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 811-08707
Name of Fund: MuniHoldings Insured Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief
Executive Officer, MuniHoldings Insured Fund, Inc., 800 Scudders
Mill Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011,
Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 04/30/05
Date of reporting period: 05/01/04 - 04/30/05
Item 1 - Report to Stockholders
MuniHoldings Fund, Inc.
MuniHoldings Insured Fund, Inc.
Annual Reports
April 30, 2005
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
MuniHoldings Fund, Inc. and MuniHoldings Insured Fund, Inc. seek to provide
shareholders with current income exempt from federal income taxes by
investing primarily in portfolios of long-term, investment grade municipal
obligations the interest on which, in the opinion of bond counsel to the
issuer, is exempt from federal income taxes. Under normal circumstances,
MuniHoldings Insured Fund, Inc. invests at least 80% of its total assets in
municipal bonds that are covered by insurance.
These reports, including the financial information herein, are transmitted
to shareholders of MuniHoldings Fund, Inc. and MuniHoldings Insured Fund,
Inc. for their information. This is not a prospectus. Past performance
results shown in these reports should not be considered a representation of
future performance. The Funds have leveraged their Common Stock and intend
to remain leveraged by issuing Preferred Stock to provide the Common Stock
shareholders with potentially higher rates 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 Funds use to determine
how to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863);
(2) on www.mutualfunds.ml.com; and (3) on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
MuniHoldings Fund, Inc.
MuniHoldings Insured Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
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MuniHoldings Fund, Inc.
MuniHoldings Insured Fund, Inc.
The Benefits and Risks of Leveraging
The Funds utilize leveraging to seek to enhance the yield and net asset
value of their Common Stock. However, these objectives cannot be achieved
in all interest rate environments. To leverage, each Fund issues Preferred
Stock, which pays dividends at prevailing short-term interest rates, and
invests the proceeds in long-term municipal bonds. The interest earned on
these investments is paid to Common Stock shareholders in the form of
dividends, and the value of these portfolio holdings is reflected in the
per share net asset value of each Fund's Common Stock. However, in order to
benefit Common Stock shareholders, the yield curve must be positively
sloped; that is, short-term interest rates must be lower than long-term
interest rates. At the same time, a period of generally declining interest
rates will benefit Common Stock shareholders. If either of these conditions
change, then the risks of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock capitalization of
$100 million and the issue of Preferred Stock for an additional $50 million,
creating a total value of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are approximately 3%
and long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million of
Preferred Stock based on the lower short-term interest rates. At the same
time, the fund's total portfolio of $150 million earns the income based on
long-term interest rates.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term interest
rates rise, narrowing the differential between short-term and long-term
interest rates, the incremental yield pickup on the Common Stock will be
reduced or eliminated completely. At the same time, the market value on the
fund's Common Stock (that is, its price as listed on the New York Stock
Exchange), may, as a result, decline. Furthermore, if long-term interest
rates rise, the Common Stock's net asset value will reflect the full decline
in the price of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in net asset
value, the market value of the fund's Common Stock may also decline.
As a part of their investment strategy, the Funds 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
Funds 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 Funds invest in inverse floaters, the
market value of each Fund's portfolio and the net asset value of each
Fund's shares may also be more volatile than if the Funds did not invest in
these securities. As of April 30, 2005, the percentages of MuniHoldings
Fund, Inc.'s and MuniHoldings Insured Fund, Inc.'s total net assets
invested in inverse floaters were 2.43% and 5.01%, respectively, before the
deduction of Preferred Stock.
ANNUAL REPORTS, APRIL 30, 2005
A Letter From the President
Dear Shareholder
Financial markets faced a number of crosscurrents over the past several
months, but most major benchmarks managed to post positive returns for the
annual and semi-annual reporting periods ended April 30, 2005:
Total Returns as of April 30, 2005 6-month 12-month
U.S. equities (Standard & Poor's 500 Index) +3.28% + 6.34%
Small-cap U.S. equities (Russell 2000 Index) -0.15% + 4.71%
International equities (MSCI Europe Australasia Far East Index) +8.71% +14.95%
Fixed income (Lehman Brothers Aggregate Bond Index) +0.98% + 5.26%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +1.93% + 6.81%
High yield bonds (Credit Suisse First Boston High Yield Index) +0.65% + 6.92%
After expanding at an annualized rate of 4.4% in 2004, U.S. gross domestic
product growth for the first quarter of 2005 came in at an estimated 3.1%
(although that figure was later revised upward to 3.5%). Nevertheless, the
Federal Reserve Board continued increasing interest rates at a measured
pace to combat emergent inflation. The most recent hike came on May 3, and
brought the federal funds rate to 3%. Recently, signs of inflation have
taken the form of rising business costs and increasing consumer prices,
particularly in the areas of gasoline, healthcare, housing and education.
U.S. equities ended 2004 in a strong rally, but stumbled into negative
territory in 2005. The market weakness was largely fueled by the potential
for slowing economic and corporate earnings growth, renewed energy price
concerns and a lack of investor conviction. On the positive side, certain
sectors of the market have been performing well (particularly energy) and
corporate transactions, such as mergers and acquisitions, stock buy-backs
and dividend payouts, have all increased. International equities, especially
in Asia, have benefited from higher economic growth rates.
In the bond market, we witnessed a yield curve flattening trend over the
past several months as short-term yields increased and longer-term interest
rates remained more stable or fell. At the end of April 2005, the two-year
Treasury note yielded 3.66% and the 10-year Treasury note yielded 4.21%, a
difference of 55 basis points (.55%). This compared to a spread of 149 basis
points six months earlier and 222 basis points 12 months ago.
Looking ahead, the environment is likely to be a challenging one for
investors. With this in mind, we encourage you to meet with your financial
advisor to review your goals and asset allocation and to rebalance your
portfolio, as necessary, to ensure it remains aligned with your objectives
and risk tolerance. As always, 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,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Director
ANNUAL REPORTS, APRIL 30, 2005
A Discussion With Your Funds' Portfolio Manager
The Funds outperformed their respective Lipper category averages for the
fiscal year, as we remained focused on generating yield and preserving the
portfolios' underlying value in a volatile interest rate environment.
Describe the recent market environment relative to municipal bonds.
Amid significant volatility, long-term bond yields moved sharply lower over
the past 12 months as short-term interest rates increased. For all of 2004,
real gross domestic product (GDP) grew at an annualized rate of 4.4%, well
ahead of 2003's annual rate of 3%. An advanced estimate of first quarter
2005 GDP growth came in at an unexpectedly low 3.1%, although that figure
was later revised upward to 3.5%.
It appeared that continued economic improvements were generally disregarded
as investors focused on inflationary trends, currency-related demand for
long-term U.S. securities, and interest rate action on the part of the
Federal Reserve Board (the Fed). Over the past 12 months, 30-year Treasury
bond yields declined 78 basis points (.78%) to 4.51%, while 10-year Treasury
note yields fell 32 basis points to 4.21%. The Fed, in the meantime,
continued to raise short-term interest rates at each of its meetings during
the period, and most recently increased the federal funds rate from 2.75%
to 3% on May 3. As short-term interest rates increased while longer-term
interest rates fell, the yield curve continued to flatten.
Tax-exempt bond yields exhibited a similar pattern during the period.
Yields on 30-year revenue bonds, as measured by the Bond Buyer Revenue Bond
Index, fell 45 basis points to 4.83%. According to Municipal Market Data,
yields on AAA-rated issues maturing in 30 years declined 56 basis points to
4.37%, while AAA-rated bonds maturing in 10 years saw their yields decline
39 basis points to 3.57% during the 12-month period.
Over the past year, approximately $376 billion in long-term municipal
securities was underwritten, roughly in line with last year's issuance. More
recently, the pace of issuance has quickened. During the last six months,
more than $186 billion in tax-exempt bonds was underwritten, an increase of
7.5% versus the same period a year earlier. More than $105 billion in new
long-term municipal securities was issued over the last three months, an
increase of 13% compared to the same period a year ago. Issuance so far in
2005 has been boosted by a 32% increase in refunding issues as municipalities
have sought to refinance existing higher-coupon debt. These refunding issues
have been heavily weighted in the 10-year - 20-year maturity range to lower
the overall interest cost of the refunding issue. This concentration has put
pressure on intermediate tax-exempt bond yields while supporting longer-term
bond prices.
Investor demand for municipal product remained generally positive during
the period. Investment Company Institute statistics indicate that, year-to-
date through March 31, 2005, net new cash flows into long-term municipal bond
funds exceeded $1.3 billion. This represented a significant improvement from
the $516 million seen during the same period in 2004. However, AMG Data
Services reports that recent weekly figures for the month of April have shown
a modest reversal in the positive flows seen in the first three months of the
year. Still, throughout much of the past 12 months, high yield tax-exempt
bond funds experienced positive net cash flows. During the last week of
April, these lower-rated/non-rated bond funds received more than $110 million
in inflows. The need to invest these ongoing cash flows has led to strong
demand for lower-rated issues and a resultant narrowing of credit spreads.
Looking ahead, we would expect the long-term municipal market to perform at
least as well as the U.S. Treasury market. The tax-exempt market's technical
position remains favorable. The 30-day visible supply of new underwritings
at the end of April stood at approximately $6.3 billion, slightly below its
current 30-day moving average. In addition, it is likely that the increase
in issuance seen in recent months has borrowed from supply expected to be
issued later in the year. The refunding transactions that inflated this
six-month period's supply are unlikely to be repeated later in the year.
Tax-exempt bonds' attractive yield ratios versus taxable securities should
continue to attract both traditional and nontraditional investors, especially
if new municipal bond issuance remains modest.
MuniHoldings Fund, Inc.
How did the Fund perform during the fiscal year?
For the 12-month period ended April 30, 2005, the Common Stock of
MuniHoldings Fund, Inc. had net annualized yields of 7.06% and 7.15%, based
on a year-end per share net asset value of $16.31 and a per share market
price of $16.12, respectively, and $1.152 per share income dividends. Over
the same period, the total investment return on the Fund's Common Stock was
+12.95%, based on a change in per share net asset value from $15.54 to
$16.31, and assuming reinvestment of all distributions.
ANNUAL REPORTS, APRIL 30, 2005
The Fund's total return, based on net asset value, exceeded the +10.67%
average return of the Lipper General Municipal Debt Funds (Leveraged)
category for the 12-month period. (Funds in this Lipper category invest
primarily in municipal debt issues rated in the top four credit-rating
categories. These funds can be leveraged via use of debt, preferred equity
and/or reverse repurchase agreements.) The Fund's outperformance is
attributed to its overweight exposure to spread product - that is, the
lower-quality, higher-yielding portion of the municipal bond market. As
mentioned earlier, these securities enjoyed strong performance as investors
continued to accept risk in their portfolios and the spreads on these
credits (versus higher-quality issues of comparable maturity) continued to
narrow. Several of the same credits that contributed to the Fund's
outperformance in previous periods continued to experience above-average
price appreciation during the past 12 months. Among them were the bonds of
Pocahontas Parkway, a toll-road in Virginia, which improved following
increases in both toll rates and traffic flow. Spreads on the bonds of
National Gypsum Company, a producer of wallboard for the building industry,
continued to contract on positive earnings releases derived from the strong
housing market. Credit spreads on another corporate-backed credit, the
chemical company Hoechst Celanese Corp., also narrowed during the year on
news of an equity IPO (initial public offering) coming to market to help
reduce debt on the company's balance sheet.
For the six-month period ended April 30, 2005, the total investment return
on the Fund's Common Stock was +5.19%, based on a change in per share net
asset value from $16.07 to $16.31, and assuming reinvestment of all
distributions.
For a description of the Fund's total investment return based on a change
in the per share market value of the Fund's Common Stock (as measured by
the trading price of the Fund's shares on the New York Stock Exchange), and
assuming reinvestment of dividends, please refer to the Financial Highlights
section of 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 year?
Over the past 12 months, we concentrated on reducing the Fund's exposure to
spread product and reinvesting the proceeds in the high-grade market, where
we believe a better balance of risk and reward exists. In particular, we
reduced exposure to credits rated BBB and lower, as these securities
significantly outperformed the broader market over the past 20 months.
Purchases during the past 12 months have been aimed at capitalizing on the
relative cheapness of New York and New Jersey tax-exempt bonds. A dramatic
increase in new-issue supply during the period caused a temporarily weak
technical market for municipal bonds in both states, presenting an attractive
buying opportunity. We believe the Fund will benefit as spreads on New York
and New Jersey issues return to more normal levels.
For the six-month period ended April 30, 2005, the Fund's Auction Market
Preferred Stock (AMPS) had an average yield of 1.81% for Series A and 1.79%
for Series B. At this point in the Fed's monetary tightening cycle, interest
rate increases are having a material impact on the Fund's borrowing costs.
The Fed raised the short-term interest rate target 175 basis points during
the 12-month period. Still, the tax-exempt yield curve remained relatively
steep and continued to generate an income benefit to the holders of Common
Stock from the leveraging of Preferred Stock. 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 32.81% 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?
Our primary focus is on maintaining the portfolio's current yield and
protecting the Fund's net asset value in case of a future rise in long-term
interest rates. Despite slower GDP growth in the first quarter of 2005, we
expect the economy to continue to gain strength over the next several
quarters, pushing interest rates slightly higher. We will continue to
reduce our exposure to spread product with the expectation of reaching a
market-neutral exposure within the next three months.
ANNUAL REPORTS, APRIL 30, 2005
A Discussion With Your Funds' Portfolio Manager (concluded)
MuniHoldings Insured Fund, Inc.
How did the Fund perform during the fiscal year?
For the 12-month period ended April 30, 2005, the Common Stock of
MuniHoldings Insured Fund, Inc. had net annualized yields of 6.32% and
6.66%, based on a year-end per share net asset value of $14.44 and a per
share market price of $13.70, respectively, and $.912 per share income
dividends. Over the same period, the total investment return on the Fund's
Common Stock was +9.35%, based on a change in per share net asset value
from $14.12 to $14.44, and assuming reinvestment of all distributions.
