UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-08753
Name of Fund: MuniHoldings California Insured Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, MuniHoldings California Insured Fund, Inc., 800 Scudders Mill
Road, Plainsboro, NJ 08536. Mailing address: P.O. Box 9011, Princeton,
NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 06/30/06
Date of reporting period: 07/01/05 - 12/31/05
Item 1 - Report to Stockholders
MuniHoldings California
Insured Fund, Inc.
Semi-Annual Report
December 31, 2005
MuniHoldings California Insured Fund, Inc.
The Benefits and Risks of Leveraging
MuniHoldings California Insured Fund, Inc. utilizes leverage to seek to enhance
the yield and net asset value of its Common Stock. However, these objectives
cannot be achieved in all interest rate environments. To leverage, the Fund
issues Preferred Stock, which pays dividends at prevailing short-term interest
rates, and invests the proceeds in long-term municipal bonds. The interest
earned on these investments, net of dividends to Preferred Stock, is paid to
Common Stock shareholders in the form of dividends, and the value of these
portfolio holdings is reflected in the per share net asset value of the Fund's
Common Stock. However, in order to benefit Common Stock shareholders, the yield
curve must be positively sloped; that is, short-term interest rates must be
lower than long-term interest rates. At the same time, a period of generally
declining interest rates will benefit Common Stock shareholders. If either of
these conditions change, then the risks of leveraging will begin to outweigh the
benefits.
To illustrate these concepts, assume a fund's Common Stock capitalization of
$100 million and the issuance of Preferred Stock for an additional $50 million,
creating a total value of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are approximately 3%
and long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million of Preferred
Stock based on the lower short-term interest rates. At the same time, the fund's
total portfolio of $150 million earns the income based on long-term interest
rates.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term investments,
and therefore the Common Stock shareholders are the beneficiaries of the
incremental yield. However, if short-term interest rates rise, narrowing the
differential between short-term and long-term interest rates, the incremental
yield pickup on the Common Stock will be reduced or eliminated completely. At
the same time, the market value of the fund's Common Stock (that is, its price
as listed on the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common Stock's net asset
value will reflect the full decline in the price of the portfolio's investments,
since the value of the fund's Preferred Stock does not fluctuate. In addition to
the decline in net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in these securities. As of December 31, 2005, the percentage of the
Fund's total net assets in inverse floaters was 3.48%, before the deduction of
Preferred Stock.
Swap Agreements
The Fund 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 the
Fund has entered into the swap will default on its obligation to pay the Fund
and the risk that the Fund will not be able to meet its obligations to pay the
other party to the agreement.
2 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005
A Letter From the President
Dear Shareholder
On balance, 2005 was a year of "muddling through" for the U.S. financial
markets, as oil prices reached new record highs, the Federal Reserve Board (the
Fed) increased the target federal funds rate from 2.25% to 4.25%, the housing
market and the consumer finally showed some signs of slowing, and Hurricanes
Katrina and Rita ravaged the Gulf Coast, causing yet untold economic damage.
Although they struggled, stocks managed to post their third straight year of
positive performance. The year was equally uncertain for fixed income markets,
which were bemused by a flattening yield curve and a number of significant
credit events that brought a slowdown in high yield market returns. Notably, the
one-year results for the major asset classes -- stocks, bonds and cash -- were
the closest they have been in more than 100 years. For the 12- and six-month
periods ended December 31, 2005, most of the major market indexes managed to
land in positive territory:
Total Returns as of December 31, 2005 6-month 12-month
=============================================================================================
U.S. equities (Standard & Poor's 500 Index) + 5.77% + 4.91%
---------------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) + 5.88 + 4.55
---------------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) +14.88 +13.54
---------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) - 0.08 + 2.43
---------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 0.60 + 3.51
---------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) + 1.48 + 2.26
---------------------------------------------------------------------------------------------
In hindsight, these numbers are reasonably good given the headwinds facing the
markets in 2005. U.S. equities found support in strong corporate earnings, low
core inflation and healthy company balance sheets. Strength in the global
economy and non-U.S. equity markets helped, as did robust dividend-distribution,
share-buyback and merger-and-acquisition activity. International stocks had an
excellent year, with many markets benefiting from strong economic statistics,
trade surpluses and solid finances. In the U.S. bond market, long-term yields
remained low and, at year-end, the Treasury curve appeared ready to invert.
As 2006 begins, the largest question marks center on the Fed's future moves, the
U.S. consumer's ability (or inability) to continue spending, the direction of
the U.S. dollar following a year of appreciation and the potential for continued
strong economic and corporate earnings growth. As you turn the calendar and
consider how these factors might impact your investments, remember that the new
year is a good time to meet with your financial advisor to review your financial
goals, and to make portfolio changes where necessary. For investing insights and
timely "food for thought" for investors, we also invite you to visit Shareholder
magazine at www.mlim.ml.com/shareholdermagazine.
As always, we thank you for trusting Merrill Lynch Investment Managers with your
investment assets, and we look forward to serving you in the new year and
beyond.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005 3
A Discussion With Your Fund's Portfolio Manager
We remained focused on providing an attractive level of tax-exempt income
to shareholders while also seeking to limit net asset value volatility in the
portfolio.
Describe the recent market environment relative to municipal bonds.
Long-term bond yields generally rose over the past six months, while their
prices, which move in the opposite direction, fell. The decline in bond prices,
and corresponding rise in yields, came as investors continued to focus on
potential inflationary pressures and a strengthening U.S. economy. For the third
quarter of 2005, gross domestic product grew at a faster-than-expected rate of
4.1%. By period-end, 30-year U.S. Treasury bond yields stood at 4.54%, up 35
basis points (.35%) compared to six months earlier.
The Federal Reserve Board (the Fed) continued to raise short-term interest rates
at each of its meetings during the period, lifting the federal funds target rate
to 4.25%. Investors did not expect the current interest rate tightening cycle to
be curtailed in early 2006. Accordingly, the yield curve continued to flatten,
indicating that short-term interest rates were rising more than longer-term
interest rates. During the past six months, 10-year Treasury note yields rose 45
basis points to 4.39%, slightly more than the increase seen in long-term bond
yields.
Tax-exempt bond yields exhibited a similar pattern during the period. According
to Municipal Market Data, the yield on AAA-rated issues maturing in 30 years
increased by 13 basis points to 4.39%, while the yield on AAA-rated issues
maturing in 10 years rose 31 basis points to 3.76%.
Municipalities issued more than $408 billion in new tax-exempt debt in 2005,
nearly 14% over the prior year's issuance and establishing a new annual record.
During the six-month period ended December 31, 2005, more than $200 billion in
new long-term municipal bonds was underwritten, an 18% increase over the same
six months of 2004. Meanwhile, the volume of refunding issues in 2005 increased
by more than 47% compared to 2004 as issuers took advantage of declining
long-term bond yields and a flattening yield curve to refinance outstanding
higher-couponed debt.
Investor demand for municipal product has generally remained positive. The most
current statistics from the Investment Company Institute indicate that,
year-to-date through November 2005, net new cash flows into long-term municipal
bond funds amounted to $6.25 billion -- a significant improvement from the $12.7
billion net outflow seen during the same period in 2004. In December, however,
surging equity prices and holiday seasonal factors led to reduced investor
interest in long-term tax-exempt bond funds.
In early 2006, we look for the municipal bond market to at least match the
performance of the U.S. Treasury market. The fundamentals for the tax-exempt
bond market appear very favorable, and continued positive cash flows are
anticipated. With municipal bonds currently yielding up to 98% of comparable
U.S. Treasury bond yields, and given the prospects for reduced annual issuance
in 2006, we believe the municipal bond market could enjoy solid results in the
coming months.
Describe conditions in the State of California.
