UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-08753
Name of Fund: 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: 06/30/07
Date of reporting period: 07/01/06 - 12/31/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES
FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock MuniHoldings BLACKROCK
California Insured Fund, Inc.
SEMI-ANNUAL REPORT | DECEMBER 31, 2006
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock MuniHoldings California Insured Fund, Inc.
Portfolio Information as of December 31, 2006
Percent of
Total
Quality Ratings by S&P/Moody's Investments
--------------------------------------------------------------------------------
AAA/Aaa ............................................................. 94.4%
A/A ................................................................. 3.7
Other* .............................................................. 1.9
--------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments and variable rate
demand notes.
Announcement of Annual Stockholders Meeting
The Fund has determined that its annual stockholders meeting originally
scheduled to be held in April 2007 will be postponed until and will be held in
June 2007. Proposals of stockholders intended to be presented at the meeting
must be received by the Fund by March 15, 2007 for inclusion in the Fund's proxy
statement and form of proxy for that meeting. The persons named as proxies in
the proxy materials for the Fund's 2007 annual meeting of stockholders may
exercise discretionary authority with respect to any stockholder proposal
presented at such meeting if written notice of such proposal has not been
received by the Fund by April 1, 2007. Written proposals and notices should be
sent to the Secretary of the Fund, 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.
Officers and Directors
Robert C. Doll, Jr., President and Director
James H. Bodurtha, Director
Kenneth A. Froot, Director
Joe Grills, Director
Herbert I. London, Director
Roberta Cooper Ramo, Director
Robert S. Salomon, Jr., Director
Donald C. Burke, Vice President and Treasurer
John M. Loffredo, Senior Vice President
Walter C. O'Connor, Vice President
Jeffrey Hiller, Fund Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street -- 11 East
New York, NY 10286
Preferred Stock:
The Bank of New York
101 Barclay Street -- 7 West
New York, NY 10286
NYSE Symbol
MUC
2 BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006
A Letter to Shareholders
Dear Shareholder
As 2007 begins, we are able to look back on 2006 as a volatile, but ultimately,
a positive year for most major markets. Returns for the annual and semi-annual
periods ended December 31, 2006 were as follows:
Total Returns as of December 31, 2006 6-month 12-month
================================================================================================
U.S. equities (Standard & Poor's 500 Index) +12.74% +15.79%
------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) + 9.38 +18.37
------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) +14.69 +26.34
------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) + 5.09 + 4.33
------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 4.55 + 4.84
------------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse High Yield Index) + 8.14 +11.92
------------------------------------------------------------------------------------------------
After raising the target short-term interest rate 17 times between June 2004 and
June 2006, the Federal Reserve Board (the Fed) finally opted to pause on August
8, 2006. This left the federal funds rate at 5.25%, where it remained through
year-end. In interrupting its two-year interest rate-hiking campaign, the Fed
acknowledged that economic growth is slowing, led by a downturn in the housing
market, but has maintained a cautionary view on inflation.
Overall, it was a good 12 months for U.S. equities, despite a significant
correction in the middle of the year that was largely triggered by rising
interest rates, inflation fears, elevated oil prices and geopolitical
uncertainties. Nevertheless, strong corporate earnings, abundant liquidity and
record merger-and-acquisition activity provided a solid backdrop for stocks.
Many international equity markets (with the notable exception of Japan)
performed even better, outpacing U.S. stocks for the fifth consecutive year.
Strength was especially notable in European equities and select emerging
markets.
Bonds experienced a more modest annual return than stocks. Interest rates and
bond yields moved higher for much of the year as bond prices, which move
opposite of yields, declined. Prices began to improve in the summer as the
economy showed signs of weakening and the Fed paused. Notably, the Treasury
curve remained inverted for much of 2006. The 10-year Treasury yield ended
December at 4.71%, well below the federal funds rate.
As we begin a new year, investors are left with a few key questions: Will the
U.S. economy achieve a soft landing, will the Fed reverse its prior policy and
cut interest rates, and how might these outcomes impact the investment climate.
As you navigate the uncertainties inherent in the financial markets, we
encourage you to start the year by reviewing your investment goals with your
financial professional and making portfolio changes, as needed. For more
reflection on 2006 and our thoughts on the year ahead, please ask your financial
professional for a copy of "What's Ahead in 2007: An Investment Perspective," or
view it online at www.blackrock.com/funds. We thank you for trusting BlackRock
with your investment assets, and we look forward to continuing to serve you in
the new year and beyond.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director
BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006 3
A Discussion With Your Fund's Portfolio Manager
We increased the portfolio's duration toward a more neutral position,
consistent with the recommendation of our internal Investment Committee, through
the purchase of some longer-maturity municipal bonds.
Describe the recent market environment relative to municipal bonds.
Long-term bond yields generally moved lower during the past six months as their
prices, which move in the opposite direction, increased. The municipal market's
strong technical position allowed municipal bond yields to decline more than
taxable yields.
The strength in bond prices came amid a slowdown in U.S. economic growth and the
Federal Reserve Board's (the Fed) decision at its August 8 meeting to refrain
from raising its target interest rate after 17 consecutive increases since June
2004. Bond prices found additional support in moderating oil prices. Between
June 30 and November 30, 30-year Treasury bond yields declined 73 basis points
(0.73%) to 4.56%. However, stronger-than-expected economic releases and year-end
profit taking pushed yields higher during December. For the six-month period
overall, 30-year U.S. Treasury bond yields fell 38 basis points to 4.81% and
10-year Treasury note yields declined 44 basis points to 4.71%.
The tax-exempt bond market outperformed the U.S. Treasury market as investor
demand outstripped a resurgent new-issue calendar. For the six-month period
ended December 31, 2006, as reported by Municipal Market Data, yields on
30-year, AAA-rated municipal issues declined 56 basis points to 4.07%. Yields on
10-year, AAA-rated tax-exempt bonds declined 44 basis points to 3.68%.
Investor demand for municipal product remained strong throughout the period. The
latest available statistics from the Investment Company Institute indicate that,
through November, long-term municipal bond funds had net new cash flows of
nearly $14 billion, an increase of more than 120% versus the same 11 months of
2005. As reported by AMG Data, weekly average cash flows exceeded $400 million
throughout the fourth quarter of 2006, representing a solid increase from the
$241 million weekly average seen for the full year. The fourth quarter increase
is especially impressive, as holiday spending often results in reduced cash
flows into mutual funds at year-end.
New-issue municipal volume surged in the fourth quarter as municipalities rushed
to take advantage of low market yields and solid investor demand. More than $121
billion in new long-term tax-exempt bonds was issued over the last three months
of 2006, a 23.4% increase compared to fourth quarter 2005. Issuance in December,
which totaled over $43 billion, was the highest December monthly volume level
since 1985. That year, municipalities scurried to issue bonds in anticipation of
a more stringent underwriting environment resulting from the Tax Reform Act of
1986. The increased issuance in the final quarter of the year pushed 2006's
annual total volume to over $383 billion, just 6% off last year's record
issuance and close to initial annual issuance estimates. The recent increase in
issuance has made the municipal market's outperformance even more impressive.
Looking ahead, the tax-exempt bond market's technical position is expected to
remain supportive of continued strong performance. Attractive yield ratios,
combined with a relatively steep municipal bond yield curve and manageable new
issuance, should help to sustain investor demand for municipal product.
Describe conditions in the State of California.
California's financial climate continues to benefit from the overall U.S.
economic up-tick, resulting in a sizable budgetary cash position compared to the
deficits experienced in past years. The fiscal year 2007 budget was adopted on
time for the first time in a number of years, due in part to a recent surge in
revenues. Still, the budget includes substantial spending growth and the overall
structural deficit remains, which will limit further rating improvements for the
state's general obligation bonds.
News in the second half of 2006 was dominated by the gubernatorial election
between incumbent Arnold Schwarzenegger and state treasurer Phil Angelides. The
governor's race produced several new budgetary suggestions; however, there is
likely to be little budgetary action in reelected Governor Schwarzenegger's next
term. Residents also had the opportunity to vote on $43 billion of state bonding
measures and $10 billion in local measures during the November election. All of
the state bonding measures were passed by voters, resulting in a wealth of new
issues coming to market. While we certainly recognize California's improved
financial condition given its large and diverse economic base, it is important
to note that the state relies on an extremely volatile revenue stream to bear
the burden of its increasing debt levels.
4 BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended December 31, 2006, the Common Stock of BlackRock
MuniHoldings California Insured Fund, Inc. (formerly MuniHoldings California
Insured Fund, Inc.) had net annualized yields of 4.98% and 5.20%, based on a
period-end per share net asset value of $14.99 and a per share market price of
$14.35, respectively, and $0.376 per share income dividends. Over the same
period, the total investment return on the Fund's Common Stock was +6.53%, based
on a change in per share net asset value from $14.44 to $14.99, and assuming
reinvestment of all distributions.