The Fund's total return, based on net asset value, outpaced the +9.18%
average return of the Lipper Insured Municipal Debt Funds (Leveraged)
category for the 12-month period. (Funds in this Lipper category invest
primarily in municipal debt issues insured as to timely payment. These
funds can be leveraged via use of debt, preferred equity and/or reverse
repurchase agreements.) The portfolio's slightly defensive positioning in a
very volatile interest rate environment enabled the Fund to provide a
competitive return with lower volatility in net asset value than many of
its Lipper peers. Our strategy was to avoid those areas of the yield curve
that were demonstrating the most volatility, particularly the 10-year and
shorter areas of the curve, and to move out on the curve to the 20-year
range and longer. This not only shielded the Fund from much of the
volatility, but also helped to augment yield.
For the six-month period ended April 30, 2005, the total investment return
on the Fund's Common Stock was +2.53%, based on a change in per share net
asset value from $14.55 to $14.44, and assuming reinvestment of all
distributions.
For a description of the Fund's total investment return based on a change
in the per share market value of the Fund's Common Stock (as measured by
the trading price of the Fund's shares on the New York Stock Exchange), and
assuming reinvestment of dividends, please refer to the Financial Highlights
section of 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 year?
Throughout the period, we continued to focus on securities that we felt
represented the best relative value in the insured municipal marketplace.
We continued shifting the portfolio's focus further out the yield curve by
reducing exposure to securities with 15-year - 20-year maturities and
increasing exposure further out on the curve.
The Fund purchased bonds recently issued by Puerto Rico Electric Power.
These bonds were insured by XL Capital Assurance (XLCA) and CIFG,
relatively new AAA-rated insurers in the municipal marketplace. In
anticipation that they would outperform over time, these bonds came with
yields at a generous spread above those offered by bonds backed by
traditional insurers, such as Financial Guaranty Insurance Company (FGIC),
Financial Security Assurance (FSA) and AMBAC. In fact, with recent negative
news regarding potential accounting irregularities at MBIA Insurance Corp.,
the spread for bonds insured by XLCA and CIFG narrowed by five basis points
as market participants sought more insurance company diversification.
For the six-month period ended April 30, 2005, the Fund's Auction Market
Preferred Stock (AMPS) had an average yield of 1.82% for Series A and 1.85%
for Series B. At this point in the Fed's monetary tightening cycle,
interest rate increases are having a material impact on the Fund's
borrowing costs. The Fed raised the short-term interest rate target 175
basis points during the 12-month period. Still, the tax-exempt yield curve
remained relatively steep and continued to generate an income benefit to
the holders of Common Stock from the leveraging of Preferred Stock.
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 41.90% of total net assets. (For a more
complete explanation of the benefits and risks of leveraging, see page 2 of
this report to shareholders.)
ANNUAL REPORTS, APRIL 30, 2005
How would you characterize the Fund's position at the close of the period?
At period-end, the portfolio was fully invested and, in anticipation of
higher long-term interest rates, defensively positioned. We continue to
emphasize competitive yield and preservation of the Fund's net asset value.
While we have begun to restructure the portfolio with bonds offering
slightly longer maturity dates, those securities added in recent months
have tended to be premium-coupon bonds with defensive characteristics. Such
a defensive posture has enabled the Fund to increase its yield generation
potential while helping to insulate it from the volatility expected to
accompany a rising interest rate environment.
Robert A. DiMella, CFA
Vice President and Portfolio Manager
May 26, 2005
Portfolio Information
Quality Profiles as of April 30, 2005
Percent of
MuniHoldings Fund, Inc. by Total
S&P/Moody's Rating Investments
AAA/Aaa 25.1%
AA/Aa 7.4
A/A 20.8
BBB/Baa 20.8
BB/Ba 4.4
B/B 2.7
CCC/Caa 1.4
NR 17.4
Other* --**
* Includes portfolio holdings in short-term investments and
variable interest rate demand notes.
** Amount is less than .01%.
Percent of
MuniHoldings Insured Fund, Inc. by Total
S&P/Moody's Rating Investments
AAA/Aaa 87.8%
AA/Aa 3.5
A/A 6.3
BBB/Baa 2.4
Other* --**
* Includes portfolio holdings in short-term investments.
** Amount is less than .01%.
Swap Agreements
The Funds may 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 each Fund has entered into a 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.
Dividend Policy
The Funds' dividend policy is to distribute all or a portion of their net
investment income to their shareholders on a monthly basis. In order to
provide shareholders with a more stable level of dividend distributions,
the Funds 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 Funds for any particular month may be more or less than the amount of
net investment income earned by the Funds during such month. The Funds'
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 these reports.
ANNUAL REPORTS, APRIL 30, 2005
Schedule of Investments MuniHoldings Fund, Inc. (In Thousands)
Face
State Amount Municipal Bonds Value
Alabama--3.0% $ 1,750 Camden, Alabama, IDB, Exempt Facilities Revenue Bonds (Weyerhaeuser Company),
Series A, 6.125% due 12/01/2024 $ 1,935
4,550 Jefferson County, Alabama, Limited Obligation School Warrants, Series A, 5% due
1/01/2024 4,742
Alaska--0.3% 700 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (BP Pipelines Inc. Project),
VRDN, Series B, 3.03% due 7/01/2037 (f) 700
Arizona--3.3% Maricopa County, Arizona, IDA, Education Revenue Bonds (Arizona Charter Schools
Project 1), Series A:
935 6.50% due 7/01/2012 947
2,300 6.75% due 7/01/2029 2,294
1,200 Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding (El Paso
Electric Company Project), Series A, 6.25% due 5/01/2037 1,210
3,000 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds (America West
Airlines Inc. Project), AMT, 6.30% due 4/01/2023 2,250
675 Show Low, Arizona, Improvement District No. 5, Special Assessment Bonds, 6.375%
due 1/01/2015 706
Arkansas--3.6% University of Arkansas, University Construction Revenue Bonds (UAMS Campus),
Series B (h):
2,000 5% due 11/01/2023 2,139
5,675 5% due 11/01/2034 5,960
California--25.1% 875 Agua Caliente Band of Cahuilla Indians, California, Casino Revenue Bonds, 5.60%
due 7/01/2013 891
2,965 California Infrastructure and Economic Development Bank, Insured Revenue Bonds
(Rand Corporation), Series A, 5.50% due 4/01/2032 (a) 3,250
3,405 California Pollution Control Financing Authority, PCR, Refunding, DRIVERS, AMT,
Series 878Z, 7.113% due 12/01/2009 (g)(h) 3,979
7,000 California State Department of Water Resources, Power Supply Revenue Bonds, Series A,
5.25% due 5/01/2020 7,565
3,000 California State, GO, Refunding, 5.375% due 10/01/2027 3,248
6,800 California State Public Works Board, Lease Revenue Bonds (Department of Corrections),
Series C, 5.25% due 6/01/2028 7,205
2,500 California State, Various Purpose, GO, 5.50% due 4/01/2028 2,734
3,870 California Statewide Communities Development Authority, Health Facility Revenue Bonds
(Memorial Health Services), Series A, 6% due 10/01/2023 4,394
Golden State Tobacco Securitization Corporation of California, Tobacco Settlement
Revenue Bonds:
1,165 Series A-3, 7.875% due 6/01/2042 1,350
3,000 Series B, 5.75% due 6/01/2021 3,208
1,670 Series B, 5.625% due 6/01/2033 1,813
7,955 Los Angeles, California, Unified School District, GO, Series A, 5% due 1/01/2028 (h) 8,357
Montebello, California, Unified School District, GO (b):
2,405 5.61%** due 8/01/2022 1,063
2,455 5.61%** due 8/01/2023 1,025
2,095 Oceanside, California, Unified School District, GO (Election of 2000), Series C,
5.25% due 8/01/2032 (h) 2,244
3,950 Sacramento County, California, Sanitation District Financing Authority, Revenue
Refunding Bonds, RIB, Series 366, 8.462% due 12/01/2027 (g) 4,170
Colorado--2.7% 2,645 Elk Valley, Colorado, Public Improvement Revenue Bonds (Public Improvement Fee),
Series A, 7.35% due 9/01/2031 2,829
3,000 Interlocken, Colorado, GO, Refunding (Metropolitan District), Series A, 5.75% due
12/15/2019 (c) 3,265
Portfolio Abbreviations
To simplify the listings of portfolio holdings in the Schedules 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
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
ANNUAL REPORTS, APRIL 30, 2005
Schedule of Investments (continued) MuniHoldings Fund, Inc. (In Thousands)
Face
State Amount Municipal Bonds Value
Connecticut--3.5% $ 2,285 Bridgeport, Connecticut, Senior Living Facilities Revenue Bonds (3030 Park Retirement
Community Project), 7.25% due 4/01/2035 $ 2,360
2,165 Connecticut State Development Authority, Airport Facility Revenue Bonds
(LearJet Inc. Project), AMT, 7.95% due 4/01/2026 2,569
2,735 Connecticut State Development Authority, IDR (AFCO Cargo BDL--LLC Project), AMT, 8%
due 4/01/2030 2,902
Florida--5.7% 1,430 Broward County, Florida, Airport Exempt Facility Revenue Bonds (Learjet Inc. Project),
AMT, 7.50% due 11/01/2020 1,621
Midtown Miami, Florida, Community Development District, Special Assessment Revenue
Bonds:
2,250 Series A, 6.25% due 5/01/2037 2,340
2,550 Series B, 6.50% due 5/01/2037 2,668
3,225 Orange County, Florida, Health Facilities Authority, Hospital Revenue Bonds (Orlando
Regional Healthcare), 6% due 12/01/2028 3,511
900 Orlando, Florida, Urban Community Development District, Capital Improvement Special
Assessment Bonds, Series A, 6.95% due 5/01/2033 962
1,685 Preserve at Wilderness Lake, Florida, Community Development District, Capital
Improvement Bonds, Series A, 5.90% due 5/01/2034 1,704
Georgia--0.9% 1,750 Atlanta, Georgia, Tax Allocation Bonds (Atlantic Station Project), 7.90% due 12/01/2024 1,908
Illinois--3.4% 790 Beardstown, Illinois, IDR (Jefferson Smurfit Corp. Project), 8% due 10/01/2016 832
1,000 Chicago, Illinois, O'Hare International Airport, Special Facility Revenue Refunding
Bonds (American Airlines Inc. Project), 8.20% due 12/01/2024 905
1,200 Chicago, Illinois, Special Assessment Bonds (Lake Shore East), 6.75% due 12/01/2032 1,246
4,000 Illinois HDA, Homeowner Mortgage Revenue Bonds, AMT, Sub-Series C-2, 5.35% due 2/01/2027 4,120
600 Illinois State Finance Authority Revenue Bonds (Northwestern University), VRDN,
Sub-Series A, 2.97% due 12/01/2034 (f) 600
Indiana--2.4% 8,985 Allen County, Indiana, Redevelopment District Tax Increment Revenue Bonds (General
Motors Development Area), 7%** due 11/15/2013 5,379
Kentucky--1.0% 2,000 Louisville and Jefferson Counties, Kentucky, Metropolitan Sewer District, Sewer and
Drain System Revenue Bonds, Series A, 5.50% due 5/15/2034 (h) 2,208
Louisiana--1.5% 3,145 Louisiana Public Facilities Authority, Mortgage Revenue Refunding Bonds (Baton Rouge
General Medical Center Project), 5.25% due 7/01/2033 (h)(l) 3,342
Maryland--4.8% 1,875 Anne Arundel County, Maryland, Special Obligation Revenue Bonds (Arundel Mills
Project), 7.10% due 7/01/2009 (i) 2,198
Maryland State Economic Development Corporation, Student Housing Revenue Bonds