Despite some analysts' talk of a possible credit-rating upgrade for California,
the state's ratings at period-end remained at A2 (Moody's), A (Standard &
Poor's) and A (Fitch). In his State of the State address on January 5, 2006,
Governor Arnold Schwarzenegger outlined a $222 billion construction plan to fund
transportation, education, corrections, port and water projects -- a plan that
includes $68 billion in borrowing over the next 10 years and will face an
initial vote for authorization in June 2006. If implemented, the plan would
essentially maximize the state's ability to borrow through 2018 and would
establish a strict cap on debt issuance. While we anticipate that some of this
plan may be approved, we believe that the full $68 billion of debt issuance is
unlikely to take place in the intermediate term.
California's overall budget situation has improved, although this improvement is
due to increased revenues stemming from the stronger economy and not any new
structural reforms to address concerns about spending.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended December 31, 2005, the Common Stock of
MuniHoldings California Insured Fund, Inc., had net annualized yields of 6.21%
and 5.98%, based on a period-end per share net asset value of $15.01 and a per
share market price of $15.60, respectively, and $.470 per share income
dividends. Over the same period, the total investment return on the Fund's
Common Stock was +.59% based on a change in per share net asset value from
$15.40 to $15.01, and assuming reinvestment of all distributions.
4 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005
The Fund's total return, based on net asset value, modestly trailed that of its
comparable Lipper category of California Insured Municipal Debt Funds, which had
an average return of +.69% for the six months ended December 31, 2005. (Funds in
this Lipper category invest primarily in securities that are exempt from
taxation in California, and are insured as to timely payment).
The Fund's relative performance during the past six months was primarily
influenced by our focus on enhancing the stream of tax-exempt income to
shareholders. We were less focused on generating price appreciation in a
generally flat interest rate environment.
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 return based on
changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
We sought to take advantage of short-lived periods of weakness in the California
tax-exempt municipal market by adding to the portfolio's duration -- or
sensitivity to changes in interest rates. During the past six months, we pursued
a relatively defensive portfolio stance because we were seeking to mute the
Fund's price volatility. However, with the Fed apparently near the end of its
current cycle of interest rate hikes, we believed that a more neutral duration
stance was warranted.
We maintained the Fund's credit quality at a high level, with 96% of the
portfolio's assets covered by bond insurance. Because credit spreads have become
extraordinarily tight by historical standards -- reflecting the declining amount
of incremental yield available to investors in lower-rated bonds -- we
intentionally limited our use of the Fund's noninsured "basket," which by
prospectus can amount to as much as 20% of portfolio assets.
For the six months ended December 31, 2005, the Fund's Auction Market Preferred
Stock had average yields as follows: Series A, 2.22%; Series B, 2.29%; Series C,
2.28%; Series D, 2.24%; and Series E, 2.29%. The Fed's interest rate hikes are
clearly having an impact on the Fund's borrowing costs. The Fed raised the
short-term interest rate target 100 basis points during the six-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 38.96% of total net assets, before the
deduction of Preferred Stock. (For a more complete explanation of the benefits
and risks of leveraging, see page 2 of this report to shareholders.)
How would you characterize the Fund's position at the close of the period?
The Fund remains positioned slightly defensively with respect to interest rate
risk. Although new California municipal supply was substantial during the
period, the market did not provide enough longer-duration securities to enable
us to materially influence the Fund's interest rate sensitivity. If long-term
interest rates rise again as the Fed continues its monetary tightening, we would
anticipate extending the Fund's duration to a more neutral stance. In our view,
a rise in long-term interest rates would restore some of the perceived value in
longer-dated maturities, and the higher yields would compensate for the longer
duration.
The Fund's credit quality remains very high. We are not currently seeing
attractive values available from lower-rated bonds, as we do not believe we
would be adequately compensated for taking on additional credit risk. With the
Fund's borrowing costs rising along with the federal funds rate, we plan to
maintain our fully invested posture in an effort to enhance the amount of income
accrual for our shareholders.
Walter C. O'Connor, CFA
Vice President and Portfolio Manager
January 10, 2006
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005 5
Schedule of Investments (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
California--156.5%
-----------------------------------------------------------------------------------------------
$ 1,000 ABAG Finance Authority for Nonprofit Corporations,
California, COP (Children's Hospital Medical Center), 6%
due 12/01/2029 (a) $ 1,096
-----------------------------------------------------------------------------------------------
3,345 ABC California Unified School District, GO, Series A,
5.625% due 8/01/2020 (f)(j) 3,534
-----------------------------------------------------------------------------------------------
4,000 Acalanes, California, Unified High School District, GO,
5.80% due 8/01/2007 (f)(i) 4,201
-----------------------------------------------------------------------------------------------
Alameda County, California, COP (b):
11,960 (Financing Project), 6% due 9/01/2006 (i) 12,405
2,490 RIB, Series 410, 8.194% due 9/01/2021 (g) 2,675
-----------------------------------------------------------------------------------------------
7,360 Alhambra, California, Unified School District, GO (Election
of 2004), Series A, 5% due 8/01/2029 (c) 7,749
-----------------------------------------------------------------------------------------------
4,535 Bakersfield, California, COP, Refunding (Convention
Center Expansion Project), 5.875% due 4/01/2022 (b) 4,717
-----------------------------------------------------------------------------------------------
3,885 Berkeley, California, GO, Series C, 5.375% due 9/01/2029 (c) 4,069
-----------------------------------------------------------------------------------------------
Berkeley, California, Unified School District, GO,
Series I (f)(i):
2,000 5.75% due 8/01/2008 2,148
4,520 5.875% due 8/01/2008 4,866
-----------------------------------------------------------------------------------------------
7,120 Burbank, California, Unified School District, Capital
Appreciation, GO (Election of 1997), Series C, 4.84%**
due 7/01/2027 (c) 2,588
-----------------------------------------------------------------------------------------------
2,925 Cajon Valley, California, Union School District, GO,
Series B, 5.50% due 8/01/2027 (b) 3,163
-----------------------------------------------------------------------------------------------
2,180 California Community College Financing Authority,
Lease Revenue Bonds (Grossmont-Palomar-Shasta),
Series A, 5.625% due 4/01/2026 (b) 2,370
-----------------------------------------------------------------------------------------------
California Educational Facilities Authority, Revenue
Refunding Bonds:
5,815 (Occidental College), 5.625% due 10/01/2007 (b)(i) 6,168
5,000 (Occidental College), 5.70% due 10/01/2007 (b)(i) 5,310
7,720 (Pepperdine University), Series A, 5% due 12/01/2035 (a) 8,108
-----------------------------------------------------------------------------------------------
California HFA, Home Mortgage Revenue Bonds, VRDN, AMT (h):
800 Series B, 3.46% due 8/01/2033 (f) 800
100 Series R, 3.47% due 8/01/2032 (a) 100
-----------------------------------------------------------------------------------------------
California HFA, S/F Mortgage Revenue Bonds, AMT, Class II (b):
315 Series A-1, 6% due 8/01/2020 325
1,160 Series C-2, 5.625% due 8/01/2020 (d) 1,195
-----------------------------------------------------------------------------------------------
9,250 California Health Facilities Financing Authority Revenue
Bonds (Kaiser Permanente), Series A, 5.50% due 6/01/2022 (f)(j) 9,870
-----------------------------------------------------------------------------------------------
California Health Facilities Financing Authority, Revenue
Refunding Bonds:
660 (Catholic Healthcare West), Series A, 6% due 7/01/2006 (b)(i) 682
510 (Catholic Healthcare West), Series A, 5.75% due 7/01/2015 (a) 521
1,840 (Catholic Healthcare West), Series A, 6% due 7/01/2025 (b) 1,951
4,500 (Children's Hospital), 5.375% due 7/01/2020 (b) 4,629
-----------------------------------------------------------------------------------------------
1,900 California Infrastructure and Economic Development
Bank Revenue Bonds (Los Angeles County Department
of Public Social Services), 5.75% due 9/01/2023 (a) 2,132
-----------------------------------------------------------------------------------------------
2,000 California State, GO, 5.50% due 6/01/2025 (c) 2,135
-----------------------------------------------------------------------------------------------
California State, GO, Refunding:
6,000 5.25% due 2/01/2026 (b) 6,390
1,075 5.75% due 12/01/2029 1,165
7,000 RIB, AMT, Series 777X, 6.91% due 12/01/2021 (b)(g) 7,251
4,130 Veterans, AMT, Series B, 5.45% due 12/01/2017 (b) 4,179