The Fund's total return, based on net asset value, modestly trailed that of its
comparable Lipper category of California Insured Municipal Debt Funds, which had
an average return of +6.62% for the six-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). Portfolio activity over the
past six months has been focused on increasing the portfolio's duration, thereby
lessening our relatively defensive posture. Performance results reflect the
progress we have made to that end, as the Fund's return approximated the average
return of the Lipper group. Notably, the Fund maintained an above-average
distribution yield relative to its peers.
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?
Portfolio activity over the past six months was primarily aimed at achieving a
more duration-neutral interest rate posture. This was the recommendation of our
internal Municipal Investment Committee for the majority of 2006. As yields for
10-year Treasury issues surpassed 5%, we purchased longer-maturity municipal
bonds in order to lift the portfolio's duration from what had been a more
defensive posture. For the most part, however, the market for longer-term
California insured paper has been confined to a fairly well-defined trading
range.
In recent months, the Fund has been challenged with having to reinvest the
proceeds from bond redemptions that have occurred. Given the limited
availability of insured bonds, combined with tight credit spreads and the fact
that we have already maximized our use of inverse floating rate product, our
reinvestment options have been limited. As such, the Fund's cash reserve
allocation averaged 3% over the six months.
For the six months ended December 31, 2006, the Fund's Auction Market Preferred
Stock (AMPS) had average yields as follows: Series A, 3.05%; Series B, 3.16%;
Series C, 3.10%; Series D, 3.04%; and Series E, 3.10%. As noted earlier, the Fed
interrupted its interest rate-hiking campaign in August and remained on hold
throughout the remainder of 2006. As such, the Fund's borrowing costs began to
stabilize and even move slightly lower. 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 Municipal Investment Committee continued to recommend a neutral duration
stance at period-end, and the Fund remained in compliance with this directive
via its neutral to slightly short duration position. The Fund currently
maintains an above-average distribution yield and, looking ahead, we will
attempt to improve the Fund's ability to bolster its income reserves. The Fund
had a 2% cash position at period-end, which we intend to reinvest should
attractively structured and priced securities become available. Due to tight
credit spreads, the Fund remains underexposed to lower-rated credits. At
period-end, more than 94% of the portfolio's total assets were rated AAA with
bond insurance.
Walter C. O'Connor, CFA
Vice President and Portfolio Manager
January 10, 2007
BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006 5
The Benefits and Risks of Leveraging
BlackRock MuniHoldings California Insured Fund, Inc. utilizes leveraging 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 December 31, 2006, the Fund's leverage amount, due to Auction Market
Preferred Stock, was 38.89% 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 BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006
Schedule of Investments as of December 31, 2006 (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================
California--144.0%
-------------------------------------------------------------------------------------------
$ 1,000 ABAG Finance Authority for Nonprofit Corporations,
California, COP (Children's Hospital Medical Center),
6% due 12/01/2029 (a) $ 1,070
-------------------------------------------------------------------------------------------
3,345 ABC California Unified School District, GO, Series A,
5.625% due 8/01/2020 (f)(j) 3,450
-------------------------------------------------------------------------------------------
4,000 Acalanes, California, Unified High School District, GO,
5.80% due 8/01/2007 (f)(i) 4,093
-------------------------------------------------------------------------------------------
7,360 Alhambra, California, Unified School District, GO
(Election of 2004), Series A, 5% due 8/01/2029 (c) 7,824
-------------------------------------------------------------------------------------------
4,535 Bakersfield, California, COP, Refunding (Convention
Center Expansion Project), 5.875% due 4/01/2007 (b)(i) 4,607
-------------------------------------------------------------------------------------------
3,885 Berkeley, California, GO, Series C, 5.375%
due 9/01/2029 (c) 4,001
-------------------------------------------------------------------------------------------
Berkeley, California, Unified School District, GO,
Series I (f)(i):
2,000 5.75% due 8/01/2008 2,090
4,520 5.875% due 8/01/2008 4,731
-------------------------------------------------------------------------------------------
2,925 Cajon Valley, California, Union School District, GO,
Series B, 5.50% due 8/01/2027 (b) 3,142
-------------------------------------------------------------------------------------------
2,180 California Community College Financing Authority,
Lease Revenue Bonds (Grossmont-Palomar-Shasta),
Series A, 5.625% due 4/01/2026 (b) 2,340
-------------------------------------------------------------------------------------------
California Educational Facilities Authority, Revenue
Refunding Bonds (Occidental College) (b)(i):
5,815 5.625% due 10/01/2007 6,020
5,000 5.70% due 10/01/2007 5,179
-------------------------------------------------------------------------------------------
California HFA, Home Mortgage Revenue Bonds,
VRDN (h):
2,700 AMT, Series B, 3.90% due 8/01/2033 (f) 2,700
200 AMT, Series F, 3.95% due 2/01/2041 200
5,380 AMT, Series N, 3.90% due 8/01/2021 (f) 5,380
1,700 AMT, Series R, 3.87% due 8/01/2023 (a) 1,700
9,000 Series F, 3.90% due 2/01/2033 (a) 9,000
-------------------------------------------------------------------------------------------
California HFA, S/F Mortgage Revenue Bonds, AMT,
Class II (b):
230 Series A-1, 6% due 8/01/2020 235
1,160 Series C-2, 5.625% due 8/01/2020 (d) 1,185
-------------------------------------------------------------------------------------------
9,250 California Health Facilities Financing Authority
Revenue Bonds (Kaiser Permanente), Series A,
5.50% due 6/01/2022 (f)(j) 9,667
-------------------------------------------------------------------------------------------
California Health Facilities Financing Authority, Revenue
Refunding Bonds (Catholic Healthcare West), Series A:
510 5.75% due 7/01/2015 (a) 515
1,840 6% due 7/01/2025 (b) 1,897
-------------------------------------------------------------------------------------------
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) 2,125
-------------------------------------------------------------------------------------------
California State, GO:
2,000 5.50% due 6/01/2025 (c) 2,110
7,500 5.25% due 4/01/2027 8,051
-------------------------------------------------------------------------------------------
California State, GO, Refunding:
845 5.75% due 12/01/2009 (i) 906
6,000 5.25% due 2/01/2026 (b) 6,405
230 5.75% due 12/01/2029 244
-------------------------------------------------------------------------------------------
20,000 California State Public Works Board, Lease Revenue
Bonds (Various University of California Projects),
Series C, 5.125% due 9/01/2022 (a) 20,563
-------------------------------------------------------------------------------------------
2,625 California State Public Works Board, Lease Revenue
Refunding Bonds (Various Community College Project),
Series B, 5.625% due 3/01/2019 (a) 2,682
-------------------------------------------------------------------------------------------
10,000 California State University, Systemwide Revenue Bonds,
Series A, 5% due 11/01/2032 (c) 10,526
-------------------------------------------------------------------------------------------
5,000 California State University, Systemwide Revenue
Refunding Bonds, Series A, 5% due 11/01/2029 (f) 5,270
-------------------------------------------------------------------------------------------
7,050 California State, Various Purpose, GO, 5.50%
due 11/01/2033 7,721
-------------------------------------------------------------------------------------------
10,000 California State, Various Purpose, GO, Refunding,
4.75% due 3/01/2035 (b) 10,353
-------------------------------------------------------------------------------------------
14,000 California State, Veterans, GO, Refunding, AMT,
Series BZ, 5.35% due 12/01/2021 (b) 14,167
-------------------------------------------------------------------------------------------
4,915 California Statewide Communities Development
Authority, Health Facility Revenue Bonds (Memorial
Health Services), Series A, 6% due 10/01/2023 5,457
-------------------------------------------------------------------------------------------
1,090 California Statewide Communities Development
Authority Revenue Bonds (Los Angeles Orthopedic
Hospital Foundation), 5.50% due 6/01/2019 (a) 1,109
-------------------------------------------------------------------------------------------
5,000 California Statewide Communities Development
Authority, Revenue Refunding Bonds (Kaiser Hospital
Asset Management, Inc.), Series C, 5.25%
due 8/01/2031 5,333
-------------------------------------------------------------------------------------------
Portfolio Abbreviations
To simplify the listings of BlackRock MuniHoldings California Insured Fund, COP
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
ROLS Reset Option Long Securities
S/F Single-Family
VRDN Variable Rate Demand Notes
BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006 7
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================
California (continued)
-------------------------------------------------------------------------------------------
$ 8,705 Castaic Lake, California, Water Agency Revenue Bonds,
COP (Water System Improvement Project), 5.50%
due 8/01/2009 (a)(i) $ 9,221
-------------------------------------------------------------------------------------------
9,905 Chaffey Community College District, California, GO
(Election of 2002), Series B, 5% due 6/01/2030 (b) 10,520
-------------------------------------------------------------------------------------------
2,500 Colton, California, Joint Unified School District, GO,
Series A, 5.375% due 8/01/2026 (c) 2,725
-------------------------------------------------------------------------------------------
7,800 Contra Costa, California, Community College District,
GO (Election of 2002), 5% due 8/01/2028 (b) 8,238
-------------------------------------------------------------------------------------------
Contra Costa County, California, COP, Refunding:
4,570 (Capital Projects Program), 5.25%
due 2/01/2021 (a) 4,667
2,000 (Merrithew Memorial Hospital Project),
5.50% due 11/01/2022 (b) 2,067
-------------------------------------------------------------------------------------------
5,910 Corona, California, Department of Water and Power,
COP, 5% due 9/01/2029 (b) 6,268
-------------------------------------------------------------------------------------------
4,250 Coronado, California, Community Development
Agency, Tax Allocation Bonds (Coronado Community
