UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/A
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-08573
Name of Fund: BlackRock 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, BlackRock 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 - 06/30/06
Item 1 - Report to Stockholders
Annual Report (As Restated)
June 30, 2006
MuniHoldings California
Insured Fund, Inc.
MuniHoldings California Insured Fund, Inc.
--------------------------------------------------------------------------------
The financial statements and financial highlights in this report have been
restated as described in Note 6 to the financial statements. Other information
in this report affected by the restatement has been revised.
--------------------------------------------------------------------------------
Announcement to Shareholders
On February 15, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch & Co.,
Inc. ("Merrill Lynch") entered into an agreement to contribute Merrill Lynch's
investment management business, Merrill Lynch Investment Managers, L.P. and
certain affiliates (including Fund Asset Management, L.P. and Merrill Lynch
Investment Managers International Limited), to BlackRock to create a new
independent company ("New BlackRock") that will be one of the world's largest
asset management firms with over $1 trillion in assets under management (based
on combined assets under management as of June 30, 2006) (the "Transaction").
The Transaction is expected to close at the end of the third quarter of 2006, at
which time the new company will operate under the BlackRock name. The Fund's
Board of Directors has approved a new investment advisory agreement with
BlackRock Advisors, Inc. or its successor on substantially the same terms and
for the same advisory fee as the current investment advisory agreement with the
Investment Adviser. If the new agreement is approved by the Fund's shareholders,
BlackRock Advisors, Inc. or its successor is expected to become the investment
adviser of the Fund upon the closing of the Transaction.
Portfolio Information as of June 30, 2006 (As Restated. See Note 6)
Percent of
Total
Quality Ratings by S&P/Moody's Investments
--------------------------------------------------------------------------------
AAA/Aaa ............................................................ 94.2%
AA/Aa .............................................................. 0.5
A/A ................................................................ 4.3
Other* ............................................................. 1.0
--------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments and variable rate
demand notes.
2 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
A Letter From the President
Dear Shareholder
By now, you have probably heard of the important changes unfolding at Merrill
Lynch Investment Managers ("MLIM"). We have been communicating with
shareholders, via letters like this and in a detailed proxy mailing, about
MLIM's impending union with another highly regarded investment manager --
BlackRock, Inc. ("BlackRock"). This transaction marks the next chapter in MLIM's
growth story and, we believe, will be a benefit to our investors.
MLIM, a division of Merrill Lynch with over $583 billion in assets under
management, is a leading investment manager offering more than 100 investment
strategies in vehicles ranging from mutual funds to institutional portfolios.
BlackRock, with $464.1 billion in assets under management, is one of the largest
publicly traded investment management firms in the United States managing assets
on behalf of institutional and individual investors worldwide through a variety
of equity, fixed income, liquidity and alternative investment products. At the
completion of the transaction, which is expected by the end of third quarter
2006, the resultant firm will be a top-10 investment manager worldwide with over
$1 trillion in assets under management.*
The combined company, to be known as BlackRock, will provide a wide selection of
high-quality investment solutions across a range of asset classes and investment
styles. The organization will have over 4,500 employees in 18 countries and a
major presence in key markets worldwide. MLIM and BlackRock possess
complementary capabilities that together create a well-rounded organization
uniting some of the finest money managers in the industry. The firms share
similar values and beliefs -- each strives for excellence in all areas, and both
make investment performance their single most important mission. As such, our
combination only reinforces our commitment to shareholders.
Most of MLIM's investment products -- including mutual funds, separately managed
accounts, annuities and variable insurance funds -- eventually will carry the
"BlackRock" name. This will be reflected in newspaper and online information
sources beginning in October. Your account statements will reflect the BlackRock
name beginning with the October month-end reporting period. Unless otherwise
communicated via a proxy statement, your funds will maintain the same investment
objectives that they do today. Importantly, the MLIM/BlackRock union will not
affect your brokerage account or your relationship with your financial advisor.
If you are a client of Merrill Lynch, you will remain a client of Merrill Lynch.
As always, we thank you for entrusting us with your investment assets. We look
forward to continuing to serve your investment needs with even greater strength
and scale as the new BlackRock.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Chief Investment Officer
Merrill Lynch Investment Managers
* $1.047 trillion in assets under management as of June 30, 2006.
Data, including assets under management, are as of June 30, 2006.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 3
A Discussion With Your Fund's Portfolio Manager
We began to increase the portfolio's duration toward a more neutral
position as some value was restored in the long end of the municipal yield
curve.
Describe the recent market environment relative to municipal bonds.
Long-term bond yields rose sharply during the 12-month period, with much of the
increase occurring in the final three months. Bond prices, which move opposite
of yields, declined. In all, 30-year U.S. Treasury bond yields rose 100 basis
points (1%) to end the period at 5.19%, while 10-year U.S. Treasury note yields
rose 121 basis points to 5.15%, the highest level since May 2002. For its part,
the Federal Reserve Board (the Fed) continued to raise short-term interest rates
at each of its meetings during the period, bringing the federal funds rate to
5.25%.
While municipal bond yields also rose in recent months, the market's strong
technical position provided significant price support and allowed municipal bond
prices to decline much less than taxable bond prices. As measured by Municipal
Market Data, yields on AAA-rated issues maturing in 30 years rose 37 basis
points to 4.63% and yields on AAA-rated issues maturing in 10 years rose 69
basis points to 4.14%.
The municipal market has been supported by increased retail investor demand and
declining supply. Year-to-date, over $179 billion in new long-term tax-exempt
bonds was underwritten, a decline of 14% compared to the first half of 2005 and
the lowest initial semi-annual volume in the past four years. The decline has
largely been the result of a 52% drop in refunding activity so far this year.
Rising bond yields have made the refinancing of existing higher-couponed debt
less attractive, as the potential savings have rapidly diminished. In addition,
the improved fiscal conditions of many state and local governments have resulted
in lower borrowing trends, as many new municipal capital projects have been
financed from existing budget surpluses. At the same time, municipal bond fund
flows have remained positive. As reported by the Investment Company Institute,
open-end tax-exempt bond funds received net new cash inflows of over $6.2
billion in the first five months of 2006, compared to $1.4 billion during the
same period in 2005.
Describe conditions in the State of California.
Bolstered by an estimated $7.5 billion of "unanticipated" tax revenues, in May
the governor presented a revised 2006 - 2007 budget that totaled $131.1 billion
and increased spending by approximately 8.4% over the prior year. The extra
funds provided an opportunity to increase funding for K-12 schools, fund the
early retirement of economic recovery bonds, increase reserve levels and fund
several one-time projects. Although the overall budget remains unbalanced by
approximately $3.5 billion, this figure is significantly smaller than the $12.5
billion imbalance the state confronted several years ago. Despite retaining the
structural imbalance, the improved revenue performance provided a catalyst for
Moody's and Standard & Poor's to increase the ratings on the state's long-term
general obligation debt from A2 to A1 and A to A+, respectively. Both rating
agencies highlight the structural deficit as the factor in limiting further
rating improvements to the AA category. It should be noted that the governor and
legislature have reached an agreement on a capital improvement plan that will
call for the placement of general obligation bond measures totaling $37 billion
on the November ballot.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended June 30, 2006, the Common Stock of MuniHoldings
California Insured Fund, Inc. had net annualized yields of 6.23% and 6.46%,
based on a year-end per share net asset value of $14.44 and a per share market
price of $13.94, respectively, and $.900 per share income dividends. Over the
same period, the total investment return on the Fund's Common Stock was -.29%,
based on a change in per share net asset value from $15.40 to $14.44, and
assuming reinvestment of all distributions.
The Fund's total return, based on net asset value, lagged that of its comparable
Lipper category of California Insured Municipal Debt Funds, which had an average
return of +.41% for the 12-month period. (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 underperformance is partly
attributable to its relatively short duration stance (a measure of interest rate
sensitivity). In addition, the tax-exempt market witnessed dramatic credit
spread tightening over the past year, which benefited funds that invest in
lower-quality issues. Being that the Fund is overweighted in AAA-rated insured
credits, our total return lagged that of the more aggressive funds in the Lipper
group. Still, with a coupon structure that is above the industry average, the
Fund has provided shareholders with a generous tax-exempt income stream. The
Fund's current yield
4 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
distribution leads the Lipper category of closed-end insured California
tax-exempt funds.
For the six-month period ended June 30, 2006, the total investment return on the
Fund's Common Stock was -.88%, based on a change in per share net asset value
from $15.01 to $14.44, and assuming reinvestment of all distributions.
For a description of the Fund's total investment return based on a change in the
per share market value of the Fund's Common Stock (as measured by the trading
price of the Fund's shares on the New York Stock Exchange), and assuming
reinvestment of dividends, please refer to the Financial Highlights section of
this report. As a closed-end fund, the Fund's shares may trade in the secondary
market at a premium or discount to the Fund's net asset value. As a result,
total investment returns based on changes in the market value of the Fund's
Common Stock can vary significantly from total investment returns based on
changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
During the 12-month period, we focused on the dual objective of muting net asset
value volatility and delivering the highest possible level of tax-exempt income
given the Fund's credit parameters. For much of the period, we sought price
stability by employing a lower duration stance relative to our Lipper peers. We
felt this would cushion the Fund's net asset value from the negative price
impact associated with rising interest rates. Toward period-end, however, as
10-year Treasury yields and the federal funds rate approached 5.25%, we began
making purchases of longer-dated bonds to extend duration toward a more neutral
posture. These purchases were possible because of sufficient new issuance in the
California municipal market, as well as secondary market selling by insurance
companies and trading accounts.
For the six months ended June 30, 2006, the Fund's Auction Market Preferred
Stock had average yields as follows: Series A, 2.87%; Series B, 3.03%; Series C,
2.96%; Series D, 2.94%; and Series E, 2.92%. The Fed raised the short-term
interest rate target 200 basis points during the 12-month reporting period, and
this continued to affect the Fund's borrowing costs. We would expect additional
increases in the cost of funds to be more limited as the Fed nears a pause in
its monetary tightening campaign. Despite the rate increases during the period,
the tax-exempt yield curve maintained a positive slope, allowing us to borrow at
a lower rate than where we invest. This 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. (For a more complete explanation of the benefits and risks
of leveraging, see page 6 of this report to shareholders.)
How would you characterize the Fund's position at the close of the period?
The Fund remains in a slightly defensive posture with respect to interest rate
risk, although we did move closer to neutral during the period. We expect to
continue increasing duration, as rates have risen over the course of the fiscal
year and restored some of the value in longer-dated maturities. This also
presents an opportunity to recommit some of the Fund's cash equivalent reserves,
which currently represent 3.5% of net assets. The cash position resulted as
bonds were called by their issuers prior to maturity, primarily in the last
three months of the period.
We have maintained the Fund's high credit quality. Credit spreads have reached
historically tight levels, meaning there is less excess yield to be gained from
investing in lower-quality securities, giving us little incentive to take on the
additional risk. Until sufficient value is restored to lower-rated bonds, we
will continue to underutilize the Fund's allowable uninsured basket. With the
Fund's borrowing costs rising along with the federal funds rate, we plan to
maintain our fully invested position to generate the maximum amount of income
accrual for our shareholders.
Walter C. O'Connor, CFA
Vice President and Portfolio Manager
July 11, 2006
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 5
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 of June 30, 2006, the Fund's leverage amount, due to Auction Market Preferred
Stock, was 39.86% of total net assets, before the deduction of Preferred Stock.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in these securities.
Swap Agreements
The Fund may 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.