-----------------------------------------------------------------------------------------------
California State Public Works Board, Lease Revenue Bonds,
Series C (a):
5,000 (University of California--Institution Project), 5%
due 4/01/2030 5,233
20,000 (Various University of California Projects), 5.125%
due 9/01/2022 20,926
-----------------------------------------------------------------------------------------------
California State Public Works Board, Lease Revenue Refunding Bonds:
5,025 (California State University), Series A, 5.50%
due 10/01/2014 (b) 5,210
8,750 (Department of Corrections), Series B, 5.625%
due 11/01/2019 (b) 9,097
2,625 (Various Community College Projects), Series B, 5.625%
due 3/01/2019 (a) 2,688
-----------------------------------------------------------------------------------------------
7,050 California State, Various Purpose, GO, 5.50% due 11/01/2033 7,711
-----------------------------------------------------------------------------------------------
9,500 California Statewide Communities Development
Authority, COP, Refunding (Huntington Memorial
Hospital), 5.80% due 7/01/2006 (e)(i) 9,808
-----------------------------------------------------------------------------------------------
4,915 California Statewide Communities Development
Authority, Health Facility Revenue Bonds (Memorial
Health Services), Series A, 6% due 10/01/2023 5,443
Portfolio Abbreviations
To simplify the listings of MuniHoldings California Insured Fund, Inc.'s
portfolio holdings in the Schedule of Investments, we have abbreviated the names
of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DRIVERS Derivative Inverse Tax-Exempt Receipts
GO General Obligation Bonds
HFA Housing Finance Agency
M/F Multi-Family
RIB Residual Interest Bonds
ROLS Reset Option Long Securities
S/F Single-Family
VRDN Variable Rate Demand Notes
6 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
California (continued)
-----------------------------------------------------------------------------------------------
$ 1,090 California Statewide Communities Development Authority Revenue
Bonds (Los Angeles Orthopedic Hospital Foundation), 5.50%
due 6/01/2019 (a) $ 1,132
-----------------------------------------------------------------------------------------------
Capistrano, California, Unified Public Financing Authority,
Special Tax Revenue Refunding Bonds, First Lien, Series A (a):
16,770 5.70% due 9/01/2016 17,380
10,640 5.70% due 9/01/2020 11,022
-----------------------------------------------------------------------------------------------
8,705 Castaic Lake, California, Water Agency Revenue Bonds,
COP (Water System Improvement Project), 5.50%
due 8/01/2023 (a) 9,333
-----------------------------------------------------------------------------------------------
2,225 Chico, California, Redevelopment Agency, Tax Allocation
Bonds (Chico Amended and Merged Redevelopment Project),
5% due 4/01/2027 (a) 2,338
-----------------------------------------------------------------------------------------------
2,500 Colton, California, Joint Unified School District, GO,
Series A, 5.375% due 8/01/2026 (c) 2,719
-----------------------------------------------------------------------------------------------
7,800 Contra Costa, California, Community College District,
GO (Election of 2002), 5% due 8/01/2028 (b) 8,183
-----------------------------------------------------------------------------------------------
Contra Costa County, California, COP, Refunding:
4,570 (Capital Projects Program), 5.25% due 2/01/2021 (a) 4,744
6,000 DRIVERS, Series 154, 6.921% due 11/01/2017 (b)(g) 6,658
2,000 (Merrithew Memorial Hospital Project), 5.50%
due 11/01/2022 (b) 2,109
-----------------------------------------------------------------------------------------------
5,910 Corona, California, Department of Water and Power,
COP, 5% due 9/01/2029 (b) 6,182
-----------------------------------------------------------------------------------------------
4,250 Coronado, California, Community Development Agency, Tax
Allocation Bonds (Coronado Community Development Project),
5% due 9/01/2030 (a) 4,425
-----------------------------------------------------------------------------------------------
2,395 Covina-Valley, California, Unified School District, GO,
Refunding, Series A, 5.50% due 8/01/2026 (f) 2,611
-----------------------------------------------------------------------------------------------
3,750 Culver City, California, Redevelopment Finance Authority,
Revenue Refunding Bonds, Tax Allocation, Series A, 5.60%
due 11/01/2025 (f) 4,072
-----------------------------------------------------------------------------------------------
1,870 Davis, California, Joint Unified School District,
Community Facilities District, Special Tax Refunding
Bonds, Number 1, 5.50% due 8/15/2021 (b) 1,914
-----------------------------------------------------------------------------------------------
7,500 Desert Sands, California, Unified School District, GO
(Election of 2001), 5% due 6/01/2029 (f) 7,857
-----------------------------------------------------------------------------------------------
East Side Union High School District, California, Santa
Clara County, Capital Appreciation, GO (Election of 2002),
Series E (k):
5,205 5.03%** due 8/01/2024 2,081
5,550 5.05%** due 8/01/2025 2,102
11,000 5.125%** due 8/01/2028 3,519
-----------------------------------------------------------------------------------------------
East Side Union High School District, California, Santa
Clara County, GO, Series E (c)(j):
6,205 5% due 9/01/2022 6,333
5,655 5% due 9/01/2023 5,772
-----------------------------------------------------------------------------------------------
7,000 El Dorado County, California, Public Agency Financing
Authority, Revenue Refunding Bonds, 5.50% due 2/15/2021 (c) 7,159
-----------------------------------------------------------------------------------------------
7,595 Elk Grove, California, Unified School District, Special Tax
Bonds (Community Facilities District Number 1), 5%
due 12/01/2035 (b) 7,964
-----------------------------------------------------------------------------------------------
Escondido, California, COP, Refunding:
1,000 Series A, 5.75% due 9/01/2024 (c) 1,097
5,000 (Wastewater Project), 5.70% due 9/01/2006 (a)(i) 5,180
-----------------------------------------------------------------------------------------------
5,000 Fontana, California, Redevelopment Agency, Tax
Allocation Refunding Bonds (Southwest Industrial Park
Project), 5% due 9/01/2022 (b) 5,217
-----------------------------------------------------------------------------------------------
5,000 Foothill-De Anza, California, Community College District, GO,
Refunding, 5% due 8/01/2030 (c) 5,187
-----------------------------------------------------------------------------------------------
4,455 Fresno, California, Airport Revenue Bonds, AMT, Series B, 5.50%
due 7/01/2020 (f) 4,741
-----------------------------------------------------------------------------------------------
5,200 Fullerton, California, Joint Union High School District,
GO (Election of 2002), Series B, 5% due 8/01/2029 (c) 5,475
-----------------------------------------------------------------------------------------------
4,040 Garden Grove, California, COP (Financing Project), Series A,
5.50% due 3/01/2026 (a) 4,372
-----------------------------------------------------------------------------------------------
5,200 Glendale, California, Unified School District, GO, Series B,
5.125% due 9/01/2023 (f) 5,461
-----------------------------------------------------------------------------------------------
4,565 Hemet, California, Unified School District, GO, Series A,
5.375% due 8/01/2026 (b) 4,890
-----------------------------------------------------------------------------------------------
9,205 Industry, California, Urban Development Agency, Tax Allocation
Refunding Bonds (Civic-Recreational-Industrial Redevelopment
Project Number 1), 5.50% due 5/01/2020 (b) 9,593
-----------------------------------------------------------------------------------------------
1,700 Inglewood, California, Unified School District, GO, Series A,
5.60% due 10/01/2024 (c) 1,839
-----------------------------------------------------------------------------------------------
2,300 Irvine, California, Unified School District, Special Tax
(Community Facilities District Number 86-1), 5.375%
due 11/01/2020 (a) 2,457
-----------------------------------------------------------------------------------------------
4,665 Irvine, California, Unified School District, Special Tax
Refunding Bonds (Community Facilities District Number
86-1), 5.80% due 11/01/2020 (a) 4,958
-----------------------------------------------------------------------------------------------
2,500 La Quinta, California, Financing Authority, Local Agency
Revenue Bonds, Series A, 5.25% due 9/01/2024 (a) 2,704
-----------------------------------------------------------------------------------------------
3,585 La Quinta, California, Financing Authority, Local Agency
Tax Allocation and Revenue Refunding Bonds, ROLS,
Series II-R-412X, 6.612% due 9/01/2034 (a)(g) 3,966
-----------------------------------------------------------------------------------------------
4,000 Long Beach, California, Bond Finance Authority, Lease
Revenue Bonds (Rainbow Harbor Refinancing Project),
Series A, 5.25% due 5/01/2024 (a) 4,242
-----------------------------------------------------------------------------------------------
10,650 Los Altos, California, School District GO, Series A, 5%
due 8/01/2023 (f) 10,853
-----------------------------------------------------------------------------------------------
10,000 Los Angeles, California, Community Redevelopment
Agency, Community Redevelopment Financing Authority
Revenue Bonds (Bunker Hill Project), Series A, 5%
due 12/01/2027 (f) 10,453