(University of Maryland College Park Project):
1,760 6% due 6/01/2021 1,904
1,700 6.50% due 6/01/2027 1,869
2,750 Maryland State Energy Financing Administration, Limited Obligation Revenue Bonds
(Cogeneration--AES Warrior Run), AMT, 7.40% due 9/01/2019 2,809
2,000 Maryland State Health and Higher Educational Facilities Authority Revenue Bonds
(Calvert Health System), 5.50% due 7/01/2036 2,096
Massachusetts--1.1% 1,000 Massachusetts State Development Finance Agency, Revenue Refunding Bonds (Eastern
Nazarene College), 5.625% due 4/01/2029 967
1,440 Massachusetts State, GO (Consolidated Loan of 2005), Series A, 5% due 3/01/2023 (e) 1,539
Michigan--2.9% 1,400 Flint, Michigan, Hospital Building Authority, Revenue Refunding Bonds (Hurley Medical
Center), Series A, 6% due 7/01/2020 (k) 1,528
4,805 Michigan State Strategic Fund, Limited Obligation Revenue Refunding Bonds (Detroit
Edison Pollution Control), AMT, Series B, 5.65% due 9/01/2029 5,056
Minnesota--1.7% 3,500 Minneapolis, Minnesota, Community Development Agency, Supported Development Revenue
Refunding Bonds, Series G-3, 5.45% due 12/01/2031 3,705
Mississippi--4.5% 7,675 Claiborne County, Mississippi, PCR, Refunding (System Energy Resources Inc. Project),
6.20% due 2/01/2026 7,677
2,500 Mississippi Business Finance Corporation, Mississippi, PCR, Refunding (System Energy
Resources Inc. Project), 5.90% due 5/01/2022 2,535
ANNUAL REPORTS, APRIL 30, 2005
Schedule of Investments (continued) MuniHoldings Fund, Inc. (In Thousands)
Face
State Amount Municipal Bonds Value
Missouri--1.4% $ 2,000 Fenton, Missouri, Tax Increment Revenue Refunding and Improvement Bonds
(Gravois Bluffs), 7% due 10/01/2021 $ 2,161
1,000 Missouri State Development Finance Board, Infrastructure Facilities Revenue
Refunding Bonds (Branson), Series A, 5.50% due 12/01/2032 1,049
Nevada--1.3% 3,000 Clark County, Nevada, IDR (Power Company Project), AMT, Series A, 6.70% due
6/01/2022 (b) 3,030
New Jersey--9.8% New Jersey EDA, Cigarette Tax Revenue Bonds:
5,385 5.75% due 6/15/2029 5,772
2,280 5.75% due 6/15/2034 2,435
New Jersey EDA, Retirement Community Revenue Bonds, Series A:
1,475 (Cedar Crest Village Inc. Facility), 7.25% due 11/15/2031 1,567
2,600 (Seabrook Village Inc.), 8.25% due 11/15/2030 2,887
New Jersey EDA, Special Facility Revenue Bonds (Continental Airlines Inc. Project), AMT:
1,000 6.625% due 9/15/2012 922
2,950 6.25% due 9/15/2029 2,386
3,325 New Jersey Health Care Facilities Financing Authority Revenue Bonds (South Jersey
Hospital), 6% due 7/01/2026 3,558
2,315 Tobacco Settlement Financing Corporation of New Jersey Revenue Bonds, 7% due 6/01/2041 2,501
New Mexico--0.9% 2,000 Farmington, New Mexico, PCR, Refunding (Public Service Company--San Juan Project),
Series A, 6.30% due 12/01/2016 2,139
New York--14.2% 1,190 Dutchess County, New York, IDA, Civic Facility Revenue Refunding Bonds (Saint Francis
Hospital), Series A, 7.50% due 3/01/2029 1,232
535 New York City, New York, City IDA, Civic Facility Revenue Bonds, Series C, 6.80% due
6/01/2028 554
1,110 New York City, New York, City IDA, Special Facility Revenue Bonds (British Airways
PLC Project), AMT, 7.625% due 12/01/2032 1,164
6,000 New York City, New York, GO, Refunding, Series G, 5.75% due 2/01/2006 (b)(i) 6,228
2,210 New York City, New York, GO, Series F, 6% due 8/01/2016 (h) 2,329
New York City, New York, Sales Tax Asset Receivable Corporation Revenue Bonds,
Series A (a):
3,485 5.25% due 10/15/2027 3,811
2,500 5% due 10/15/2029 2,651
2,715 New York State Dormitory Authority Revenue Bonds (School Districts Financing Program),
Series D, 5.25% due 10/01/2023 (h) 2,955
Tobacco Settlement Financing Corporation of New York Revenue Bonds:
3,150 Series A-1, 5.50% due 6/01/2018 3,501
3,500 Series C-1, 5.50% due 6/01/2017 3,845
1,400 Series C-1, 5.50% due 6/01/2022 1,528
2,080 Westchester County, New York, IDA, Continuing Care Retirement, Mortgage Revenue Bonds
(Kendal on Hudson Project), Series A, 6.50% due 1/01/2034 2,112
North Carolina--0.5% 1,000 North Carolina Medical Care Commission, Health Care Housing Revenue Bonds (The ARC of
North Carolina Projects), Series A, 5.80% due 10/01/2034 1,012
Oklahoma--0.6% 1,425 Tulsa, Oklahoma, Municipal Airport Trust Revenue Refunding Bonds (AMR Corporation),
AMT, Series A, 5.375% due 12/01/2035 1,384
Oregon--0.9% 2,050 Western Generation Agency, Oregon, Cogeneration Project Revenue Bonds (Wauna
Cogeneration Project), AMT, Series B, 7.40% due 1/01/2016 2,101
Pennsylvania--6.0% 3,500 Pennsylvania Economic Development Financing Authority, Exempt Facilities Revenue Bonds
(National Gypsum Company), AMT, Series B, 6.125% due 11/01/2027 3,734
725 Philadelphia, Pennsylvania, Authority for IDR, Commercial Development, 7.75% due
12/01/2017 741
2,500 Philadelphia, Pennsylvania, Authority for IDR, Commercial Development (Days Inn),
Refunding, Series B, 6.50% due 10/01/2027 2,578
Philadelphia, Pennsylvania, Authority for Industrial Development, Senior Living
Revenue Bonds:
1,105 (Arbor House Inc. Project), Series E, 6.10% due 7/01/2033 1,073
1,245 (Saligman House Project), Series C, 6.10% due 7/01/2033 1,209
3,500 Sayre, Pennsylvania, Health Care Facilities Authority, Revenue Bonds (Guthrie
Healthcare System), Series B, 7.125% due 12/01/2031 4,135
Rhode Island--1.4% 2,820 Rhode Island State Health and Educational Building Corporation, Hospital Financing
Revenue Bonds (Lifespan Obligation Group), 6.50% due 8/15/2032 3,119
ANNUAL REPORTS, APRIL 30, 2005
Schedule of Investments (continued) MuniHoldings Fund, Inc. (In Thousands)
Face
State Amount Municipal Bonds Value
South $ 3,020 Medical University Hospital Authority, South Carolina, Hospital Facilities
Carolina--1.6% Revenue Refunding Bonds, Series A, 6.375% due 8/15/2012 (i) $ 3,599
Tennessee--6.1% 4,500 Hardeman County, Tennessee, Correctional Facilities Corporation Revenue Bonds,
7.75% due 8/01/2017 4,695
Shelby County, Tennessee, Health, Educational and Housing Facility Board, Hospital
Revenue Refunding Bonds (Methodist Healthcare):
2,730 6.50% due 9/01/2012 (i) 3,268
1,845 6.50% due 9/01/2026 (j) 2,194
3,400 Tennessee Educational Loan Revenue Bonds (Educational Funding South Inc.), AMT,
Senior Series B, 6.20% due 12/01/2021 3,500
Texas--15.0% 4,000 Austin, Texas, Convention Center Revenue Bonds (Convention Enterprises Inc.), First
Tier, Series A, 6.70% due 1/01/2028 4,281
Brazos River Authority, Texas, PCR, Refunding (TXU Energy Company LLC Project):
900 AMT, Series C, 6.75% due 10/01/2038 987
1,000 Series B, 4.75% due 5/01/2029 1,026
2,340 Brazos River Authority, Texas, Revenue Refunding Bonds (Reliant Energy Inc. Project),
Series B, 7.75% due 12/01/2018 2,602
3,875 Brazos River, Texas, Harbor Navigation District, Brazoria County Environmental
Revenue Refunding Bonds (Dow Chemical Company Project), AMT, Series A-7, 6.625%
due 5/15/2033 4,314
1,800 Houston, Texas, Health Facilities Development Corporation, Retirement Facility
Revenue Bonds (Buckingham Senior Living Community), Series A, 7.125% due 2/15/2034 1,933
3,000 Lower Colorado River Authority, Texas, PCR (Samsung Austin Semiconductor), AMT,
6.375% due 4/01/2027 3,217
1,485 Matagorda County, Texas, Navigation District Number 1, Revenue Refunding Bonds
(Reliant Energy Inc.), Series C, 8% due 5/01/2029 1,639
1,425 Port Corpus Christi, Texas, Individual Development Corporation, Environmental
Facilities Revenue Bonds (Citgo Petroleum Corporation Project), AMT, 8.25% due
11/01/2031 1,530
2,500 Port Corpus Christi, Texas, Revenue Refunding Bonds (Celanese Project), Series A,
6.45% due 11/01/2030 2,637
6,465 Texas State Department of Housing and Community Affairs, Residential Mortgage Revenue
Bonds, AMT, Series A, 5.70% due 1/01/2033 (d) 6,633
2,970 Texas State Department of Housing and Community Affairs, Residential Mortgage Revenue
Refunding Bonds, AMT, Series B, 5.25% due 7/01/2022 (d) 3,069
Vermont--1.1% 2,370 Vermont Educational and Health Buildings, Financing Agency Revenue Bonds (Developmental
and Mental Health), Series A, 6% due 6/15/2017 2,474
Virginia--7.4% 1,150 Chesterfield County, Virginia, IDA, PCR (Virginia Electric and Power Company),
Series A, 5.875% due 6/01/2017 1,255
7,000 Fairfax County, Virginia, EDA, Resource Recovery Revenue Refunding Bonds, AMT,
Series A, 6.10% due 2/01/2011 (a) 7,887
Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds:
4,250 Senior-Series A, 5.50% due 8/15/2028 4,157
1,500 Senior-Series B, 8.40%** due 08/15/2029 352
300 Senior-Series B, 8.80%** due 08/15/2030 66
2,950 Virginia State, HDA, Commonwealth Mortgage Revenue Bonds, Series J, Sub-Series J-1,
5.20% due 7/01/2019 (h) 2,981
Washington--0.6% 1,380 Seattle, Washington, Housing Authority Revenue Bonds (Replacement Housing Project),
6.125% due 12/01/2032 1,365
West Virginia--0.4% 1,000 Princeton, West Virginia, Hospital Revenue Refunding Bonds (Community Hospital
Association Inc. Project), 6% due 5/01/2019 829
Wisconsin--1.2% Wisconsin State Health and Educational Facilities Authority Revenue Bonds:
825 (New Castle Place Project), Series A, 7% due 12/01/2031 836
1,755 (Synergyhealth Inc.), 6% due 11/15/2032 1,865
Wyoming--1.3% 3,000 Sweetwater County, Wyoming, Solid Waste Disposal Revenue Bonds (FMC Corporation
Project), AMT, Series B, 6.90% due 9/01/2024 3,039
ANNUAL REPORTS, APRIL 30, 2005
Schedule of Investments (concluded) MuniHoldings Fund, Inc. (In Thousands)
Face
Amount Municipal Bonds Value
Puerto Rico--2.6% $ 4,005 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series RR, 5%
due 7/01/2027 (m) $ 4,264
2,060 Puerto Rico Industrial Medical and Environmental Pollution Control Facilities
Financing Authority, Special Facilities Revenue Bonds (American Airlines Inc.),
Series A, 6.45% due 12/01/2025 1,545
U.S. Virgin Islands-- 3,460 Virgin Islands Government Refinery Facilities, Revenue Refunding Bonds (Hovensa
1.7% Coker Project), AMT, 6.50% due 7/01/2021 3,924
Total Municipal Bonds (Cost--$313,385)--147.4% 331,899
Shares
Held Short-Term Securities
9 Merrill Lynch Institutional Tax-Exempt Fund (n) 9
Total Short-Term Securities (Cost--$9)--0.0% 9
Total Investments (Cost--$313,394*)--147.4% 331,908
Other Assets Less Liabilities--1.4% 3,310
Preferred Stock, at Redemption Value--(48.8%) (110,000)
---------
Net Assets Applicable to Common Stock--100.0% $ 225,218
=========
* The cost and unrealized appreciation (depreciation) of investments as
of April 30, 2005, as computed for federal income tax purposes, were as
follows:
(in Thousands)
Aggregate cost $ 313,142
=============
Gross unrealized appreciation $ 19,948
Gross unrealized depreciation (1,182)
-------------
Net unrealized appreciation $ 18,766
=============
** Represents a zero coupon bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
(a) AMBAC Insured.
(b) FGIC Insured.
(c) Radian Insured.
(d) FNMA/GNMA Collateralized.
(e) FSA Insured.
(f) Security may have a maturity of more than one year at time of
issuance, but has variable rate and demand features which qualify
it as a short-term security. The rate disclosed is that currently in
effect. This rate changes based upon prevailing market rates.
(g) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(h) MBIA Insured.
(i) Prerefunded.
(j) Escrowed to maturity.
(k) ACA Insured.
(l) FHA Insured.
(m) XLCA.
(n) 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) were as follows:
(in Thousands)
Net Dividend
Affiliate Activity Income
Merrill Lynch Institutional
Tax-Exempt Fund -- $10
See Notes to Financial Statements.