6 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
Schedule of Investments as of June 30, 2006 (As Restated. See Note 6)
(in Thousands)
Face
Amount Municipal Bonds Value
================================================================================
California -- 140.5%
--------------------------------------------------------------------------------
$ 1,000 ABAG Finance Authority for Nonprofit Corporations,
California, COP (Children's Hospital Medical Center),
6% due 12/01/2029 (a) $ 1,069
--------------------------------------------------------------------------------
3,345 ABC California Unified School District, GO, Series A,
5.625% due 8/01/2020 (f)(j) 3,473
--------------------------------------------------------------------------------
4,000 Acalanes, California, Unified High School District, GO,
5.80% due 8/01/2007 (f)(i) 4,127
--------------------------------------------------------------------------------
Alameda County, California, COP (b):
11,960 (Financing Project), 6% due 9/01/2006 (i) 12,240
1,868 RIB, Series 410, 7.754% due 9/01/2021 (g) 1,955
--------------------------------------------------------------------------------
7,360 Alhambra, California, Unified School District, GO
(Election of 2004), Series A, 5% due 8/01/2029 (c) 7,538
--------------------------------------------------------------------------------
4,535 Bakersfield, California, COP, Refunding (Convention
Center Expansion Project), 5.875%
due 4/01/2007 (b)(i) 4,651
--------------------------------------------------------------------------------
3,500 Bay Area Toll Authority, California, Toll Bridge Revenue
Refunding Bonds (San Francisco Bay Area), Series F,
5% due 4/01/2031 3,573
--------------------------------------------------------------------------------
3,885 Berkeley, California, GO, Series C, 5.375%
due 9/01/2029 (c) 4,006
--------------------------------------------------------------------------------
Berkeley, California, Unified School District, GO,
Series I (f)(i):
2,000 5.75% due 8/01/2008 2,098
4,520 5.875% due 8/01/2008 4,751
--------------------------------------------------------------------------------
7,120 Burbank, California, Unified School District, Capital
Appreciation, GO (Election of 1997), Series C, 4.84%
due 7/01/2027 (c)(e) 2,488
--------------------------------------------------------------------------------
2,925 Cajon Valley, California, Union School District, GO,
Series B, 5.50% due 8/01/2027 (b) 3,108
--------------------------------------------------------------------------------
2,180 California Community College Financing Authority,
Lease Revenue Bonds (Grossmont-Palomar-Shasta),
Series A, 5.625% due 4/01/2026 (b) 2,322
--------------------------------------------------------------------------------
California Educational Facilities Authority Revenue
Refunding Bonds (Occidental College) (b)(i):
5,815 5.625% due 10/01/2007 6,061
5,000 5.70% due 10/01/2007 5,216
--------------------------------------------------------------------------------
California HFA, Home Mortgage Revenue Bonds:
2,680 AMT, Series E, 5% due 2/01/2024 (c) 2,700
4,800 VRDN, AMT, Series N, 3.99% due 8/01/2021 (f)(h) 4,800
2,500 VRDN, Series F, 3.99% due 2/01/2033 (a)(h) 2,500
--------------------------------------------------------------------------------
California HFA, S/F Mortgage Revenue Bonds, AMT,
Class II (b):
265 Series A-1, 6% due 8/01/2020 271
1,160 Series C-2, 5.625% due 8/01/2020 (d) 1,187
--------------------------------------------------------------------------------
California Health Facilities Financing Authority Revenue
Bonds (Kaiser Permanente), Series A:
9,250 5.50% due 6/01/2022 (f)(j) 9,687
4,870 5% due 4/01/2037 4,864
--------------------------------------------------------------------------------
California Health Facilities Financing Authority Revenue
Refunding Bonds:
510 (Catholic Healthcare West), Series A, 5.75%
due 7/01/2015 (a) 516
1,840 (Catholic Healthcare West), Series A, 6%
due 7/01/2025 (b) 1,913
4,500 (Children's Hospital), 5.375% due 7/01/2020 (b) 4,595
--------------------------------------------------------------------------------
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) 2,080
--------------------------------------------------------------------------------
California State, GO:
2,000 5.50% due 6/01/2025 (c) 2,089
7,500 5.25% due 4/01/2027 7,790
--------------------------------------------------------------------------------
California State, GO, Refunding:
6,000 5.25% due 2/01/2026 (b) 6,250
1,075 5.75% due 12/01/2029 1,139
4,130 Veterans, AMT, Series B, 5.45% due 12/01/2017 (b) 4,144
--------------------------------------------------------------------------------
20,000 California State Public Works Board, Lease Revenue
Bonds (Various University of California Projects),
Series C, 5.125% due 9/01/2022 (a) 20,585
--------------------------------------------------------------------------------
California State Public Works Board, Lease Revenue
Refunding Bonds:
5,025 (California State University), Series A, 5.50%
due 10/01/2014 (b) 5,144
8,750 (Department of Corrections), Series B, 5.625%
due 11/01/2019 (b) 8,973
2,625 (Various Community College Projects), Series B,
5.625% due 3/01/2019 (a) 2,681
--------------------------------------------------------------------------------
5,000 California State University, Systemwide Revenue
Refunding Bonds, Series A, 5% due 11/01/2029 (f) 5,100
--------------------------------------------------------------------------------
7,050 California State, Various Purpose, GO, 5.50%
due 11/01/2033 7,484
--------------------------------------------------------------------------------
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
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 7
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
================================================================================
California (continued)
--------------------------------------------------------------------------------
$ 8,965 California State, Various Purpose, GO, Refunding, 5%
due 3/01/2027 $ 9,123
--------------------------------------------------------------------------------
4,915 California Statewide Communities Development
Authority, Health Facility Revenue Bonds (Memorial
Health Services), Series A, 6% due 10/01/2023 5,296
--------------------------------------------------------------------------------
1,090 California Statewide Communities Development
Authority Revenue Bonds (Los Angeles Orthopedic
Hospital Foundation), 5.50% due 6/01/2019 (a) 1,115
--------------------------------------------------------------------------------
Capistrano, California, Unified Public Financing
Authority, Special Tax Revenue Refunding Bonds, First
Lien, Series A (a):
16,770 5.70% due 9/01/2016 17,157
10,640 5.70% due 9/01/2020 10,886
--------------------------------------------------------------------------------
8,705 Castaic Lake, California, Water Agency Revenue Bonds,
COP (Water System Improvement Project), 5.50%
due 8/01/2023 (a) 9,134
--------------------------------------------------------------------------------
2,500 Colton, California, Joint Unified School District, GO,
Series A, 5.375% due 8/01/2026 (c) 2,649
--------------------------------------------------------------------------------
7,800 Contra Costa, California, Community College District,
GO (Election of 2002), 5% due 8/01/2028 (b) 7,971
--------------------------------------------------------------------------------
Contra Costa County, California, COP, Refunding:
4,570 (Capital Projects Program), 5.25%
due 2/01/2021 (a) 4,689
2,000 (Merrithew Memorial Hospital Project), 5.50%
due 11/01/2022 (b) 2,076
--------------------------------------------------------------------------------
5,910 Corona, California, Department of Water and Power,
COP, 5% due 9/01/2029 (b) 6,018
--------------------------------------------------------------------------------
4,250 Coronado, California, Community Development Agency,
Tax Allocation Bonds (Coronado Community
Development Project), 5% due 9/01/2030 (a) 4,315
--------------------------------------------------------------------------------
2,395 Covina-Valley, California, Unified School District, GO,
Refunding, Series A, 5.50% due 8/01/2026 (f) 2,558
--------------------------------------------------------------------------------
3,750 Culver City, California, Redevelopment Finance
Authority Revenue Refunding Bonds, Tax Allocation,
Series A, 5.60% due 11/01/2025 (f) 3,983
--------------------------------------------------------------------------------
1,870 Davis, California, Joint Unified School District,
Community Facilities District, Special Tax Refunding
Bonds, Number 1, 5.50% due 8/15/2021 (b) 1,892
--------------------------------------------------------------------------------
1,000 Delano, California, Union Elementary School District,
GO (Election of 2000), Series F, 5% due 2/01/2033 (f) 1,022
--------------------------------------------------------------------------------
East Side Union High School District, California, Santa
Clara County, Capital Appreciation, GO (Election of
2002), Series E (e)(k):
5,205 5.03% due 8/01/2024 2,046
11,000 5.125% due 8/01/2028 3,479
--------------------------------------------------------------------------------
Escondido, California, COP, Refunding:
1,000 Series A, 5.75% due 9/01/2024 (c) 1,073
5,000 (Wastewater Project), 5.70% due 9/01/2006 (a)(i) 5,115
--------------------------------------------------------------------------------
5,000 Foothill-De Anza, California, Community College
District, GO, Refunding, 5% due 8/01/2030 (c) 5,081
--------------------------------------------------------------------------------
4,455 Fresno, California, Airport Revenue Bonds, AMT,
Series B, 5.50% due 7/01/2020 (f) 4,668
--------------------------------------------------------------------------------
5,200 Fullerton, California, Joint Union High School District,
GO (Election of 2002), Series B, 5% due 8/01/2029 (c) 5,326
--------------------------------------------------------------------------------
4,040 Garden Grove, California, COP (Financing Project),
Series A, 5.50% due 3/01/2026 (a) 4,302
--------------------------------------------------------------------------------
5,200 Glendale, California, Unified School District, GO,
Series B, 5.125% due 9/01/2023 (f) 5,350
--------------------------------------------------------------------------------
4,565 Hemet, California, Unified School District, GO, Series A,
5.375% due 8/01/2026 (b) 4,796
--------------------------------------------------------------------------------
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) 9,465
--------------------------------------------------------------------------------
1,700 Inglewood, California, Unified School District, GO,
Series A, 5.60% due 10/01/2024 (c) 1,798
--------------------------------------------------------------------------------
2,300 Irvine, California, Unified School District, Special Tax
(Community Facilities District Number 86-1), 5.375%
due 11/01/2020 (a) 2,413
--------------------------------------------------------------------------------
4,665 Irvine, California, Unified School District, Special Tax
Refunding Bonds (Community Facilities District
Number 86-1), 5.80% due 11/01/2020 (a) 4,870
--------------------------------------------------------------------------------
2,500 La Quinta, California, Financing Authority, Local Agency
Revenue Bonds, Series A, 5.25% due 9/01/2024 (a) 2,634
--------------------------------------------------------------------------------
3 La Quinta, California, Financing Authority, Local Agency
Tax Allocation and Revenue Refunding Bonds, ROLS,
Series II-R-412X, 6.162% due 9/01/2034 (a)(g) 3
--------------------------------------------------------------------------------
4,000 Long Beach, California, Bond Finance Authority, Lease
Revenue Bonds (Rainbow Harbor Refinancing Project),
Series A, 5.25% due 5/01/2009 (a)(i) 4,190
--------------------------------------------------------------------------------
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) 10,199
--------------------------------------------------------------------------------
2,000 Los Angeles, California, Harbor Department Revenue
Bonds, AMT, Series B, 5.375% due 11/01/2023 2,026
--------------------------------------------------------------------------------
230 Los Angeles, California, M/F Housing Revenue
Refunding Bonds, Senior Series G, 5.65%
due 1/01/2014 (f) 231
--------------------------------------------------------------------------------
10,000 Los Angeles, California, Unified School District, GO,
Series E, 5% due 7/01/2030 (a) 10,226
--------------------------------------------------------------------------------
5,000 Los Angeles, California, Water and Power Revenue
Bonds (Power System), Sub-Series A-1, 5%
due 7/01/2031 (f) 5,105
--------------------------------------------------------------------------------
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) 9,203
3,750 Proposition C, Second Tier, 5.25% due 7/01/2030 (c) 3,880
--------------------------------------------------------------------------------
8 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
================================================================================
California (continued)
--------------------------------------------------------------------------------
$ 2,735 Los Gatos, California, Unified School District, GO
(Election of 2001), Series B, 5% due 8/01/2030 (f) $ 2,786
--------------------------------------------------------------------------------
1,890 Los Rios, California, Community College District, GO
(Election of 2002), Series B, 5% due 8/01/2027 (b) 1,933
--------------------------------------------------------------------------------
2,000 Madera, California, Public Financing Authority, Water
and Wastewater Revenue Refunding Bonds, 5%
due 3/01/2036 (b) 2,045
--------------------------------------------------------------------------------
5,000 Merced, California, Irrigation District, Electrical System
Revenue Refunding Bonds, 5.25% due 9/01/2036 (k) 5,199
--------------------------------------------------------------------------------
Metropolitan Water District of Southern California,
Waterworks Revenue Bonds:
3,550 Series A, 5% due 7/01/2035 (f) 3,630
9,000 Series B-1, 5% due 10/01/2033 (c) 9,158
--------------------------------------------------------------------------------
5,000 Modesto, California, Schools Infrastructure Financing
Agency, Special Tax Bonds, 5% due 9/01/2029 (a) 5,087
--------------------------------------------------------------------------------
3,500 Mojave, California, Water Agency, GO, Refunding
(Improvement District -- Morongo Basin), 5.80%
due 9/01/2022 (c) 3,581
--------------------------------------------------------------------------------
2,000 Montebello, California, Community Redevelopment
Agency, Housing Tax Allocation Bonds, Series A, 5.45%
due 9/01/2019 (f) 2,073
--------------------------------------------------------------------------------
4,150 Moorpark, California, Redevelopment Agency, Tax
Allocation Bonds (Moorpark Redevelopment Project),
5.125% due 10/01/2031 (a) 4,255
--------------------------------------------------------------------------------
2,315 Morgan Hill, California, Unified School District, GO,
5.75% due 8/01/2019 (c) 2,485
--------------------------------------------------------------------------------
2,570 Natomas, California, Unified School District, GO
(Election of 2002), Refunding, Series B, 5%
due 9/01/2028 (c) 2,627
--------------------------------------------------------------------------------
2,140 North City West, California, School Facilities Financing
Authority, Special Tax Refunding Bonds, Series B, 6%
due 9/01/2006 (f)(i) 2,190
--------------------------------------------------------------------------------
3,275 Northern California Power Agency, Public Power
Revenue Refunding Bonds (Hydroelectric Project
Number One), Series A, 5.125% due 7/01/2023 (b) 3,360
--------------------------------------------------------------------------------
3,230 Novato, California, Unified School District, GO, 5%
due 8/01/2027 (f) 3,308
--------------------------------------------------------------------------------
9,995 Oakland, California, Alameda County Unified School
District, GO, Refunding, Series C, 5.50%
due 8/01/2019 (c) 10,008
--------------------------------------------------------------------------------
Oakland, California, Alameda County Unified School
District, GO, Series F (b):
3,705 5.625% due 8/01/2020 3,928
5,245 5.625% due 8/01/2021 5,567
6,000 5.50% due 8/01/2024 6,329
--------------------------------------------------------------------------------
7,105 Oakland, California, Joint Powers Financing Authority,
Lease Revenue Bonds (Oakland Administration
Buildings), 5.75% due 8/01/2006 (a)(i) 7,258
--------------------------------------------------------------------------------
5,000 Ohlone, California, Community College District, GO,
Series B, 5% due 8/01/2030 (f) 5,113
--------------------------------------------------------------------------------
10,000 Oxnard, California, Financing Authority, Wastewater