-----------------------------------------------------------------------------------------------
2,000 Los Angeles, California, Harbor Department Revenue
Bonds, AMT, Series B, 5.375% due 11/01/2023 2,046
-----------------------------------------------------------------------------------------------
330 Los Angeles, California, M/F Housing Revenue Refunding
Bonds, Senior Series G, 5.65% due 1/01/2014 (f) 333
-----------------------------------------------------------------------------------------------
10,000 Los Angeles, California, Unified School District, GO,
Series E, 5% due 7/01/2030 (a) 10,510
-----------------------------------------------------------------------------------------------
Los Angeles County, California, Metropolitan
Transportation Authority, Sales Tax Revenue Refunding
Bonds, Senior Series A:
9,000 Proposition A, First Tier, 5% due 7/01/2035 (a) 9,437
3,750 Proposition C, Second Tier, 5.25% due 7/01/2030 (c) 3,983
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005 7
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
California (continued)
-----------------------------------------------------------------------------------------------
$ 8,795 Los Angeles County, California, Sanitation Districts
Financing Authority, Revenue Refunding Bonds (Capital
Projects--District Number 14), Sub-Series B, 5%
due 10/01/2034 (c) $ 9,231
-----------------------------------------------------------------------------------------------
2,735 Los Gatos, California, Unified School District, GO
(Election 2001), Series B, 5% due 8/01/2030 (f) 2,851
-----------------------------------------------------------------------------------------------
1,890 Los Rios, California, Community College District, GO
(Election of 2002), Series B, 5% due 8/01/2027 (b) 1,983
-----------------------------------------------------------------------------------------------
5,000 Menlo Park, California, Community Development Agency, Tax
Allocation (Las Pulgas Community Development Project), 5.50%
due 6/01/2025 (a) 5,403
-----------------------------------------------------------------------------------------------
9,000 Metropolitan Water District of Southern California, Waterworks
Revenue Bonds, Series B-1, 5% due 10/01/2033 (c) 9,369
-----------------------------------------------------------------------------------------------
5,000 Modesto, California, Schools Infrastructure Financing
Agency, Special Tax Bonds, 5% due 9/01/2029 (a) 5,218
-----------------------------------------------------------------------------------------------
3,500 Mojave, California, Water Agency, GO, Refunding (Improvement
District--Morongo Basin), 5.80% due 9/01/2022 (c) 3,628
-----------------------------------------------------------------------------------------------
2,000 Montebello, California, Community Redevelopment Agency, Housing
Tax Allocation Bonds, Series A, 5.45% due 9/01/2019 (f) 2,108
-----------------------------------------------------------------------------------------------
4,150 Moorpark, California, Redevelopment Agency, Tax Allocation
Bonds (Moorpark Redevelopment Project), 5.125% due 10/01/2031 (a) 4,357
-----------------------------------------------------------------------------------------------
2,315 Morgan Hill, California, Unified School District, GO,
5.75% due 8/01/2019 (c) 2,551
-----------------------------------------------------------------------------------------------
1,500 Napa Valley, California, Unified School District, GO
(Election 2002), 5% due 8/01/2029 (c) 1,579
-----------------------------------------------------------------------------------------------
16,000 Norco, California, Redevelopment Agency, Tax Allocation
Refunding Bonds (Norco Redevelopment Project -- Area Number 1),
5.75% due 3/01/2026 (b) 16,385
-----------------------------------------------------------------------------------------------
2,140 North City West, California, School Facilities Financing Authority,
Special Tax Refunding Bonds, Series B, 6% due 9/01/2019 (f) 2,221
-----------------------------------------------------------------------------------------------
3,275 Northern California Power Agency, Public Power Revenue Refunding
Bonds (Hydroelectric Project Number One), Series A, 5.125%
due 7/01/2023 (b) 3,425
-----------------------------------------------------------------------------------------------
10,350 Norwalk-La Mirada Unified School District, California,
Capital Appreciation, GO, Series B, 5%** due 8/01/2024 (c) 4,325
-----------------------------------------------------------------------------------------------
9,995 Oakland, California, Alameda County Unified School
District, GO, Refunding, Series C, 5.50% due 8/01/2019 (c) 10,114
-----------------------------------------------------------------------------------------------
Oakland, California, Alameda County Unified School District,
GO, Series F (b):
3,705 5.625% due 8/01/2020 4,018
5,245 5.625% due 8/01/2021 5,689
6,000 5.50% due 8/01/2024 6,463
-----------------------------------------------------------------------------------------------
7,105 Oakland, California, Joint Powers Financing Authority,
Lease Revenue Bonds (Oakland Administration Buildings),
5.75% due 8/01/2006 (a)(i) 7,349
-----------------------------------------------------------------------------------------------
5,000 Ohlone, California, Community College District, GO,
Series B, 5% due 8/01/2030 (f) 5,256
-----------------------------------------------------------------------------------------------
10,000 Oxnard, California, Financing Authority, Wastewater Revenue Bonds
(Redwood Trunk Sewer and Headworks Projects), Series A, 5.25%
due 6/01/2034 (c) 10,701
-----------------------------------------------------------------------------------------------
Pajaro Valley, California, Unified School District, Capital
Appreciation, GO (Election of 2002), Series B (f):
5,610 5.03%** due 8/01/2024 2,327
6,440 5.16%** due 8/01/2028 2,168
-----------------------------------------------------------------------------------------------
6,475 Palm Desert, California, Financing Authority, Tax Allocation
Revenue Bonds (Project Area Number 2), 5% due 8/01/2033 (b) 6,745
-----------------------------------------------------------------------------------------------
5,750 Palm Desert, California, Financing Authority, Tax Allocation
Revenue Refunding Bonds (Project Area Number 1), 5.45%
due 4/01/2018 (b) 6,009
-----------------------------------------------------------------------------------------------
1,000 Palm Springs, California, COP, Refunding (Multiple Capital
Facilities Project), 5.75% due 4/01/2017 (a) 1,050
-----------------------------------------------------------------------------------------------
1,600 Palm Springs, California, Financing Authority, Lease Revenue
Refunding Bonds (Convention Center Project), Series A,
5.50% due 11/01/2035 (b) 1,771
-----------------------------------------------------------------------------------------------
15,490 Peralta, California, Community College District, GO (Election
of 2000), Series D, 5% due 8/01/2035 (f) 16,247
-----------------------------------------------------------------------------------------------
5,115 Perris, California, Unified School District, Capital Appreciation,
GO, Series A, 5.20%** due 9/01/2028 (c) 1,730
-----------------------------------------------------------------------------------------------
4,000 Pittsburg, California, Public Financing Authority, Water Revenue
Bonds, 5.50% due 6/01/2007 (b)(i) 4,185
-----------------------------------------------------------------------------------------------
9,100 Pleasanton, California, Unified School District, GO, Series E,
5.50% due 8/01/2008 (c)(i) 9,717
-----------------------------------------------------------------------------------------------
5,000 Port of Oakland, California, Port Revenue Refunding Bonds,
Series I, 5.40% due 11/01/2017 (b) 5,285
-----------------------------------------------------------------------------------------------
12,675 Port of Oakland, California, RIB, AMT, Series 1192, 6.96%
due 11/01/2027 (c)(g) 14,312
-----------------------------------------------------------------------------------------------
Port of Oakland, California, Revenue Bonds, AMT, Series K (c):
3,500 5.75% due 11/01/2014 3,755
17,120 5.75% due 11/01/2029 18,266
-----------------------------------------------------------------------------------------------
Rancho Cordova, California, COP (City Hall Facility
Acquisition Project) (k):
5,085 5% due 2/01/2030 5,307
5,525 5% due 2/01/2035 5,750
-----------------------------------------------------------------------------------------------
2,205 Richmond, California, Joint Powers Financing Authority,
Tax Allocation Revenue Bonds, Series A, 5.50% due 9/01/2018 (b) 2,396
-----------------------------------------------------------------------------------------------
10,825 Sacramento, California, Municipal Utility District, Electric
Revenue Refunding Bonds, Series L, 5.125% due 7/01/2022 (b) 11,300
-----------------------------------------------------------------------------------------------
3,500 Sacramento, California, Power Authority Revenue Bonds
(Cogeneration Project), 5.875% due 7/01/2006 (b)(i) 3,616
-----------------------------------------------------------------------------------------------
1,700 Sacramento County, California, Airport System Revenue Bonds,
Series A, 5.25% due 7/01/2017 (f) 1,831
-----------------------------------------------------------------------------------------------
4,000 Sacramento County, California, Sanitation District Financing
Authority, Revenue Bonds, Series A, 5% due 12/01/2035 (a) 4,190
-----------------------------------------------------------------------------------------------
4,000 Sacramento County, California, Sanitation District Financing
Authority, Revenue Refunding Bonds, 5% due 8/01/2030 (b) 4,205