ANNUAL REPORTS, APRIL 30, 2005
Schedule of Investments MuniHoldings Insured Fund, Inc. (In Thousands)
Face
State Amount Municipal Bonds Value
Arizona--2.0% $ 3,590 Pinal County, Arizona, COP, 5.25% due 12/01/2023 $ 3,801
California--31.8% 3,250 California Pollution Control Financing Authority, PCR, Refunding, DRIVERS, AMT,
Series 878Z, 7.113% due 12/01/2009 (b)(h) 3,798
California State Department of Water Resources, Power Supply Revenue Bonds, Series A:
4,000 5.375% due 5/01/2017 (d) 4,433
3,400 5.25% due 5/01/2020 3,675
3,325 5.375% due 5/01/2022 3,616
2,000 California State Public Works Board, Lease Revenue Bonds (Department of General
Services--Capital East End Complex), Series A, 5% due 12/01/2027 (a) 2,085
1,300 California State, Various Purpose, GO, 5.50% due 4/01/2028 1,422
1,800 East Side Union High School District, California, Santa Clara County, GO (Election
of 2002), Series B, 5% due 8/01/2027 (c) 1,892
Golden State Tobacco Securitization Corporation of California, Tobacco Settlement
Revenue Bonds, Series B:
5,000 5.75% due 6/01/2022 5,331
1,600 5.375% due 6/01/2028 (c) 1,691
5,305 Industry, California, Urban Development Agency, Tax Allocation Bonds (Civic-
Recreational--Industrial Redevelopment Project No. 1), Series B, 5% due 5/01/2019 (b) 5,641
Los Angeles, California, Unified School District, GO:
2,000 (Election of 1997), Series F, 5% due 1/01/2028 (c) 2,101
5,780 Series A, 5% due 1/01/2028 (b) 6,072
2,565 Modesto, California, Schools Infrastructure Financing Agency, Special Tax Bonds,
5.50% due 9/01/2036 (a) 2,826
1,750 Sacramento County, California, Sanitation District Financing Authority, Revenue
Refunding Bonds, RIB, Series 366, 8.462% due 12/01/2027 (h) 1,847
1,265 San Jose, California, GO (Libraries, Parks and Public Safety Projects), 5% due
9/01/2030 (b) 1,326
San Pablo, California, Joint Powers Financing Authority, Tax Allocation Revenue
Refunding Bonds (b):
2,635 5.66%* due 12/01/2024 966
2,355 5.66%* due 12/01/2025 811
2,355 5.66%* due 12/01/2026 766
2,800 Tustin, California, Unified School District, Senior Lien Special Tax Bonds
(Community Facilities District No. 97-1), Series A, 5% due 9/01/2038 (f) 2,897
2,000 University of California Revenue Bonds (Multiple Purpose Projects), Series Q, 5%
due 9/01/2022 (f) 2,120
3,480 West Contra Costa, California, Unified School District, GO, Series C, 5% due
8/01/2021 (c) 3,699
Colorado--6.4% Aurora, Colorado, COP (a):
2,440 5.75% due 12/01/2015 2,726
2,560 5.75% due 12/01/2016 2,860
2,730 5.75% due 12/01/2017 3,047
2,890 5.75% due 12/01/2018 3,223
Connecticut--7.2% 8,000 Connecticut State, HFA Revenue Bonds (Housing Mortgage Finance Program), AMT,
Series D-2, 5.15% due 11/15/2022 (b) 8,234
5,000 Connecticut State Health and Educational Facilities Authority Revenue Bonds
(Connecticut State University System), Series E, 5% due 11/01/2033 (c) 5,229
Florida--3.3% 3,500 Dade County, Florida, Water and Sewer System Revenue Bonds, 5.25% due 10/01/2021 (c) 3,685
2,500 Escambia County, Florida, Health Facilities Authority, Health Facility Revenue Bonds
(Florida Health Care Facility Loan), 5.95% due 7/01/2020 (a) 2,533
Georgia--2.2% 2,000 Augusta, Georgia, Water and Sewer Revenue Bonds, 5.25% due 10/01/2034 (f) 2,160
1,700 Georgia State, GO, Series B, 5.25% due 7/01/2013 1,880
Illinois--14.1% Chicago, Illinois, GO (c):
5,000 5.50% due 1/01/2021 5,360
7,965 Series A, 6% due 7/01/2010 (g) 9,112
2,150 Chicago, Illinois, O'Hare International Airport Revenue Bonds, DRIVERS, AMT,
Series 845-Z, 8.654% due 1/01/2012 (b)(d)(h) 2,694
Chicago, Illinois, Park District, Limited Tax, GO, Series A (c):
2,965 5.75% due 1/01/2011 (g) 3,351
535 5.75% due 1/01/2017 594
4,500 Illinois State, GO, First Series, 6% due 1/01/2018 (c) 4,997
45 Lake, Cook, Kane and McHenry Counties, Illinois, Community Unit School District
No. 220, GO, 5.75% due 12/01/2019 (c) 50
Louisiana--1.2% 2,080 Louisiana Public Facilities Authority, Mortgage Revenue Refunding Bonds (Baton Rouge
General Medical Center Project), 5.25% due 7/01/2033 (b)(e) 2,210
Massachusetts--7.9% 3,565 Massachusetts Bay Transportation Authority, Sales Tax Revenue Refunding Bonds, Senior
Series A, 5% due 7/01/2035 3,673
1,375 Massachusetts State, GO (Consolidated Loan of 2005), Series A, 5% due 3/01/2023 (f) 1,470
65 Massachusetts State, GO, Refunding, Series D, 5.375% due 8/01/2012 (b)(g) 73
ANNUAL REPORTS, APRIL 30, 2005
Schedule of Investments (continued) MuniHoldings Insured Fund, Inc. (In Thousands)
Face
State Amount Municipal Bonds Value
Massachusetts $ 1,415 Massachusetts State, HFA, Housing Development Revenue Refunding Bonds, AMT,
(concluded) Series A, 5.15% due 6/01/2011 (b) $ 1,438
2,440 Massachusetts State, HFA, Rental Housing Mortgage Revenue Bonds, AMT, Series C,
5.50% due 7/01/2032 (f) 2,532
5,000 Massachusetts State Special Obligation Dedicated Tax Revenue Bonds, 5.25% due
1/01/2025 (c) 5,408
Michigan--3.8% 2,035 Boyne City, Michigan, Public School District, GO, 5.75% due 5/01/2009 (c)(g) 2,240
Michigan State Strategic Fund, Limited Obligation Revenue Refunding Bonds, AMT (d):
1,750 DRIVERS, Series 857Z, 7.712% due 3/01/2010 (h) 1,989
1,000 DRIVERS, Series 858Z, 7.413% due 12/01/2011 (h) 1,143
1,500 (Detroit Edison Pollution), Series B, 5.65% due 9/01/2029 1,603
Minnesota--2.4% 4,015 Sauk Rapids, Minnesota, Independent School District Number 47, GO, Series A, 5.65%
due 2/01/2019 (b) 4,454
Mississippi--0.7% 1,250 Mississippi Business Finance Corporation, Mississippi, PCR, Refunding (System Energy
Resources Inc. Project), 5.875% due 4/01/2022 1,266
Missouri--7.7% 2,000 Cape Girardeau, Missouri, School District Number 063, GO (Missouri Direct Deposit
Program), 5.50% due 3/01/2018 (c) 2,182
Mehlville, Missouri, School District Number R-9, COP (f):
1,570 (Missouri Capital Improvement Projects), 5.50% due 9/01/2015 1,750
2,610 (Missouri Capital Improvement Projects), 5.50% due 9/01/2018 2,902
1,925 Series A, 5.50% due 3/01/2014 2,135
2,175 Series A, 5.50% due 3/01/2015 2,396
1,170 Series A, 5.50% due 3/01/2016 1,289
1,500 Series A, 5.50% due 3/01/2017 1,651
Nebraska--2.1% Omaha Convention Hotel Corporation, Nebraska, Convention Center Revenue Bonds, First
Tier, Series A (a):
1,585 5.50% due 4/01/2020 1,740
2,000 5.50% due 4/01/2021 2,195
Nevada--2.4% 4,000 Las Vegas New Convention and Visitors Authority Revenue Bonds, 5.75% due
7/01/2009 (a)(g) 4,454
New Jersey--9.2% New Jersey EDA, Cigarette Tax Revenue Bonds:
5,295 5.75% due 6/15/2029 5,675
3,800 5.75% due 6/15/2034 4,218
6,700 New Jersey EDA, Motor Vehicle Surcharge Revenue Bonds, Series A, 5.25% due
7/01/2033 (b) 7,225
New York--27.1% 10,000 Nassau Health Care Corporation, New York, Health System Revenue Bonds, 5.75% due
8/01/2009 (f)(g)(j) 11,271
New York City, New York, GO, Refunding:
3,785 Series C, 5.875% due 8/01/2006 (b)(g) 3,988
2,465 Series C, 5.875% due 2/01/2016 (b) 2,595
7,500 Series G, 5.75% due 2/01/2006 (f)(g) 7,775
7,085 New York City, New York, GO, Series G, 5.75% due 10/15/2007 (f)(g) 7,632
New York City, New York, Sales Tax Asset Receivable Corporation Revenue Bonds,
Series A (a):
3,380 5.25% due 10/15/2027 3,696
1,000 5% due 10/15/2029 1,060
2,645 New York State Dormitory Authority Revenue Bonds (School Districts Financing Program),
Series D, 5.25% due 10/01/2023 (b) 2,878
Tobacco Settlement Financing Corporation of New York Revenue Bonds, Series C-1:
4,900 5.50% due 6/01/2017 5,382
2,000 5.50% due 6/01/2021 2,195
1,745 West Islip, New York, Union Free School District, GO, Refunding, 5% due 10/01/2014 (f) 1,934
Oregon--0.8% 1,400 Portland, Oregon, Urban Renewal and Redevelopment Tax Allocation Bonds (Oregon
Convention Center), Series A, 5.75% due 6/15/2015 (a) 1,571
Pennsylvania--10.6% 3,900 Pennsylvania State Higher Educational Facilities Authority, State System of Higher
Education Revenue Bonds, Series O, 5.125% due 6/15/2024 (a) 4,042
6,045 Philadelphia, Pennsylvania, Airport Revenue Bonds (Philadelphia Airport System), AMT,
Series B, 5.50% due 6/15/2017 (c) 6,384
4,930 Philadelphia, Pennsylvania, School District, GO, Series A, 5.25% due 4/01/2009 (b)(g) 5,339
1,800 Washington County, Pennsylvania, Capital Funding Authority Revenue Bonds (Capital
Projects and Equipment Program), 6.15% due 12/01/2029 (a) 1,919
1,885 York County, Pennsylvania, School of Technology Authority, Lease Revenue Refunding
Bonds, 5.50% due 2/15/2022 (c) 2,095
Rhode Island--4.7% 5,000 Providence, Rhode Island, Redevelopment Agency, Revenue Refunding Bonds (Public Safety
and Municipal Buildings), Series A, 5.75% due 4/01/2010 (a)(g) 5,646
2,870 Rhode Island State Health and Educational Building Corporation Revenue Bonds (Rhode
Island School of Design), Series D, 5.50% due 8/15/2031 (d) 3,143
South Carolina--0.9% 1,525 Medical University Hospital Authority, South Carolina, FHA-Insured Mortgage Hospital
Facilities, Revenue Refunding Bonds, Series A, 5.25% due 2/15/2025 (b)(e) 1,642
Tennessee--3.1% Tennessee HDA, Revenue Refunding Bonds (Homeownership Program), AMT, Series A (f):
2,935 5.25% due 7/01/2022 3,051
2,695 5.35% due 1/01/2026 2,793
ANNUAL REPORTS, APRIL 30, 2005
Schedule of Investments (concluded) MuniHoldings Insured Fund, Inc. (In Thousands)
Face
State Amount Municipal Bonds Value
Texas--4.1% $ 4,000 Dallas-Fort Worth, Texas, International Airport Revenue Bonds, DRIVERS, AMT,
Series 778-Z, 7.654% due 11/01/2011 (b)(h) $ 4,537
2,913 Houston, Texas, Community College System, Participation Interests, COP (Alief
Center Project), 5.75% due 8/15/2022 (b) 3,157
Virginia--2.4% 4,445 Virginia State, HDA, Commonwealth Mortgage Revenue Bonds, Series J, Sub-Series J-1,
5.20% due 7/01/2019 (b) 4,492
Washington--4.8% 4,000 Bellevue, Washington, GO, Refunding, 5.50% due 12/01/2039 (b) 4,435
2,310 Chelan County, Washington, Public Utility District Number 001, Consolidated Revenue
Bonds (Chelan Hydro System), AMT, Series A, 5.45% due 7/01/2037 (a) 2,438
1,810 Snohomish County, Washington, Public Utility District Number 001, Electric Revenue
Bonds, 5.50% due 12/01/2022 (f) 2,000
West Virginia--2.8% 5,000 West Virginia State Housing Development Fund, Housing Finance Revenue Refunding Bonds,
Series D, 5.20% due 11/01/2021 (b) 5,206
Wisconsin--0.3% 500 Wisconsin State Health and Educational Facilities Authority Revenue Bonds (Blood
Center of Southeastern Wisconsin Project), 5.50% due 6/01/2024 520
Wyoming--0.9% 1,500 Wyoming Student Loan Corporation, Student Loan Revenue Refunding Bonds, Series A,
6.20% due 6/01/2024 1,619
Puerto Rico--3.1% 3,500 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series RR, 5% due
7/01/2027 (d) 3,727
1,870 Puerto Rico Public Buildings Authority, Government Facilities, Revenue Refunding
Bonds, Series D, 5.25% due 7/01/2036 1,971
Total Municipal Bonds (Cost--$300,377)--170.0% 315,995
Shares
Held Short-Term Securities
121 Merrill Lynch Institutional Tax-Exempt Fund (i) 121
Total Short-Term Securities (Cost--$121)--0.1% 121
Total Investments (Cost--$300,498**)--170.1% 316,116
Other Assets Less Liabilities--2.0% 3,738
Preferred Stock, at Redemption Value--(72.1%) (134,033)
---------
Net Assets Applicable to Common Stock--100.0% $ 185,821
=========
* Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
** The cost and unrealized appreciation (depreciation) of investments as
of April 30, 2005, as computed for federal income tax purposes, were
as follows:
(in Thousands)
Aggregate cost $ 300,498
=============
Gross unrealized appreciation $ 15,913
Gross unrealized depreciation (295)
-------------
Net unrealized appreciation $ 15,618
=============
(a) AMBAC Insured.
(b) MBIA Insured.
(c) FGIC Insured.
(d) XL Capital Insured.
(e) FHA Insured.
(f) FSA Insured.
(g) Prerefunded.
(h) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(i) 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) were as follows:
(in Thousands)
Net Dividend
Affiliate Activity Income
Merrill Lynch Institutional
Tax-Exempt Fund (200) $49
(j) All or a portion of security held as collateral in connection with open
financial future contracts.
Forward interest rate swaps outstanding as of April 30, 2005 were
as follows:
(in Thousands)
Notional Unrealized
Amount Depreciation
Receive a variable rate equal to
7-Day Bond Market Association
Swap Index Rate and pay a fixed
rate of 3.853%
Broker, Morgan Stanley
Capital Services, Inc.
Expires June 2015 $15,000 $(293)
Financial futures sold as of April 30, 2005 were as follows:
(in Thousands)
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
300 10-Year U.S. June
Treasury Bond 2005 $32,774 $(652)
See Notes to Financial Statements.
ANNUAL REPORTS, APRIL 30, 2005
Statements of Net Assets
MuniHoldings
MuniHoldings Insured
As of April 30, 2005 Fund, Inc. Fund, Inc.