Development Project), 5% due 9/01/2030 (a) 4,492
-------------------------------------------------------------------------------------------
2,395 Covina-Valley, California, Unified School District, GO,
Refunding, Series A, 5.50% due 8/01/2026 (f) 2,606
-------------------------------------------------------------------------------------------
3,750 Culver City, California, Redevelopment Finance
Authority, Tax Allocation Revenue Refunding Bonds,
Series A, 5.60% due 11/01/2025 (f) 4,002
-------------------------------------------------------------------------------------------
1,870 Davis, California, Joint Unified School District,
Community Facilities District, Special Tax Refunding
Bonds, Number 1, 5.50% due 8/15/2021 (b) 1,891
-------------------------------------------------------------------------------------------
11,000 East Side Union High School District, California, Santa
Clara County, Capital Appreciation, GO (Election of
2002), Series E, 5.125% due 8/01/2028 (e)(k) 3,858
-------------------------------------------------------------------------------------------
1,000 Escondido, California, COP, Refunding, Series A,
5.75% due 9/01/2024 (c) 1,077
-------------------------------------------------------------------------------------------
5,000 Foothill-De Anza, California, Community College
District, GO, Refunding, 5% due 8/01/2030 (c) 5,253
-------------------------------------------------------------------------------------------
4,455 Fresno, California, Airport Revenue Bonds, AMT,
Series B, 5.50% due 7/01/2020 (f) 4,712
-------------------------------------------------------------------------------------------
5,200 Fullerton, California, Joint Union High School District,
GO (Election of 2002), Series B, 5% due 8/01/2029 (c) 5,528
-------------------------------------------------------------------------------------------
4,040 Garden Grove, California, COP (Financing Project),
Series A, 5.50% due 3/01/2026 (a) 4,367
-------------------------------------------------------------------------------------------
5,200 Glendale, California, Unified School District, GO,
Series B, 5.125% due 9/01/2023 (f) 5,358
-------------------------------------------------------------------------------------------
2,155 Hartnell, California, Community College District, GO
(Election of 2002), Series B, 5% due 6/01/2031 (f) 2,300
-------------------------------------------------------------------------------------------
4,565 Hemet, California, Unified School District, GO, Series A,
5.375% due 8/01/2026 (b) 4,881
-------------------------------------------------------------------------------------------
1,700 Hollister, California, Joint Powers Finance Authority,
Wastewater Revenue Refunding Bonds (Refining and
Improvement Project), Series 1, 5% due 6/01/2032 (f) 1,802
-------------------------------------------------------------------------------------------
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) 9,406
-------------------------------------------------------------------------------------------
1,700 Inglewood, California, Unified School District, GO,
Series A, 5.60% due 10/01/2024 (c) 1,800
-------------------------------------------------------------------------------------------
2,300 Irvine, California, Unified School District, Special Tax
(Community Facilities District Number 86-1),
5.375% due 11/01/2020 (a) 2,412
-------------------------------------------------------------------------------------------
4,665 Irvine, California, Unified School District, Special Tax
Refunding Bonds (Community Facilities District
Number 86-1), 5.80% due 11/01/2020 (a) 4,838
-------------------------------------------------------------------------------------------
2,500 La Quinta, California, Financing Authority, Local Agency
Revenue Bonds, Series A, 5.25%
due 9/01/2024 (a) 2,705
-------------------------------------------------------------------------------------------
3 La Quinta, California, Financing Authority, Local
Agency Tax Allocation and Revenue Refunding Bonds,
ROLS, Series II-R-412X, 6.252% due 9/01/2034 (a)(g) 3
-------------------------------------------------------------------------------------------
1,210 Little Lake, California, City School District, GO, Series B,
5.25% due 7/01/2022 (f) 1,305
-------------------------------------------------------------------------------------------
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) 4,197
-------------------------------------------------------------------------------------------
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) 10,534
-------------------------------------------------------------------------------------------
160 Los Angeles, California, M/F Housing Revenue
Refunding Bonds, Senior Series G, 5.65%
due 1/01/2014 (f) 161
-------------------------------------------------------------------------------------------
Los Angeles, California, Municipal Improvement
Corporation, Lease Revenue Bonds (Police Headquarters
Facility and Public Works Building), Series A (c):
5,730 5% due 1/01/2025 6,145
7,500 4.75% due 1/01/2031 7,754
-------------------------------------------------------------------------------------------
10,000 Los Angeles, California, Unified School District, GO,
Series E, 5% due 7/01/2030 (a) 10,626
-------------------------------------------------------------------------------------------
5,000 Los Angeles, California, Wastewater System Revenue
Refunding Bonds, Series A, 4.75% due 6/01/2035 (b) 5,175
-------------------------------------------------------------------------------------------
5,000 Los Angeles, California, Water and Power Revenue
Bonds (Power System), Sub-Series A-1, 5%
due 7/01/2031 (f) 5,309
-------------------------------------------------------------------------------------------
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) 9,563
3,750 Proposition C, Second Tier, 5.25%
due 7/01/2010 (c)(i) 3,997
-------------------------------------------------------------------------------------------
5,400 Los Angeles Unified School District, California, GO,
Refunding, Series B, 4.75% due 7/01/2026 (c) 5,631
-------------------------------------------------------------------------------------------
8 BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================
California (continued)
-------------------------------------------------------------------------------------------
$ 2,735 Los Gatos, California, Unified School District, GO
(Election 2001), Series B, 5% due 8/01/2030 (f) $ 2,884
-------------------------------------------------------------------------------------------
1,890 Los Rios, California, Community College District, GO
(Election of 2002), Series B, 5% due 8/01/2027 (b) 2,006
-------------------------------------------------------------------------------------------
2,000 Madera, California, Public Financing Authority, Water
and Wastewater Revenue Refunding Bonds, 5%
due 3/01/2036 (b) 2,125
-------------------------------------------------------------------------------------------
6,365 Merced, California, Community College District, GO
(School Facilities District Number 1), 5%
due 8/01/2031 (b) 6,800
-------------------------------------------------------------------------------------------
5,000 Merced, California, Irrigation District, Electrical System
Revenue Refunding Bonds, 5.25% due 9/01/2036 (k) 5,412
-------------------------------------------------------------------------------------------
Metropolitan Water District of Southern California,
Waterworks Revenue Bonds:
3,550 Series A, 5% due 7/01/2035 (f) 3,772
9,000 Series B-1, 5% due 10/01/2033 (c) 9,500
-------------------------------------------------------------------------------------------
2,290 Modesto, California, Irrigation District, COP, Refunding
and Capital Improvements, Series A, 5%
due 10/01/2027 (a) 2,443
-------------------------------------------------------------------------------------------
5,000 Modesto, California, Schools Infrastructure Financing
Agency, Special Tax Bonds, 5% due 9/01/2029 (a) 5,263
-------------------------------------------------------------------------------------------
2,000 Montebello, California, Community Redevelopment
Agency, Housing Tax Allocation Bonds, Series A,
5.45% due 9/01/2019 (f) 2,062
-------------------------------------------------------------------------------------------
4,150 Moorpark, California, Redevelopment Agency, Tax
Allocation Bonds (Moorpark Redevelopment Project),
5.125% due 10/01/2031 (a) 4,416
-------------------------------------------------------------------------------------------
2,315 Morgan Hill, California, Unified School District, GO,
5.75% due 8/01/2010 (c)(i) 2,509
-------------------------------------------------------------------------------------------
3,275 Northern California Power Agency, Public Power
Revenue Refunding Bonds (Hydroelectric Project
Number 1), Series A, 5.125% due 7/01/2023 (b) 3,364
-------------------------------------------------------------------------------------------
9,995 Oakland, California, Alameda County Unified School
District, GO, Refunding, Series C, 5.50%
due 8/01/2019 (c) 10,010
-------------------------------------------------------------------------------------------
Oakland, California, Alameda County Unified School
District, GO, Series F (b):
3,705 5.625% due 8/01/2020 3,945
5,245 5.625% due 8/01/2021 5,585
6,000 5.50% due 8/01/2024 6,358
-------------------------------------------------------------------------------------------
5,000 Ohlone, California, Community College District, GO,
Series B, 5% due 8/01/2030 (f) 5,315
-------------------------------------------------------------------------------------------
10,000 Oxnard, California, Financing Authority, Wastewater
Revenue Bonds (Redwood Trunk Sewer and Headworks
Projects), Series A, 5.25% due 6/01/2034 (c) 10,753
-------------------------------------------------------------------------------------------
10,000 Oxnard, California, Financing Authority, Water Revenue
Bonds, 5% due 6/01/2031 (b) 10,649
-------------------------------------------------------------------------------------------
6,475 Palm Desert, California, Financing Authority, Tax
Allocation Revenue Bonds (Project Area Number 2),
5% due 8/01/2033 (b) 6,835
-------------------------------------------------------------------------------------------
5,750 Palm Desert, California, Financing Authority, Tax
Allocation Revenue Refunding Bonds (Project Area
Number 1), 5.45% due 4/01/2007 (b)(i) 5,888
-------------------------------------------------------------------------------------------
1,000 Palm Springs, California, COP, Refunding (Multiple
Capital Facilities Project), 5.75% due 4/01/2017 (a) 1,025
-------------------------------------------------------------------------------------------
1,600 Palm Springs, California, Financing Authority, Lease
Revenue Refunding Bonds (Convention Center Project),
Series A, 5.50% due 11/01/2035 (b) 1,779
-------------------------------------------------------------------------------------------
4,000 Pittsburg, California, Public Financing Authority, Water
Revenue Bonds, 5.50% due 6/01/2007 (b)(i) 4,112
-------------------------------------------------------------------------------------------
9,100 Pleasanton, California, Unified School District, GO,
Series E, 5.50% due 8/01/2008 (c)(i) 9,475