8 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
California (continued)
-----------------------------------------------------------------------------------------------
$ 4,115 Saddleback Valley, California, Unified School District,
GO, 5% due 8/01/2029 (f) $ 4,314
-----------------------------------------------------------------------------------------------
5,440 San Bernardino, California, Joint Powers Financing Authority,
Lease Revenue Bonds (Department of Transportation Lease),
Series A, 5.50% due 12/01/2020 (b) 5,558
-----------------------------------------------------------------------------------------------
1,480 San Bernardino County, California, COP, Refunding
(Medical Center Financing Project), 5.50% due 8/01/2019 (b) 1,497
-----------------------------------------------------------------------------------------------
3,330 San Diego, California, Community College District, GO
(Election of 2002), 5% due 5/01/2030 (f) 3,497
-----------------------------------------------------------------------------------------------
5,055 San Diego, California, Public Facilities Financing
Authority, Sewer Revenue Bonds, Series A, 5.25%
due 5/15/2027 (c) 5,215
-----------------------------------------------------------------------------------------------
6,480 San Diego, California, Unified School District, GO
(Election of 1998), Series F, 5% due 7/01/2028 (f) 6,796
-----------------------------------------------------------------------------------------------
1,500 San Diego County, California, COP (Edgemoor Project
and Regional System), Refunding, 5% due 2/01/2029 (a) 1,566
-----------------------------------------------------------------------------------------------
4,000 San Diego County, California, Water Authority, Water
Revenue Bonds, COP, Series A, 5% due 5/01/2031 (f) 4,191
-----------------------------------------------------------------------------------------------
6,795 San Francisco, California, Bay Area Rapid Transit District,
Sales Tax Revenue Bonds, 5.50% due 7/01/2009 (c)(i) 7,360
-----------------------------------------------------------------------------------------------
13,100 San Francisco, California, Bay Area Rapid Transit District,
Sales Tax Revenue Refunding Bonds, Series A, 5%
due 7/01/2030 (b) 13,767
-----------------------------------------------------------------------------------------------
San Francisco, California, City and County Airport Commission,
International Airport Revenue Bonds, AMT, Second Series:
5,830 Issue 10A, 5.50% due 5/01/2013 (b) 5,983
5,750 Issue 12A, 5.80% due 5/01/2021 (c) 5,850
6,430 Issue 24A, 5.50% due 5/01/2024 (f) 6,785
-----------------------------------------------------------------------------------------------
8,900 San Francisco, California, State Building Authority, Lease
Revenue Bonds (San Francisco Civic Center Complex), Series A,
5.25% due 12/01/2006 (a)(i) 9,238
-----------------------------------------------------------------------------------------------
San Jose-Evergreen, California, Community College District, Capital
Appreciation, GO (Election of 2004), Refunding, Series A (b):
10,410 5.17%** due 9/01/2024 4,129
7,250 5.34%** due 9/01/2029 2,152
-----------------------------------------------------------------------------------------------
San Juan, California, Unified School District, GO :
3,955 5.625% due 8/01/2018 (c) 4,331
3,830 5.625% due 8/01/2019 (c) 4,194
4,250 (Election of 2002), 5% due 8/01/2028 (b) 4,438
-----------------------------------------------------------------------------------------------
6,740 San Mateo, California, Redevelopment Agency, Merged Area Tax
Allocation Refunding Bonds, Series A, 5% due 8/01/2030 (k) 7,037
-----------------------------------------------------------------------------------------------
2,300 San Mateo County, California, Community College District, COP, 5%
due 10/01/2029 (b) 2,397
-----------------------------------------------------------------------------------------------
5,650 San Mateo County, California, Transit District, Sales Tax
Revenue Refunding Bonds, Series A, 5% due 6/01/2029 (b) 5,945
-----------------------------------------------------------------------------------------------
14,000 Santa Clara, California, Redevelopment Agency, Tax Allocation
Bonds (Bayshore North Project), Series A, 5.50% due 6/01/2023 (a) 15,000
-----------------------------------------------------------------------------------------------
6,050 Santa Clara, California, Subordinated Electric Revenue
Bonds, Series A, 5% due 7/01/2028 (b) 6,315
-----------------------------------------------------------------------------------------------
9,750 Santa Clara County, California, Financing Authority,
Lease Revenue Refunding Bonds, Series A, 5% due 11/15/2022 (a) 10,200
-----------------------------------------------------------------------------------------------
9,000 Santa Fe Springs, California, Community Development,
Commission Tax Allocation Refunding Bonds (Consolidated
Redevelopment Project), Series A, 5% due 9/01/2022 (b) 9,379
-----------------------------------------------------------------------------------------------
5,110 Santa Monica, California, Redevelopment Agency, Tax
Allocation Bonds (Earthquake Recovery Redevelopment
Project), 6% due 7/01/2029 (a) 5,552
-----------------------------------------------------------------------------------------------
2,855 Santa Rosa, California, High School District, GO
(Election of 2002), 5% due 8/01/2028 (b) 2,981
-----------------------------------------------------------------------------------------------
4,450 Saugus, California, Union School District, GO, Series B,
5% due 8/01/2029 (f) 4,685
-----------------------------------------------------------------------------------------------
5,000 Southern California Public Power Authority, Power
Project Revenue Bonds (Magnolia Power Project),
Series A-1, 5% due 7/01/2033 (a) 5,196
-----------------------------------------------------------------------------------------------
1,570 Southwestern Community College District, California,
GO, Refunding, 5.25% due 8/01/2017 (b) 1,758
-----------------------------------------------------------------------------------------------
3,200 Stockton, California, Public Financing Authority, Water
Revenue Bonds (Water System Capital Improvement
Projects), Series A, 5% due 10/01/2031 (b) 3,364
-----------------------------------------------------------------------------------------------
1,500 Stockton, California, Redevelopment Agency, Revenue Bonds
(Stockton Events Center--Arena Project), 5% due 9/01/2028 (c) 1,561
-----------------------------------------------------------------------------------------------
13,250 Tracy, California, Area Public Facilities Financing Agency,
Special Tax Refunding Bonds (Community Facilities District Number
87-1), Series H, 5.875% due 10/01/2019 (b) 13,910
-----------------------------------------------------------------------------------------------
6,655 Turlock, California, Public Finance Authority, Sewer
Revenue Bonds, Series A, 5% due 9/15/2033 (c) 6,926
-----------------------------------------------------------------------------------------------
7,475 University of California, COP, Series A, 5.25%
due 11/01/2007 (a)(i) 7,823
-----------------------------------------------------------------------------------------------
9,875 University of California, Hospital Revenue Bonds (University of
California Medical Center), 5.75% due 7/01/2006 (a)(i) 10,096
-----------------------------------------------------------------------------------------------
1,410 University of California Revenue Bonds, Series K, 5.25%
due 9/01/2024 (c) 1,485
-----------------------------------------------------------------------------------------------
16,000 University of California Revenue Refunding Bonds (Multiple Purpose
Projects), Series E, 5.125% due 9/01/2020 (b) 16,589
-----------------------------------------------------------------------------------------------
2,200 Val Verde, California, Unified School District, COP (School
Construction Project), Refunding, Series B, 5% due 1/01/2030 (c) 2,292
-----------------------------------------------------------------------------------------------
Vista, California, Unified School District, GO:
10,000 Series A, 5.25% due 8/01/2025 (f) 10,652
2,550 Series B, 5% due 8/01/2028 (c) 2,663
-----------------------------------------------------------------------------------------------
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005 9
Schedule of Investments (concluded) (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
California (concluded)
-----------------------------------------------------------------------------------------------
$ 6,075 Washington, California, Unified School District (Yolo
County), Capital Appreciation, GO (Election of 2004),
Series A, 4.98%** due 8/01/2029 (c) $ 1,984
-----------------------------------------------------------------------------------------------
5,825 West Contra Costa, California, Unified School District,
Capital Appreciation, GO (Election of 2002), Series C,
4.98%** due 8/01/2029 (c) 1,904
-----------------------------------------------------------------------------------------------
6,690 West Contra Costa, California, Unified School District,
GO (Election of 2002), Series B, 5% due 8/01/2032 (f) 6,932
-----------------------------------------------------------------------------------------------
3,145 Yorba Linda, California, Redevelopment Agency,
Redevelopment Project Tax Allocation Revenue Bonds
(Subordinate Lien), Series B, 5% due 9/01/2032 (a) 3,301
===============================================================================================
Puerto Rico--4.7%
-----------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Infrastructure Financing Authority,
Special Tax and Capital Appreciation Revenue Bonds, Series A:
15,000 4.60%** due 7/01/2030 (c) 4,778