Revenue Bonds (Redwood Trunk Sewer and Headworks
Projects), Series A, 5.25% due 6/01/2034 (c) 10,424
--------------------------------------------------------------------------------
6,475 Palm Desert, California, Financing Authority, Tax
Allocation Revenue Bonds (Project Area Number 2),
5% due 8/01/2033 (b) 6,579
--------------------------------------------------------------------------------
5,750 Palm Desert, California, Financing Authority, Tax
Allocation Revenue Refunding Bonds (Project Area
Number 1), 5.45% due 4/01/2018 (b) 5,924
--------------------------------------------------------------------------------
1,000 Palm Springs, California, COP, Refunding (Multiple
Capital Facilities Project), 5.75% due 4/01/2017 (a) 1,033
--------------------------------------------------------------------------------
1,600 Palm Springs, California, Financing Authority, Lease
Revenue Refunding Bonds (Convention Center Project),
Series A, 5.50% due 11/01/2035 (b) 1,719
--------------------------------------------------------------------------------
4,000 Pittsburg, California, Public Financing Authority, Water
Revenue Bonds, 5.50% due 6/01/2007 (b)(i) 4,142
--------------------------------------------------------------------------------
9,100 Pleasanton, California, Unified School District, GO,
Series E, 5.50% due 8/01/2008 (c)(i) 9,502
--------------------------------------------------------------------------------
5,000 Port of Oakland, California, Port Revenue Refunding
Bonds, Series I, 5.40% due 11/01/2017 (b) 5,193
--------------------------------------------------------------------------------
Port of Oakland, California, Revenue Bonds, AMT,
Series K (c):
3,500 5.75% due 11/01/2014 3,699
17,120 5.75% due 11/01/2029 17,945
--------------------------------------------------------------------------------
5,085 Rancho Cordova, California, COP (City Hall Facility
Acquisition Project), 5% due 2/01/2030 (k) 5,170
--------------------------------------------------------------------------------
2,205 Richmond, California, Joint Powers Financing Authority,
Tax Allocation Revenue Bonds, Series A, 5.50%
due 9/01/2018 (b) 2,339
--------------------------------------------------------------------------------
10,735 Riverside, California, Unified School District, GO
(Election of 2001), Series B, 5% due 8/01/2030 (b) 11,000
--------------------------------------------------------------------------------
8,775 Sacramento, California, City Financing Authority,
Revenue Refunding Bonds, 5% due 12/01/2029 (c) 8,966
--------------------------------------------------------------------------------
10,825 Sacramento, California, Municipal Utility District,
Electric Revenue Refunding Bonds, Series L, 5.125%
due 7/01/2022 (b) 11,120
--------------------------------------------------------------------------------
2,500 Sacramento, California, Municipal Utility District
Financing Authority, Revenue Bonds (Consumers
Project), 5.125% due 7/01/2029 (b) 2,604
--------------------------------------------------------------------------------
1,700 Sacramento County, California, Airport System Revenue
Bonds, Series A, 5.25% due 7/01/2017 (f) 1,787
--------------------------------------------------------------------------------
4,000 Sacramento County, California, Sanitation District
Financing Authority, Revenue Bonds, Series A, 5%
due 12/01/2035 (a) 4,085
--------------------------------------------------------------------------------
4,000 Sacramento County, California, Sanitation District
Financing Authority, Revenue Refunding Bonds, 5%
due 8/01/2030 (b) 4,091
--------------------------------------------------------------------------------
4,115 Saddleback Valley, California, Unified School District,
GO, 5% due 8/01/2029 (f) 4,205
--------------------------------------------------------------------------------
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 9
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
================================================================================
California (concluded)
--------------------------------------------------------------------------------
$ 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) $ 5,555
--------------------------------------------------------------------------------
1,480 San Bernardino County, California, COP, Refunding
(Medical Center Financing Project), 5.50%
due 8/01/2019 (b) 1,482
--------------------------------------------------------------------------------
3,330 San Diego, California, Community College District, GO
(Election of 2002), 5% due 5/01/2030 (f) 3,404
--------------------------------------------------------------------------------
5,055 San Diego, California, Public Facilities Financing
Authority, Sewer Revenue Bonds, Series A, 5.25%
due 5/15/2027 (c) 5,148
--------------------------------------------------------------------------------
6,480 San Diego, California, Unified School District, GO
(Election of 1998), Series F, 5% due 7/01/2028 (f) 6,621
--------------------------------------------------------------------------------
1,500 San Diego County, California, COP (Edgemoor Project
and Regional System), Refunding, 5% due 2/01/2029 (a) 1,526
--------------------------------------------------------------------------------
4,000 San Diego County, California, Water Authority, Water
Revenue Bonds, COP, Series A, 5% due 5/01/2031 (f) 4,063
--------------------------------------------------------------------------------
6,795 San Francisco, California, Bay Area Rapid Transit District,
Sales Tax Revenue Bonds, 5.50% due 7/01/2009 (c)(i) 7,179
--------------------------------------------------------------------------------
13,100 San Francisco, California, Bay Area Rapid Transit District,
Sales Tax Revenue Refunding Bonds, Series A, 5%
due 7/01/2030 (b) 3,395
--------------------------------------------------------------------------------
6,430 San Francisco, California, City and County Airport
Commission, International Airport Revenue Bonds, AMT,
Second Series, Issue 24A, 5.50% due 5/01/2024 (f) 6,752
--------------------------------------------------------------------------------
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) 9,133
--------------------------------------------------------------------------------
2,118 San Jose, California, Financing Authority, Lease Revenue
Refunding Bonds, DRIVERS, Series 1280Z, 5.718%
due 12/01/2010 (a)(g) 2,174
--------------------------------------------------------------------------------
San Jose-Evergreen, California, Community College
District, Capital Appreciation, GO (Election of 2004),
Refunding, Series A (b)(e):
10,410 5.17% due 9/01/2024 4,103
7,250 5.34% due 9/01/2029 2,154
--------------------------------------------------------------------------------
San Juan, California, Unified School District, GO:
3,955 5.625% due 8/01/2018 (c) 4,227
3,830 5.625% due 8/01/2019 (c) 4,093
4,250 (Election of 2002), 5% due 8/01/2028 (b) 4,334
--------------------------------------------------------------------------------
5,650 San Mateo County, California, Transit District, Sales Tax
Revenue Refunding Bonds, Series A, 5%
due 6/01/2029 (b) 5,776
--------------------------------------------------------------------------------
14,000 Santa Clara, California, Redevelopment Agency, Tax
Allocation Bonds (Bayshore North Project), Series A,
5.50% due 6/01/2023 (a) 14,686
--------------------------------------------------------------------------------
6,050 Santa Clara, California, Subordinated Electric Revenue
Bonds, Series A, 5% due 7/01/2028 (b) 6,168
--------------------------------------------------------------------------------
9,750 Santa Clara County, California, Financing Authority,
Lease Revenue Refunding Bonds, Series A, 5%
due 11/15/2022 (a) 9,999
--------------------------------------------------------------------------------
9,000 Santa Fe Springs, California, Community Development,
Commission Tax Allocation Refunding Bonds
(Consolidated Redevelopment Project), Series A, 5%
due 9/01/2022 (b) 9,170
--------------------------------------------------------------------------------
5,110 Santa Monica, California, Redevelopment Agency, Tax
Allocation Bonds (Earthquake Recovery Redevelopment
Project), 6% due 7/01/2009 (a)(i) 5,469
--------------------------------------------------------------------------------
2,855 Santa Rosa, California, High School District, GO
(Election of 2002), 5% due 8/01/2028 (b) 2,911
--------------------------------------------------------------------------------
4,450 Saugus, California, Union School District, GO, Series B,
5% due 8/01/2029 (f) 4,558
--------------------------------------------------------------------------------
10,910 Southern California Public Power Authority, Power
Project Revenue Bonds (Magnolia Power Project),
Series A-1, 5% due 7/01/2033 (a) 11,077
--------------------------------------------------------------------------------
1,570 Southwestern Community College District, California,
GO, Refunding, 5.25% due 8/01/2017 (b) 1,705
--------------------------------------------------------------------------------
3,200 Stockton, California, Public Financing Authority, Water
Revenue Bonds (Water System Capital Improvement
Projects), Series A, 5% due 10/01/2031 (b) 3,269
--------------------------------------------------------------------------------
1,500 Stockton, California, Redevelopment Agency, Revenue
Bonds (Stockton Events Center -- Arena Project), 5%
due 9/01/2028 (c) 1,523
--------------------------------------------------------------------------------
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) 13,666
--------------------------------------------------------------------------------
6,655 Turlock, California, Public Finance Authority, Sewer
Revenue Bonds, Series A, 5% due 9/15/2033 (c) 6,771
--------------------------------------------------------------------------------
7,475 University of California, COP, Series A, 5.25%
due 11/01/2007 (a)(i) 7,694
--------------------------------------------------------------------------------
1,410 University of California Revenue Bonds, Series K,
5.25% due 9/01/2024 (c) 1,456
--------------------------------------------------------------------------------
16,000 University of California Revenue Refunding Bonds
(Multiple Purpose Projects), Series E, 5.125%
due 9/01/2020 (b) 16,343
--------------------------------------------------------------------------------
Vista, California, Unified School District, GO:
10,000 Series A, 5.25% due 8/01/2025 (f) 10,424
2,550 Series B, 5% due 8/01/2028 (c) 2,600
--------------------------------------------------------------------------------
6,075 Washington, California, Unified School District (Yolo
County), Capital Appreciation, GO (Election of 2004),
Series A, 4.98% due 8/01/2029 (c)(e) 1,908
--------------------------------------------------------------------------------
5,825 West Contra Costa, California, Unified School District,
Capital Appreciation, GO (Election of 2002), Series C,
5.78% due 8/01/2029 (c)(e) 1,829
--------------------------------------------------------------------------------
West Contra Costa, California, Unified School
District, GO (f):
6,690 (Election of 2002), Series B, 5% due 8/01/2032 6,791
2,595 (Election of 2005), Series A, 5% due 8/01/2026 2,669
--------------------------------------------------------------------------------
5,000 Woodland, California, Financing Authority, Lease
Revenue Bonds (Capital Projects), 5%
due 3/01/2026 (f) 5,123
--------------------------------------------------------------------------------
3,145 Yorba Linda, California, Redevelopment Agency,
Redevelopment Project Tax Allocation Revenue Bonds
(Subordinate Lien), Series B, 5% due 9/01/2032 (a) 3,212
--------------------------------------------------------------------------------
10 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
Schedule of Investments (concluded) (in Thousands)
Face
Amount Municipal Bonds Value
================================================================================
Puerto Rico -- 4.7%
--------------------------------------------------------------------------------
Puerto Rico Commonwealth Infrastructure Financing
Authority, Special Tax and Capital Appreciation Revenue
Bonds, Series A (e):
$15,000 4.60% due 7/01/2030 (c) $ 4,597
12,400 4.77% due 7/01/2042 (c) 2,040
10,000 4.77% due 7/01/2044 (a) 1,485
Puerto Rico Electric Power Authority, Power
Revenue Bonds:
11,215 Series HH, 5.30% due 7/01/2020 (f) 11,792
7,880 Series NN, 5.125% due 7/01/2029 7,998
--------------------------------------------------------------------------------
Total Municipal Bonds
(Cost -- $833,416) -- 145.2% 856,030
================================================================================
Municipal Bonds Held in Trust (n)
================================================================================
California -- 28.1%
--------------------------------------------------------------------------------
1,245 Alameda County, California, COP (Financing Project),
6% due 9/01/2006 (b)(i) 1,274
--------------------------------------------------------------------------------
14,000 California State, Veterans, GO, Refunding, AMT, Series
BZ, 5.35% due 12/01/2021 (b) 14,282
--------------------------------------------------------------------------------
12,000 Contra Costa County, California, COP, Refunding
(Merrithew Memorial Hospital Project), 5.375%
due 11/01/2017 (b) 12,446
--------------------------------------------------------------------------------
7,165 La Quinta, California, Financing Authority, Local
Agency Revenue Bonds, Series A, 5.125%
due 9/01/2034 (a) 7,375
--------------------------------------------------------------------------------
15,490 Peralta, California, Community College District, GO
(Election of 2000), Series D, 5% due 8/01/2035 (f) 15,818
--------------------------------------------------------------------------------
25,350 Port of Oakland, California, Revenue Refunding
Bonds, AMT, Series L, 5.375% due 11/01/2027 (c) 26,383
--------------------------------------------------------------------------------
34,260 Sacramento, California, Municipal Utility District
Financing Authority, Revenue Bonds (Consumers
Project), 5.125% due 7/01/2029 (b) 35,689
--------------------------------------------------------------------------------
10,000 San Diego County, California, Water Authority, Water
Revenue Refunding Bonds, COP, Series A, 5%
due 5/01/2032 (b) 10,161
--------------------------------------------------------------------------------
13,500 San Francisco, California, City and County Public
Utilities Commission, Water Revenue Refunding
Bonds, Series A, 5% due 11/01/2032 (b) 13,734
--------------------------------------------------------------------------------
10,564 San Jose, California, Financing Authority, Lease
Revenue Refunding Bonds (Civic Center Project),
Series B, 5% due 6/01/2032 (a) 10,704
--------------------------------------------------------------------------------
17,400 University of California, Limited Project Revenue
Bonds, Series B, 5% due 5/15/2033 (f) 17,751
--------------------------------------------------------------------------------
Total Municipal Bonds Held in Trust
(Cost -- $167,480) -- 28.1% 165,617
================================================================================
Shares
Held Short-Term Securities
================================================================================
2,447 CMA California Municipal Money Fund, 3.29% (l)(m) 2,447
--------------------------------------------------------------------------------
Total Short-Term Securities
(Cost -- $2,447) -- 0.4% 2,447
================================================================================
Total Investments (Cost -- $1,003,343*) -- 173.7%
Other Assets Less Liabilities -- 6.2% 36,407
Liability for Trust Certificates, Including Interest
Expense Payable -- (13.7%) (80,902)
Preferred Stock, at Redemption Value -- (66.2%) (390,195)
---------
Net Assets Applicable to Common Stock -- 100.0% $ 589,404
=========
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost .............................................. $ 923,638
=========
Gross unrealized appreciation ............................... $ 27,804
Gross unrealized depreciation ............................... (7,835)
---------
Net unrealized appreciation ................................. $ 19,969
=========
(a) AMBAC Insured.
(b) MBIA Insured.
(c) FGIC Insured.
(d) FHA Insured.
(e) a zero coupon bond; the interest rate shown reflects the effective yield
at the time of purchase.
(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.
(l) 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 2,392 $79
--------------------------------------------------------------------------
(m) Represents the current yield as of 6/30/2006.
(n) As restated. See Note 6. Securities represent underlying bonds transferred
to a separate securitization trust established in a tender option bond
transaction in which the Fund may have acquired the residual interest
certificates. These securities serve as collateral in a financing
transaction. See Note 1 (c) to Financial Statements for details of
Municipal Bonds Held in Trust.