-------------------------------------------------------------------------------------------
5,000 Port of Oakland, California, Port Revenue Refunding
Bonds, Series I, 5.40% due 11/01/2017 (b) 5,169
-------------------------------------------------------------------------------------------
Port of Oakland, California, Revenue Bonds, AMT,
Series K (c):
3,500 5.75% due 11/01/2014 3,707
17,120 5.75% due 11/01/2029 18,157
-------------------------------------------------------------------------------------------
10,090 RNR School Financing Authority, California, Special Tax
Bonds (Community Facilities District Number 92-1),
Series A, 5% due 9/01/2036 (a) 10,701
-------------------------------------------------------------------------------------------
5,085 Rancho Cordova, California, COP (City Hall Facility
Acquisition Project), 5% due 2/01/2030 (k) 5,365
-------------------------------------------------------------------------------------------
8,580 Rancho Santiago, California, Community College
District, GO (Election of 2002), Series C, 4.75%
due 9/01/2023 (f) 9,000
-------------------------------------------------------------------------------------------
2,205 Richmond, California, Joint Powers Financing Authority,
Tax Allocation Revenue Bonds, Series A, 5.50%
due 9/01/2018 (b) 2,353
-------------------------------------------------------------------------------------------
10,735 Riverside, California, Unified School District, GO
(Election of 2001), Series B, 5% due 8/01/2030 (b) 11,477
-------------------------------------------------------------------------------------------
8,775 Sacramento, California, City Financing Authority,
Revenue Refunding Bonds, 5% due 12/01/2029 (c) 9,320
-------------------------------------------------------------------------------------------
10,825 Sacramento, California, Municipal Utility District,
Electric Revenue Refunding Bonds, Series L,
5.125% due 7/01/2022 (b) 11,107
-------------------------------------------------------------------------------------------
2,500 Sacramento, California, Municipal Utility District
Financing Authority, Revenue Bonds (Consumers
Project), 5.125% due 7/01/2029 2,704
-------------------------------------------------------------------------------------------
1,700 Sacramento County, California, Airport System Revenue
Bonds, Series A, 5.25% due 7/01/2017 (f) 1,823
-------------------------------------------------------------------------------------------
9,000 Sacramento County, California, Sanitation District
Financing Authority, Revenue Bonds, Series A,
5% due 12/01/2035 (a) 9,530
-------------------------------------------------------------------------------------------
4,000 Sacramento County, California, Sanitation District
Financing Authority, Revenue Refunding Bonds,
5% due 8/01/2030 (b) 4,252
-------------------------------------------------------------------------------------------
BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006 9
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================
California (continued)
-------------------------------------------------------------------------------------------
$ 4,115 Saddleback Valley, California, Unified School District,
GO, 5% due 8/01/2029 (f) $ 4,349
-------------------------------------------------------------------------------------------
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) 5,502
-------------------------------------------------------------------------------------------
1,480 San Bernardino County, California, COP, Refunding
(Medical Center Financing Project), 5.50%
due 8/01/2019 (b) 1,482
-------------------------------------------------------------------------------------------
12,555 San Diego, California, Community College District, GO
(Election of 2002), 5% due 5/01/2030 (f) 13,327
-------------------------------------------------------------------------------------------
5,055 San Diego, California, Public Facilities Financing
Authority, Sewer Revenue Bonds, Series A, 5.25%
due 5/15/2027 (c) 5,131
-------------------------------------------------------------------------------------------
1,500 San Diego County, California, COP (Edgemoor Project
and Regional System), Refunding, 5% due 2/01/2029 (a) 1,580
-------------------------------------------------------------------------------------------
4,000 San Diego County, California, Water Authority, Water
Revenue Bonds, COP, Series A, 5% due 5/01/2031 (f) 4,223
-------------------------------------------------------------------------------------------
6,795 San Francisco, California, Bay Area Rapid Transit District,
Sales Tax Revenue Bonds, 5.50% due 7/01/2009 (c)(i) 7,189
-------------------------------------------------------------------------------------------
13,100 San Francisco, California, Bay Area Rapid Transit District,
Sales Tax Revenue Refunding Bonds, Series A, 5%
due 7/01/2030 (b) 13,920
-------------------------------------------------------------------------------------------
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) 6,803
-------------------------------------------------------------------------------------------
2,118 San Jose, California, Financing Authority, Lease
Revenue Refunding Bonds, DRIVERS, Series 1280Z,
5.829% due 12/01/2010 (a)(g) 2,287
-------------------------------------------------------------------------------------------
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 4,467
7,250 5.34% due 9/01/2029 2,327
-------------------------------------------------------------------------------------------
San Juan, California, Unified School District, GO:
3,955 5.625% due 8/01/2018 (c) 4,246
3,830 5.625% due 8/01/2019 (c) 4,112
4,250 (Election of 2002), 5% due 8/01/2028 (b) 4,481
-------------------------------------------------------------------------------------------
15,000 San Mateo County, California, Community College
District, GO (Election of 2005), Series B, 4.49%
due 9/01/2033 (b)(e) 4,499
-------------------------------------------------------------------------------------------
5,650 San Mateo County, California, Transit District,
Sales Tax Revenue Refunding Bonds, Series A,
5% due 6/01/2029 (b) 6,001
-------------------------------------------------------------------------------------------
7,345 Sanger, California, Unified School District, GO
(Election of 2006), 5% due 8/01/2027 (f) 7,943
-------------------------------------------------------------------------------------------
14,000 Santa Clara, California, Redevelopment Agency, Tax
Allocation Bonds (Bayshore North Project), Series A,
5.50% due 6/01/2023 (a) 14,710
-------------------------------------------------------------------------------------------
6,050 Santa Clara, California, Subordinated Electric Revenue
Bonds, Series A, 5% due 7/01/2028 (b) 6,376
-------------------------------------------------------------------------------------------
9,750 Santa Clara County, California, Financing Authority,
Lease Revenue Refunding Bonds, Series A, 5%
due 11/15/2022 (a) 10,037
-------------------------------------------------------------------------------------------
9,000 Santa Fe Springs, California, Community Development,
Commission Tax Allocation Refunding Bonds
(Consolidated Redevelopment Project), Series A,
5% due 9/01/2022 (b) 9,240
-------------------------------------------------------------------------------------------
5,110 Santa Monica, California, Redevelopment Agency, Tax
Allocation Bonds (Earthquake Recovery Redevelopment
Project), 6% due 7/01/2009 (a)(i) 5,467
-------------------------------------------------------------------------------------------
2,855 Santa Rosa, California, High School District, GO
(Election of 2002), 5% due 8/01/2028 (b) 3,010
-------------------------------------------------------------------------------------------
10,910 Southern California Public Power Authority, Power
Project Revenue Bonds (Magnolia Power Project),
Series A-1, 5% due 7/01/2033 (a) 11,421
-------------------------------------------------------------------------------------------
1,570 Southwestern Community College District, California,
GO, Refunding, 5.25% due 8/01/2017 (b) 1,762
-------------------------------------------------------------------------------------------
3,200 Stockton, California, Public Financing Authority, Water
Revenue Bonds (Water System Capital Improvement
Projects), Series A, 5% due 10/01/2031 (b) 3,403
-------------------------------------------------------------------------------------------
1,500 Stockton, California, Redevelopment Agency, Revenue
Bonds (Stockton Events Center--Arena Project),
5% due 9/01/2028 (c) 1,573
-------------------------------------------------------------------------------------------
4,400 Tamalpais, California, Union High School District, GO
(Election of 2006), 5% due 8/01/2028 (b) 4,700
-------------------------------------------------------------------------------------------
13,025 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) 13,299
-------------------------------------------------------------------------------------------
6,655 Turlock, California, Public Finance Authority, Sewer
Revenue Bonds, Series A, 5% due 9/15/2033 (c) 7,023
-------------------------------------------------------------------------------------------
7,475 University of California, COP, Series A, 5.25%
due 11/01/2007 (a)(i) 7,656
-------------------------------------------------------------------------------------------
10,500 University of California, General Revenue Refunding
Bonds, Series A, 5% due 5/15/2027 (a) 11,055
-------------------------------------------------------------------------------------------
1,410 University of California Revenue Bonds, Series K,
5.25% due 9/01/2008 (c)(i) 1,464
-------------------------------------------------------------------------------------------
University of California Revenue Refunding Bonds:
16,000 (Multiple Purpose Projects), Series E, 5.125%
due 9/01/2020 (b) 16,307
8,800 Series F, 4.75% due 5/15/2024 (f) 9,132
-------------------------------------------------------------------------------------------
Vista, California, Unified School District, GO:
10,000 Series A, 5.25% due 8/01/2025 (f) 10,661
2,550 Series B, 5% due 8/01/2028 (c) 2,689
-------------------------------------------------------------------------------------------
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) 2,233
-------------------------------------------------------------------------------------------
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) 2,141
-------------------------------------------------------------------------------------------
West Contra Costa, California, Unified School
District, GO (f):
6,690 (Election of 2002), Series B, 5% due 8/01/2032 6,978
2,595 (Election of 2005), Series A, 5% due 8/01/2026 2,765
-------------------------------------------------------------------------------------------
3,145 Yorba Linda, California, Redevelopment Agency,
Redevelopment Project Tax Allocation Revenue Bonds
(Subordinate Lien), Series B, 5% due 9/01/2032 (a) 3,321
-------------------------------------------------------------------------------------------
10 BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006
Schedule of Investments (concluded) (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================
Puerto Rico--3.3%