12,400 4.77%** due 7/01/2042 (c) 2,183
10,000 4.77%** due 7/01/2044 (a) 1,597
-----------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority, Power Revenue Bonds:
11,215 Series HH, 5.30% due 7/01/2020 (f) 12,015
7,880 Series NN, 5.125% due 7/01/2029 8,159
-----------------------------------------------------------------------------------------------
Total Municipal Bonds
(Cost--$940,751)--161.2% 985,117
===============================================================================================
===============================================================================================
Shares
Held Short-Term Securities
===============================================================================================
88 CMA California Municipal Money Fund *** 88
-----------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$88)--0.0% 88
===============================================================================================
Total Investments (Cost--$940,839*)--161.2% 985,205
Other Assets Less Liabilities--2.6% 15,991
Preferred Stock, at Redemption Value--(63.8%) (390,152)
----------
Net Assets Applicable to Common Stock--100.0% $ 611,044
==========
* The cost and unrealized appreciation (depreciation) of investments as of
December 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost.............................................. $940,329
========
Gross unrealized appreciation............................... $ 45,797
Gross unrealized depreciation............................... (921)
--------
Net unrealized appreciation................................. $ 44,876
========
** Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
*** Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
CMA California Municipal Money Fund 33 $23
--------------------------------------------------------------------------
(a) AMBAC Insured.
(b) MBIA Insured.
(c) FGIC Insured.
(d) FHA Insured.
(e) Connie Lee Insured.
(f) FSA Insured.
(g) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(h) Security may have a maturity of more than one year at time of issuance,
but has variable rate and demand features that qualify it as a short-term
security. The rate disclosed is that currently in effect. This rate
changes periodically based upon prevailing market rates.
(i) Prerefunded.
(j) Escrowed to maturity.
(k) XL Capital Insured.
See Notes to Financial Statements.
Portfolio Information as of December 31, 2005
Percent of
Total
Quality Ratings by S&P/Moody's Investments
--------------------------------------------------------------------------------
AAA/Aaa .......................................................... 97.5%
AA/Aa ............................................................ 0.2
A/A .............................................................. 2.2
Other* ........................................................... 0.1
--------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments and variable rate
demand notes.
10 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005
Statement of Net Assets
As of December 31, 2005
==================================================================================================================================
Assets
----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified cost--$940,750,258) $ 985,116,802
Investments in affiliated securities, at value (identified cost--$88,264) ...... 88,264
Cash ........................................................................... 31,211
Receivables:
Interest .................................................................... $ 15,472,494
Securities sold ............................................................. 3,528,800 19,001,294
-------------
Prepaid expenses ............................................................... 3,584
--------------
Total assets ................................................................... 1,004,241,155
--------------
==================================================================================================================================
Liabilities
----------------------------------------------------------------------------------------------------------------------------------
Payables:
Securities purchased ........................................................ 2,339,138
Investment adviser .......................................................... 407,158
Dividends to Common Stock shareholders ...................................... 60,082
Other affiliates ............................................................ 14,705 2,821,083
-------------
Accrued expenses and other liabilities ......................................... 224,070
--------------
Total liabilities .............................................................. 3,045,153
--------------
==================================================================================================================================
Preferred Stock
----------------------------------------------------------------------------------------------------------------------------------
Preferred Stock, at redemption value, par value $.10 per share (1,920 Class A
Shares, 3,880 Class B Shares, 3,200 Class C Shares, 2,960 Class D Shares
and 3,640 Class E Shares of AMPS* authorized, issued and outstanding at
$25,000 per share liquidation preference) ..................................... 390,151,962
--------------
==================================================================================================================================
Net Assets Applicable to Common Stock
----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock .......................................... $ 611,044,040
==============
==================================================================================================================================
Analysis of Net Assets Applicable to Common Stock
----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.10 per share (40,721,660 shares issued and outstanding) $ 4,072,166
Paid-in capital in excess of par ............................................... 600,677,596
Undistributed investment income--net ........................................... $ 6,727,923
Accumulated realized capital losses--net ....................................... (44,800,189)
Unrealized appreciation--net ................................................... 44,366,544
-------------
Total accumulated earnings--net ................................................ 6,294,278
--------------
Total--Equivalent to $15.01 net asset value per share of Common Stock
(market price--$15.60) ........................................................ $ 611,044,040
==============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005 11
Statement of Operations
For the Six Months Ended December 31, 2005
==================================================================================================================================
Investment Income
----------------------------------------------------------------------------------------------------------------------------------
Interest ............................................................... $ 25,151,130
Dividends from affiliates .............................................. 22,806
-------------
Total income ........................................................... 25,173,936
-------------
==================================================================================================================================
Expenses
----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................... $ 2,809,869
Commission fees ........................................................ 503,222
Accounting services .................................................... 143,930
Transfer agent fees .................................................... 41,010
Professional fees ...................................................... 30,325
Custodian fees ......................................................... 24,830
Printing and shareholder reports ....................................... 24,322
Directors' fees and expenses ........................................... 19,747
Pricing fees ........................................................... 15,480
Listing fees ........................................................... 14,604
Other .................................................................. 36,938
-------------
Total expenses before waiver and reimbursement ......................... 3,664,277
Waiver and reimbursement of expenses ................................... (173,420)
-------------
Total expenses after waiver and reimbursement .......................... 3,490,857
-------------
Investment income--net ................................................. 21,683,079
-------------
==================================================================================================================================
Realized & Unrealized Gain (Loss)--Net
----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net .................................................... 6,102,234
Futures contracts--net .............................................. (385,491) 5,716,743
-------------
Change in unrealized appreciation on:
Investments--net .................................................... (19,601,449)
Futures contracts--net .............................................. (36,942) (19,638,391)
-------------------------------
Total realized and unrealized loss--net ................................ (13,921,648)
-------------
==================================================================================================================================
Dividends to Preferred Stock Shareholders
----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................. (4,512,715)
-------------
Net Increase in Net Assets Resulting from Operations ................... $ 3,248,716
=============
See Notes to Financial Statements.