See Notes to Financial Statements.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 11
Statement of Net Assets (As Restated. See Note 6)
As of June 30, 2006
===================================================================================================================================
Assets
-----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified cost -- $1,000,895,962) $1,021,647,459
Investments in affiliated securities, at value (identified cost -- $2,446,745) ...... 2,446,745
Cash ................................................................................ 82,937
Receivables:
Securities sold ................................................................. $ 23,916,950
Interest ........................................................................ 15,888,227 39,805,177
------------
Prepaid expenses .................................................................... 4,126
--------------
Total assets ........................................................................ 1,063,986,444
--------------
===================================================================================================================================
Liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Trust certificates .................................................................. 80,487,000
Payables:
Securities purchased ............................................................ 2,680,000
Interest expense ................................................................ 415,149
Investment adviser .............................................................. 384,357
Dividends to Common Stock shareholders .......................................... 255,714
Other affiliates ................................................................ 5,139 3,740,359
------------
Accrued expenses .................................................................... 159,935
--------------
Total liabilities ................................................................... 84,387,294
--------------
===================================================================================================================================
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) ........................................................... 390,195,210
--------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock ............................................... $589,403,940
==============
===================================================================================================================================
Analysis of Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.10 per share (40,819,506 shares issued and outstanding) ... $ 4,081,951
Paid-in capital in excess of par
Undistributed investment income -- net .............................................. $ 4,109,174
Accumulated realized capital losses -- net .......................................... (41,746,092)
Unrealized appreciation -- net ...................................................... 20,751,497
------------
Total accumulated losses -- net ..................................................... (16,885,421)
--------------
Total -- Equivalent to $14.44 net asset value per share of Common Stock
(market price -- $13.94) .......................................................... $589,403,940
==============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
12 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
Statement of Operations (As Restated. See Note 6)
For the Year Ended June 30, 2006
===================================================================================================================================
Investment Income
-----------------------------------------------------------------------------------------------------------------------------------
Interest
$ 51,028,884
Dividends from affiliates ........................................................... 79,041
------------
Total income ........................................................................ 51,107,925
------------
===================================================================================================================================
Expenses
-----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................................ $ 5,517,727
Interest expense and fees ........................................................... 1,495,517
Commission fees ..................................................................... 996,481
Accounting services ................................................................. 279,930
Transfer agent fees ................................................................. 85,696
Professional fees ................................................................... 61,109
Custodian fees ...................................................................... 48,295
Printing and shareholder reports .................................................... 45,673
Directors' fees and expenses ........................................................ 38,583
Pricing fees ........................................................................ 29,959
Listing fees ........................................................................ 25,090
Other (including $91,437 recovery of filing fees) ................................... (23,532)
------------
Total expenses before waiver and reimbursement ...................................... 8,600,528
Waiver and reimbursement of expenses ................................................ (359,493)
------------
Total expenses after waiver and reimbursement ....................................... 8,241,035
------------
Investment income -- net ............................................................ 42,866,890
------------
===================================================================================================================================
Realized & Unrealized Gain (Loss) -- Net
-----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments -- net .............................................................. 9,418,848
Futures contracts -- net ........................................................ (385,491) 9,033,357
------------
Change in unrealized appreciation on:
Investments -- net .............................................................. (43,479,013)
Futures contracts -- net ........................................................ (36,942) (43,515,955)
-----------------------------
Total realized and unrealized loss -- net ........................................... (34,482,598)
------------
===================================================================================================================================
Dividends to Preferred Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ............................................................ (10,285,335)
------------
Net Decrease in Net Assets Resulting from Operations ................................ $ (1,901,043)
============
See Notes to Financial Statements.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 13
Statements of Changes in Net Assets (As Restated. See Note 6)
For the Year Ended
June 30,
-------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ............................................................ $ 42,866,890 $ 43,408,467
Realized gain -- net ................................................................ 9,033,357 4,838,681
Change in unrealized appreciation -- net ............................................ (43,515,955) 23,254,238
Dividends to Preferred Stock shareholders ........................................... (10,285,335) (5,757,284)
-------------------------------
Net increase (decrease) in net assets resulting from operations ..................... (1,901,043) 65,744,102
-------------------------------
===================================================================================================================================
Dividends to Common Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ............................................................ (37,217,450) (38,543,121)
-------------------------------
Net decrease in net assets resulting from dividends to Common Stock shareholders .... (37,217,450) (38,543,121)
-------------------------------
===================================================================================================================================
Stock Transactions
-----------------------------------------------------------------------------------------------------------------------------------
Value of shares issued to Common Stock shareholders in reinvestment of dividends .... 2,413,582 --
-------------------------------
Net increase in net assets derived from stock transactions .......................... 2,413,582 --
-------------------------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets applicable to Common Stock .................. (36,704,911) 27,200,981
Beginning of year ................................................................... 626,108,851 598,907,870
-------------------------------
End of year* ........................................................................ $ 589,403,940 $ 626,108,851
===============================
* Undistributed investment income -- net ........................................ $ 4,109,174 $ 8,836,506
===============================
See Notes to Financial Statements.
14 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
Financial Highlights (As Restated. See Note 6)
For the Year Ended
June 30,
The following per share data and ratios have been derived ----------------------------------------------------------------
from information provided in the financial statements. 2006 2005 2004 2003 2002
===================================================================================================================================
Per Share Operating Performance
-----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .................. $ 15.40 $ 14.73 $ 15.53 $ 14.82 $ 14.46
----------------------------------------------------------------
Investment income -- net** .......................... 1.05 1.07 1.05 1.09 1.10
Realized and unrealized gain (loss) -- net .......... (.85) .69 (.84) .63 .30
Dividends and distributions to Preferred Stock
shareholders: Investment income -- net .......... (.25) (.14) (.08) (.10) (.15)
Realized gain -- net ............................ -- -- -- -- --+
----------------------------------------------------------------
Total from investment operations .................... (.05) 1.62 .13 1.62 1.25
----------------------------------------------------------------
Less dividends and distributions to Common Stock
shareholders: Investment income -- net .......... (.91) (.95) (.93) (.91) (.89)
Realized gain -- net ............................ -- -- -- -- --+
----------------------------------------------------------------
Total dividends and distributions to Common Stock
shareholders .................................... (.91) (.95) (.93) (.91) (.89)
----------------------------------------------------------------
Net asset value, end of year ........................ $ 14.44 $ 15.40 $ 14.73 $ 15.53 $ 14.82
================================================================
Market price per share, end of year ................. $ 13.94 $ 14.97 $ 13.36 $ 14.85 $ 14.19
================================================================
===================================================================================================================================
Total Investment Return***
-----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .................. (.29%) 11.56% 1.28% 11.60% 9.10%
================================================================
Based on market price per share ..................... (.98%) 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 and interest expenses* 1.10% 1.11% 1.10% 1.11% 1.14%
================================================================
Total expenses, net of waiver and reimbursement
and excluding reorganization expenses* ............ 1.35% 1.16% 1.17% 1.24% 1.33%
================================================================
Total expenses, excluding reorganization expenses* .. 1.41% 1.22% 1.24% 1.31% 1.40%
================================================================
Total expenses* ..................................... 1.41% 1.22% 1.24% 1.31% 1.42%
================================================================
Total investment income -- net ...................... 7.01% 6.99% 6.87% 7.09% 7.41%
================================================================
Amount of dividends to Preferred Stock shareholders 1.68% .93% .53% .65% 1.02%
================================================================
Investment income -- net, to Common Stock shareholders 5.33% 6.06% 6.34% 6.44% 6.39%
================================================================
===================================================================================================================================
Ratios Based on Average Net Assets of Preferred Stock
-----------------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders ........... 2.62% 1.48% .85% 1.03% 1.57%
================================================================
===================================================================================================================================
Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock, end of year
(in thousands) .................................... $589,404 $626,109 $598,908 $631,571 $602,571
================================================================
Preferred Stock outstanding at liquidation
preference, end of year (in thousands) ............ $390,000 $390,000 $390,000 $390,000 $390,000
================================================================
Portfolio turnover .................................. 34% 47% 35% 25% 38%
================================================================
===================================================================================================================================
Leverage
-----------------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 ........................... $ 2,511 $ 2,605 $ 2,536 $ 2,619 $ 2,545
================================================================
===================================================================================================================================
Dividends Per Share on Preferred Stock Outstanding
-----------------------------------------------------------------------------------------------------------------------------------
Series A -- Investment income -- net ................ $ 641 $ 347 $ 195 $ 253 $ 362
================================================================
Series B -- Investment income -- net ................ $ 671 $ 391 $ 216 $ 269 $ 400
================================================================
Series C -- Investment income -- net ................ $ 662 $ 373 $ 218 $ 248 $ 375
================================================================
Series D -- Investment income -- net ................ $ 653 $ 351 $ 210 $ 255 $ 400
================================================================
Series E -- Investment income -- net ................ $ 659 $ 369 $ 213 $ 262 $ 408
================================================================
* Do not reflect the effect of dividends to Preferred Stock shareholders.
** Based on average shares outstanding.
*** 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.
See Notes to Financial Statements.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 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. 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, 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.
16 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
Notes to Financial Statements (continued)
(c) Municipal bonds held in trust -- The Fund invests in leveraged residual
certificates ("TOB Residuals") issued by tender option bond trusts ("TOBs"). A
TOB is established by a third party sponsor forming a special purpose entity,
into which the Fund, or an agent on behalf of the Fund, transfers municipal
securities. A TOB typically issues two classes of beneficial interests:
short-term floating rate certificates, which are sold to third party investors,
and residual certificates, which are generally issued to the Fund which made the
transfer or to affiliates of the Fund. The Fund's transfer of the municipal
securities to a TOB does not qualify for sale treatment under Statement of
Financial Accounting Standards No. 140 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," therefore the municipal
securities deposited into a TOB are presented in the Fund's schedule of
investments and the proceeds from the transaction are reported as a liability
for trust certificates of the Fund. Similarly, proceeds from residual
certificates issued to affiliates, if any, from the transaction are included in
the liability for trust certificates. Interest income from the underlying
security is recorded by the Fund on an accrual basis. Interest expense incurred
on the secured borrowing and other expenses related to remarketing,
administration and trustee services to a TOB are reported as expenses of the
Fund. The floating rate certificates have interest rates that generally reset
weekly and their holders have the option to tender certificates to the TOB for
redemption at par at each reset date. The residual interests held by the Fund
include the right of the Fund (1) to cause the holders of a proportional share
of the floating rate certificates to tender their certificates at par, and (2)
to transfer a corresponding share of the municipal securities from the TOB to
the Fund. At June 30, 2006, the aggregate value of the underlying municipal
securities transferred to TOBs was $165,616,996, the related liability for trust
certificates was $80,487,000 and the range of interest rates on the liability
for trust certificates was 3.97% to 4.01%.
Financial transactions executed through TOBs generally will underperform the
market for fixed rate municipal bonds in a rising interest rate environment, but
tend to outperform the market for fixed rate bonds when interest rates decline
or remain relatively stable. Should short-term interest rates rise, the Fund's
investment in TOB Residuals likely will adversely affect the Fund's investment
income-net and distributions to shareholders. Fluctuations in the market value
of municipal securities deposited into the TOB may adversely affect the Fund's
net asset value per share.
While the Fund's investment policies and restrictions expressly permit
investments in inverse floating rate securities such as TOB Residuals, they
generally do not allow the Fund to borrow money for purposes of making
investments. The Fund's management believes that the Fund's restrictions on
borrowings do not apply to the secured borrowings deemed to have occurred for
accounting purposes.
(d) 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.
(e) 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.
(f) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(g) Reclassification -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $91,437 has been reclassified between undistributed net investment income
and paid-in capital in excess of par as a result of a permanent difference
attributable to non-deductible expenses. This reclassification has no effect on
net assets or net asset values per share.
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. FAM has agreed to waive its
management fee on the proceeds of Preferred Stock that exceeds 35% of the Fund's
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 17
Notes to Financial Statements (continued)
total net assets. For the year ended June 30, 2006, FAM earned fees of
$5,517,727, of which $346,998 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 year ended June 30, 2006, FAM reimbursed the Fund in the amount of $12,495.
For the year ended June 30, 2006, the Fund reimbursed FAM $23,196 for certain
accounting services.
Certain officers and/or Directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction closed on
September 29, 2006.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended June 30, 2006 were $368,870,264 and $351,670,852, 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 year ended June 30, 2006 increased by
162,205 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 June 30, 2006
were: Series A, 3.65%; Series B, 3.50%; Series C, 3.70%; Series D, 3.65%; and
Series E, 3.80%.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of each
auction. For the year ended June 30, 2006, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, an affiliate of FAM, earned $394,288 as commissions.
5. Distributions to Shareholders:
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of $.065000 per share on July 28, 2006 to shareholders of record on July
17, 2006.
The tax character of distributions paid during the fiscal years ended June 30,
2006 and June 30, 2005 was as follows:
--------------------------------------------------------------------------------
6/30/2006 6/30/2005
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .............................. $47,502,785 $44,300,405
--------------------------
Total distributions .............................. $47,502,785 $44,300,405
==========================
As of June 30, 2006, the components of accumulated losses on a tax basis were as
follows:
-----------------------------------------------------------------------------
Undistributed tax-exempt income -- net ...................... $ 3,602,791
Undistributed long-term capital gains -- net ................ --
------------
Total undistributed earnings -- net ......................... 3,602,791
Capital loss carryforward ................................... (36,404,870)*
Unrealized gains -- net ..................................... 15,916,658**
------------
Total accumulated losses -- net ............................. $(16,885,421)
============
* On June 30, 2006, the Fund had a net capital loss carryforward of
$36,404,870, of which $531,288 expires in 2007, $7,894,678 expires in
2008, $24,871,537 expires in 2009 and $3,107,367 expires in 2012. This
amount will be available to offset like amounts of any future taxable
gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales, the
tax deferral of losses on straddles, the difference between book and tax
amortization methods for premiums and discounts on fixed income securities
and the difference between the book and tax treatment of residual
interests in tender option bond trusts.