Assets
Investments in unaffiliated securities, at value* $ 331,898,895 $ 315,995,004
Investments in affiliated securities, at value** 8,893 120,732
Cash 70,718 --
Variation margin receivable -- 75,000
Receivable for securities sold 115,000 1,613,250
Interest receivable 5,844,675 4,658,160
Dividends receivable from affiliates 16 8
Prepaid expenses 1,949 1,950
--------------- ---------------
Total assets 337,940,146 322,464,104
--------------- ---------------
Liabilities
Payable for securities purchased 2,427,032 1,910,796
Unrealized depreciation on forward interest rate swaps -- 293,385
Payable to investment adviser 140,645 119,383
Payable for other affiliates 2,326 2,238
Dividends payable to Common Stock shareholders 83,137 132,657
Payable to custodian bank -- 84,881
Accrued expenses and other liabilities 68,746 66,790
--------------- ---------------
Total liabilities 2,721,886 2,610,130
--------------- ---------------
Preferred Stock
Preferred Stock, at redemption value, par value $.10 per share*** of AMPS+++
at $25,000 per share liquidation preference 110,000,000 134,032,776
--------------- ---------------
Net Assets Applicable to Common Stock
Net assets applicable to Common Stock $ 225,218,260 $ 185,821,198
=============== ===============
Analysis of Net Assets Applicable to Common Stock
Undistributed investment income--net $ 4,473,210 $ 2,780,287
Accumulated realized capital losses--net (3,560,213) (23,116,275)
Unrealized appreciation--net 18,513,466 14,672,046
--------------- ---------------
Total accumulated earnings (losses)--net 19,426,463 (5,663,942)
--------------- ---------------
Common Stock, par value $.10 per share++ 1,381,174 1,286,754
Paid-in capital in excess of par 204,410,623 190,198,386
--------------- ---------------
Net Assets $ 225,218,260 $ 185,821,198
=============== ===============
Net asset value per share of Common Stock $ 16.31 $ 14.44
=============== ===============
Market price $ 16.12 $ 13.70
=============== ===============
* Identified cost on unaffiliated securities $ 313,385,429 $ 300,377,174
=============== ===============
** Identified cost on affiliated securities $ 8,893 $ 120,732
=============== ===============
*** Preferred Stock authorized, issued and outstanding:
Series A Shares 2,200 2,680
=============== ===============
Series B Shares 2,200 2,680
=============== ===============
++ Common Shares issued and outstanding 13,811,738 12,867,541
=============== ===============
+++ Auction Market Preferred Stock.
See Notes to Financial Statements.
ANNUAL REPORTS, APRIL 30, 2005
Statements of Operations
MuniHoldings
MuniHoldings Insured
For the Year Ended April 30, 2005 Fund, Inc. Fund, Inc.
Investment Income
Interest and amortization of premium and discount earned $ 19,083,785 $ 15,263,062
Dividends from affiliates 9,597 49,244
--------------- ---------------
Total income 19,093,382 15,312,306
--------------- ---------------
Expenses
Investment advisory fees 1,805,447 1,745,509
Commission fees 281,754 343,228
Accounting services 121,448 119,189
Transfer agent fees 50,639 48,208
Professional fees 50,571 51,955
Printing and shareholder reports 34,426 37,238
Directors' fees and expenses 33,276 33,276
Listing fees 20,350 20,256
Custodian fees 19,642 19,375
Pricing fees 16,905 15,388
Other 36,158 40,128
--------------- ---------------
Total expenses before waiver and reimbursement 2,470,616 2,473,750
Waiver and reimbursement of expenses (1,971) (186,442)
--------------- ---------------
Total expenses after waiver and reimbursement 2,468,645 2,287,308
--------------- ---------------
Investment income--net 16,624,737 13,024,998
--------------- ---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net 2,939,627 4,231,200
Futures contracts and forward interest rate swaps--net -- (1,934,287)
--------------- ---------------
Total realized gain--net 2,939,627 2,296,913
--------------- ---------------
Change in unrealized appreciation/depreciation on:
Investments--net 8,533,658 3,518,201
Futures contracts and forward interest rate swaps--net -- (1,006,480)
--------------- ---------------
Total unrealized appreciation--net 8,533,658 2,511,721
--------------- ---------------
Total realized and unrealized gain--net 11,473,285 4,808,634
--------------- ---------------
Dividends to Preferred Stock Shareholders
Investment income--net (1,607,958) (2,002,764)
--------------- ---------------
Net Increase in Net Assets Resulting from Operations $ 26,490,064 $ 15,830,868
=============== ===============
See Notes to Financial Statements.
ANNUAL REPORTS, APRIL 30, 2005
Statements of Changes in Net Assets MuniHoldings Fund, Inc.
For the Year Ended April 30,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 16,624,737 $ 17,258,888
Realized gain--net 2,939,627 2,349,989
Change in unrealized appreciation--net 8,533,658 3,059,319
Dividends to Preferred Stock shareholders (1,607,958) (973,764)
--------------- ---------------
Net increase in net assets resulting from operations 26,490,064 21,694,432
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (15,903,116) (15,287,032)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common Stock shareholders (15,903,116) (15,287,032)
--------------- ---------------
Common Stock Transactions
Value of shares issued to Common Stock shareholders in reinvestment of dividends 158,591 105,221
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase in net assets applicable to Common Stock 10,745,539 6,512,621
Beginning of year 214,472,721 207,960,100
--------------- ---------------
End of year* $ 225,218,260 $ 214,472,721
=============== ===============
* Undistributed investment income--net $ 4,473,210 $ 5,359,547
=============== ===============
See Notes to Financial Statements.
Statements of Changes in Net Assets MuniHoldings Insured Fund, Inc.
For the Year Ended April 30,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 13,024,998 $ 13,371,943
Realized gain--net 2,296,913 4,700,599
Change in unrealized appreciation/depreciation--net 2,511,721 (10,118,251)
Dividends to Preferred Stock shareholders (2,002,764) (1,212,833)
--------------- ---------------
Net increase in net assets resulting from operations 15,830,868 6,741,458
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (11,735,198) (11,387,774)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common Stock shareholders (11,735,198) (11,387,774)
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase (decrease) in net assets applicable to Common Stock 4,095,670 (4,646,316)
Beginning of year 181,725,528 186,371,844
--------------- ---------------
End of year* $ 185,821,198 $ 181,725,528
=============== ===============
* Undistributed investment income--net $ 2,780,287 $ 3,493,447
=============== ===============
See Notes to Financial Statements.
ANNUAL REPORTS, APRIL 30, 2005
Financial Highlights MuniHoldings Fund, Inc.
The following per share data and ratios have been derived For the Year Ended April 30,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 15.54 $ 15.07 $ 14.50 $ 13.76 $ 13.16
----------- ----------- ----------- ----------- -----------
Investment income--net 1.20++++ 1.25++++ 1.25++++ 1.17 1.10
Realized and unrealized gain--net .84 .40 .40 .66 .65
Less dividends to Preferred Stock shareholders
from investment income--net (.12) (.07) (.10) (.16) (.32)
----------- ----------- ----------- ----------- -----------
Total from investment operations 1.92 1.58 1.55 1.67 1.43
----------- ----------- ----------- ----------- -----------
Less dividends to Common Stock shareholders
from investment income--net (1.15) (1.11) (.98) (.93) (.83)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 16.31 $ 15.54 $ 15.07 $ 14.50 $ 13.76
=========== =========== =========== =========== ===========
Market price per share, end of year $ 16.12 $ 14.43 $ 14.43 $ 13.38 $ 13.18
=========== =========== =========== =========== ===========
Total Investment Return++
Based on net asset value per share 12.95% 10.94% 11.54% 12.64% 11.71%
=========== =========== =========== =========== ===========
Based on market price per share 20.22% 7.58% 15.75% 8.51% 12.09%
=========== =========== =========== =========== ===========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of reimbursement* 1.13% 1.14% 1.18% 1.21% 1.27%
=========== =========== =========== =========== ===========
Total expenses* 1.13% 1.15% 1.18% 1.21% 1.27%
=========== =========== =========== =========== ===========
Total investment income--net* 7.61% 7.98% 8.40% 8.03% 8.08%
=========== =========== =========== =========== ===========
Amount of dividends to Preferred Stock
shareholders .74% .45% .66% 1.08% 2.32%
=========== =========== =========== =========== ===========
Investment income--net, to Common Stock
shareholders 6.87% 7.53% 7.74% 6.95% 5.76%
=========== =========== =========== =========== ===========
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders 1.47% .88% 1.23% 1.96% 3.97%
=========== =========== =========== =========== ===========
Supplemental Data
Net assets applicable to Common Stock,
end of year (in thousands) $ 225,218 $ 214,473 $ 207,960 $ 200,091 $ 189,787
=========== =========== =========== =========== ===========
Preferred Stock outstanding, end of year
(in thousands) $ 110,000 $ 110,000 $ 110,000 $ 110,000 $ 110,000
=========== =========== =========== =========== ===========
Portfolio turnover 36.23% 42.89% 50.68% 62.94% 91.25%
=========== =========== =========== =========== ===========
Leverage
Asset coverage per $1,000 $ 3,047 $ 2,950 $ 2,891 $ 2,819 $ 2,725
=========== =========== =========== =========== ===========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 366 $ 220 $ 315 $ 492 $ 1,016
=========== =========== =========== =========== ===========
Series B--Investment income--net $ 365 $ 223 $ 302 $ 490 $ 968
=========== =========== =========== =========== ===========
* 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
effects of sales charges.
++++ Based on average shares outstanding.
See Notes to Financial Statements.
ANNUAL REPORTS, APRIL 30, 2005
Financial Highlights MuniHoldings Insured Fund, Inc.
The following per share data and ratios have been derived For the Year Ended April 30,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 14.12 $ 14.48 $ 13.78 $ 13.29 $ 12.29
----------- ----------- ----------- ----------- -----------
Investment income--net 1.01++++ 1.04++++ 1.06++++ 1.07 1.14
Realized and unrealized gain (loss)--net .38 (.42) .62 .44 1.01
Less dividends to Preferred Stock shareholders
from investment income--net (.16) (.09) (.13) (.21) (.41)
----------- ----------- ----------- ----------- -----------
Total from investment operations 1.23 .53 1.55 1.30 1.74
----------- ----------- ----------- ----------- -----------
Less dividends to Common Stock shareholders
from investment income--net (.91) (.89) (.85) (.81) (.74)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 14.44 $ 14.12 $ 14.48 $ 13.78 $ 13.29
=========== =========== =========== =========== ===========
Market price per share, end of year $ 13.70 $ 12.64 $ 13.50 $ 12.65 $ 12.89
=========== =========== =========== =========== ===========
Total Investment Return++
Based on net asset value per share 9.35% 4.07% 12.04% 10.28% 15.05%
=========== =========== =========== =========== ===========
Based on market price per share 15.90% (.07%) 13.79% 4.38% 24.67%
=========== =========== =========== =========== ===========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of waiver and reimbursement* 1.24% 1.24% 1.28% 1.30% 1.15%
=========== =========== =========== =========== ===========
Total expenses* 1.35% 1.34% 1.38% 1.39% 1.44%
=========== =========== =========== =========== ===========
Total investment income--net* 7.09% 7.12% 7.55% 7.75% 8.71%
=========== =========== =========== =========== ===========
Amount of dividends to Preferred Stock
shareholders 1.09% .65% .91% 1.50% 3.14%
=========== =========== =========== =========== ===========
Investment income--net, to Common Stock
shareholders 6.00% 6.47% 6.64% 6.25% 5.57%
=========== =========== =========== =========== ===========
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders 1.50% .90% 1.23% 1.99% 3.94%
=========== =========== =========== =========== ===========
Supplemental Data
Net assets applicable to Common Stock,
end of year (in thousands) $ 185,821 $ 181,726 $ 186,372 $ 177,286 $ 171,007
=========== =========== =========== =========== ===========
Preferred Stock outstanding, end of year
(in thousands) $ 134,000 $ 134,000 $ 134,000 $ 134,000 $ 134,000
=========== =========== =========== =========== ===========
Portfolio turnover 51.81% 39.94% 49.59% 49.69% 94.80%
=========== =========== =========== =========== ===========
Leverage
Asset coverage per $1,000 $ 2,387 $ 2,356 $ 2,391 $ 2,323 $ 2,276
=========== =========== =========== =========== ===========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 372 $ 225 $ 313 $ 502 $ 964
=========== =========== =========== =========== ===========
Series B--Investment income--net $ 376 $ 228 $ 302 $ 491 $ 1,005
=========== =========== =========== =========== ===========
* 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
effects of sales charges.
++++ Based on average shares outstanding.
See Notes to Financial Statements.
ANNUAL REPORTS, APRIL 30, 2005
Notes to Financial Statements
1. Significant Accounting Policies:
MuniHoldings Fund, Inc. and MuniHoldings Insured Fund, Inc. (the "Funds" or
individually as the "Fund") are registered under the Investment Company Act
of 1940, as amended, as non-diversified, closed-end management investment
companies. The Funds' 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 Funds determine and make available for publication the net
asset value of their Common Stock on a daily basis. The Funds' Common Stock
shares are listed on the New York Stock Exchange under the symbols MHD and
MUS, respectively. The following is a summary of significant accounting
policies followed by the Funds.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets ("OTC") and are valued at the last available bid
price in the OTC or on the basis of values as obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and
its valuations are reviewed by the officers of the Funds under the general
direction of the Board of Directors. Such valuations and procedures are
reviewed periodically by the Board of Directors of the Funds. 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 OTC, 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's pricing service. Short-term investments with a remaining
maturity of 60 days or less are valued at amortized cost, which approximates
market value, under which method the investment is valued at cost and any
premium or discount is amortized on a straight line basis to maturity.
Investments in open-end investment companies are valued at their net asset
value each business day. Securities and other 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
Funds.
(b) Derivative financial instruments--Each Fund may engage in various
portfolio investment strategies both to increase the return of the Fund and
to hedge, or protect, its exposure to interest rate movements and movements
in the securities markets. Losses may arise due to changes in the value of
the contract or if the counterparty does not perform under the contract.
* Financial futures contracts--Each Fund may purchase or sell financial
futures contracts and options on such futures contracts. Futures contracts
are contracts for delayed delivery of securities at a specific future date
and at a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract,
the Fund agrees to receive from or pay to the broker an amount of cash
equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
* Options--Each Fund may write covered call options and purchase call and
put options. When the Fund writes an option, an amount equal to the premium
received by the Fund is reflected as an asset and an equivalent liability.
The amount of the liability is subsequently marked-to-market to reflect the
current market value of the option written. When a security is purchased or
sold through an exercise of an option, the related premium paid (or received)
is added to (or deducted from) the basis of the security acquired or deducted
from (or added to) the proceeds of the security sold. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a gain or
loss on the option to the extent of the premiums received or paid (or gain or
loss to the extent the cost of the closing transaction exceeds the premium
paid or received).
Written and purchased options are non-income producing investments.