12 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2005 2005
==================================================================================================================================
Operations
----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ......................................................... $ 21,683,079 $ 43,408,467
Realized gain--net ............................................................. 5,716,743 4,909,272
Change in unrealized appreciation/depreciation--net ............................ (19,638,391) 23,183,647
Dividends to Preferred Stock shareholders ...................................... (4,512,715) (5,757,284)
-------------------------------
Net increase in net assets resulting from operations ........................... 3,248,716 65,744,102
-------------------------------
==================================================================================================================================
Dividends to Common Stock Shareholders
----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ......................................................... (19,278,947) (38,543,121)
-------------------------------
Net decrease in net assets resulting from dividends to Common Stock shareholders (19,278,947) (38,543,121)
-------------------------------
==================================================================================================================================
Capital Stock Transactions
----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets derived from capital stock transactions ............. 965,420 --
-------------------------------
==================================================================================================================================
Net Assets Applicable to Common Stock
----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets applicable to Common Stock ............. (15,064,811) 27,200,981
Beginning of period ............................................................ 626,108,851 598,907,870
-------------------------------
End of period* ................................................................. $ 611,044,040 $ 626,108,851
===============================
* Undistributed investment income--net ....................................... $ 6,727,923 $ 8,836,506
===============================
See Notes to Financial Statements.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005 13
Financial Highlights
For the Six
Months Ended For the Year Ended June 30,
The following per share data and ratios have been derived December 31, -------------------------------------------
from information provided in the financial statements. 2005 2005 2004 2003 2002
==================================================================================================================================
Per Share Operating Performance
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ......................... $ 15.40 $ 14.73 $ 15.53 $ 14.82 $ 14.46
--------------------------------------------------------
Investment income--net** ..................................... .53 1.07 1.05 1.09 1.10
Realized and unrealized gain (loss)--net ..................... (.34) .69 (.84) .63 .30
Dividends and distributions to Preferred Stock shareholders:
Investment income--net .................................... (.11) (.14) (.08) (.10) (.15)
Realized gain--net ........................................ -- -- -- -- --+
--------------------------------------------------------
Total from investment operations ............................. .08 1.62 .13 1.62 1.25
--------------------------------------------------------
Less dividends and distributions to Common Stock shareholders:
Investment income--net .................................... (.47) (.95) (.93) (.91) (.89)
Realized gain--net ........................................ -- -- -- -- --+
--------------------------------------------------------
Total dividends and distributions to Common Stock shareholders (.47) (.95) (.93) (.91) (.89)
--------------------------------------------------------
Net asset value, end of period ............................... $ 15.01 $ 15.40 $ 14.73 $ 15.53 $ 14.82
========================================================
Market price per share, end of period ........................ $ 15.60 $ 14.97 $ 13.36 $ 14.85 $ 14.19
========================================================
==================================================================================================================================
Total Investment Return****
----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........................... .59%@ 11.56% 1.28% 11.60% 9.10%
========================================================
Based on market price per share .............................. 7.55%@ 19.56% (3.93%) 11.45% 14.61%
========================================================
==================================================================================================================================
Ratios Based on Average Net Assets of Common Stock
----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver and reimbursement and excluding
reorganization expenses*** .................................. 1.12%* 1.11% 1.10% 1.11% 1.14%
========================================================
Total expenses, excluding reorganization expenses*** ......... 1.17%* 1.17% 1.17% 1.17% 1.20%
========================================================
Total expenses*** ............................................ 1.17%* 1.17% 1.17% 1.17% 1.22%
========================================================
Total investment income--net*** .............................. 6.94%* 6.99% 6.87% 7.09% 7.41%
========================================================
Amount of dividends to Preferred Stock shareholders .......... 1.45%* .93% .53% .65% 1.02%
========================================================
Investment income--net, to Common Stock shareholders ......... 5.49%* 6.06% 6.34% 6.44% 6.39%
========================================================
14 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005
Financial Highlights (concluded)
For the Six
Months Ended For the Year Ended June 30,
The following per share data and ratios have been derived December 31, -----------------------------------------------
from information provided in the financial statements. 2005 2005 2004 2003 2002
===============================================================================================================================
Ratios Based on Average Net Assets of Preferred Stock
-------------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders .......... 2.27%* 1.48% .85% 1.03% 1.57%
=============================================================
===============================================================================================================================
Supplemental Data
-------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock, end of period
(in thousands) ..................................... $611,044 $626,109 $598,908 $631,571 $602,571
=============================================================
Preferred Stock outstanding, end of period
(in thousands) ..................................... $390,000 $390,000 $390,000 $390,000 $390,000
=============================================================
Portfolio turnover ................................. 20.92% 48.42% 35.59% 26.99% 41.35%
=============================================================
===============================================================================================================================
Leverage
-------------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 .......................... $ 2,567 $ 2,605 $ 2,536 $ 2,619 $ 2,545
=============================================================
===============================================================================================================================
Dividends Per Share on Preferred Stock Outstanding
-------------------------------------------------------------------------------------------------------------------------------
Series A--Investment income--net ................... $ 282 $ 347 $ 195 $ 253 $ 362
=============================================================
Series B--Investment income--net ................... $ 292 $ 391 $ 216 $ 269 $ 400
=============================================================
Series C--Investment income--net ................... $ 291 $ 373 $ 218 $ 248 $ 375
=============================================================
Series D--Investment income--net ................... $ 285 $ 351 $ 210 $ 255 $ 400
=============================================================
Series E--Investment income--net ................... $ 292 $ 369 $ 213 $ 262 $ 408
=============================================================
* Annualized.
** Based on average shares outstanding.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
**** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effect of sales
charges.
+ Amount is less than $(.01) per share.
@ Aggregate total investment return.
See Notes to Financial Statements.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005 15
Notes to Financial Statements
1. Significant Accounting Policies:
MuniHoldings California Insured Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, closed-end
management investment company. The Fund's financial statements are prepared in
conformity with U.S. generally accepted accounting principles, which may require
the use of management accruals and estimates. Actual results may differ from
these estimates. These unaudited financial statements reflect all adjustments,
which are, in the opinion of management, necessary to present a fair statement
of the results for the interim period. All such adjustments are of a normal,
recurring nature. The Fund determines and makes available for publication the
net asset value of its Common Stock on a daily basis. The Fund's Common Stock
shares are listed on the New York Stock Exchange under the symbol MUC. The
following is a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC market 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 Fund under the general direction
of the Board of Directors. Such valuations and procedures are reviewed
periodically by the Board of Directors of the Fund. 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 market, valuation is the last asked price
(options written) or the last bid price (options purchased). Swap agreements are
valued by quoted fair values received daily by the Fund'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 Fund.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
o Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such futures contracts. Futures contracts
are contracts for delayed delivery of securities at a specific future date
and at a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time it was
closed.
o Options -- The Fund may write covered call options and purchase put
options. When the Fund writes an option, an amount equal to the premium
received by the Fund is reflected as an asset and an equivalent liability.