6. Restatement Information:
Subsequent to the issuance of its June 30, 2006 financial statements, the Fund
determined that the criteria for sale accounting in Statement of Financial
Accounting Standards No. 140 had not been met for certain transfers of municipal
bonds and these transfers should have been accounted for as secured borrowings
rather than as sales. Accordingly, the Fund has restated the statement of net
assets as of June 30, 2006, including the schedule of investments, the statement
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and certain financial
highlights for each of the five years in the period then ended. The effects of
the restatement were to record the transfers of the municipal bonds as secured
borrowings, to give effect to offsetting changes in realized gain -- net and in
the change in unrealized
18 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
Notes to Financial Statements (continued)
appreciation/depreciation -- net on the transferred municipal securities and to
give effect to interest on the bonds as interest income and interest on the
secured borrowings as interest expense.
-------------------------------------------------------------------------------
Statement of Net Assets as of
June 30, 2006
-------------------------------------------------------------------------------
Previously
Reported Restated
-------------------------------------------------------------------------------
Investments in unaffiliated
securities, at value ................. $ 941,160,459 $ 1,021,647,459
Investments in unaffiliated
securities, identified cost .......... $ 921,262,027 $ 1,000,895,962
Interest receivable .................... $ 15,473,078 $ 15,888,227
Total assets ........................... $ 983,084,295 $ 1,063,986,444
Trust certificates ..................... -- $ 80,487,000
Interest expense payable ............... -- $ 415,149
Total liabilities ...................... $ 3,485,145 $ 84,387,294
Accumulated realized capital
losses -- net ........................ $ (40,893,027) $ (41,746,092)
Unrealized appreciation -- net ......... $ 19,898,432 $ 20,751,497
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Statement of Operations for the
Year Ended June 30, 2006
-------------------------------------------------------------------------------
Previously
Reported Restated
-------------------------------------------------------------------------------
Interest ..................................... $ 49,533,367 $ 51,028,884
Total income ................................. $ 49,612,408 $ 51,107,925
Interest expense and fees .................... -- $ 1,495,517
Total expenses before
waiver and reimbursement ................... $ 7,105,011 $ 8,600,528
Total expenses after
waiver and reimbursement ................... $ 6,745,518 $ 8,241,035
Realized gain (loss) on
investments -- net ......................... $ 10,009,396 $ 9,418,848
Change in unrealized
appreciation on
investments -- net ........................... $(44,069,561) $(43,479,013)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Statement of Changes in Net Assets for the
Year Ended June 30, 2006
-------------------------------------------------------------------------------
Previously
Reported Restated
-------------------------------------------------------------------------------
Realized gain -- net ......................... $ 9,623,905 $ 9,033,357
Change in unrealized
appreciation -- net ........................ $(44,106,503) $(43,515,955)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Statement of Changes in Net Assets for the
Year Ended June 30, 2005
-------------------------------------------------------------------------------
Previously
Reported Restated
-------------------------------------------------------------------------------
Realized gain -- net ............................. $ 4,909,272 $ 4,838,681
Change in unrealized
appreciation -- net ............................ $23,183,647 $23,254,238
-------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Financial Highlights
For the Years Ended June 30, 2006, 2005, 2004, 2003 and 2002
--------------------------------------------------------------------------------
2006 2005 2004
------------------- ------------------- -------------------
Previously Previously Previously
Reported Restated Reported Restated Reported Restated
-------------------------------------------------------------------------------------------------------
Total expenses, net of waiver and
reimbursement and excluding
reorganization expenses* ...... 1.10% 1.35% 1.11% 1.16% 1.10% 1.17%
Total expenses,excluding
reorganization expenses* ...... 1.16% 1.41% 1.17% 1.22% 1.17% 1.24%
Total expenses* ................. 1.16% 1.41% 1.17% 1.22% 1.17% 1.24%
Portfolio turnover .............. 45.46% 34% 48.42% 47% 35.59% 35%
-------------------------------------------------------------------------------------------------------
2003 2002
------------------- -------------------
Previously Previously
Reported Restated Reported Restated
--------------------------------------------------------------------------------
Total expenses, net of waiver and
reimbursement and excluding
reorganization expenses* ...... 1.11% 1.24% 1.14% 1.33%
Total expenses,excluding
reorganization expenses* ...... 1.17% 1.31% 1.20% 1.40%
Total expenses* ................. 1.17% 1.31% 1.22% 1.42%
Portfolio turnover .............. 26.99% 25% 41.35% 38%
--------------------------------------------------------------------------------
* Do not reflect the effect of dividends to Preferred Stock shareholders.
While the Statements of Net Assets as of June 30, 2005, 2004, 2003 and 2002, not
presented herein, have not been reissued to give effect to the restatement, the
principal effects of the restatement would be to increase investments and
liability for trust certificates by corresponding amounts at each year, with no
effect on previously reported net assets.
The Statements of Operations for the years ended June 30, 2005, 2004, 2003 and
2002, not presented herein, have not been reissued to give effect to the
restatement. However, the principal effects of the restatement would be to
increase interest income and interest expense and fees by corresponding amounts
each year, and, where applicable, to revise
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 19
Notes to Financial Statements (concluded)
realized gain (loss) on investments -- net, and the change in unrealized
appreciation/depreciation on investments -- net, by corresponding and offsetting
amounts.
The Statements of Changes in Net Assets for the years ended June 30, 2004, 2003
and 2002, not presented herein, have not been reissued to give effect to the
restatement, but the principal effects of a restatement, where applicable, would
be to revise previously reported realized gain (loss) -- net, and change in
unrealized appreciation/depreciation -- net, by corresponding and offsetting
amounts.
7. Subsequent Event:
On September 29, 2006, BlackRock, Inc. and ML & Co. combined ML & Co.'s
investment management business, Merrill Lynch Investment Managers, L.P., and its
affiliates, including FAM, with BlackRock, Inc. to create a new independent
company. MuniHoldings California Insured Fund, Inc. was renamed BlackRock
MuniHoldings California Insured Fund, Inc.
On August 15, 2006, shareholders of the Fund approved a new Investment Advisory
Agreement with BlackRock Advisors, Inc. (the "Manager"), an indirect, wholly
owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was recently
reorganized into a limited liability company and renamed BlackRock Advisors,
LLC. The new Investment Advisory Agreement between the Fund and the Manager
became effective on September 29, 2006.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of MuniHoldings California Insured
Fund, Inc.:
We have audited the accompanying statement of net assets, including the schedule
of investments, of MuniHoldings California Insured Fund, Inc. as of June 30,
2006, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement.The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of June 30, 2006 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
MuniHoldings California Insured Fund, Inc. as of June 30, 2006, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and its financial highlights for each
of the five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 6, the statement of net assets, including the schedule of
investments, as of June 30, 2006, the statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and certain financial highlights for each of the five years
in the period then ended have been restated.
Deloitte & Touche LLP
Princeton, New Jersey
August 23, 2006
(May 18, 2007 as to Notes 6 and 7)
20 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
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.
Important Tax Information
All of the net investment income distributions paid by MuniHoldings California
Insured Fund, Inc. during the taxable year ended June 30, 2006 qualify as
tax-exempt interest dividends for federal income tax purposes.
Fund Certification
In May 2006, the Fund filed its Chief Executive Officer Certification for the
prior year with the New York Stock Exchange pursuant to Section 303A.12(a) of
the New York Stock Exchange Corporate Governance Listing Standards.
The Fund's Chief Executive Officer and Chief Financial Officer Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the
Fund's Form N-CSR and are available on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 21
Automatic Dividend Reinvestment Plan
How the Plan Works -- The Fund offers a Dividend Reinvestment Plan (the "Plan")
under which income and capital gains dividends paid by the Fund are
automatically reinvested in additional shares of Common Stock of the Fund. The
Plan is administered on behalf of the shareholders by The Bank of New York (the
"Plan Agent"). Under the Plan, whenever the Fund declares a dividend,
participants in the Plan will receive the equivalent in shares of Common Stock
of the Fund. The Plan Agent will acquire the shares for the participant's
account either (i) through receipt of additional unissued but authorized shares
of the Fund ("newly issued shares") or (ii) by purchase of outstanding shares of
Common Stock on the open market on the New York Stock Exchange or elsewhere. If,
on the dividend payment date, the Fund's net asset value per share is equal to
or less than the market price per share plus estimated brokerage commissions (a
condition often referred to as a "market premium"), the Plan Agent will invest
the dividend amount in newly issued shares. If the Fund's net asset value per
share is greater than the market price per share (a condition often referred to
as a "market discount"), the Plan Agent will invest the dividend amount by
purchasing on the open market additional shares. If the Plan Agent is unable to
invest the full dividend amount in open market purchases, or if the market
discount shifts to a market premium during the purchase period, the Plan Agent
will invest any uninvested portion in newly issued shares. The shares acquired
are credited to each shareholder's account. The amount credited is determined by
dividing the dollar amount of the dividend by either (i) when the shares are
newly issued, the net asset value per share on the date the shares are issued or
(ii) when shares are purchased in the open market, the average purchase price
per share.
Participation in the Plan -- Participation in the Plan is automatic, that is, a
shareholder is automatically enrolled in the Plan when he or she purchases
shares of Common Stock of the Fund unless the shareholder specifically elects
not to participate in the Plan. Shareholders who elect not to participate will
receive all dividend distributions in cash. Shareholders who do not wish to
participate in the Plan must advise the Plan Agent in writing (at the address
set forth below) that they elect not to participate in the Plan. Participation
in the Plan is completely voluntary and may be terminated or resumed at any time
without penalty by writing to the Plan Agent.
Benefits of the Plan -- The Plan provides an easy, convenient way for
shareholders to make additional, regular investments in the Fund. The Plan
promotes a long-term strategy of investing at a lower cost. All shares acquired
pursuant to the Plan receive voting rights. In addition, if the market price
plus commissions of the Fund's shares is above the net asset value, participants
in the Plan will receive shares of the Fund for less than they could otherwise
purchase them and with a cash value greater than the value of any cash
distribution they would have received. However, there may not be enough shares
available in the market to make distributions in shares at prices below the net
asset value. Also, since the Fund does not redeem shares, the price on resale
may be more or less than the net asset value.
Plan Fees -- There are no enrollment fees or brokerage fees for participating in
the Plan. The Plan Agent's service fees for handling the reinvestment of
distributions are paid for by the Fund. However, brokerage commissions may be
incurred when the Fund purchases shares on the open market and shareholders will
pay a pro rata share of any such commissions.
Tax Implications -- The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income tax that may
be payable (or required to be withheld) on such dividends. Therefore, income and
capital gains may still be realized even though shareholders do not receive
cash. The value of shares acquired pursuant to the Plan will generally be
excluded from gross income to the extent that the cash amount reinvested would
be excluded from gross income. If, when the Fund's shares are trading at a
market premium, the Fund issues shares pursuant to the Plan that have a greater
fair market value than the amount of cash reinvested, it is possible that all or
a portion of the discount from the market value (which may not exceed 5% of the
fair market value of the Fund's shares) could be viewed as a taxable
distribution. If the discount is viewed as a taxable distribution, it is also
possible that the taxable character of this discount would be allocable to all
the shareholders, including shareholders who do not participate in the Plan.
Thus, shareholders who do not participate in the Plan might be required to
report as ordinary income a portion of their distributions equal to their
allocable share of the discount.
Contact Information -- All correspondence concerning the Plan, including any
questions about the Plan, should be directed to the Plan Agent at The Bank of
New York, Church Street Station, P.O. Box 11258, New York, NY 10286-1258,
Telephone: 800-432-8224.
22 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreement -- Matters Considered by the Board
In connection with the Transaction between Merrill Lynch and BlackRock, the
Fund's Board of Directors considered a new investment advisory agreement (the
"New Investment Advisory Agreement") between the Fund and BlackRock Advisors,
Inc. or its successor ("BlackRock Advisors"). If the New Investment Advisory
Agreement is approved by the Fund's shareholders, it will become effective upon
the closing of the Transaction, which is expected in the third quarter of 2006.
The Board discussed the New Investment Advisory Agreement at telephonic and
in-person meetings held during April and May 2006. The Board, including the
independent directors, approved the New Investment Advisory Agreement at a
meeting held on May 9, 2006.
To assist the Board in its consideration of the New Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors, through their independent legal counsel,
also requested and received additional information from Merrill Lynch and
BlackRock in connection with their consideration of the New Investment Advisory
Agreement. The additional information was provided in advance of the May 9, 2006
meeting. In addition, the independent directors consulted with their counsel and
Fund counsel on numerous occasions, discussing, among other things, the legal
standards and certain other considerations relevant to the directors'
deliberations.
At the Board meetings, the directors discussed with Merrill Lynch management and
certain BlackRock representatives the Transaction, its strategic rationale and
BlackRock's general plans and intentions regarding the Fund. At these Board
meetings, representatives of Merrill Lynch and BlackRock made presentations to
and responded to questions from the Board. The directors also inquired about the
plans for and anticipated roles and responsibilities of certain employees and
officers of the Investment Adviser and certain affiliates being transferred to
BlackRock in connection with the Transaction. The independent directors of the
Board also conferred separately and with their counsel about the Transaction and
other matters related to the Transaction on a number of occasions, including in
connection with the April and May 2006 meetings. After the presentations and
after reviewing the written materials provided, the independent directors met in
executive sessions with their counsel to consider the New Investment Advisory
Agreement.
In connection with the Board's review of the New Investment Advisory Agreement,
Merrill Lynch and/or BlackRock advised the directors about a variety of matters.
The advice included the following, among other matters:
o that there is not expected to be any diminution in the nature, quality and
extent of services provided to the Fund and its shareholders by BlackRock
Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm will enhance its ability to attract and retain talented
professionals;
o that the Fund should benefit from having access to BlackRock's state of
the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions(R) brand name;
o that BlackRock has no present intention to alter any applicable expense
waivers or reimbursements currently in effect and, while it reserves the
right to do so in the future, it would seek the approval of the Board
before making any changes;
o that in connection with the Transaction, Merrill Lynch and BlackRock have
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Investment Adviser (or its affiliates), respectively; and
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they have a different financial
interest in the matters that were being considered than do Fund
shareholders.