* Forward interest rate swaps--Each Fund may enter into forward interest
rate swaps. In a forward interest rate swap, the Fund and the counterparty
agree to make periodic net payments on a specified notional contract
amount, commencing on a specified future effective date, unless terminated
earlier. When the agreement is closed, the Fund records a realized gain or
loss in an amount equal to the value of the agreement.
ANNUAL REPORTS, APRIL 30, 2005
Notes to Financial Statements (continued)
(c) Income taxes--It is each 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 Funds
amortize all premiums and discounts on debt securities.
(e) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
(f) Custodian bank--MuniHoldings Insured Fund, Inc. recorded an amount
payable to the custodian bank reflecting an overnight overdraft, which
resulted from management estimates of available cash.
(g) Reclassifications--U.S. generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting. There were no
significant reclassifications in the current year for MuniHoldings Fund,
Inc. or MuniHoldings Insured Fund, Inc. These reclassifications have no
effect on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
Each 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 each Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, each Fund pays
a monthly fee at an annual rate of .55% of the Fund's average weekly net
assets, including proceeds from the issuance of Preferred Stock. The
Investment Adviser has agreed to reimburse its management fee by the amount
of management fees each Fund pays to FAM indirectly through their
investment in the Merrill Lynch Institutional Tax-Exempt Fund. For the year
ended April 30, 2005, FAM reimbursed the Funds in the amount of $1,971 and
$8,530 relating to MuniHoldings Fund, Inc. and MuniHoldings Insured Fund,
Inc., respectively. In addition, FAM earned fees of $1,745,509, of which
$177,912 was waived, relating to MuniHoldings Insured Fund, Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate
of FAM, received $1,500 in commissions on the execution of portfolio security
transactions for MuniHoldings Fund, Inc. for the year ended April 30, 2005.
For the year ended April 30, 2005, MuniHoldings Fund, Inc. and MuniHoldings
Insured Fund, Inc. reimbursed FAM $7,141 and $7,391, respectively, for
certain accounting services.
Certain officers and/or directors of the Funds are officers and/or directors
of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the year ended April 30, 2005 were as follows:
MuniHoldings
MuniHoldings Insured
Fund, Inc. Fund, Inc.
Total Purchases $117,110,929 $162,043,361
Total Sales $118,182,899 $164,527,428
4. Stock Transactions:
Each 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 are
authorized, however, to reclassify any unissued shares of stock
without approval of holders of Common Stock.
Common Stock
Shares issued and outstanding for MuniHoldings Fund, Inc. for the
years ended April 30, 2005 and April 30, 2004 increased by 9,843 and
6,668, respectively, as a result of dividend reinvestment.
ANNUAL REPORTS, APRIL 30, 2005
Notes to Financial Statements (concluded)
Shares issued and outstanding for MuniHoldings Insured Fund, Inc. for the
years ended April 30, 2005 and April 30, 2004 remained constant.
Preferred Stock
Auction Market Preferred Stock are shares of Preferred Stock of the Funds,
with a par value of $.10 per share and a liquidation preference of $25,000
per share, plus accrued and unpaid dividends, that entitle their holders to
receive cash dividends at an annual rate that may vary for the successive
dividend periods. The yields in effect at April 30, 2005 were as follows:
MuniHoldings
MuniHoldings Insured
Fund, Inc. Fund, Inc.
Series A 2.55% 2.85%
Series B 2.85% 2.55%
Each Fund pays commissions to certain broker-dealers at the end of each
auction at an annual rate ranging from .25% to .375%, calculated on the
proceeds of each auction. For the year ended April 30, 2005, MLPF&S earned
commissions as follows:
Fund Commissions
MuniHoldings Fund, Inc. $168,937
MuniHoldings Insured Fund, Inc. $227,707
5. Distributions to Shareholders:
Each Fund paid a tax-exempt income dividend to holders of Common Stock in
the amounts of $.096000 per share and $.076000 per share relating to
MuniHoldings Fund, Inc. and MuniHoldings Insured Fund, Inc. respectively,
on May 27, 2005 to shareholders of record on May 13, 2005.
MuniHoldings Fund, Inc.
The tax character of distributions paid during the fiscal years ended April
30, 2005 and April 30, 2004 was as follows:
4/30/2005 4/30/2004
Distributions paid from:
Tax-exempt income $ 17,511,074 $ 16,260,796
-------------- --------------
Total distributions $ 17,511,074 $ 16,260,796
============== ==============
As of April 30, 2005, the components of accumulated earnings on a tax basis
were as follows:
Undistributed tax-exempt income--net $ 4,221,243
Undistributed long-term capital gains--net --
--------------
Total undistributed earnings--net 4,221,243
Capital loss carryforward (3,435,164)*
Unrealized gains--net 18,640,384**
--------------
Total accumulated earnings--net $ 19,426,463
==============
* On April 30, 2005, the Fund had a net capital loss carryforward
of $3,435,164, all of which expires in 2009. This amount will be
available to offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
straddles and the difference between book and tax amortization
methods for premiums and discounts on fixed income securities.
MuniHoldings Insured Fund, Inc.
The tax character of distributions paid during the fiscal years ended April
30, 2005 and April 30, 2004 was as follows:
4/30/2005 4/30/2004
Distributions paid from:
Tax-exempt income $ 13,737,962 $ 12,600,607
-------------- --------------
Total distributions $ 13,737,962 $ 12,600,607
============== ==============
As of April 30, 2005, the components of accumulated losses on a tax basis
were as follows:
Undistributed tax-exempt income--net $ 2,780,287
Undistributed long-term capital gains--net --
--------------
Total undistributed earnings--net 2,780,287
Capital loss carryforward (20,278,429)*
Unrealized gains--net 11,834,200**
--------------
Total accumulated losses--net $ (5,663,942)
==============
* On April 30, 2005, the Fund had a net capital loss carryforward
of $20,278,429, of which $10,694,516 expires in 2008 and
$9,583,913 expires in 2009. This amount will be available to
offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
straddles and the realization for tax purposes of unrealized
gains (losses) on certain futures contracts.
ANNUAL REPORTS, APRIL 30, 2005
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
MuniHoldings Fund, Inc. and MuniHoldings Insured Fund, Inc.:
We have audited the accompanying statements of net assets of MuniHoldings
Fund, Inc. and MuniHoldings Insured Fund, Inc. (the "Funds"), including the
schedules of investments, as of April 30, 2005, and the related statements
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
Funds' 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 audits to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. We were not engaged to perform an audit of the
Funds' internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Funds' internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and
financial highlights, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of April 30, 2005 by correspondence with the custodian
and brokers. 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 Fund, Inc. and MuniHoldings Insured Fund, Inc. at April 30,
2005, the results of their operations for the year then ended, the changes
in their 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, in conformity with U.S. generally accepted accounting principles.
(Ernst & Young LLP)
Philadelphia, Pennsylvania
June 10, 2005
Fund Certification (unaudited)
In September 2004, MuniHoldings Fund, Inc. and MuniHoldings Insured Fund,
Inc. filed its Chief Executive Officer Certification for the prior year
with the New York Stock Exchange pursuant to Section 303A. 12(a) of the New
York Stock Exchange Corporate Governance Listing Standards.
The Fund's Chief Executive Officer and Chief Financial Officer Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 were filed with
the Funds' Form N-CSR and are available on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
Important Tax Information (unaudited)
All of the net investment income distributions paid by MuniHoldings Fund,
Inc. and MuniHoldings Insured Fund, Inc. during the taxable year ended
April 30, 2005 qualify as tax-exempt interest dividends for federal income
tax purposes.
ANNUAL REPORTS, APRIL 30, 2005
Automatic Dividend Reinvestment Plan
The following description of the Funds' Automatic Dividend Reinvestment Plan
(the "Plan") is sent to you annually as required by federal securities laws.
Pursuant to each 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 Funds declare 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 each 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 each 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 each Fund's shares, resulting in the acquisitions of fewer shares
than if the dividend had been paid in newly issued shares on the dividend
payment date. Because of the foregoing difficulty with respect to open-
market purchases, the Plan provides that if the Plan Agent is unable to
invest the full dividend amount in open-market purchases during the
purchase period or if the market discount shifts to a market premium during
the purchase period, the Plan Agent will cease making open-market purchases
and will invest the uninvested portion of the dividend amount in newly
issued shares at the close of business on the last purchase date determined
by dividing the uninvested portion of the dividend by the net asset value
per share.
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the account, including
information needed by shareholders for tax records. Shares in the account
of each Plan participant will be held by the Plan Agent in non-certificated
form in the name of the participant, and each shareholder's proxy will
include those shares purchased or received pursuant to the Plan. The Plan
Agent will forward all proxy solicitation materials to participants and
vote proxies for shares held pursuant to the Plan in accordance with the
instructions of the participants.
ANNUAL REPORTS, APRIL 30, 2005
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 Funds 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 Funds' shares is above the net asset value, participants
in the Plan will receive shares of the Funds 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 Funds do 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 each Fund's shares are
trading at a premium over net asset value, each 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 each 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 Funds reserve the right to amend or terminate the Plan.
There is no direct service charge to participants in the Plan; however, the
Funds reserve 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.
ANNUAL REPORTS, APRIL 30, 2005
Disclosure of Investment Advisory Agreement MuniHoldings Fund, Inc.
Activities of and Composition of the Board of Directors
All but one member of the Board of Directors is an independent director
whose only affiliation with Fund Asset Management, L.P. (the "Investment
Adviser") or other Merrill Lynch affiliates is as a director of the Fund
and certain other funds advised by the Investment Adviser or its affiliates.
The Chairman of the Board is also an independent director. New director
nominees are chosen as nominees by a Nominating Committee comprised of
independent directors. All independent directors also are members of the
Board's Audit Committee and the independent directors meet in executive
session at each in-person Board meeting. The Board and the Audit Committee
meet in person for at least two days each quarter and conduct other in-person
and telephone meetings throughout the year, some of which are formal board
meetings, and some of which are informational meetings. The independent
counsel to the independent directors attends all in-person Board and Audit
Committee meetings and other meetings at the independent directors' request.
Investment Advisory Agreement--Matters Considered by the Board
Every year, the Board considers approval of the Fund's investment advisory
agreement (the "Investment Advisory Agreement"). The Board assesses the
nature, scope and quality of the services provided to the Fund by the
personnel of the Investment Adviser and its affiliates, including
administrative services, shareholder services, oversight of fund accounting,
marketing services and assistance in meeting legal and regulatory
requirements. The Board also receives and assesses information regarding
the services provided to the Fund by certain unaffiliated service providers.
At various times throughout the year, the Board also considers a range of
information in connection with its oversight of the services provided by
the Investment Adviser and its affiliates. Among the matters considered
are: (a) fees (in addition to management fees) paid to the Investment
Adviser and its affiliates by the Fund, including fees associated with the
Fund's auction market preferred stock; (b) Fund operating expenses paid to
third parties; (c) the resources devoted to and compliance reports relating
to the Fund's investment objective, policies and restrictions, and its
compliance with its Code of Ethics and the Investment Adviser's compliance
policies and procedures; and (d) the nature, cost and character of non-
investment management services provided by the Investment Adviser and its
affiliates.
The Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall services provided by
the Investment Adviser to be generally of high quality. The Board also
believes that the Investment Adviser is financially sound and well managed,
and notes that the Investment Adviser is affiliated with one of America's
largest financial firms. The Board works closely with the Investment Adviser
in overseeing the Investment Adviser's efforts to achieve good performance.
As part of this effort, the Board discusses portfolio manager effectiveness
and, when performance is not satisfactory, discusses with the Investment
Adviser taking steps such as changing investment personnel.
Annual Consideration of Approval by the Board of Directors
In the period prior to the Board meeting to consider the renewal of the
Investment Advisory Agreement, the Board requests and receives materials
specifically relating to the Fund's Investment Advisory Agreement. These
materials include (a) information compiled by Lipper Inc. ("Lipper") on the
fees and expenses and the investment performance of the Fund as compared to
a comparable group of funds as classified by Lipper; (b) information
comparing the Fund's market price with its net asset value per share; (c) a
discussion by the Fund's portfolio management team of investment strategies
used by the Fund during its most recent fiscal year; (d) information on the
profitability to the Investment Adviser and its affiliates of the Investment
Advisory Agreement and other relationships with the Fund; and (e) information
about fees charged to other types of clients, such as institutional clients.
The Board also considers other matters it deems important to the approval
process such as services related to the valuation and pricing of Fund
portfolio holdings, information relating to the status of the Fund's managed
dividend program, the Fund's portfolio turnover statistics, and direct and
indirect benefits to the Investment Adviser and its affiliates from their
relationship with the Fund.
Certain Specific Renewal Data
In connection with the most recent renewal of the Fund's Investment
Advisory Agreement in November 2004, the independent directors' and Board's
review included the following:
ANNUAL REPORTS, APRIL 30, 2005
MuniHoldings Fund, Inc.
The Investment Adviser's Services and Fund Performance--The Board reviewed
the nature, extent and quality of services provided by the Investment
Adviser, including the investment advisory services and the resulting
performance of the Fund. The Board focused primarily on the Investment
Adviser's investment advisory services and the Fund's investment performance,
having concluded that the other services provided to the Fund by the
Investment Advisor were satisfactory. The Board compared Fund performance -
both including and excluding the effects of the Fund's fees and expenses -
to the performance of a comparable group of mutual funds, and the performance
of a relevant index or combination of indexes. While the Board reviews
performance data at least quarterly, consistent with the Investment Adviser's
investment goals, the Board attaches importance to performance over
relatively long periods of time, typically three to five years. The Board
noted that the Fund's performance within the group compared for the one,
three and five year periods ranked in the top 25% of the group for all
periods. The Board concluded that the Fund's performance supported the
continuation of the Investment Advisory Agreement.
The Investment Adviser's Personnel and Investment Process--The Board
reviews at least annually the Fund's investment objectives and strategies.
