, NJ 08543-9011
#HOLDCA -- 6/04
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Joe Grills,
(2) Andre F. Perold, (3) Robert S. Salomon, Jr., and (4) Stephen B.
Swensrud.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending June 30, 2004 - $38,200
Fiscal Year Ending June 30, 2003 - $26,000
(b) Audit-Related Fees - Fiscal Year Ending June 30, 2004 - $3,000
Fiscal Year Ending June 30, 2003 - $10,800
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
(c) Tax Fees - Fiscal Year Ending June 30, 2004 - $5,610
Fiscal Year Ending June 30, 2003 - $4,800
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending June 30, 2004 - $0
Fiscal Year Ending June 30, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending June 30, 2004 - $16,114,216
Fiscal Year Ending June 30, 2003 - $17,689,695
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $541,640, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals are
members of the registrant's separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act (15 U.S.C. 78c(a)(58)(A)):
James H. Bodurtha
Joe Grills
Herbert I. London
Andre F. Perold
Roberta Cooper Ramo
Robert S. Solomon, Jr.
Stephen B. Swensrud
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill Lynch
Investment Managers, L.P. and/or Fund Asset Management, L.P. (the
"Investment Adviser") authority to vote all proxies relating to the
Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("Proxy Voting Procedures") with respect to the
voting of proxies related to the portfolio securities held in the
account of one or more of its clients, including a Fund. Pursuant to
these Proxy Voting Procedures, the Investment Adviser's primary
objective when voting proxies is to make proxy voting decisions solely
in the best interests of each Fund and its shareholders, and to act in
a manner that the Investment Adviser believes is most likely to enhance
the economic value of the securities held by the Fund. The Proxy Voting
Procedures are designed to ensure that that the Investment Adviser
considers the interests of its clients, including the Funds, and not
the interests of the Investment Adviser, when voting proxies and that
real (or perceived) material conflicts that may arise between the
Investment Adviser's interest and those of the Investment Adviser's
clients are properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment professionals
appointed by the CIO, portfolio managers and investment analysts
appointed by the CIO and any other personnel the CIO deems appropriate.
The Committee will also include two non-voting representatives from the
Investment Adviser's Legal department appointed by the Investment
Adviser's General Counsel. The Committee's membership shall be limited
to full-time employees of the Investment Adviser. No person with any
investment banking, trading, retail brokerage or research
responsibilities for the Investment Adviser's affiliates may serve as a
member of the Committee or participate in its decision making (except
to the extent such person is asked by the Committee to present
information to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser might
be asked to do so). The Committee determines how to vote the proxies of
all clients, including a Fund, that have delegated proxy voting
authority to the Investment Adviser and seeks to ensure that all votes
are consistent with the best interests of those clients and are free
from unwarranted and inappropriate influences. The Committee
establishes general proxy voting policies for the Investment Adviser
and is responsible for determining how those policies are applied to
specific proxy votes, in light of each issuer's unique structure,
management, strategic options and, in certain circumstances, probable
economic and other anticipated consequences of alternate actions. In so
doing, the Committee may determine to vote a particular proxy in a
manner contrary to its generally stated policies. In addition, the
Committee will be responsible for ensuring that all reporting and
recordkeeping requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires a
case-by-case determination. In such cases, the Committee may elect not
to adopt a specific voting policy applicable to that issue. The
Investment Adviser believes that certain proxy voting issues require
investment analysis - such as approval of mergers and other significant
corporate transactions - akin to investment decisions, and are,
therefore, not suitable for general guidelines. The Committee may elect
to adopt a common position for the Investment Adviser on certain proxy
votes that are akin to investment decisions, or determine to permit the
portfolio manager to make individual decisions on how best to maximize
economic value for a Fund (similar to normal buy/sell investment
decisions made by such portfolio managers). While it is expected that
the Investment Adviser will generally seek to vote proxies over which
the Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in conjunction
with a Fund's portfolio manager, may determine that the Fund's specific
circumstances require that its proxies be voted differently.
To assist the Investment Adviser in voting proxies, the Committee has
retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For
instance, under the Proxy Voting Procedures, the Investment Adviser
generally will not seek to vote proxies related to portfolio securities
that are on loan, although it may do so under certain circumstances. In
addition, the Investment Adviser will vote proxies related to
securities of foreign issuers only on a best efforts basis and may
elect not to vote at all in certain countries where the Committee
determines that the costs associated with voting generally outweigh the
benefits. The Committee may at any time override these general policies
if it determines that such action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote proxies in
respect of an issuer where an affiliate of the Investment Adviser (each, an
"Affiliate"), or a money management or other client of the Investment Adviser
(each, a "Client") is involved. The Proxy Voting Procedures and the Investment
Adviser's adherence to those procedures are designed to address such conflicts
of interest. The Committee intends to strictly adhere to the Proxy Voting
Procedures in all proxy matters, including matters involving Affiliates and
Clients. If, however, an issue representing a non-routine matter that is
material to an Affiliate or a widely known Client is involved such that the
Committee does not reasonably believe it is able to follow its guidelines (or if
the particular proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes of ensuring
that an independent determination is reached, retain an independent fiduciary to
advise the Committee on how to vote or to cast votes on behalf of the Investment
Adviser's clients.
In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent
fiduciary, the powers of the Committee shall pass to a subcommittee,
appointed by the CIO (with advice from the Secretary of the Committee),
consisting solely of Committee members selected by the CIO. The CIO
shall appoint to the subcommittee, where appropriate, only persons
whose job responsibilities do not include contact with the Client and
whose job evaluations would not be affected by the Investment Adviser's
relationship with the Client (or failure to retain such relationship).
The subcommittee shall determine whether and how to vote all proxies on
behalf of the Investment Adviser's clients or, if the proxy matter is,
in their judgment, akin to an investment decision, to defer to the
applicable portfolio managers, provided that, if the subcommittee
determines to alter the Investment Adviser's normal voting guidelines
or, on matters where the Investment Adviser's policy is case-by-case,
does not follow the voting recommendation of any proxy voting service
or other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies relating
to the Client may be voted unless the Secretary, or in the Secretary's
absence, the Assistant Secretary of the Committee concurs that the
subcommittee's determination is consistent with the Investment
Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain recurring
proxy issues that are not expected to involve unusual circumstances.
These policies are guidelines only, and the Investment Adviser may
elect to vote differently from the recommendation set forth in a voting
guideline if the Committee determines that it is in a Fund's best
interest to do so. In addition, the guidelines may be reviewed at any
time upon the request of a Committee member and may be amended or
deleted upon the vote of a majority of Committee members present at a
Committee meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
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 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
10(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MuniHoldings California Insured Fund, Inc.
By: /s/ Terry K. Glenn
------------------------------
Terry K. Glenn,
President of
MuniHoldings California Insured Fund, Inc.
Date: August 13, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Terry K. Glenn
------------------------------
Terry K. Glenn,
President of
MuniHoldings California Insured Fund, Inc.
Date: August 13, 2004
By: /s/ Donald C. Burke
------------------------------
Donald C. Burke,
Chief Financial Officer of
MuniHoldings California Insured Fund, Inc.
Date: August 13, 2004