-------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority, Power
Revenue Bonds:
$11,215 Series HH, 5.30% due 7/01/2020 (f) $ 11,867
7,880 Series NN, 5.125% due 7/01/2029 8,273
-------------------------------------------------------------------------------------------
Total Municipal Bonds
(Cost--$865,847)--147.3% 902,824
===========================================================================================
Municipal Bonds Held in Trust (n)
===========================================================================================
California--25.3%
-------------------------------------------------------------------------------------------
12,000 Contra Costa County, California, COP, Refunding
(Merrithew Memorial Hospital Project), 5.375%
due 11/01/2017 (b) 12,394
-------------------------------------------------------------------------------------------
7,165 La Quinta, California, Financing Authority, Local Agency
Revenue Bonds, Series A, 5.125% due 9/01/2034 (a) 7,644
-------------------------------------------------------------------------------------------
15,490 Peralta, California, Community College District, GO
(Election of 2000), Series D, 5% due 8/01/2035 (f) 16,520
-------------------------------------------------------------------------------------------
25,350 Port of Oakland, California, Revenue Refunding Bonds,
AMT, Series L, 5.375% due 11/01/2027 (c) 27,107
-------------------------------------------------------------------------------------------
34,260 Sacramento, California, Municipal Utility District
Financing Authority, Revenue Bonds (Consumers
Project), 5.125% due 7/01/2029 (b) 37,057
-------------------------------------------------------------------------------------------
10,000 San Diego County, California, Water Authority, Water
Revenue Refunding Bonds, COP, Series A, 5%
due 5/01/2032 (b) 10,526
-------------------------------------------------------------------------------------------
13,500 San Francisco, California, City and County Public Utilities
Commission, Water Revenue Refunding Bonds, Series A,
5% due 11/01/2032 (b) 14,225
-------------------------------------------------------------------------------------------
10,564 San Jose, California, Financing Authority, Lease Revenue
Refunding Bonds (Civic Center Project), Series B,
5% due 6/01/2032 (a) 10,985
-------------------------------------------------------------------------------------------
17,400 University of California, Limited Project Revenue Bonds,
Series B, 5% due 5/15/2033 (f) 18,443
-------------------------------------------------------------------------------------------
Total Municipal Bonds Held in Trust
(Cost--$152,246)--25.3% 154,901
===========================================================================================
Shares
Held Short-Term Securities
===========================================================================================
178 CMA California Municipal Money Fund,
4.34% (l)(m) 178
-------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$178)--0.0% 178
===========================================================================================
Total Investments (Cost--$1,018,271*)--172.6% 1,057,903
Other Assets Less Liabilities--3.0% 18,404
Liability for Trust Certificates,
Including Interest Expense Payable--(12.0%) (73,264)
Preferred Stock, at Redemption Value--(63.6%) (390,238)
----------
Net Assets Applicable to Common Stock--100.0% $ 612,805
==========
-------------------------------------------------------------------------------------------
* The cost and unrealized appreciation (depreciation) of investments as of
December 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost ............................................. $945,854
========
Gross unrealized appreciation .............................. $ 39,428
Gross unrealized depreciation .............................. (244)
--------
Net unrealized appreciation ................................ $ 39,184
========
(a) AMBAC Insured.
(b) MBIA Insured.
(c) FGIC Insured.
(d) FHA Insured.
(e) Represents 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 (2,269) $118
--------------------------------------------------------------------------
(m) Represents the current yield as of December 31, 2006.
(n) 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.
BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006 11
Statement of Net Assets
As of December 31, 2006
===================================================================================================================================
Assets
-----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$1,018,092,979) .................................................. $1,057,724,866
Investments in affiliated securities, at value (identified cost--$178,382) .......... 178,382
Cash ................................................................................ 97,614
Receivables:
Interest ......................................................................... $ 14,947,740
Securities sold .................................................................. 4,421,779 19,369,519
--------------
Prepaid expenses .................................................................... 4,126
--------------
Total assets ........................................................................ 1,077,374,507
--------------
===================================================================================================================================
Liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Trust certificates .................................................................. 72,864,500
Payables:
Investment adviser ............................................................... 454,514
Interest expense ................................................................. 399,307
Dividends to Common Stock shareholders ........................................... 259,998
Securities purchased ............................................................. 203,021
Other affiliates ................................................................. 9,596 1,326,436
--------------
Accrued expenses .................................................................... 140,414
--------------
Total liabilities ................................................................... 74,331,350
--------------
===================================================================================================================================
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) ...................................................... 390,238,101
--------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock ............................................... $ 612,805,056
==============
===================================================================================================================================
Analysis of Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.10 per share (40,874,458 shares issued and outstanding) ... $ 4,087,446
Paid-in capital in excess of par .................................................... 603,025,454
Undistributed investment income--net ................................................ $ 3,003,289
Accumulated realized capital losses--net ............................................ (36,943,020)
Unrealized appreciation--net ........................................................ 39,631,887
--------------
Total accumulated earnings--net ..................................................... 5,692,156
--------------
Total--Equivalent to $14.99 net asset value per share of Common Stock (market
price--$14.35) ..................................................................... $ 612,805,056
==============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
12 BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006
Statement of Operations
For the Six Months Ended December 31, 2006
===================================================================================================================================
Investment Income
-----------------------------------------------------------------------------------------------------------------------------------
Interest ............................................................................ $ 25,348,470
Dividends from affiliates ........................................................... 118,399
--------------
Total income ........................................................................ 25,466,869
--------------
===================================================================================================================================
Expenses
-----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................................ $ 2,748,541
Interest expense and fees ........................................................... 1,470,615
Commission fees ..................................................................... 499,217
Accounting services ................................................................. 136,809
Transfer agent fees ................................................................. 45,751
Professional fees ................................................................... 31,326
Printing and shareholder reports .................................................... 28,315
Custodian fees ...................................................................... 23,701
Directors' fees and expenses ........................................................ 18,946
Pricing fees ........................................................................ 14,895
Listing fees ........................................................................ 12,662
Other ............................................................................... 34,612
--------------
Total expenses before waiver and reimbursement ...................................... 5,065,390
Waiver and reimbursement of expenses ................................................ (190,655)
--------------
Total expenses after waiver and reimbursement ....................................... 4,874,735
--------------
Investment income--net .............................................................. 20,592,134
--------------
===================================================================================================================================
Realized & Unrealized Gain--Net
-----------------------------------------------------------------------------------------------------------------------------------
Realized gain on:
Investments--net ................................................................. 4,513,425
Financial futures contracts--net ................................................. 67,742 4,581,167
--------------
Change in unrealized appreciation on investments--net ............................... 19,102,295
--------------
Total realized and unrealized gain--net ............................................. 23,683,462
--------------
===================================================================================================================================
Dividends to Preferred Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................................. (6,055,267)
--------------
Net Increase in Net Assets Resulting from Operations ................................ $ 38,220,329
==============
See Notes to Financial Statements.
BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006 13
Statements of Changes in Net Assets (As Restated for the Year Ended 2006. See
Note 7)
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2006 2006
===================================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................................. $ 20,592,134 $ 42,866,890
Realized gain--net .................................................................. 4,581,167 9,043,072
Change in unrealized appreciation--net .............................................. 19,102,295 (43,525,670)
Dividends to Preferred Stock shareholders ........................................... (6,055,267) (10,285,335)
-------------------------------
Net increase (decrease) in net assets resulting from operations ..................... 38,220,329 (1,901,043)
-------------------------------
===================================================================================================================================
Dividends to Common Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................................. (15,642,752) (37,217,450)
-------------------------------
Net decrease in net assets resulting from dividends to Common Stock shareholders .... (15,642,752) (37,217,450)
-------------------------------
===================================================================================================================================
Capital Stock Transactions
-----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets derived from capital stock transactions .................. 823,539 2,413,582
-------------------------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets applicable to Common Stock .................. 23,401,116 (36,704,911)
Beginning of period ................................................................. 589,403,940 626,108,851
-------------------------------
End of period* ...................................................................... $ 612,805,056 $ 589,403,940
===============================
* Undistributed investment income--net ........................................... $ 3,003,289 $ 4,109,174
===============================
See Notes to Financial Statements.
14 BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006
Financial Highlights
(As Restated for the Years Ended 2006, 2005, 2004, 2003 and 2002. See Note 7)
For the Six
Months Ended For the Year Ended June 30,
The following per share data and ratios have been derived December 31, -------------------------------------------------------
from information provided in the financial statements. 2006 2006 2005 2004 2003 2002
===================================================================================================================================
Per Share Operating Performance
-----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................... $ 14.44 $ 15.40 $ 14.73 $ 15.53 $ 14.82 $ 14.46
--------------------------------------------------------------------
Investment income--net**** .............................. .50 1.05 1.07 1.05 1.09 1.10
Realized and unrealized gain (loss)--net ................ .58 (.85) .69 (.84) .63 .30
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net ............................... (.15) (.25) (.14) (.08) (.10) (.15)
Realized gain--net ................................... -- -- -- -- -- --+
--------------------------------------------------------------------
Total from investment operations ........................ .93 (.05) 1.62 .13 1.62 1.25
--------------------------------------------------------------------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net ............................... (.38) (.91) (.95) (.93) (.91) (.89)
Realized gain--net ................................... -- -- -- -- -- --+
--------------------------------------------------------------------
Total dividends and distributions to Common Stock
shareholders ........................................... (.38) (.91) (.95) (.93) (.91) (.89)
--------------------------------------------------------------------
Net asset value, end of period .......................... $ 14.99 $ 14.44 $ 15.40 $ 14.73 $ 15.53 $ 14.82
====================================================================
Market price per share, end of period ................... $ 14.35 $ 13.94 $ 14.97 $ 13.36 $ 14.85 $ 14.19
====================================================================
===================================================================================================================================
Total Investment Return***
-----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...................... 6.53%++ (.29%) 11.56% 1.28% 11.60% 9.10%
====================================================================
Based on market price per share ......................... 5.64%++ (.98%) 19.56% (3.93%) 11.45% 14.61%
====================================================================
===================================================================================================================================
Ratios Based on Average Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver and reimbursement and
excluding reorganization and interest expenses** ....... 1.12%* 1.10% 1.11% 1.10% 1.11% 1.14%
====================================================================
Total expenses, net of waiver and reimbursement and
excluding reorganization expenses** .................... 1.60%* 1.35% 1.16% 1.17% 1.29% 1.33%
====================================================================
Total expenses, excluding reorganization expenses** ..... 1.67%* 1.41% 1.22% 1.24% 1.31% 1.40%
====================================================================
Total expenses** ........................................ 1.67%* 1.41% 1.22% 1.24% 1.31% 1.42%
====================================================================
Total investment income--net ............................ 6.77%* 7.01% 6.99% 6.87% 7.09% 7.41%
====================================================================
Amount of dividends to Preferred Stock shareholders ..... 1.99%* 1.68% .93% .53% .65% 1.02%
====================================================================
Investment income--net, to Common Stock shareholders .... 4.78%* 5.33% 6.06% 6.34% 6.44% 6.39%
====================================================================
===================================================================================================================================
Ratios Based on Average Net Assets Applicable to Preferred
Stock
-----------------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders ............... 3.10%* 2.62% 1.48% .85% 1.03% 1.57%
====================================================================
===================================================================================================================================
Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock, end of period
(in thousands) ......................................... $612,805 $589,404 $626,109 $598,908 $631,571 $602,571
====================================================================
Preferred Stock outstanding at liquidation preference,
end of period (in thousands) .......................... $390,000 $390,000 $390,000 $390,000 $390,000 $390,000
====================================================================
Portfolio turnover ...................................... 21% 34% 47% 35% 25% 38%
====================================================================
===================================================================================================================================
Leverage
-----------------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 ............................... $ 2,571 $ 2,511 $ 2,605 $ 2,536 $ 2,619 $ 2,545
====================================================================
===================================================================================================================================
Dividends Per Share on Preferred Stock Outstanding
-----------------------------------------------------------------------------------------------------------------------------------
Series A--Investment income--net ........................ $ 382 $ 641 $ 347 $ 195 $ 253 $ 362
====================================================================
Series B--Investment income--net ........................ $ 396 $ 671 $ 391 $ 216 $ 269 $ 400
====================================================================
Series C--Investment income--net ........................ $ 389 $ 662 $ 373 $ 218 $ 248 $ 375
====================================================================
Series D--Investment income--net ........................ $ 381 $ 653 $ 351 $ 210 $ 255 $ 400
====================================================================
Series E--Investment income--net ........................ $ 388 $ 659 $ 369 $ 213 $ 262 $ 408
====================================================================
* Annualized.
** Do not reflect the effect of dividends to Preferred Stock shareholders.
*** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effect of sales
charges.
**** Based on average shares outstanding.
+ Amount is less than $(.01) per share.
++ Aggregate total investment return.
See Notes to Financial Statements.
BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006 15
Notes to Financial Statements
1. Significant Accounting Policies:
On September 29, 2006, MuniHoldings California Insured Fund, Inc. was renamed
BlackRock MuniHoldings California Insured Fund, Inc. (the "Fund"). The Fund is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company. The Fund's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period. All
such adjustments are of a normal, recurring nature. The Fund determines and
makes available for publication the net asset value of its Common Stock on a
daily basis. The Fund's Common Stock shares are listed on the New York Stock
Exchange under the symbol MUC. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values as obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the general direction
of the Board of Directors. Such valuations and procedures are reviewed
periodically by the Board of Directors of the Fund. Financial futures contracts
and options thereon, which are traded on exchanges, are valued at their closing
prices as of the close of such exchanges. Options written or purchased are
valued at the last sale price in the case of exchange-traded options. Options
traded in the OTC market are valued at 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 financial futures contracts.
Financial futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield.
Upon entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed.
o Options -- The Fund may write covered call options and purchase put
options. When the Fund writes an option, an amount equal to the premium
received by the Fund is reflected as an asset and an equivalent liability.
The amount of the liability is subsequently marked-to-market to reflect
the current market value of the option written. When a security is
purchased or sold through an exercise of an option, the related premium
paid (or received) is added to (or deducted from) the basis of the
security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent
of the premiums received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Forward interest rate swaps -- The Fund may enter into forward interest
rate swaps. In a forward interest rate swap, the Fund and the counterparty
agree to make net periodic payments on a specified notional contract
amount, commencing on a specified future effective date,
16 BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006
Notes to Financial Statements (continued)
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.
o Swaps -- The Fund may enter into swap agreements, which are OTC contracts
in which the Fund and a counterparty agree to make periodic net payments
on a specified notional amount. The net payments can be made for a set
period of time or may be triggered by a pre-determined credit event. The
net periodic payments may be based on a fixed or variable interest rate;
the change in market value of a specified security, basket of securities
or index; or the return generated by a security. These periodic payments
received or made by the Fund are recorded in the accompanying Statement of
Operations as realized gains or losses, respectively. Gains or losses are
also realized upon termination of the swap agreements. Swaps are
marked-to-market daily and changes in value are recorded as unrealized
appreciation (depreciation). Risks include changes in the returns of the
underlying instruments, failure of the counterparties to perform under the
contracts' terms and the possible lack of liquidity with respect to the
swap agreements.
(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 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 December 31, 2006, the aggregate value of the underlying municipal
securities transferred to TOBs was $154,901,382, the related liability for trust
certificates was $72,864,500 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.
BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006 17
Notes to Financial Statements (continued)
(g) Recent accounting pronouncements -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109."
FIN 48 prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity including mutual funds before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
the last net asset value calculation in the first required financial statement
reporting period for fiscal years beginning after December 15, 2006. The impact
on the Fund's financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the implication of
FAS 157. At this time its impact on the Fund's financial statements has not been
determined.