The Board discusses with senior management of the Investment Adviser
responsible for investment operations and the senior management of the
Investment Adviser's tax-exempt fixed income investing group the strategies
being used to achieve the stated objectives. Among other things, the Board
considers the size, background and experience of the Investment Adviser's
investment staff, its use of technology, and the Investment Adviser's
approach to training and retaining portfolio managers and other research,
advisory and management personnel. The Board also reviews the Investment
Adviser's compensation policies and practices with respect to the Fund's
portfolio manager. The Board also considered the experience of the Fund's
portfolio manager and noted that Mr. DiMella, the Fund's portfolio manager,
has more than ten years' experience investing in municipal bonds and is
supported by a staff of experienced research analysts. The Board concluded
that the Investment Adviser and its investment staff and the Fund's
portfolio manager have extensive experience in analyzing and managing the
types of investments used by the Fund and that the Fund benefits from that
expertise.
Management Fees and Other Expenses--The Board reviews the Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels - the actual rate includes advisory and
administrative service fees and the effects of any fee waivers - compared
to the other funds in its Lipper category. It also compares the Fund's total
expenses to those of other comparable funds. The Board also considered the
fees charged by the Investment Adviser to institutional clients, which
generally were slightly lower but the Board noted that the Investment Adviser
did not have any other clients for which it manages funds with the same
investment mandate. The Board noted that the Fund's contractual management
fee rate was the second lowest of the funds in its Lipper category, that its
actual management fee rate - both including and excluding the assets
attributable to the Fund's Preferred Stock - was lower than the average of the
funds in its category and that its overall operating expenses were lower than
the average of its comparable funds in the Lipper category. The Board
concluded that the Fund's management fee and fee rate and overall expense
ratio are reasonable compared to those of other comparable funds.
Profitability--The Board considers the cost of the services provided to the
Fund by the Investment Adviser and the Investment Adviser's and its
affiliates' profits relating to the management and distribution of the Fund
and the MLIM/FAM-advised funds. As part of its analysis, the Board reviewed
the Investment Adviser's methodology in allocating its costs to the
management of the Fund and concluded that there was a reasonable basis for
the allocation. The Board believes the Investment Adviser's profits are
reasonable in relation to the nature and quality of services provided.
Economies of Scale--The Board considers whether there have been economies
of scale in respect of the management of the Fund and whether the Fund has
appropriately benefited from any economies of scale. The Board concluded
that, given the Fund's structure as a closed end fixed income fund, there
is no evidence to date of economies of scale and the Board will continue to
seek information regarding economies of scale.
Conclusion
After the independent directors deliberated in executive session, the
entire Board including all of the independent directors, approved the
renewal of the existing Investment Advisory Agreement, concluding that the
advisory fee rate was reasonable in relation to the services provided and
that a contract renewal was in the best interests of the shareholders.
ANNUAL REPORTS, APRIL 30, 2005
Disclosure of Investment Advisory Agreement MuniHoldings Insured Fund, Inc.
Activities of and Composition of the Board of Directors
All but one member of the Board of Directors is an independent director
whose only affiliation with Fund Asset Management, L.P. (the "Investment
Adviser") or other Merrill Lynch affiliates is as a director of the Fund
and certain other funds advised by the Investment Adviser or its affiliates.
The Chairman of the Board is also an independent director. New director
nominees are chosen as nominees by a Nominating Committee comprised of
independent directors. All independent directors also are members of the
Board's Audit Committee. The Board and the Audit Committee meet in person
for at least two days each quarter and conduct other in-person and
telephone meetings throughout the year, some of which are formal board
meetings, and some of which are informational meetings. The independent
counsel to the independent directors attends all in-person Board and Audit
Committee meetings and other meetings at the independent directors' request.
Investment Advisory Agreement--Matters Considered by the Board
Every year, the Board considers approval of the Fund's investment advisory
agreement (the "Investment Advisory Agreement"). The Board assesses the
nature, scope and quality of the services provided to the Fund by the
personnel of the Investment Adviser and its affiliates, including
administrative services, shareholder services, oversight of fund
accounting, marketing services and assistance in meeting legal and
regulatory requirements. The Board also receives and assesses information
regarding the services provided to the Fund by certain unaffiliated service
providers.
At various times throughout the year, the Board also considers a range of
information in connection with its oversight of the services provided by
the Investment Adviser and its affiliates. Among the matters considered
are: (a) fees (in addition to management fees) paid to the Investment
Adviser and its affiliates by the Fund, including fees associated with the
Fund's auction market preferred stock; (b) Fund operating expenses paid to
third parties; (c) the resources devoted to and compliance reports relating
to the Fund's investment objective, policies and restrictions, and its
compliance with its Code of Ethics and the Investment Adviser's compliance
policies and procedures; and (d) the nature, cost and character of non-
investment management services provided by the Investment Adviser and its
affiliates.
The Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall services provided
by the Investment Adviser to be generally of high quality. The Board also
believes that the Investment Adviser is financially sound and well managed,
and notes that the Investment Adviser is affiliated with one of America's
largest financial firms. The Board works closely with the Investment Adviser
in overseeing the Investment Adviser's efforts to achieve good performance.
As part of this effort, the Board discusses portfolio manager effectiveness
and, when performance is not satisfactory, discusses with the Investment
Adviser taking steps such as changing investment personnel.
Annual Consideration of Approval by the Board of Directors
In the period prior to the Board meeting to consider the renewal of the
Investment Advisory Agreement, the Board requests and receives materials
specifically relating to the Fund's Investment Advisory Agreement. These
materials include (a) information compiled by Lipper Inc. ("Lipper") on the
fees and expenses and the investment performance of the Fund as compared to
a comparable group of funds as classified by Lipper; (b) information
comparing the Fund's market price with its net asset value per share; (c) a
discussion by the Fund's portfolio management team of investment strategies
used by the Fund during its most recent fiscal year; (d) information on the
profitability to the Investment Adviser and its affiliates of the Investment
Advisory Agreement and other relationships with the Fund; and (e) information
about fees charged to other types of clients, such as institutional clients.
The Board also considers other matters it deems important to the approval
process such as services related to the valuation and pricing of Fund
portfolio holdings, information relating to the status of the Fund's managed
dividend program, the Fund's portfolio turnover statistics, and direct and
indirect benefits to the Investment Adviser and its affiliates from their
relationship with the Fund.
Certain Specific Renewal Data
In connection with the most recent renewal of the Fund's Investment
Advisory Agreement in November 2004, the independent directors' and Board's
review included the following:
ANNUAL REPORTS, APRIL 30, 2005
MuniHoldings Insured Fund, Inc.
Services Provided by the Investment Adviser--The Board reviewed the nature,
extent and quality of services provided by the Investment Adviser, including
the investment management services and the resulting performance of the Fund.
The Board focused primarily on the Investment Adviser's investment advisory
services and the Fund's investment performance, having concluded that the
other services provided to the Fund by the Investment Advisor were
satisfactory. The Board compared Fund performance - both including and
excluding the effects of the Fund's fees and expenses - to the performance
of a comparable group of mutual funds, and the performance of a relevant
index or combination of indexes. While the Board reviews performance data at
least quarterly, you should know that, consistent with the Investment
Adviser's investment goals, the Board attaches importance to performance
over relatively long periods of time, typically three to five years. The
Board noted that the Fund's performance within the group compared for the one
and three year periods ranked in the top 25% of the group and had improved
significantly from performance that was below the median of the Fund's Lipper
comparable group for earlier periods. The Board concluded that the Fund's
performance supported the continuation of the Investment Advisory Agreement.
The Investment Adviser's Personnel and Investment Process--The Board
reviews at least annually the Fund's investment objective and strategies.
The Board discusses with senior management of the Investment Adviser
responsible for investment operations and the senior management of the
Investment Adviser's tax-exempt fixed income investing group the strategies
being used to achieve the stated objectives. Among other things, the Board
considers the size, background and experience of the Investment Adviser's
investment staff, its use of technology, and the Investment Adviser's
approach to training and retaining portfolio managers and other research,
advisory and management personnel. The Board also reviews the Investment
Adviser's compensation policies and practices with respect to the Fund's
portfolio manager. The Board also considered the experience of the Fund's
portfolio manager and noted that Mr. DiMella, the Fund's portfolio manager,
has more than ten years' experience investing in municipal bonds and is
supported by a staff of experienced research analysts. The Board concluded
that the Investment Adviser and its investment staff and the Fund's
portfolio manager have extensive experience in analyzing and managing the
types of investments used by the Fund and that the Fund benefits from that
expertise.
Management Fees and Other Expenses--The Board reviews the Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels - the actual rate includes advisory and
administrative service fees and the effects of any fee waivers - compared
to the other funds in its Lipper category. It also compares the Fund's total
expenses to those of other comparable funds. The Board also considered the
fees charged by the Investment Adviser to institutional clients, which
generally were slightly lower but the Board noted that the Investment Adviser
did not have any other clients for which it manages funds with the same
investment mandate. The Board noted that the Fund's contractual management
fee rate was at the median of the nine funds in its Lipper category, that its
actual management fee rate, including the assets attributable to the Fund's
Preferred Stock, was at the median of those nine comparable funds and that
its overall operating expenses were slightly higher than the median of the
nine funds in the Lipper comparable group. The Board has concluded that the
Fund's management fee and fee rate and overall expense ratio are reasonable
compared to those of other comparable funds.
Profitability--The Board considers the cost of the services provided to the
Fund by the Investment Adviser and the Investment Adviser's and its
affiliates' profits relating to the management and distribution of the Fund
and the MLIM/FAM-advised funds. As part of its analysis, the Board reviewed
the Investment Adviser's methodology in allocating its costs to the
management of the Fund and concluded that there was a reasonable basis for
the allocation. The Board believes the Investment Adviser's profits are
reasonable in relation to the nature and quality of services provided.
Economies of Scale--The Board considers whether there have been economies
of scale in respect of the management of the Fund and whether the Fund has
appropriately benefited from any economies of scale. The Board concluded
that, given the Fund's structure as a closed end fixed income fund, there
is no evidence to date of economies of scale and the Board will continue to
seek information regarding economies of scale.
Conclusion
After the independent directors deliberated in executive session the entire
Board including all of the independent directors, approved the renewal of
the existing Investment Advisory Agreement, concluding that the advisory
fee rate was reasonable in relation to the services provided and that a
contract renewal was in the best interests of the shareholders.
ANNUAL REPORTS, APRIL 30, 2005
Officers and Directors
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Funds Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Robert C. Doll, Jr.* President 2005 to President of MLIM/FAM-advised funds since 124 Funds None
P.O. Box 9011 and present 2005; President of MLIM and FAM since 2001; 163 Portfolios
Princeton, Director Co-Head (Americas Region) thereof from 2000
NJ 08543-9011 to 2001 and Senior Vice President from 1999
Age: 50 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") since 2001;
President of Princeton Administrators, L.P.
("Princeton Administrators") since 2001; Chief
Investment Officer of Oppenheimer Funds, Inc.
in 1999 and Executive Vice President thereof
from 1991 to 1999.
* Mr. Doll 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. Doll is an "interested person," as defined in the Investment
Company Act, of the Fund based on his current positions with MLIM, FAM,
Princeton Services and Princeton Administrators, L.P. Directors serve until
their resignation, removal or death, or until December 31 of the year in
which they turn 72. As Fund President, Mr. Doll serves at the pleasure of
the Board of Directors.
ANNUAL REPORTS, APRIL 30, 2005
Officers and Directors (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Funds Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors*
Ronald W. Forbes Director 1997 (MHD) Professor Emeritus of Finance, School of 48 Funds None
P.O. Box 9095 and 1998 Business, State University of New York at 48 Portfolios
Princeton, (MUS) to Albany since 2000 and Professor thereof from
NJ 08543-9095 present 1989 to 2000; International Consultant, Urban
Age: 64 Institute, Washington D.C. from 1995 to 1999.
Cynthia A. Montgomery Director 1997 (MHD) Professor, Harvard Business School since 48 Funds Newell
P.O. Box 9095 and 1998 1989; Associate Professor, J.L. Kellogg 48 Portfolios Rubbermaid, Inc.
Princeton, (MUS) to Graduate School of Management, Northwestern (manufacturing)
NJ 08543-9095 present University from 1985 to 1989; Associate
Age: 52 Professor, Graduate School of Business
Administration, University of Michigan from
1979 to 1985; Director, Harvard Business
School of Publishing since 2005.
Jean Margo Reid Director 2004 to Self-employed consultant since 2001; Counsel 48 Funds None
P.O. Box 9095 present of Alliance Capital Management (investment 48 Portfolios
Princeton, adviser) in 2000; General Counsel, Director
NJ 08543-9095 and Secretary of Sanford C. Bernstein & Co.,
Age: 59 Inc. (investment adviser/broker-dealer) from
1997 to 2000; Secretary, Sanford C. Bernstein
Fund, Inc. from 1994 to 2000; Director and
Secretary of SCB, Inc. since 1998; Director
and Secretary of SCB Partners, Inc. since 2000;
Director of Covenant House from 2001 to 2004.
Roscoe S. Suddarth Director 2000 to President, Middle East Institute from 1995 48 Funds None
P.O. Box 9095 present to 2001; Foreign Service Officer, United 48 Portfolios
Princeton, States Foreign Service from 1961 to 1995;
NJ 08543-9095 Career Minister, from 1989 to 1995; Deputy
Age: 69 Inspector General, U.S. Department of State
from 1991 to 1994; U.S. Ambassador to The
Hashemite Kingdom of Jordan from 1987 to 1990.
Richard R. West Director 1997 (MHD) Professor of Finance from 1984 to 1995, 48 Funds Bowne & Co.,
P.O. Box 9095 and 1998 Dean from 1984 to 1993 and since 1995 48 Portfolios Inc. (financial
Princeton, (MUS) to Dean Emeritus of New York University Leonard printers);
NJ 08543-9095 present N. Stern School of Business Administration. Vornado Realty
Age: 67 Trust (real estate
company);
Alexander's, Inc.
(real estate
company)
Edward D. Zinbarg Director 2000 to Self-employed financial consultant since 48 Funds None
P.O. Box 9095 present 1994; Executive Vice President of The 48 Portfolios
Princeton, Prudential Insurance Company of America
NJ 08543-9095 from 1988 to 1994; former Director of
Age: 70 Prudential Reinsurance Company and former
Trustee of the Prudential Foundation.
* Directors serve until their resignation, removal or death, or until
December 31 of the year in which they turn 72.