The amount of the liability is subsequently marked-to-market to reflect
the current market value of the option written. When a security is
purchased or sold through an exercise of an option, the related premium
paid (or received) is added to (or deducted from) the basis of the
security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent
of the premiums received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Forward interest rate swaps -- The Fund may enter into forward interest
rate swaps. In a forward interest rate swap, the Fund and the counterparty
agree to make net periodic payments on a specified notional contract
amount, commencing on a specified future effective date,
16 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005
Notes to Financial Statements (concluded)
unless terminated earlier. When the agreement is closed, the Fund records
a realized gain or loss in an amount equal to the value of the agreement.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(e) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of .55% of the Fund's average daily net assets, including
proceeds from the issuance of Preferred Stock. For the six months ended December
31, 2005, FAM earned fees of $2,809,869, of which $168,637 was waived. In
addition, FAM has agreed to reimburse its advisory fee by the amount of advisory
fees the Fund pays to FAM indirectly through its investment in CMA California
Municipal Money Fund. For the six months ended December 31, 2005, FAM reimbursed
the Fund in the amount of $4,783.
For the six months ended December 31, 2005, the Fund reimbursed FAM $11,500 for
certain accounting services.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended December 31, 2005 were $214,865,416 and $205,678,787, respectively.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of stock, including Preferred
Stock, par value $.10 per share, all of which were initially classified as
Common Stock. The Board of Directors is authorized, however, to reclassify any
unissued shares of stock without approval of holders of Common Stock.
Common Stock
Shares issued and outstanding during the six months ended December 31, 2005
increased by 64,359 as a result of dividend reinvestment and during the year
ended June 30, 2005 remained constant.
Preferred Stock
Auction Market Preferred Stock are shares of Preferred Stock of the Fund, with a
par value of $.10 per share and a liquidation preference of $25,000 per share
that entitle their holders to receive cash dividends at an annual rate that may
vary for the successive dividend periods. The yields in effect at December 31,
2005 were: Series A, 3.30%; Series B, 3.30%; Series C, 3.10%; Series D, 2.50%;
and Series E, 3.45%.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of each
auction. For the six months ended December 31, 2005, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an affiliate of FAM, earned $206,140 as
commissions.
5. Capital Loss Carryforward:
On June 30, 2005, the Fund had a net capital loss carryforward of $44,726,463,
of which $8,937,524 expires in 2007, $7,894,678 expires in 2008, $24,786,894
expires in 2009 and $3,107,367 expires in 2012. This amount will be available to
offset like amounts of any future taxable gains.
6. Subsequent Event:
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of $.075000 per share on January 30, 2006 to shareholders of record on
January 18, 2006.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005 17
Disclosure of Investment Advisory Agreement
Activities 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 Co-chairmen of
the Board are also independent directors. 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; (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 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 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 provided by the Investment Adviser concerning
investment advisory fees charged to other clients, such as other mutual funds
and offshore funds under similar investment mandates. 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, allocation of
Fund portfolio transactions, 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 which occurred in November 2005, the independent directors' and
Board's review included the following:
Services Provided by the Investment Adviser -- 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
18 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005
advisory services and the Fund's investment performance. 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 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 more importance to performance
over relatively long periods of time, typically three to five years. For the
periods ended August 31, 2005, the Fund's performance after fees and expenses
ranked in the fifth quintile for the one-year period, in the second quintile for
the three-year period and in the first quintile for the five-year period.
Considering these factors, the Board concluded that the nature and quality of
these services 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
municipal investing group the strategies being used to achieve the stated
objectives. Among other things, the Board considers the size, education 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 managers. The Board also considered the
experience of the Fund's portfolio manager and noted that Mr. O'Connor has more
than twenty-one years of experience in portfolio management. The Investment
Adviser and its investment staff have extensive experience in analyzing and
managing the types of investments used by the Fund. The Board concluded 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 did not consider the
services provided to and the fees charged by the Investment Adviser to other
types of clients with similar investment mandates because the Investment Adviser
advised the Board that it had no comparable investment mandates from its
clients. The Fund's contractual management fee rate was equal to, and the actual
management fee rate and actual total expenses were somewhat higher than, the
median fees and expenses charged by comparable funds, as determined by Lipper.
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 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 also considered federal
court decisions discussing an investment adviser's profitability and
profitability levels considered to be reasonable in those decisions. The Board
believes the Investment Adviser's profits are acceptable in relation to the
nature and quality of services provided.
Economies of Scale -- The Board considered the extent to which economies of
scale might be realized as the assets of the Fund increase and whether there
should be changes in the management fee rate or structure in order to enable the
Fund to participate in these economies of scale. The Board considered economies
of scale to the extent applicable to the Fund's closed-end structure and
determined that the Fund appropriately benefits from any economies of scale and
no changes were currently necessary.
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 was
reasonable in relation to the services provided and that a contract renewal was
in the best interests of the shareholders.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005 19
Dividend Policy
The Fund's dividend policy is to distribute all or a portion of its net
investment income to its shareholders on a monthly basis. However, in order to
provide shareholders with a more stable level of dividend distributions, the
Fund may at times pay out less than the entire amount of net investment income
earned in any particular month and may at times in any particular month pay out
such accumulated but undistributed income in addition to net investment income
earned in that month. As a result, the dividends paid by the Fund for any
particular month may be more or less than the amount of net investment income
earned by the Fund during such month. The Fund's current accumulated but
undistributed net investment income, if any, is disclosed in the Statement of
Net Assets, which comprises part of the financial information included in this
report.
20 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005
Officers and Directors
Robert C. Doll, Jr., President and Director
James H. Bodurtha, Director
Kenneth A. Froot, Director
Joe Grills, Director
Herbert I. London, Director
Roberta Cooper Ramo, Director
Robert S. Salomon, Jr., Director
Stephen B. Swensrud, Director
Donald C. Burke, Vice President and Treasurer
Kenneth A. Jacob, Senior Vice President
John M. Loffredo, Senior Vice President
Walter C. O'Connor, Vice President
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street -- 11 East
New York, NY 10286
Preferred Stock:
The Bank of New York
101 Barclay Street -- 7 West
New York, NY 10286
NYSE Symbol
MUC
--------------------------------------------------------------------------------
Effective January 1, 2006, Stephen B. Swensrud retired as Director of
MuniHoldings California Insured Fund, Inc. The Fund's Board of Directors wishes
Mr. Swensrud well in his retirement.
--------------------------------------------------------------------------------
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005 21
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule 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 Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's 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 Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site 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.
22 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2005
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
--------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
MuniHoldings California Insured Fund, Inc. seeks to provide shareholders with
current income exempt from federal and California income taxes. The Fund seeks
to achieve this objective by investing primarily in a portfolio of long-term
investment grade municipal obligations the interest on which, in the opinion of
bond counsel to the issuer, is exempt from federal and California income taxes.
This report, including the financial information herein, is transmitted to
shareholders of MuniHoldings California Insured Fund, Inc. for their
information. It is not a prospectus. Past performance results shown in this
report should not be considered a representation of future performance. The Fund
has leveraged its Common Stock and intends to remain leveraged by issuing
Preferred Stock to provide the Common Stock shareholders with a potentially
higher rate of return. Leverage creates risks for Common Stock shareholders,
including the likelihood of greater volatility of net asset value and market
price of shares of the Common Stock, and the risk that fluctuations in the
short-term dividend rates of the Preferred Stock may affect the yield to Common
Stock shareholders. Statements and other information herein are as dated and are
subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-637-3863; (2) at
www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's Web
site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
MuniHoldings California Insured Fund, Inc.
Box 9011
Princeton, NJ 08543-9011
#HOLDCA -- 12/05
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this
semi-annual report
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-annual
report
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable to this semi-annual report
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 last 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 - Not Applicable to this semi-annual report
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 California Insured Fund, Inc.
By: /s/ Robert C. Doll, Jr.
------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
MuniHoldings California Insured Fund, Inc.
Date: February 21, 2006
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 California Insured Fund, Inc.
Date: February 21, 2006
By: /s/ Donald C. Burke
------------------------------
Donald C. Burke,
Chief Financial Officer of
MuniHoldings California Insured Fund, Inc.
Date: February 21, 2006