2. Investment Advisory Agreement and Transactions with Affiliates:
On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill
Lynch") combined Merrill Lynch's investment management business, Merrill Lynch
Investment Managers, L.P. ("MLIM") and its affiliates, including Fund Asset
Management, L.P. ("FAM"), with BlackRock, Inc. to create a new independent
company. Merrill Lynch has a 49.8% economic interest and a 45% voting interest
in the combined company and The PNC Financial Services Group, Inc., has
approximately a 34% economic and voting interest. The new company operates under
the BlackRock name and is governed by a board of directors with a majority of
independent members.
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. Prior to September 29, 2006, FAM was the
Fund's Manager. The general partner of FAM is Princeton Services, Inc. ("PSI"),
an indirect, wholly owned subsidiary of Merrill Lynch, which is the limited
partner.
The Manager 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. The Manager
(and previously FAM) has agreed to waive its management fee on the proceeds of
Preferred Stock that exceeds 35% of the Fund's total net assets. For the period
July 1, 2006 to September 29, 2006, FAM earned fees of $1,358,540, of which
$91,218 was waived and for the period September 30, 2006 to December 31, 2006,
the Manager earned fees of $1,390,001, of which $83,319 was waived. In addition,
the Manager (and previously FAM) has agreed to reimburse its advisory fee by the
amount of advisory fees the Fund pays to the Manager (and previously FAM)
indirectly through its investment in CMA California Municipal Money Fund. For
the period July 1, 2006 to September 29, 2006, FAM reimbursed the Fund in the
amount of $9,748 and for the period September 30, 2006 to December 31, 2006, the
Manager reimbursed the Fund in the amount of $6,370.
In addition, the Manager has entered into a sub-advisory agreement with
BlackRock Investment Management, LLC, an affiliate of the Manager, under which
the Manager pays the Sub-Adviser for services it provides a monthly fee that is
a percentage of the management fee paid by the Fund to the Manager.
For the six months ended December 31, 2006, the Fund reimbursed FAM and the
Manager $5,033 and $5,033, respectively, for certain accounting services.
Prior to September 29, 2006, certain officers and/or directors of the Fund were
officers and/or directors of FAM, MLIM, PSI, and/or Merrill Lynch.
Commencing September 29, 2006, certain officers and/or directors of the Fund are
officers and/or directors of BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended December 31, 2006 were $225,165,825 and $226,187,557, respectively.
18 BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006
Notes to Financial Statements (continued)
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of stock, including Preferred
Stock, par value $.10 per share, all of which were initially classified as
Common Stock. The Board of Directors is authorized, however, to reclassify any
unissued shares of stock without approval of holders of Common Stock.
Common Stock
Shares issued and outstanding during the six months ended December 31, 2006 and
the year ended June 30, 2006 increased by 54,952 and 162,205, respectively, as a
result of dividend reinvestment.
Preferred Stock
Auction Market Preferred Stock are shares of Preferred Stock of the Fund, with a
par value of $.10 per share and a liquidation preference of $25,000 per share
that entitle their holders to receive cash dividends at an annual rate that may
vary for the successive dividend periods. The yields in effect at December 31,
2006 were: Series A, 3.70%; Series B, 3.70%; Series C, 4%; Series D, 4.05%; and
Series E, 3.95%.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of each
auction. For the six months ended December 31, 2006, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an affiliate of the Manager, earned $131,969 as
commissions.
5. Capital Loss Carryforward:
On June 30, 2006, the Fund had a net capital loss carryforward of $36,404,870,
of which $615,931 expires in 2007, $7,894,678 expires in 2008, $24,786,894
expires in 2009 and $3,107,367 expires in 2012. This amount will be available to
offset like amounts of any future taxable gains.
6. Subsequent Event:
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of $.058000 per share on February 1, 2007 to shareholders of record on
January 16, 2007.
7. Restatement Information:
During the six months ended December 31, 2006, 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 that these
transfers should have been accounted for as secured borrowings rather than as
sales. Accordingly, the Fund has restated the statement of changes in net assets
for the year ended June 30, 2006 and the financial highlights for the years
ended June 30, 2006, 2005, 2004, 2003 and 2002. 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 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 Changes in Net Assets for the Year Ended June 30, 2006
--------------------------------------------------------------------------------
Previously
Reported Restated
--------------------------------------------------------------------------------
Realized gain--net ............... $ 9,623,905 $ 9,043,072
Change in unrealized
appreciation--net .............. $(44,106,503) $(43,525,670)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Financial Highlights
For the Years Ended June 30, 2006, 2005, 2004, 2003 and 2002
--------------------------------------------------------------------------------
2006 2005 2004 2003 2002
-------------------- --------------------- -------------------- -------------------- --------------------
Previously Previously Previously Previously Previously
Reported Restated Reported Restated 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% 1.11% 1.29% 1.14% 1.33%
Total expenses,
excluding
reorganization
expenses** .......... 1.16% 1.41% 1.17% 1.22% 1.17% 1.24% 1.17% 1.31% 1.20% 1.40%
Total expenses** ...... 1.16% 1.41% 1.17% 1.22% 1.17% 1.24% 1.17% 1.31% 1.22% 1.42%
Portfolio turnover .... 45.46% 34% 48.42% 47% 35.59% 35% 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, 2006, 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.
BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006 19
Notes to Financial Statements (concluded)
The Statements of Operations for the years ended June 30, 2006, 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 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, 2005, 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.
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.
Proxy Results
During the six-month period ended December 31, 2006, BlackRock MuniHoldings
California Insured Fund, Inc.'s shareholders voted on the following proposals,
which were approved at a special shareholders' meeting on August 15, 2006. A
description of the proposals and number of shares voted were as follows:
----------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
----------------------------------------------------------------------------------------------
To approve a new investment advisory agreement
with BlackRock Advisors, Inc. 20,028,763 547,596 1,467,209
----------------------------------------------------------------------------------------------
To approve a contingent subadvisory agreement
with BlackRock Advisors, Inc. 20,000,336 551,762 1,491,471
----------------------------------------------------------------------------------------------
20 BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006
Disclosure of Investment Advisory Agreement
BlackRock Investment Advisory Agreement -- Matters Considered by the Board
The following disclosure appeared in the June 30, 2006 Annual Report of the Fund
and is the discussion referred to in "New BlackRock Sub-Advisory Agreement --
Matters Considered by the Board" below. The term "Investment Adviser" as used
herein refers to Fund Asset Management, L.P.
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.
BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006 21
Disclosure of Investment Advisory Agreement (continued)
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;
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
22 BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006
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 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.
BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006 23
Disclosure of Investment Advisory Agreement (concluded)
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 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 heir 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.
24 BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006
Contingent BlackRock Sub-Advisory 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 sub-advisory agreement (the "Contingent Sub-Advisory
Agreement") between the Investment Adviser and BlackRock Advisors (the
"BlackRock Sub-Adviser"). The Contingent Sub-Advisory 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
Sub-Adviser assist in managing the operations of the Fund during the interim
period until the closing of the Transaction. If shareholders approve the
Contingent Sub-Advisory 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
Sub-Advisory Agreement, therefore, would be contingent on further Board approval
after shareholders approve it. Pursuant to the Contingent Sub-Advisory
Agreement, the BlackRock Sub-Adviser 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 Sub-Adviser out of its
own resources. There would be no increase in Fund expenses as a result of the
Contingent Sub-Advisory Agreement.
In making its approval at the May in-person meeting, the Board considered the
Contingent Sub-Advisory 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 Sub-Advisory Agreement the necessity of ensuring
that the Fund operate with effective management services until the closing of
the Transaction. In reviewing the sub-advisory fee rate provided in the
Contingent Sub-Advisory Agreement, the Board took note of the fact that both the
Investment Adviser and the BlackRock Sub-Adviser 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 Sub-Adviser would provide advisory services to
the Fund under the Contingent Sub-Advisory Agreement. The Board also took into
account the expected short duration of the term of any Contingent Sub-Advisory
Agreement and the fact that total advisory fees paid by the Fund would not
increase as a result of the Contingent Sub-Advisory Agreement. Under all of the
circumstances, the Board concluded that it was a reasonable allocation of fees
for the BlackRock Sub-Adviser 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 Sub-Advisory
Agreement, concluding that the advisory fee was reasonable in relation to the
services provided and that the Contingent Sub-Advisory Agreement was in the best
interests of shareholders.
BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006 25
Disclosure of Sub-Advisory Agreement
New BlackRock Sub-Advisory Agreement -- Matters Considered by the Board
At an in-person meeting held on August 22-23, 2006, the Board of Directors,
including the independent directors, discussed and approved the sub-advisory
agreement with respect to the Fund between BlackRock Advisors, LLC (previously
organized as BlackRock Advisors, Inc.) ("BlackRock Advisors") and its affiliate,
BlackRock Investment Management, LLC (the "Sub-Adviser") (the "BlackRock
Sub-Advisory Agreement"). The BlackRock Sub-Advisory Agreement became effective
on September 29, 2006, at the same time the New Investment Advisory Agreement
with BlackRock Advisors (which had been approved by the Fund's shareholders)
became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors at an annual rate equal to 59% of the
advisory fee received by BlackRock Advisors from the Fund. BlackRock Advisors
pays the Sub-Adviser out of its own resources, and there is no increase in Fund
expenses as a result of the BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, the Board reviewed its considerations in connection with its approval
of the New Investment Advisory Agreement in May 2006. The Board relied on the
same information and considered the same factors as those discussed above in
connection with the approval of the New Investment Advisory Agreement, and came
to the same conclusions. In reviewing the sub-advisory fee rate provided for in
the BlackRock Sub-Advisory Agreement, the Board noted the fact that both
BlackRock Advisors and the Sub-Adviser have significant responsibilities under
their respective advisory agreements. Under the New Investment Advisory
Agreement, BlackRock Advisors remains responsible for the overall management of
the Fund and for oversight of the Fund's operations and administration. Under
the BlackRock Sub-Advisory Agreement, the Sub-Adviser provides advisory services
to the Fund and is responsible for the day-to-day management of the Fund's
portfolio. The Board also took into account the fact that there is no increase
in total advisory fees paid by the Fund as a result of the BlackRock
Sub-Advisory Agreement. Based on its considerations, the Board concluded that it
was a reasonable allocation of fees for the Sub-Adviser to receive a fee at an
annual rate equal to 59% of the advisory fee paid by the Fund to BlackRock
Advisors.
After the independent directors deliberated in executive session, the entire
Board, including the independent directors, approved the BlackRock Sub-Advisory
Agreement, concluding that the sub-advisory fee was reasonable in relation to
the services provided and that the BlackRock Sub-Advisory Agreement was in the
best interests of the Fund's shareholders.
26 BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their nonpublic personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any nonpublic
personal information about its Clients, except as permitted by law or as is
necessary to service Client accounts. These nonaffiliated third parties are
required to protect the confidentiality and security of this information and to
use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to nonpublic
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the nonpublic
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
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
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial advisor. Please note that not all investment
advisers, banks or brokerages may offer this service.
BLACKROCK MUNIHOLDINGS CALIFORNIA INSURED FUND, INC. DECEMBER 31, 2006 27
BlackRock 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 BlackRock 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 1-800-441-7762; (2) at
www.blackrock.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.blackrock.com and (2) on the Securities
and Exchange Commission's Web site at http://www.sec.gov.
BlackRock MuniHoldings California Insured Fund, Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
BLACKROCK
# HOLDCA-12/06
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this
semi-annual report
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-annual
report
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - as
of December 31, 2006
(a)(1) BlackRock MuniHoldings California Insured Fund, Inc. is managed
by a team of investment professionals comprised of Theodore R. Jaeckel,
Jr., CFA, Managing Director at BlackRock, and Walter O'Connor, Managing
Director at BlackRock. Each is a member of BlackRock's municipal
tax-exempt management group. Mr. Jaeckel and Mr. O'Connor are
responsible for setting the Fund's overall investment strategy and
overseeing the management of the Fund. Mr. O'Connor is also the Fund's
lead portfolio manager and is responsible for the day-to-day management
of the Fund's portfolio and the selection of its investments. Mr.
Jaeckel has been a member of the Fund's management team since 2006 and
Mr. O'Connor has been the Fund's portfolio manager since 1997.
Mr. Jaeckel joined BlackRock in 2006. Prior to joining BlackRock, he
was a Managing Director (Municipal Tax-Exempt Fund Management) of
Merrill Lynch Investment Managers, L.P. ("MLIM") from 2005 to 2006 and
a Director of MLIM from 1997 to 2005. He has been a portfolio manager
with BlackRock or MLIM since 1991.
Mr. O'Connor joined BlackRock in 2006. Prior to joining BlackRock, he
was a Managing Director (Municipal Tax-Exempt Fund Management) of MLIM
from 2003 to 2006 and was a Director of MLIM from 1997 to 2002. He has
been a portfolio manager with BlackRock or MLIM since 1991.
(a)(2) As of December 31, 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 Other
(i) Name Registered Pooled Registered Other Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
--------- ---------
Theodore R.
Jaeckel, Jr. 80 0 0 0 1 0
$28,671,262,727 $ 0 $ 0 $ 0 $ 24,560,023 $ 0
Walter O'Connor 80 0 0 0 0 0
$28,671,262,727 $ 0 $ 0 $ 0 $ 0 $ 0
(iv) Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide
compliance culture and compliance procedures and systems designed to
protect against potential incentives that may favor one account over
another. BlackRock has adopted policies and procedures that address the
allocation of investment opportunities, execution of portfolio
transactions, personal trading by employees and other potential
conflicts of interest that are designed to ensure that all client
accounts are treated equitably over time. Nevertheless, BlackRock
furnishes investment management and advisory services to numerous
clients in addition to the Fund, and BlackRock may, consistent with
applicable law, make investment recommendations to other clients or
accounts (including accounts which are hedge funds or have performance
or higher fees paid to BlackRock, or in which portfolio managers have a
personal interest in the receipt of such fees), which may be the same
as or different from those made to the Fund. In addition, BlackRock,
its affiliates and any officer, director, stockholder or employee may
or may not have an interest in the securities whose purchase and sale
BlackRock recommends to the Fund. BlackRock, or any of its affiliates,
or any officer, director, stockholder, employee or any member of their
families may take different actions than those recommended to the Fund
by BlackRock with respect to the same securities. Moreover, BlackRock
may refrain from rendering any advice or services concerning securities
of companies of which any of BlackRock's (or its affiliates') officers,
directors or employees are directors or officers, or companies as to
which BlackRock or any of its affiliates or the officers, directors and
employees of any of them has any substantial economic interest or
possesses material non-public information. Each portfolio manager also
may manage accounts whose investment strategies may at times be opposed
to the strategy utilized for the Fund. In this connection, it should be
noted that certain portfolio managers currently manage certain accounts
that are subject to performance fees. In addition, certain portfolio
managers assist in managing certain hedge funds and may be entitled to
receive a portion of any incentive fees earned on such funds and a
portion of such incentive fees may be voluntarily or involuntarily
deferred. Additional portfolio managers may in the future manage other
such accounts or funds and may be entitled to receive incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and
must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated in a
manner consistent with its fiduciary duties. BlackRock attempts to
allocate investments in a fair and equitable manner among client
accounts, with no account receiving preferential treatment. To this
end, BlackRock has adopted a policy that is intended to ensure that
investment opportunities are allocated fairly and equitably among
client accounts over time. This policy also seeks to achieve reasonable
efficiency in client transactions and provide BlackRock with sufficient
flexibility to allocate investments in a manner that is consistent with
the particular investment discipline and client base.
(a)(3) As of December 31, 2006:
Portfolio Manager Compensation
Compensation Program
The elements of total compensation for portfolio managers on
BlackRock's municipal team include a fixed base salary, annual
performance-based cash and stock compensation (cash and stock bonus)
and other benefits. BlackRock has balanced these components of pay to
provide these portfolio managers with a powerful incentive to achieve
consistently superior investment performance. By design, compensation
levels for these portfolio managers fluctuate--both up and down--with
the relative investment performance of the portfolios that they manage.
Base compensation
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
BlackRock 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, BlackRock and its
affiliates portfolio manager incentive compensation is based on a
formulaic compensation program. BlackRock'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. All factors are considered
collectively by BlackRock management.
Long-Term Retention and Incentive Plan (LTIP)
The LTIP is a long-term incentive plan that seeks to reward
certain key employees. The plan provides for the grant of awards that
are expressed as an amount of cash that, if properly vested and subject
to the attainment of certain performance goals, will be settled in cash
and/or in BlackRock, Inc. common stock.
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 BlackRock
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
BlackRock stock price performance. As such, the stock bonus aligns each
portfolio manager's financial interests with those of the BlackRock
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 BlackRock'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
BlackRock 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
BlackRock 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 BlackRock and its
affiliates, including broad-based retirement, 401(k), health, and other
employee benefit plans.
(a)(4) Beneficial Ownership of Securities. As of December 31, 2006,
Messrs. Jaeckel and O'Connor do 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 February,
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 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 adjustments to 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.
Prior to the 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 December 31, 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 December 31, 2006, including
prior periods where applicable, were adjusted prior to being issued to
appropriately reflect transfers of such securities as secured borrowings
and to report the related income and expense. These adjustments had no
impact on net assets, net asset value per share or total return.
Prior to the evaluation of the design and operation of the Registrant's
disclosure controls and procedures at February, 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, as of
February 2007, the Registrant has enhanced controls related to the
application of SFAS 140.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
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: February 20, 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: February 20, 2007
By: /s/ Donald C. Burke
----------------------------------------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock MuniHoldings California Insured Fund, Inc.
Date: February 20, 2007