ANNUAL REPORTS, APRIL 30, 2005
Officers and Directors (concluded)
Position(s) Length of
Held with Time
Name, Address & Age Funds Served* Principal Occupation(s) During Past 5 Years
Fund Officers
Donald C. Burke Vice 1997 (MHD) First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
P.O. Box 9011 President and 1998 Senior Vice President and Treasurer of Princeton Services since 1999 and Director
Princeton, and (MUS) to since 2004; Vice President of FAMD since 1999; Vice President of MLIM and FAM
NJ 08543-9011 Treasurer present from 1990 to 1997; Director of Taxation of MLIM from 1990 to 2001; Vice
Age: 44 and 1999 President, Treasurer and Secretary of the IQ Funds since 2004.
to present
Kenneth A. Jacob Senior 2002 to Managing Director of MLIM since 2000; Director of MLIM from 1997 to 2000.
P.O. Box 9011 Vice present
Princeton, President
NJ 08543-9011
Age: 54
John M. Loffredo Senior 2002 to Managing Director of MLIM since 2000; Director of MLIM from 1997 to 2000.
P.O. Box 9011 Vice present
Princeton, President
NJ 08543-9011
Age: 41
Robert A. DiMella Vice 1997 (MHD) Managing Director of MLIM since 2004; Director of MLIM from 2002 to 2004;
P.O. Box 9011 President and 1999 Vice President of MLIM from 1996 to 2001.
Princeton, (MUS) to
NJ 08543-9011 present
Age: 38
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
P.O. Box 9011 Compliance present and Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief
Princeton, Officer Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
NJ 08543-9011 Morgan Stanley Investment Management from 2002 to 2004; Managing Director
Age: 53 and Global Director of Compliance at Citigroup Asset Management from 2000 to
2002; Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance
Officer at Prudential Financial from 1995 to 2000; Senior Counsel in the
Commission's Division of Enforcement in Washington, D.C. from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
P.O. Box 9011 present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD
Princeton, and Princeton Services since 2004.
NJ 08543-9011
Age: 45
* Officers of the Funds serve at the pleasure of the Board of Directors.
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street - 11 East
New York, NY 10286
Preferred Stock:
The Bank of New York
101 Barclay Street - 7 West
New York, NY 10286
NYSE Symbols
MHD MuniHoldings Fund, Inc.
MUS MuniHoldings Insured Fund, Inc.
Effective January 1, 2005, Terry K. Glenn, President and Director and Kevin
A. Ryan, Director of MuniHoldings Fund, Inc. and MuniHoldings Insured Fund,
Inc. retired. The Funds' Board of Directors wishes Messrs. Glenn and Ryan
well in their retirements.
Effective January 1, 2005, Robert C. Doll, Jr. became President and
Director of the Funds.
ANNUAL REPORTS, APRIL 30, 2005
Availability of Quarterly Schedules of Investments
The Funds file their complete schedules of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third quarters
of each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the
SEC's Web site at http://www.sec.gov. The Funds' Forms N-Q may also be
reviewed and copied at the SEC's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained
by calling 1-800-SEC-0330.
Electronic Delivery
The Funds offer electronic delivery of communications to their
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 at 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.
ANNUAL REPORTS, APRIL 30, 2005
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as
of the end of the period covered by this report, that applies to
the registrant's principal executive officer, principal financial
officer and principal accounting officer, or persons performing
similar functions. A copy of the code of ethics is available
without charge upon request by calling toll-free 1-800-MER-FUND
(1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors has determined that (i) the registrant has the
following audit committee financial experts serving on its audit
committee and (ii) each audit committee financial expert is
independent: (1) Ronald W. Forbes, (2) Richard R. West, and (3)
Edward D. Zinbarg.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending April 30, 2005 - $32,000
Fiscal Year Ending April 30, 2004 - $31,500
(b) Audit-Related Fees - Fiscal Year Ending April 30, 2005 - $3,500
Fiscal Year Ending April 30, 2004 - $3,000
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
(c) Tax Fees - Fiscal Year Ending April 30, 2005 - $5,700
Fiscal Year Ending April 30, 2004 - $5,200
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending April 30, 2005 - $0
Fiscal Year Ending April 30, 2004 - $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 April 30, 2005 - $9,200
Fiscal Year Ending April 30, 2004 - $8,200
(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) - $0, 0%
Item 5 - Audit Committee of Listed Registrants - The following
individuals are members of the registrant's separately-
designated standing audit committee established in accordance
with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C.
78c(a)(58)(A)):
Ronald W. Forbes
Cynthia A. Montgomery
Jean Margo Reid (as of August 20, 2004)
Kevin A. Ryan (retired as of December 31, 2004)
Roscoe S. Suddarth
Richard R. West
Edward D. Zinbarg
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-
End Management Investment Companies -
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill
Lynch Investment Managers, L.P. and/or Fund Asset Management, L.P.
(the "Investment Adviser") authority to vote all proxies relating
to the Fund's portfolio securities. The Investment Adviser has
adopted policies and procedures ("Proxy Voting Procedures") with
respect to the voting of proxies related to the portfolio
securities held in the account of one or more of its clients,
including a Fund. Pursuant to these Proxy Voting Procedures, the
Investment Adviser's primary objective when voting proxies is to
make proxy voting decisions solely in the best interests of each
Fund and its shareholders, and to act in a manner that the
Investment Adviser believes is most likely to enhance the economic
value of the securities held by the Fund. The Proxy Voting
Procedures are designed to ensure that the Investment Adviser
considers the interests of its clients, including the Funds, and
not the interests of the Investment Adviser, when voting proxies
and that real (or perceived) material conflicts that may arise
between the Investment Adviser's interest and those of the
Investment Adviser's clients are properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee").
The Committee is comprised of the Investment Adviser's Chief
Investment Officer (the "CIO"), one or more other senior investment
professionals appointed by the CIO, portfolio managers and
investment analysts appointed by the CIO and any other personnel
the CIO deems appropriate. The Committee will also include two
non-voting representatives from the Investment Adviser's Legal
department appointed by the Investment Adviser's General Counsel.
The Committee's membership shall be limited to full-time employees
of the Investment Adviser. No person with any investment banking,
trading, retail brokerage or research responsibilities for the
Investment Adviser's affiliates may serve as a member of the
Committee or participate in its decision making (except to the
extent such person is asked by the Committee to present information
to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser
might be asked to do so). The Committee determines how to vote the
proxies of all clients, including a Fund, that have delegated proxy
voting authority to the Investment Adviser and seeks to ensure that
all votes are consistent with the best interests of those clients
and are free from unwarranted and inappropriate influences. The
Committee establishes general proxy voting policies for the
Investment Adviser and is responsible for determining how those
policies are applied to specific proxy votes, in light of each
issuer's unique structure, management, strategic options and, in
certain circumstances, probable economic and other anticipated
consequences of alternate actions. In so doing, the Committee
may determine to vote a particular proxy in a manner contrary to
its generally stated policies. In addition, the Committee will
be responsible for ensuring that all reporting and recordkeeping
requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a
recurring proxy issue is not suitable for general voting
policies and requires a case-by-case determination. In such
cases, the Committee may elect not to adopt a specific voting
policy applicable to that issue. The Investment Adviser
believes that certain proxy voting issues require investment
analysis - such as approval of mergers and other significant
corporate transactions - akin to investment decisions, and are,
therefore, not suitable for general guidelines. The Committee
may elect to adopt a common position for the Investment Adviser
on certain proxy votes that are akin to investment decisions, or
determine to permit the portfolio manager to make individual
decisions on how best to maximize economic value for a Fund
(similar to normal buy/sell investment decisions made by such
portfolio managers). While it is expected that the Investment
Adviser will generally seek to vote proxies over which the
Investment Adviser exercises voting authority in a uniform
manner for all the Investment Adviser's clients, the Committee,
in conjunction with a Fund's portfolio manager, may determine
that the Fund's specific circumstances require that its proxies
be voted differently.
To assist the Investment Adviser in voting proxies, the Committee
has retained Institutional Shareholder Services ("ISS"). ISS is
an independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address
special circumstances that can arise in connection with proxy
voting. For instance, under the Proxy Voting Procedures, the
Investment Adviser generally will not seek to vote proxies
related to portfolio securities that are on loan, although it
may do so under certain circumstances. In addition, the
Investment Adviser will vote proxies related to securities of
foreign issuers only on a best efforts basis and may elect not
to vote at all in certain countries where the Committee determines
that the costs associated with voting generally outweigh the
benefits. The Committee may at any time override these general
policies if it determines that such action is in the best
interests of a Fund.
From time to time, the Investment Adviser may be required to vote
proxies in respect of an issuer where an affiliate of the Investment
Adviser (each, an "Affiliate"), or a money management or other client
of the Investment Adviser (each, a "Client") is involved. The Proxy
Voting Procedures and the Investment Adviser's adherence to those
procedures are designed to address such conflicts of interest. The
Committee intends to strictly adhere to the Proxy Voting Procedures in
all proxy matters, including matters involving Affiliates and Clients.
If, however, an issue representing a non-routine matter that is material
to an Affiliate or a widely known Client is involved such that the
Committee does not reasonably believe it is able to follow its guidelines
(or if the particular proxy matter is not addressed by the guidelines)
and vote impartially, the Committee may, in its discretion for the purposes
of ensuring that an independent determination is reached, retain an
independent fiduciary to advise the Committee on how to vote or to cast
votes on behalf of the Investment Adviser's clients.
In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent
fiduciary, the powers of the Committee shall pass to a subcommittee,
appointed by the CIO (with advice from the Secretary of the Committee),
consisting solely of Committee members selected by the CIO. The CIO
shall appoint to the subcommittee, where appropriate, only persons
whose job responsibilities do not include contact with the Client and
whose job evaluations would not be affected by the Investment Adviser's
relationship with the Client (or failure to retain such relationship).
The subcommittee shall determine whether and how to vote all proxies on
behalf of the Investment Adviser's clients or, if the proxy matter is,
in their judgment, akin to an investment decision, to defer to the
applicable portfolio managers, provided that, if the subcommittee
determines to alter the Investment Adviser's normal voting guidelines
or, on matters where the Investment Adviser's policy is case-by-case,
does not follow the voting recommendation of any proxy voting service
or other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies relating
to the Client may be voted unless the Secretary, or in the Secretary's
absence, the Assistant Secretary of the Committee concurs that the
subcommittee's determination is consistent with the Investment
Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain recurring
proxy issues that are not expected to involve unusual circumstances.
These policies are guidelines only, and the Investment Adviser may
elect to vote differently from the recommendation set forth in a voting
guideline if the Committee determines that it is in a Fund's best
interest to do so. In addition, the guidelines may be reviewed at any
time upon the request of a Committee member and may be amended or
deleted upon the vote of a majority of Committee members present at a
Committee meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
* Proposals related to the composition of the Board of Directors of
issuers other than investment companies. As a general matter, the
Committee believes that a company's Board of Directors (rather than
shareholders) is most likely to have access to important, nonpublic
information regarding a company's business and prospects, and is
therefore best-positioned to set corporate policy and oversee management.
The Committee, therefore, believes that the foundation of good corporate
governance is the election of qualified, independent corporate directors
who are likely to diligently represent the interests of shareholders and
oversee management of the corporation in a manner that will seek to
maximize shareholder value over time. In individual cases, the Committee
may look at a nominee's history of representing shareholder interests as
a director of other companies or other factors, to the extent the
Committee deems relevant.
* Proposals related to the selection of an issuer's independent auditors.
As a general matter, the Committee believes that corporate auditors
have a responsibility to represent the interests of shareholders and
provide an independent view on the propriety of financial reporting
decisions of corporate management. While the Committee will generally
defer to a corporation's choice of auditor, in individual cases, the
Committee may look at an auditors' history of representing shareholder
interests as auditor of other companies, to the extent the Committee
deems relevant.
* Proposals related to management compensation and employee benefits. As
a general matter, the Committee favors disclosure of an issuer's
compensation and benefit policies and opposes excessive compensation,
but believes that compensation matters are normally best determined by
an issuer's board of directors, rather than shareholders. Proposals to
"micro-manage" an issuer's compensation practices or to set arbitrary
restrictions on compensation or benefits will, therefore, generally not
be supported.
* Proposals related to requests, principally from management, for approval
of amendments that would alter an issuer's capital structure. As a general
matter, the Committee will support requests that enhance the rights of
common shareholders and oppose requests that appear to be unreasonably
dilutive.
* Proposals related to requests for approval of amendments to an issuer's
charter or by-laws. As a general matter, the Committee opposes poison
pill provisions.
* Routine proposals related to requests regarding the formalities of
corporate meetings.
* Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the
Committee believes that a fund's Board of Directors (rather than its
shareholders) is best-positioned to set fund policy and oversee
management. However, the Committee opposes granting Boards of
Directors authority over certain matters, such as changes to a fund's
investment objective, that the Investment Company Act envisions will be
approved directly by shareholders.
* Proposals related to limiting corporate conduct in some manner that
relates to the shareholder's environmental or social concerns. The
Committee generally believes that annual shareholder meetings are
inappropriate forums for discussion of larger social issues, and
opposes shareholder resolutions "micromanaging" corporate conduct or
requesting release of information that would not help a shareholder
evaluate an investment in the corporation as an economic matter. While
the Committee is generally supportive of proposals to require corporate
disclosure of matters that seem relevant and material to the economic
interests of shareholders, the Committee is generally not supportive of
proposals to require disclosure of corporate matters for other
purposes.
Item 8 - Portfolio Managers of Closed-End Management Investment Companies
- Not Applicable at this time
Item 9 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 11 - Controls and Procedures
11(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.
11(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 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
MuniHoldings Insured Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
MuniHoldings Insured Fund, Inc.
Date: June 20, 2005
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/ Robert C. Doll, Jr.
--------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
MuniHoldings Insured Fund, Inc.
Date: June 20, 2005
By: /s/ Donald C. Burke
----------------------------
Donald C. Burke,
Chief Financial Officer of
MuniHoldings Insured Fund, Inc.
Date: June 20, 2005