The directors considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
o the potential benefits to Fund shareholders from being part of a combined
fund family with BlackRock-sponsored funds, including possible economies
of scale and access to investment opportunities;
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 23
Disclosure of New Investment Advisory Agreement (continued)
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
o the terms and conditions of the New Investment Advisory Agreement,
including the fact that the schedule of the Fund's total advisory fees
will not increase by virtue of the New Investment Advisory Agreement, but
will remain the same;
o that in November 2005, the Board performed a full annual review of the
investment advisory agreement currently in effect for the Fund (the
"Current Investment Advisory Agreement") as required by the 1940 Act and
has determined that the Investment Adviser has the capabilities, resources
and personnel necessary to provide the advisory and administrative
services currently provided to the Fund; and that the advisory and/or
management fees paid by the Fund, taking into account any applicable
agreed-upon fee waivers and breakpoints, represent reasonable compensation
to the Investment Adviser in light of the services provided, the costs to
the Investment Adviser of providing those services, economies of scale,
the fees and other expenses paid by similar funds (including information
provided by Lipper Inc. ["Lipper"]), and such other matters as the
directors have considered relevant in the exercise of their reasonable
judgment; and
o that Merrill Lynch agreed to pay all expenses of the Fund in connection
with the Board's consideration of the New Investment Advisory Agreement
and related agreements and all costs of shareholder approval of the New
Investment Advisory Agreement and as a result the Fund would bear no costs
in obtaining shareholder approval of the New Investment Advisory
Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the New Investment Advisory Agreement, the Board assessed the
nature, scope and quality of the services to be provided to the Fund by the
personnel of BlackRock Advisors and its affiliates, including administrative
services, shareholder services, oversight of fund accounting and assistance in
meeting legal and regulatory requirements. In its review of the New Investment
Advisory Agreement, the Board also considered a range of information in
connection with its oversight of the services to be provided by BlackRock
Advisors and its affiliates. Among the matters considered were: (a) fees (in
addition to management fees) to be paid to BlackRock Advisors 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 BlackRock Advisors' compliance policies and procedures; and (d) the nature,
cost and character of non-investment management services to be provided by
BlackRock Advisors and its affiliates.
In the period prior to the Board meetings to consider renewal of the Current
Investment Advisory Agreement, the Board had requested and received materials
specifically relating to the Current Investment Advisory Agreement. These
materials included (a) information compiled by 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 on investment strategies used by the Fund during its most recent
fiscal year; (d) information on the profitability to the Investment Adviser of
the Current Investment Advisory Agreement and other payments received by the
Investment Adviser and its affiliates from the Fund; and (e) information
provided by the Investment Adviser concerning services related to the valuation
and pricing of Fund portfolio holdings, the Fund's portfolio turnover
statistics, and direct and indirect benefits to the Investment Adviser and its
affiliates from their relationship with the Fund.
In their deliberations, the directors considered information received in
connection with their most recent continuation of the Current Investment
Advisory Agreement, in addition to information provided by BlackRock and
BlackRock Advisors in connection with their evaluation of the terms and
conditions of the New Investment Advisory Agreement. The directors did not
identify any particular information that was all-important or controlling. The
directors, including a majority of the independent directors, concluded that the
terms of the New Investment Advisory Agreement are appropriate, that the fees to
be paid are reasonable in light of the services to be provided to the Fund, and
that the New Investment Advisory Agreement should be approved and recommended to
Fund shareholders.
Nature, Quality and Extent of Services Provided -- The Board reviewed the
nature, extent and quality of services
24 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
provided by the Investment Adviser, including the investment advisory services
and the resulting performance of the Fund, as well as the nature, quality and
extent of services expected to be provided by BlackRock Advisors. The Board
focused primarily on the Investment Adviser's advisory services and the Fund's
investment performance, but also considered certain areas in which both the
Investment Adviser and the Fund receive services as part of the Merrill Lynch
complex. The Board compared the Fund's performance -- both including and
excluding the effects of 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.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the New Investment Advisory Agreement, the directors
considered, among other things, the expected impact of the Transaction on the
operations, facilities, organization and personnel of New BlackRock and how it
would affect the Fund; the ability of BlackRock Advisors to perform its duties
after the Transaction; and any anticipated changes to the current investment and
other practices of the Fund.
The directors were given information with respect to the potential benefits to
the Fund and its shareholders from having access to BlackRock's state of the art
technology and risk management analytic tools, including the investment tools
provided under the BlackRock Solutions brand name.
The directors were advised that, as a result of Merrill Lynch's equity interest
in BlackRock after the Transaction, the Fund will continue to be subject to
restrictions concerning certain transactions involving Merrill Lynch affiliates
(for example, transactions with a Merrill Lynch broker-dealer acting as
principal) absent revised or new regulatory relief. The directors were advised
that a revision of existing regulatory relief with respect to these restrictions
was being sought from the Securities and Exchange Commission and were advised of
the possibility of receipt of such revised regulatory relief. There can be no
assurance that such relief will be obtained.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the directors
determined that the nature and quality of services to be provided to the Fund
under the New Investment Advisory Agreement were expected to be as good or
better than that provided under the Current Investment Advisory Agreement. It
was noted, however, that it is expected that there will be changes in personnel
following the Transaction and the combination of the operations of the
Investment Adviser and its affiliates with those of BlackRock. The directors
noted that if current portfolio managers or other personnel cease to be
available, the Board would consider all available options, which could include
seeking the investment advisory or other services of BlackRock affiliates.
Accordingly, the directors concluded that, overall, they were satisfied at the
present time with assurances from BlackRock and BlackRock Advisors as to the
expected nature, extent and quality of the services to be provided to the Fund
under the New Investment Advisory Agreement.
Costs of Services Provided and Profitability -- It was noted that, in
conjunction with the recent review of the Current Investment Advisory Agreement,
the directors had received, among other things, a report from Lipper comparing
the Fund's fees, expenses and performance to those of a peer group selected by
Lipper, and information as to the fees charged by the Investment Adviser or its
affiliates to other registered investment company clients for investment
management services. The Board reviewed 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 fees and the effects of any
fee waivers -- compared to the other funds in its Lipper category. They also
compared the Fund's total expenses to those of other comparable funds. The
information showed that the Fund had fees and expenses within the range of fees
and expenses of comparable funds. The Board concluded that the Fund's management
fee and fee rate and overall expense ratio are reasonable compared to those of
other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the New Investment Advisory Agreement, the directors considered, among
other things, whether advisory fees or other expenses would change as a result
of the Transaction. Based on their review of the materials provided and the fact
that the New Investment Advisory Agreement is substantially similar to the
Current Investment Advisory Agreement in all material respects, including the
rate of compensation, the directors determined that the Transaction should not
increase the total fees payable, including any fee waivers, or after any expense
caps or expense reimbursements, for advisory and administrative services. The
directors noted that it was not possible to
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 25
Disclosure of New Investment Advisory Agreement (concluded)
predict how the Transaction would affect BlackRock Advisors' profitability from
its relationship with the Fund.
The directors discussed with BlackRock Advisors its general methodology to be
used in determining its profitability with respect to its relationship with the
Fund and noted that they expect to receive profitability information from
BlackRock Advisors on at least an annual basis.
Fees and 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 currently appropriately benefits from any
economies of scale and no changes were currently necessary.
In reviewing the Transaction, the directors considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that the New Investment Advisory Agreement is
substantially similar to the Current Investment Advisory Agreement in all
material respects, including the rate of compensation, the directors determined
that as a result of the Transaction, the Fund's total advisory fees would be no
higher than the fees under its Current Investment Advisory Agreement. The
directors concluded that, because the rates for advisory fees for the Fund would
be no higher than its current fee rates, the proposed management fee structure,
including any fee waivers, was reasonable and that no additional changes were
currently necessary.
Fall-Out Benefits -- The directors considered whether the Fund would generate
any fall-out benefits to BlackRock Advisors. Fall-out benefits are indirect
profits from other activities that accrue to the adviser or its affiliates
solely because of the existence of the Fund. In evaluating the fall-out benefits
to be received by BlackRock Advisors under the New Investment Advisory
Agreement, the directors considered whether the Transaction would have an impact
on the fall-out benefits received by the Investment Adviser by virtue of the
Current Investment Advisory Agreement. Based on their review of the materials
provided, including materials received in connection with their most recent
approval or continuance of the Current Investment Advisory Agreement, and their
discussions with management of the Investment Adviser and BlackRock, the
directors determined that those benefits could include increased ability for
BlackRock to distribute shares of its funds and other investment products. The
directors noted that any such benefits were difficult to quantify with certainty
at this time, and indicated that they would continue to evaluate them going
forward.
Investment Performance -- The directors considered investment performance for
the Fund. The directors compared the Fund's performance -- both including and
excluding the effects of fees and expenses -- to the performance of a comparable
group of funds, and the performance of a relevant index or combination of
indexes. The comparative information received from Lipper showed Fund
performance at various levels within the range of performance of comparable
funds over different time periods. The directors believed the Fund's performance
was satisfactory. The Board noted BlackRock's considerable investment management
experience and capabilities, but was unable to predict what effect, if any,
consummation of the Transaction would have on the future performance of the
Fund.
Conclusion -- After the independent directors of the Fund deliberated in
executive session, the entire Board, including the independent directors,
approved the New Investment Advisory Agreement, concluding that the advisory fee
rate was reasonable in relation to the services provided and that the New
Investment Advisory Agreement was in the best interests of the shareholders. In
approving the New Investment Advisory Agreement, the Board noted that it
anticipated reviewing the continuance of the agreement in advance of the
expiration of the initial two-year period.
Contingent BlackRock Subadvisory Agreement -- Matters Considered by the Board
At the telephonic and in-person meetings held during April and May 2006 at which
the Board of Directors discussed and approved the New Investment Advisory
Agreement, the Board, including the independent directors, also discussed and
approved a contingent subadvisory agreement (the "Contingent Subadvisory
Agreement") between the Investment Adviser and BlackRock Advisors (the
"BlackRock Subadviser"). The Contingent Subadvisory Agreement is intended to
ensure that the Fund operate with efficient portfolio management services until
the closing of the Transaction, in the event that the Board deems it necessary
and in the best interests of the Fund and its shareholders that the BlackRock
Subadviser assist in managing the operations of the Fund during the interim
period until the closing of the Transaction. If shareholders approve the
Contingent
26 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
Subadvisory Agreement, it will take effect only upon recommendation from the
Investment Adviser and upon subsequent approval of the Board in the period up to
the closing of the Transaction. The effectiveness of the Contingent Subadvisory
Agreement, therefore, would be contingent on further Board approval after
shareholders approve it. Pursuant to the Contingent Subadvisory Agreement, the
BlackRock Subadviser would receive a monthly fee from the Investment Adviser
equal to 50% of the advisory fee received by the Investment Adviser. The
Investment Adviser would pay the BlackRock Subadviser out of its own resources.
There would be no increase in Fund expenses as a result of the Contingent
Subadvisory Agreement.
In making its approval at the May in-person meeting, the Board considered the
Contingent Subadvisory Agreement in conjunction with the New Investment Advisory
Agreement and reviewed the same information and factors discussed above, and
came to the same conclusions. The Board also considered in conjunction with the
Contingent Subadvisory Agreement the necessity of ensuring that the Fund operate
with effective management services until the closing of the Transaction. In
reviewing the subadvisory fee rate provided in the Contingent Subadvisory
Agreement, the Board took note of the fact that both the Investment Adviser and
the BlackRock Subadviser would have significant responsibilities under their
respective advisory agreements. The Investment Adviser would remain responsible
for oversight of the Fund's operations and administration and the BlackRock
Subadviser would provide advisory services to the Fund under the Contingent
Subadvisory Agreement. The Board also took into account the expected short
duration of the term of any Contingent Subadvisory Agreement and the fact that
total advisory fees paid by the Fund would not increase as a result of the
Contingent Subadvisory Agreement. Under all of the circumstances, the Board
concluded that it was a reasonable allocation of fees for the BlackRock
Subadviser to receive 50% of the advisory fee paid by the Fund to the Investment
Adviser.
After the independent directors deliberated in executive session, the entire
Board, including the independent directors, approved the Contingent Subadvisory
Agreement, concluding that the advisory fee was reasonable in relation to the
services provided and that the Contingent Subadvisory Agreement was in the best
interests of shareholders.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 27
Officers and Directors
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years by Director Director
====================================================================================================================================
Interested Director
------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to President of the MLIM/FAM-advised funds since 131 Funds None
Doll, Jr.* Princeton, NJ and present 2005; President and Chief Investment Officer of 178 Portfolios
08543-9011 Director MLIM and FAM since 2001; Co-Head (Americas Region)
Age: 51 thereof from 2000 to 2001 and Senior Vice
President from 1999 to 2001; President and
Director of Princeton Services, Inc. ("Princeton
Services") since 2001; President of Princeton
Administrators, L.P. ("Princeton Administrators")
since 2001; Chief Investment Officer of
OppenheimerFunds, Inc. in 1999 and Executive Vice
President thereof from 1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which
MLIM or FAM acts as investment adviser. Mr. Doll is an "interested person," as defined in the Investment Company
Act, of the Fund based on his positions with MLIM, FAM, Princeton Services and Princeton Administrators. Directors
serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund
President, Mr. Doll serves at the pleasure of the Board of Directors.
====================================================================================================================================
Independent Directors*
------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Director 1997 to Director, The China Business Group, Inc. since 39 Funds None
Bodurtha** Princeton, NJ present 1996 and Executive Vice President thereof from 59 Portfolios
08543-9095 1996 to 2003; Chairman of the Board, Berkshire
Age: 62 Holding Corporation since 1980; Partner, Squire,
Sanders & Dempsey from 1980 to 1993.
------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9095 Director 2005 to Professor, Harvard University since 1992; 39 Funds None
Froot Princeton, NJ present Professor, Massachusetts Institute of Technology 59 Portfolios
08543-9095 from 1986 to 1992.
Age: 48
------------------------------------------------------------------------------------------------------------------------------------
Joe P.O. Box 9095 Director 2002 to Member of the Committee of Investment of 39 Funds Kimco
Grills** Princeton, NJ present Employee Benefit Assets of the Association of 59 Portfolios Realty
08543-9095 Financial Professionals ("CIEBA") since 1986; Corporation
Age: 71 Member of CIEBA's Executive Committee since
1988 and its Chairman from 1991 to 1992;
Assistant Treasurer of International Business
Machines Corporation ("IBM") and Chief
Investment Officer of IBM Retirement Funds
from 1986 to 1993; Member of the Investment
Advisory Committee of the State of New York
Common Retirement Fund since 1989; Member
of the Investment Advisory Committee of the
Howard Hughes Medical Institute from 1997 to
2000; Director, Duke University Management
Company from 1992 to 2004, Vice Chairman
thereof from 1998 to 2004, and Director Emeritus
thereof since 2004; Director, LaSalle Street Fund
from 1995 to 2001; Director, Kimco Realty
Corporation since 1997; Member of the
Investment Advisory Committee of the Virginia
Retirement System since 1998, Vice Chairman
thereof from 2002 to 2005, and Chairman thereof
since 2005; Director, Montpelier Foundation since
1998 and its Vice Chairman since 2000; Member
of the Investment Committee of the Woodberry
Forest School since 2000; Member of the
Investment Committee of the National Trust
for Historic Preservation since 2000.
------------------------------------------------------------------------------------------------------------------------------------
28 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
Officers and Directors (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years by Director Director
====================================================================================================================================
Independent Directors* (concluded)
------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Director 1997 to Chairman of the Board of Directors of Vigilant 39 Funds None
London Princeton, NJ present Research, Inc. since 2006; Director of Reflex 59 Portfolios
08543-9095 Security since 2006; Director of Cerego, LLC since
Age: 67 2006; Director of InnoCentive, Inc. since 2006;
Professor Emeritus, New York University since
2005; John M. Olin Professor of Humanities, New
York University from 1993 to 2005; and Professor
thereof from 1980 to 2005; President, Hudson
Institute since 1997 and Trustee thereof since
1980; Dean, Gallatin Division of New York
University from 1976 to 1993; Distinguished
Fellow, Herman Kahn Chair, Hudson Institute from
1984 to 1985; Director, Damon Corp. from 1991 to
1995; Overseer, Center for Naval Analyses from
1983 to 1993.
------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Director 1999 to Shareholder, Modrall, Sperling, Roehl, Harris & 39 Funds None
Cooper Princeton, NJ present Sisk, P.A. since 1993; President, American Bar 59 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of
Age: 63 the Board of Governors thereof from 1994 to
1997; Shareholder, Poole, Kelly & Ramo, Attorneys
at Law P.C. from 1977 to 1993; Director of ECMC
Group (service provider to students, schools and
lenders) since 2001; Director, United New Mexico
Bank (now Wells Fargo) from 1983 to 1988;
Director, First National Bank of New Mexico
(now Wells Fargo) from 1975 to 1976; Vice
President, American Law Institute since 2004.
------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Director 2002 to Principal of STI Management (investment adviser) 39 Funds None
Salomon, Princeton, NJ present from 1994 to 2005; Chairman and CEO of Salomon 59 Portfolios
Jr. 08543-9095 Brothers Asset Management Inc. from 1992 to
Age: 69 1995; Chairman of Salomon Brothers Equity Mutual
Funds from 1992 to 1995; regular columnist with
Forbes Magazine from 1992 to 2002; Director of
Stock Research and U.S. Equity Strategist at Salomon
Brothers Inc. from 1975 to 1991; Trustee, Commonfund
from 1980 to 2001.
------------------------------------------------------------------------------------------------------------------------
* Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Co-Chairman of the Board of Directors and the Audit Committee.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 29
Officers and Directors (continued)
Position(s) Length of
Held with Time
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1997 to Managing Director of MLIM and FAM since 2006 and Treasurer thereof since 1999;
Burke Princeton, NJ President present First Vice President of MLIM and FAM from 1997 to 2005; Senior Vice President
08543-9011 and and 1999 and Treasurer of Princeton Services since 1999 and Director since 2004; Vice
Age: 46 Treasurer to present President of FAM Distributors, Inc. ("FAMD") since 1999 and Director since 2004;
Vice President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM
from 1990 to 2001; Vice President, Treasurer and Secretary of the IQ Funds since
2004.
------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9011 Senior Vice 2002 to Managing Director (Municipal Tax-Exempt Fund Management) of MLIM since 2000;
Jacob Princeton, NJ President present Director of MLIM from 1997 to 2000.
08543-9011
Age: 55
------------------------------------------------------------------------------------------------------------------------------------
John M. P.O. Box 9011 Senior Vice 2002 to Managing Director (Municipal Tax-Exempt Fund Management) of MLIM since 2000;
Loffredo Princeton, NJ President present Director of MLIM from 1997 to 2000.
08543-9011
Age: 42
------------------------------------------------------------------------------------------------------------------------------------
Walter C. P.O. Box 9011 Vice 1997 to Managing Director (Municipal Tax-Exempt Fund Management) of MLIM since 2003;
O'Connor Princeton, NJ President present Director of MLIM from 2000 to 2003; Vice President of MLIM from 1993 to 2000.
08543-9011
Age: 44
------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
Hiller Princeton, NJ Compliance present and Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief
08543-9011 Officer Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
Age: 54 Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance
Officer at Prudential Financial from 1995 to 2000; Senior Counsel in the
Securities and Exchange Commission's Division of Enforcement in Washington, D.C.
from 1990 to 1995.
------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999
Pellegrino Princeton, NJ present to 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD
08543-9011 and Princeton since 2004.
Age: 46
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
------------------------------------------------------------------------------------------------------------------------------------
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Common Stock:
The Bank of New York
101 Barclay Street -- 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 April 13, 2007, Jeffrey Hiller resigned his position as Chief
Compliance Officer of the Fund. Also effective April 13, 2007, Karen Clark was
appointed Chief Compliance Officer of the Fund. Ms. Clark has been a Managing
Director of BlackRock, Inc. since 2007. She was a Director thereof from 2005 to
2007. Prior to that, Ms. Clark was a principal and senior compliance officer at
State Street Global Advisors from 2001 to 2005. Ms. Clark was a principal
consultant with PricewaterhouseCoopers, LLP from 1998 to 2001. From 1993 to
1998, Ms. Clark was Branch Chief, Division of Investment Management and Office
of Compliance Inspections and Examinations, with the U.S. Securities and
Exchange Commission.
--------------------------------------------------------------------------------
30 MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006
Proxy Results
During the six-month period ended June 30, 2006, MuniHoldings California Insured
Fund, Inc.`s Common Stock shareholders voted on the following proposal. The
proposal was approved at a shareholders' meeting on April 27, 2006. A
description of the proposal and number of shares voted are as follows:
--------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
--------------------------------------------------------------------------------
To elect the Fund's
Directors: Robert C. Doll, Jr. 39,136,850 1,051,403
James H. Bodurtha 39,129,319 1,058,934
Kenneth A. Froot 39,134,387 1,053,866
Joe Grills 39,112,499 1,075,754
Roberta Cooper Ramo 39,129,569 1,058,684
--------------------------------------------------------------------------------
During the six-month period ended June 30, 2006, MuniHoldings California Insured
Fund, Inc.'s Preferred Stock shareholders (Series A-E) voted on the following
proposal. The proposal was approved at a shareholders' meeting on April 27,
2006. The description of the proposal and number of shares voted are as follows:
--------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
--------------------------------------------------------------------------------
To elect the Fund's Board of Directors:
Robert C. Doll, Jr., James H. Bodurtha,
Kenneth A. Froot, Joe Grills,
Herbert I. London, Roberta Cooper
Ramo and Robert S. Salomon, Jr. 12,106 9
--------------------------------------------------------------------------------
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.
MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. JUNE 30, 2006 31
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
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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 -- 6/06
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer and principal
accounting officer, or persons performing similar functions. A copy of the code
of ethics is available without charge at www.blackrock.com
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit committee
financial experts serving on its audit committee and (ii) each audit committee
financial expert is independent: (1) Joe Grills, (2) Robert S. Salomon, Jr., and
(3) Stephen B. Swensrud (retired as of December 31, 2005).
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending June 30, 2006 - $32,500
Fiscal Year Ending June 30, 2005 - $32,000
(b) Audit-Related Fees - Fiscal Year Ending June 30, 2006 - $3,500
Fiscal Year Ending June 30, 2005 - $3,500
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
(c) Tax Fees - Fiscal Year Ending June 30, 2006 - $6,000
Fiscal Year Ending June 30, 2005 - $5,700
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending June 30, 2006 - $0
Fiscal Year Ending June 30, 2005 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending June 30, 2006 - $2,909,800
Fiscal Year Ending June 30, 2005 - $8,181,305
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $1,227,000, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals are
members of the registrant's separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act (15 U.S.C. 78c(a)(58)(A)):
James H. Bodurtha
Kenneth A. Froot
Joe Grills
Herbert I. London
Roberta Cooper Ramo
Robert S. Salomon, Jr.
Stephen B. Swensrud (retired as of December 31, 2005)
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill Lynch
Investment Managers, L.P. and/or Fund Asset Management, L.P. (the
"Investment Adviser") authority to vote all proxies relating to the
Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("Proxy Voting Procedures") with respect to the
voting of proxies related to the portfolio securities held in the
account of one or more of its clients, including a Fund. Pursuant to
these Proxy Voting Procedures, the Investment Adviser's primary
objective when voting proxies is to make proxy voting decisions solely
in the best interests of each Fund and its shareholders, and to act in
a manner that the Investment Adviser believes is most likely to enhance
the economic value of the securities held by the Fund. The Proxy Voting
Procedures are designed to ensure that the Investment Adviser considers
the interests of its clients, including the Funds, and not the
interests of the Investment Adviser, when voting proxies and that real
(or perceived) material conflicts that may arise between the Investment
Adviser's interest and those of the Investment Adviser's clients are
properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment professionals
appointed by the CIO, portfolio managers and investment analysts
appointed by the CIO and any other personnel the CIO deems appropriate.
The Committee will also include two non-voting representatives from the
Investment Adviser's Legal department appointed by the Investment
Adviser's General Counsel. The Committee's membership shall be limited
to full-time employees of the Investment Adviser. No person with any
investment banking, trading, retail brokerage or research
responsibilities for the Investment Adviser's affiliates may serve as a
member of the Committee or participate in its decision making (except
to the extent such person is asked by the Committee to present
information to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser might
be asked to do so). The Committee determines how to vote the proxies of
all clients, including a Fund, that have delegated proxy voting
authority to the Investment Adviser and seeks to ensure that all votes
are consistent with the best interests of those clients and are free
from unwarranted and inappropriate influences. The Committee
establishes general proxy voting policies for the Investment Adviser
and is responsible for determining how those policies are applied to
specific proxy votes, in light of each issuer's unique structure,
management, strategic options and, in certain circumstances, probable
economic and other anticipated consequences of alternate actions. In so
doing, the Committee may determine to vote a particular proxy in a
manner contrary to its generally stated policies. In addition, the
Committee will be responsible for ensuring that all reporting and
recordkeeping requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires a
case-by-case determination. In such cases, the Committee may elect not
to adopt a specific voting policy applicable to that issue. The
Investment Adviser believes that certain proxy voting issues require
investment analysis - such as approval of mergers and other significant
corporate transactions - akin to investment decisions, and are,
therefore, not suitable for general guidelines. The Committee may elect
to adopt a common position for the Investment Adviser on certain proxy
votes that are akin to investment decisions, or determine to permit the
portfolio manager to make individual decisions on how best to maximize
economic value for a Fund (similar to normal buy/sell investment
decisions made by such portfolio managers). While it is expected that
the Investment Adviser will generally seek to vote proxies over which
the Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in conjunction
with a Fund's portfolio manager, may determine that the Fund's specific
circumstances require that its proxies be voted differently.
To assist the Investment Adviser in voting proxies, the Committee has
retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For
instance, under the Proxy Voting Procedures, the Investment Adviser
generally will not seek to vote proxies related to portfolio securities
that are on loan, although it may do so under certain circumstances. In
addition, the Investment Adviser will vote proxies related to
securities of foreign issuers only on a best efforts basis and may
elect not to vote at all in certain countries where the Committee
determines that the costs associated with voting generally outweigh the
benefits. The Committee may at any time override these general policies
if it determines that such action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote proxies in
respect of an issuer where an affiliate of the Investment Adviser (each, an
"Affiliate"), or a money management or other client of the Investment Adviser
(each, a "Client") is involved. The Proxy Voting Procedures and the Investment
Adviser's adherence to those procedures are designed to address such conflicts
of interest. The Committee intends to strictly adhere to the Proxy Voting
Procedures in all proxy matters, including matters involving Affiliates and
Clients. If, however, an issue representing a non-routine matter that is
material to an Affiliate or a widely known Client is involved such that the
Committee does not reasonably believe it is able to follow its guidelines (or if
the particular proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes of ensuring
that an independent determination is reached, retain an independent fiduciary to
advise the Committee on how to vote or to cast votes on behalf of the Investment
Adviser's clients.
In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent
fiduciary, the powers of the Committee shall pass to a subcommittee,
appointed by the CIO (with advice from the Secretary of the Committee),
consisting solely of Committee members selected by the CIO. The CIO
shall appoint to the subcommittee, where appropriate, only persons
whose job responsibilities do not include contact with the Client and
whose job evaluations would not be affected by the Investment Adviser's
relationship with the Client (or failure to retain such relationship).
The subcommittee shall determine whether and how to vote all proxies on
behalf of the Investment Adviser's clients or, if the proxy matter is,
in their judgment, akin to an investment decision, to defer to the
applicable portfolio managers, provided that, if the subcommittee
determines to alter the Investment Adviser's normal voting guidelines
or, on matters where the Investment Adviser's policy is case-by-case,
does not follow the voting recommendation of any proxy voting service
or other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies relating
to the Client may be voted unless the Secretary, or in the Secretary's
absence, the Assistant Secretary of the Committee concurs that the
subcommittee's determination is consistent with the Investment
Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain recurring
proxy issues that are not expected to involve unusual circumstances.
These policies are guidelines only, and the Investment Adviser may
elect to vote differently from the recommendation set forth in a voting
guideline if the Committee determines that it is in a Fund's best
interest to do so. In addition, the guidelines may be reviewed at any
time upon the request of a Committee member and may be amended or
deleted upon the vote of a majority of Committee members present at a
Committee meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
o Proposals related to the composition of the Board of Directors of issuers
other than investment companies. As a general matter, the Committee
believes that a company's Board of Directors (rather than shareholders) is
most likely to have access to important, nonpublic information regarding a
company's business and prospects, and is therefore best-positioned to set
corporate policy and oversee management. The Committee, therefore,
believes that the foundation of good corporate governance is the election
of qualified, independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of the
corporation in a manner that will seek to maximize shareholder value over
time. In individual cases, the Committee may look at a nominee's history
of representing shareholder interests as a director of other companies or
other factors, to the extent the Committee deems relevant.
o Proposals related to the selection of an issuer's independent auditors. As
a general matter, the Committee believes that corporate auditors have a
responsibility to represent the interests of shareholders and provide an
independent view on the propriety of financial reporting decisions of
corporate management. While the Committee will generally defer to a
corporation's choice of auditor, in individual cases, the Committee may
look at an auditors' history of representing shareholder interests as
auditor of other companies, to the extent the Committee deems relevant.
o Proposals related to management compensation and employee benefits. As a
general matter, the Committee favors disclosure of an issuer's
compensation and benefit policies and opposes excessive compensation, but
believes that compensation matters are normally best determined by an
issuer's board of directors, rather than shareholders. Proposals to
"micro-manage" an issuer's compensation practices or to set arbitrary
restrictions on compensation or benefits will, therefore, generally not be
supported.
o Proposals related to requests, principally from management, for approval
of amendments that would alter an issuer's capital structure. As a general
matter, the Committee will support requests that enhance the rights of
common shareholders and oppose requests that appear to be unreasonably
dilutive.
o Proposals related to requests for approval of amendments to an issuer's
charter or by-laws. As a general matter, the Committee opposes poison pill
provisions.
o Routine proposals related to requests regarding the formalities of
corporate meetings.
o Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the Committee
believes that a fund's Board of Directors (rather than its shareholders)
is best-positioned to set fund policy and oversee management. However, the
Committee opposes granting Boards of Directors authority over certain
matters, such as changes to a fund's investment objective, that the
Investment Company Act envisions will be approved directly by
shareholders.
o Proposals related to limiting corporate conduct in some manner that
relates to the shareholder's environmental or social concerns. The
Committee generally believes that annual shareholder meetings are
inappropriate forums for discussion of larger social issues, and opposes
shareholder resolutions "micromanaging" corporate conduct or requesting
release of information that would not help a shareholder evaluate an
investment in the corporation as an economic matter. While the Committee
is generally supportive of proposals to require corporate disclosure of
matters that seem relevant and material to the economic interests of
shareholders, the Committee is generally not supportive of proposals to
require disclosure of corporate matters for other purposes.
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - as
of June 30, 2006.
(a)(1) Mr. Walter C. O'Connor is primarily responsible for the
day-to-day management of the registrant's portfolio
("Portfolio Manager"). Mr. O'Connor has been a Managing
Director (Municipal Tax-Exempt) of MLIM since 2004, a
Director (Municipal Tax-Exempt) of MLIM from 1997 to 2004 and
a Vice President of MLIM from 1993 to 1997 and has over 13
years of experience investing in Municipal Bonds as a
portfolio manager on behalf of registered investment
companies. He has been the portfolio manager and Vice
President of the Fund since 1997.
(a)(2) As of June 30, 2006:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
Registered Other Pooled Registered Other Pooled
(i) Name of Investment Investment Other Investment Investment Other
Portfolio Manager Companies Vehicles Accounts Companies Vehicles Accounts
---------- ----------
Walter C. O'Connor 4 0 0 0 0 0
$3,110,910,754 $ 0 $ 0 $ 0 $ 0 $ 0
(iv) Potential Material Conflicts of Interest
Real, potential or apparent conflicts of interest may arise when a
portfolio manager has day-to-day portfolio management responsibilities with
respect to more than one fund or account, including the following:
Certain investments may be appropriate for the Fund and also for
other clients advised by the Investment. Adviser and its affiliates, including
other client accounts managed by the Fund's portfolio management team.
Investment decisions for the Fund and other clients are made with a view to
achieving their respective investment objectives and after consideration of such
factors as their current holdings, availability of cash for investment and the
size of their investments generally. Frequently, a particular security may be
bought or sold for only one client or in different amounts and at different
times for more than one but less than all clients. Likewise, because clients of
the Investment Adviser and its affiliates may have differing investment
strategies, a particular security may be bought for one or more clients when one
or more other clients are selling the security. The investment results for the
Fund may differ from the results achieved by other clients of the Investment
Adviser and its affiliates and results among clients may differ. In addition,
purchases or sales of the same security may be made for two or more clients on
the same day. In such event, such transactions will be allocated among the
clients in a manner believed by the Investment Adviser and its affiliates to be
equitable to each. The Investment Adviser will not determine allocations based
on whether it receives a performance based fee from the client. In some cases,
the allocation procedure could have an adverse effect on the price or amount of
the securities purchased or sold by the Fund. Purchase and sale orders for the
Fund may be combined with those of other clients of the Investment Adviser and
its affiliates in the interest of achieving the most favorable net results to
the Fund.
To the extent that the Fund's portfolio management team has
responsibilities for managing accounts in addition to the Fund, a portfolio
manager will need to divide his time and attention among relevant accounts.
In some cases, a real, potential or apparent conflict may also arise
where (i) the Investment Adviser may have an incentive, such as a performance
based fee, in managing one account and not with respect to other accounts it
manages or (ii) where a member of the Fund's portfolio management team owns an
interest in one fund or account he or she manages and not another.
(a)(3) As of June 30, 2006:
Portfolio Manager Compensation
The Portfolio Manager Compensation Program of MLIM and its affiliates,
including the Investment Adviser, is critical to MLIM's ability to attract and
retain the most talented asset management professionals. This program ensures
that compensation is aligned with maximizing investment returns and it provides
a competitive pay opportunity for competitive performance.
Compensation Program
The elements of total compensation for MLIM and its affiliates portfolio
managers are a fixed base salary, annual performance-based cash and stock
compensation (cash and stock bonus) and other benefits. MLIM has balanced these
components of pay to provide portfolio managers with a powerful incentive to
achieve consistently superior investment performance. By design, portfolio
manager compensation levels fluctuate -- both up and down -- with the relative
investment performance of the portfolios that they manage.
Base Salary
Under the MLIM approach, like that of many asset management firms, base
salaries represent a relatively small portion of a portfolio manager's total
compensation. This approach serves to enhance the motivational value of the
performance-based (and therefore variable) compensation elements of the
compensation program.
Performance-Based Compensation
MLIM believes that the best interests of investors are served by
recruiting and retaining exceptional asset management talent and managing their
compensation within a consistent and disciplined framework that emphasizes pay
for performance in the context of an intensely competitive market for talent. To
that end, MLIM and its affiliates portfolio manager incentive compensation is
based on a formulaic compensation program. MLIM's formulaic portfolio manager
compensation program includes: investment performance relative to a subset of
general closed-end, California insured municipal debt funds over 1-, 3- and
5-year performance periods and a measure of operational efficiency. Portfolio
managers are compensated based on the pre-tax performance of the products they
manage. If a portfolio manager's tenure is less than 5 years, performance
periods will reflect time in position. Portfolio managers are compensated based
on products they manage. A discretionary element of portfolio manager
compensation may include consideration of: financial results, expense control,
profit margins, strategic planning and implementation, quality of client
service, market share, corporate reputation, capital allocation, compliance and
risk control, leadership, workforce diversity, supervision, technology and
innovation. MLIM and its affiliates also consider the extent to which
individuals exemplify and foster ML & Co.'s principles of client focus, respect
for the individual, teamwork, responsible citizenship and integrity. All factors
are considered collectively by MLIM management.
Cash Bonus
Performance-based compensation is distributed to portfolio managers in a
combination of cash and stock. Typically, the cash bonus, when combined with
base salary, represents more than 60% of total compensation for portfolio
managers.
Stock Bonus
A portion of the dollar value of the total annual performance-based bonus
is paid in restricted shares of ML & Co. stock. Paying a portion of annual
bonuses in stock puts compensation earned by a portfolio manager for a given
year "at risk" based on the company's ability to sustain and improve its
performance over future periods. The ultimate value of stock bonuses is
dependent on future ML & Co. stock price performance. As such, the stock bonus
aligns each portfolio manager's financial interests with those of the ML & Co.
shareholders and encourages a balance between short-term goals and long-term
strategic objectives. Management strongly believes that providing a significant
portion of competitive performance-based compensation in stock is in the best
interests of investors and shareholders. This approach ensures that portfolio
managers participate as shareholders in both the "downside risk" and "upside
opportunity" of the company's performance. Portfolio managers therefore have a
direct incentive to protect ML & Co.'s reputation for integrity.
Other Compensation Programs
Portfolio managers who meet relative investment performance and financial
management objectives during a performance year are eligible to participate in a
deferred cash program. Awards under this program are in the form of deferred
cash that may be benchmarked to a menu of MLIM mutual funds (including their own
fund) during a five-year vesting period. The deferred cash program aligns the
interests of participating portfolio managers with the investment results of
MLIM products and promotes continuity of successful portfolio management teams.
Other Benefits
Portfolio managers are also eligible to participate in broad-based plans
offered generally to employees of ML & Co. and its affiliates, including
broad-based retirement, 401(k), health, and other employee benefit plans.
(a)(4) Beneficial Ownership of Securities. As of June 30, 2006, Mr.
O'Connor does not beneficially own any stock issued by the
Fund.
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 principal executive and principal financial officers
have evaluated the Registrant's disclosure controls and procedures,
including internal control over financial reporting, within 90 days of
this filing. Such principal officers have concluded that as of May 18,
2007, the Registrant's disclosure controls and procedures were
effective in design and operation to reasonably ensure that
information required to be disclosed by the Registrant in this Form
N-CSR/A was recorded, processed, summarized, and reported within the
required time periods, and were sufficient to form the basis of the
certifications required by Rule 30a-(2) of the Investment Company Act
of 1940, as amended. Prior to reaching that conclusion, such principal
officers had become aware of matters relating to the Registrant's
participation in certain inverse floater structures that necessitated
restatement of financial information included in Item 1 of this
filing. As a result, management of the Registrant had reevaluated
certain disclosure controls and procedures determined not to be
effective, as discussed more fully below.
Management of the Registrant is responsible for establishing and
maintaining effective internal control over financial reporting. In
fulfilling this responsibility, estimates and judgments by management
are required to assess the expected benefits and related costs of
controls. The Registrant's internal control over financial reporting
is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally
accepted accounting principles. Such internal control includes
policies and procedures that provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or
disposition of a registrant's assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
A control deficiency exists when the design or operation of a control
does not allow management or employees, in the normal course of
performing their assigned functions, to prevent or detect
misstatements on a timely basis. A significant deficiency is a control
deficiency, or combination of control deficiencies, that adversely
affects the Registrant's ability to initiate, authorize, record,
process or report financial data reliably in accordance with generally
accepted accounting principles such that there is more than a remote
likelihood that a misstatement of the Registrant's annual or interim
financial statements that is more than inconsequential will not be
prevented or detected. A material weakness is a significant
deficiency, or combination of significant deficiencies, that results
in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or
detected.
Subsequent to the initial filing of the Registrant's Form N-CSR, the
Registrant identified the following control deficiency, that was
determined to be a material weakness, as defined above, in the
Registrant's internal control over financial reporting at June 30,
2006. The Registrant's controls related to the review and analysis of
relevant terms and conditions of transfers of certain assets
pertaining to inverse floater structures were not operating
effectively to appropriately determine whether the transfers of assets
qualified for sale accounting under the provisions of Statement of
Financial Accounting Standards No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 140"). As a result, these controls did not detect that certain
transfers were not appropriately recorded as borrowings. Accordingly,
the Registrant's financial statements as of and for the period ended
June 30, 2006, including prior periods where applicable, were restated
to appropriately reflect transfers of such securities as secured
borrowings and to report the related income and expense. The
restatement had no impact on net assets, net asset value per share or
total return.
Subsequent to June 30, 2006, but prior to the evaluation of the design
and operation of the Registrant's disclosure controls and procedures
at May 18, 2007, the Registrant's disclosure controls and procedures
were modified to enhance the review and analysis of the relevant terms
and conditions of transfers of securities in connection with inverse
floater structures in light of SFAS 140.
11(b) - There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Investment
Company Act of 1940, as amended) that occurred during the second half
of the Registrant's fiscal year that have materially affected, or are
reasonably likely to materially affect, the Registrant's internal
control over financial reporting. However, as discussed above,
subsequent to June 30, 2006, the Registrant has enhanced controls
related to the application of SFAS 140.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock MuniHoldings California Insured Fund, Inc.
By: /s/ Robert C. Doll, Jr.
----------------------------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock MuniHoldings California Insured Fund, Inc.
Date: June 7, 2007
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
BlackRock MuniHoldings California Insured Fund, Inc.
Date: June 7, 2007
By: /s/ Donald C. Burke
----------------------------------------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock MuniHoldings California Insured Fund, Inc.
Date: June 7, 2007